<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
( x ) Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended September 30, 1996.
( ) Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ___ to ___.
Commission File Number: 0-18284
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HOMECORP, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 36-3680814
- ------------------------------- ----------------------------
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification Number
1107 East State Street, Rockford, IL 61104-2259
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(Address of Principal Executive Offices) (ZIP Code)
815-987-2200
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(Issuer's Telephone Number, including Area Code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes x No
----- -----
As of SEPTEMBER 30, 1996 there were 1,128,579 issued and outstanding shares of
the Issuer's Common Stock.
<PAGE>
HOMECORP, INC.
AND SUBSIDIARY
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets as of September 30, 1996
(unaudited) and December 31, 1995 1
Statements of Earnings
(unaudited) for the three and nine months
ended September 30, 1996 and 1995 2
Statements of Cash Flows
(unaudited) for the nine months
ended September 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 7
Part II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (UNAUDITED) HOMECORP, INC.
(IN THOUSANDS) AND SUBSIDIARY
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September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and non-interest bearing deposits $ 6,915 $ 7,634
Interest bearing deposits 33 388
Federal funds sold - 2,390
Total cash and cash equivalents 6,948 10,412
Securities available for sale, at fair value 12,149 8,311
Investment securities (approximate market value of
$5,413 in 1996 and $6,412 in 1995) 5,503 6,504
Mortgage-backed securities (approximate market
value of $19,217 in 1996 and $24,146 in 1995) 19,679 24,488
Federal Home Loan Bank Stock, at cost 2,079 2,279
Loans receivable, net 270,845 261,022
Mortgage loans held for sale 1,593 4,741
Real estate acquired in settlement of loans 9,763 9,790
Investment in real estate developments 5,198 4,060
Premises and equipment 3,430 3,630
Other assets, principally accrued interest 3,272 2,790
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Total Assets $340,449 $338,027
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LIABILITIES:
Deposits $307,820 $314,294
Borrowed funds 8,300 -
Advance payments by borrowers for taxes and
insurance 674 2,075
Other liabilities 3,231 1,234
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Total Liabilities $320,025 $317,603
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SHAREHOLDERS' EQUITY:
Preferred stock-Par Value $0.1; 1,000,000
shares authorized; none outstanding - -
Common stock-Par Value $.01; 5,000,000 shares
authorized; 1,128,579 and 1,126,371 shares
issued and outstanding for 1996 and 1995,
respectively 11 11
Paid-in capital 6,490 6,465
Retained earnings 13,984 13,974
Unrealized loss on securities available for
sale, net of taxes (61) (26)
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Total Shareholders' Equity $ 20,424 $ 20,424
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Total Liabilities and Shareholders' Equity $340,449 $338,027
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</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) HOMECORP, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA) AND SUBSIDIARY
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable $ 5,524 $ 5,644 $16,172 $15,851
Mortgage-backed securities 297 374 946 1,176
Securities available for sale 187 99 486 314
Investment securities and other 126 234 569 978
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Total interest income 6,134 6,351 18,173 18,319
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INTEREST EXPENSE:
Deposits 3,678 3,862 11,032 11,126
Borrowed funds 74 93 74 93
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Total interest expense 3,752 3,955 11,106 11,219
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Net interest income 2,382 2,396 7,067 7,100
Provision for loan losses 175 90 395 270
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Net interest income after
provision for loan losses 2,207 2,306 6,672 6,830
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NON-INTEREST INCOME:
Fees and service charges 436 371 1,252 1,049
Net gains on sale of loans,
investment securities, and
mortgage-backed securities 181 101 729 184
Income (loss) from real estate
developments 388 (68) 375 27
Operations of real estate owned 120 - 351 -
Other 22 40 106 111
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Total non-interest income 1,147 444 2,813 1,371
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NON-INTEREST EXPENSE:
Compensation and benefits 1,264 1,155 3,773 3,394
Office occupancy and equipment 305 304 923 868
Data processing 232 190 673 543
Federal deposit insurance premium 228 203 634 639
SAIF special assessment 2,043 - 2,043 -
Other 539 452 1,434 1,323
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Total non-interest expense 4,611 2,304 9,480 6,767
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Income before income taxes (1,257) 446 5 1,434
Income taxes (501) 168 (5) 542
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Net income (loss) $ (756) $ 278 $ 10 $ 892
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Earnings per common and common
equivalent share:
Earnings per share $ (0.64) $ 0.23 $ 0.01 $ 0.76
======= ======= ======= =======
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) HOMECORP, INC.
(IN THOUSANDS) AND SUBSIDIARY
- --------------------------------------------------------------------------------
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10 $ 892
Adjustment to reconcile net income to net cash
(used in) operating activities:
Amortization of:
Premiums and discounts on loans, and mortgage-
backed and investment securities 109 131
Net (income)/loss from real estate developments (375) (27)
Provision for loan losses 395 270
Net (gain) loss on sale of:
Loans receivable (729) 179
Securities available for sale - (4)
Depreciation and amortization of premises
and equipment 347 340
Decrease (Increase) in loans held for sale 3,148 (3,557)
Increase (Decrease) in cash flows due to
changes in:
Accrued interest and other assets (454) (194)
Accrual for SAIF special assessment 2,043 -
Deferred taxes and other liabilities (46) (117)
Total adjustments 4,438 (3,337)
Net cash provided by (used in) operating
activities 4,448 (2,445)
Cash flows from investing activities:
Loan originations, net of principal payments
on loans (4,197) (16,015)
Purchases of:
Loan participations (5,202) (8,155)
Securities available for sale (6,997) -
Investment securities (1,500) (282)
Certificates of deposit (7,000) (11,000)
Premises and equipment (147) (407)
Investment in foreclosed real estate (24) (1,179)
Investment in real estate developments (977) (1,093)
Principal payments on mortgage-backed securities 4,688 3,231
Principal repayments of securities available for
sale 1,086 679
Proceeds from sales of:
Securities available for sale - 2,554
Real estate developments 67 210
Foreclosed real estate 61 675
Proceeds from maturities of:
Certificates of deposit 7,000 13,000
Investment securities 2,500 1,000
Securities available for sale 1,986 -
Redemption of investments required by law 172 -
Distributions of income on real estate
partnerships 147 1,209
Net cash provided by investing activities (8,337) (15,573)
Cash flows from financing activities:
Net increase (decrease) in borrowings 8,300 2,000
Net increase (decrease) in deposits (6,473) 6,593
Net increase (decrease) in advance payments by
borrowers for taxes and insurance (1,402) (792)
Net cash used in financing activities 425 7,801
Net increase (decrease) in cash and cash equivalents (3,464) (10,217)
Cash and cash equivalents at beginning of year 10,412 17,983
Cash and cash equivalents at end of year 6,948 7,766
Supplemental disclosures of cash flow information
payment during the period for:
Interest 10,873 11,033
Taxes 240 300
</TABLE>
3
<PAGE>
HOMECORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) MANAGEMENT'S STATEMENT
In the opinion of management the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring
in nature) necessary to present fairly the financial position of HomeCorp,
Inc. and Subsidiary (the Company) at September 30, 1996 and December 31,
1995 and the results of operations for three and nine month periods ended
September 30, 1996 and 1995 and cash flows for the year-to-date periods
ended September 30, 1996 and 1995. The Notes to the Consolidated Financial
Statements which are contained in the 1995 Annual Report to Shareholders
and incorporated by reference into the 1995 Form 10-K should be read in
conjunction with these Consolidated Financial Statements.
(2) LOANS RECEIVABLE
Following is a summary of loans receivable for the dates indicated:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(In Thousands) 1996 1995
--------- --------
<S> <C> <C>
Conventional first mortgage loans $182,031 $195,423
Short-term construction and land loans 16,016 9,102
Commercial business loans 5,855 4,007
Auto loans 51,598 38,687
Home equity and improvement loans 20,721 16,268
Other consumer loans 1,290 1,294
-------- --------
Total loans receivable, gross $277,511 $264,781
Less:
Loans in process 5,407 2,754
Deferred loan origination costs (415) (440)
Unearned discount, principally on
loans purchased 222 270
Allowance for possible loan losses 1,452 1,175
-------- --------
Total loans receivable net $270,845 $261,022
======== ========
</TABLE>
4
<PAGE>
Adjustable rate loans totaled $114.7 million and $111.7 million at
September 30, 1996 and December 31, 1995, respectively. The Bank serviced
first mortgage loans for other institutions approximating $151.4 million
and $125.8 million at September 30, 1996 and December 31, 1995,
respectively.
The following summarizes activity in the allowance for loan losses for the
three and nine month periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In Thousands) 1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period $1,365 $1,034 $1,175 $1,048
Charge-offs (89) (29) (122) (227)
Recoveries 1 - 4 4
Provision for possible loan losses 175 90 395 270
------ ------ ------ ------
Balance at end of year $1,452 $1,095 $1,452 $1,095
====== ====== ====== ======
</TABLE>
Total impaired loans at September 30, 1996 were $2,881,000.
In addition to residential and commercial mortgage loans and consumer loans
90 days or more delinquent, which totaled $2,675,000, the Bank identified
as impaired one loan totaling $206,000 to a borrower who also had a
commercial real estate loan that was greater than 90 days delinquent as of
September 30, 1996. The $206,000 loan was current at September 30, 1996.
Total indebtedness of this borrower was $980,000 at September 30, 1996. The
indebtedness is secured by a commercial building which is being leased to
retail businesses. A reserve of $45,000 had been established for this
borrower at December 31, 1995.
Included in impaired loans were two participating interests totaling
$1,445,000 at September 30, 1996 that were ninety days delinquent but which
continued on an accrual basis. The participating interests represent
interests in loans to a single borrower who recently filed for bankruptcy
protection under Chapter 11 and are secured by multi-family properties
located in Southern Wisconsin. The cash flow from both properties is
currently being diverted to a bankruptcy trustee for distribution. It is
anticipated that funds will be released to the participating banks as
senior secured creditors and that such funds will return the loans to a
current status and maintain scheduled payments. Based upon the current and
historical lease performance of the buildings, their current physical
condition and the economic condition of the area in which the buildings are
located, accrual status was considered appropriate.
5
<PAGE>
A total of $151,000 in interest income was recognized during the first nine
months of 1996 on impaired loans. A total of $94,000 was recognized on the
two delinquent participations discussed above, including $31,000 which was
accrued at September 30, 1996. An additional $82,000 of interest income
would have been recognized had the non accruing impaired loans remained
current. The average recorded investment in impaired loans during the nine
months ended September 30, 1996 was approximately $1.5 million.
At September 30, 1995, the recorded investment in loans that were
considered to be impaired was $150,000, all of which were on a nonaccrual
basis. There was no allowance for loan losses related to the impaired
loans. The average recorded investment in impaired loans during the nine
months ended September 30, 1995 was approximately $5.4 million. For the
nine months ended September 30, 1995, the Bank recognized interest income
on impaired loans of $364,000.
The Bank has no restructured loans at September 30, 1996.
(3) EARNINGS PER SHARE
Earnings (loss) per share for the three and nine months ended September 30,
1996 were computed by dividing net income by 1,175,539 and 1,174,467, the
average number of common and common equivalent shares (using the treasury
share method) outstanding, respectively. The Company's equivalent shares
consist entirely of common stock options.
Earnings per share for the three and nine months ended September 30, 1995
were computed by dividing net income by 1,168,213 and 1,167,773, the
weighted average number of shares outstanding during the respective periods
as adjusted for the dilutive effect of common stock options.
(4) CHANGES IN ACCOUNTING PRINCIPLES
During the quarter ended March 31, 1996, the Company adopted FASB Statement
No. 122, "Accounting for Mortgage Servicing Rights," which requires that an
allocation of costs be made between loans and their related servicing
rights for loans originated with a definitive plan to sell with servicing
rights retained. Statement No. 122 requires entities to recognize a
separate asset for servicing rights which will increase the gain on sale of
loans when the servicing rights are retained. Statement No. 122 is being
applied on a prospective basis to mortgage servicing rights acquired after
December 31, 1995. Mortgage servicing rights acquired prior to January 1,
1996 will continue to be accounted for under the prior accounting rules,
under which costs were fully allocated to the loan and servicing income was
recognized as it was received over the life of the loan. The effect of
adopting this statement was to increase net income after income taxes by
$239,000 during the nine months ended September 30, 1996. Servicing rights
capitalized in accordance with this accounting pronouncement totaled
$392,000 at September 30, 1996.
6
<PAGE>
HOMECORP, INC.
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q 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, and in oral statements made with the
approval of an authorized executive officer, the words or phrases "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 certain risks and uncertainties, that
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. The Company wishes to advise readers that the factors
listed below could affect the Company's financial performance and could cause
the Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake -- and specifically declines any obligation -- to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
FINANCIAL CONDITION
The Company has continued its focus upon community banking during 1996, as
evidenced by the continued growth in the consumer and commercial loan
portfolios. The consumer portfolio increased $17.4 million, or 30.9% during the
first nine months of 1996. The increase was largely due to the increase in
automobile loans, most of which are originated indirectly through local auto
dealers. While representing a smaller percentage of the total increase, home
equity and improvement loans increased 27.4% during the first nine months of
1996. The September 30, 1996 consumer loan delinquency ratio was .5% of the
portfolio.
The commercial portfolio increased $1.8 million, or 46.1% during the same time
period. Construction and land loans also increased during the first nine months
of 1996. Gross construction and land loans totaled $16.0 million at September
30, 1996 as compared to $9.1 million at December 31, 1995.
7
<PAGE>
The conventional first mortgage loan portfolio declined $13.4 million during the
nine months ended September 30, 1996. The majority of conventional mortgage loan
originations were sold, with the servicing retained by the Bank.
The Bank reclassified $450,000 of the general loan loss reserve against
foreclosed real estate. The reclassification has been reflected in prior periods
as well. Reserves had been provided in past periods and it was determined the
reclassification of the reserve amount more accurately reflected the nature of
the allowances provided. The balance of foreclosed real estate at September 30,
1996 was unchanged from December 31, 1995. The general loan loss reserve has
been reclassified in prior periods to conform to the current year's
presentation.
Investment in real estate developments increased $1.1 million to $5.2 million
between September 30, 1996 and December 31, 1995. The increase is primarily the
result of operating costs and improvements within one of the Company's real
estate ventures. All the cash flow generated by the venture is used to reduce
the debt of the venture, which is held by an unaffiliated party.
Deposits decreased $6.5 million during the first nine months of 1996, primarily
in longer term certificates of deposit, defined as original terms of 24 months
or greater. Shorter term certificates increased $7.2 million during the nine
month period. Management continues to focus upon attracting core deposits and
shorter term certificates of deposit.
Shareholder's equity remained unchanged at $20.4 million between September 30,
1996 and December 31, 1995. The accrual of the $2.0 million SAIF assessment as
of September 30, 1996 reduced 1996 earnings to $10,000. The Bank's increased
investment in its real estate development subsidiary together with the growth
experienced in the consumer and commercial loan portfolios resulted in a
September 30, 1996 risk based capital ratio of 7.74% as compared to the 8.0%
requirement of the Office of Thrift Supervision, the Bank's primary regulator.
In order to achieve compliance at December 31, 1996, management intends to
reduce the Bank's investment in its subsidiary through the continued sale of
real estate or reduce risk based assets through the sale of higher risk weighted
assets and the repayment of Federal Home Loan Bank advances. See - "Liquidity
and Capital."
Impaired loans increased to $2.9 million at September 30, 1996 from $1.0 million
at December 31, 1995. The increase is primarily the result of two participating
interests in multi-family loans totaling $1.4 million which were classified as
impaired during the third quarter of 1996. See - "Footnote (2) - Loans
Receivable."
8
<PAGE>
RESULTS OF OPERATION
The following table presents, for the period indicated, the yields on average
interest-earning assets as well as the cost of average interest-bearing
liabilities. The table does not reflect the impact of income taxes. All averages
are monthly average balances.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Mortgage loans 8.04% 8.24% 7.95% 8.02%
Consumer loans 8.38 8.56 8.28 8.44
Commercial loans 9.32 9.27 9.33 9.61
Other earning assets 5.89 5.94 5.79 5.94
---- ---- ---- ----
Total interest-earning assets 7.85 7.95 7.72 7.72
---- ---- ---- ----
Deposits 4.86 5.03 4.83 4.85
Other borrowings 5.64 6.11 5.64 6.11
---- ---- ---- ----
4.88 5.04 4.83 4.86
---- ---- ---- ----
Interest rate spread 2.97% 2.91% 2.89% 2.86%
==== ==== ==== ====
Net interest rate margin 3.05% 3.00% 3.00% 2.99%
==== ==== ==== ====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 VS 1995:
The Company's third quarter earnings were impacted by Congressional legislation
signed by President Clinton on September 30, 1996 which included a special
assessment on all institutions insured under the Savings Association Insurance
Fund (SAIF). HomeCorp's special assessment totaled $2.0 million which resulted
in a net after tax reduction in operating earnings of $1.2 million. Excluding
this special assessment, HomeCorp's third quarter earnings were $490,000 or
$0.41 per share, an increase of 76% from the $278,000 or $0.23 per share
reported for the third quarter of 1995.
Non-interest income generated the increase in earnings between quarters. The
largest increase was income from real estate development, which increased to
$388,000 in third quarter 1996 from a loss of $68,000 in the prior year. The
increase is primarily due to the sale of commercial lots, although the sale of
single family lots also increased from the prior year.
Income from REO operations totaled $120,000 for the third quarter of 1996. The
shopping center generating the net operating earnings entered REO in late
September 1995. The center remains in excess of 90% leased and is listed for
sale. The center, as a commercial real estate loan, did generate interest
revenue through most of the third quarter of 1995.
Gains from the sale of residential mortgage loans increased to $181,000 during
the third quarter of 1996 as compared to $101,000 in third quarter
9
<PAGE>
1995, an increase of $80,000 or 79% due to the adoption of an accounting
standard requiring the recognition of servicing rights at the time of sale for
loans sold on a servicing retained basis and approximately $2.4 million more in
mortgage loan sales in 1996 as compared to 1995. See - "Footnote (3) - "Changes
in Accounting Principles." Management continues to sell virtually all fixed rate
residential mortgage loans originated and some adjustable rate loans. Management
will continue to originate adjustable rate loans for portfolio as long as yields
can be obtained to provide favorable returns to the Bank. Adjustable rate loans
with fixed rates for initial periods of three and five years and annual
adjustments thereafter as well as six month adjustable loans have been
originated for portfolio.
Service charges and loan fees increased $65,000, or 17.5%, to a total of
$436,000 for third quarter 1996 as compared to $371,000 for third quarter 1995.
Service charges continue to benefit from the growth experienced in the number of
retail and business checking accounts. Loan fees have benefited from the
increased mortgage loan servicing portfolio, which totaled $151.4 million at
September 30, 1996. The servicing portfolio was $125.8 million at December 31,
1995.
Net interest income totaled $3.8 million for the three months ended September
30, 1996 as compared to $4.0 million during the same 1995 period. Interest
spread, the difference between the asset yield and cost of funds, increased to
2.97% from 2.91% and net interest margin increased to 3.05% from 3.00%. The
decline in total dollars of net interest income is the result of a decline in
the average balance of interest bearing assets. The average interest bearing
assets of the Bank were $312.4 million for third quarter 1996 as compared to
$319.4 million for the third quarter of 1995.
Operating expenses, excluding the special SAIF assessment, increased $264,000
between the third quarters of 1996 and 1995. The largest increases were noted in
compensation and benefits which reflect the impact of additional lending
personnel and increased pension costs.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VS 1995:
Earnings for the nine month period were likewise impacted by the special (SAIF)
assessment and resulted in net income for the nine months ended September 30,
1996 of $10,000. Net income excluding the special assessment totaled $1.3
million as compared to $892,000 in the prior year, an increase of 40.8%.
Noninterest income more than doubled to a total of $2.8 million during the nine
months ended September 30, 1996 as compared to the comparable prior year period.
The largest increase was noted in gains on the sale of mortgage loans, which
increased $545,000 to $729,000 in 1996 from $184,000 during 1995. A total of
$442,000 in gains were generated through the recognition of servicing rights
retained in accordance with FAS 122.
The operation of a shopping center obtained through foreclosure generated
$351,000 in net operating income during 1996. The center was not operated by the
Bank until the fourth quarter of 1995.
10
<PAGE>
Income from real estate development increased to $375,000 during the first nine
months from 1996 from $27,000 during the comparable period of 1995. The increase
is due primarily to the sale of two commercial land parcels from one of the
partnerships in which the Bank's subsidiary is a partner. Single family lot
sales have also increased throughout 1996 as compared to 1995.
Loan fees and service charges increased $203,000 between 1996 and 1995,
representing a 19.3% increase. The mortgage loan servicing portfolio was the
primary contributor to the loan fee increase. Most mortgage loan sales have
occurred on a servicing retained basis, resulting in an increasing revenue
stream from the servicing portfolio. Service charges increased primarily as a
result of the growth in the number of core deposit accounts, which typically
generate higher levels of fee income. The growth experienced in the number of
business checking accounts has also contributed significantly to the fee revenue
increase.
Net interest margin increased to 3.00% during 1996 from 2.99% during 1995. A
decline in average interest bearing assets resulted in a decrease of $33,000 in
net interest income between the first nine months of 1996 and 1995.
Operating expenses, excluding the special SAIF assessment, increased $670,000,
or 9.9% between the first nine months of 1996 and the first nine months of 1995.
The largest increases were noted in compensation and benefits which reflect the
impact of additional lending personnel and increased pension costs. Data
processing costs also increased between 1996 and 1995 due to the Bank's
expanding customer base, including the loan servicing portfolio, and expanded
services required in connection with ongoing targeted marketing efforts.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is generally regarded as the ability to generate sufficient cash flow
to meet all present and future funding commitments. The Bank's primary source of
funds, or liquidity, are deposits, amortization and repayment of loan principal
(including mortgage-backed securities) operations and, to a lesser extent,
maturities and sales or mortgage-backed securities and short-term investments.
While scheduled loan repayments and maturing investments are relatively
predictable, deposit flows and early loan repayments are more influenced by
interest rates, general economic conditions and competition.
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operative activities, investing activities, and financing activities. These
activities are summarized as follows for the nine month periods ended September
30, 1996 and 1995.
11
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Operating Activities:
Net income $ 10 $ 892
Adjustments to reconcile
net income to net cash
used in operating activities 4,438 (3,337)
------- --------
Net cash provided by (used in)
operating activities 4,448 (2,445)
Net cash investing activities (8,337) (15,573)
Net cash financing activities 425 7,801
------- --------
Net increase (decrease) in
cash and cash equivalents (3,464) (10,217)
Cash and cash equivalents
at beginning of year 10,412 17,983
------- --------
Cash and cash equivalents
at end of period $ 6,948 $ 7,766
======= ========
</TABLE>
The largest difference in the adjustments to reconcile net income to net cash
provided by or used in operating activities between 1996 and 1995 was the change
in the portfolio of mortgage loans held for sale. Mortgages held for sale
decreased $3.1 million during the nine months ended September 30, 1996 as
compared to an increase of $3.6 million during the nine months ended September
30, 1995. The held for sale portfolio totaled $1.6 million at September 30,
1996. The portfolio declined largely due to declining aggregate origination
volumes and a shift of some origination volumes into adjustable mortgages that
are currently being placed into the Bank's loan portfolio. The average held for
sale portfolio for 1996 has been $5.3 million as compared to the 1995 average of
$3.1 million. Another significant adjustment to reconcile net income to
operating net cash operating activities was the accrual of the $2.0 million SAIF
assessment during 1996.
Cash investing activities utilized $8.3 million during 1996 and $15.6 million
during 1995. The more significant differences in cash activities between the two
years were loan related activities. The use of cash from loan originations net
of principal repayments declined to $4.2 million in 1996 from $16.0 million in
1995. Originations increased in 1996 although such increase was more than offset
by increased repayment activity. Most of the increased repayments were
experienced in the consumer portfolio, which is to be expected as the automobile
loan portfolio seasons. Repayments increased within the mortgage-backed
securities portfolio as well, increasing to $4.7 million in 1996 from $3.2
million in 1995.
Purchases of participating interests in multi-family and commercial real estate
loans declined in 1996 to $5.2 million from $8.2 million in 1995. Purchases of
investment securities and securities available for sale increased in 1996 to
$1.5 million and $7.0 million, respectively. Total 1995 purchases were $282,000.
A total of $4.5 million of securities from the investment and available for sale
portfolios matured during 1996.
Financing activities provided $425,000 in cash in 1996 as compared to $7.8
million in the prior year. Deposits declined $6.5 million in 1996 as compared to
growth of $6.6 million in 1995. Borrowings were used to a
12
<PAGE>
greater extent in 1996, with an $8.3 million increase in borrowings noted during
the nine months ended September 30, 1996. Borrowings increased $2.0 million
during the same nine month period of 1995. Borrowings totaled $8.3 million at
September 30, 1996, represented totally by Federal Home Loan Bank advances.
Management anticipates the continued use of advances as a funding source,
primarily on a short term basis.
As noted earlier, the Bank did not meet the regulatory risk-based capital level
at September 30, 1996. The Bank's capital ratios at September 30, 1996 were:
4.52% tangible and leverage and 7.74% risk based. These compare to Office of
thrift Supervision requirements of 3.00% tangible and leverage and 8.00% risk
based. The difference in ratios equates to a regulatory shortfall of $560,000.
Management is planning for the sale of real estate from the Bank's real estate
development subsidiary during the fourth quarter as a means of generating a
large portion of the necessary risk-based capital. Additionally, the sale of
held for sale mortgage loans and available for sale securities may be used to
repay advances outstanding at September 30, 1996. Management anticipates
returning to capital compliance by December 31, 1996.
The Bank is subject to a wide variety of regulatory sanctions as a result of its
regulatory capital shortfall; however, management does not anticipate that any
sanctions or restrictions will be imposed provided that the Bank achieves
capital compliance by December 31, 1996.
13
<PAGE>
HOMECORP, INC.
AND SUBSIDIARY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Bank's suit in the United States Court of Federal Claims against
the United States for breach of contract with regard to the utilization
as capital of the supervisory goodwill, which was created when the Bank
acquired failing institutions in the 1980's, has been stayed pending
the outcome of an appeal in another case that was heard by the U.S.
Supreme Court. While the Supreme Court ruled favorably on the issue in
the other case, the Company's suit has yet to be heard.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Index to exhibits
(11) Statement regarding computation of earnings per share
(included in Note 3)
(27) Financial Data Schedule (attached)
(b) Reports on Form 8-K
HomeCorp filed the following Form 8-K during the quarter
ended September 30, 1996.
July 30, 1996 - The registrant issued a release on July 16, 1996
announcing the results of operations for the second quarter of 1996.
14
<PAGE>
HOMECORP, INC.
AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements 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.
HOMECORP, INC.
--------------
(Registrant)
Date: November 12, 1996 /s/ C. Steven Sjogren
------------------- ---------------------------------
C. Steven Sjogren
President
Chief Executive Officer
Date: November 12, 1996 /s/ John R. Perkins
------------------- ---------------------------------
John R. Perkins
Executive Vice President
Chief Financial Officer
Date: November 12, 1996 /s/ Dirk J. Meminger
------------------- ---------------------------------
Dirk J. Meminger
Treasurer
Chief Accounting Officer
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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