UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 8, 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
March 31, 1995 (Unaudited) and December 31, 1994 . . . . . . 4
Consolidated Statements of Changes in Stockholders'
Equity for the Three Months Ended March 31, 1995
(Unaudited) and the Year Ended December 31, 1994 . . . . . . 5
Consolidated Statements of Operation for the Three
Months Ended March 31, 1995 and 1994 (Unaudited) . . . . . . 6
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1995 and 1994 (Unaudited) . . . . . . 7
Notes to Consolidated Financial Statements (Unaudited) . . . . 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended March 31, 1995 . . . . . . . . . . . . . . . . .13
PART II: OTHER INFORMATION
Item 1: Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . .18
Item 2: Changes in Securities. . . . . . . . . . . . . . . . . . . . .18
Item 3: Defaults Upon Senior Securities. . . . . . . . . . . . . . . .18
Item 4: Submission of Matters to a Vote of Security Holders. . . . . .18
Item 5: Other Information. . . . . . . . . . . . . . . . . . . . . . .18
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .18
<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
March 31, 1995 and the related consolidated statement of changes in
stockholders' equity for the three months ended March 31, 1995 and the
consolidated statements of operation for the three months ended March 31, 1995
and 1994 and consolidated statements of cash flows for the three months ended
March 31, 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
May 5, 1995
<PAGE>
<TABLE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 5,649,575 $ 6,044,795
Short-term interest-bearing deposits 238,028 315,861
Federal funds sold 1,824,392 1,592,588
Investment securities (approximate market value
of $5,040,347 in 1995 and $4,839,097 in 1994) 5,152,847 5,064,097
Mortgage-backed securities available for sale
(at approximate market value) 29,842,593 29,781,620
Mortgage-backed securities (approximate market
value of $10,765,375 in 1995, and $10,814,726
in 1994) 10,839,776 11,222,245
Loans receivable, net 137,468,618 135,553,111
Real estate owned held for sale, net 7,580,154 6,450,058
Federal Home Loan Bank of Atlanta stock 1,700,000 1,900,000
Office properties and equipment, net 4,074,575 4,035,817
Prepaid expenses and other assets 4,595,658 4,556,557
------------ ------------
TOTAL ASSETS $208,966,216 $206,516,749
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Savings accounts $157,349,822 $151,202,667
Advances from the Federal Home Loan Bank
of Atlanta 33,162,149 38,184,372
Advances by borrowers for taxes and insurance 923,209 611,990
Other liabilities 1,816,698 1,818,095
------------ ------------
TOTAL LIABILITIES $193,251,878 $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 (897,612) (1,531,298)
Retained income-substantially restricted 6,189,834 5,808,807
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 15,714,338 $ 14,699,625
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $208,966,216 $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 633,686 633,686
Net Income,
1995 381,027 381,027
---------- ---------- --------- ---------- -----------
Balance,
March 31,
1995
(Unaudited) $2,519,010 $7,903,106 $(897,612) $6,189,834 $15,714,338
========== ========== ========= ========== ===========
<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>
Three Months Ended
March 31,
--------------------
1995 1994
---- ----
<S> <C> <C>
INTEREST INCOME
Interest on loans receivable $3,075,515 $2,857,727
Interest on mortgage-backed securities 610,064 485,832
Interest or dividends on investment securities 123,838 27,953
Other interest income 48,449 104,796
---------- ----------
Total Interest Income $3,857,866 $3,476,308
---------- ----------
INTEREST EXPENSE
Interest on savings $1,477,126 $1,267,673
Interest on advances from the Federal Home
Loan Bank of Atlanta 575,352 387,309
Interest on other borrowings -- 546
---------- ----------
Total Interest Expense $2,052,478 $1,655,528
---------- ----------
NET INTEREST INCOME $1,805,388 $1,820,780
PROVISION FOR POSSIBLE LOAN LOSSES -- --
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES $1,805,388 $1,820,780
---------- ----------
OTHER INCOME
Loan fees $ 96,282 $ 155,636
Gains on sales of mortgage loans 4,077 58,990
Other 320,171 288,818
---------- ----------
Total Other Income $ 420,530 $ 503,444
---------- ----------
OTHER EXPENSES
Employee compensation and benefits $ 821,540 $ 712,154
Occupancy and equipment 393,343 375,417
Advertising and promotion 60,300 41,622
Provision for losses on real estate owned held
for sale 130,000 204,000
Recoveries on real estate held for development
and sale or rental -- (22,495)
Real estate owned operations, net and impaired
loan expenses 14,515 61,222
Federal insurance premiums 107,828 107,288
Other 321,165 402,847
---------- ----------
Total Other Expenses $1,848,691 $1,882,055
---------- ----------
INCOME BEFORE INCOME TAXES $ 377,227 $ 442,169
PROVISION FOR (BENEFIT FROM) INCOME TAXES (3,800) 102,650
---------- ----------
NET INCOME $ 381,027 $ 339,519
========== ==========
EARNINGS PER SHARE $ 0.15 $ 0.13
========== ==========
<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> Three Months Ended
March 31,
------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 381,027 $ 339,519
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 156,920 138,417
Provision for losses on real estate
owned held for sale 130,000 204,000
(Recovery) on real estate held for
development and sale or rental -- (22,495)
Amortization of intangible assets 29,585 29,585
(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 -- 178,281
(Increase) in prepaids and other assets (488,914) (53,972)
Origination of loans receivable originated for sale -- (1,898,050)
Proceeds from sale of loans receivable originated
for sale 40,000 3,492,127
Increase (decrease) in other liabilities (1,397) 57,633
Increase (decrease) in deferred fee income and
unearned discounts on loans receivable 96,201 (24,891)
Gains on sales of mortgage loans (4,077) (58,990)
Other, net (34,140) (28,169)
--------- ----------
Net cash provided by operating activities $ 305,205 $2,350,135
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of Federal Home
Loan Bank stock $ 300,000 $ 1,283,500
Purchase of Federal Home Loan Bank stock (100,000) --
Net decrease (increase) in loans receivable (3,441,274) 136,415
Purchase of mortgage-backed securities
available for sale -- (13,314,627)
Principal collections from mortgage-backed
securities available for sale 927,667 2,613,673
Principal collections from mortgage-backed
securities held to maturity 370,910 390,010
Proceeds from sale of real estate owned held
for sale 401,908 658,355
Net (increase) in real estate owned held for sale (281,861) (178,401)
Purchase of office property and equipment (182,178) (127,425)
----------- -----------
Net cash (used in) investing activities $(2,004,828) $(8,538,500)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in savings accounts $ 6,147,155 $ 1,147,833
Payments at maturity of other FHLB advances (25,000,000) (3,000,000)
Proceeds from other FHLB advances 20,000,000 2,000,000
Net (decrease) in other borrowings -- (92,192)
Net increase in advances for taxes and insurance 311,219 228,678
----------- -----------
Net cash provided by financing activities $ 1,458,374 $ 284,319
----------- -----------
Net (decrease) in cash and cash equivalents $ (241,249) $(5,904,046)
Beginning cash and cash equivalents 7,953,244 21,086,201
----------- -----------
Ending cash and cash equivalents $ 7,711,995 $15,182,155
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 2,062,662 $ 1,663,115
Income taxes $ 17,150 $ 257,100
Loans originated on sale of real estate
owned held for sale $ 550,000 $ --
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 $ (633,686) $ 546,291
<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
March 31, 1995, and the results of operations for the three months ended March
31, 1995 and 1994 and cash flows for the three months ended March 31, 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>
March 31, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Real Estate Loans:
Residential $ 80,854,683 $ 77,994,048
Commercial 19,437,789 20,588,201
Construction 24,642,385 26,072,263
------------ ------------
$124,934,857 $124,654,512
Less:
Loans in process (6,273,639) (7,350,158)
Allowances for possible loan losses (4,477,239) (4,879,682)
Deferred fee income and
unearned discounts (641,780) (564,707)
------------ ------------
Total Real Estate Loans $113,542,199 $111,859,965
------------ ------------
Consumer Loans $ 22,276,171 $ 22,075,811
Less:
Loans in process (397) (397)
Allowances for possible loan losses (754,031) (761,521)
Unearned discounts (46,017) (26,888)
------------ ------------
Total Consumer Loans $ 21,475,726 $ 21,287,005
------------ ------------
Commercial Business Loans $ 1,580,107 $ 1,593,131
------------ ------------
Accrued Interest Receivable $ 870,586 $ 813,010
------------ ------------
Total Loans Receivable, net $137,468,618 $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 or
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 March 31,
1995 and 1994 and December 31, 1994 is as follows:
<TABLE>
<CAPTION>
March 31,
------------------- December 31,
1995 1994 1994
---- ---- ------------
<S> <C> <C> <C>
Non-Performing Loans:
Non-Accrual Loans:
Real Estate Loans:
Residential $ 551,951 $ 1,742,509 $ 498,812
Commercial 37,946 1,119,200 38,579
Construction -- 1,672,123 --
Consumer and Commercial
Loans 84,900 274,872 87,782
----------- ----------- -----------
Total Non-Accrual
Loans $ 674,797 $ 4,808,704 $ 625,173
----------- ----------- -----------
Impaired Loans:
Real Estate Loans:
Residential $ 2,964,185 $ 4,668,974 $ 4,080,899
Commercial 3,192,452 3,920,313 4,919,359
Construction 9,656,304 4,641,564 6,292,623
Consumer and Commercial
Loans 127,300 242,300 242,300
----------- ----------- -----------
Total Impaired Loans $15,940,241 $13,473,151 $15,535,181
----------- ----------- -----------
Total Non-Performing
Loans $16,615,038 $18,281,855 $16,160,354
=========== =========== ===========
<CAPTION>
An analysis of the allowances for possible loan losses follows:
Real Estate Loans
-------------------------------------------
Three Months Ended March 31, Year Ended
---------------------------- December 31,
1995 1994 1994
---------- ---------- ------------
<S> <C> <C> <C>
Beginning Balance $4,879,682 $5,575,336 $5,575,336
Additional provision -- -- 278,000
Recoveries -- -- --
Charge-offs:
Construction (121,000) -- --
Commercial (79,000) -- (328,000)
Single-family (102,443) -- (63,654)
Multi-family (100,000) -- (141,000)
Land -- -- (441,000)
---------- ---------- ----------
Ending Balance $4,477,239 $5,575,336 $4,879,682
========== ========== ==========
<CAPTION>
Consumer and Commercial Loans
-------------------------------------------
Three Months Ended March 31, Year Ended
---------------------------- December 31,
1995 1994 1994
-------- -------- -------------
<S> <C> <C> <C>
Beginning Balance $761,521 $916,317 $916,317
Additional provision -- -- --
Recoveries 31,414 9,890 63,746
Charge-offs (38,904) (21,509) (218,542)
-------- -------- --------
Ending Balance $754,031 $904,698 $761,521
======== ======== ========
<CAPTION>
Real estate owned held for sale is summarized as follows:
March 31,
------------------ December 31,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Real estate owned acquired
by foreclosure $ 2,693,785 $ 4,218,908 $ 2,313,072
Real estate owned acquired
by deed in lieu of
foreclosure 7,175,314 7,402,882 6,661,431
----------- ----------- -----------
$ 9,869,099 $11,621,790 $ 8,974,503
Less:
Allowance for losses 2,087,945 2,376,198 2,336,945
Accumulated depreciation 201,000 147,000 187,500
----------- ----------- -----------
Total Real Estate Owned
held for sale, net $ 7,580,154 $ 9,098,592 $ 6,450,058
=========== =========== ===========
<CAPTION>
An analysis of the allowance for losses on real estate owned held for
sale follows:
Three Months Ended March 31, Year Ended
---------------------------- December 31,
1995 1994 1994
---- ---- ------------
<S> <C> <C> <C>
Beginning Balance $2,336,945 $2,307,763 $2,307,763
Additional provision 130,000 204,000 339,000
Recoveries -- 12,046 69,561
Charge-offs (379,000) (147,611) (379,379)
---------- ---------- ----------
Ending Balance $2,087,945 $2,376,198 $2,336,945
========== ========== ==========
</TABLE>
NOTE C - Advances from the Federal Home Loan Bank of Atlanta
Advances from the Federal Home Loan Bank of Atlanta (FHLB) totalling
$33,162,149 at March 31, 1995 are at a 6.4% weighted average interest rate
per annum with $28,000,000 maturing in 1995, $3,000,000 maturing in 1996,
$1,000,000 maturing in 1999 and $1,000,000 maturing in 2001. Such advances are
secured by assets amounting to $51,057,482 at March 31, 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 $162,149 at March 31, 1995.
NOTE D - 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 Months Ended March 31, 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.
Financial Condition
The Corporation's total assets increased $2.4 million or 1.2% to $209.0
million from December 31, 1994 to March 31, 1995, due primarily to a $1.9
million increase in net loans, and a $1.1 million increase in real estate owned
held for sale, net (REO), which increases were partially offset by a $241,000
decrease in cash and cash equivalents, a $321,000 decrease in mortgage-backed
securities and a $200,000 decrease in Federal Home Loan Bank Stock. The
Corporation's total liabilities increased by $1.4 million or 0.7% to $193.3
million from December 31, 1994 to March 31, 1995, primarily due to a $6.1
million increase in savings accounts, and a $311,000 increase in advances by
borrowers for taxes and insurance, which increases were offset to some extent
by a $5.0 million decrease in borrowings. Stockholders' equity increased $1.0
million to $15.7 million at March 31, 1995 due to a $381,000 increase in
retained earnings and a $634,000 decrease in unrealized losses on
mortgage-backed securities available for sale.
Nonperforming Assets
The Corporation's nonperforming assets increased by $1.6 or 0.7% from
$22.6 million or 10.9% of total assets at December 31, 1994 to $24.2 million or
11.6% of total assets at March 31, 1995. Nonperforming assets increased $1.6
million during the quarter ended March 31, 1995 due to the Bank's
classification of a $3.5 million land acquisition and development loan as
impaired at March 31, 1995, because of the probable inability of the borrower
to repay the loan under its present terms upon its maturity later this year.
The loan is current at April 20, 1995 and management believes its collateral is
adequate. At March 31, 1995, the allowances for possible loan losses amounted
to $5.2 million or 3.8% of loans, net, and 31.5% of total nonperforming loans.
At March 31, 1995, the allowance for losses on REO amounted to $2.1 million or
27.5% 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 Note B of the unaudited notes to consolidated financial statements.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1994
Net Income
Net income for the three months ended March 31, 1995 amounted to
$381,000 compared to net income of $340,000 during the comparable period in
1994. The increase in net income was due to decreases in other expenses and
provision for income taxes, 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 three months ended March 31, 1995 decreased
by $15,000 over the same period in 1994 due to an increase in interest expense
which more than offset an increase in interest income. Interest income for
the three months ended March 31, 1995 increased by $382,000 or 11.0% compared
to the same period in 1994, while interest expense increased by $397,000 or
24.0% during the three months ended March 31, 1995 as compared to the same
period in the prior year. The increase in interest income was due primarily to
an increase in the average balance 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 balance 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. 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 rate paid thereon. The increase in the average
balance of savings accounts was due to competitive pricing. 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 late 1994.
The Savings Bank's interest rate spread decreased from 4.2% during the
three months ended March 31, 1994 to 3.9% during the three months ended March
31, 1995, and the ratio of interest earning assets to interest-bearing
liabilities decreased from 99.3% during the three months ended March 31, 1994
to 99.0% during the three months ended March 31, 1995. The decrease in the
interest rate spread in 1995 was due in large part to the general higher level
of market interest rates and the change in the Savings Bank's asset and
liability mix. While Home Federal will use its best efforts to maintain the
interest rate spread and net yield on interest earning assets at present
levels, no assurance can be given that such spread and yield will be maintained
due to the uncertainty concerning the future performance of its nonperforming
assets, the level of refinancings and the general condition of the economy.
Other Income
Other income totalled $421,000 and $503,000 for the three months ended
March 31, 1995 and 1994, respectively. The $82,000 decrease in 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 $493,000 during the three
months ended March 31, 1995 primarily due to repayments during the period.
Operating Expenses
Operating expenses amounted to $1.8 million and $1.9 million for the three
months ended March 31, 1995 and 1994, respectively. During the three months
ended March 31, 1995 the Corporation experienced decreases in expenses
associated with REO operations, net and impaired loan expenses, other operating
expenses and provision for losses on REO which were offset by increases in
employee compensation and benefits, office occupancy and equipment expense and
advertising and promotion. REO operations, net and impaired loans expenses
decreased due to decreased costs associated with such properties, particularly
appraisal and legal expenses. Other operating expenses decreased due to
decreases in professional fees, insurance expense, bank charges and provision
for possible losses on other assets. Employee compensation and benefits
increased due to increased profit sharing expenses and merit increases.
Income Taxes
Home Federal's income tax benefit totaled $4,000 for the three months
ended March 31, 1995 as compared to income tax expense of $103,000 during the
same period in the prior year. The decrease in the provision for income taxes
is primarily attributable to continuing taxable income which allowed for a
reduction in the valuation allowance on deferred tax assets.
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 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 three months ended March 31, 1995 and 1994, Home Federal
originated $6.8 million and $7.4 million, respectively, of single-family
residential loans. Of such amounts, $5.1 million and $3.6 million provided for
periodic adjustment of interest rates, or 75.0% and 48.6% of single-family
residential loans originated by Home Federal during the respective periods.
During 1995, Home Federal has originated $260,000 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 $3.5 million during the three months
ended March 31, 1995 as compared to $3.0 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 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 March 31, 1995 the
Savings Bank's tangible, core and risk-based capital exceeded regulatory
requirements. The following table summarizes, as of March 31, 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>
March 31, 1995 (Unaudited)
---------------------------------
Capital Capital
Capital Requirement Excess
------- ----------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Dollar basis:
Tangible $15,894 $ 3,126 $12,768
Core 15,894 6,253 9,641
Risk-based 17,555 10,826 6,729
Percentage basis:
Tangible 7.6% 1.5% 6.1%
Core 7.6 3.0 4.6
Risk-based 13.0 8.0 5.0
</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 7.7% for the month ended March 31, 1995. At
March 31, 1995, Home Federal was required to maintain liquid investments
amounting to $9.2 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 March 31, 1995, the total of approved loan origination commitments
amounted to $1.7 million, exclusive of loans in process. The amount of savings
certificates which are scheduled to mature during the twelve months ended March
31, 1995 is $55.2 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 three months ended
March 31, 1995, the Savings Bank experienced a $6.1 million increase in savings
accounts. The Savings Bank utilized these funds to repay $5.0 million of FHLB
advances during the three months ended March 31, 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.
<PAGE>
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
May 8, 1995 BY: /s/ Richard W. Phoebus
Date Richard W. Phoebus
President and Chief
Executive Officer
May 8, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 5,650
<INT-BEARING-DEPOSITS> 238
<FED-FUNDS-SOLD> 1,824
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,843
<INVESTMENTS-CARRYING> 15,993
<INVESTMENTS-MARKET> 15,806
<LOANS> 143,388
<ALLOWANCE> 5,231
<TOTAL-ASSETS> 208,966
<DEPOSITS> 157,350
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,740
<LONG-TERM> 33,162
<COMMON> 2,519
0
0
<OTHER-SE> 13,195
<TOTAL-LIABILITIES-AND-EQUITY> 208,966
<INTEREST-LOAN> 3,172
<INTEREST-INVEST> 734
<INTEREST-OTHER> 48
<INTEREST-TOTAL> 3,954
<INTEREST-DEPOSIT> 1,477
<INTEREST-EXPENSE> 2,052
<INTEREST-INCOME-NET> 1,805
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,849
<INCOME-PRETAX> 377
<INCOME-PRE-EXTRAORDINARY> 381
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 381
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
<YIELD-ACTUAL> 3.89
<LOANS-NON> 16,615
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 13,994
<ALLOWANCE-OPEN> 5,641
<CHARGE-OFFS> 441
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 5,231
<ALLOWANCE-DOMESTIC> 5,076
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 155
</TABLE>
