SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: O-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
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(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 such reports), and (2) has
been subject to such filing requirements for 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 April 30, 1999:
Common Stock, no par value - 5,045,012 shares outstanding
<PAGE>
HOME FEDERAL BANCORP
FORM 10-Q
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
(unaudited) ........................................... 3
Consolidated Statements of Income
(unaudited) ........................................... 4
Consolidated Statements of Cash Flows
(unaudited) ........................................... 5
Forward looking statements ............................... 6
Notes to Consolidated Financial Statements ............... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......... 8
PART II. OTHER INFORMATION
Item 3. Quantitative and Qualitative Analysis of Financial
Condition and Results of Operations .................... 15
Item 4. Submission of Matters to a Vote of Security Holders .... 15
Item 5. Other Information ..................................... 15
Item 6. Exhibits and Reports on Form 8-K ...................... 15
Signatures ..................................................... 16
- 2 -
<PAGE>
HOME FEDERAL BANCORP
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) March 31, June 30,
1999 1998
--------- ---------
ASSETS:
Cash .............................................. $ 18,253 $ 19,063
Interest-bearing deposits ......................... 16,162 5,304
--------- ---------
Total cash and cash equivalents ................. 34,415 24,367
--------- ---------
Securities available for sale at fair value
(amortized cost $67,561 and $57,205) ............. 67,353 57,335
Securities held to maturity
(fair value $5,909 and $9,550) ................... 5,857 9,565
Loans held for sale
(fair value $6,374 and $12,840) .................. 6,314 12,711
Loans receivable, net of allowance
for loan losses of $4,470 and $4,243 ............. 587,886 582,040
Investments in joint ventures ..................... 5,475 4,077
Federal Home Loan Bank stock ...................... 5,814 5,456
Accrued interest receivable, net .................. 4,778 4,721
Premises and equipment, net ....................... 8,442 8,566
Real estate owned ................................. 1,204 242
Prepaid expenses and other assets ................. 4,021 2,964
Cash surrender value of life insurance ............ 6,023 5,808
Goodwill .......................................... 1,621 1,697
--------- ---------
TOTAL ASSETS ................................... $ 739,203 $ 719,549
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits .......................................... $ 564,716 $ 543,989
Advances from Federal Home Loan Bank .............. 96,179 98,070
Senior debt ....................................... 1,000 --
Other borrowings .................................. 2,931 4,396
Advance payments by borrowers for taxes
and insurance .................................... 632 320
Accrued expenses and other liabilities ............ 4,175 5,822
--------- ---------
Total liabilities .............................. 669,633 652,597
--------- ---------
Shareholders' equity:
No par preferred stock;
Authorized: 2,000,000 shares
Issued and outstanding: None
No par common stock;
Authorized: 15,000,000 shares
Issued and outstanding: ......................... 4,616 7,963
5,044,125 shares at March 31, 1999
5,139,176 shares at June 30, 1998
Retained earnings, restricted ..................... 65,079 58,911
Accumulated other comprehensive income
(loss), net of taxes ............................. (125) 78
--------- ---------
Total shareholders' equity ..................... 69,570 66,952
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 739,203 $ 719,549
========= =========
See notes to unaudited consolidated financial statements
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<PAGE>
<TABLE>
<CAPTION>
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(unaudited) Three Months Ended Nine Months Ended
March 31 March 31
------------------- -------------------
Interest income: 1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Loans receivable .................... $ 12,120 $ 12,627 $ 37,444 $ 38,433
Securities available for sale
and held to maturity ............... 978 1,015 2,894 2,766
Other interest income ............... 201 104 416 229
-------- -------- -------- --------
Total interest income ................ 13,299 13,746 40,754 41,428
-------- -------- -------- --------
Interest expense:
Deposits ............................ 5,840 6,023 18,150 18,425
Advances and borrowings ............. 1,560 1,640 4,699 4,788
-------- -------- -------- --------
Total interest expense ............... 7,400 7,663 22,849 23,213
-------- -------- -------- --------
Net interest income .................. 5,899 6,083 17,905 18,215
Provision for loan losses ............ 301 197 775 831
-------- -------- -------- --------
Net interest income after provision
for loan losses ..................... 5,598 5,886 17,130 17,384
-------- -------- -------- --------
Other income:
Gain on sale of loans ............... 1,012 1,425 2,836 2,587
Gain(loss) on sale of securities .... -- 7 2 7
Income from joint ventures .......... 98 66 267 230
Insurance, annuity income, other fees 270 342 974 1,171
Service fees on NOW accounts ........ 490 474 1,522 1,439
Net gain (loss) on real estate owned
and repossessed assets ............. (13) 5 2 14
Loan servicing income ............... 367 83 782 575
Miscellaneous ....................... 409 375 1,398 1,159
-------- -------- -------- --------
Total other income ................... 2,633 2,777 7,783 7,182
-------- -------- -------- --------
Other expenses:
Compensation and employee benefits .. 2,190 2,466 6,355 6,474
Occupancy and equipment ............. 596 576 1,747 1,743
Service bureau expense .............. 225 212 587 600
Federal insurance premium ........... 82 82 240 246
Marketing ........................... 130 105 388 424
Goodwill amortization ............... 25 25 75 75
Miscellaneous ....................... 765 706 2,652 2,011
-------- -------- -------- --------
Total other expenses ................. 4,013 4,172 12,044 11,573
-------- -------- -------- --------
Income before income taxes ........... 4,218 4,491 12,869 12,993
Income tax provision ................. 1,663 1,739 5,074 5,093
-------- -------- -------- --------
Net Income ........................... $ 2,555 $ 2,752 $ 7,795 $ 7,900
======== ======== ======== ========
Basic earnings per common share $ 0.50 $ 0.54 $ 1.53 $ 1.55
Dilutive earnings per common share $ 0.48 $ 0.50 $ 1.44 $ 1.45
Basic weighted average
number of shares..................... 5,061,561 5,120,661 5,107,682 5,107,926
Dilutive weighted average
number of shares..................... 5,331,228 5,514,449 5,410,631 5,449,282
Dividends per share................... $ 0.110 $ 0.100 $ 0.320 $ 0.271
</TABLE>
See notes to unaudited consolidated financial statements
- 4 -
<PAGE>
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Nine Months Ended
(unaudited) March 31,
----------------------
1999 1998
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 7,795 $ 7,900
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Accretion of discounts, amortization
and depreciation ................................ 523 545
Provision for loan losses ........................ 775 831
Net gain from sale of loans ...................... (2,836) (2,587)
Net (gain)/loss from sale of
investment securities ........................... (2) (7)
Net gain from joint ventures; real estate owned .. (269) (244)
Loan fees deferred (recognized), net ............. (89) 52
Proceeds from sale of loans held for sale ........ 191,965 164,002
Origination of loans held for sale ............... (182,732) (150,396)
Increase (decrease) in accrued interest and
other assets .................................... (3,162) 9,339
Increase (decrease) in other liabilities ......... (1,335) 1,413
--------- ---------
Net cash provided by (used in) operating activities 10,633 30,848
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal disbursed on loans .................. (1,362) (17,838)
Proceeds from:
Maturities/Repayments of:
Securities held to maturity ................... 4,560 6,501
Securities available for sale ................. 6,822 7,853
Sales of:
Securities available for sale ................. 17,144 8,225
Real estate owned and other asset sales ....... 792 612
Purchases of:
Loans ............................................ (5,170) (6,064)
Securities available for sale .................... (34,511) (33,165)
Securities held to maturity ...................... (855) (5,585)
Federal Home Loan Bank stock ..................... (358) (1,196)
Increase in cash surrender value of life insurance (215) (211)
Acquisition of property and equipment, net ........ (829) (1,150)
--------- ---------
Net cash provided by (used in) investing activities (13,982) (42,018)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net .............. 20,727 339
Proceeds from borrowings .......................... 52,290 79,700
Repayment of borrowings ........................... (53,181) (67,900)
Net proceeds from (net repayment of)
overnight borrowings ............................. (1,465) 1,895
Common stock options exercised .................... 695 201
Repurchase of common stock ........................ (4,042) --
Payment of dividends on common stock .............. (1,627) (1,385)
--------- ---------
Net cash provided by (used in) financing activities 13,397 12,850
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ......... 10,048 1,680
Cash and cash equivalents, beginning of period .... 24,367 19,772
--------- ---------
Cash and cash equivalents, end of period .......... $ 34,415 $ 21,452
========= =========
Supplemental information:
Cash paid for interest............................. $ 22,933 $ 23,038
Cash paid for income taxes......................... $ 5,175 $ 5,020
Assets acquired through foreclosure................ $ 1,442 518
See notes to unaudited consolidated financial statements
- 5 -
<PAGE>
Forward Looking Statements
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements
which constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-Q are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-Q
identifies important factors that could cause such differences. These factors
include changes in interest rates, loss of deposits and loan demand to other
savings and financial institutions, substantial changes in financial markets;
changes in real estate values and the real estate market; regulatory changes, or
unanticipated results in pending legal proceedings.
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 March 31,
1999, and for the three and nine month periods ended March 31, 1999, 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.
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, 1998.
2. Reclassifications
- ---------------------
Some items in the financial statements of previous periods have been
reclassified to conform to the current period presentation.
3. Earnings Per Share
- -----------------------
The following is a reconciliation of the weighted average common shares for the
basic and diluted earnings per share computations:
Three months ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
Basic EPS:
Weighted average common shares . 5,061,561 5,120,661 5,107,682 5,107,926
========= ========= ========= =========
Diluted EPS:
Weighted average common shares . 5,061,561 5,120,661 5,107,682 5,107,926
Dilutive effect of stock options 269,667 393,788 302,949 341,356
--------- --------- --------- ---------
Weighted average common and
incremental shares ............. 5,331,228 5,514,449 5,410,631 5,449,282
========= ========= ========= =========
- 6 -
<PAGE>
4. New Accounting Pronouncements
- --------------------------------
The Corporation adopted FAS 130, "Comprehensive Income", effective July 1, 1998.
It requires that changes in the amounts of certain items, gains and losses on
certain securities be shown in the financial statements. FAS 130 does not
require a specific format for the financial statement in which comprehensive
income is reported, but does require that an amount representing total
comprehensive income be reported in that statement. All prior year financial
statements have been reclassified for comparative purposes.
The following is a summary of the Corporation's total comprehensive income for
the interim three and nine month periods ended March 31, 1999 and 1998 under FAS
130:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income .................................................. $ 2,555 $ 2,752 $ 7,795 $ 7,900
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (272) 87 (201) 209
Reclassification adjustment for (gains) losses
included in net income ............................ -- (7) (2) 7
------- ------- ------- -------
Other comprehensive income .................................. (272) 80 (203) 216
------- ------- ------- -------
Comprehensive Income ........................................ $ 2,283 $ 2,832 $ 7,592 $ 8,116
======= ======= ======= =======
</TABLE>
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures
about Segments of an Enterprise and Related Information," was issued in June
1997 and is effective for fiscal periods beginning after December 15, 1997. The
company will include the appropriate segment information beginning in the annual
financial statements for the year ending June 30, 1999 and all quarterly reports
thereafter. This statement will change the way public companies report
information about segments of their business in their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. Management has not yet quantified the effect of this new standard on
the consolidated financial statements.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," was issued in June 1998 and
is effective for all fiscal quarters of all fiscal years beginning after June
15, 1999. This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial condition and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as a fair value
hedge, a cash flow hedge, or a hedge of foreign currency exposure. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. Management has not yet quantified the effect of this new standard
on the consolidated financial statements.
5. Adoption of Corporate Articles
- ---------------------------------
At the Annual Meeting of Shareholders held on October 27, 1998 amendments of
Articles 5 and 6 of the Corporation's Articles of Incorporation were adopted
increasing the number of authorized shares of Common Stock to 15,000,000 shares.
The total number of shares which the Corporation shall have authority to issue
is 17,000,000 shares, all of which are without par value. The remaining
2,000,000 shares which the company may issue are preferred shares.
- 7 -
<PAGE>
Part I, 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
16 full service banking branches.
RESULTS OF OPERATIONS:
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
General
The Company reported net income of $2,555,000 for the quarter ended March 31,
1999, compared to $2,752,000 for the quarter ended March 31, 1998, a decrease of
$197,000 or 7.2%. Basic earnings per common share for the current quarter were
$0.50 compared to $0.54 for the quarter ended March 31, 1998. Dilutive earnings
per common share were $0.48 compared to $0.50 for the quarter ended March 31,
1998.
Net Interest Income
Net interest income before provision for loan losses decreased by $184,000 for
the quarter ended March 31, 1999, compared to the quarter ended March 31, 1998.
The decrease is primarily due to a decrease in the net interest margin of 23
basis points for the three month period ended March 31, 1999 as compared to the
three month period ended March 31, 1998. This decrease in net interest margin is
the result of rates dropping faster on interest earning assets than on interest
bearing liabilities due primarily to refinancing activity in the Bank's loan
products.
The provision for loan losses increased $104,000 for the quarter ended March 31,
1999 compared to the quarter ended March 31, 1998. The increase in the provision
for loan losses reflects increases in non performing loans over the three month
period ended March 31, 1999 as opposed to decreases in non performing loans over
the three month period ended March 31, 1998. At March 31, 1999, the loan loss
allowance covered 59% of non-performing loans, real estate owned and other
repossessed assets. 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 March 31, 1999.
Quarter ending March 31: (in thousands) 1999 1998
- --------------------------------------- ---- ----
Allowance beginning balance ..................... $ 4,413 $ 3,958
Provision for loan losses ....................... 301 197
Charge-offs ..................................... (274) (186)
Recoveries ...................................... 30 33
------- -------
Loan Loss Allowance ............................. $ 4,470 $ 4,002
======= =======
Allowance to Total Loans......................... .75% .68%
Allowance to Nonperforming Assets................ 59% 108%
Interest Income
Total interest income for the three-month period ended March 31, 1999, decreased
$447,000, or 3.3%, over the same period of the prior year. The average balance
of interest earning assets increased $22,647,000. This increase in average
balances was not enough to offset the negative effect on interest income of a 53
basis points decline in the weighted average interest rate earned on interest
bearing assets for the quarter ended March 31, 1999 as compared to the quarter
ended March 31, 1998.
- 8 -
<PAGE>
Interest Expense
Total interest expense for the three-month period ended March 31, 1999 decreased
$263,000, or 3.4%, as compared to the same period a year ago. The decrease in
interest expense for the three month period ended March 31, 1999, compared to
the same period ended March 31, 1998, was the net result of an increase of
$24,621,000 in the average balances of interest bearing liabilities, being
offset by a 34 basis point decline in the rates paid on interest bearing
liabilities.
Other Income
Total other income for the three-month period ended March 31, 1999, decreased
$144,000 or 5.2% over the same period a year ago. This decrease was due
primarily to a decrease of $413,000 in the gain on sale of loans. Loan sales in
the secondary market fell $24.0 million or 27.4% to $63.7 million in the quarter
ended March 31, 1999 from sales of $87.6 million in the same quarter last year.
Additionally the return on loan sales decreased from 1.62% in the quarter ended
March 31, 1998 to 1.50% in the quarter ended March 31, 1999.
The decrease in other income caused by a reduction in the gain on loan sale
income was offset by an increase in loan servicing income. This increase in loan
servicing income resulted from the reversal of impairment charges of $106,000 in
the quarter ended March 31, 1999 as compared to impairment expense of $202,000
which was recorded in the quarter ended March 31, 1998 in accordance with
Financial Accounting Standard No. 122.
Other Expenses
Total other expenses for the three-month period ended March 31, 1999, decreased
$159,000 over the same period ended March 31, 1998. This decrease is due to a
$276,000 decrease in compensation and employee benefits for the three month
period ended March 31, 1999 versus the three month period ended March 31, 1998.
This decrease in compensation and employee benefits results from a variety of
factors including a charge of $373,000 for bonuses in the quarter ended March
31, 1998. Other factors included increased health care costs, as well as normal
salary increases occurring in the quarter ended March 31, 1999.
Nine-months Ended March 31, 1999 Compared to Nine-months Ended March 31, 1998:
General
The Company reported net income of $7,795,000, or $1.44 per dilutive common
share, for the nine-months ended March 31, 1999, compared to $7,900,000, or
$1.45 per dilutive common share, for the same period a year ago, a decrease of
$105,000.
Net Interest Income
Net interest income before provision for loan losses decreased $310,000 for the
nine-month period ended March 31, 1999, compared to the same period ended March
31, 1998. The reasons for this decrease were primarily the same as for the
three-month period ended March 31, 1999. Net interest income after provision for
loan losses decreased by $254,000 for the nine-month period ended March 31,
1999.
The change to the loan loss allowance for the nine-month period ended March 31,
1999 is as follows:
Nine months ending March 31: (in thousands) 1999 1998
- ------------------------------------------- ---- ----
Allowance beginning balance .......................... $ 4,243 $ 3,649
Provision for loan losses ............................ 774 831
Charge-offs .......................................... (610) (553)
Recoveries ........................................... 63 75
- ------------------------------------------------------ ------- -------
Loan Loss Allowance .................................. $ 4,470 $ 4,002
======= =======
Allowance to Total Loans.............................. .75% .68%
Allowance to Nonperforming Assets..................... 59% 108%
Interest Income
Total interest income for the nine-month period ended March 31, 1999 decreased
$674,000, compared to the nine-month period ended March 31, 1998. The decrease
in interest income was due to a decline of 41 basis points in the weighted
average interest rate earned on interest bearing assets. The decrease in
interest income was mitigated by an increase in average balances of $23.1
million for the nine-month period ended March 31, 1999 as compared to the
nine-month period ended March 31, 1998.
- 9 -
<PAGE>
Interest Expense
Total interest expense for the nine-months ended March 31, 1999 decreased
$364,000, compared to the nine-month period ended March 31, 1998. This decrease
was due primarily to the same reasons as discussed in the three-month period
ended March 31, 1999. These reasons include increased average balances of
deposits and borrowings outstanding, being offset by declining rates paid on
these same liabilities.
Other Income
Total other income for the nine-month period ended March 31, 1999 increased
$601,000 as compared to the same period one year ago. This increase was the
result of several factors: 1.) Gain on loan sales increased $249,000. Although
sales in the secondary market have declined in the last quarter of the nine
month period ended March 31, 1999 compared to the same period one year ago,
sales for the entire nine month period ended March 31, 1999 still exceed sales
for the nine months ended March 31, 1998; 2.) an increase in loan servicing
income of $207,000 reflects the third quarter increase detailed above; and 3.)
miscellaneous income increases of $239,000 due to a lease buy out of $159,000 on
a building held for investment by the Company and a tax refund of $59,000 from
prior years returns.
These increases in other income were offset by a $197,000 decrease in insurance,
annuity income and other fees due to a $182,000 decrease in income from annuity
and brokerage sales. The reduction in annuity and brokerage sales was the result
of a downturn in the market, which in turn reduced the volume of client
transactions completed in the annuity and brokerage area.
Other Expenses
Total other expenses for the nine-month period ended March 31, 1999 increased
$471,000. This increase was due primarily to increased miscellaneous expenses of
$641,000 resulting from a $298,000 write off of bad checks, a write down of
$118,000 on the value of the building held by the Company for investment
reflecting the lease buy out, the expensing of $39,000 of deferred costs
associated with the same building, and increased loan costs of $80,000 resulting
from the use of new underwriting software. Offsetting the increase in
miscellaneous expenses is the previously mentioned decrease in compensation and
employee benefits discussed in the three month period ended March 31, 1999.
FINANCIAL CONDITION:
Total assets increased by $19,654,000 from June 30, 1998, to March 31, 1999.
Interest bearing deposits and securities available for sale increased $10.9
million and $10.0 million, respectively, primarily funded by deposit inflows.
Loans held for sale and securities held to maturity decreased $6.4 million and
$3.7 million, respectively, for the nine month period ended March 31, 1999.
Loans receivable, net increased $5.8 million.
Total liabilities showed an increase of $17.0 million from June 30, 1998, to
March 31, 1999. The majority of the increase came from deposit increases of
$20.7 million. An increase of $1.0 million was attributable to senior debt as
the Company borrowed funds to repurchase Home Federal Bancorp's stock. These
increases were offset by decreases in various categories including a $1.9
million decrease in advances from Federal Home Loan Bank, a $1.5 million
decrease in other borrowings and $1.6 million decrease in accrued expenses and
other liabilities.
Shareholders' equity increased $2.6 million during the same period. Retained
earnings increased $7.8 million from net income and decreased $1.6 million for
dividends paid. Common stock decreased $3.3 million due to stock repurchases of
$4.0 million, which was offset by stock options exercises of $695,000 during the
period. In accordance with Statement of Accounting Standards 115, "Accounting
for Certain Investments in Debt and Equity Securities", the Company had an
accumulated other comprehensive loss from unrealized losses in its available for
sale portfolio of $125,000, or a $203,000 decrease in shareholders' equity from
the June 30, 1998 gain position of $78,000.
- 10 -
<PAGE>
At March 31, 1999, the Bank exceeded all current OTS regulatory capital
requirements as follows:
<TABLE>
<CAPTION>
To Be Categorized
As "Well Capitalized"
Under Prompt
For Capital Corrective Action
(dollars in thousands) Actual Adequacy Purposes Provisions
- ------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of March 31, 1999
<S> <C> <C> <C> <C> <C>
Tangible capital (to total assets) $62,132 8.44% $10,982 1.50% N/A N/A
Core capital (to total assets) $62,132 8.44% $29,286 4.00% N/A N/A
Total risk-based capital
(to risk-weighted assets) $65,787 11.72% $44,912 8.00% $56,140 10.00%
Tier 1 risk-based capital
(to risk-weighted assets) $62,132 11.07% N/A N/A $33,684 6.00%
Tier 1 leverage capital
(to average assets) $62,132 8.40% N/A N/A $36,968 5.00%
</TABLE>
Liquidity and Capital Resources
The minimum liquidity allowed by law is 4%. At March 31, 1999, the Bank's
average liquidity ratio was 19.1%. 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 FHLB
system, the Bank may borrow from the FHLB of Indianapolis. At March 31, 1999,
the Bank had $96.2 million in such borrowings. As of that date, the Bank had
commitments to fund loan originations and purchases of approximately $19.6
million and commitments to sell loans of $14.6 million. In the opinion of
management, the Bank has sufficient cash flow and borrowing capacity to meet
current and anticipated funding commitments.
YEAR 2000 READINESS DISCLOSURE
The Problem
The Year 2000 issue is the result of potential problems with computer systems or
any equipment with computer chips that use dates where the year portion of the
date has been stored as just two digits (e.g. 98 for 1998). Systems using this
two-digit approach will not be able to determine whether "00" represents the
year 2000 or 1900. The problem, if not corrected, will make those systems fail
altogether or, even worse, allow them to generate incorrect calculations causing
a disruption of normal operations.
Readiness Efforts
In 1997, a comprehensive project plan to address the Year 2000 issue as it
relates to the Company's operation was developed, approved by the Board of
Directors and implemented. The scope of the plan includes five phases of
Awareness, Assessment, Renovation, Validation and Implementation as defined by
federal banking regulatory agencies. A project team that consists of key members
of the technology staff, representatives of functional business units and senior
management was developed. Additionally, the duties of the Vice President of Data
Processing Compliance were realigned to serve primarily as the Year 2000 project
manager.
- 11 -
<PAGE>
An assessment of the impact of the Year 2000 issue on the Company's computer
systems was completed. The scope of the project includes other operational and
environmental systems since they may be impacted if embedded computer chips
control the functionality of those systems. From the assessment, the Company
identified those systems deemed to be mission critical or those that have a
significant impact on normal operations.
The Company relies on third party vendors and service providers for its data
processing capabilities and to maintain its computer systems. Formal
communications with these providers and other external counterparties were
initiated in 1997 to assess the Year 2000 readiness of their products and
services. At that time, a process for the on-going monitoring of their progress
in meeting their targeted schedule was implemented. Thus far, 98% of the
significant providers have delivered compliant versions of their systems, which
have been tested by or are ready for testing with the users. Most of those
compliant systems have been fully tested and implemented by the Company. Those
not yet implemented are in the final stages of validation that is scheduled for
completion by June 30, 1999.
In 1998, the Company also implemented a plan to manage the potential risk posed
by the impact of the Year 2000 issue on its major customers. The underwriting
procedures of the Company were amended to include an evaluation in all new
requests for credit to determine whether Year 2000 issues will materially affect
the customer's cash flows, balance sheet or value of the collateral. Based upon
the results of this evaluation, appropriate action is being taken to minimize
the risk to the Company.
Additionally, the Company has completed an assessment and evaluation of the risk
posed by its material customers. Based upon information received during the risk
assessment process, the Company has determined that, while it may experience an
increase in commercial delinquency for a short period of time, the risk for
actual loss is low. The rise in delinquency may occur while some small business
customers address unforeseen problems associated with the century date change.
This determination is based upon information provided by those customers and the
Company's best estimates of the customers' sensitivity to Year 2000 risk as well
as numerous assumptions including their continued availability of resources,
third party readiness and other factors.
Current Status
The project team estimates that the Company's Year 2000 readiness project is 94%
complete and that the activities involved in assessing external risks and
operational issues are 98% completed overall. These estimates and the
projections in the following table are derived from the Year 2000 Checklist
Version 2, a project-tracking tool provided by the Office of Thrift Supervision.
This table provides a summary of the current status of the five project phases
and a projected timetable for completion.
- --------------- ------------ ---------------- ----------------------------------
Projected
Project Phase % Completed Completion Comments
- --------------- ------------ ---------------- ----------------------------------
Awareness 100% Completed
Assessment 100% Completed
Renovation 100% Completed
Validation 90% June 30, 1999 Target for all significant systems
Implementation 88% June 30, 1999 Target for all significant systems
- --------------- ------------ ---------------- ----------------------------------
OVERALL 94% (As of April 30, 1999)
- --------------- ------------ ---------------- ----------------------------------
Costs
The Company has thus far primarily used and expects to continue to use internal
resources to implement its readiness plan and to upgrade or replace and test
systems affected by the Year 2000 issue. The total cost to the Company of these
Year 2000 compliance activities has not been and is not anticipated to be
material to its financial position or results of operations in any given year.
In total, the Company estimates that its costs, excluding personnel expenses,
for Year 2000 remediation and testing of its computer systems will amount to
less than $50,000 over the three-year period from 1997 through 1999. Not
included in this estimate is the cost to replace fully depreciated systems
during this period, which occurs in the normal course of business and is not
directly attributable to the Year 2000 issue.
- 12 -
<PAGE>
Risk Assessment
Based upon current information related to the progress of its major vendors and
service providers, management has determined that the Year 2000 issue will not
pose significant operational problems for its computer systems. This
determination is based on the ability of those vendors and service providers to
renovate, in a timely manner, the products and services on which the Company's
systems rely. However, the Company can give no guarantee that the systems of its
suppliers will be timely renovated.
Contingency Plan
Realizing that some disruption may occur despite its best efforts, the Company
has developed contingency plans for each critical system in the event that one
or more of those systems fail. Critical business functions have been identified
and the development of temporary procedures for the continued operations of
those functions has been completed. Updating and testing these business
resumption procedures is an ongoing process, which will continue throughout
1999.
The costs and the timetable in which the Company plans to complete the Year 2000
readiness activities are based on management's best estimates, which were
derived using numerous assumptions of future events including the continued
availability of certain resources, third party readiness plans and other
factors. The Company can make no guarantee that these estimates will be achieved
and actual results could differ from such plans.
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Supplemental Data: Three Months Ended Year to Date
March 31 March 31
------------------ --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average interest rate earned
on total interest-earning assets ........... 7.73% 8.26% 7.99% 8.40%
Weighted average cost of total
interest-bearing liabilities ............... 4.56% 4.90% 4.68% 4.91%
Interest rate spread during period ............. 3.17% 3.36% 3.31% 3.49%
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) 3.43% 3.66% 3.51% 3.70%
Total interest income divided by average
total assets (on annualized basis) ......... 7.17% 7.72% 7.41% 7.86%
Total interest expense divided by
average total assets (on annualized basis) . 4.05% 4.36% 4.15% 4.40%
Net interest income divided by average
total assets (on annualized basis) ......... 3.18% 3.42% 3.25% 3.46%
Return on assets (net income divided by
average total assets on annualized basis) .. 1.38% 1.55% 1.42% 1.50%
Return on equity (net income divided by
average total equity on annualized basis) .. 14.70% 17.29% 15.07% 17.19%
Net interest margin to average
earning assets ........................... 3.43% 3.66% 3.51% 3.70%
Net interest margin to average assets .......... 3.18% 3.42% 3.25% 3.46%
</TABLE>
At March 31
----------------
1999 1998
----------------
Book value per share outstanding ................. $13.79 $12.65
Interest rate spread ............................. 3.36% 3.54%
Nonperforming Assets:
Loan Non-accruals: ....................... $6,315 $3,604
Past due 90 days or more ............ 0 6
Restructured ........................ 0 1
------ ------
Total nonperforming loans .................. 6,315 3,611
Real estate owned, net ..................... 1,028 41
Other repossessed assets, net .............. 176 69
------ ------
Total Nonperforming Assets ................. $7,519 $3,721
Nonperforming assets divided by total assets...... 1.02% 0.53%
Nonperforming loans divided by total loans........ 1.05% 0.61%
Balance in Provision for Loan Losses.............. $4,470 $4,002
- 14 -
<PAGE>
PART II. OTHER INFORMATION
Item 3. Quantitative and Qualitative Analysis of Financial Condition and
Results of Operations.
In the opinion of management the results for the quarter ended March 31, 1999
will not be materially different from the results presented on page 13 of the
annual report for fiscal year 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
N/A
Item 5. Other information
N/A
Item 6. Exhibits and Reports on Form 8-K
(a) N/A
- 15 -
<PAGE>
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: May 11, 1999 /S/ Lawrence E. Welker
---------------- ---------------------------------------------
Lawrence E. Welker, Executive Vice President,
Treasurer, and Chief Financial Officer
- 16 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial
information extracted from the registrant's
unaudited consolidated financial statements
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000867493
<NAME> Home Federal Bancorp
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 18,253
<INT-BEARING-DEPOSITS> 16,162
<FED-FUNDS-SOLD> 0
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<ALLOWANCE> 4,470
<TOTAL-ASSETS> 739,203
<DEPOSITS> 564,716
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,175
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0
0
<COMMON> 4,616
<OTHER-SE> 65,079
<TOTAL-LIABILITIES-AND-EQUITY> 69,570
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<INTEREST-TOTAL> 40,754
<INTEREST-DEPOSIT> 18,150
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<INCOME-PRETAX> 12,869
<INCOME-PRE-EXTRAORDINARY> 12,869
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,795
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> 7.99
<LOANS-NON> 6,315
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 4,243
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</TABLE>
