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 September 30, 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
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(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 October 31, 1999:
Common Stock, no par value - 4,827,601 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 .......................... 14
Item 4. Submission of Matters to a Vote of Security Holders ............... 14
Item 5. Other Information ................................................ 14
Item 6. Exhibits and Reports on Form 8-K ................................. 14
Signatures ................................................................ 15
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<PAGE>
<TABLE>
<CAPTION>
HOME FEDERAL BANCORP
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) September 30, June 30,
1999 1999
--------- ---------
ASSETS:
<S> <C> <C>
Cash .................................................................. $ 17,419 $ 21,377
Interest-bearing deposits ............................................. 378 11,529
--------- ---------
Total cash and cash equivalents ..................................... 17,797 32,906
--------- ---------
Securities available for sale at fair value (amortized cost $89,921
and $74,482) ..................................................... 88,603 73,521
Securities held to maturity (fair value $6,448 and $4,960) ............ 6,515 4,987
Loans held for sale (fair value $1,590 and $5,136) .................... 1,569 5,102
Loans receivable, net of allowance for loan losses of $4,433 and $4,349 591,707 586,918
Investments in joint ventures ......................................... 7,901 7,090
Federal Home Loan Bank stock .......................................... 5,814 5,814
Accrued interest receivable, net ...................................... 4,931 4,897
Premises and equipment, net ........................................... 8,882 9,129
Real estate owned ..................................................... 2,213 2,050
Prepaid expenses and other assets ..................................... 3,935 4,404
Cash surrender value of life insurance ................................ 6,168 6,095
Goodwill .............................................................. 1,571 1,596
--------- ---------
TOTAL ASSETS ....................................................... $ 747,606 $ 744,509
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits .............................................................. $ 566,042 $ 579,882
Advances from Federal Home Loan Bank .................................. 98,892 87,895
Senior debt ........................................................... 4,006 1,000
Other borrowings ...................................................... 4,562 1,515
Advance payments by borrowers for taxes and insurance ................. 621 270
Accrued expenses and other liabilities ................................ 5,339 4,312
--------- ---------
Total liabilities .................................................. 679,462 674,874
--------- ---------
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: ............................................. 8,371 8,512
4,870,601 shares at September 30, 1999
4,984,814 shares at June 30, 1999
Retained earnings, restricted ........................................ 60,564 61,699
Accumulated other comprehensive income (loss), net of taxes ........... (791) (576)
--------- ---------
Total shareholders' equity ......................................... 68,144 69,635
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................... $ 747,606 $ 744,509
========= =========
See notes to unaudited consolidated financial statements
</TABLE>
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<PAGE>
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(unaudited) Three Months Ended
September 30
-----------------
Interest income: 1999 1998
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Loans receivable .................................... $12,096 $12,648
Securities available for sale and held to maturity .. 1,207 985
Other interest income ............................... 151 128
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Total interest income ................................ 13,454 13,761
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Interest expense:
Deposits ............................................ 5,853 6,274
Advances and borrowings ............................. 1,363 1,513
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------- -------
Total interest expense ............................... 7,216 7,787
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Net interest income .................................. 6,238 5,974
Provision for loan losses ............................ 192 244
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Net interest income after provision for loan losses .. 6,046 5,730
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Other income:
Gain on sale of loans ............................... 226 744
Gain(loss) on sale of securities .................... 2 2
Income from joint ventures .......................... 162 89
Insurance, annuity income, other fees ............... 248 385
Service fees on NOW accounts ........................ 546 511
Net gain (loss) on real estate owned
and repossessed assets............................ 13 23
Loan servicing income ............................... 292 196
Miscellaneous ....................................... 372 371
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Total other income ................................... 1,861 2,321
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Other expenses:
Compensation and employee benefits .................. 2,114 2,094
Occupancy and equipment ............................. 618 570
Service bureau expense .............................. 205 164
Federal insurance premium ........................... 81 80
Marketing ........................................... 73 106
Goodwill amortization ............................... 25 25
Miscellaneous ....................................... 819 708
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Total other expenses ................................. 3,935 3,747
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Income before income taxes ........................... 3,972 4,304
Income tax provision ................................. 1,579 1,699
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======= =======
Net Income ........................................... $ 2,393 $ 2,605
======= =======
Basic earnings per common share....................... $ 0.48 $ 0.51
Dilutive earnings per common share.................... $ 0.46 $ 0.48
Basic weighted average number of shares...............4,953,033 5,141,604
Dilutive weighted average number of shares............5,258,266 5,476,257
Dividends per share................................... $ 0.125 $ 0.100
See notes to unaudited consolidated financial statements
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<TABLE>
<CAPTION>
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Three Months Ended
(unaudited) September 30,
--------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ................................................... $ 2,393 $ 2,605
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Accretion of discounts, amortization and depreciation ... 471 304
Provision for loan losses ............................... 192 244
Net gain from sale of loans ............................. (226) (744)
Net (gain)/loss from sale of investment securities ...... (2) (2)
Net gain from joint ventures; real estate owned ......... (175) (97)
Loan fees deferred (recognized), net .................... 35 (9)
Proceeds from sale of loans held for sale ............... 17,583 47,211
Origination of loans held for sale ...................... (13,824) (46,374)
Increase (decrease) in accrued interest and other assets (840) (6,702)
Increase (decrease) in other liabilities ................ 1,378 689
-------- --------
Net cash provided by (used in) operating activities .......... 6,985 (2,875)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal disbursed on loans ............................. (5,016) (523)
Proceeds from:
Maturities/Repayments of:
Securities held to maturity .......................... 277 2,142
Securities available for sale ........................ 732 2,780
Sales of:
Securities available for sale ........................ 8,197 7,144
Real estate owned and other asset sales .............. 615 157
Purchases of:
Loans ................................................... -- (661)
Securities available for sale ........................... (24,263) (8,599)
Securities held to maturity ............................. (2,000) (855)
Federal Home Loan Bank stock ............................ -- --
Increase in cash surrender value of life insurance ........... (73) (71)
Acquisition of property and equipment, net ................... (104) (234)
-------- --------
Net cash provided by (used in) investing activities .......... (21,635) 1,280
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net ......................... (13,840) (376)
Proceeds from borrowings ..................................... 26,006 20,650
Repayment of borrowings ...................................... (12,003) (20,500)
Net proceeds from (net repayment of) overnight borrowings .... 3,047 95
Common stock options exercised ............................... 37 43
Repurchase of common stock ................................... (3,097) --
Payment of dividends on common stock ......................... (609) (514)
-------- --------
Net cash provided by (used in) financing activities .......... (459) (602)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................... (15,109) (2,197)
Cash and cash equivalents, beginning of period ............... 32,906 24,367
-------- --------
Cash and cash equivalents, end of period ..................... $ 17,797 $ 22,170
======== ========
Supplemental information:
Cash paid for interest........................................ $ 7,229 $ 7,815
Cash paid for income taxes.................................... $ 350 $ 875
Assets acquired through foreclosure........................... $ 653 $ 486
See notes to unaudited consolidated financial statements
</TABLE>
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<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 September
30, 1999, and for the three month period ended September 30, 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, 1999.
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
September 30,
-------------
1999 1998
---- ----
Basic EPS:
Weighted average common shares . 4,953,033 5,141,604
========= =========
Diluted EPS:
Weighted average common shares . 4,953,033 5,141,604
Dilutive effect of stock options 305,233 334,653
--------- ---------
Weighted average common and
incremental shares ............. 5,258,266 5,476,257
========= =========
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4. Comprehensive Income
- ------------------------
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 month period ended September 30, 1999 and 1998 under FAS 130:
Three months ended
September 30,
-------------
1999 1998
---- ----
Net Income ............................................... $ 2,393 $ 2,605
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (213) 374
Reclassification adjustment for (gains) losses
included in net income ............................ (2) (2)
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Other comprehensive income ............................... (215) 327
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Comprehensive Income ..................................... $ 2,178 $ 2,977
======= =======
5. Segments
- ------------
Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information". SFAS 131 redefines how operating segments are determined
and requires disclosure of certain financial and descriptive information about a
company's operating segments. In accordance with SFAS 131, management has
concluded that the Company is comprised of a single operating segment, community
banking activities, and has disclosed all required information relating to its
one operating segment. Management considers parent company activity to represent
an overhead function rather than an operating segment. The Company does not have
a single external customer from which it derives 10 percent or more of its
revenue and operates in one geographical area.
6. New Accounting Pronouncements
- ---------------------------------
The Financial Accounting Standards Board has issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS 133", which amends FAS No. 133,"Accounting for Derivative
Instruments and Hedging Activities", that the Company will be required to adopt
in future periods. SFAS 133, as amended by SFAS 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. 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.
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<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 September 30, 1999 Compared to Quarter Ended September 30, 1998
- -----------------------------------------------------------------------------
General
The Company reported net income of $2,393,000 for the quarter ended September
30, 1999, compared to $2,605,000 for the quarter ended September 30, 1998, a
decrease of $212,000 or 8.1%. Basic earnings per common share for the current
quarter were $0.48 compared to $0.51 for the quarter ended September 30, 1998.
Dilutive earnings per common share were $0.46 compared to $0.48 for the quarter
ended September 30, 1998.
Net Interest Income
Net interest income before provision for loan losses increased by $264,000 for
the quarter ended September 30, 1999, compared to the quarter ended September
30, 1998. The increase is primarily due to a small increase in the net interest
margin of 8 basis points, for the three month period ended September 30, 1999 as
compared to the three month period ended September 30, 1998. This increase in
net interest margin is the result of rates declining slower on interest earning
assets than on interest bearing liabilities.
The provision for loan losses decreased $52,000 for the quarter ended September
30, 1999 compared to the quarter ended September 30, 1998. At September 30,
1999, the loan loss allowance covered 81% 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 economic conditions, the allowance balance
appears adequate at September 30, 1999.
Quarter ending September 30: (in thousands) 1999 1998
------------------------------------------- ---- ----
Allowance beginning balance.................. $4,349 $4,243
Provision for loan losses.................... 192 244
Charge-offs.................................. (127) (176)
Recoveries................................... 19 14
------ ------
Loan Loss Allowance.......................... $4,433 $4,325
Allowance to Total Loans..................... .74% .71%
Allowance to Nonperforming Assets............ 81% 84%
Interest Income
Total interest income for the three-month period ended September 30, 1999,
decreased $307,000, or 2.2%, over the same period of the prior year. The average
balance of interest earning assets increased $13,738,000. This increase in
average balances was not enough to offset the negative effect on interest income
of a 34 basis points decline in the weighted average interest rate earned on
interest bearing assets for the quarter ended September 30, 1999 as compared to
the quarter ended September 30, 1998.
Interest Expense
Total interest expense for the three-month period ended September 30, 1999
decreased $571,000, or 7.3%, as compared to the same period a year ago. The
decrease in interest expense for the three month period ended September 30,
1999, compared to the same period ended September 30, 1998, was the net result
of an increase of $20,566,000 in the average balances of interest bearing
liabilities, being offset by a 49 basis point decline in the rates paid on
interest bearing liabilities.
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<PAGE>
Other Income
Total other income for the three-month period ended September 30, 1999,
decreased $460,000 or 19.8% over the same period a year ago. This decrease was
due primarily to a decrease of $518,000 in the gain on sale of loans. Loan sales
in the secondary market fell $31,680,000 or 71.2% to $12,835,000 in the quarter
ended September 30, 1999 from sales of $87.6 million in the same quarter last
year. Additionally the return on loan sales decreased from 1.58% in the quarter
ended September 30, 1998 to 1.30% in the quarter ended September 30, 1999.
An additional factor, which reduced other income, was a $137,000 decline in
insurance, annuity income and other fees in the quarter ended September 30, 1999
as compared to the quarter ended September 30, 1998. The decrease was due
primarily to the decrease in annuity fees of $143,000 in the quarter ended
September 30, 1999 compared to the same quarter last year. This decrease in
brokerage fees reflects a change in the way the Bank is compensated for
brokerage sales which reduces initial fees received, but will generate future
income from the management of clients' accounts.
Other Expenses
Total other expenses for the three-month period ended September 30, 1999,
increased $188,000 over the same period ended September 30, 1998. This increase
is due primarily to a $111,000 increase in miscellaneous expenses due to various
factors including increased real estate owned costs and consulting costs.
Additionally small increases in occupancy and service bureau expenses of $48,000
and $41,000, respectively, added to the increased expense.
FINANCIAL CONDITION:
Total assets showed an increase of $3,097,000 from June 30, 1999, to September
30, 1999. Cash and cash equivalents decreased $15,109,000 reflecting the
decrease in deposits of $13,840,000. Securities available for sale increased
$15,082,000 while Federal Home Loan Bank advances increased $10,997,000.
Shareholders' equity decreased $1,491,000 during the same period. Retained
earnings increased $2,393,000 million from net income and decreased $608,000
million for dividends paid and decreased $2,920,000 from the repurchase of the
Company's common stock. Common stock decreased $141,000 due to stock repurchases
of $177,000, which was offset by stock options exercises of $36,000 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 $791,000, or a $215,000 decrease in shareholders' equity from
the June 30, 1999 loss position of $576,000.
At September 30, 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 September 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Tangible capital (to total assets) $62,745 8.49% $11,083 1.50% N/A N/A
Core capital (to total assets) $62,745 8.49% $29,556 4.00% N/A N/A
Total risk-based capital
(to risk-weighted assets) $66,218 11.61% $45,613 8.00% $57,017 10.00%
Tier 1 risk-based capital
(to risk-weighted assets) $62,745 11.00% N/A N/A $44,334 6.00%
Tier 1 leverage capital
(to average assets) $62,745 8.51% N/A N/A $36,945 5.00%
</TABLE>
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<PAGE>
Liquidity and Capital Resources
The minimum liquidity allowed by law is 4%. At September 30, 1999, the Bank's
average liquidity ratio was 20.4%. 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 September 30,
1999, the Bank had $98,892,000 in such borrowings. As of that date, the Bank had
commitments to fund loan originations and purchases of approximately $23,411,000
and commitments to sell loans of $6,924,000 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 and Current Status
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.
An assessment of the impact of the Year 2000 issue on the Company's computer
systems was completed. Additionally, the scope of the project includes
operational and environmental systems since they may be impacted if embedded
computer chips control any of their functionality. 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 heavily 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. All systems, critical and
non-critical, have been deemed compliant by the vendors and service providers.
- 10 -
<PAGE>
To validate the readiness of each major system, a risk-based testing strategy
has been used. That is, the level of testing performed for each system is
dependent upon (1) its importance to continued operations, (2) the effectiveness
of vendor testing and (3) the likelihood that the system may fail. The Company
requested detailed documentation of testing plans and results from each vendor
and service provider. An evaluation of the effectiveness of the testing
performed by the vendor was conducted and used to determine the level of further
testing required by the Company. To the extent possible and reasonable,
additional end-user testing in its own environment has been completed for major
systems.
After testing and implementation of a compliant system has been completed, the
system is given a Year 2000 status of "Y2K Ready" as defined by the Company's
project tracking criteria. To attain a status of Y2K Ready, each of the
following must be completed:
1. The vendor has provided a compliant version of the system
2. The user department has validated the readiness of the system as defined in
the Company's Year 2000 Testing Plan 3. The compliant system has been fully
implemented into the production environment
All major systems - those identified as mission-critical and also those that
have a significant impact on the operations of the Company - have been given the
Y2K Ready status. All non-critical systems have been certified compliant by the
vendors and where practical and feasible, have been internally tested. Testing
will continue throughout 1999 as required for any changes made to compliant
systems.
Customer Risk
In 1998, the Company 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.
Costs
The Company has used 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 $75,000 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.
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 and testing of temporary procedures for the continued
operations of those functions has been completed. Updating and testing these
- 11 -
<PAGE>
business resumption procedures is an ongoing process, which will continue
throughout 1999. In anticipation of increased customer demand, contingencies
include procedures to ensure that customer cash needs can be met and that
security and internal controls are enhanced to protect employees and customers.
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.
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Year to Date
September 30, September 30,
------------------ -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average interest rate earned
on total interest-earning assets ........... 7.84% 8.18% 7.84% 8.18%
Weighted average cost of total
interest-bearing liabilities ............... 4.31% 4.80% 4.31% 4.80%
Interest rate spread during period ............. 3.53% 3.38% 3.53% 3.38%
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) 3.63% 3.55% 3.63% 3.55%
Total interest income divided by average
total assets (on annualized basis) ......... 7.23% 7.62% 7.23% 7.62%
Total interest expense divided by
average total assets (on annualized basis) . 3.85% 4.27% 3.85% 4.27%
Net interest income divided by average
total assets (on annualized basis) ......... 3.35% 3.31% 3.35% 3.31%
Return on assets (net income divided by
average total assets on annualized basis) .. 1.29% 1.44% 1.29% 1.44%
Return on equity (net income divided by
average total equity on annualized basis) .. 13.72% 15.31% 13.72% 15.31%
Net interest margin to average
earning Assets ........................... 3.63% 3.55% 3.63% 3.55%
Net interest margin to average assets .......... 3.35% 3.31% 3.35% 3.31%
</TABLE>
At September 30,
-----------------
1999 1998
---- ----
Book value per share outstanding ........... $13.99 $13.51
Interest rate spread ....................... 3.55% 3.50%
Nonperforming Assets:
Loans: Non-accrual ................... $3,178 $4,432
Past due 90 days or more ...... - -
Restructured .................. 64 -
------ ------
Total nonperforming loans ............ 3,242 4,432
Real estate owned, net ............... 2,107 602
Other repossessed assets, net ........ 106 144
------ ------
Total Nonperforming Assets ........... $5,455 $5,178
Nonperforming assets divided by total assets 0.73% 0.72%
Nonperforming loans divided by total loans . 0.54% 0.73%
Balance in Provision for Loan Losses ....... $4,433 $4,325
- 13 -
<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 September 30,
1999 will not be materially different from the results presented on page 12 of
the annual report for fiscal year 1999.
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
- 14 -
<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: November 12, 1999 /S/ Lawrence E. Welker
------------------ ---------------------------------------------
Lawrence E. Welker, Executive Vice President,
Treasurer, and Chief Financial Officer
- 15 -
<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> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,419
<INT-BEARING-DEPOSITS> 378
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,603
<INVESTMENTS-CARRYING> 6,515
<INVESTMENTS-MARKET> 6,448
<LOANS> 591,707
<ALLOWANCE> 4,433
<TOTAL-ASSETS> 747,606
<DEPOSITS> 566,042
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,339
<LONG-TERM> 0
0
0
<COMMON> 8,371
<OTHER-SE> 60,564
<TOTAL-LIABILITIES-AND-EQUITY> 747,606
<INTEREST-LOAN> 12,096
<INTEREST-INVEST> 1,207
<INTEREST-OTHER> 151
<INTEREST-TOTAL> 13,454
<INTEREST-DEPOSIT> 5,853
<INTEREST-EXPENSE> 7,216
<INTEREST-INCOME-NET> 6,238
<LOAN-LOSSES> 192
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 3,935
<INCOME-PRETAX> 3,972
<INCOME-PRE-EXTRAORDINARY> 3,972
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,393
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 7.84
<LOANS-NON> 3,178
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 64
<ALLOWANCE-OPEN> 4,349
<CHARGE-OFFS> 127
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 4,433
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
