<PAGE>
<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, 1998
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, 1998 was 1,085,647.
There are a total of 18 pages filed in this document.
1<PAGE>
<PAGE>
HFB FINANCIAL CORPORATION
I N D E X
---------
PAGE NO.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet 3
Consolidated Statement of Income 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 11-16
PART II - OTHER INFORMATION 17
SIGNATURES 18
2<PAGE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 8,569,538 $ 3,794,637
Trading account securities 1,092,969 795,555
Investment securities
Available for sale 27,600,317 25,112,540
Held to maturity 20,376,970 20,206,502
------------ ------------
Total investment securities 47,977,287 45,319,042
Loans 114,087,248 105,694,555
Allowance for loan losses (900,572) (710,168)
------------ ------------
Net loans 113,186,676 104,984,387
Premises and equipment 2,185,716 2,167,393
Federal Home Loan Bank stock 1,212,100 1,169,100
Interest receivable 1,403,816 1,074,282
Other assets 241,764 152,571
------------ ------------
Total assets $175,869,866 $159,456,967
============ ============
LIABILITIES
Deposits
Interest bearing $140,730,665 $131,130,405
Non-interest bearing 753,064 2,072,137
------------ ------------
Total 141,483,729 133,202,542
Short-term borrowings 8,500,000 7,500,000
Long-term debt 5,676,835 720,753
Interest payable 1,278,278 548,233
Other liabilities 1,346,400 918,412
------------ ------------
Total liabilities 158,285,242 142,889,940
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value
Authorized and unissued
-- 1,000,000 shares -- --
Common stock, $1 par value
Authorized--5,000,000 shares
Issued and outstanding --
1,287,694 and 1,285,673 shares 1,287,694 1,285,673
Additional paid-in capital 6,108,462 6,094,551
Less: Common stock acquired by ESOP (53,580) (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 12,393,656 11,717,514
Net unrealized gain on securities available
for sale 267,707 9,875
------------ ------------
Total stockholders' equity 17,584,624 16,567,027
------------ ------------
Total liabilities and stockholders' equity $175,869,866 $159,456,967
============ ============
</TABLE>
See notes to consolidated financial statements.
3<PAGE>
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $2,529,504 $2,162,884 $7,310,287 $6,421,073
Investment securities 694,295 694,724 2,122,847 2,026,603
Other dividend income 33,149 21,352 76,266 64,015
Deposits with financial
institutions 59,548 35,647 144,568 114,161
---------- ---------- ---------- ----------
Total interest income 3,316,496 2,914,608 9,653,968 8,625,852
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 1,679,414 1,567,070 4,934,133 4,712,261
Short term borrowings 144,674 24,084 376,119 105,217
Long term debt 13,722 14,586 42,055 30,037
---------- ---------- ---------- ----------
Total interest expense 1,837,810 1,605,740 5,352,307 4,847,515
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,478,687 1,308,867 4,301,661 3,778,337
Provision for loan losses 64,615 7,016 200,542 94,193
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,414,072 1,301,852 4,101,119 3,684,144
---------- ---------- ---------- ----------
OTHER INCOME
Service charges for deposit accounts 95,567 84,999 299,947 234,518
Other customer fees 41,380 10,066 68,817 42,155
Net gain (loss) on trading securities (1,048) 109,107 205,314 229,740
Net realized gain on sales of available
for sale securities 4,737 1,963 13,614 10,628
Other income 2,447 17,552 23,635 42,430
---------- ---------- ---------- ----------
Total other income 143,083 223,687 611,327 559,471
---------- ---------- ---------- ----------
OTHER EXPENSES
Salaries and employee benefits 492,941 371,467 1,456,808 1,211,742
Net occupancy expenses 47,368 51,998 128,418 167,148
Equipment expenses 65,918 60,839 207,737 168,617
Data processing fees 83,596 60,459 208,626 163,807
Deposit insurance expense 20,775 20,519 62,848 147,900
SAIF special assessment 705,859
Legal and professional fees 37,079 43,755 121,913 154,660
Advertising 36,014 24,178 105,907 84,514
State franchise and deposit taxes 30,112 27,409 92,401 102,439
Other expenses 181,892 170,370 442,607 399,240
---------- ---------- ---------- ----------
Total other expenses 995,695 830,993 2,827,265 3,305,926
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX 561,460 694,546 1,885,181 937,689
Income tax expense 208,340 252,316 742,634 347,516
---------- ---------- ---------- ----------
NET INCOME $ 353,120 $ 442,230 $1,142,547 $ 590,173
========== ========== ========== ==========
NET INCOME PER SHARE
Basic $ 0.33 $ 0.40 $ 1.05 $ 0.56
Diluted $ 0.32 $ 0.39 $ 1.03 $ 0.54
</TABLE>
See notes to consolidated financial statements.
4<PAGE>
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine months ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL MRP
COMMON PAID-IN ESOP AND RABBI
STOCK CAPITAL DEBT* SERP** TRUSTS
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1997 $1,285,673 $6,094,551 $(125,422) $(100,950) $(283,259)
Net earnings
Stock issued upon exercise
of stock options 2,021 10,105
Dividends declared
Reduction of ESOP debt 71,842
Stock issued under MRP 7,000
Stock purchased by Rabbi
trusts (11,151)
Net change in unrealized
gain on securities
available for sale
Tax benefit of employee
benefit plans 3,806
---------- ---------- ---------- ---------- ---------
BALANCES, MARCH 31, 1998 $1,287,694 $6,108,462 $ (53,580) $ (93,950) $(294,410)
========== ========== ========== ========== =========
<CAPTION>
NET UNREALIZED
GAIN ON
SECURITIES TOTAL
TREASURY RETAINED AVAILABLE STOCKHOLDERS'
STOCK EARNINGS FOR SALE EQUITY
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCES, JUNE 30, 1997 $(2,030,955) $11,717,514 $ 9,875 $16,567,027
Net earnings 1,142,547 1,142,547
Stock issued upon exercise
of stock options 12,126
Dividends declared (466,405) (466,405)
Reduction of ESOP debt 71,842
Stock issued under MRP 7,000
Stock purchased by Rabbi
trusts (11,151)
Net change in unrealized
gain on securities
available for sale 257,832 257,832
Tax benefit of employee
benefit plans 3,806
----------- ----------- ---------- -----------
BALANCES, MARCH 31, 1998 $(2,030,955) $12,393,656 $ 267,707 $17,584,624
=========== =========== ========== ===========
</TABLE>
__________
* Employees Stock Ownership Plan (ESOP)
** Management Recognition Plan (MRP) and Supplemental Executive
Retirement Plan (SERP)
See notes to consolidated financial statements.
5<PAGE>
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,142,547 $ 590,173
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 200,542 91,632
Depreciation and amortization
Property and equipment 148,801 174,094
Cost of ESOP and MRP 71,842 91,728
Investment securities 15,706 15,092
FHLB stock dividend (43,000) (58,100)
Deferred income tax 7,000 24,450
Net change in
Trading account securities (297,414) (536,740)
Interest receivable (329,534) (195,244)
Interest payable 730,045 548,732
Other assets (89,193) 67,697
Other liabilities 285,249 124,390
Other (10,966)
----------- ----------
Net cash provided by operating
activities 1,842,591 926,938
----------- ----------
INVESTING ACTIVITIES
Purchases of securities available for sale (8,151,194) (8,485,469)
Purchases of securities held to maturity (5,897,077) (2,496,012)
Proceeds from maturities of securities
available for sale 4,176,672 1,062,779
Proceeds from sales of securities available
for sale 1,784,398 3,505,000
Proceeds from maturities of securities
held to maturity 5,817,628 2,079,725
Net change in loans (8,402,833) (5,661,797)
Purchases of premises and equipment (167,124) (26,377)
----------- -----------
Net cash used by investing activities (10,839,530) (10,022,151)
----------- ----------
</TABLE>
(continued)
6<PAGE>
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS--CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
FINANCING ACTIVITIES
Net change in
Non interest-bearing, interest-bearing
and savings deposits $ 759,194 $ 535,266
Certificates of deposit 7,521,993 6,775,763
Short term borrowings 1,000,000 1,043,934
Long-term debt 4,956,082 40,533
Cash dividends (446,405) (413,844)
Purchase of stock -- (204,550)
Sale of common stock 12,126 221,896
Common stock acquired by Rabbi trusts (11,151) --
----------- ----------
Net cash used by financing activities 13,771,839 7,998,998
----------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,774,901 (1,096,215)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,794,637 4,744,672
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,569,538 $3,648,457
=========== ==========
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 4,791,713 $4,291,482
Income tax paid 740,196 262,918
</TABLE>
See notes to consolidated financial statements.
7<PAGE>
<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, 1998
and 1997 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, 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. 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. The
application of this standard did not have a
significant impact on the Companies earnings per share
presentation in this report.
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 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.
8 <PAGE>
<PAGE>
3. EARNINGS PER SHARE
Earnings per share were computed as follows:
<TABLE>
<CAPTION>
Weighted
Average Per Share
Income Shares Amount
Three Months Ended March 31, 1998 -------------------------------
<S> <C> <C> <C>
Net Income $ 353
------
Basic Earnings Per Share $ .33
Income available to common stockholder 353 1,084,367
Effect of Diluted Securities
Stock options 29,913
--------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $ 353 1,114,280 $ .32
================================
Nine Months Ended March 31, 1998
Net Income $1,143
------
Basic Earnings Per Share $ 1.05
Income available to common stockholder 1,143 1,083,873
Effect of Diluted Securities
Stock options 29,037
--------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $1,143 1,112,910 $ 1.03
================================
Three Months Ended March 31, 1997
Net Income $ 427
------
Basic Earnings Per Share $ .40
Income available to common stockholder 427 1,058,891
Effect of Diluted Securities
Stock options 42,221
--------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $ 427 1,101,112 $ .39
================================
Nine Months Ended March 31, 1997
Net Income $ 590
------
Basic Earnings Per Share $ .56
Income available to common stockholder 590 1,051,887
Effect of Diluted Securities
Stock options 46,622
--------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $ 590 1,098,509 $ .54
================================
</TABLE>
9<PAGE>
<PAGE>
4. 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.
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 interest is reversed.
Interest income is subsequently recognized only to the
extent cash payments are received.
The following sets forth information with respect to the Bank's
non-performing assets at March 31, 1998 and June 30, 1997:
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, June 30,
1998 1997
------------ ------------
<S> <C> <C>
Accruing loans which are contractually
past due 90 days or more:
Real estate $ 701 $ 365
Consumer 33 3
------ ------
$ 734 $ 660
Real estate owned 0 58
------ ------
Total non-performing assets $ 734 $ 426
====== ======
Nonaccrual and 90 days or more past due loans
as a percentage of total loans, net (1) .64% .35%
====== ======
Nonaccrual and 90 days or more past due loans
as a percentage of total assets .42% .23%
====== ======
Non-performing assets as a percentage of total
assets .42% .27%
<FN> ====== ======
_______________
(1) The Bank had no nonaccrual loans at March 31, 1998 and June 30, 1997.
</FN>
</TABLE>
The Bank has several potential problem commercial real estate
loans to one borrower at March 31, 1998. The carrying amount of
these loans is approximately $1.3 million, including a $131,000
working capital loan funded in
10<PAGE>
<PAGE>
January 1997. The properties securing these loans are not
generating sufficient cash flow to fund debt service payments
and the borrower has been 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.
The loans were current on March 31, 1998. Management is
currently evaluating the collectability of these loans and
assessing the possibility of any losses the Bank could
incur.
The following sets forth the activity in the Bank's allowance
for loan losses for the nine months ended March 31, 1998 and
1997:
(Dollars in thousands)
1998 1997
---- ----
Balance at July 1 $710 $671
Charge offs 10 68
Provision for loan losses 201 92
---- ----
Balance March 31 $901 $695
Ratio of net charge offs during the
period to average loans outstanding
during the period .01% .07%
==== ====
ITEM 2 - 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 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 March 31, 1998,
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.
The Bank has an ongoing program to insure that its operational
and financial systems will not be adversely affected by year
2000 software failures. While the Bank believes it is taking
all appropriate steps to assure year 2000 compliance, it is
dependent on vendor compliance to some extent. The Bank is
requiring its systems and software vendors to represent that the
products and services provided are, or will be, year 2000
compliant, and has planned a program for testing compliance. On
March 21, 1998, the Bank converted to new core processor and
replaced all of its data processing hardware with year 2000
compliant equipment through the normal course of business.
During the selection process, special emphasis was placed the
vendors ability to be year 2000 compliance within a reasonable
time frame. The Bank estimates that the cost to redevelop,
replace or repair its technology will not be material.
11<PAGE>
<PAGE>
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 10.29% to $175.9 million
at March 31, 1998 compared to $159.5 million at June 30, 1997.
The majority of this increase is reflected in cash and due from
banks, investment securities and loans receivable, which was
primarily funded by an increase in deposits and borrowings.
Cash and cash equivalents increased by $4.8 million to $8.6
million at March 31, 1998 from $3.8 million at June 30, 1997.
This increase was primarily the result of several investment
securities which were called in late March and an increase in
deposits during the nine month period ended March 31, 1998.
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 March 31, 1998
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 has changed due to lower 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, 1998, the Bank originated $36.9 million in
mortgages. Seventy four percent of the mortgage loans
originated during the quarter ended March 31, 1998 were
refinancing of existing credits within the Bank's portfolio.
Total loans receivable, net increased 7.81% to $113.2 million at
March 31, 1998 compared to $105.0 million at June 30, 1997.
At March 31, 1998, the allowance for loan losses was $901,000 or
.79% of loans receivable compared to $710,000 or .67% of loans
receivable at June 30, 1997. During the nine months ended March
31, 1998, the provision for loan losses was $201,000. The Bank
has several problem real estate loans to one borrower at March
31, 1998 . The carrying amount of these loans is approximately
$1.3 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 30 to 60 days in arrears on
these loans during the nine months ended March 31, 1998 . The
borrower obtained funds from another source to make the most
recent payments on this indebtedness. These loans were brought
current on March 31, 1998. There have been no improvement in
the credits cash flows since June 30, 1997. Management
continues to closely monitor this credit as to its
collectability and any
12<PAGE>
<PAGE>
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 nine months ended March
31, 1998, management purchased $14.0 million in investment
securities and MBSs. These purchases were primarily funded by
proceeds from called and maturing investment securities,
principal collected on MBSs and investments, and the sale of
investment securities. At March 31, 1998, the Bank held $27.6
million in investment securities, available for sale with a net
unrealized gain of $268,000 and $20.4 million in investment
securities held to maturity.
Accrued interest receivable increased by $330,000 from $1.074
million at June 30, 1997 to $1.404 million at March 31, 1998
due to a higher volume of interest-earning assets and the timing
of interest payments.
Total deposits increased by $8.3 million to $141.5 million at
March 31, 1998 from $133.2 million at June 30, 1997. During
the nine months ended March 31, 1998, certificates of deposit
increased $7.5 million and NOW accounts increased $2.0 million,
while passbook savings and money market deposit accounts
decreased by $1.2 million.
Federal Home Loan Bank advances increased by $1.0 million during
the nine months ended March 31, 1998. These increases were
primarily used to fund increases in lending activities.
Long-term debt increased by $5.0 million during the nine months
ended March 31, 1998. This was the result of a arbitrage
matching the debt with mortgage-backed securities. The
estimated margin on this strategy is estimated to be 113 basis
points.
Accrued interest payable on deposits increased by $730,000
during the nine months ended March 31, 1998 due to increased
deposits and the timing of interest payments.
The Bank's regulatory liquidity ratio was 25.24% at March 31,
1998 as compared to 21.5% at June 30, 1997. At March 31, 1998
the Bank met all the fully phased-in regulatory capital
requirements under FIRREA. Tangible, core and risk-based
capital ratios were 9.3%, 9.3% and 22.4% respectively at March
31, 1998 as compared to 9.7%, 9.7% and 20.7% at June 30, 1997.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1997
Net income decreased by $74,000 to $353,000 for the three month
period ended March 31, 1998 from $427,000 for the three month
period ended March 31, 1997. The primary reasons for the
increase were a $185,000 increase in net interest income offset
by, a $58,000 increase in provision for loan losses, a decrease
of $81,000 in noninterest income, a $164,000 increase in
noninterest expense and a $44,000 decrease in income tax
expense.
Net interest income increased by $185,000 for the three month
period ended March 31, 1998 as compared to the three month
period ended March 31, 1997 because of a higher level of
interest-earning assets.
Interest on loans increased by $367,000 to $2.530 million for
the three month period ended March 31, 1998 as compared to
$2.163 million for the three month period ended March 31, 1997.
This increase is mainly attributable to a higher weighted
average balance of loans receivable outstanding.
Other dividend income increased by $12,000 to $33,000 for the
three month period ended March 31, 1998 compared to $21,000 for
the three months ended March 31, 1997, due to the timing of
those dividends.
Interest on deposits with other financial institutions increased
by $24,000 to $60,000 for the three month period ended March 31,
1998 from $36,000 for the three month period ended March 31,
1997 due to a higher level of interest-bearing cash balances.
13<PAGE>
<PAGE>
Interest on deposits increased by $112,000 to $1.679 million for
the three month period ended March 31, 1998 from $1.567 million
for the three month period ended March 31, 1997 as a result of
higher volume and a change in the overall deposit mix. Lower
rate savings accounts declined, while Certificates of Deposit
increased.
Interest on short term borrowings and long term debt increased
by $105,000 to $158,000 for the three month period ended March
31, 1998 from $53,000 for the three month period ended March
31, 1997 due to higher levels of borrowing.
The provision for loan losses was $65,000 for the three month
period ended March 31, 1998 as compared to $7,000 for the three
month period ended March 31, 1997. 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, 1998 was .79%.
The Banks non-interest income decreased by $81,000 to $143,000
for the three month period ended March 31, 1998 as compared to
$224,000 for the same period in 1996. The decrease was
attributable to a net decrease in realized and unrealized gains
on trading account securities and realized gains on sales of
investment securities, available for sale of $107,000, a
increase of $15,000 in other customer fees and other income, and
an increase of $11,000 in deposit service charge income.
Trading account securities are equity securities, which are
subject to market fluctuations.
Non-interest expense increased by $164,000 to $995,000 for the
three month period ended March 31, 1998 as compared to $831,000
for the same period in 1996. Compensation and benefits
increased by $121,000 to $493,000 for the three month period
ended March 31, 1998 as compared to $372,000 for the same period
in 1996. This increase is primarily attributable to a general
increase in salaries and wages and overtime incurred in
conjunction with the Bank's change in data processing systems
during the quarter ended March 31, 1998.
Occupancy expense decreased by $5,000 to $47,000 for the three
month period ended March 31, 1998 compared to $52,000 for the
same period in 1996. This decrease was mainly the result of
decreased property taxes and depreciation expense.
Equipment expense increased by $5,000 to $66,000 for the three
month period ended March 31, 1998 from $61,000 for the three
month period ended March 31, 1997 primarily due to higher
depreciation expense.
Data processing expense increased by $23,000 to $83,000 for the
three month period ended March 31, 1998 from $60,000 for the
three month period ended March 31, 1997 primarily due to an
increased level of data processing services. The Bank has
entered into an agreement with a new vendor for data processing
services which began in March 1998. As a result, the Bank has
incurred additional expenses during the conversion from its
present system to the new system. The Bank also expects to be
penalized for breaking its' present contract for ATM processing
services. Management expects these expenses to be immaterial to
the Company's consolidated financial statements.
Professional services decreased by $7,000 for the three month
period ended March 31, 1998 primarily due to lower accounting
and consulting fees.
Advertising expense increased by $12,000 to $36,000 for the
quarter ended March 31, 1998 compared to $24,000 for the
quarter ended March 31, 1997 primarily due to the Bank's new
logo campaign launched in the last quarter.
State franchise and deposit taxes increased by $3,000 to $30,000
for the three month period ended March 31, 1998 compared to
$27,000 for the three month period ended March 31, 1997 due to a
change in the Bank's estimated liability.
Other expense increased by $12,000 to $182,000 for three the
month period ended March 31, 1998 from $170,000
14<PAGE>
<PAGE>
for the three month period ended March 31, 1997 as the result of
small increases in several expense categories.
Income taxes decreased by $44,000 to $208,000 for the three
month period ended March 31, 1998 compared to $252,000 for the
three months ended March 31, 1997 due to decreased earnings.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1998
AND 1997
Net income increased by $552,000 to $1.142 million for the nine
month period ended March 31, 1998 from $590,000 for the nine
month period ended March 31, 1997 . The primary reasons for the
increase were a $523,000 increase in net interest income, an
increase of $52,000 in noninterest income, a decrease of
$478,000 in noninterest expense offset by an increase of
$106,000 in the provision for loan losses and an increase of
$395,000 in income tax expense.
Net interest income increased by $523,000 for the nine month
period ended March 31, 1998 as compared to the nine month
period ended March 31, 1997 . During the nine months ended
March 31, 1998, 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 $889,000 to $7.310 million for
the nine month period ended March 31, 1998 as compared to
$6.421 million for the nine month period ended March 31, 1997.
This increase is mainly attributable to a higher weighted
average balance of loans receivable outstanding.
Interest on investment securities increased by $96,000 to $2.123
million during the nine month period ended March 31, 1998 from
$2.027 million for the nine month period ended March 31, 1997
primarily due to higher yields.
Other dividend income increased by $12,000 to $76,000 for the
nine month period ended March 31, 1998 compared to $64,000 for
the nine months ended March 31, 1997, due to the timing of those
dividends.
Interest on deposits with other financial institutions increased
by $31,000 to $145,000 for the nine month period ended March 31,
1998 from $114,000 for the nine month period ended March 31,
1997 due to higher levels of interest-bearing cash balances.
Interest on deposits increased by $222,000 to $4.934 million for
the nine month period ended March 31, 1998 from $4.712 million
for the nine month period ended March 31, 1997 as a result of
higher volume and a change in the overall deposit mix. Lower
rate savings accounts declined, while Certificates of Deposit
increased.
Interest on short term borrowings and long term debt borrowed
funds increased by $283,000 to $418,000 for the nine month
period ended March 31, 1998 from $135,000 for the nine month
period ended March 31, 1997 due to higher levels of borrowing.
The provision for loan losses increased by $106,000 for the nine
month period ended March 31, 1998 compared to the nine month
period ended March 31, 1997 . 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, 1998 was .79%.
The Banks non-interest income increased by $52,000 to $611,000
for the nine month period ended March 31, 1998 as compared to
$559,000 for the same period in 1996. Gains from the sale of
trading account securities and investment securities, available
for sale decreased by $21,000 for the nine months ended March
31, 1998 as compared to the nine month period ended March 31,
1997. Service charges on deposit accounts increased by $65,000
and other customer fees increased by $27,000. Other noninterest
income decreased by $19,000 for the nine months ended March 31,
1998 with no significant change in any other single category.
15<PAGE>
<PAGE>
Non-interest expense increased by $478,000 to $2.827 million for
the nine month period ended March 31, 1998 as compared to
$3.305 million for the same period in 1996. Compensation and
benefits increased by $245,000 to $1.457 million for the nine
month period ended March 31, 1998 as compared to $1.212 million
for the same period in 1996. This increase is primarily due to
a general increase in salaries and wages and overtime associated
with the Bank's recent data processing conversion.
Occupancy expense decreased by $39,000 to $128,000 for the nine
month period ended March 31, 1998 compared to $167,000 for the
same period in 1996. This decrease was mainly the result of
decreased repairs and maintenance and depreciation expenses.
Equipment expense increased by $39,000 to $208,000 for the nine
month period ended March 31, 1998 from $169,000 for the nine
month period ended March 31, 1997 primarily due to increased
depreciation expense.
Data processing expense increased by $45,000 to $209,000 for the
nine month period ended March 31, 1998 from $164,000 for the
nine month period ended March 31, 1997 primarily due to an
increased level of data processing services. In addition, the
Bank entered into an agreement with a new vendor for data
processing services which began in March 1998. As a result, the
Bank incurred additional expenses during the conversion from its
present system to the new system. The Bank also expects to be
penalized for breaking its' present contract for ATM processing
services. Management expects these expenses to be immaterial to
the Company's consolidated financial statements.
Deposit insurance expense decreased by $85,000 to $63,000 for
the nine month period ended March 31, 1998 from $148,000 for
the nine month period ended March 31, 1997 due to lower premium
rates. 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 September 30, 1996.
Professional services decreased by $33,000 to $122,000 for the
nine month period ended March 31, 1998 compared to $155,000 for
the same period in 1997. Most of this decrease was attributable
to fees paid to consultants for recommendations to improve the
Banks operational procedures in nine month period ended March
31, 1997.
Advertising expense increased by $21,000 to $106,000 for the
nine months ended March 31, 1998 compared to $85,000 for the
nine months ended March 31, 1997 primarily due to the Bank's
new logo campaign launched in the quarter ended March 31, 1998.
State franchise and deposit taxes decreased by $10,000 to
$92,000 for the nine month period ended March 31, 1998 from
$102,000 for the nine month period ended March 31, 1997 due to
a change in the Bank's estimated liability.
Other expense increased by $44,000 to $443,000 for nine the
month period ended March 31, 1998 from $399,000 for the nine
month period ended March 31, 1997. The principal components of
this increase were attributable to employee education expense,
printing supplies and expenses associated with automated teller
machines.
Income taxes increased by $395,000 to $743,000 for the nine
month period ended March 31, 1998 compared to $348,000 for the
nine month period ended March 31, 1997 due to higher earnings.
16<PAGE>
<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
Exhibit 27.1 Financial Data Schedule
Exhibit 27.2 Restated Financial Data Schedule
17<PAGE>
<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 12, 1998
18
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,571,093
<INT-BEARING-DEPOSITS> 4,998,445
<FED-FUNDS-SOLD> 100,000
<TRADING-ASSETS> 1,092,969
<INVESTMENTS-HELD-FOR-SALE> 27,600,317
<INVESTMENTS-CARRYING> 20,376,970
<INVESTMENTS-MARKET> 20,406,400
<LOANS> 114,087,248
<ALLOWANCE> 900,572
<TOTAL-ASSETS> 175,869,866
<DEPOSITS> 141,483,729
<SHORT-TERM> 8,500,000
<LIABILITIES-OTHER> 1,346,400
<LONG-TERM> 5,676,835
<COMMON> 4,923,261
0
0
<OTHER-SE> 12,661,363
<TOTAL-LIABILITIES-AND-EQUITY> 175,869,866
<INTEREST-LOAN> 7,310,287
<INTEREST-INVEST> 2,199,113
<INTEREST-OTHER> 144,568
<INTEREST-TOTAL> 9,653,968
<INTEREST-DEPOSIT> 4,934,133
<INTEREST-EXPENSE> 5,352,307
<INTEREST-INCOME-NET> 4,301,661
<LOAN-LOSSES> 200,542
<SECURITIES-GAINS> 13,614
<EXPENSE-OTHER> 2,827,265
<INCOME-PRETAX> 1,885,181
<INCOME-PRE-EXTRAORDINARY> 1,885,181
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,142,547
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 3.54
<LOANS-NON> 0
<LOANS-PAST> 734,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,300,000
<ALLOWANCE-OPEN> 710,168
<CHARGE-OFFS> 10,138
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 900,572
<ALLOWANCE-DOMESTIC> 295,808
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 604,764
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<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
<COMMON> 4,796,555
0
0
<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> .56
<EPS-DILUTED> .54
<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
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