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, 1996
[ ] 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 15, 1996: 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, 1996 (Unaudited) and December 31, 1995 . . . . 4
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended September 30, 1996
(Unaudited) and the Year Ended December 31, 1995 . . . . . . 5
Consolidated Statements of Operation for the Three and
Nine Months Ended September 30, 1996 and 1995 (Unaudited). . 6
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995 (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, 1996 . . . . . . . . . .20
PART II: OTHER INFORMATION
Item 1: Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . .27
Item 2: Changes in Securities. . . . . . . . . . . . . . . . . . . . .27
Item 3: Defaults Upon Senior Securities. . . . . . . . . . . . . . . .27
Item 4: Submission of Matters to a Vote of Security Holders. . . . . .27
Item 5: Other Information. . . . . . . . . . . . . . . . . . . . . . .27
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .27
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .28
<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, 1996 and the related consolidated statement of changes in
stockholders' equity for the nine months ended September 30, 1996 and the
consolidated statements of operation for the three and nine months ended
September 30, 1996 and 1995 and consolidated statements of cash flows for the
nine months ended September 30, 1996 and 1995. 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, LLC
SMITH ELLIOTT KEARNS & COMPANY, LLC
Hagerstown, Maryland
November 7, 1996
<PAGE>
<TABLE>
HOME FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 5,045,856 $ 5,083,293
Short-term interest-bearing deposits 2,923,503 7,343,565
Federal funds sold -- 28,449
Investment securities (approximate market
value of $2,025,687 in 1996) 2,033,199 --
Mortgage-backed securities available for sale
(at approximate market value) 6,453,715 17,373,035
Mortgage-backed securities (approximate market
value of $47,314,654 in 1996, and $29,979,853
in 1995) 48,071,172 29,748,031
Loans receivable, net 147,795,311 137,262,694
Real estate owned held for sale, net 4,766,978 7,075,233
Federal Home Loan Bank of Atlanta stock 2,256,800 1,500,000
Office properties and equipment, net 4,400,765 4,107,500
Prepaid expenses and other assets 4,898,586 5,092,948
------------ ------------
TOTAL ASSETS $228,645,885 $214,614,748
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Savings accounts $162,712,538 $163,663,302
Advances from the Federal Home Loan Bank
of Atlanta 43,828,737 30,156,927
Advances by borrowers for taxes and insurance 256,660 581,437
Other liabilities 2,800,119 1,831,180
------------ ------------
TOTAL LIABILITIES $209,598,054 $196,232,846
------------ ------------
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 1996 and 1995 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 (122,675) (175,378)
Retained income-substantially restricted 8,748,390 8,135,164
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 19,047,831 $ 18,381,902
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $228,645,885 $214,614,748
============ ============
<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,
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 1,355,920 1,355,920
Dividends paid
and declared (201,521) (201,521)
Net Income,
1995 2,527,878 2,527,878
---------- ---------- --------- ---------- -----------
Balance December
31, 1995 $2,519,010 $ 7,903,106 $(175,378) $8,135,164 $18,381,902
Unrealized gain
on mortgaged-
backed
securities 52,703 52,703
Dividends paid
and declared (100,760) (100,760)
Net Income,
1996 713,986 713,986
---------- ---------- --------- ---------- -----------
Balance,
September 30,
1996
(Unaudited) $2,519,010 $7,903,106 $(122,675) $8,748,390 $19,047,831
========== ========== ========= ========== ===========
<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,
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans
receivable $ 9,699,247 $ 9,487,314 $3,252,055 $3,251,783
Interest on mortgage-
backed securities 2,390,438 1,776,736 850,933 571,167
Interest or dividends
on investment
securities 153,791 361,165 68,250 117,909
Other interest income 187,294 167,365 26,835 60,090
----------- ----------- ---------- ----------
Total Interest
Income $12,430,770 $11,792,580 $4,198,073 $4,000,949
----------- ----------- ---------- ----------
INTEREST EXPENSE
Interest on savings $ 5,058,721 $ 4,890,653 $1,655,760 $1,751,237
Interest on advances
from the Federal
Home Loan Bank of
Atlanta 1,441,451 1,584,309 535,196 496,660
----------- ----------- ---------- ----------
Total Interest
Expense $ 6,500,172 $ 6,474,962 $2,190,956 $2,247,897
----------- ----------- ---------- ----------
NET INTEREST
INCOME $ 5,930,598 $ 5,317,618 $2,007,117 $1,753,052
PROVISION FOR POSSIBLE
LOAN LOSSES -- -- -- --
----------- ----------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
POSSIBLE LOAN LOSSES $ 5,930,598 $ 5,317,618 $2,007,117 $1,753,052
----------- ----------- ---------- ----------
OTHER INCOME
Loan fees $ 325,715 $ 317,482 $ 100,702 $ 111,169
Gains on sales of
mortgage loans 86,284 25,873 16,185 15,502
Other 1,479,131 1,095,311 502,189 391,131
----------- ----------- ---------- ----------
Total Other Income $ 1,891,130 $ 1,438,666 $ 619,076 $ 517,802
----------- ----------- ---------- ----------
OTHER EXPENSES
Employee compensation
and benefits $ 2,718,239 $ 2,334,233 $ 984,737 $ 767,239
Occupancy and
equipment 1,256,370 1,161,423 420,544 366,300
Advertising and
promotion 176,002 143,996 46,588 37,335
Provision for losses
on real estate
owned held for
sale -- 130,000 -- --
Recoveries on real estate
held for development
and sale or rental -- (35,973) -- --
Federal insurance
premiums 1,331,526 317,191 1,122,107 101,536
Other 1,415,557 1,294,361 408,909 438,548
----------- ----------- ---------- ----------
Total Other
Expenses $ 6,897,694 $ 5,345,231 $2,982,885 $1,710,958
----------- ----------- ---------- ----------
INCOME BEFORE
INCOME TAXES $ 924,034 $ 1,411,053 $ (356,692) $ 559,896
PROVISION FOR (BENEFIT
FROM) INCOME TAXES 210,048 (808,500) (150,727) 217,500
----------- ----------- ---------- ----------
NET INCOME (LOSS) $ 713,986 $ 2,219,553 $ (205,965) $ 342,396
=========== =========== ========== ==========
EARNINGS (LOSS)
PER SHARE $ 0.28 $ 0.88 $ (0.08) $ 0.14
=========== =========== ========== ==========
DIVIDENDS PER SHARE $ 0.04 $ 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,
---------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 713,986 $ 2,219,553
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 524,582 474,483
Provision for losses on real estate
owned held for sale -- 130,000
(Recoveries) on real estate held for
development and sale or rental -- (35,973)
Amortization of intangible assets 88,755 88,755
Proceeds from sale of real estate held
for development and sale or rental, net -- 92,575
(Increase) in prepaids and other assets (68,053) (218,385)
Deferred tax provision 140,500 (1,227,000)
Origination of loans receivable originated
for sale (1,366,700) (1,698,250)
Proceeds from sale of loans receivable
originated for sale 3,260,779 1,473,979
Increase in other liabilities 968,939 118,848
Increase in deferred fee income and unearned
discounts on loans receivable 4,129 46,668
Gains on sales of mortgage loans (86,284) (25,873)
Other, net 196,737 233,504
------------ -----------
Net cash provided by operating activities $ 4,377,370 $ 1,672,884
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of Federal Home
Loan Bank stock $ 68,200 $ 400,000
Purchase of Federal Home Loan Bank stock (825,000) (100,000)
Purchase of investment securities (2,000,000) --
Net (increase) in loans receivable (12,013,840) (7,250,700)
Principal collections from mortgage-backed
securities available for sale 2,755,138 2,858,836
Purchase of mortgage-backed securities
held to maturity (21,972,790) --
Principal collections from mortgage-backed
securities held to maturity 3,730,357 1,269,277
Proceeds from sale of mortgage-backed
securities available for sale 8,009,069 --
Proceeds from sale of real estate owned held
for sale 2,339,169 2,083,600
Net (increase) in real estate owned held
for sale (363,614) (396,618)
Proceeds from sale of property and equipment -- 143,072
Purchase of office property and equipment (849,676) (536,114)
------------ -----------
Net cash (used in) investing activities $(21,122,987) $(1,528,647)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings accounts $ (950,764) $10,709,966
Payments at maturity of other FHLB advances (30,864,030) (46,000,000)
Proceeds from other FHLB advances 44,500,000 38,000,000
Net decrease in advances for taxes and
insurance (324,777) (383,039)
Payment of dividends (100,760) (100,760)
------------ -----------
Net cash provided by financing activities $ 12,259,669 $ 2,226,167
------------ -----------
Net increase (decrease) in cash and cash
equivalents $ (4,485,948) $ 2,370,404
Beginning cash and cash equivalents 12,455,307 7,953,244
------------ -----------
Ending cash and cash equivalents $ 7,969,359 $10,323,648
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 6,464,751 $ 6,506,510
Income taxes $ 403,870 $ 392,700
Loans originated on sale of real estate
owned held for sale $ 636,450 $ 595,000
Net transfer to real estate owned held for
sale from loans receivable $ 305,748 $ 2,193,711
Unrealized (gain) on mortgage-backed
securities available for sale, net $ (52,703) $(1,077,836)
<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, 1996 and the results of operations for the three and nine months
ended September 30, 1996 and 1995 and cash flows for the nine months ended
September 30, 1996 and 1995.
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, 1995.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" establishing financial accounting and reporting
standards for stock-based employee compensation plans. This statement
encourages all entities to adopt a new method of accounting to measure
compensation cost of all employee stock compensation plans based on the fair
value method. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by the Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." Home Federal elected to
continue to measure compensation cost using APB No. 25, therefore, SFAS No. 123
will only require certain disclosures in Home Federal's consolidated financial
statements.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which eliminates the accounting distinction between rights
to service mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions. Accordingly, Home
Federal will recognize as assets all rights to service loans for others for
loans originated after January 1, 1996 and will amortize these assets in
proportion to and over the period of estimated net servicing income. These
capitalized servicing rights must also be evaluated for impairment based on the
fair value of those rights. Home Federal adopted SFAS No. 122 as of January 1,
1996. The amount of capitalized originated mortgage servicing rights was
immaterial at September 30, 1996. SFAS No. 122 will be superseded by SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities."
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," establishing
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. Those standards are based on
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. A transfer of
financial assets in which the transferor surrenders control over those assets
is accounted for as a sale to the extent that consideration other than
beneficial interests in the transferred assets is received in exchange. In
addition, SFAS No. 125 requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable.
SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. Earlier or retroactive application is not permitted.
Accordingly, Home Federal will adopt SFAS No. 125 as of January 1, 1997. The
effects of adopting SFAS No. 125 on Home Federal's consolidated financial
condition or results of operations is presently being analyzed; however, it is
not expected to have a material impact.
NOTE B - Proposed Merger
On April 2, 1996, Home Federal entered into a Plan and Agreement to Merge
("Acquisition Agreement") with F&M Bancorp, Frederick, Maryland, a Maryland
corporation and bank holding company ("F&M"), which provides for the
acquisition of Home Federal by F&M.
Under the terms of the Acquisition Agreement, Home Federal will merge with
and into F&M (the "Merger"), with F&M to be the surviving corporation. Pursuant
to the Acquisition Agreement, upon the effective date of the Merger ("Effective
Date"), each outstanding share of common stock of Home Federal, par value $1.00
per share ("Home Federal Stock"), will be converted into the right to receive
shares of common stock, par value $5.00 per share, of F&M ("F&M Stock"), in an
amount equal to 165% of Home Federal's book value (calculated as specified in
the Acquisition Agreement) as determined as of the end of the month immediately
prior to the Effective Date (the "Calculation Date"). The number of shares of
F&M Stock to be received will be based on a value for F&M Stock equal to 1.6
times its book value per share as of the calculation date.
In connection with the execution of the Acquisition Agreement, Home
Federal entered into a Stock Option Agreement with F&M pursuant to which it
granted F&M an option to acquire, upon the occurrence of certain events defined
in the Stock Option Agreement ("Purchase Events"), up to an aggregate of
501,282 authorized but unissued shares of Home Federal Stock (the "Option") (or
19.9% of the shares outstanding) at a price of $8.25 per share. The provisions
of the Stock Option Agreement concerning the Option will terminate upon
consummation of the Merger or upon termination of the Acquisition Agreement;
however, if such termination occurs as a result of a willful breach by Home
Federal of the Acquisition Agreement or failure of Home Federal's stockholders
to approve the Acquisition Agreement, then the Option shall terminate 12 months
after termination of the Acquisition Agreement. The Option is intended to
increase the likelihood that the Merger will be consummated by making it more
difficult and expensive for a third party to acquire control of Home Federal.
All regulatory and stockholder approvals have been received and the merger
is expected to occur in the fourth quarter.
NOTE C - Investment Securities
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------
Gross Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Federal Home Loan Bank
(FHLB) bond $1,999,417 $ 657 $ 8,169 $1,991,905
Accrued interest receivable 33,782 -- -- 33,782
---------- --------- ---------- ----------
Total Investment Securities $2,033,199 $ 657 $ 8,169 $2,025,687
========== ========= ========== ==========
</TABLE>
During 1996, the Savings Bank purchased investment securities in the
amount of $2,000,000.
NOTE D - Mortgage-Backed Securities
A summary of mortgage-backed securities available for sale is as follows:
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation
(FHLMC) $3,540,286 $27,699 $21,964 $3,546,021
Government National
Mortgage Association
(GNMA) 2,879,870 9,327 43,686 2,845,511
---------- ------- ------- ----------
$6,420,156 $37,026 $65,650 $6,391,532
Accrued Interest
Receivable 62,183 -- -- 62,183
---------- ------- ------- ----------
Total Mortgage-Backed
Securities Available
for Sale $6,482,339 $37,026 $65,650 $6,453,715
========== ======= ======= ==========
<CAPTION>
December 31, 1995
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
FHLMC $14,029,515 $ 85,836 $117,087 $13,998,264
GNMA 3,247,299 16,049 38,433 3,224,915
----------- -------- -------- -----------
$17,276,814 $101,885 $155,520 $17,223,179
Accrued Interest
Receivable 149,856 -- -- 149,856
----------- -------- -------- -----------
Total Mortgage-Backed
Securities Available
for Sale $17,426,670 $101,885 $155,520 $17,373,035
=========== ======== ======== ===========
</TABLE>
Mortgage-backed securities held-to-maturity are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
GNMA $ 9,444,416 $ -- $265,725 $ 9,178,691
Federal National Mortgage
Association (FNMA) 17,115,201 20,734 256,771 16,879,164
Collateralized Mortgage
Obligations 21,230,904 24,290 279,046 20,976,148
----------- ------- -------- -----------
$47,790,521 $45,024 $801,542 $47,034,003
Accrued Interest
Receivable 280,651 -- -- 280,651
----------- ------- -------- -----------
Total Mortgage-Backed
Securities Held-to-
Maturity $48,071,172 $45,024 $801,542 $47,314,654
=========== ======= ======== ===========
<CAPTION>
December 31, 1995
---------------------------------------
Gross
Amortized Unrealized Market
Cost Gains Value
--------- ---------- ------
<S> <C> <C> <C>
GNMA $ 9,946,527 $ 66,219 $10,012,746
FNMA 19,630,214 165,603 19,795,817
----------- -------- -----------
$29,576,741 $231,822 $29,808,563
Accrued interest receivable 171,290 -- 171,290
----------- -------- -----------
Total Mortgage-Backed
Securities Held-to-Maturity $29,748,031 $231,822 $29,979,853
=========== ======== ===========
</TABLE>
The September 30, 1996 and December 31, 1995 mortgage-backed securities
held to maturity amortized cost includes $171,237 and $232,090, respectively,
in gross unrealized losses resulting from the reclassification to
held-to-maturity.
GNMA, FHLMC, and FNMA mortgage-backed securities and collaterized mortgage
obligations in the amortized cost amount of $39,568,911 and $22,061,250 were
pledged as collateral for Federal Home Loan Bank advances at September 30, 1996
and December 31, 1995, respectively.
During 1996 the Savings Bank purchased mortgage-backed securities in the
amount of $21,972,790. Proceeds from the sale of mortgage-backed securities
during 1996 amounted to $8,009,069. Net losses of $30,369 were realized on
sales of such securities in 1996.
NOTE E - Loans Receivable
<TABLE>
Loans receivable are summarized as follows:
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Real Estate Loans:
Residential $ 96,582,615 $ 85,483,281
Commercial 18,073,740 16,920,576
Construction 19,320,355 21,501,651
------------ ------------
$133,976,710 $123,905,508
Less:
Loans in process (8,778,002) (7,740,530)
Allowances for possible loan losses (3,229,007) (3,132,147)
Deferred fee income and
unearned discounts (541,014) (562,661)
Unrealized loss on loans held for sale (12,000) --
------------ ------------
Total Real Estate Loans $121,416,687 $112,470,170
------------ ------------
Consumer Loans $ 24,676,484 $ 23,052,450
Less:
Loans in process (7,370) --
Allowances for possible loan losses (451,430) (500,157)
Unearned discounts (54,239) (28,860)
------------ ------------
Total Consumer Loans $ 24,163,445 $ 22,523,433
------------ ------------
Commercial Business Loans $ 1,361,785 $ 1,429,015
------------ ------------
Accrued Interest Receivable $ 853,394 $ 840,076
------------ ------------
Total Loans Receivable, net $147,795,311 $137,262,694
============ ============
</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,
1996 and 1995 and December 31, 1995 is as follows:
<TABLE>
<CAPTION>
September 30,
------------------- December 31,
1996 1995 1995
---- ---- ------------
<S> <C> <C> <C>
Non-Performing Loans:
Non-Accrual Loans:
Real Estate Loans:
Residential $ 589,730 $ 247,147 $ 601,902
Commercial 284,696 37,732 37,732
Consumer Loans 152,847 104,578 145,948
---------- ----------- ----------
Total Non-Accrual
Loans $1,027,273 $ 389,457 $ 785,582
---------- ----------- ----------
Impaired Loans:
Real Estate Loans:
Residential $ 118,560 $ 2,533,120 $ 561,571
Commercial 636,542 1,774,827 731,330
Construction 4,739,410 8,716,362 3,712,557
Consumer Loan -- -- --
---------- ----------- ----------
Total Impaired Loans $5,494,512 $13,024,309 $5,005,458
---------- ----------- ----------
Total Non-Performing
Loans $6,521,785 $13,413,766 $5,791,040
========== =========== ==========
<CAPTION>
An analysis of the allowances for possible loan losses follows:
Real Estate Loans
---------------------------------------------
Nine Months Ended September 30, Year Ended
------------------------------ December 31,
1996 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
Beginning Balance $3,132,147 $4,879,682 $4,879,682
Additional provision -- -- (349,000)
Recoveries 179,978 405,000 407,500
Reallocation of reserves
from consumer and
commercial loan losses -- -- 244,000
Charge-offs:
Construction -- (134,000) (160,000)
Commercial -- (138,133) (808,331)
Single-family (83,118) (460,742) (528,704)
Multi-family -- (100,000) (100,000)
Land -- (105,000) (453,000)
---------- ---------- ----------
Ending Balance $3,229,007 $4,346,807 $3,132,147
========== ========== ==========
<CAPTION>
Consumer and Commercial Loans
-------------------------------------------
Nine Months Ended September 30, Year Ended
---------------------------- December 31,
1996 1995 1995
-------- -------- ------------
<S> <C> <C> <C>
Beginning Balance $500,157 $761,521 $761,521
Additional provision -- -- --
Reallocation of reserves
to real estate loans -- -- (244,000)
Recoveries 57,637 80,766 103,516
Charge-offs (106,364) (104,257) (120,880)
-------- -------- --------
Ending Balance $451,430 $738,030 $500,157
======== ======== ========
</TABLE>
NOTE F - Real Estate Owned Held for Sale
<TABLE>
Real estate owned held for sale is summarized as follows:
<CAPTION>
September 30,
------------------ December 31,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Real estate owned acquired
by foreclosure $1,349,769 $2,895,110 $2,535,651
Real estate owned acquired by
deed in lieu of foreclosure 2,858,594 5,177,805 4,715,104
Real estate owned in substance 1,440,490 -- 1,440,490
---------- ---------- ----------
$5,648,853 $8,072,915 $8,691,245
Less:
Allowance for losses 881,875 1,653,618 1,492,012
Accumulated depreciation -- 225,500 124,000
---------- ---------- ----------
Total Real Estate Owned
held for sale, net $4,766,978 $6,193,797 $7,075,233
========== ========== ==========
<CAPTION>
An analysis of the allowance for losses on real estate owned held for
sale follows:
Nine Months Ended September 30, Year Ended
---------------------------- December 31,
1996 1995 1995
---- ---- ------------
<S> <C> <C> <C>
Beginning Balance $1,492,012 $2,336,945 $2,336,945
Additional provision -- 130,000 479,000
Recoveries 13,834 -- 1,643
Charge-offs (623,971) (813,327) (1,325,576)
---------- ---------- ----------
Ending Balance $ 881,875 $1,653,618 $1,492,012
========== ========== ==========
</TABLE>
NOTE G - Advances from the Federal Home Loan Bank of Atlanta
Advances from the Federal Home Loan Bank of Atlanta (FHLB) totaling
$43,828,737 at September 30, 1996 are at a 5.8% weighted average interest rate
per annum with $7,364,000 maturing in 1996, $29,728,000 maturing in 1997,
$728,000 maturing in 1998, $1,728,000 maturing in 1999, $728,000 maturing in
2000, $1,728,000 maturing in 2001, $732,000 maturing in 2002 and $300,000
maturing in 2003, 2004 and 2005, respectively. Such advances are secured by
assets amounting to $55,883,229 at September 30, 1996. 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 $192,768 at September 30, 1996.
NOTE H - Provision for (Benefit from) Income Taxes
Federal and state income taxes consisted of the following:
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended
--------------------------- December 31,
1996 1995 1995
----------- ----------- ----------
<S> <C> <C> <C>
State income tax current expense $ 7,648 $ 76,700 $ 49,300
Federal income tax current expense 61,900 341,800 180,000
Deferred income tax expense 140,500 249,000 693,000
Change in valuation allowance -- (1,476,000) (1,476,000)
----------- ----------- ----------
$ 210,048 $ (808,500) $ (553,700)
=========== =========== ==========
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 September 30, Year Ended
--------------------------- December 31,
1996 1995 1995
----------- ----------- ------------
<S> <C> <C> <C>
Tax at Federal income tax rate $ 314,172 $ 479,758 $ 671,221
Bad debt deduction (163,363) (137,360) 177,704
State income tax 7,648 76,700 49,300
Change in valuation allowance -- (1,476,000) (1,476,000)
Other - net 51,591 248,402 24,075
----------- ----------- -----------
$ 210,048 $ (808,500) $ (553,700)
=========== =========== ===========
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, 1996 and 1995 and December 31, 1995 relate
to the following:
<CAPTION>
September 30,
------------------------- December 31,
1996 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
Deferred Tax Assets:
Allowances for losses $1,519,000 $2,150,000 $1,723,000
Unrealized loss on securities
available for sale 77,000 285,000 110,000
Intangible asset 381,000 335,000 343,000
Deferred fees on loans 84,000 146,000 133,000
Deferred directors' fees 139,000 146,000 150,000
Other, net 148,000 43,000 45,000
---------- ---------- ----------
Total deferred tax assets $2,348,000 $3,105,000 $2,504,000
Less valuation allowances 474,000 474,000 474,000
---------- ---------- ----------
Total Deferred Tax Assets
less Valuation Allowances $1,874,000 $2,631,000 $2,030,000
Deferred Tax Liabilities -
Depreciation and amortization 337,000 302,000 320,000
---------- ---------- ----------
Net Deferred Tax Assets $1,537,000 $2,329,000 $1,710,000
========== ========== ==========
Federal and state current income taxes payable is as follows:
<CAPTION>
September 30,
-------------------- December 31,
1996 1995 1995
-------- ------- ------------
<S> <C> <C> <C>
Current (refundable) payable:
State $ (78,000) $ -- $ (65,000)
Federal (483,000) 57,000 (290,000)
</TABLE>
NOTE I - Common Stock and Earnings Per Share
Earnings per share have been computed based on 2,519,010 average shares
outstanding in 1996 and 1995. On March 29, 1996, Home Federal paid a $100,760
or $0.04 per share dividend to stockholders of record on March 15, 1996.
NOTE J - Federal Insurance Premium
On September 30, 1996, the President signed legislation which will
recapitalize the Savings Association Insurance Fund (SAIF) to a ratio of 1.25%
of insured reserve deposits. A one-time special federal insurance premium of
approximately $0.657 for every $100 of assessable deposits at March 31, 1995
will be charged to all SAIF institutions. The Savings Bank's special
assessment, which was booked as of September 30, 1996, approximated $1,026,000
before a tax benefit of approximately $396,000. The legislation also provided
for the merger of the Bank Insurance Fund and the SAIF, with such merger being
conditioned upon the prior elimination of the thrift charter. The Savings
Bank's insurance premiums, which has amounted to $0.23 for every $100 of
assessable deposits, will be reduced to $0.064 for every $100 of assessable
deposits beginning January 1, 1997. Based upon the $162,024,000 of assessable
deposits at September 30, 1996, the Savings Bank would expect to pay $67,000
less in insurance premiums per quarter during 1997, or $0.03 per share.
<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, 1996
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 April 2, 1996, Home Federal entered into the Acquisition Agreement with
F&M which provides for the acquisition of Home Federal by F&M. See Note B of
the unaudited notes to consolidated financial statements.
Financial Condition
The Corporation's total assets increased $14.0 million or 6.5% to $228.6
million from December 31, 1995 to September 30, 1996, due primarily to a $10.5
million increase in net loans, a $7.4 million increase in mortgage-backed
securities and a $2.0 million increase in investment securities which increases
were partially offset by a $4.5 million decrease in cash and cash equivalents
and a $2.3 million decrease in real estate owned, net. The Corporation's total
liabilities increased by $13.4 million or 6.9% to $209.6 million from December
31, 1995 to September 30, 1996, primarily due to a $13.7 million increase in
borrowings, which increase was offset by a $951,000 decrease in savings
accounts. Stockholders' equity increased $666,000 to $19.0 million at September
30, 1996, due primarily to a $613,000 increase in retained earnings.
Nonperforming Assets
The Corporation's nonperforming assets decreased by $1.6 million or 12.3%
from $12.9 million or 6.0% of total assets at December 31, 1995 to $11.3
million or 4.9% of total assets at September 30, 1996. Nonaccrual and impaired
loans increased $731,000 during the nine months ended September 30, 1996
primarily due to a $1.4 million construction loan delinquency. REO decreased
$2.3 million during the nine months ended September 30, 1996, primarily due to
seven commercial properties being sold. At September 30, 1996, the allowances
for possible loan losses amounted to $3.7 million or 2.5% of loans, net, and
56.4% of total nonperforming loans. At September 30, 1996, the allowance for
losses on real estate owned held for sale (REO) amounted to $882,000 or 18.5%
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 Notes E and F of the unaudited notes to consolidated financial statements.
RESULTS OF OPERATIONS
Net Income
Net income for the nine months ended September 30, 1996 amounted to
$714,000, compared to net income of $2.2 million during the comparable period
in 1995. Net loss for the three months ended September 30, 1996 amounted to
$206,000 compared to net income of $342,000 during the comparable period in
1995. The decrease in net income during the nine months ended September 30,
1996 was due primarily to increased provisions for income taxes and the one-time
special federal insurance assessment, which was partially offset by increases in
other income and net interest income. The decrease in net income during the
three months ended September 30, 1996 was due primarily to the SAIF assessment
which was offset by increases in other income, net interest income and income
tax benefit. See Note J of the unaudited notes to consolidated financial
statements.
Net Interest Income
Net interest income for the nine months ended September 30, 1996 increased
by $613,000 or 11.5%, over the same period in 1995, due to increased interest
income, which more than offset increased interest expense. Interest income for
the nine months ended September 30, 1996 increased by $638,000 or 5.4% compared
to the same period in 1995, while interest expense increased by $25,000 or 0.4%
during the nine months ended September 30, 1996 as compared to the same period
in the prior year. Net interest income for the three months ended September 30,
1996 increased by $254,000 or 14.5% over the same period in 1995 due to
increased interest income and decreased interest expense. Interest income for
the three months ended September 30, 1996 increased by $197,000 or 4.9%
compared to the same period in 1995, while interest expense decreased by
$57,000 or 2.5% during the three months ended September 30, 1996 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 securities and short-term interest bearing deposits
and an increase in the average rate earned on mortgage-backed securities. Such
increases were offset by decreases in the average balances of investment
securities and federal funds. The primary reason for the increase in the
average balance of short-term interest bearing deposits was the Savings Bank's
investment of funds in short-term investments prior to purchasing
mortgage-backed securities. The increase in the average balance of
mortgage-backed securities in 1996 was due to the Savings Bank's purchasing
$22.0 million in mortgage-backed securities, which was funded by the sale of
$8.0 million in mortgage-backed securities, advances from the Federal Home Loan
Bank of Atlanta ("FHLB"), loan repayments, and loan sales. The increase in
interest expense during the nine months ended September 30, 1996 was primarily
the result of increases in the average balances of savings accounts, which were
partially offset by a decrease in the average balance of advances from the FHLB
and the average rate paid thereon. The decrease in interest expense during the
three months ended September 30, 1996 as compared to the comparable period in
1995 was primarily due to decreases in the rates paid on savings accounts and
FHLB advances, which was partially offset by increases in the average balance
of FHLB advances and savings accounts.
The Savings Bank's interest rate spread increased from 3.8% during the
nine months ended September 30, 1995 to 4.0% during the nine months ended
September 30, 1996, and the ratio of interest earning assets to
interest-bearing liabilities increased from 98.98% during the nine months ended
September 30, 1995 to 100.8% during the nine months ended September 30, 1996.
The Savings Bank's interest rate spread increased from 3.7% during the three
months ended September 30, 1995 to 3.9% during the three months ended September
30, 1996, and the ratio of interest earning assets to interest-bearing
liabilities increased from 99.1% during the three months ended September 30,
1995 to 101.1% during the three months ended September 30, 1996.
Other Income
Other income totaled $1.9 million and $1.4 million for the nine months
ended September 30, 1996 and 1995, respectively. Other income totaled $619,000
and $518,000 for the three months ended September 30, 1996 and 1995,
respectively. The $452,000 or 31.5% increase during the nine months ended
September 30, 1996 and the $101,000, or 19.6% increase during the three months
ended September 30, 1996 was primarily due to increases in income for
stockbrokerage and insurance commissions, fees on checking and savings accounts
and gain on sales of real estate owned, which was partially offset by losses on
sales of mortgage-backed securities.
Operating Expenses
Operating expenses before SAIF assessment in 1996 amounted to $5.9 million
and $5.3 million for the nine months ended September 30, 1996 and 1995,
respectively. Operating expenses before SAIF assessment in 1996 amounted to
$2.0 million and $1.7 million for the three months ended September 30, 1996 and
1995, respectively. In addition to the SAIF assessment, during the nine months
ended September 30, 1996, the Corporation experienced increases in employee
compensation and benefits, office occupancy and equipment expenses and other
expenses, which were substantially offset by decreases in provision for losses
on REO. Employee compensation and benefits increased due to increased profit
sharing expenses, deferred directors' compensation expenses, merit increases
and incentive compensation expenses. Office occupancy and equipment expenses
increased due to increased depreciation on office properties and equipment due
to computer technology upgrades during 1995 and 1996 and the renovation of a
branch location in 1995. Other operating expenses increased due to increases in
professional fees and unrealized losses on mortgage loans held for sale which
were offset by decreases in insurance expense, ATM expenses and expenses
associated with REO operations, net and impaired loan expenses.
Provision for losses on real estate owned amounted to $130,000 for the
nine months ended September 30, 1995. The decrease in 1996 reflects managements
evaluation of the fair value less disposition costs of such real estate. See
Note F of the unaudited notes to consolidated financial statements.
During the three months ended September 30, 1996, in addition to the SAIF
assessment, the Corporation experienced increases in employee compensation and
benefits, occupancy and equipment expenses and advertising and promotion
expenses. Employee compensation and benefits increased due to increased profit
sharing expenses, technology training expenses, deferred directors compensation
expenses and incentive compensation expenses. Office occupancy and equipment
increased due to increased depreciation on office properties and equipment due
to computer technology upgrades and the renovation of a branch location.
Advertising and promotion increased due to marketing expenses attributable to
the promotion of Home Federal's products and the sponsorship of several
community events.
Income Taxes
Home Federal's income tax benefit totaled $210,000 and income tax expense
totaled $151,000 for the three and nine months ended September 30, 1996 as
compared to an income tax expense (benefit) of $218,000 and $(809,000) during
the same periods in the prior year, respectively. The increase in income tax
expense for the three and nine months ended September 30, 1996 as compared to
the prior year was attributable to more normalized income tax provisions during
the 1996 periods, while the provisions for the 1995 periods were impacted by a
reduction in the valuation allowance on deferred tax assets due to management's
determination that a significant portion of such deferred tax assets were
realizable, which resulted in a tax benefit.
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 10-15 year fixed rate
residential mortgage loan products and 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
originated with terms greater that 20 years are primarily for resale in the
secondary market, thereby reducing Home Federal's interest rate risk. Home
Federal generally retains single-family adjustable-rate loans in portfolio.
During the nine months ended September 30, 1996 and 1995, Home Federal
originated $27.7 million and $20.7 million, respectively, of single-family
residential loans. Of such amounts, $14.2 million and $13.2 million provided
for periodic adjustment of interest rates, or 51.2% and 63.8% of single-family
residential loans originated by Home Federal during the respective periods.
During 1996, Home Federal originated $2.5 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 $13.4 million during the nine months ended September
30, 1996 as compared to $11.4 million during the comparable period in 1995.
During 1996, Home Federal purchased investment and mortgage-backed
securities to maintain its asset mix. The Savings Bank purchased $2.0 million
and $22.0 million of investment and mortgage-backed securities, respectively,
which was funded by FHLB advances, loan sales and repayments, and the proceeds
of $8.0 million from the sale of mortgage-backed securities available for sale.
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 Office of Thrift
Supervision ("OTS") that impose certain minimum regulatory capital
requirements. At September 30, 1996 the Savings Bank's tangible, core and
risk-based capital exceeded regulatory requirements. The following table
summarizes, as of September 30, 1996, 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, 1996
---------------------------------
Capital Capital
Capital Requirement Excess
------- ----------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Dollar basis:
Tangible $18,744 $ 3,414 $15,330
Core 18,744 6,828 11,916
Risk-based 20,513 11,187 9,326
Percentage basis:
Tangible 8.2% 1.5% 6.7%
Core 8.2 3.0 5.2
Risk-based 14.7 8.0 6.7
</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 11.3% for the month ended September 30,
1996. At September 30, 1996, 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, 1996, the total of approved loan origination commitments
amounted to $1.5 million, exclusive of loans in process. The amount of savings
certificates which are scheduled to mature during the twelve months ended
September 30, 1997 is $58.1 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, 1996, the Savings Bank experienced a $951,000
decrease in savings accounts. The decrease in savings accounts may have
resulted from the Bank's general policy of offering competitive rates on
deposits but not necessarily matching the highest rates available and
alternative investment products available.
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.
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
On August 29, 1996, a special meeting of the stockholders of the
Corporation was held to consider and vote upon the merger transaction
described in Note B to the unaudited notes to consolidated financial
statements. Stockholders voted to approve the transaction based on the
following votes:
1,921,562 Votes For
588,536 Votes Against (which includes 568,850 broker non-votes)
8,912 Votes Withheld.
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, 1996 BY: /s/ Richard W. Phoebus
- ----------------- --------------------------------
Date Richard W. Phoebus
President and
Chief Executive Officer
November 14, 1996 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,045
<INT-BEARING-DEPOSITS> 2,924
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,454
<INVESTMENTS-CARRYING> 50,104
<INVESTMENTS-MARKET> 49,341
<LOANS> 152,083
<ALLOWANCE> 3,680
<TOTAL-ASSETS> 228,646
<DEPOSITS> 162,713
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,057
<LONG-TERM> 43,829
<COMMON> 2,519
0
0
<OTHER-SE> 16,529
<TOTAL-LIABILITIES-AND-EQUITY> 228,646
<INTEREST-LOAN> 10,025
<INTEREST-INVEST> 2,544
<INTEREST-OTHER> 187
<INTEREST-TOTAL> 12,756
<INTEREST-DEPOSIT> 5,059
<INTEREST-EXPENSE> 6,500
<INTEREST-INCOME-NET> 5,931
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (31)
<EXPENSE-OTHER> 6,898
<INCOME-PRETAX> 924
<INCOME-PRE-EXTRAORDINARY> 924
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 714
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 4.00
<LOANS-NON> 6,522
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,053
<ALLOWANCE-OPEN> 3,632
<CHARGE-OFFS> 190
<RECOVERIES> 238
<ALLOWANCE-CLOSE> 3,680
<ALLOWANCE-DOMESTIC> 3,680
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,104
</TABLE>
