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 September 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 October 31, 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
September 30, 1995 (Unaudited) and December 31, 1994 . . . . 4
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended September 30, 1995
(Unaudited) and the Year Ended December 31, 1994 . . . . . . 5
Consolidated Statements of Operation for the Three and
Nine Months Ended September 30, 1995 and 1994 (Unaudited). . 6
Consolidated Statements of Cash Flows for the Nine
Months Ended September 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 Nine Months Ended September 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
September 30, 1995 and the related consolidated statement of changes in
stockholders' equity for the nine months ended September 30, 1995 and the
consolidated statements of operation for the three and nine months ended
September 30, 1995 and 1994 and consolidated statements of cash flows for the
nine months ended September 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
November 8, 1995
<PAGE>
<TABLE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 8,170,630 $ 6,044,795
Short-term interest-bearing deposits 271,968 315,861
Federal funds sold 1,881,050 1,592,588
Investment securities (approximate market value
of $5,140,347 in 1995 and $4,839,097 in 1994) 5,152,847 5,064,097
Mortgage-backed securities available for sale
(at approximate market value) 28,476,466 29,781,620
Mortgage-backed securities (approximate market
value of $10,025,626 in 1995, and $10,814,726
in 1994) 9,929,209 11,222,245
Loans receivable, net 141,408,575 135,553,111
Real estate owned held for sale, net 6,193,797 6,450,058
Federal Home Loan Bank of Atlanta stock 1,500,000 1,900,000
Office properties and equipment, net 3,944,910 4,035,817
Prepaid expenses and other assets 2,849,585 2,776,557
Deferred tax assets, net 2,329,000 1,780,000
------------ ------------
TOTAL ASSETS $212,108,037 $206,516,749
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Savings accounts $161,912,633 $151,202,667
Advances from the Federal Home Loan Bank
of Atlanta 30,133,256 38,184,372
Advances by borrowers for taxes and insurance 228,951 611,990
Other liabilities 1,936,943 1,818,095
------------ ------------
TOTAL LIABILITIES $194,211,783 $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 (453,462) (1,531,298)
Retained income-substantially restricted 7,927,600 5,808,807
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 17,896,254 $ 14,699,625
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $212,108,037 $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, net (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 1,077,836 1,077,836
Dividends paid
and declared (100,760) (100,760)
Net Income,
1995 2,219,553 2,219,553
---------- ---------- --------- ---------- -----------
Balance,
September 30,
1995
(Unaudited) $2,519,010 $7,903,106 $(453,462) $7,927,600 $17,896,254
========== ========== ========= ========== ===========
<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>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans
receivable $ 9,487,314 $ 8,615,009 $3,251,783 $2,887,799
Interest on mortgage-backed
securities 1,776,736 1,681,229 571,167 658,942
Interest or dividends on
investment securities 361,165 235,408 117,909 116,066
Other interest income 167,365 213,554 60,090 31,426
----------- ----------- ---------- ----------
Total Interest Income $11,792,580 $10,745,200 $4,000,949 $3,694,233
----------- ----------- ---------- ----------
INTEREST EXPENSE
Interest on savings $ 4,890,653 $ 3,834,600 $1,751,237 $1,301,295
Interest on advances from
the Federal Home Loan
Bank of Atlanta 1,584,309 1,258,782 496,660 482,255
Interest on other
borrowings -- 546 -- --
----------- ----------- ---------- ----------
Total Interest Expense $ 6,474,962 $ 5,093,928 $2,247,897 $1,783,550
----------- ----------- ---------- ----------
NET INTEREST INCOME $ 5,317,618 $ 5,651,272 $1,753,052 $1,910,683
PROVISION FOR POSSIBLE LOAN
LOSSES -- 58,000 -- --
----------- ----------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES $ 5,317,618 $ 5,593,272 $1,753,052 $1,910,683
----------- ----------- ---------- ----------
OTHER INCOME
Loan fees $ 317,482 $ 355,072 $ 111,169 $ 89,080
Gains on sales of mortgage
loans 25,873 74,716 15,502 7,355
Other 1,095,311 1,065,077 391,131 347,506
----------- ----------- ---------- ----------
Total Other Income $ 1,438,666 $ 1,494,865 $ 517,802 $ 443,941
----------- ----------- ---------- ----------
OTHER EXPENSES
Employee compensation and
benefits $ 2,334,233 $ 2,282,534 $ 767,239 $ 804,821
Occupancy and equipment 1,161,423 1,118,145 366,300 366,848
Advertising and promotion 143,996 201,992 37,335 97,828
Provision for losses on real
estate owned held for sale 130,000 339,000 -- 46,000
Recoveries on real estate
held for development
and sale or rental (35,973) (22,495) -- --
Real estate owned
operations, net and
impaired loan expenses 43,645 174,151 9,027 62,585
Federal insurance premiums 317,191 322,597 101,536 108,020
Other 1,250,716 1,221,900 429,521 418,160
----------- ----------- ---------- ----------
Total Other Expenses $ 5,345,231 $ 5,637,824 $1,710,958 $1,904,262
----------- ----------- ---------- ----------
INCOME BEFORE INCOME
TAXES $ 1,411,053 $ 1,450,313 $ 559,896 $ 450,362
PROVISION FOR (BENEFIT FROM)
INCOME TAXES (808,500) 369,100 217,500 117,000
----------- ----------- ---------- ----------
NET INCOME $ 2,219,553 $ 1,081,213 $ 342,396 $ 333,362
=========== =========== ========== ==========
EARNINGS PER SHARE $ 0.88 $ 0.43 $ 0.14 $ 0.13
=========== =========== ========== ==========
DIVIDENDS PER SHARE $ 0.04 $ -- $ 0.04 $ --
=========== =========== ========== ==========
<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>
Nine Months Ended
September 30,
---------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,219,553 $ 1,081,213
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 474,483 427,768
Provision for possible loan losses -- 58,000
Provision for losses on real estate
owned held for sale 130,000 339,000
(Recoveries) on real estate held for
development and sale or rental (35,973) (22,495)
Amortization of intangible assets 88,575 88,755
(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) in prepaids and other assets (218,205) (173,806)
(Increase) in deferred tax assets, net (1,227,000) --
Origination of loans receivable originated
for sale (1,698,250) (2,214,550)
Proceeds from sale of loans receivable
originated for sale 1,473,979 3,738,527
Increase (decrease) in other liabilities 118,848 (1,386,620)
Increase (decrease) in deferred fee income
and unearned discounts on loans receivable 46,668 (68,628)
Gains on sales of mortgage loans (25,873) (74,716)
Loss on sale of property and equipment 47,145 --
Other, net 186,359 (136,428)
------------ ------------
Net cash provided by operating activities $ 1,672,884 $ 1,831,441
------------ ------------
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 (7,250,700) (2,641,377)
Purchase of mortgage-backed securities
available for sale -- (13,314,627)
Principal collections from mortgage-backed
securities available for sale 2,858,836 4,868,421
Purchase of mortgage-backed securities
held to maturity -- (9,056,985)
Principal collections from mortgage-backed
securities held to maturity 1,269,277 1,500,882
Proceeds from sale of real estate owned held
for sale 2,083,600 3,011,618
Net (increase) in real estate owned held
for sale (396,618) (488,859)
Proceeds from sale of property and equipment 143,072 --
Purchase of office property and equipment (536,114) (710,191)
------------ ------------
Net cash (used in) investing activities $ (1,528,647) $(20,853,868)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in savings accounts $ 10,709,966 $ 123,051
Payments at maturity of other FHLB advances (46,000,000) (19,500,000)
Proceeds from other FHLB advances 38,000,000 26,000,000
Proceeds from short term FHLB advances -- 7,000,000
Payments at maturity of short term advances -- (7,000,000)
Net (decrease) in other borrowings -- (92,192)
Net increase in advances for taxes and
insurance (383,039) (287,591)
Payment of dividends (100,760) --
------------ ------------
Net cash provided by financing activities $ 2,226,167 $ 6,243,268
------------ ------------
Net increase (decrease) in cash and
cash equivalents $ 2,370,404 $(12,779,159)
Beginning cash and cash equivalents 7,953,244 21,086,201
------------ ------------
Ending cash and cash equivalents $ 10,323,648 $ 8,307,042
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 6,506,510 $ 5,060,453
Income taxes $ 392,700 $ 755,600
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 $ 2,193,711 $ 1,818,305
Increase (decrease) in unrealized loss on
mortgage-backed securities available for
sale, net $ (1,077,836) $ 1,076,169
<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
September 30, 1995, and the results of operations for the three and nine months
ended September 30, 1995 and 1994 and cash flows for the nine months ended
September 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>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Real Estate Loans:
Residential $ 85,919,606 $ 77,994,048
Commercial 18,004,603 20,588,201
Construction 25,363,703 26,072,263
------------ ------------
$129,287,912 $124,654,512
Less:
Loans in process (7,031,699) (7,350,158)
Allowances for possible loan losses (4,346,807) (4,879,682)
Deferred fee income and
unearned discounts (628,345) (564,707)
------------ ------------
Total Real Estate Loans $117,281,061 $111,859,965
------------ ------------
Consumer Loans $ 22,551,922 $ 22,075,811
Less:
Loans in process (110) (397)
Allowances for possible loan losses (738,030) (761,521)
Unearned discounts (9,644) (26,888)
------------ ------------
Total Consumer Loans $ 21,804,138 $ 21,287,005
------------ ------------
Commercial Business Loans $ 1,424,479 $ 1,593,131
------------ ------------
Accrued Interest Receivable $ 898,897 $ 813,010
------------ ------------
Total Loans Receivable, net $141,408,575 $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 September 30,
1995 and 1994 and December 31, 1994 is as follows:
<TABLE>
<CAPTION>
September 30,
------------------- December 31,
1995 1994 1994
---- ---- ------------
<S> <C> <C> <C>
Non-Performing Loans:
Non-Accrual Loans:
Real Estate Loans:
Residential $ 247,147 $ 708,692 $ 498,812
Commercial 37,732 39,195 38,579
Construction -- -- --
Consumer and Commercial
Loans 104,578 152,543 87,782
----------- ----------- -----------
Total Non-Accrual
Loans $ 389,457 $ 900,430 $ 625,173
----------- ----------- -----------
Impaired Loans:
Real Estate Loans:
Residential $ 2,533,120 $ 4,318,606 $ 4,080,899
Commercial 1,774,827 4,589,682 4,919,359
Construction 8,716,362 6,199,838 6,292,623
Consumer and Commercial
Loans -- 242,300 242,300
----------- ----------- -----------
Total Impaired Loans $13,024,309 $15,350,426 $15,535,181
----------- ----------- -----------
Total Non-Performing
Loans $13,413,766 $16,250,856 $16,160,354
=========== =========== ===========
<CAPTION>
An analysis of the allowances for possible loan losses follows:
Real Estate Loans
-------------------------------------------
Nine Months Ended Sept. 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 - land 405,000 -- --
Charge-offs:
Construction (134,000) -- --
Commercial (138,133) (328,000) (328,000)
Single-family (460,742) (29,379) (63,654)
Multi-family (100,000) -- (141,000)
Land (105,000) (326,000) (441,000)
---------- ---------- ----------
Total Charge-offs (937,875) (683,379) (973,654)
---------- ---------- ----------
Ending Balance $4,346,807 $4,949,957 $4,879,682
========== ========== ==========
<CAPTION>
Consumer and Commercial Loans
-------------------------------------------
Nine Months Ended Sept. 30, Year Ended
---------------------------- December 31,
1995 1994 1994
-------- -------- ------------
<S> <C> <C> <C>
Beginning Balance $761,521 $916,317 $916,317
Additional provision -- -- --
Recoveries 80,766 44,004 63,746
Charge-offs (104,257) (131,596) (218,542)
-------- -------- --------
Ending Balance $738,030 $828,725 $761,521
======== ======== ========
</TABLE>
NOTE C - Real Estate Owned Held for Sale
<TABLE>
Real estate owned held for sale is summarized as follows:
<CAPTION>
September 30,
------------------ December 31,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Real estate owned acquired
by foreclosure $ 2,895,110 $ 2,200,360 $ 2,313,072
Real estate owned acquired by
deed in lieu of foreclosure 5,177,805 7,232,372 6,661,431
----------- ----------- -----------
$ 8,072,915 $ 9,432,732 $ 8,974,503
Less:
Allowance for losses 1,653,618 2,426,945 2,336,945
Accumulated depreciation 225,500 174,000 187,500
----------- ----------- -----------
Total Real Estate Owned
held for sale, net $ 6,193,797 $ 6,831,787 $ 6,450,058
=========== =========== ===========
<CAPTION>
An analysis of the allowance for losses on real estate owned held for
sale follows:
Nine Months Ended Sept. 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 130,000 339,000 339,000
Recoveries -- 69,561 69,561
Charge-offs (813,327) (289,379) (379,379)
---------- ---------- ----------
Ending Balance $1,653,618 $2,426,945 $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) totaling
$30,133,256 at September 30, 1995 are at a 6.4% weighted average interest rate
per annum with $13,000,000 maturing in 1995, $15,000,000 maturing in 1996,
$1,000,000 maturing in 1999 and $1,000,000 maturing in 2001. Such advances are
secured by assets amounting to $47,830,690 at September 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 totaled $133,256 at
September 30, 1995.
NOTE E - Provision for (Benefit from) Income Taxes
Federal and state income taxes consisted of the following:
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, Year Ended
--------------------------- December 31,
1995 1994 1994
----------- -------- ------------
<S> <C> <C> <C>
State income tax current expense $ 76,700 $113,100 $108,100
Federal income tax current expense 341,800 489,000 464,500
Deferred income tax expense 249,000 221,000 187,000
Change in valuation allowance (1,476,000) (454,000) (454,000)
----------- -------- --------
$ (808,500) $369,100 $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>
Nine Months Ended Sept. 30, Year Ended
--------------------------- December 31,
1995 1994 1994
----------- -------- ------------
<S> <C> <C> <C>
Tax at Federal income tax rate $ 479,758 $493,106 $ 613,040
Bad debt deduction (137,360) (20,570) (163,270)
State income tax 76,700 113,100 108,100
Change in valuation allowance (1,476,000) (454,000) (454,000)
Other - net 248,402 237,464 201,730
----------- -------- ---------
$ (808,500) $369,100 $ 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 September 30, 1995 and 1994 and December 31, 1994 relate
to the following:
<CAPTION>
September 30,
------------------------- December 31,
1995 1994 1994
---------- ---------- ------------
<S> <C> <C> <C>
Deferred Tax Assets:
Allowances for losses $2,150,000 $2,417,000 $2,391,000
Unrealized loss on securities
available for sale 285,000 753,000 963,000
Intangible asset 335,000 287,000 301,000
Deferred fees on loans 146,000 149,000 162,000
Deferred directors' fees 146,000 158,000 158,000
Other, net 43,000 48,000 48,000
---------- ---------- ----------
Total deferred tax assets $3,105,000 $3,812,000 $4,023,000
Less valuation allowances 474,000 1,950,000 1,950,000
---------- ---------- ----------
Total Deferred Tax Assets
less Valuation Allowances $2,631,000 $1,862,000 $2,073,000
Deferred Tax Liabilities -
Depreciation and amortization 302,000 326,000 293,000
---------- ---------- ----------
Net Deferred Tax Assets $2,329,000 $1,536,000 $1,780,000
========== ========== ==========
Federal and state current income taxes payable is as follows:
<CAPTION>
September 30,
-------------------- December 31,
1995 1994 1994
-------- ------- ------------
<S> <C> <C> <C>
Current (refundable) payable:
State $ -- $ -- $ --
Federal 57,000 -- (70,000)
</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. On September 27, 1995 Home Federal paid a
$100,760 or $0.04 per share dividend to stockholders of record on September
22, 1995.
<PAGE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 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.
Financial Condition
The Corporation's total assets increased $5.6 million or 2.7% to $212.1
million from December 31, 1994 to September 30, 1995, due primarily to a $5.9
million increase in net loans, a $2.4 million increase in cash and cash
equivalents and a $549,000 increase in deferred tax assets, net, which
increases were partially offset by a $2.6 million decrease in mortgage-backed
securities and a $400,000 decrease in Federal Home Loan Bank Stock. The
Corporation's total liabilities increased by $2.4 million or 1.2% to $194.2
million from December 31, 1994 to September 30, 1995, primarily due to a $10.7
million increase in savings accounts, which increase was offset to some extent
by an $8.1 million decrease in borrowings. Stockholders' equity increased $3.2
million to $17.9 million at September 30, 1995 due to a $2.1 million increase
in retained earnings and a $1.1 million decrease in unrealized losses on
mortgage-backed securities available for sale, net.
Nonperforming Assets
The Corporation's nonperforming assets decreased by $3.0 million or 13.3%
from $22.6 million or 11.0% of total assets at December 31, 1994 to $19.6
million or 9.2% of total assets at September 30, 1995. At September 30, 1995,
the allowances for possible loan losses amounted to $5.1 million or 3.6% of
loans, net, and 37.9% of total nonperforming loans. At September 30, 1995, the
allowance for losses on real estate owned held for sale (REO) amounted to $1.7
million or 26.7% 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 nine months ended September 30, 1995 amounted to $2.2
million compared to net income of $1.1 million during the comparable period in
1994, a 105.3% increase. Net income for the three months ended September 30,
1995 amounted to $342,000 compared to net income of $333,000 during the
comparable period in 1994, a 2.7% 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 nine months ended September 30, 1995 decreased
by $334,000, or 5.9%, over the same period in 1994 due to increased interest
expense which more than offset increased interest income. Interest income for
the nine months ended September 30, 1995 increased by $1.0 million or 9.8%
compared to the same period in 1994, while interest expense increased by $1.4
million or 27.1% during the nine months ended September 30, 1995 as compared to
the same period in the prior year. Net interest income for the three months
ended September 30, 1995 decreased by $158,000, or 8.3%, 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 September 30, 1995
increased by $307,000 or 8.3% compared to the same period in 1994, while
interest expense increased by $464,000 or 26.0% during the three months ended
September 30, 1995 as compared to the same period in the prior year.
During each of the three and nine 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 in 1995 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 and repay
advances. 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 and originate loans
during 1994.
The Savings Bank's interest rate spread decreased from 5.6% during the
nine months ended September 30, 1994 to 3.8% during the nine months ended
September 30, 1995, and the ratio of interest earning assets to interest-
bearing liabilities decreased from 99.01% during the nine months ended
September 30, 1994 to 98.98% during the nine months ended September 30, 1995.
The Savings Bank's interest rate spread decreased from 4.3% during the three
months ended September 30, 1994 to 3.7% during the three months ended September
30, 1995, and the ratio of interest earning assets to interest-bearing
liabilities increased from 98.79% during the three months ended September 30,
1994 to 99.13% during the three months ended September 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 totaled $1.4 million and $1.5 million for the nine months
ended September 30, 1995 and 1994, respectively. Other income totaled $572,000
and $444,000 for the three months ended September 30, 1995 and 1994,
respectively. The $56,200, or 3.8% decrease during the nine months ended
September 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 commissions and increased fees on checking and
savings accounts. The $74,000, or 16.6% incease during the three months ended
September 30, 1995 was primarily due to increases in income related to loan
originations, loan sales, stockbrokerage commissions and fees on checking and
savings accounts.
Operating Expenses
Operating expenses amounted to $5.3 million and $5.6 million for the nine
months ended September 30, 1995 and 1994, respectively, a 5.2% decrease.
Operating expenses amounted to $1.7 million and $1.9 million for the three
months ended September 30, 1995 and 1994, respectively, a 10.2% decrease.
During the nine months ended September 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
September 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 other operating expenses. Other operating
expenses increased due to increases in professional fees, loan expenses and
provision for losses on bad checks, which was offset by decreases in provision
for losses on other assets.
Income Taxes
Home Federal's income tax expense (benefit) totaled $218,000 and
$(809,000) for the three and nine months ended September 30, 1995 as compared
to income tax expense of $117,000 and $369,000 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. The increase in income tax expense for the three months ended
September 30, 1995 as compared to the prior year was attributable to increased
taxable income.
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 nine months ended September 30,
1995 and 1994, Home Federal originated $20.7 million and $22.1 million,
respectively, of single-family residential loans. Of such amounts, $13.2
million and $12.8 million provided for periodic adjustment of interest rates,
or 63.8% and 58.0% of single-family residential loans originated by Home
Federal during the respective periods. During 1995, Home Federal has originated
$1.2 million 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 $11.4 million during the nine months
ended September 30, 1995 as compared to $10.7 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 September 30, 1995 the
Savings Bank's tangible, core and risk-based capital exceeded regulatory
requirements. The following table summarizes, as of September 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>
September 30, 1995
---------------------------------
Capital Capital
Capital Requirement Excess
------- ----------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Dollar basis:
Tangible $17,706 $ 3,166 $14,540
Core 17,148 6,317 10,831
Risk-based 18,870 10,834 8,036
Percentage basis:
Tangible 8.4% 1.5% 6.9%
Core 8.1 3.0 5.1
Risk-based 13.9 8.0 5.9
</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 September 30,
1995. At September 30, 1995, Home Federal was required to maintain liquid
investments amounting to $9.4 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 September 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
September 30, 1996 is $55.3 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 nine
months ended September 30, 1995, the Savings Bank experienced a $11.1 million
increase in savings accounts. The Savings Bank utilized these funds to repay
$8.0 million of FHLB advances during the nine months ended September 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 were 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 established a new assessment rate schedule of 4-31
basis points for BIF members beginning on September 30, 1995. Approximately 91%
of BIF members pay the lowest assessment rate of 4 basis points. With respect
to SAIF members institutions, the FDIC retained the existing assessment rate of
23-31 basis points applicable to SAIF member institutions. In announcing the
new assessment rates, 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. The U.S. Congress is currently considering legislation
which will recapitalize the SAIF, as of December 31, 1995, by a one-time charge
to 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 the legislation being passed. If the proposed assessment of $.85
to $.90 per $100.00 of assessable deposits was effected based on deposits as of
September 30, 1995, as proposed, the Savings Bank's pro rata share would amount
to approximately $845,000 to $894,000 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
November 14, 1995 BY: /s/ Richard W. Phoebus
Date Richard W. Phoebus
President and
Chief Executive Officer
November 14, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,171
<INT-BEARING-DEPOSITS> 272
<FED-FUNDS-SOLD> 1,881
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,476
<INVESTMENTS-CARRYING> 15,082
<INVESTMENTS-MARKET> 15,166
<LOANS> 147,130
<ALLOWANCE> 5,085
<TOTAL-ASSETS> 212,108
<DEPOSITS> 161,913
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,166
<LONG-TERM> 30,133
<COMMON> 2,519
0
0
<OTHER-SE> 15,377
<TOTAL-LIABILITIES-AND-EQUITY> 212,108
<INTEREST-LOAN> 9,804
<INTEREST-INVEST> 2,138
<INTEREST-OTHER> 167
<INTEREST-TOTAL> 12,109
<INTEREST-DEPOSIT> 4,891
<INTEREST-EXPENSE> 6,475
<INTEREST-INCOME-NET> 5,318
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,345
<INCOME-PRETAX> 1,411
<INCOME-PRE-EXTRAORDINARY> 2,220
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,220
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
<YIELD-ACTUAL> 3.80
<LOANS-NON> 13,414
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12,879
<ALLOWANCE-OPEN> 5,641
<CHARGE-OFFS> 1,042
<RECOVERIES> 486
<ALLOWANCE-CLOSE> 5,085
<ALLOWANCE-DOMESTIC> 4,202
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 883
</TABLE>
