<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-20956
HFB FINANCIAL CORPORATION
A Tennessee Corporation I.R.S. Employer
Identification
No. 61-1228266
Address Telephone Number
- ------- ----------------
1602 Cumberland Avenue (606) 248-1095
Middlesboro, Kentucky 40965
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding twelve 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 .
--- ---
The number of shares of the registrant's $1 par value common stock outstanding
at March 31, 1997 was 644,284.
There are a total of 18 pages filed in this document.
1
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HFB FINANCIAL CORPORATION
I N D E X
---------
PAGE NO.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-16
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
<PAGE>
HFB FINANCIAL CORPORATION
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash and equivalents $3,648,457 $4,744,672
Trading securities, at fair value 783,240 246,500
Investment securities, available for sale, at market value
(amortized cost of $17,724,705 and $13,245,033 at March 31, 1997
and June 30, 1996, respectively) 17,441,242 13,160,481
Investment securities, held to maturity, at amortized cost
(market value of $9,876,880 and $9,405,221
at March 31, 1997 and June 30, 1996, respectively) 10,164,467 9,611,689
Loans receivable, net 101,329,214 95,973,650
Mortgage-backed securities, available for sale, at market value
(amortized cost of $7,294,777 and $7,857,319 at March 31, 1997
and June 30, 1996, respectively) 7,174,072 7,677,022
Mortgage-backed securities, held to maturity, at amortized cost
(market value of $11,000,960 and $10,979,790 at March 31, 1997
and June 30, 1996, respectively) 11,222,919 11,312,956
Accrued interest receivable 1,149,870 954,626
Real estate owned 215,971 -
Premises and equipment, net 2,223,059 2,370,438
Other assets (including prepaid income taxes of $12,135 and $13,893
at March 31, 1997 and June 30, 1996, respectively) 126,308 195,763
------------ ------------
Total assets $155,478,819 $146,247,797
============ ============
Liabilities and Stockholders' Equity
Deposits $134,053,266 $126,742,237
Accrued interest on deposits 1,083,030 534,298
Advances from Federal Home Loan Bank 3,734,815 2,650,348
Advances from borrowers for taxes and insurance 111,556 137,152
Accrued expenses and other liabilities 659,914 570,077
Income taxes payable 12,267 41,418
------------ ------------
Total liabilities 139,654,848 130,675,530
------------ ------------
Commitments and contingencies - -
Stockholders' Equity
Preferred stock, $1 par value, authorized: 1,000,000 shares; none issued - -
Common stock, $1 par value; authorized: 5,000,000 shares; issued:
765,512 and 746,064 shares at March 31, 1997 and
June 30, 1996, respectively 765,512 746,064
Additional paid-in capital 6,559,238 6,297,130
Less: Common stock acquired by ESOP with borrowed funds (138,000) (209,428)
Common stock acquired by Management Recognition Plan and
Supplemental Executive Retirement Plan (100,950) (121,250)
Common stock acquired by Rabbi trusts for deferred compensation plans (258,290) (258,290)
Treasury stock, at cost, 121,228 and 112,378 shares at March 31, 1997 and
June 30, 1996, respectively (2,030,955) (1,826,405)
Net unrealized gain (loss) on securities available for sale (242,679) (149,320)
Retained earnings - substantially restricted 11,270,095 11,093,766
------------ ------------
Total stockholders' equity 15,823,971 15,572,267
------------ ------------
Total liabilities and stockholders' equity $155,478,819 $146,247,797
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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HFB FINANCIAL CORPORATION
Consolidated Statements of Earnings
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C>
Interest income:
Loans receivable $2,104,906 $1,948,064 $6,245,875 $5,704,338
Mortgage-backed securities 292,545 313,100 887,541 934,614
Trading account securities 2,830 - 5,806 -
Investment securities 421,679 277,776 1,197,270 809,366
Other interest-earning assets 34,668 56,613 114,161 138,631
---------- ---------- ---------- ----------
Total interest income 2,856,628 2,595,553 8,450,653 7,586,949
---------- ---------- ---------- ----------
Interest expense:
Deposits 1,567,070 1,497,229 4,712,261 4,314,339
Borrowed funds 53,827 36,696 135,254 132,096
---------- ---------- ---------- ----------
Total interest expense 1,620,897 1,533,925 4,847,515 4,446,435
---------- ---------- ---------- ----------
Net interest income 1,235,731 1,061,628 3,603,138 3,140,514
Provision for loan losses 5,073 5,583 91,632 24,991
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 1,230,658 1,056,045 3,511,506 3,115,523
---------- ---------- ---------- ----------
Noninterest income:
Loan service charges 9,566 7,711 34,490 22,871
Service charges on NOW accounts 84,036 61,920 232,264 192,585
Gain (loss) on trading account securities 109,107 - 229,740 -
Gain (loss) on sale of investment securities
available for sale 1,963 - 10,628 (625)
Gain (loss) on sale of premises and equipment - 950 338 (1,640)
Other 20,742 18,717 51,313 46,420
---------- ---------- ---------- ----------
Total noninterest income 225,414 89,298 558,773 259,611
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and benefits 391,959 407,734 1,129,907 1,199,379
Occupancy expense 46,597 40,971 150,348 123,345
Equipment and data processing expense 117,825 104,464 332,424 273,580
SAIF deposit insurance premium 20,519 65,613 147,900 189,055
SAIF special assessment - - 705,859 -
Professional services 43,755 53,162 154,660 142,076
Kentucky savings and loan tax 23,676 29,185 88,676 81,685
Other 132,352 125,281 422,816 418,637
---------- ---------- ---------- ----------
Total noninterest expense 776,683 826,410 3,132,590 2,427,757
---------- ---------- ---------- ----------
Earnings before income taxes 679,389 318,933 937,689 947,377
---------- ---------- ---------- ----------
Income taxes:
Current 262,816 105,450 323,066 286,309
Deferred (10,500) 3,800 24,450 43,800
---------- ---------- ---------- ----------
Total income taxes 252,316 109,250 347,516 330,109
---------- ---------- ---------- ----------
Net earnings $ 427,073 $ 209,683 $ 590,173 $ 617,268
========== ========== ========== ==========
Earnings per share $ 0.65 $ 0.31 $ 0.90 $ 0.92
========== ========== ========== ==========
Dividends per share $ 0.33 $ 0.32 $ 0.65 $ 0.64
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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HFB FINANCIAL CORPORATION
Consolidated Statement of Stockholders' Equity
Nine months ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional MRP
Common Paid-in ESOP* and Rabbi Treasury
Stock Capital Debt SERP** Trusts Stock
-------- ---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 $746,064 $6,297,130 ($209,428) ($121,250) ($258,290) ($1,826,405)
Net earnings - - - - - -
Stock issued upon exercise
of stock options 19,448 243,688 - - - -
Dividends declared - - - - - -
Treasury stock-
8,850 shares purchased - - - - - (204,550)
Reduction of ESOP debt - 7,482 71,428 - - -
Stock issued under MRP - 10,938 - 20,300 - -
Net change in unrealized gain (loss)
on securities available for sale - - - - - -
-------- ---------- --------- --------- --------- -----------
Balance at March 31, 1997 $765,512 $6,559,238 ($138,000) ($100,950) ($258,290) ($2,030,955)
======== ========== ========= ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Securities Total
Retained Available Stockholders'
Earnings for Sale Equity
----------- -------------- ------------
<S> <C> <C> <C>
Balance at June 30, 1996 $11,093,766 ($149,320) $15,572,267
Net earnings 590,173 - 590,173
Stock issued upon exercise
of stock options - - 263,136
Dividends declared (413,844) - (413,844)
Treasury stock-
8,850 shares purchased - - (204,550)
Reduction of ESOP debt - - 78,910
Stock issued under MRP - - 31,238
Net change in unrealized gain (loss)
on securities available for sale - (93,359) (93,359)
----------- -------------- ------------
Balance at March 31, 1997 $11,270,095 ($242,679) $15,823,971
=========== ============== ============
</TABLE>
* Employees Stock Ownership Plan (ESOP)
** Management Recognition Plan (MRP) and Supplemental Executive Retirement
Plan (SERP)
See accompanying notes to consolidated financial statements.
5
<PAGE>
HFB FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 590,173 $ 617,268
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 174,094 125,871
Amortization of cost of ESOP 71,428 70,923
Amortization of cost of Management Recognition Plan 20,300 45,600
Distribution of Rabbi trusts assets - 5,179
Amortization of premiums and discounts on investment
securities and mortgage-backed securities 15,092 36,538
FHLB stock dividend (58,100) (54,400)
Deferred income taxes 24,450 43,800
Provision for loan losses 91,632 24,991
Loss (gain) on trading account securities (229,740) -
Sales of trading account securities 2,340,823 -
Purchases of trading account securities (2,647,823) -
Loss (gain) on sale of premises & equipment (338) 1,640
Loss (gain) on sale of investment securities available for sale (10,628) 625
Decrease (increase) in accrued interest receivable (195,244) (188,395)
Decrease (increase) in other assets 67,697 (142)
Increase (decrease) in accrued interest on deposits 548,732 655,580
Increase (decrease) in accrued expenses and other liabilities 89,837 36,081
Increase (decrease) in income taxes payable 60,149 40,700
------------ -----------
Net cash provided by (used in) operating activities 952,534 1,461,859
------------ -----------
Cash flows from investing activities:
Principal collected on investment securities available for sale 515,604 505,727
Proceeds from sales of investment securities
available for sale 3,505,000 3,999,375
Purchase of investment securities, available for sale (8,485,469) (3,973,546)
Proceeds from investment securities matured 1,002,776 3,153,352
Purchase of investment securities (1,500,000) (5,000,000)
Principal collected on mortgage-backed securities
available for sale 547,175 643,523
Purchases of mortgage-backed securities
available for sale - (1,984,005)
Principal collected on mortgage-backed securities 1,076,949 1,670,972
Purchases of mortgage-backed securities (996,012) -
Mortgage loans originated, net of principal collected (5,560,892) (6,401,234)
Principal collected, net of purchases of, mortgage loans
serviced by other institutions 976,345 762,393
(Increase) decrease in consumer loans (1,077,250) (1,085,268)
Proceeds from sales of real estate owned - 138,596
Proceeds from sales of premises and equipment 901 5,150
Acquisition of premises and equipment used in
Bank's business (27,278) (616,338)
------------ -----------
Net cash provided by (used in) investing activities ($10,022,151) ($8,181,303)
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
(continued)
6
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HFB FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from sale of common stock $ 221,896 $ 40,000
Purchase of treasury stock (204,550) (253,103)
Dividends paid to stockholders (413,844) (412,110)
Proceeds from advances from Federal Home Loan Bank 6,800,000 --
Repayment of advances from Federal Home Loan Bank (5,715,533) (1,912,408)
Net increase (decrease) in deposits 7,311,029 12,734,147
Net increase (decrease) in advances from borrowers
for taxes and insurance (25,596) (49,742)
----------- -----------
Net cash provided by (used in) financing
activities 7,973,402 10,146,784
----------- -----------
Net increase (decrease) in cash and cash
equivalents (1,096,215) 3,427,340
Cash and cash equivalents at beginning of
the period 4,744,672 4,010,205
----------- -----------
Cash and cash equivalents at end of
the period $ 3,648,457 $ 7,437,545
=========== ===========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest $ 4,291,482 $ 3,797,292
=========== ===========
Income taxes $ 262,918 $ 245,609
=========== ===========
Noncash activity:
Acquisition of real estate in settlement of
loans $ 215,971 $ 44,736
=========== ===========
Transfer of investment securities, available for sale
to held to maturity $ -- $ 1,475,985
=========== ===========
Transfer of investment securities, held to maturity
to available for sale $ -- $ 8,307,712
=========== ===========
Transfer of mortgage-backed securities, held to maturity
to available for sale $ -- $ 7,082,419
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
HFB FINANCIAL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION:
The unaudited consolidated financial information for the three and nine
month periods ended March 31, 1997 and 1996 includes the results of
operations of HFB Financial Corporation (the "Corporation") and its
wholly owned subsidiary Home Federal Bank, Federal Savings Bank ("Home
Federal" or the "Bank"). HFB Financial Corporation acquired 100 percent
of the Bank's stock during the completion of the Bank's conversion from
mutual to stock form on December 28, 1992. The accompanying unaudited
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial statements and with
the instructions to Form 10-Q. It is suggested that these statements and
notes be read in conjunction with the financial statements and notes
thereto included in the Bank's annual report for the year ended June 30,
1996 on Form 10-K filed with the Securities and Exchange Commission.
In the opinion of management, the financial information reflects all
adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of the results of operations for such
periods but should not be considered as indicative of results for a full
year.
2. NONPERFORMING LOANS AND PROBLEM ASSETS
Management reviews the Bank's loans on a regular basis. After
residential mortgage loans become past due more that 90 days, the Bank
generally establishes an allowance for uncollectible interest for the
amount by which the principal balance and uncollected interest exceeds
90% of the appraised value of the property. Commercial and multi-family
real estate loans generally are placed on non-accrual status if the
borrower is placed in bankruptcy proceedings, or management concludes
that payment in full is not likely. Consumer and commercial loans
generally are charged off, or an allowance is established for any
expected loss after they become more than 90 days past due. The Bank
accrues interest on delinquent loans past due more than 90 days without
establishing a reserve when management concludes such action is
warranted, such as in the event the loan is exceptionally well
collateralized or the borrower establishes the temporary nature of the
delinquency. Loans are charged off when management concludes that they
are uncollectible.
The Bank's collection procedures provide that when a loan becomes past
due 30 days, the borrower is contacted in person or by telephone or
mail, and payment is requested. If payment is not promptly received, the
borrower is contacted again, and efforts are made to formulate an
affirmative plan to cure the delinquency. After a loan becomes past due
90 days the Bank generally initiates legal proceedings. Loans delinquent
90 days or greater and still accruing are managed based on a work out
plan developed by the Bank. Interest accrues based on the work out plan
and the value of the collateral when collateral value is more than
sufficient to fully cover the loan balance. Interest is not accrued on
loans in the process of foreclosure.
Real estate acquired by the Bank as a result of foreclosure is
classified as real estate owned until such time as it is sold. When such
property is acquired, it is recorded at the lower of the unpaid
principal balance or its fair value less estimated selling cost. Any
required write-down of the loan to its fair market value upon
foreclosure is charged against the allowance for loan losses.
8
<PAGE>
The following sets forth information with respect to the Bank's non-performing
assets at March 31, 1997 and June 30, 1996:
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---------- ---------
<S> <C> <C>
Loans accounted for on a nonaccrual basis (1) $ - $ -
----- -----
Accruing loans which are contractually past due
90 days or more: (1)
Real estate $ 434 $ 657
Consumer 25 3
Commercial - -
----- -----
$ 459 $ 660
----- -----
Total of nonaccrual and 90 days or more
past due loans $ 459 $ 660
Real estate owned 216 -
----- -----
Total non-performing assets $ 675 $ 660
===== =====
Nonaccrual and 90 days or more past due loans
as a percentage of total loans, net .45% .69%
===== =====
Nonaccrual and 90 days or more past due loans
as a percentage of total assets .30% .45%
===== =====
Non-performing assets as a percentage of total assets .43% .45%
===== =====
</TABLE>
(1) Interest on delinquent loans is accrued to income to the extent
considered collectible. Nonaccrual loans did not have a material effect on
the Bank's interest income for the periods ended March 31, 1997 and June
30, 1996.
The Bank has a potential problem commercial real estate loan at March 31, 1997.
The carrying amount of the loan is approximately $1.4 million, including a
$131,000 working capital loan funded in January 1997. The property is not
generating sufficient cash flow to fund debt service payments. The borrower has
obtained funds from another source to make the most recent payments on this
indebtedness. Management is currently evaluating the collectability of this
loan and assessing the possibility of any losses the Bank could incur.
9
<PAGE>
The following sets forth the activity in the Bank's allowance for loan losses
for the nine months ended March 31, 1997:
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Balance at June 30, 1996 $671
Charge offs:
Domestic:
Commercial, financial and agricultural 68
Real estate-construction 0
Real estate-mortgage 0
Installment loans to individuals 2
----
70
----
Recoveries:
Domestic:
Commercial, financial and agricultural -
Real estate-construction -
Real estate-mortgage 2
Installment loans to individuals -
----
2
----
Net charge offs (Recoveries): 68
Additions charged to operations 92
----
Balance March 31, 1997 $695
====
Ratio of net charge offs during the period to average
loans outstanding during the period .07%
====
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL:
HFB Financial Corporation, a Tennessee Corporation, was formed in September
1992 at the direction of Home Federal Bank, Federal Savings Bank for the purpose
of becoming a holding company for the Bank as part of its conversion from mutual
to stock form ("the "Conversion"). Prior to the Conversion, the Corporation did
not engage in any material operations and at March 31, 1997, its primary
operation was its investment in the common stock of the Bank.
The Bank is principally engaged in the business of accepting deposits from
the general public and originating permanent loans which are secured by one-to-
four family residential properties located in its market area. The Bank also
originates consumer loans and commercial real estate loans, and maintains a
substantial investment portfolio of mortgage-backed and other investment
securities.
The operations of Home Federal, and savings institutions generally, are
significantly influenced by general economic conditions and the monetary and
fiscal policies of government regulatory agencies. Deposit flows and costs of
funds are influenced by interest rates on competing investments and prevailing
market rates of interest. Lending activities are affected by the demand for
financing real estate and other types of loans, which in turn are influenced by
the interest rates at which such financing may be offered and other factors
related to loan demand and the availability of funds. Just as the Bank's
operations are influenced by regulatory authorities, so are its liquidity levels
and capital resources. As of March 31, 1997, management is not aware of any
current recommendations by the regulatory authorities, which if implemented,
would have a material effect on the Bank's operations, liquidity or resources.
ASSET/LIABILITY MANAGEMENT
Key components of a successful asset/liability strategy are the monitoring
and managing of interest rate sensitivity of both the interest-earning asset and
interest-bearing liability portfolios. Home Federal has employed various
strategies intended to minimize the adverse affect of interest rate risk on
future operations by providing a better match between the interest rate
sensitivity of its assets and liabilities. In particular, the Bank's strategies
are intended to stabilize net interest income for the long-term by protecting
its interest rate spread against increases in interest rates. Such strategies
include the origination of adjustable-rate mortgage loans secured by one-to-four
family residential real estate and the origination of consumer and other loans
with greater interest rate sensitivities than long-term, fixed-rate residential
mortgage loans. Although customers typically prefer fixed-rate mortgage loans
in a low interest rate environment, Home Federal has been successful in
originating adjustable-rate loans in recent years. In addition, the Bank has
used excess funds to invest in various short-term investments including
mortgage-backed securities with terms of seven years or less, U.S. Government
Treasury and Agency securities with terms of ten years or less and other short-
term investments.
Asset/liability management in the form of structuring cash instruments
provides greater flexibility to adjust exposure to interest rates. During
periods of high interest rates, management believes it is prudent to offer
competitive rates on short-term deposits and less competitive rates for long-
term liabilities. This posture allows the Bank to benefit quickly from declines
in interest rates. Likewise, offering more competitive rates on long-term
deposits during the low interest rate periods allows the Bank to extend the
repricing and/or maturity of its liabilities thus reducing its exposure to
rising interest rates.
FINANCIAL CONDITION
The Corporation's assets increased by 6.31% to $155.4 million at March 31,
1997 compared to $146.2 million at June 30, 1996. The majority of this increase
is reflected in investment securities and loans receivable, which was primarily
funded by an increase in deposits.
11
<PAGE>
Cash and cash equivalents decreased by $1.1 million to $3.6 million at
March 31, 1997 from $4.7 million at June 30, 1996. This decrease was primarily
the result of increased levels of loans and investments net of short borrowing
during the quarter ended March 31, 1997.
The Bank's asset composition continues to change due to volatility in
interest rates and a strong loan demand. In the current interest rate
environment, a substantial portion of loans originated were adjustable-rate
residential mortgages. During the nine months ended March 31, 1997, the Bank
originated $24.0 million in mortgages. Total loans receivable, net increased
5.58% to $101.3 million at March 31, 1997 compared to $96.0 million at June 30,
1996.
The Bank augments its lending activities and increases its asset yields by
investing in mortgage-backed securities "MBSs " and U.S. Government securities.
During the nine months ended March 31, 1997, management purchased $11.0 million
in investment securities and MBSs. These purchases were funded by $6.6 in
proceeds from called and maturing investment securities, principal collected on
MBSs and investments, and the sale of investment securities. The balance was
primarily funded by increased deposits and borrowings. At March 31, 1997,
investment securities, AFS and MBSs, AFS were $24.6 million with a net
unrealized loss of $243,000.
At March 31, 1997, the balance in real estate owned was $216,000, compared
to $0 at June 30, 1996. The $216,000 balance represents an interest in a
commercial building in Nicholasville, Kentucky, which was obtained through
foreclosure during the quarter ended December 31, 1996. Management sold the
Bank's interest in the property in April 1997, incurring no significant loss.
Accrued interest receivable increased by $195,000 from $955,000 at June 30,
1996 to $1.150 million at March 31, 1997 due to a higher volume of interest-
earning assets and the timing of interest payments.
Premises and equipment decreased by $150,000 to $2.22 million at March 31,
1997 from $2.37 million at June 30, 1996 primarily due to depreciation.
Total deposits increased by $7.3 million to $134.0 million at March 31,
1997 from $126.7 million at June 30, 1996. During the nine months ended March
31, 1997, CDs increased $6.8 million and NOW accounts increased $1.5 million,
while passbook savings and money market deposit accounts decreased by $960,000.
Accrued interest on deposits increased by $549,000 to $1.083 million at
March 31, 1997 from $534,000 at June 30, 1996. The increase was due to
increased volume and the timing of interest payments.
Advances from Federal Home Loan Bank increased by $1.1 million during the
nine months ended March 31, 1997 due to net increases in borrowings, which was
used to fund increases in lending and investment activities.
Advances from borrowers for taxes and insurance decreased by $25,000 for
the nine months ended March 31, 1997 due to the timing of tax and insurance
payments.
Accrued expenses and other liabilities increased by $90,000 during the nine
months ended March 31, 1997 primarily as the result of the timing of payments of
Kentucky saving and loan taxes and other expenses.
Income taxes payable decreased by $29,000 for the nine months ended March
31, 1997, due to the timing of tax payments.
Certain components of stockholders' equity increased during the nine months
ended March 31, 1997 as the result of employee stock options exercised,
reduction of the Employee Stock Ownership Plan debt and stock issued under the
Management Recognition Plan. Also, 8,850 shares of treasury stock were
purchased at a cost of $205,000 during the nine month period end March 31, 1997.
12
<PAGE>
The Bank's regulatory liquidity ratio was 21.27% at March 31, 1997 as
compared to 21.29% at June 30, 1996. At March 31, 1997 the Bank met all the
fully phased-in regulatory capital requirements under FIRREA. Tangible, core
and risk-based capital ratios were 9.5%, 9.5% and 21.9% respectively at March
31, 1997 as compared to 10.2%, 10.2% and 23.3% at June 30, 1996.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net earnings increased by $217,000 to $427,000 for the three month period
ended March 31, 1997 from $210,000 for the three month period ended March 31,
1996. The primary reasons for the increase were a $174,000 increase in net
interest income, an $136,000 increase noninterest income and a $50,000 decrease
in noninterest expense offset by a $143,000 increase in income tax expense.
Net interest income increased by $174,000 for the three month period ended
March 31, 1997 as compared to the three month period ended March 31, 1996.
Interest income increased during the quarter, primarily as the result of a
higher level of interest-earning assets.
Interest on loans increased by $156,000 to $2.104 million for the three
month period ended March 31, 1997 as compared to $1.948 million for the three
month period ended March 31, 1996. This increase is mainly attributable to a
higher weighted average balance of loans receivable outstanding.
Interest on MBSs decreased by $20,000 to $293,000 during the three month
period ended March 31, 1997 from $313,000 for the three month period ended March
31, 1996, primarily due to a lower weighted average balance.
Interest on trading account securities was $3,000 for the three month
period ended March 31, 1997 compared to $0 for the three months ended March 31,
1996.
Interest on investment securities increased by $144,000 to $422,000 for the
three month period ended March 31, 1997 from $278,000 for the three month period
ended March 31, 1996. This increase was primarily due to increased volume and
higher rates on new purchases.
Interest on other interest-earning bearing assets decreased by $22,000 to
$35,000 for the three month period ended March 31, 1997 from $57,000 for the
three month period ended March 31, 1996 due to a lower level of interest-bearing
cash balances.
Interest on deposits increased by $70,000 to $1.57 million for the three
month period ended March 31, 1997 from $1.50 million for the three month period
ended March 31, 1996 as a result of higher volume and a change in the overall
deposit mix. Lower rate savings accounts declined, while CDs increased.
Interest on borrowed funds increased by $17,000 to $54,000 for the three
month period ended March 31, 1997 from $37,000 for the three month period ended
March 31, 1996 due to higher levels of borrowing.
Provision for loan losses was $5,000 for the three month period ended March
31, 1997 as compared to $6,000 for the three month period ended March 31, 1996.
The provision was the result of Management's evaluation of the adequacy of the
allowance for loan losses including consideration of recoveries of loans
previously charged off, the perceived risk exposure among loan types, actual
loss experience, delinquency rates, and current economic conditions. The Bank's
allowance for loan losses as a percent of total loans at March 31, 1997 was
.69%.
13
<PAGE>
The Banks non-interest income increased by $136,000 to $225,000 for the
three month period ended March 31, 1997 as compared to $89,000 for the same
period in 1996. The increase was attributable to realized and unrealized gains
on trading account securities and realized gains on investment securities AFS of
$111,000, an increase of $2,000 in loan late charge income, an increase of
$22,000 in deposit service charge income and other noninterest income increased
by $1,000. Trading account securities are equity securities, which are subject
to market fluctuations.
Non-interest expense decreased by $50,000 to $776,000 for the three month
period ended March 31, 1997 as compared to $826,000 for the same period in 1996.
Compensation and benefits decreased by $16,000 to $392,000 for the three month
period ended March 31, 1997 as compared to $408,000 for the same period in 1996.
This decrease is primarily attributable to the Bank not having to fund the
employees retirement plan during the quarter ended March 31, 1997.
Occupancy expense increased by $5,000 to $46,000 for the three month period
ended March 31, 1997 compared to $41,000 for the same period in 1996. This
increase was mainly the result of increased property taxes and depreciation
expense.
Equipment and data processing expense increased by $13,000 to $117,000 for
the three month period ended March 31, 1997 from $104,000 for the three month
period ended March 31, 1996 primarily due to increased data processing fees and
repair and maintenance of equipment.
SAIF deposit insurance premiums decreased by $45,000 to $21,000 for the
three month period ended March 31, 1997 as compared to $66,000 for the three
month period ended March 31, 1996 due to lower SAIF premiums.
Professional services decreased by $9,000 for the three month period ended
March 31, 1997 primarily due to lower accounting and consulting fees.
Kentucky saving and loan tax decreased by $5,000 to $24,000 for the three
month period ended March 31, 1997 compared to $29,000 for the three month period
ended March 31, 1996 due to a change in the Bank's estimated liability.
Other expense increased by $7,000 to $132,000 for three the month period
ended March 31, 1997 from $125,000 for the three month period ended March 31,
1996 as the result of small increases in several expense categories.
Income taxes increased by $143,000 to $252,000 for the three month period
ended March 31, 1997 compared to $109,000 for the three months ended March 31,
1996 due to higher earnings.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
Net earnings decreased by $27,000 to $590,000 for the nine month period
ended March 31, 1997 from $617,000 for the nine month period ended March 31,
1996. The primary reasons for the decrease were a $463,000 increase in net
interest income, an increase of $299,000 in noninterest income offset by an
increase of $67,000 in provision for loan loss, an increase of $705,000 in
noninterest expense and an increase of $17,000 in income tax expense.
Net interest income increased by $463,000 for the nine month period ended
March 31, 1997 as compared to the nine month period ended March 31, 1996.
During the nine months ended March 31, 1997, the Bank's net interest income
increased primarily as the result of a higher volume of net interest-earning
assets.
Interest on loans increased by $542,000 to $6.246 million for the nine
month period ended March 31, 1997 as compared to $5.704 million for the nine
month period ended March 31, 1996. This increase is mainly attributable
to a higher volume of loans receivable outstanding.
14
<PAGE>
Interest on MBSs decreased by $47,000 to $888,000 during the nine month
period ended March 31, 1997 from $935,000 for the nine month period ended March
31, 1996 primarily due to a lower weighted average balance.
Interest on trading account securities was $6,000 for the nine month period
ended March 31, 1997 compared to $0 for the nine months ended March 31, 1996.
Interest on investment securities increased by $388,000 to $1.197 million
for the nine month period ended March 31, 1997 from $809,000 for the nine month
period ended March 31, 1996. This increase was primarily due to increased
volume and higher yields on new purchases.
Interest on other interest-earning assets decreased by $25,000 to $114,000
for the nine month period ended March 31, 1997 from $139,000 for the nine month
period ended March 31, 1996 due to a lower level of interest-bearing cash
balances.
Interest on deposits increased by $398,000 to $4.712 million for the nine
month period ended March 31, 1997 from $4.314 million for the nine month period
ended March 31, 1996 as a result of higher interest rates, higher volume and a
change in the overall deposit mix. Lower rate NOW accounts and savings accounts
declined, while CDs increased.
Interest on borrowed funds increased by $3,000 to $135,000 for the nine
month period ended March 31, 1997 from $132,000 for the nine month period ended
March 31, 1996 due to higher levels of borrowing.
Provision for loan losses increased by $67,000 for the nine month period
ended March 31, 1997 compared to the nine month period ended March 31, 1996.
This level of provision was a result of Management's evaluation of the adequacy
of the allowance for loan losses including consideration of recoveries of loans
previously charged off, the perceived risk exposure among loan types, actual
loss experience, delinquency rates, and current economic conditions. The Bank's
allowance for loan losses as a percent of total loans at March 31, 1997 was
.69%.
The Banks non-interest income increased by $299,000 to $559,000 for the
nine month period ended March 31, 1997 as compared to $260,000 for the same
period in 1996. Gains from the sale of trading account securities and
investments AFS increased by $241,000 for the nine months ended March 31, 1997
as compared to the nine month period ended March 31, 1996. Service charges on
deposit accounts increased by $40,000 and late charges on loans increased by
$12,000. Other noninterest income increased by $6,000 for the nine months ended
March 31, 1997 with no significant change in any other single category.
Non-interest expense increased by $705,000 to $3.133 million for the nine
month period ended March 31, 1997 as compared to $2.428 million for the same
period in 1996. Compensation and benefits decreased by $69,000 to $1.130
million for the nine month period ended March 31, 1997 as compared to $1.199
million for the same period in 1996. This decrease is primarily due to a
reduction in the cost of funding the Bank's retirement plan.
Occupancy expense increased by $27,000 to $150,000 for the nine month
period ended March 31, 1997 compared to $123,000 for the same period in 1996.
This increase was mainly the result of expenses associated with the new branch
office in New Tazewell, Tennessee.
Equipment and data processing expense increased by $59,000 to $332,000 for
the nine month period ended March 31, 1997 from $273,000 for the nine month
period ended March 31, 1996 primarily due to increased data processing fees and
depreciation expense identifiable with the New Tazewell branch.
The Bank's Federal deposit insurance premium decreased by $41,000 to
$148,000 for the nine month period ended March 31, 1997 from $189,000 for the
nine month period ended March 31, 1996 due to lower premium rates.
15
<PAGE>
This was this was the result of the legislation enacted to recapitalize the
SAIF, which required the Bank to pay an additional one time special assessment
of $706,000 during the quarter ended December 31, 1996.
Professional services increased by $13,000 to $155,000 for the nine month
period ended March 31, 1997 compared to $142,000 for the same period in 1996.
Most of this increase was attributable to fees paid to consultants for
recommendations to improve the Banks operational procedures. The project was
completed in November 1996 and the associated expense ended at that point.
Kentucky saving and loan tax increased by $7,000 to $89,000 for the nine
month period ended March 31, 1997 from $82,000 for the nine month period ended
March 31, 1996 due to a higher level of deposits.
Other expense increased by $4,000 to $423,000 for nine the month period
ended March 31, 1997 from $419,000 for the nine month period ended March 31,
1996. The principal components of this increase were attributable to
advertising expense, printing supplies and expenses associated with automated
teller machines brought into service during the period.
Income taxes increased by $17,000 to $347,000 for the nine month period
ended March 31, 1997 compared to $330,000 for the nine month period ended March
31, 1996 due to a higher percentage of income being subject to state income
taxes.
16
<PAGE>
HFB FINANCIAL CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
17
<PAGE>
HFB FINANCIAL CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned, thereunto duly authorized.
HFB FINANCIAL CORPORATION
By: /s/ David B. Cook
--------------------------------
David B. Cook
President and
Chief Executive Officer
By: /s/ Stanley Alexander, Jr.
--------------------------------
Stanley Alexander, Jr.
Chief Financial Officer
Dated: May 8, 1997
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,472,813
<INT-BEARING-DEPOSITS> 975,644
<FED-FUNDS-SOLD> 200,000
<TRADING-ASSETS> 783,240
<INVESTMENTS-HELD-FOR-SALE> 24,615,314
<INVESTMENTS-CARRYING> 21,387,386
<INVESTMENTS-MARKET> 20,877,840
<LOANS> 101,329,214
<ALLOWANCE> 695,064
<TOTAL-ASSETS> 155,478,819
<DEPOSITS> 134,053,266
<SHORT-TERM> 3,000,000
<LIABILITIES-OTHER> 1,755,211
<LONG-TERM> 734,815
0
0
<COMMON> 4,796,555
<OTHER-SE> 11,027,416
<TOTAL-LIABILITIES-AND-EQUITY> 15,823,971
<INTEREST-LOAN> 6,245,875
<INTEREST-INVEST> 2,090,617
<INTEREST-OTHER> 114,161
<INTEREST-TOTAL> 8,540,653
<INTEREST-DEPOSIT> 4,712,261
<INTEREST-EXPENSE> 4,847,515
<INTEREST-INCOME-NET> 3,603,138
<LOAN-LOSSES> 91,632
<SECURITIES-GAINS> 240,368
<EXPENSE-OTHER> 3,132,590
<INCOME-PRETAX> 937,689
<INCOME-PRE-EXTRAORDINARY> 937,689
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 590,173
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
<YIELD-ACTUAL> 3.25
<LOANS-NON> 0
<LOANS-PAST> 459,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,400,000
<ALLOWANCE-OPEN> 671,000
<CHARGE-OFFS> 70,000
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 695,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 695,000
</TABLE>
