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, 2000
[ ] 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
(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, 2000:
Common Stock, no par value - 4,504,186 shares outstanding
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
Notes to Consolidated Financial
Statements (unaudited) .................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................................. 8
Forward looking statements ................................... 8
Item 3. Quantitative and Qualitative Analysis of Financial
Condition and Results of Operations .......................... 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .............. 12
Item 5. Other Information ................................................ 12
Item 6. Exhibits and Reports on Form 8-K ................................. 12
Signatures ................................................................ 13
HOME FEDERAL BANCORP
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) September 30, June 30,
2000 2000
----------- ----------
ASSETS:
Cash ................................................. $ 25,213 $ 21,184
Interest-bearing deposits ............................ 1,883 12
--------- ---------
Total cash and cash equivalents .................... 27,096 21,196
--------- ---------
Securities available for sale at fair value
(amortized cost $99,523 and $101,918) ............. 98,496 99,364
Securities held to maturity (fair value
$7,442 and $7,622) ................................ 7,486 7,776
Loans held for sale (fair value $3,767 and $2,409) ... 3,728 2,376
Loans receivable, net of allowance for loan losses
of $5,070 and $4,949 .............................. 660,564 652,007
Investments in joint ventures ........................ 9,546 10,333
Federal Home Loan Bank stock ......................... 9,412 9,037
Accrued interest receivable, net ..................... 5,372 5,750
Premises and equipment, net .......................... 8,918 9,084
Real estate owned .................................... 834 1,235
Prepaid expenses and other assets .................... 5,871 6,114
Cash surrender value of life insurance ............... 6,463 6,387
Goodwill ............................................. 1,470 1,495
--------- ---------
TOTAL ASSETS ...................................... $ 845,256 $ 832,154
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits ............................................. $ 572,338 $ 572,893
Advances from Federal Home Loan Bank ................. 182,982 175,486
Senior debt .......................................... 10,605 6,205
Other borrowings ..................................... 3,923 2,742
Advance payments by borrowers for taxes and insurance 815 406
Accrued expenses and other liabilities ............... 7,211 4,936
--------- ---------
Total liabilities ................................. 777,874 762,668
--------- ---------
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: ............................ 7,983 8,335
4,497,856 shares at September 30, 2000
4,734,585 shares at June 30, 2000
Retained earnings, restricted ....................... 60,015 62,251
Accumulated other comprehensive loss, net of taxes ... (616) (1,100)
--------- ---------
Total shareholders' equity ........................ 67,382 69,486
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........ $ 845,256 $ 832,154
========= =========
See notes to consolidated financial statements (unaudited)
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
----------- -----------
Interest income:
Loans receivable ................................... $ 14,272 $ 12,096
Securities available for sale and held to maturity . 1,772 1,207
Other interest income .............................. 172 151
----------- -----------
Total interest income ............................... 16,216 13,454
----------- -----------
Interest expense:
Deposits ........................................... 6,669 5,853
Advances and borrowings ............................ 3,136 1,363
----------- -----------
Total interest expense .............................. 9,805 7,216
----------- -----------
Net interest income ................................. 6,411 6,238
Provision for loan losses ........................... 215 192
----------- -----------
Net interest income after provision for loan losses . 6,196 6,046
----------- -----------
Other income:
Gain on sale of loans .............................. 512 226
Gain (loss) on sale of securities ................. (394 2
Income from joint ventures ......................... 278 162
Insurance, annuity income, other fees .............. 275 248
Service fees on NOW accounts ....................... 589 546
Net gain on real estate owned and repossessed assets 24 13
Loan servicing income .............................. 291 292
Miscellaneous ...................................... 461 372
----------- -----------
Total other income .................................. 2,036 1,861
----------- -----------
Other expenses:
Compensation and employee benefits ................. 2,214 2,114
Occupancy and equipment ............................ 613 618
Service bureau expense ............................. 205 205
Federal insurance premium .......................... 29 81
Marketing .......................................... 120 73
Goodwill amortization .............................. 25 25
Miscellaneous ...................................... 979 819
----------- -----------
Total other expenses ................................ 4,185 3,935
----------- -----------
Income before income taxes .......................... 4,047 3,972
Income tax provision ................................ 1,616 1,579
----------- -----------
Net Income .......................................... $ 2,431 $ 2,393
=========== ===========
Basic earnings per common share ..................... $ 0.52 $ 0.48
Dilutive earnings per common share .................. $ 0.51 $ 0.46
Basic weighted average number of shares ............. 4,633,034 4,953,033
Dilutive weighted average number of shares .......... 4,778,005 5,258,266
Dividends per share ................................. $ 0.138 $ 0.125
See notes to consolidated financial statements (unaudited)
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) THREE MONTHS ENDED
(unaudited) September 30,
-------------------
2000 1999
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 2,431 $ 2,393
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of discounts, amortization and depreciation 358 471
Provision for loan losses ............................ 215 192
Net gain from sale of loans .......................... (512) (226)
Net (gain)/loss from sale of investment securities ... 394 (2)
Net gain from joint ventures; real estate owned ...... (302) (175)
Loan fees deferred (recognized), net ................. 11 35
Proceeds from sale of loans held for sale ............ 14,402 17,583
Origination of loans held for sale ................... (15,242) (13,824)
(Increase) decrease in accrued interest and other
assets............................................. 1,255 (840)
Increase in other liabilities ........................ 2,684 1,378
-------- --------
Net cash provided by operating activities ................. 5,694 6,985
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal disbursed on loans .......................... (7,228) (5,016)
Proceeds from:
Maturities/Repayments of:
Securities held to maturity ....................... 290 277
Securities available for sale ..................... 1,419 732
Sales of:
Securities available for sale ..................... 22,340 8,197
Real estate owned and other asset sales ........... 549 615
Purchases of:
Loans ................................................ (1,555) --
Securities available for sale ........................ (22,519) (24,263)
Securities held to maturity .......................... -- (2,000)
Federal Home Loan Bank stock ......................... (375) --
Increase in cash surrender value of life insurance ........ (76) (73)
Acquisition of property and equipment, net ................ (142) (104)
-------- --------
Net cash used in investing activities ..................... (7,297) (21,635)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deposits, net ................................. (555) (13,840)
Proceeds from borrowings .................................. 25,900 26,006
Repayment of borrowings ................................... (14,004) (12,003)
Net proceeds from overnight borrowings .................... 1,181 3,047
Common stock options exercised ............................ -- 37
Repurchase of common stock ................................ (4,401) (3,097)
Payment of dividends on common stock ...................... (618) (609)
-------- --------
Net cash provided by (used in) financing activities ....... 7,503 (459)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 5,900 (15,109)
Cash and cash equivalents, beginning of period ............ 21,196 32,906
-------- --------
Cash and cash equivalents, end of period .................. $ 27,096 $ 17,797
======== ========
Supplemental information:
Cash paid for interest .................................... $ 9,704 $ 7,229
Cash paid for income taxes ................................ $ 652 $ 350
Assets acquired through foreclosure ....................... $ 110 $ 653
See notes to consolidated financial statements (unaudited)
Notes to Consolidated Financial Statements (unaudited)
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, 2000, and for the three month period ended September 30, 2000, have not been
audited 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, 2000.
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,
---------------------
2000 1999
---- ----
Basic EPS:
Weighted average common shares ................ 4,633,034 4,953,033
========= =========
Diluted EPS:
Weighted average common shares ................ 4,633,034 4,953,033
Dilutive effect of stock options ............. 144,971 305,233
--------- ---------
Weighted average common and incremental shares 4,778,005 5,258,266
========= =========
4. Comprehensive Income
The following is a summary of the Corporation's total comprehensive income for
the interim three month period ended September 30, 2000 and 1999.
Three months ended
September 30,
------------------
2000 1999
---- ----
Net Income .................................................. $ 2,431 $ 2,393
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period 90 (213)
Reclassification adjustment for (gains) losses
included in net income ............................ 394 (2)
Other comprehensive income .................................. 484 (215)
------- -------
Comprehensive Income ........................................ $ 2,915 $ 2,178
======= =======
5. Segment Reporting
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
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," was issued in June 1998 and
amended by Statement of Financial Standard No. 137 ("SFAS 137"), "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS 133" and Statement of Financial Accounting Standards No. 138 ("SFAS
138"), "Accounting for Certain Derivative Instruments and Certain Hedging
Activities". SFAS 133, as amended, is effective July 1, 2000, for the Company.
The Company designates its interest rate swaps as fair value hedge instruments,
which are recorded as assets or liabilities on the balance sheet and measured at
fair value. The effect of this new standard resulted in a hedging asset of
$271,000 being recorded on July 1, 2000 and an offsetting contra asset for the
same amount being applied as a reduction to commercial real estate loans. As of
September 30, 2000, the fair value of the hedging asset and the contra asset
were adjusted to $149,000 and ($149,000), respectively. There was no income
statement impact as the fair value hedges were determined by management to be
highly effective in accordance with SFAS 133.
Statement of Financial Accounting Standards No. 140 ("SFAS 140"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued September 2000 and provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities after March 31, 2001. Also, it is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. Management has not yet quantified the effect, if any,
of this new standard on the consolidated financial statements.
Part I, Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
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.
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
17 full service banking branches.
RESULTS OF OPERATIONS:
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999
General
The Company reported net income of $2,431,000 for the quarter ended September
30, 2000, compared to $2,393,000 for the quarter ended September 30, 1999, an
increase of $38,000 or 1.6%. Basic earnings per common share for the current
quarter were $0.52 compared to $0.48 for the quarter ended September 30, 1999.
Dilutive earnings per common share were $0.51 compared to $0.46 for the quarter
ended September 30, 1999, or a 10.9% increase.
Net Interest Income
Net interest income before provision for loan losses increased by $173,000 or
2.8% for the quarter ended September 30, 2000, compared to the quarter ended
September 30, 1999. The increase is due to the growth in average interest
earning assets and interest bearing liabilities during the three month period
ended September 30, 2000.
The provision for loan losses increased $23,000 for the quarter ended September
30, 2000 compared to the quarter ended September 30, 1999. At September 30,
2000, the loan loss allowance covered 115% of non-performing loans, real estate
owned and other repossessed assets. Based on management's analysis of classified
assets, loss histories and economic conditions, the allowance balance appears
adequate at September 30, 2000.
Quarter ending September 30: (in thousands) 2000 1999
Allowance beginning balance ............................ $ 4,949 $ 4,349
Provision for loan losses .............................. 215 192
Charge-offs ............................................ (111) (127)
Recoveries ............................................. 17 19
-------------------------------------------------------- ------- -------
Loan Loss Allowance .................................... $ 5,070 $ 4,433
======= =======
Allowance to Total Loans ............................... .76% .74%
Allowance to Nonperforming Assets ...................... 115% 81%
Interest Income
Total interest income for the three-month period ended September 30, 2000,
increased $2,762,000, or 20.5%, over the same period of the prior year. This
increase is the result of two factors: 1) the average balances of interest
earning assets increasing $87,929,000 for the first quarter of fiscal 2001 as
compared to the first quarter of fiscal 2000; and 2) a 54 basis point increase
in the weighted average interest rate earned on interest bearing assets for the
quarter ended September 30, 2000 as compared to the quarter ended September 30,
1999.
Interest Expense
Total interest expense for the three-month period ended September 30, 2000
increased $2,589,000, or 35.9%, as compared to the same period a year ago. The
factors that caused the increase in interest expense mirror the factors for the
increase in interest income. Average balances of interest bearing liabilities
increased $94,075,000, while the interest rate paid on interest bearing
liabilities rose 81 basis points in the quarter ended September 30, 2000 as
compared to the quarter ended September 30, 1999.
Other Income
Total other income for the three-month period ended September 30, 2000,
increased $175,000 or 9.4% over the same period a year ago. This increase was
the net result of several factors including an increase of $286,000 in the gain
on sale of loans, which included $222,000 that resulted from the sale of the
Bank's credit card portfolio. Additionally, income from joint ventures increased
$116,000, as several joint venture projects matured from the development stage
to an income producing stage.
A factor, which reduced other income, was a $394,000 loss on the sale of
available for sale securities, as the Bank completed a partial restructuring of
the investment portfolio. The loss incurred in restructuring the investment
portfolio will be recouped in slightly over one year through the higher yield
attained on the securities purchased.
Other Expenses
Total other expenses for the three-month period ended September 30, 2000,
increased $250,000 or 6.4% over the same period ended September 30, 1999. This
increase is due primarily to a $100,000 increase in compensation and employee
benefits resulting from normal salary increases, increased health insurance
costs and funding required for the Bank's pension plan. Additionally,
miscellaneous expenses increased $160,000 for the first quarter of fiscal 2001
as compared to the first quarter of fiscal 2000 due to a one-time charge of
$100,000 incurred because of fraudulent activity in the consumer loan portfolio
as well as small increases in various other expense categories. The fraudulent
activity did not affect any customer accounts and represents the maximum
exposure to the bank.
FINANCIAL CONDITION:
Total assets showed an increase of $13,102,000 from June 30, 2000, to September
30, 2000. Cash and cash equivalents increased $5,900,000, while loans
receivable, net increased $8,557,000. These increases were funded primarily
through Federal Home Loan Bank advances which increased $7,496,000.
Additionally, senior debt increased $4,400,000 to fund the repurchase of the
company's stock.
Shareholders' equity decreased $2,104,000 during the same period. Retained
earnings increased $2,431,000 million from net income and decreased $618,000
million for dividends paid and decreased $4,049,000 from the repurchase of the
Company's common stock. Common stock decreased $352,000 due to stock repurchases
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 $616,000, or a $484,000 increase in
shareholders' equity from the June 30, 2000 loss position of $1,100,000.
At September 30, 2000, the Bank exceeded all current OTS regulatory capital
requirements as follows:
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, 2000
Tangible capital (to total assets) $65,229 7.83% $12,511 1.50% N/A N/A
Core capital (to total assets) $65,229 7.83% $33,362 4.00% N/A N/A
Total risk-based capital
(to risk-weighted assets) $69,071 11.12% $49,689 8.00% $62,111 10.00%
Tier 1 risk-based capital
(to risk-weighted assets) $65,229 10.51% N/A N/A $37,226 6.00%
Tier 1 leverage capital
(to average assets) $65,229 7.78% N/A N/A $41,943 5.00%
Liquidity and Capital Resources
The minimum liquidity allowed by law is 4%. At September 30, 2000, the Bank's
average liquidity ratio was 18.9%. 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 FHLB
system, the Bank may borrow from the FHLB of Indianapolis. At September 30,
2000, the Bank had $182,982,000 in such borrowings. As of that date, the Bank
had commitments to fund loan originations and purchases of approximately
$28,041,000 and commitments to sell loans of $10,452,000 million. In the opinion
of management, the Bank has sufficient cash flow and borrowing capacity to meet
current and anticipated funding commitments.
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,
2000 will not be materially different from the results presented on page 13 of
the annual report for fiscal year 2000.
Three Months
Supplemental Data: Ended
September 30,
2000 1999
Weighted average interest rate earned
on total interest-earning assets ........... 8.37% 7.83%
Weighted average cost of total
interest-bearing liabilities ............... 5.13% 4.32%
Interest rate spread during period ............. 3.24% 3.52%
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) 3.31% 3.63%
Total interest income divided by average
total assets (on annualized basis) ......... 7.75% 7.23%
Total interest expense divided by
average total assets (on annualized basis) . 4.65% 3.86%
Net interest income divided by average
total assets (on annualized basis) ......... 3.06% 3.35%
Return on assets (net income divided by
average total assets on annualized basis) .. 1.22% 1.29%
Return on equity (net income divided by
average total equity on annualized basis) .. 14.96% 13.72%
Net interest margin to average
earning assets ................................ 3.31% 3.63%
Net interest margin to average assets .......... 3.06% 3.35%
At September 30,
2000 1999
Book value per share outstanding ............... $14.98 $13.99
Interest rate spread ........................... 3.24% 3.55%
Nonperforming Assets:
Loans: Non-accrual ............................ $2,940 $3,178
Past due 90 days or more .......... -- --
Restructured ...................... 627 64
------ ------
Total nonperforming loans ..................... 3,567 3,242
Real estate owned, net ........................ 788 2,107
Other repossessed assets, net ................. 45 106
------ ------
Total Nonperforming Assets .................... $4,400 $5,455
====== ======
Nonperforming assets divided by total assets 0.52% 0.73%
Nonperforming loans divided by total loans ..... 0.53% 0.54%
Balance in Allowance for Loan Losses ........... $5,070 $4,433
PART II. OTHER INFORMATION
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
Home Federal Bancorp issued two reports on Form 8-K in the quarter ended
September 30, 2000. On July 24, 2000, Home Federal Bancorp filed a Form 8-K
announcing the approval of the board of directors to pursue a stock buy back of
up to 5% of the Company's shares. On August 23, 2000, Home Federal Bancorp filed
a Form 8-K announcing the completion of the stock repurchase program.
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 10, 2000 /S/ Lawrence E. Welker
Lawrence E. Welker, Executive Vice President,
Treasurer, and Chief Financial Officer
