SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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
Commission file number: 0-18847
HOME FEDERAL BANCORP
(Exact name of registrant as specified in its charter)
Indiana 35-1807839
State or other Jurisdiction (I.R.S. Employer
of Incorporation or Origination) Identification No.)
222 West Second Street, Seymour, Indiana 47274-0648
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code- (812) 522-1592
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 for such shorter period that the registrant was
required to file reports), and (2) has been subject to such filing requirements
or the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 8, 1996:
Common Stock, no par value -- 2,226,282 shares outstanding
<PAGE>
HOME FEDERAL BANCORP
FORM 10-Q
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
(unaudited) 1
Consolidated Statements of Income
(unaudited) 2
Consolidated Statements of Cash flows
(unaudited) 3
Notes to Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 5
PART II, OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
<TABLE>
<CAPTION>
HOME FEDERAL BANCORP
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) September 30, June 30,
1996 1996
--------- ---------
ASSETS:
<S> <C> <C>
Cash $ 15,528 $ 19,327
Interest-bearing deposits 2,036 6,301
--------- ---------
Total cash and cash equivalents 17,564 25,628
Securities available for sale at fair value
(amortized cost $42,291 and $45,075 42,291 44,651
Securities held to maturity (fair value $10,295 and $6,753) 10,545 6,990
Loans held for sale (market value $3,434 and $4,666) 3,407 4,623
Loans receivable, net of allowance for
loan losses of $3,122 and $3,061 531,808 520,097
Investments in joint ventures 2,843 2,855
Federal Home Loan Bank stock 3,948 3,798
Accrued interest receivable, net 4,049 3,893
Premises and equipment, net 8,012 8,090
Real estate owned 83 48
Prepaid expenses and other assets 1,647 2,440
Cash surrender value of life insurance 5,325 5,004
Goodwill 1,873 1,898
--------- ---------
TOTAL ASSETS $ 633,395 $ 630,015
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits $ 488,898 $ 489,573
Advances from Federal Home Loan Bank 73,700 70,700
Senior debt 8,775 9,100
Other borrowings 3,188 4,337
Advance payments by borrowers
for taxes and insurance 714 621
Accrued expenses and other liabilities 6,464 4,167
--------- ---------
Total liabilities 581,739 578,498
Shareholders' equity:
No par common stock; Authorized: 5,000,000 shares
Issued and outstanding: 6,819 6,819
2,226,282 shares at September 30, 1996
2,226,282 shares at June 30, 1996
Retained earnings, restricted 45,104 44,953
Unrealized gain (loss) on securities
available for sale, net of deferred taxes (267) (255)
--------- ---------
Total shareholders' equity 51,656 51,517
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 633,395 $ 630,015
========= =========
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
<TABLE>
<CAPTION>
(unaudited) Three Months Ended
September 30,
-----------------------
Interest income: 1996 1995
---------- ----------
<S> <C> <C>
Loans receivable $ 11,638 $ 10,550
Securities available for sale and held to maturity 779 829
Other interest income 74 245
---------- ----------
Total interest income 12,491 11,624
---------- ----------
Interest expense:
Deposits 5,699 5,689
Advances and borrowings 1,329 1,201
---------- ----------
Total interest expense 7,028 6,890
---------- ----------
Net interest income 5,463 4,734
Provision for loan losses 167 67
---------- ----------
Net interest income after provision for loan losses 5,296 4,667
---------- ----------
Other income:
Gain on sale of loans 387 422
Gain(loss) on sale of securities 20 0
Income from joint ventures 97 121
Insurance, late charges, other fees 627 598
Service fees on NOW accounts 405 407
Net gain (loss) on real estate owned and repossessed assets 3 -6
Miscellaneous 366 335
---------- ----------
Total other income 1,905 1,877
---------- ----------
Other expenses:
Compensation and employee benefits 1,794 1,815
Occupancy and equipment 488 476
Service bureau expense 190 185
Federal insurance premium 3,274 263
Marketing 129 192
Goodwill amortization 25 25
Miscellaneous 630 639
---------- ----------
Total other expenses 6,530 3,595
---------- ----------
Income before income taxes 671 2,949
Income tax provision 240 1,156
---------- ----------
Net Income $ 431 $ 1,793
========== ==========
Net income per common and common share equivalents $ 0.19 $ 0.79
========== ==========
Equivalent number of shares 2,292,697 2,274,691
Dividends per share $ 0.125 $ 0.10
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
<TABLE>
<CAPTION>
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Three Months Ended
(unaudited) September 30,
-----------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 431 $ 1,793
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Accretion of discounts, amortization and depreciation 307 154
Provision for loan losses 167 67
Net gain from sale of loans (260) (422)
Net gain from joint ventures; real estate owned (100) (115)
Loan fees deferred (recognized), net (209) 12
Proceeds from sale of loans held for sale 21,505 32,211
Origination of loans held for sale 20,029 29,211
Decrease in accrued interest and other assets 3,355 762
Increase in other liabilities 2,390 1,228
-------- --------
Net cash provided by operating activities 7,557 6,479
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal disbursed on loans 14,379 4,635
Proceeds from:
Maturities/Repayments of:
Securities held to maturity 77 149
Securities available for sale 3,675 455
Sales of:
Securities available for sale 4,572 --
Real estate owned and other asset sales 49 91
Purchases of:
Loans (236) --
Securities available for sale 5,931 2,980
Securities held to maturity 3,633 --
Federal Home Loan Bank stock (150) --
Increase in cash surrender value of life insurance (66) (66)
Acquisition of property and equipment, net (170) (124)
-------- --------
Net cash used in investing activities 16,192 7,110
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase decrease) in deposits, net (675) 659
Proceeds from borrowings 16,500 4,600
Repayment of borrowings 13,825 5,825
Net repayment of overnight borrowings 1,149 (456)
Payment of dividends on common stock (280) (222)
-------- --------
Net cash provided by (used in) financing activities 571 1,244
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS 8,064 1,875
Cash and cash equivalents, beginning of period 25,628 27,836
-------- --------
Cash and cash equivalents, end of period $ 17,564 $ 25,961
======== ========
Supplemental information:
Cash paid for interest $ 6,950 $ 6,853
Cash paid for income taxes $ 205 $ 200
Assets acquired through foreclosure $ 0 $ 21
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
HOME FEDERAL BANCORP
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements include the accounts of Home Federal
Bancorp (the "Company") and its wholly-owned subsidiary, Home; Federal Savings
Bank (the "Bank"). These consolidated interim financial statements at September
30, 1996 and for the three month periods ended September 30, 1996, and 1995,
have not been examined by independent auditors, but reflect, in the opinion of
the Company's management. all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and results of
operations for such periods, including elimination of all significant
intercompany balances and transactions.
The results of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the year ending June
30, 1997. These statements should be read in conjunction with the consolidated
financial statements and related notes which are incorporated by reference in
the. Company's Annual Report on Form 10-K for the year ended June 30, 1996.
2. Reclassifications
Some items in the financial statements of previous periods have been
reclassified to conform to the current period presentation.
3. Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard (FAS) 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of,"
effective July 1, 1996. The adoption of FAS 121 had no affect on die financial
position or results of operations of the Company.
The Company adopted FAS 123, "Accounting for Stock-Based Compensation,"
effective July 1, 1996. The Company has elected to continue to account for
stock-based transactions under Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees," but will disclose in the notes to
the financial statements the pro forma effects of the new method of accounting
under FAS 123.
4. Adoption of Statement of Financial Accounting Standards No. 122
Effective July 1, 1996, the Bank adopted Statement of Financial Accounting
Standard No. 122, (SFAS 122) "Accounting for Mortgage Servicing Rights - an
Amendment of FASB Statement No. 65." This statement, requires the Company to
recognize the value of its mortgage servicing rights, however acquired, at the
time of acquisition.
The Company recorded a servicing asset of $126,000 for 245 loans sold during the
quarter ending September 30, 1996 totaling $16.2 million with a weighted average
interest rate of 8.58% and a weighted average servicing fee of .25%. The value
of the servicing asset was derived with a discount rate of 10.50%, an average
cost to service of $57 and constant prepayment rates ranging from 8.71% to
16.01%. For purposes of measuring impairment of the capitalized mortgage
servicing rights, the loans were stratified by term and note rate. As of
September 30, 1996, there was no valuation allowance related to the value of
servicing.
4
<PAGE>
Part 1, Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Home Federal Bancorp (the "Company") is organized as a unitary savings and loan
holding company and owns all the outstanding capital stock of Home Federal
Savings Bank (the "Bank"). The business of the Bank, and therefore the Company,
is to provide consumer and business banking services to certain markets in the
south-central portions of the State of Indiana. The Bank does business through
15 full service banking branches and one loan production office.
RESULTS OF OPERATIONS:
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30, 1995;
General
The Company reported net income of $431,000, or $0.19 per share, for the quarter
ended September 30, 1996, compared to $1.79 million, or $0.79 per share, for the
quarter ended September 30, 1995. The decrease in net income was attributed to a
legislated special assessment of $3.0 million to help recapitalize the FDIC
Savings Association Insurance Fund (SAIF). Without the SAIF assessment, net
income for the period ended September 30, 1996 would have been $2.2 million, or
$0.94 per share.
Net Interest Income
Net interest income before provision for loan losses increased by $729,000 for
the quarter ended September 30, 1996, compared to the quarter ended September
30, 1995, from $4.7 million in 1995 compared to $5.5 million in 1996. The
increase is due to the total interest earning assets increasing faster than
interest bearing liabilities as well as the weighted average cost of interest
bearing liabilities decreasing while the weighted average rate earned on total
interest earning assets increased.
Net interest income after provision for loan losses for the current period was
$5.3 minion compared to $4.7 million a year ago, a 13.5% increase. The loan loss
provision for the three months ended September 30, 1996 was $100,000 higher than
for the period ended September 30, 1995. Chargeoffs accounted for $36,000 of the
increase while growth in the loan portfolio accounted for the remainder of the
increase. At September 30, 1996, the allowance covered 111% of non-performing
loans. To the best of management's knowledge, and in its opinion, classified
assets do not represent material credits which would cause management to have
serious doubts as to the ability of such borrowers to comply with their loan
repayment terms. Based on management's analysis of classified assets, loss
histories and current future projections, the allowance balance appears adequate
at September 30, 1996.
5
<PAGE>
(in thousands)
Quarter-ending September 30: 1996 1995
-------- --------
Allowance beginning balance 53,061 52,806
Provision for loan losses 167 65
Charge-offs (126) (97)
Recoveries 20 36
-------- --------
Loan Loss Allowance $ 3,122 $ 2,810
======== ========
Allowance to Total Loans .58% .59%
Allowance to Non-performing Assets 108% 93%
Interest Income
Total interest income for the three-month period ended September 30, 1996
increased $867,000 over the same period of the prior year. Total interest income
increased primarily because interest earning assets have increased approximately
$46.5 million over the same period a year ago.
Interest Expense
Total interest expense for the three-month period ended September 30, 1996
increased $138,000 over the same period of the prior year. This increase was the
result of increased outstanding interest costing liabilities over the prior
period. The increase would have been greater except for the overall reduced cost
of funds in the current period compared to the period ended September 30, 1995.
Other Income
Total other income for the three-month period ended September 30, 1996 increased
$28.000 over the same period a year ago. The current period gain on We of loans
was $387,000 compared to last year of $422,000. The current period figure
includes $126,000 due to the implementation of FAS122, Accounting for Mortgage
Servicing Rights. This rule requires companies to record as an asset the value
of servicing rights on loans originated by the Company and subsequently sold
while retaining the servicing of the loans. The asset is recorded in the period
of acquisition and amortized as a reduction to the loan servicing income over
tile life of the related loans.
Joint Venture income was down $24,000 as activity in current projects is
reducing. Miscellaneous income for the current three month period ended
September 30, 1996 increased $31,000 over the three month period ended September
30. 1995. The current period included $59,000 of interest from the IRS on
previously amended tax returns. This was a one-time receipt and is not expected
to recur.
Other Expenses
Total other expenses for the three-month period ended September 30, 1996
increased $2.9 million over the same period ended September 30, 1995. Other
expense in the current period included a $3.0 million SAIF assessment to
recapitalize the deposit insurance file maintained by the FDIC.
6
<PAGE>
Without the SAIF assessment, other expense would have been $3.5 million,
compared to $3.6 million for the three-month period ended September 30, 1995.
For the current period as compared to the year ago period, net personnel expense
was down $21,000, occupancy expense was up $12,000 and marketing expense was
down $63,000.
The BIF/SAIF legislation signed into law on September 30, 1996, in addition to
the one-time assessment, provides for the SAIF insurance premiums to decline
from $0.23 per $100 in assessment base to $0.0644 per $I 00 in assessment base
beginning January 1, 1997. Based on the Bank's assessment base at June 30, 1996,
this will reduce other expense by $805.000 on an annualized basis or
approximately $403,000 for the last two quarters of fiscal year 1997. The Bank's
actual savings will vary depending on fluctuations in the assessment base in
future periods.
FINANCIAL CONDITION;
Total assets increased by $3.4 million from June 30, 1996 to September 30, 1996.
Net loans receivable increased by $11.7 million with loans held for sale
decreasing $1.2 million. Cash and cash equivalents decreased $8.0 million with
investment securities, including mortgage-backed securities, increasing $1.2
million. Savings deposits decreased by $675,000 with advances from the FHLB and
senior debt increasing $2.7 million.
Total shareholders' equity increased $139,000. Retained earnings increased
$431,000 from net income and decreased $280,000 for dividends paid. In
accordance with Statement of Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", the Company had unrealized
losses in its available for sale portfolio of $267,000, or a $12,000 increase
from the June 30, 1996 loss position of $255,000.
At September 30, 1996, the Bank exceeded all current OTS regulatory capital
requirements as follows (in thousands):
Tangible capital $51,000 8.11% of tangible assets of $628,612
Required tangible capital 9,429 1.50% of tangible assets of $629,612
Excess tangible capital 541,571
Core capital $51,000 8.11% of tangible assets of $629,612
Required core capital 18,858 3.00% of tangible assets of $629,612
Excess core capital $32,142
Risk-based capital $53,782 12.02% of risk-weighted assets of $447,575
Required risk-based capital 35,906 8.00% of risk-weighted assets of $447,575
Excess Risk-based capital $17,976
Liquidity and Capital Resources
The standard measure of liquidity for the thrift industry is the ratio of cash
and eligible investments to a certain percentage of borrowings due within one
year and net withdrawable deposit accounts. The minimum required level is
currently set by OTS regulation at S%. At September 30, 1996, the Bank's average
7
<PAGE>
liquidity ratio was 10.9%. Historically, the Bank has maintained its liquid
assets which qualify for purposes of the OTS liquidity regulations above the
minimum requirements imposed by such regulations and at a level believed
adequate to meet requirements of normal daily activities, repayment of maturing
debt and potential deposit outflows. Cash flow projections are regularly
reviewed and updated to assure that adequate liquidity is maintained. Cash for
these purposes is generated through the sale or maturity of investment
securities and loan sales and repayments, and may be generated through increases
in deposits. Loan payments are a relatively stable source of funds, while
deposit flows are influenced significantly by the level of interest rates and
general money market conditions. Borrowings may be used to compensate for
reductions in other sources of funds such as deposits. As a member of the FULB
system, the Bank may borrow from the FHLB of Indianapolis, At September 30,
1996, the Bank had $73.7 million in such borrowings. As of that date, the Bank
had commitments to find loan originations and purchases of approximately $20.4
million and commitments to sell loans of $9.2 million. In the opinion of
management, the Bank has sufficient cash flow and borrowing capacity to meet
current and anticipated funding commitments.
8
<PAGE>
Recapitalization of SAIF and Related legislative Proposals
Supplemental Data: Three Months Ended
September 30,
--------------------
1996 1995
---- ----
Weighted average interest rate earned
on total interest-earning assets 8.50% 8.43%
total
4.93% 5.09%
the period 3.57% 3.35%
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) 3.72% 3.44%
Total interest income divided by average
total assets (on annualized basis) 7.93% 7.85%
Total interest expense divided by
average total assets (on annualized basis) 4.43% 4.62%
Net interest income divided by average
total assets (on annualized basis) 3.47% 3.20%
Return on average assets 0.27% 1.21%
Return on stockholders' equity 3.31% 15.57%
Average stockholders' equity to average assets 8.26% 7.78%
At September 30,
----------------------
1996 1995
------ ------
Book value per share outstanding $23.20 $21.16
Interest rate spread 3.57% 3.35%
Non-performing Assets: (in thousands)
Loans: Non-accrual $2,771 $2,657
Past due 90 days or more 29 178
Restructured 1 102
------ ------
Total nonperforming loans 2,801 2,937
Real estate owned, net 25
Other repossessed assets, net 83 64
------ ------
Total nonperforming assets $2,884 $3,026
------ ------
Nonperforming assets divided by total assets .46% .51%
Nonperforming loans divided by total loans .52% .61%
Balance in allowance for loan losses $3,122 $2,810
9
<PAGE>
PART H. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) N/A
(b) Reports on Form 8-K.
Registrant filed no reports on Form 8-K during the fiscal
quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on behalf of
the undersigned thereto duly authorized.
Home Federal Bancorp
DATE: November 11, 1996 /s/Lawrence E. Welker
----------------------------------
Lawrence E. Welker, Executive Vice President,
Treasurer, and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000867493
<NAME> Home Federal Bancorp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 15,528
<INT-BEARING-DEPOSITS> 2,036
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,291
<INVESTMENTS-CARRYING> 10,545
<INVESTMENTS-MARKET> 6,753
<LOANS> 531,808
<ALLOWANCE> 3,122
<TOTAL-ASSETS> 633,395
<DEPOSITS> 488,898
<SHORT-TERM> 73,700
<LIABILITIES-OTHER> 92,841
<LONG-TERM> 581,739
<COMMON> 6,819
0
0
<OTHER-SE> 19,141
<TOTAL-LIABILITIES-AND-EQUITY> 633,395
<INTEREST-LOAN> 11,638
<INTEREST-INVEST> 779
<INTEREST-OTHER> 74
<INTEREST-TOTAL> 12,491
<INTEREST-DEPOSIT> 5,699
<INTEREST-EXPENSE> 7,028
<INTEREST-INCOME-NET> 5,463
<LOAN-LOSSES> 167
<SECURITIES-GAINS> 20
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<INCOME-PRETAX> 671
<INCOME-PRE-EXTRAORDINARY> 0
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<CHANGES> 0
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<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.26
<LOANS-NON> 2,771
<LOANS-PAST> 29
<LOANS-TROUBLED> 1
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<ALLOWANCE-OPEN> 3,061
<CHARGE-OFFS> 126
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<ALLOWANCE-DOMESTIC> 0
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</TABLE>
