<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 September 30, 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 September 30, 1997 was 1,083,626
There are a total of 15 pages filed in this document.
1
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HFB FINANCIAL CORPORATION
I N D E X
---------
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet 3
Consolidated Statement of Earnings 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statement of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-13
PART II - OTHER INFORMATION 14
SIGNATURES 15
2
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HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------- --------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,247,973 $ 3,794,637
Trading securities 1,097,738 795,555
Investment securities
Available for sale 24,864,760 25,112,540
Held to maturity 18,587,864 20,206,502
------------ ------------
Total investment securities 43,452,624 45,319,042
Loans 109,100,026 105,694,555
Allowance for loan losses (778,123) (710,168)
------------ ------------
Net loans 108,321,903 104,984,387
Premises and equipment 2,106,377 2,167,393
Federal Home Loan Bank stock 1,190,400 1,169,100
Interest receivable 1,306,685 1,074,282
Other Assets 151,996 152,571
------------ ------------
Total assets 160,875,696 159,456,967
============ ============
LIABILITIES
Deposits
Interest bearing $130,710,817 $131,130,405
Non-interest bearing 1,494,734 2,072,137
------------ ------------
Totals 132,205,551 133,202,542
Short term borrowings 8,500,000 7,500,000
Long term debt 706,406 720,753
Interest payable 1,146,296 548,233
Other liabilities 1,389,989 918,412
------------ ------------
Total liabilities 143,948,242 142,889,940
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value
Authorized and unissued--1,000,000 shares
Common stock, $1 par value
Issued and outstanding--1,285,673 shares 1,285,673 1,285,673
Additional paid-in capital 6,098,357 6,094,551
Less: Common stock acquired by ESOP (96,185) (125,422)
Common stock acquired by Management
Recognition Plan and Supplemental
Executive Retirement Plan (93,950) (100,950)
Common stock acquired by Rabbi trusts
for deferred compensation plans (294,410) (283,259)
Treasury stock, at cost, 202,047 shares (2,030,955) (2,030,955)
Retained earnings 11,940,402 11,717,514
Net unrealized gain on securities available
for sale 118,522 9,875
------------ ------------
Total stockholders' equity 16,927,454 16,567,027
------------ ------------
Total liabilities and stockholders'
equity $160,875,696 $159,456,967
============ ============
</TABLE>
See notes to consolidated financial statements.
3
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HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------------------------
<S> <C> <C>
INTEREST INCOME
Loans receivable $2,394,912 $2,094,361
Investment securities 711,540 655,765
Other dividend income 27,054 20,138
Deposits with financial institutions 35,852 43,855
-------------------------
Total interest income 3,169,358 2,814,119
-------------------------
INTEREST EXPENSE
Deposits 1,604,149 1,575,693
Short term borrowings 108,242 20,973
Long term debt 14,313 15,451
-------------------------
Total interest expense 1,726,704 1,612,117
-------------------------
NET INTEREST INCOME 1,442,654 1,202,002
Provision for loan losses 67,955 77,747
-------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,374,699 1,124,255
-------------------------
OTHER INCOME
Service charges for deposit accounts 99,518 72,760
Other customer fees ` 11,037 10,187
Net gain (loss) on trading securities 167,823 53,170
Net realized gain (loss) on sales of available for
sale securities 7,623
Other income 9,763 13,133
-------------------------
Total other income 295,764 149,250
-------------------------
OTHER EXPENSES
Salaries and employee benefit 494,018 441,896
Net occupancy expenses 37,676 54,641
Equipment expenses 72,591 51,441
Data processing fees 61,833 48,461
Deposit insurance expense 21,104 70,669
SAIF special assessment 705,859
Legal and professional fees 37,558 50,707
Advertising 20,568 24,498
State franchise and deposit taxes 31,369 39,860
Other expenses 116,767 105,473
-------------------------
Total other expenses 893,484 1,593,505
-------------------------
INCOME BEFORE INCOME TAX 776,979 (320,000)
Income tax expense 326,529 (107,875)
-------------------------
NET INCOME 450,450 (212,125)
=========================
PER SHARE
Net income $ 0.42 $ (0.20)
=========================
WEIGHTED AVERAGE SHARES OUTSTANDING 1,083,626 1,051,447
=========================
</TABLE>
See notes to consolidated financial statements.
4
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HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three months ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN ON TOTAL
ADDITIONAL MRP SECURITIES STOCK-
COMMON PAID-IN ESOP AND RABBI TREASURY RETAINED AVAILABLE HOLDERS'
STOCK CAPITAL DEBT* SERP** TRUSTS STOCK EARNINGS FOR SALE EQUITY
---------- ---------- --------- --------- --------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1997 $1,285,673 $6,094,551 $(125,422) ($100,950) ($283,259) ($2,030,955) $11,717,514 $ 9,875 $16,567,027
Net earnings 450,450 450,450
Dividends declared (227,562) (227,562)
Reduction of ESOP debt 29,237 29,237
Stock issued under MRP 7,000 7,000
Stock purchased by Rabbi
trusts (11,151) (11,151)
Net change in unrealized
gain on securities
available for sale 108,647 108,647
Tax benefit of employee 3,806 3,806
benefit plans
---------- ---------- --------- --------- --------- ----------- ----------- ---------- -----------
BALANCES, SEPTEMBER 30, 1997 $1,285,673 $6,098,357 $ (96,185) $ (93,950) $(294,410) $(2,030,955) $11,940,402 $118,522 $16,927,454
========== ========== ========= ========= ========= =========== =========== ========== ===========
</TABLE>
* Employees Stock Ownership Plan (ESOP)
** Management Recognition Plan (MRP) and Supplemental Executive Retirement
Plan (SERP)
See notes to consolidated financial statements.
5
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HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 450,450 $ (212,125)
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 67,955 77,747
Depreciation and amortization
Property and equipment 61,016 57,210
Cost of ESOP and MRP 36,238 29,037
Investment securities 2,282 8,348
FHLB stock dividend (21,300) (19,100)
Deferred income tax 7,000 550
Net change in
Trading account securities (302,183) (206,880)
Interest receivable (232,403) (175,765)
Interest payable 598,063 530,373
Other assets 573 (4,295)
Other liabilities 406,630 720,421
-------------------------
Net cash provided by operating activities 1,074,321 805,521
-------------------------
INVESTING ACTIVITIES
Purchases of securities available for sale (1,702,778) (500,000)
Purchases of securities held to maturity (996,012)
Proceeds from maturities of securities available
for sale 834,903 507,887
Proceeds from sales of securities available for
sale 1,284,398
Proceeds from maturities of securities held to
maturity 1,618,013 319,351
Net change in loans (3,405,470) (1,863,363)
Purchases of premises and equipment (10,779)
-------------------------
Net cash used by investing activities (1,370,934) (2,542,916)
-------------------------
</TABLE>
(continued)
6
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HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---------- ----------
<S> <C> <C>
FINANCING ACTIVITIES
Net change in
Non interest-bearing, interest-bearing and
savings deposits $ (83,354) $ (513,195)
Certificates of deposit (913,637) 340,989
Short term borrowings 1,000,000 0
Repayment of long-term debt (14,347) (13,241)
Cash dividends (227,562) (201,228)
Purchase of stock (204,550)
Sale of common stock 10,000
Common stock acquired by Rabbi trusts (11,151)
---------- -----------
Net cash used by financing activities (250,051) (581,225)
---------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (546,664) (2,318,620)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,794,637 4,744,672
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $3,247,973 $ 2,426,052
========== ===========
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $1,128,642 $1,081,831
Income tax paid 146,314 2,002
</TABLE>
See notes to consolidated financial statements.
7
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HFB FINANCIAL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION:
The unaudited consolidated financial information for the three month
periods ended September 30, 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"). 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, 1997 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. 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. Loans are
charged off when management concludes that they are uncollectible.
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.
The accrual of interest on impaired loans is discontinued when, in
Management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued is
reversed. Interest income is subsequently recognized only to the extent
cash payments are received.
3. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement No. 128,
"Earnings Per Share." This statement simplifies the computation of earnings
per share and requires dual presentation of basic and diluted earnings per
share on the face of the income statement. The statement is effective for
financial statements issued for periods ending after December 15, 1997,
with earlier application not permitted. It is not expected that the
application of this standard will have a significant impact on the
Companies earnings per share presentation.
The Financial Accounting Standards Board has also issued Statement No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components. In addition, the
Financial Accounting Standards board has issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which
8
<PAGE>
establishes standards for disclosing information about operating segments
in interim and annual financial statements. The Company will comply with
the new disclosure requirements beginning in fiscal 1999. The application
of these pronouncements will not have a material impact on the Company's
financial condition or results of operations.
The following sets forth information with respect to the Bank's non-performing
assets at September 30, 1997 and June 30, 1997:
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
--------------- ---------
<S> <C> <C>
Accruing loans which are contractually past due
90 days or more:
Real estate $ 516 $ 365
Consumer 14 3
----- -----
$ 530 $ 368
Real estate owned 58 58
----- -----
Total non-performing assets $ 588 $ 426
===== =====
Nonaccrual and 90 days or more past due loans
as a percentage of total loans, net (1) .49% .35%
===== =====
Nonaccrual and 90 days or more past due loans
as a percentage of total assets .33% .23%
===== =====
Non-performing assets as a percentage of total assets .37% .27%
===== =====
</TABLE>
(1) The Bank had no nonaccrual loans at September 30, 1997 and June 30,
1997.
The Bank has several potential problem commercial real estate loans to one
borrower at September 30, 1997. The carrying amount of these loans is
approximately $1.4 million, including a $131,000 working capital loan funded in
January 1997. The properties securing these loans is not generating sufficient
cash flow to fund debt service payments and the borrower has been from 30 to 60
days in arrears on the loan during the quarter. The borrower has obtained funds
from another source to make the most recent payments on this indebtedness and
the loan was brought current on October 31. 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 three months ended September 30, 1997:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Balance at June 30, 1997 $710
Provision for loan losses 68
----
Balance September 30, 1997 778
====
Ratio of net charge offs during the period to average
loans outstanding during the period .00%
====
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL:
HFB Financial Corporation (the "Company"), a Tennessee Corporation, was
formed in September 1992 at the direction of Home Federal Bank, Federal Savings
Bank (the"Bank") for the purpose of becoming a holding company for the Bank as
part of its conversion from mutual to stock form. The Corporation's primary
operation is 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 September 30, 1997, management is not aware of any
current recommendations by regulatory authorities, which if implemented, would
have a material effect on the Bank's operations, liquidity or resources.
Issues regarding the year 2000 and the implications it may have on the
operations of the Bank, customers of the Bank and vendors of the Bank is of
grave concern to Management. The Board of Directors has designated a senior
officer to oversee year 2000 compliance and an inventory of software, hardware,
vendors and other issues is currently being developed. Each will be analyzed
and assessed to determine if they are year 2000 compliant. This will be an
ongoing process involving every aspect of the Company and the Bank.
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-
10
<PAGE>
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 .89% to $160.9 million at September
30, 1997 compared to $159.5 million at June 30, 1997. This increase is due
primarily to an increase in loans receivable, which was funded by proceeds
generated by sales and maturities of investment securities.
Cash and cash equivalents decreased by $547,000 to $3.2 million at
September 30, 1997 from $3.8 million at June 30, 1997. This decrease was
primarily the result of increased levels of loans and a decline in deposits
during the quarter ended September 30, 1997.
The Company maintains a portfolio of trading account securities which is
comprised of common stock of other financial institutions. The portfolio was
$1.1 million at September 30, 1997 compared to $796,000 at June 30, 1997. Most
of this increase was attributable to market appreciation of the underlying
stocks.
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 three months ended September 30, 1997, the
Bank originated $7.6 million in mortgages. Total loans receivable, net
increased 3.18% to $108.3 million at September 30, 1997 compared to $105.0
million at June 30, 1997.
At September 30, 1997, allowance for loan losses was $778,000 or .71% of
loans receivable compared to $710,000 or .67% of loans receivable at June 30,
1997. During the three months ended September 30, 1997, the provision for loan
losses was $68,000 and there were no charge offs or recoveries recorded. The
Bank has several problem real estate loans to one borrower at September 30,
1997.. The carrying amount of these loans is approximately $1.4 million,
including a $131,000 working capital loan which was funded in January 1997. The
properties securing these loans are not generating sufficient cash flow to fund
debt service payments and the borrower has been from 30 to 60 days in arrears on
these loans during the quarter. The borrower obtained funds from another source
to make the most recent payments on this indebtedness and these loans were
brought current on October 31. There has been no improvement in cash flows
since June 30, 1997 and Management continues to closely monitor this credit as
to its collectability and any possible losses the Bank could incur.
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 three months ended September 30, 1997, management purchased $1.7
million in investment securities and MBSs, while the proceeds from called and
maturing investment securities, principal collected on MBSs and investments, and
the sale of investment securities totaled $3.7 million. At September 30, 1997,
investment securities available for sale, "AFS" was $24.9 million with a net
unrealized gain of $119,000 and the balance of investment securities held to
maturity, "HTM" was $18.6 million.
Accrued interest receivable increased by $232,000 from $1.074 million at
June 30, 1997 to $1.306 million
11
<PAGE>
at September 30, 1997 due to a higher volume of interest-earning assets and the
timing of interest payments.
Total deposits decreased by $997,000 to $132.206 million at September 30,
1997 from $133.203 million at June 30, 1997. During the three months ended
September 30, 1997, Certificates of Deposiits increased $341,000 million while
other deposits decreased by $1.338 million.
Accrued interest on deposits increased by $598,000 to $1.146 million at
September 30, 1997 from $548,000 at June 30, 1996. The increase was primarily
due to the timing of interest payments.
Short term borrowings from Federal Home Loan Bank increased by $1.0 million
during the three months ended September 30, 1997 due to net increases in
borrowings, which was used to fund increases in lending activities.
The Bank's regulatory liquidity ratio was 23.49% at September 30, 1997 as
compared to 21.50% at June 30, 1997. At September 30, 1997 the Bank met all the
fully phased-in regulatory capital requirements under FIRREA. Tangible, core
and risk-based capital ratios were 9.7%, 9.7% and 20.7% respectively at
September 30, 1997 as compared to 9.7%, 9.7% and 20.7% at June 30, 1997.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net earnings increased by $662,000 to $450,000 for the three month period
ended September 30, 1997 from $(212,000) for the three month period ended
September 30, 1996. The primary reasons for the increase were a $241,000
increase in net interest income, a $10,000 decrease in provision for loan
losses, an $146,000 increase noninterest income and a $700,000 decrease in
noninterest expense offset by a $435,000 increase in income tax expense.
Interest on loans receivable increased by $301,000 to $2.395 million for
the three month period ended September 30, 1997 as compared to $2.094 million
for the three month period ended September 30, 1996. This increase is mainly
attributable to a higher weighted average balance of loans receivable
outstanding.
Interest on investment securities increased by $56,000 to $712,000 during
the three month period ended September 30, 1997 from $656,000 for the three
month period ended September 30, 1996, primarily due to higher yields.
Other dividend income increased by $7,000 to $27,000 for the three month
period ended September 30, 1997 from $20,000 for the three month period ended
September 30, 1996 due primarily to increased investment in trading account
securities.
Interest on deposits with other financial institutions decreased by $8,000
to $36,000 for the three month period ended September 30, 1997 from $44,000 for
the three month period ended September 30, 1996. This decrease was primarily
due to decreased volume arising from funding needs.
Interest on deposits increased by $28,000 to $1.604 million for the three
month period ended September 30, 1997 from $1.576 million for the three month
period ended September 30, 1996 as a result of higher volume and a change in
the overall deposit mix. Lower rate savings accounts declined, while
Certificates of Deposits increased.
Interest on short term borrowings and long term debt increased by $87,000
to $123,000 for the three month period ended September 30, 1997 from $36,000 for
the three month period ended September 30, 1996 due to higher levels of
borrowing.
12
<PAGE>
Provision for loan losses was $68,000 for the three month period ended
September 30, 1997 as compared to $78,000 for the three month period ended
September 30, 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
September 30, 1997 was .71%.
Non-interest income increased by $146,000 to $295,000 for the three month
period ended September 30, 1997 as compared to $149,000 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 available for
sale of $122,000, an increase of $27,000 in deposit service charge income and a
net decrease of $3,000 in all other categories. Trading account securities are
equity securities, which are subject to market fluctuations.
Non-interest expense decreased by $700,000 to $893,000 for the three month
period ended September 30, 1997 as compared to $1.593 million for the same
period in 1996. Compensation and benefits increased by $52,000 to $494,000 for
the three month period ended September 30, 1997 as compared to $442,000 for the
same period in 1996. This decrease was primarily attributable to increased
salaries and wages.
Net occupancy expense decreased by $17,000 to $38,000 for the three month
period ended September 30, 1997 compared to $55,000 for the same period in 1996.
This decrease was mainly the result of decreased repairs and maintenance and
depreciation expense.
Equipment expense increased by $22,000 to $73,000 for the three month
period ended September 30, 1997 from $51,000 for the three month period ended
September 30, 1996 primarily due to increased depreciation expense associated
with the Bank's New Tazewell branch.
Data processing expense increased by $14,000 to $62,000 for the three month
period ended September 30, 1997 from $48,000 for the three month period ended
September 30, 1996 due to increased services rendered by the Bank's service
provider.
Deposit insurance premiums decreased by $50,000 to $21,000 for the three
month period ended September 30, 1997 as compared to $71,000 for the three month
period ended September 30, 1996 due to lower deposit insurance premiums. The
Bank paid a one time special assessment of $706,000 to recapitalize the Savings
Association Insurance Fund during the three months ended September 30, 1996.
Professional services decreased by $13,000 for the three month period
ended September 30, 1997 as compared to the three months ended September 30,
1996 primarily due to lower accounting and consulting fees.
Advertising expense decreased by $4,000 for the three months ended
September 30, 1997 compared to the three months ended September 30, 1996 due to
new programs implemented during the three month period ended September 30, 1996.
State franchise and deposit taxes decreased by $9,000 to $31,000 for the
three month period ended September 30, 1997 compared to $40,000 for the three
month period ended September 30, 1996 due to a change in the Bank's estimated
liability.
Other expense increased by $11,000 to $116,000 for three the month period
ended September 30, 1997 from $105,000 for the three month period ended
September 30, 1996 as the result of small increases in several expense
categories.
Income taxes increased by $435,000 to $327,000 for the three month period
ended September 30, 1997 compared to ($108,000) for the three months ended
September 30, 1996 due to higher earnings.
13
<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
14
<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: November 7, 1997
15
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,667,405
<INT-BEARING-DEPOSITS> 1,480,568
<FED-FUNDS-SOLD> 100,000
<TRADING-ASSETS> 1,097,738
<INVESTMENTS-HELD-FOR-SALE> 24,864,760
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0
0
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