UNITED STATES
SECURITY 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 December 31, 1998
or
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number: 0-27700
HBancorporation, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
37-1351506
(I.R.S. Employer identification No.)
619 12th Street, Lawrenceville, Illinois 62439
(Address of principal executive offices) (Zip Code)
(618) 943-2515
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
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 (or shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing for the past 90
days. {X}Yes { }No
As of December 31, 1998, there were 493,320 shares of the Registrant's common
stock issued and outstanding.
Transitional Small Business Disclosure Format (Check One):
{ } Yes {X} No
<PAGE>
HBANCORPORATION, INC.
INDEX
<TABLE>
PAGE
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<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition at December 31, 1998
and June 30, 1998 1
Consolidated Statements of Income for the three and six months ended
December 31, 1998 and 1997 2
Consolidated Statement of Changes in Stockholders' Equity for the
six months ended December 31, 1998 and 1997 3
Consolidated Statements of Cash Flows for the three and six months
ended December 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE>
HBANCORPORATION, INC.
LAWRENCEVILLE, ILLINOIS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1998 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and equivalents:
Cash $ 96,978 $ 612,736
Interest bearing deposits 2,906,591 2,120,840
------------ ------------
Total cash and cash equivalents 3,003,569 2,733,576
Investments available for sale at fair value 1,373,193 1,628,638
Investments held to maturity at cost 4,416,959 1,022,166
Loans receivable, net 16,323,642 15,582,966
Federal Home Loan Bank stock at cost 87,500 87,500
Federal Reserve Bank stock at cost 67,800 67,800
Accrued interest receivable 199,500 247,437
Office property and equipment, net 194,373 51,451
Other assets 34,204 36,716
------------ ------------
Total Assets $ 25,700,740 $ 21,458,250
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Passbook savings $ 1,907,099 $ 1,871,150
Money market accounts 603,914 681,126
Certificates of deposit 9,831,653 7,969,700
Certificates of deposit $100,000 and over 4,043,802 1,771,564
------------ ------------
Total Deposits 16,386,468 12,293,540
Advances from FHLB 1,750,000 1,750,000
Other Liabilities: 430,531 365,237
------------ ------------
Total Liabilities 18,566,999 14,408,777
------------ ------------
Stockholders' Equity:
Common stock, $.01 par value, 2 million shares authorized,
493,320 shares issued; 403,460 shares outstanding at
December 31, 1998; and 409,560 shares outstanding at
June 30, 1998 4,933 4,933
Additional paid in capital 4,546,806 4,540,644
Retained earnings 4,235,312 4,166,189
Treasury stock at cost (1,433,378) (1,359,078)
Net unrealized appreciation on available-for-sale securities
net of deferred tax 217,000 164,250
Unearned ESOP and recognition and retention shares (436,932) (467,465)
------------ ------------
Total Stockholders' Equity 7,133,741 7,049,473
------------ ------------
Total Liabilities and Stockholders' Equity $ 25,700,740 $ 21,458,250
============ ============
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
HBANCORPORATION, INC.
LAWRENCEVILLE, ILLINOIS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
-------------------------- -------------------------
(Unaudited) (Unaudited)
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 399,681 $ 328,284 $ 758,060 $ 665,528
Investments 129,841 79,545 243,400 153,837
---------- ---------- ---------- ----------
Total Interest Income 529,522 407,829 1,001,460 819,365
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 206,535 123,777 380,047 239,542
Interest on FHLB advances 24,721 21,279 49,442 29,379
---------- ---------- ---------- ----------
Total Interest Expense 231,256 145,056 429,489 268,921
---------- ---------- ---------- ----------
Net Interest Income 298,266 262,773 571,971 550,444
Provision for Loan Losses 2,500 -0- 7,500 -0-
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 295,766 262,773 564,471 550,444
---------- ---------- ---------- ----------
NONINTEREST INCOME
Customer service fees and other 8,286 15,634 15,012 21,402
---------- ---------- ---------- ----------
Total Noninterest Income 8,286 15,634 15,012 21,402
---------- ---------- ---------- ----------
NONINTEREST EXPENSES
General and administrative
Compensation and benefits 112,674 78,912 203,864 157,094
Occupancy and equipment 14,747 10,262 26,218 19,205
Deposit insurance premium 5,237 4,861 10,426 9,641
Computer expense 6,267 4,335 10,061 8,368
Legal expense 12,859 18,592 21,312 29,687
Other 32,615 25,777 56,845 50,853
---------- ---------- ---------- ----------
Total Noninterest Expenses 184,399 142,739 328,726 274,848
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX 119,653 135,668 250,757 296,998
Income Tax Expense 55,000 68,200 116,602 137,700
---------- ---------- ---------- ----------
NET INCOME $ 64,653 $ 67,468 $ 134,155 $ 159,298
========== ========== ========== ==========
Earnings Per Share:
Primary $ 0.13 $ 0.16 $ 0.28 $ 0.36
========== ========== ========== ==========
Fully diluted $ 0.13 $ 0.16 $ 0.27 $ 0.35
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
HBANCORPORATION, INC.
LAWRENCEVILLE, ILLINOIS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Paid in Retained Treasury
Stock Capital Earnings Stock
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1997 $ 4,933 $ 4,514,279 $ 4,015,104 $ (26,838)
Net income for the six months ended
December 31, 1997 0 0 159,298 0
Cash dividends 0 0 (76,470) 0
Change in net unrealized gain on securities
available-for-sale, net of applicable
deferred income taxes of $100,000 0 0 0 0
Effect of contribution to fund ESOP 0 0 0 0
Effect of contribution to fund RRP 0 13,064 0 0
Purchase of treasury stock 0 0 0 (1,346,230)
----------- ----------- ----------- -----------
BALANCE, September 30, 1997 $ 4,933 $ 4,527,343 $ 4,097,932 $(1,373,068)
=========== =========== =========== ===========
BALANCE, June 30, 1998 $ 4,933 $ 4,540,644 $ 4,166,189 $(1,359,078)
Net income for the six months ended
December 31, 1998 0 0 134,155 0
Cash dividends 0 0 (65,032) 0
Change in unrealized gain on securities
available-for-sale, net of applicable
deferred income taxes of $152,500 0 0 0 0
Effect of contribution to fund ESOP 0 6,162 0 0
Effect of contribution to fund RRP 0 0 0 0
Purchase of treasury stock 0 0 0 (74,300)
----------- ----------- ----------- -----------
BALANCE, December 31, 1998 $ 4,933 $ 4,546,806 $ 4,235,312 $(1,433,378)
=========== =========== =========== ===========
<CAPTION>
Unrealized Unearned RRP
Gain (Loss) Compen- Compen- Total
Securities sation sation Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1997 $ 111,500 $ (335,453) $ 0 $ 8,283,525
Net income for the six months ended
December 31, 1997 0 0 0 159,298
Cash dividends 0 0 0 (76,470)
Change in net unrealized gain on securities
available-for-sale, net of applicable
deferred income taxes of $100,000 30,500 0 0 30,500
Effect of contribution to fund ESOP 0 19,733 0 19,733
Effect of contribution to fund RRP 0 0 0 13,064
Purchase of treasury stock 0 0 0 (1,346,230)
----------- ----------- ----------- -----------
BALANCE, September 30, 1997 $ 142,000 $ (315,720) $ 0 $ 7,083,420
=========== =========== =========== ===========
BALANCE, June 30, 1998 $ 164,250 $ (295,988) $ (171,477) $ 7,049,473
Net income for the six months ended
December 31, 1998 0 0 0 134,155
Cash dividends 0 0 0 (65,032)
Change in unrealized gain on securities
available-for-sale, net of applicable
deferred income taxes of $152,500 52,750 0 0 52,750
Effect of contribution to fund ESOP 0 19,733 0 25,895
Effect of contribution to fund RRP 0 0 10,800 10,800
Purchase of treasury stock 0 0 0 (74,300)
----------- ----------- ----------- -----------
BALANCE, December 31, 1998 $ 217,000 $ (276,255) $ (160,677) $ 7,133,741
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
HBANCORPORATION, INC.
LAWRENCEVILLE, ILLINOIS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31
---------------------------- -----------------------------
(Unaudited) (Unaudited)
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET INCOME (Loss) $ 64,653 $ 67,468 $ 134,155 $ 159,298
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,305 3,027 8,880 6,066
Decrease in other assets 4,106 5,652 2,512 7,491
Decrease in interest receivable 69,108 54,799 47,937 7,675
Increase (decrease) in other liabilities (6,369) 19,649 65,294 95,083
Provision for loan loss 2,500 -0- 7,500 -0-
----------- ----------- ----------- -----------
Cash provided by operating activities 138,303 150,595 266,278 275,613
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in certificates of deposit in other
financial institutions, net (increase) decrease -0- (1,849) -0- 98,151
Purchase of Federal Home Loan Bank stock -0- (21,500) -0- (21,500)
Proceeds from maturities of investments
held to maturity 1,012,166 475 1,016,350 1,134
Proceeds from maturities of investments
available-for-sale 176,074 110,653 308,195 110,653
Purchase of investments held to maturity (2,409,078) -0- (4,411,143) -0-
Purchase of investments available-for-sale -0- -0- -0- (1,013,534)
Purchase of fixed assets (146,401) (3,442) (151,802) (4,698)
Net (increase) in loans (1,179,755) (383,181) (748,176) (825,954)
----------- ----------- ----------- -----------
Cash (used) by investing activities (2,546,994) (298,844) (3,986,576) (1,655,748)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from FHLB -0- 750,000 -0- 1,750,000
Payment of dividends (32,277) (37,002) (65,032) (76,470)
Allocation of ESOP shares 22,763 13,485 25,895 19,733
Allocation of RRP shares 10,800 13,064 10,800 13,064
Net increase (decrease) in demand deposits,
NOW accounts, savings accounts and
certificates of deposit 1,434,550 658,919 4,092,928 1,421,955
Purchases of treasury stock -0- (906,363) (74,300) (1,346,230)
----------- ----------- ----------- -----------
Cash provided by financing activities 1,435,836 492,103 3,990,291 1,782,052
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (972,855) 343,854 269,993 401,917
Cash and Cash Equivalents at Beginning
of Period 3,976,424 1,708,357 2,733,576 1,650,294
----------- ----------- ----------- -----------
Cash and Cash Equivalents at End of Period $ 3,003,569 $ 2,052,211 $ 3,003,569 $ 2,052,211
=========== =========== =========== ===========
Cash paid for:
Interest $ 207,111 $ 125,418 $ 383,006 $ 237,680
=========== =========== =========== ===========
Income taxes $ 96,760 $ 86,000 $ 116,639 $ 107,481
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
HBANCORPORATION, INC.
LAWRENCEVILLE, ILLINOIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - BASIS OF PRESENTATION
The unaudited information for the quarters ended December 31, 1998 and 1997,
includes the results of operations of HBancorporation, Inc. (the "Company") and
its wholly owned subsidiary Heritage National Bank (the "Bank"). In the opinion
of management of the Company and the Bank, the financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the consolidated financial statements. These interim financial
statements should be read in conjunction with the Company's most recent annual
financial statements and footnotes included in the annual report of
HBancorporation, Inc. for the fiscal year ended June 30, 1998. The results of
the periods presented are not necessarily representative of the results of
operations and cash flows which may be expected for the entire year.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
the Bank. All significant inter-company balances and transactions have been
eliminated in consolidation.
NOTE 3 - STOCK CONVERSION
The Company issued 493,320 shares, $.01 par value common stock, for proceeds of
$4,510,404 net of expenses of approximately $423,000. The Bank converted from a
mutual savings association to a stock savings association and then to a national
bank immediately following the formation of the Company and received proceeds of
$2,255,202 in exchange for all its common stock. This transaction was accounted
for using the pooling of interests method. On April 1, 1996, the Company began
trading as a public company on the OTC Electronic Bulletin Board under the
symbol "HBIN".
Federal regulations require that, upon conversion from a mutual to stock form of
ownership, a "liquidation account" be established by restricting a portion of
net worth for the benefit of eligible savings account holders who maintain their
savings accounts with the Bank after conversion. In the event of complete
liquidation (and only in such event) each savings account holder who continues
to maintain his savings account shall be entitled to receive a distribution from
the liquidation account after payment of all creditors, but before any
liquidation distribution with respect to capital stock. This account will be
proportionately reduced for any subsequent reduction in such holders' savings
account. Federal regulations impose limitations on the payment of dividends and
other capital distributions, including, among others, that the Company may not
declare or pay a cash dividend on any of its capital stock if the effect thereof
would cause the Bank's capital to be reduced below the amount required for the
liquidation account or the capital requirements imposed by the Financial
Institutions Reform, Recovery, and Enforcement Act.
Concurrent with the conversion, the board of directors approved the adoption of
the Company's Employee Stock Ownership Plan (the "ESOP"). The ESOP qualifies
under Sections 401(a) and 501(a) of the Internal Revenue Code, eligibility is
based on hours of service, date of hire, and age. Contributions to the ESOP are
determined by the board of directors, in the form of cash or the Company's
common stock. No employee contributions are accepted. Contributions are
allocated based on the ratio of the participant's compensation to total
compensation of all participants. Participant's account balances are fully
vested after five years of service.
-5-
<PAGE>
HBANCORPORATION, INC.
LAWRENCEVILLE, ILLINOIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS
On April 28, 1997, the stockholders' approved the HBancorporation, Inc.
Recognition and Retention Plan. The purpose of this plan is to provide
directors, officers and employees with a proprietary interest in the Company in
a manner designed to encourage such individuals to remain with the Company and
the Bank. The terms of each RRP will be identical, only the participants and the
number of shares awarded to each participant vary. Eligible directors, officers
and other key employees of the Company will earn (i.e., become vested in) shares
of common stock covered by the award at a rate not to exceed 20% per year, with
the first installment vesting April 28, 1997.
On April 28, 1997, the stockholders approved the HBancorporation, Inc. 1997
Stock Option and Incentive Plan. Pursuant to the Stock Option Plan, the Company
will reserve for issuance thereunder either from authorized but unissued shares
or from issued shares reacquired and held as treasury shares, 59,198 shares of
Common Stock (12.0% of the Company's current shares outstanding). Management
currently intends, to the extent practicable and feasible, to fund the Stock
Option Plan from issued shares reacquired by the Company in the open market.
Awards under the plan may be in the form of stock options, stock appreciation
rights or limited stock appreciation rights. Awards made under the plan vest at
a rate of one-fifth of the initial award per year, subject to the participant
maintaining continuous service since the date of grant.
NOTE 5 - EARNINGS PER SHARE
Primary earnings per share amounts for the six months ended December 31, 1998
and 1997 are computed based on the weighted-average number of shares actually
outstanding, 479,212 in 1998, and 438,696 in 1997. Fully diluted earnings per
share amounts are based on an increased number of shares that would be
outstanding assuming exercise of the stock options and RRP awards. The number of
shares used in the computations of fully diluted earnings per share for the six
months ended December 31, 1998 and 1997 were 496,804 and 458,560, respectively.
-6-
<PAGE>
HBANCORPORATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Forward-Looking Statements. When used in this filing and in future filings by
the Company with the Securities and Exchange Commission, in the Company's press
releases or other public or shareholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases
"would be", "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project" or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and advises
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
Impact of the Year 2000. The Company has conducted a comprehensive review of its
computer systems to identify applications that could be affected by the "Year
2000" issue, and has developed an implementation plan to address the issue. The
Company's data processing is performed by an outside service bureau. The Company
has already contacted each vendor to request time tables for year 2000
compliance and expected costs, if any, to be passed along to the Company. To
date, the Company has been informed that its primary service providers
anticipate that all reprogramming efforts will be completed by December 31,
1999, allowing the Company adequate time for testing. Certain other vendors have
not yet responded, however, the Company will pursue other options if it appears
that these vendors will be unable to comply. Management does not expect these
costs to have a significant impact on its financial position or results of
operations however, there can be no assurance that the vendors systems will be
2000 compliant, consequently the Company could incur incremental costs to
convert to another vendor. The Company has identified certain of its hardware
and software equipment that will not be Year 2000 compliant and intends to
purchase new equipment and software prior to March 31, 1999. These capital
expenditures are expected to total approximately $20,000.
General
The Company is incorporated under the laws of Delaware and is generally
authorized to engage in any activity that is permitted for a bank holding
company under federal banking law. The Company owns all the stock of the Bank.
The Company had not engaged in any material operations at December 31, 1998, and
had no significant assets other than its equity investment in the Bank's stock,
cash, investments, and a loan to the Company's ESOP.
-7-
<PAGE>
HBANCORPORATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Established in 1935, the Bank (formerly named Lawrenceville Federal Savings and
Loan Association) is a community-oriented financial institution offering a
variety of financial services to meet the needs of the communities it serves.
The Bank's primary market area covers Lawrence County, Illinois, and Knox
County, Indiana. The Bank attracts deposits from the general public and uses
such deposits, together with borrowings and other funds, to originate one to
four family residential mortgages, commercial business loans, consumer loans,
and finance leases. The Bank also invests in U.S. government and agency
obligations and may invest in other permissible investments.
The Bank's results of operations are primarily dependent upon its net interest
income, which is the difference between interest earned on loans and investments
and interest paid on deposits and other borrowed funds. Net interest income is
directly affected by the relative amounts of interest earning assets and
interest bearing liabilities and the interest rates earned or paid on such
amounts. The Bank's results of operations are also affected by the provision for
loan losses and the level of noninterest income and expenses. Noninterest income
consists primarily of service charges. Noninterest expense includes salaries and
employee benefits, occupancy expenses, federal deposit insurance premiums, data
processing expenses, and other operating expenses.
The operating results of the Bank are also affected by general economic
conditions, the monetary and fiscal policies of federal agencies, and the
policies of agencies that regulate financial institutions. The Bank's cost of
funds is influenced by interest rates on competing investments and general
market rates of interest. Lending activities are influenced by the demand for
real estate loans and other types of loans, which in turn is affected by the
rates of interest at which loans are offered, general economic conditions
affecting loan demand, and the availability of funds for lending activities.
Financial Condition
For the six months ended December 31, 1998, total assets increased approximately
$4.2 million from $21.5 million to $25.7 million. Assets increased as a result
of an increase in investments held to maturity. Deposits increased by
approximately $4.1 million to $16.4 million at December 31, 1998, from $12.3
million at June 30, 1998. Management believes the increase in deposits stems
from customers seeking higher yielding investment alternatives. For the six
months ended December 31, 1998, total stockholders' equity increased
approximately $84,000. The increase was primarily a result of net income offset
by the purchase of treasury stock and payment of dividends.
Results of Operations:
Comparison of the three months ended December 31, 1998 and 1997.
General. Net income decreased to $65,000 for the three months ended December 31,
1998, compared to $67,000 for the same period in 1997. The decrease was
primarily related to higher interest expense on deposits and FHLB advances.
Interest Income. Total interest income increased by $22,000 or 5.3% to $530,000
for the three months ended December 31, 1998, compared to the same period last
year. Income from loans grew by $71,000 for the three month period. Investment
income increased by $50,000 for the three months due primarily to the purchase
of investment securities.
-8-
<PAGE>
HBANCORPORATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Interest Expense. Total interest expense increased by $86,000 for the three
months ended December 31, 1998, to $231,000 compared to $145,000 in the previous
three month period. The amount of certificates of deposit have increased $5.7
million at December 31, 1998 from the same period a year ago. The Bank paid
$25,000 interest to FHLB on advances for the three months ended December 31,
1998.
Net Interest Income. Net interest income before provision for loan losses
increased $35,000 or 13.5% for the recent three month period compared to the
same period a year ago, from $263,000 to $298,000.
Nonperforming Assets and Provisions for Loan Losses. The provision for loan
losses is a result of management's periodic analysis of the adequacy of the
Bank's allowance for loan losses. During the three month period ended December
31, 1998 the Bank recorded a $2,500 provision for loan losses, compared to no
provision for the three month period ended December 31, 1997. As of December 31,
1998 and June 30, 1998, the Bank's allowance for loan losses was $141,000 and
$133,000, respectively.
The Bank had no nonperforming assets at December 31, 1998 or June 30, 1998.
There was no foreclosed real estate owned by the Bank at December 31, 1998 or
June 30, 1998.
Noninterest Income. Noninterest income was $8,300 for the three month period
ended December 31, 1998, compared to $15,000 for the same period in 1997. This
decrease is primarily due to a decrease in commercial loan fees.
Noninterest Expense. For the three months ended December 31, 1998, the total
noninterest expense was $184,000 compared to $143,000 for the same three months
in 1997. The increase is primarily due to an increase in general and
administrative costs as a result of hiring additional employees.
Income Tax Expense. Income tax expense decreased to $55,000 during the most
recent three months compared to $68,000 for the same period a year ago. Lower
taxes were the result of decreased income before tax of $120,000 for the most
recent three months compared to $136,000 for a year ago.
Comparison of the six months ended December 31, 1998 and 1997.
General. Net income decreased to $134,000 for the six months ended December 31,
1998, compared to $159,000 for the same period in 1997. The decrease was
primarily due to a $22,000 increase in net interest income, and lower deposit
insurance premiums, offset by contributions to the ESOP and RRP.
Interest Income. Total interest income increased by $182,000 or 22.2% to
approximately $1.0 million for the six months ended December 31, 1998, compared
to the same period last year. Income from loans increased by $92,000 for the six
months. Investment income increased by $90,000 for the six months due primarily
to an increased amount of investments.
Interest Expense. Total interest expense increased by $160,000 for the six
months ended December 31, 1998 to $429,000 compared to $269,000 in the previous
six month period. The increase was primarily due to interest on FHLB advances
and deposits.
Net Interest Income. Net interest income before provision for loan losses
increased $22,000 or 3.9%, from $550,000 to $572,000 for the recent six month
period compared to the same period a year ago, respectively.
-9-
<PAGE>
HBANCORPORATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Nonperforming Assets and Provisions for Loan Losses. The provision for loan
losses is a result of management's periodic analysis of the adequacy of the
Bank's allowance for loan losses. During the six month period ended December 31,
1998 the Bank recorded a $7,500 provision for loan losses, compared to no
provision for the same period in 1997. As of December 31, 1997 and June 30,
1997, the Bank's allowance for loan losses was $128,000.
The Bank had no nonperforming assets at December 31, 1997 or June 30, 1997.
There was no foreclosed real estate owned by the Bank at December 31, 1997 or
June 30, 1997.
Noninterest Income. Noninterest income was $15,000 for the six month period
ended December 31, 1998, compared to $21,000 for the same period in 1997. This
decrease is primarily due to a decrease in commercial loan fees.
Noninterest Expense. For the six months ended December 31, 1998, the total
noninterest expense was $329,000 compared to $275,000 for the same six months in
1997. Compensation and benefits have increased approximately $47,000 as a result
of contributions to the ESOP, costs associated with the RRP and the hiring of
additional employees.
Income Tax Expense. Income tax expense increased to $117,000 during the most
recent six months compared to $138,000 for the same period a year ago. Lower
taxes were the result of filing consolidated tax returns for the bank and the
holding company.
Capital Requirements. The Company's main sources of funds are deposits and loan
and investment repayments. Other potential sources would include borrowings from
the Federal Home Loan Bank of Chicago (FHLB). As a national bank, the Bank is
not subject to any prescribed liquidity requirement.
The Bank uses its capital resources to meet ongoing commitments, to fund
maturing certificates of deposit and deposit withdrawals, to invest, to fund
existing and future loan commitments, to maintain liquidity, and to meet
operating expenses. The company anticipates it will have sufficient funds to
meet current loan commitments. At December 31, 1998, the Bank had no outstanding
commitments to extend credit. Management believes loan repayments and other
sources of funds will be adequate to meet the Bank's foreseeable liquidity
needs. FHLB advances could be used to take advantage of investment
opportunities, but are not relied upon in the regular course of business.
The Bank is required to maintain specific amounts of regulatory capital pursuant
to federal regulations. The table below presents the capital position at
December 31, 1998 relative to the regulatory capital requirements for the Bank.
Amount
(in thousands)
--------------
Tier 1 Capital $6,062
Tier 1 Capital Requirement 764
------
Excess $5,298
======
Total Risk-Based Capital $6,203
Risk-Based Capital Requirement 1,334
------
Excess $4,869
======
-10-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings to which the Company or the
Bank is a party or of which any of their property is subject. From
time-to-time, the Bank is a party to legal proceedings incident to its
business.
Item 2. Exhibits and Reports on Form 8-K
None
-11-
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
HBANCORPORATION, INC.
Registrant
Date: January 28, 1999 /s/ Kevin J. Kavanaugh
--------------------------- -----------------------------
Kevin J. Kavanaugh, President
and Chief Executive Officer
Date: January 28, 1999 /s/ Cleora Gillespie
--------------------------- -----------------------------
Cleora Gillespie, Secretary
and Treasurer
-12-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-QSB FOR THE FISCAL YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-END> Dec-31-1998
<CASH> 96,978
<INT-BEARING-DEPOSITS> 1,718,591
<FED-FUNDS-SOLD> 1,188,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,373,193
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 4,416,959
<LOANS> 16,323,642
<ALLOWANCE> (140,917)
<TOTAL-ASSETS> 25,700,740
<DEPOSITS> 16,386,468
<SHORT-TERM> 1,750,000
<LIABILITIES-OTHER> 430,531
<LONG-TERM> 0
0
0
<COMMON> 4,933
<OTHER-SE> 4,546,806
<TOTAL-LIABILITIES-AND-EQUITY> 25,700,740
<INTEREST-LOAN> 399,681
<INTEREST-INVEST> 129,841
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 529,522
<INTEREST-DEPOSIT> 206,535
<INTEREST-EXPENSE> 24,721
<INTEREST-INCOME-NET> 298,266
<LOAN-LOSSES> 2,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 184,399
<INCOME-PRETAX> 119,653
<INCOME-PRE-EXTRAORDINARY> 119,653
<EXTRAORDINARY> 0
<CHANGES> (55,000)
<NET-INCOME> 64,653
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (138,417)
<CHARGE-OFFS> (2,500)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (140,917)
<ALLOWANCE-DOMESTIC> (140,917)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
