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 December 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
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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 February 4, 2000.
Common Stock, no par value - 4,718,941 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>
HOME FEDERAL BANCORP
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) December 31, June 30,
1999 1999
-------- --------
ASSETS:
Cash .................................................... $ 23,432 $ 21,377
Interest-bearing deposits ............................... 11,357 11,529
-------- --------
Total cash and cash equivalents ....................... 34,789 32,906
-------- --------
Securities available for sale at fair value
(amortized cost $102,588 and $74,482) .................. 101,252 73,521
Securities held to maturity
(fair value $7,330 and $4,960) ......................... 7,468 4,987
Loans held for sale (fair value $904 and $5,136) ........ 894 5,102
Loans receivable, net of allowance for
loan losses of $4,478 and $4,349........................ 602,373 586,918
Investments in joint ventures ........................... 9,247 7,090
Federal Home Loan Bank stock ............................ 7,657 5,814
Accrued interest receivable, net ........................ 4,958 4,897
Premises and equipment, net ............................. 8,807 9,129
Real estate owned ....................................... 2,109 2,050
Prepaid expenses and other assets ....................... 4,224 4,404
Cash surrender value of life insurance .................. 6,240 6,095
Goodwill ................................................ 1,546 1,596
-------- --------
TOTAL ASSETS ......................................... $791,564 $744,509
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits ................................................ $568,968 $579,882
Advances from Federal Home Loan Bank .................... 142,892 87,895
Senior debt ............................................. 7,345 1,000
Other borrowings ........................................ 1,240 1,515
Advance payments by borrowers for taxes and insurance ... 317 270
Accrued expenses and other liabilities .................. 4,798 4,312
-------- --------
Total liabilities .................................... 725,560 674,874
-------- --------
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:................................ 8,171 8,512
4,716,411 shares at December 31, 1999
4,984,814 shares at June 30, 1999
Retained earnings, restricted........................... 58,634 61,699
Accumulated other comprehensive income (loss),
net of taxes............................................ (801) (576)
--------- ---------
Total shareholders' equity............................ 66,004 69,635
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $ 791,564 $ 744,509
======== ========
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 Six Months Ended
December 31, December 31,
-----------------------------------------------------
Interest income: 1999 1998 1999 1998
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loans receivable .......................................... $ 12,391 $ 12,676 $ 24,487 $ 25,324
Securities available for sale and held to maturity ........ 1,627 931 2,834 1,916
Other interest income ..................................... 103 87 254 215
----------- ----------- ----------- -----------
Total interest income ...................................... 14,121 13,694 27,575 27,455
----------- ----------- ----------- -----------
Interest expense:
Deposits .................................................. 5,855 6,036 11,708 12,310
Advances and borrowings ................................... 1,957 1,626 3,320 3,139
----------- ----------- ----------- -----------
Total interest expense ..................................... 7,812 7,662 15,028 15,449
----------- ----------- ----------- -----------
Net interest income ........................................ 6,309 6,032 12,547 12,006
Provision for loan losses .................................. 441 230 633 474
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ........ 5,868 5,802 11,914 11,532
----------- ----------- ----------- -----------
Other income:
Gain on sale of loans ..................................... 223 1,080 449 1,824
Gain(loss) on sale of securities .......................... -- -- 2 2
Income from joint ventures ................................ 145 80 307 169
Insurance, annuity income, other fees ..................... 273 319 521 704
Service fees on NOW accounts .............................. 563 521 1,109 1,032
Net gain (loss) on real estate owned and repossessed assets 13 (8) 26 15
Loan servicing income ..................................... 236 219 528 415
Miscellaneous ............................................. 417 618 789 989
----------- ----------- ----------- -----------
Total other income ......................................... 1,870 2,829 3,731 5,150
----------- ----------- ----------- -----------
Other expenses:
Compensation and employee benefits ........................ 2,167 2,085 4,281 4,179
Occupancy and equipment ................................... 632 581 1,250 1,151
Service bureau expense .................................... 207 198 412 362
Federal insurance premium ................................. 84 78 165 158
Marketing ................................................. 134 152 207 258
Goodwill amortization ..................................... 25 25 50 50
Miscellaneous ............................................. 891 1,165 1,710 1,873
----------- ----------- ----------- -----------
Total other expenses ....................................... 4,140 4,284 8,075 8,031
----------- ----------- ----------- -----------
Income before income taxes ................................. 3,598 4,347 7,570 8,651
Income tax provision ....................................... 1,471 1,712 3,050 3,411
----------- ----------- ----------- -----------
Net Income ................................................. $ 2,127 $ 2,635 $ 4,520 $ 5,240
=========== =========== =========== ===========
Basic earnings per common share ............................ $ 0.44 $ 0.51 $ 0.93 $ 1.02
Dilutive earnings per common share ......................... $ 0.42 $ 0.49 $ 0.88 $ 0.96
Basic weighted average number of shares .................... 4,799,167 5,118,879 4,876,100 5,130,241
Dilutive weighted average number of shares ................. 5,038,624 5,420,622 5,141,914 5,449,727
Dividends per share ........................................ $ 0.138 $ 0.110 $ 0.263 $ 0.210
</TABLE>
See notes to unaudited consolidated financial statements
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<PAGE>
<TABLE>
<CAPTION>
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Six Months Ended
(unaudited) December 31,
----------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ................................................... $ 4,520 $ 5,240
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Accretion of discounts, amortization and depreciation ... 998 463
Provision for loan losses ............................... 633 474
Net gain from sale of loans ............................. (449) (1,824)
Net (gain)/loss from sale of investment securities ...... (2) (2)
Net gain from joint ventures; real estate owned ......... (332) (184)
Loan fees deferred (recognized), net .................... 73 (15)
Proceeds from sale of loans held for sale ............... 30,575 127,274
Origination of loans held for sale ...................... (25,918) (132,013)
Increase (decrease) in accrued interest and other assets (2,895) (9,562)
Increase (decrease) in other liabilities ................ 533 (1,604)
--------- ---------
Net cash provided by (used in) operating activities .......... 7,736 (11,753)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal disbursed on loans ............................. (16,161) 3,603
Proceeds from:
Maturities/Repayments of:
Securities held to maturity .......................... 341 3,322
Securities available for sale ........................ 1,250 4,528
Sales of:
Securities available for sale ........................ 9,197 11,144
Real estate owned and other asset sales .............. 1,215 356
Purchases of:
Loans ................................................... -- (1,033)
Securities available for sale ........................... (38,530) (15,718)
Securities held to maturity ............................. (3,017) (855)
Federal Home Loan Bank stock ............................ (1,843) (358)
Increase in cash surrender value of life insurance ........... (145) (143)
Acquisition of property and equipment, net ................... (387) (505)
--------- ---------
Net cash provided by (used in) investing activities .......... (48,080) 4,341
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net ......................... (10,914) 12,425
Proceeds from borrowings ..................................... 75,345 48,450
Repayment of borrowings ...................................... (14,003) (40,300)
Net proceeds from (net repayment of) overnight borrowings .... (275) (2,589)
Common stock options exercised ............................... 75 243
Repurchase of common stock ................................... (6,744) (2,033)
Payment of dividends on common stock ......................... (1,257) (1,072)
--------- ---------
Net cash provided by (used in) financing activities .......... 42,227 15,124
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................... 1,883 7,712
Cash and cash equivalents, beginning of period ............... 32,906 24,367
--------- ---------
Cash and cash equivalents, end of period ..................... $ 34,789 $ 32,079
========= =========
Supplemental information:
Cash paid for interest ....................................... $ 14,835 $ 15,452
Cash paid for income taxes ................................... $ 2,305 $ 4,160
Assets acquired through foreclosure .......................... $ 1,023 $ 785
</TABLE>
See notes to unaudited consolidated financial statements
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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 December
31, 1999, and for the three and six month period ended December 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, 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 Six months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
Basic EPS:
Weighted average common shares . 4,799,167 5,118,879 4,876,100 5,130,241
========= ========= ========= =========
Diluted EPS:
Weighted average common shares . 4,799,167 5,118,879 4,876,100 5,130,241
Dilutive effect of stock options 239,457 301,743 265,814 319,486
--------- --------- --------- ---------
Weighted average common and
incremental shares ............ 5,038,624 5,420,622 5,141,914 5,449,727
========= ========= ========= =========
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<PAGE>
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 and six period ended December 31, 1999 and 1998 under
FAS 130:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income .................................................. $ 2,127 $ 2,635 $ 4,520 $ 5,240
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (225) (303) (438) 71
Reclassification adjustment for (gains) losses
included in net income ............................ -- -- (2) (2)
------- ------- ------- -------
Other comprehensive income .................................. (225) (303) (440) 69
------- ------- ------- -------
Comprehensive Income ........................................ $ 1,902 $ 2,332 $ 4,080 $ 5,309
======= ======= ======= =======
</TABLE>
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.
- 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 December 31, 1999 Compared to Quarter Ended December 31, 1998
General
The Company reported net income of $2,127,000 for the quarter ended December 31,
1999, compared to $2,635,000 for the quarter ended December 31, 1998, a decrease
of $508,000 or 19.3%. Basic earnings per common share for the current quarter
were $0.44 compared to $0.51 for the quarter ended December 31, 1998. Dilutive
earnings per common share were $0.42 compared to $0.49 for the quarter ended
December 31, 1998.
Net Interest Income
Net interest income before provision for loan losses increased by $277,000 for
the quarter ended December 31, 1999, compared to the quarter ended December 31,
1998. The increase is primarily due to a small increase in the interest rate
spread of 9 basis points, for the three month period ended December 31, 1999 as
compared to the three month period ended December 31, 1998. This increase in
interest rate spread is the result of rates declining slower on interest earning
assets than on interest bearing liabilities.
The provision for loan losses increased $211,000 for the quarter ended December
31, 1999 compared to the quarter ended December 31, 1999, due to the charge off
of a commercial loan. At December 31, 1999, the loan loss allowance covered 84%
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 December 31, 1999.
Quarter ending December 31: (in thousands) 1999 1998
------------------------------------------ ---- ----
Allowance beginning balance .......................... $ 4,433 $ 4,325
Provision for loan losses ............................ 441 230
Charge-offs .......................................... (422) (161)
Recoveries ........................................... 27 19
------- -------
Loan Loss Allowance .................................. $ 4,478 $ 4,413
======= =======
Allowance to Total Loans............................ .74% .72%
Allowance to Nonperforming Assets................... 84% 74%
Interest Income
Total interest income for the three-month period ended December 31, 1999,
increased $427,000, or 3.1%, over the same period of the prior year. The average
balance of interest earning assets increased $32,839,000. The effect on interest
income of the increase in average balances was slightly offset by the negative
effect on interest income of a 13 basis points decline in the weighted average
interest rate earned on interest bearing assets for the quarter ended December
31, 1999 as compared to the quarter ended December 31, 1998.
Interest Expense
Total interest expense for the three-month period ended December 31, 1999
increased $150,000, or 2.0%, as compared to the same period a year ago. The
increase in interest expense for the three month period ended December 31, 1999,
compared to the same period ended December 31, 1998, was the net result of an
increase of $45,243,000 in the average balances of interest bearing liabilities,
being offset by a 22 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 December 31, 1999, decreased
$959,000 or 33.9% over the same period a year ago. This decrease was due
primarily to a decrease of $857,000 in the gain on sale of loans. Loan sales in
the secondary market fell $67,608,000 or 86.4% to $10,631,000 in the quarter
ended December 31, 1999 from sales of $78,239,000 in the same quarter last year.
The decline in loan sales is attributable to the rise in interest rates, which
has had a negative impact on the Bank's refinancing volume.
An additional factor, which reduced other income, was a $201,000 decline in
miscellaneous income in the quarter ended December 31, 1999 as compared to the
quarter ended December 31, 1998. The decrease was due primarily to the income
received in the quarter ended December 1998 from a lease buyout of $159,000 and
a prior year tax refund of $59,000.
Other Expenses
Total other expenses for the three-month period ended December 31, 1999,
decreased $144,000 over the same period ended December 31, 1998. This decrease
is due primarily to a $274,000 decrease in miscellaneous expenses resulting from
a $298,000 write off of bad checks and a write down of $118,000 on the value of
the building held by the Company for investment reflecting the lease buy out,
and the expensing of $39,000 of deferred costs associated with the same
building, which occurred in the quarter ending December 31, 1998. These
decreases in miscellaneous expenses were offset by increases in miscellaneous
expenses occurring in the quarter ending December 31, 2000 attributable
primarily to consulting fees and real estate owned expenses.
Six-months Ended December 31, 1999 Compared to Six-months Ended December 31,
1998:
General
The Company reported net income of $4,520,000, or $.88 per dilutive common
share, for the six-months ended December 31, 1999, compared to $5,240,000, or
$.96 per dilutive common share, for the same period a year ago, a decrease of
$720,000.
Net Interest Income
Net interest income before provision for loan losses increased $541,000 for the
six-month period ended December 31, 1999, compared to the same period ended
December 31, 1998. The reasons for this decrease were primarily the same as for
the three-month period ended December 31, 1999. Net interest income after
provision for loan losses increased by $382,000 for the six-month period ended
December 31, 1999.
The change to the loan loss allowance for the six-month period ended December
31, 1999 is as follows:
Six months ending December 31: (in thousands) 1999 1998
- --------------------------------------------- ---- ----
Allowance beginning balance.................... $ 4,349 $ 4,243
Provision for loan losses ..................... 633 473
Charge-offs ................................... (550) (336)
Recoveries .................................... 46 33
------- -------
Loan Loss Allowance ........................... $ 4,478 $ 4,413
======= =======
Allowance to Total Loans..................... .74% .72%
Allowance to Nonperforming Assets............ 84% 74%
Interest Income
Total interest income for the six-month period ended December 31, 1999 increased
$120,000, compared to the six-month period ended December 31, 1998. The increase
in interest income was due to an increase in average balances of $23,332,000 for
the six-month period ended December 31, 1999 as compared to the six-month period
ended December 31, 1998. The increase in interest income was mitigated by a
decline of 24 basis points in the weighted average interest rate earned on
interest bearing assets.
- 9 -
<PAGE>
Interest Expense
Total interest expense for the six-months ended December 31, 1999 decreased
$421,000, compared to the six-month period ended December 31, 1998. This
decrease was due primarily to a 35 basis point decline in the weighted average
cost of funds for the three-month period ended December 31, 1999 as compared to
the same period ended December 31, 1998. The decrease in interest expense was
offset by increases in average balances of deposits and borrowings outstanding
of $71,562,000.
Other Income
Total other income for the six-month period ended December 31, 1999 decreased
$1,400,000 as compared to the same period one year ago. The primary decrease in
other income is attributable to decreases in gain on sale of loans reflective of
the second quarter decreases detailed above. Smaller additional decreases in
other income were a $183,000 decrease in insurance, annuity income and other
fees due to a $207,000 decrease in income from annuity and brokerage sales. 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. Additionally a $200,000
decrease in miscellaneous income as discussed in the quarterly results also
added to the reduction in other income. Factors reducing the decline of other
income include increases in joint venture income of $138,000 and loan servicing
income of $113,000 for the six month period ended December 31, 1999 as compared
to the same period ended December 31, 1998. These increases were attributable to
the Bank's continued development of joint venture partnerships, as well as the
increase in the Bank's servicing portfolio.
Other Expenses
Total other expenses for the six-month period ended December 31, 1999 remained
relatively stable increasing less than one percent or $44,000. This small
increase is the result of the net effect of several factors, including the
previously mentioned decreases in miscellaneous expenses discussed in the three
month period ended December 31, 1999. In addition to the decreases in
miscellaneous expenses, increases were recorded in compensation expense of
$102,000 due to normal salary increases, as well as a $99,000 increase in
occupancy and equipment due primarily to increased depreciation associated with
shorter lived technology assets.
FINANCIAL CONDITION:
Total assets showed an increase of $47,055,000 from June 30, 1999, to December
31, 1999. Securities available for sale increased $27,731,000 that was funded
primarily by Federal Home Loan Bank advances, which increased $54,997,000. The
increase in FHLB advances also made up the shortfall in liquidity due to the
decline in deposits of $10,914,000 and funded the increase in loans receivable
of $15,455,000.
Shareholders' equity decreased $3,631,000 during the same period. Retained
earnings decreased $3,065,000 which was the result of increases from net income
of $4,520,000 and decreases of $1,257,000 for dividends paid and decreases of
$6,328,000 from the repurchase of the Company's common stock. Common stock
decreased $341,000 due to stock repurchases of $416,000, which was offset by
stock options exercises of $75,000 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 $801,000, or
a $225,000 decrease in shareholders' equity from the June 30, 1999 loss position
of $576,000.
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<PAGE>
At December 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
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tangible capital (to total assets) $62,489 8.00% $11,722 1.50% N/A N/A
Core capital (to total assets) $62,489 8.00% $31,259 4.00% N/A N/A
Total risk-based capital
(to risk-weighted assets) $66,427 11.32% $46,927 8.00% $58,659 10.00%
Tier 1 risk-based capital
(to risk-weighted assets) $62,489 10.65% N/A N/A $35,195 6.00%
Tier 1 leverage capital
(to average assets) $62,489 8.31% N/A N/A $37,609 5.00%
</TABLE>
Liquidity and Capital Resources
The minimum liquidity allowed by law is 4%. At December 31, 1999, the Bank's
average liquidity ratio was 23.8%. 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 December 31, 1999,
the Bank had $142,892,000 in such borrowings. As of that date, the Bank had
commitments to fund loan originations and purchases of approximately $20,508,000
and commitments to sell loans of $2,785,000. 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
Readiness Efforts Overview
In 1997, Home Federal Bancorp faced the challenge of the Year 2000 issue by
developing a comprehensive project plan to address the problem as it related to
the Company's operation. The Plan was approved by the Board of Directors and
implemented by a project team consisting of key members of the technology staff,
representatives of all functional business units and senior management.
Management responsibility for the Plan was assigned to the Vice President of
Data Processing Compliance whose duties were realigned to serve primarily as the
Year 2000 project leader.
An assessment of the impact of the Year 2000 issue on the Company's computer
systems was completed and critical systems were identified. The scope of the
assessment included not only the Company's internal operational and
environmental systems, but also an evaluation of the risk posed by the impact of
the problem on its major customers.
- 11 -
<PAGE>
Since the Company relies heavily on third party vendors and service providers
for its data processing capabilities, formal communications with those providers
were initiated in 1997 to assess the Year 2000 readiness of their products and
services. Monitoring of their progress in meeting their targeted schedule
continued throughout the project. All systems, critical and non-critical, were
deemed compliant by the vendors and service providers and were internally tested
for compliance by the Company where practical and feasible. Realizing that some
disruption might occur despite its best efforts, the Company developed and
tested contingency plans for each critical system in the event of one or more
system failures.
Transition from 1999 to 2000
Home Federal Bancorp entered the Year 2000 smoothly and unaffected by the date
change. Key employees at all offices worked during the rollover weekend to check
the functionality of all major systems and reported the test results to a
central command center. The technical project team monitored all testing and
immediately investigated all reported incidents or problems to determine if a
Year 2000 problem existed. No problems reported were directly related the Year
2000 date change - only typical computer problems that occur during the normal
course of business.
All systems, critical and non-critical, have been checked for Year 2000 related
problems. To date, no material issues have been reported, and all facilities,
systems and operations are functioning normally. Monitoring of critical systems
and processes will continue through the remaining critical dates in 2000, which
includes, but is not limited to, the leap year transition period.
Costs
The Company 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
material to its financial position or results of operations in any given year.
In total, the incremental costs, excluding personnel expenses, for Year 2000
remediation and testing of its computer systems has not exceeded $75,000 over
the three-year period from 1997 through 1999. This amount does not include the
cost to replace fully depreciated systems during this period, which occurred in
the normal course of business and was not directly attributable to the Year 2000
issue.
- 12 -
<PAGE>
Supplemental Data: Three Months Ended Year to Date
December 31, December 31,
----------------- -------------
1999 1998 1999 1998
Weighted average interest rate earned
on total interest-earning assets ........... 7.93% 8.06% 7.88% 8.12%
Weighted average cost of total
interest-bearing liabilities ............... 4.45% 4.67% 4.38% 4.73%
Interest rate spread during period ............. 3.48% 3.39% 3.50% 3.39%
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) 3.54% 3.55% 3.59% 3.55%
Total interest income divided by average
total assets (on annualized basis) ......... 7.31% 7.45% 7.25% 7.53%
Total interest expense divided by
average total assets (on annualized basis) . 4.01% 4.14% 3.92% 4.20%
Net interest income divided by average
total assets (on annualized basis) ......... 3.26% 3.28% 3.30% 3.29%
Return on assets (net income divided by
average total assets on annualized basis) .. 1.10% 1.43% 1.19% 1.44%
Return on equity (net income divided by
average total equity on annualized basis) .. 12.67% 15.16% 13.20% 15.25%
Net interest margin to average
earning Assets ........................... 3.54% 3.55% 3.59% 3.55%
Net interest margin to average assets .......... 3.26% 3.28% 3.30% 3.29%
At December 31,
---------------
1999 1998
---- ----
Book value per share outstanding ............ $13.99 $13.66
Interest rate spread ........................ 3.38% 3.36%
Nonperforming Assets:
Loans: Non-accrual .................... $3,106 $5,079
Past due 90 days or more ....... -- --
Restructured ................... 117 --
----- -----
Total nonperforming loans ............. 3,223 5,079
Real estate owned, net ................ 2,044 801
Other repossessed assets, net ......... 65 120
----- -----
Total Nonperforming Assets ............ $5,332 $6,000
Nonperforming assets divided by total assets. 0.67% 0.81%
Nonperforming loans divided by total loans .. 0.53% 0.83%
Balance in Allowance for Loan Losses ........ $4,478 $4,413
- 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 December 31, 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.
For Votes Withheld
--- --------------
1. Election of the following director nominees:
John K. Keach, Jr.
(three year term)................................ 4,403,915 48,363
David W. Laitinen, M.D.
(three year term)................................ 4,403,915 48,363
For Against Abstain
--- ------- -------
2. Approval and ratification of
Home Federal Bancorp 1999
Stock Option Plan............................ 2,296,795 836,096 302,680
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: February 11, 2000 /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> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 24,432
<INT-BEARING-DEPOSITS> 11,357
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<INVESTMENTS-MARKET> 7,330
<LOANS> 602,373
<ALLOWANCE> 4,478
<TOTAL-ASSETS> 791,564
<DEPOSITS> 568,968
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,798
<LONG-TERM> 0
0
0
<COMMON> 8,171
<OTHER-SE> 58,634
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<INTEREST-TOTAL> 27,575
<INTEREST-DEPOSIT> 11,708
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<LOAN-LOSSES> 633
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<EXPENSE-OTHER> 8,075
<INCOME-PRETAX> 7,570
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<EXTRAORDINARY> 0
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<NET-INCOME> 4,520
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.88
<YIELD-ACTUAL> 3.59
<LOANS-NON> 3,106
<LOANS-PAST> 0
<LOANS-TROUBLED> 117
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<ALLOWANCE-OPEN> 4,349
<CHARGE-OFFS> 550
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