UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 November 10, 2000 was 1,296,947.
There are a total of 13 pages filed in this document.
<PAGE>
HFB FINANCIAL CORPORATION
I N D E X
PAGE NO
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
Consolidated Balance sheet
Consolidated Statement of Income 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-8
ITEM 2. MANAGEMENT'S' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-11
PART 11 - OTHER INFORMATION 12
SIGNATURES 13
2
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
ASSETS
<S> <C> <C>
Cash and cash equivalents $3,964,843 $3,171,389
Trading securities 825,116 758,570
Investment securities
Available for sale 37,175,004 36,672,364
Held to maturity 24,128,142 24,697,115
----------------- ----------------
Total investment securities 61,303,146 61,369,479
Loans 134,417,249 132,038,855
Allowance for loan losses (662,903) (645,107)
----------------- ----------------
Net loans 133,754,346 131,393,748
Premises and equipment 4,395,250 3,871,340
Federal Home Loan Bank stock 1,445,700 1,419,700
Real estate owned 209,149 345,790
Interest receivable 1,587,832 1,908,022
Goodwill 338,200 366,769
Other Assets 185,523 606,061
----------------- ----------------
Total assets $208,009,105 $205,210,868
================= ================
LIABILITIES
Deposits
Interest bearing $172,007,300 $167,221,697
Non-interest bearing 1,576,648 5,315,314
----------------- ----------------
Totals 173,583,948 172,537,011
Short term borrowings 875,000 400,000
Long term debt 12,509,798 12,528,050
Interest payable 1,754,983 850,771
Other liabilities 878,148 908,629
----------------- ----------------
Total liabilities 189,601,877 187,224,461
----------------- ----------------
STOCKHOLDERS' EQUITY
Issued and outstanding - 1,579,082 and 1,574,282 shares 1,579,082 1,574,282
Additional paid-in capital 8,727,990 8,708,790
Less: Common stock acquired by Rabbi trusts for deferred
Compensation plans (515,623) (515,623)
Treasury stock, at cost, 279,935 and 278,935 shares (2,450,240) (2,438,366)
Retained earnings 11,930,790 11,843,918
Accumulated other comprehensive loss (864,771) (1,186,594)
----------------- ----------------
Total stockholders' equity 18,407,228 17,986,407
----------------- ----------------
Total liabilities and stockholders' equity $208,009,105 $205,210,868
================= ================
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
SEPTEMBER 30,
2000 1999
INTEREST INCOME
<S> <C> <C>
Loans receivable $2,758,211 $2,547,663
Investment securities 1,048,091 945,746
Other dividend income 6,984 10,156
Deposits with financial institutions 14,029 2,411
--------------- ---------------
Total interest income 3,827,315 3,505,976
--------------- ----------------
INTEREST EXPENSE
Deposits 2,163,320 1,767,682
Short term borrowings 1,540 80,624
Long term debt 172,501 142,805
--------------- ----------------
Total interest expense 2,337,361 1,991,111
--------------- ----------------
NET INTEREST INCOME 1,489,954 1,514,865
Provision for loan losses 22,500 (474,486)
--------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,467,454 1,989,351
--------------- ----------------
OTHER INCOME
Service charges for deposit accounts 129,457 94,031
Other customer fees 16,742 13,919
Net gain (loss) on trading securities 61,543 (55,506)
Other income 12,057 6,617
--------------- ----------------
Total other income 219,799 59,061
--------------- ----------------
OTHER EXPENSES
Salaries and employee benefits 517,748 491,522
Net occupancy expenses 88,175 54,429
Equipment expenses 91,738 50,936
Data processing fees 67,569 43,625
Deposit insurance expense 8,705 22,427
Legal and professional fees 67,731 60,797
Advertising 41,653 54,515
State franchise and deposit taxes 45,886 38,580
Other expenses 249,102 238,507
--------------- ----------------
Total other expenses 1,178,307 1,055,338
--------------- ----------------
INCOME BEFORE INCOME TAX 508,946 993,074
Income tax expense 175,236 408,577
--------------- ----------------
NET INCOME $333,710 $584,497
=============== ================
BASIC EARNINGS PER SHARE $0.26 $0.44
DILUTED EARNINGS PER SHARE $0.26 $0.44
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE-MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RABBI TREASURY COMPREHENSIVE RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL TRUSTS STOCK INCOME EARNINGS INCOME (LOSS) EQUITY
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 2000 $1,574,282 $8,708,790 $(515,623) $(2,438,366) $11,843,918 $(1,186,594) $17,986,407
Net income $333,710 333,710 333,710
Other Comprehensive income,
net of tax
Unrealized gain on securities 321,823 321,823 321,823
--------
Comprehensive Income $655,533
========
Cash dividends declared
($.19 per share) (246,838) (246,838)
Stock issued upon exercise
of stock options 4,800 19,200 24,000
Purchase of treasury stock
(1,000 shares) (11,874) (11,874)
---------------------------------------------- ----------------------------------------
BALANCES, SEPTEMBER 30, 2000 $1,579,082 $8,727,990 $(515,623) $(2,450,240) $11,930,790 $(864,771) $18,407,228
============================================== ========================================
</TABLE>
5
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
SEPTEMBER 30,
2000 1999
OPERATING ACTIVITIES
<S> <C> <C>
Net cash provided by operating activities $ 1,899,953 $ 1,658,218
----------- -----------
INVESTING ACTIVITIES
Purchases of securities available for sale (500,000) (1,433,217)
Proceeds from maturities of securities available for sale 527,877 1,107,699
Purchases of securities held to maturity -- (1,490,313)
Proceeds from maturities of securities held to maturity 588,998 1,071,853
Net change in loans (2,383,098) 3,014,166
Purchases of premises and equipment (609,249) (527,127)
----------- -----------
Net cash used by investing activities (2,375,472) 1,743,061
----------- -----------
FINANCING ACTIVITIES
Net change in
Non interest-bearing, interest-bearing and
savings deposits (879,180) 264,855
Certificates of deposit 1,926,117 (1,919,404)
Short term borrowings 475,000 (975,000)
Repayment of long-term debt (18,252) (16,844)
Proceeds from exercise of options on common stock 24,000 --
Purchase of treasury stock (11,874) --
Cash dividends (246,838) (231,207)
----------- -----------
Net cash provided by financing activities 1,268,973 (2,877,600)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 793,454 523,679
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,171,389 3,573,139
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,964,843 $ 4,096,818
=========== ===========
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 1,433,149 $ 1,141,498
Income tax paid 1,812 130,505
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
HFB FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The unaudited consolidated financial information for the three month
periods ended September 30, 2000 and 1999 includes the results of
operations of HFB Financial Corporation (the "Company") 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-QSB. These statements and notes should be read
in conjunction with the financial statements and notes thereto included
in the Company's annual report for the year ended June 30, 2000 on Form
10-KSB 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. ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives)
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in its balance sheet and
measure those instruments at fair value. Under this statement, an
entity that elects to apply hedge accounting is required to establish
at the inception of the hedge the method it will use for assessing the
effectiveness of the hedging derivative and the measurement approach
for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk. This
statement is effective for all fiscal years beginning after June 15,
2000. The Bank had no derivatives as of September 30, 2000, nor does
the Bank engage in any hedging activities. The Company does not
anticipate that the adoption of SFAS No. 133 will have a material
impact on the Company's financial position or results of operations
3. NONPERFORMING ASSETS AND PROBLEM ASSETS
The following sets forth the activity in the Bank's allowance for loan
losses for the three-months ended September 30, 2000 and 1999:
(Dollars in thousands)
2000 1999
---- ----
Balance July 1 $645 $1,212
Charge offs (6) (92)
Recoveries 1 1
Provision for loan losses 23 (474)
--- -----
Balance September 30 $663 $647
Information on impaired loans is summarized below
7
<PAGE>
AT SEPTEMBER 30 2000
----
Impaired loans with an allowance $1,507
Allowance for impaired loans (included in the Company's $302
Allowance for loan losses)
THREE-MONTHS ENDED SEPTEMBER 2000
----
Average balance of impaired loans $1,507
Interest income recognized on impaired loans $0
Cash-basis interest received $0
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Quarterly Report on Form 10-QSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes",
"anticipates", "expects", "estimates" or words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which could cause actual results to differ materially from those
anticipated as of the date of this report. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included herein are
only made as of the date of this report and the Company undertakes no obligation
to publicly update such forward-looking statements to reflect subsequent events
or circumstances.
GENERAL:
HFB Financial Corporation is the holding company of Home Federal Bank, Federal
Savings Bank a federal stock savings bank located in Middlesboro, Kentucky. The
Corporation's primary operation is its' investment in the common stock of the
Bank. All references to the Corporation include 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.
Home Federal Bank has branch offices in Harlan, Kentucky and Tazewell,
Tennessee.
8
<PAGE>
FINANCIAL CONDITION
The Corporation's assets increased by 1.36% to $208.0 million at September 30,
2000 compared to $205.2 million at June 30, 2000.
Cash and cash equivalents increased by $793,000 to $3.964 million at September
30, 2000 from $3.171 million at June 30, 2000. This increase was primarily due
to a larger uncollected balance at the Bank's clearing account at the Federal
Reserve Bank.
The Corporation maintains a portfolio of trading-account securities, which is
comprised of common stock of other financial institutions. The balance of the
portfolio was $825,000 at September 30, 2000 compared to $759,000 at June 30,
2000. Most of this increase was attributable to an increase in the market value
of the underlying securities.
The Corporation's loan portfolio increased by $2.4 million to $134.4 million at
September 30, 2000 from $132.0 million at June 30, 2000 due to an increase in
loan demand. The Corporation continues to maintain a high percentage of its loan
portfolio in adjustable-rate residential mortgages.
At September 30, 2000, the allowance for loan losses was $663,000 or .49% of
loans receivable compared to $645,000 or .49% of loans receivable at June 30,
2000.
Premises and equipment increased by $524,000 to $4.395 million at September 30,
2000 compared to $3.871 million at June 30, 2000, primarily due to the $437,000
purchase of real estate which houses the recently acquired branch in Harlan
Kentucky.
Total deposits increased by $1.0 million to $173.5 million at September 30, 2000
from $172.5 million at June 30, 2000. During the three-months ended September
30, 2000, certificates of deposit increased $1.9 million, while NOW accounts and
savings deposits decreased $900,000. Competition for deposits in the local
market has become increasingly fierce from other banks primarily due to
increased loan demand.
Short- term borrowings increased $475,000 to $875,000 at September 30, 2000 from
$400,000 at June 30, 2000 primarily due to a larger uncollected balance in the
Bank's account at the Federal Reserve Bank.
The Bank's regulatory liquidity ratio was 40.0% at September 30, 2000 as
compared to 40.1% at June 30, 2000. At September 30, 2000 the Bank met all the
regulatory capital requirements to be considered "well capitalized" under bank
regulations. Tangible, core and risk-based capital ratios were 8.4%, 8.4% and
17.9% respectively at September 30, 2000 as compared to 8.6%, 8.6% and 18.3%
respectively, at June 30, 2000.
RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net income decreased by $250,000 to $334,000 for the three-month period ended
September 30, 2000 from $584,000 for the three-month period ended September 30,
1999. The primary reasons for the decrease were a $25,000 decrease in net
interest income, a $497,000 increase in provision for loan losses, an increase
of $161,000 in non-interest income, an increase of $123,000 in non-interest
expense, and a $233,000 decrease in income tax expense.
Net interest income decreased by $25,000 for the three-month period ended
September 30, 2000 as compared to the three-month period ended September 30,
1999, primarily as the result of higher interest paid on deposits during the
quarter ended September 30, 2000 and the recognition of interest income on
several non-accrual loans during the quarter ended September 30, 1999.
Interest on loans increased by $210,000 to $2.758 million for the three-month
period ended September 30, 2000 as compared to $2.548 million for the
three-month period ended September 30, 1999. This increase is mainly
attributable to a higher volume of loans during the quarter ended September 30,
2000. The effect of the increase was mitigated by the collection and recognition
of $55,000 in interest income on non-accrual loans during the quarter ended
September 30, 1999.
9
<PAGE>
Interest on investment securities and other dividend income increased by $99,000
to $1.055 million for the three-month period ended September 30, 2000 from
$956,000 for the three-month period ended September 30, 1999. This increase is
primarily the result of higher average balances during the period.
Interest on deposits with other financial institutions increased by $12,000 to
$14,000 for the three-month period ended September 30, 2000 from $2,000 for the
three-month period ended September 30, 1999 primarily due to a higher level of
interest-bearing cash balances.
Interest on deposits increased by $395,000 to $2.163 million for the three-month
period ended September 30, 2000 from $1.768 million for the three-month period
ended September 30, 1999 as a result of higher volumes and a higher cost of
funds.
Interest on short term borrowings and long term debt decreased by $49,000 to
$174,000 for the three-month period ended September 30, 2000 from $223,000 for
the three-month period ended September 30, 1999 primarily due to lower levels of
short-term borrowing. Short-term borrowings have decreased $4.6 million since
the quarter ended September 30, 1999.
The provision for loan losses increased $497,000 for the three-month period
ended September 30, 2000 as compared to the same period in 1999. During the
quarter ended September 30, 1999, a total of $904,000 of impaired loans were
paid off. The amount charged off for those loans was significantly less than
what was specifically reserved for these loans and resulted in a $474,000
reduction in the overall allowance. 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, 2000 was .49%.
The Corporation's non-interest income increased by $161,000 to $220,000 for the
three-month period ended September 30, 2000 as compared to $59,000 for the same
period in 1999. The increase was primarily attributable to an increase in
trading account realized and unrealized gains of $117,000 and an increase of
$35,000 in service charges on deposit accounts. The Corporation has a portfolio
of approximately $1.0 million in common stock of other financial institutions.
The market value of these stocks has fluctuated substantially during the past
year, due to market volatility.
Non-interest expense increased by $123,000 to $1.178 million for the three-month
period ended September 30, 2000 as compared to $1.055 million for the same
period in 1999. Compensation and benefits increased by $26,000 to $518,000 for
the three-month period ended September 30, 2000 as compared to $492,000 for the
same period in 1999. This increase is primarily attributable to a general
increase in salaries and wages.
Occupancy expense increased by $34,000 to $88,000 for the three-month period
ended September 30, 2000 compared to $54,000 for the same period in 1999,
primarily due to the increased costs related to the new branch office in Harlan
and the new operations center in Middlesboro.
Equipment expense increased by $41,000 to $92,000 for the three-month period
ended September 30, 2000 compared to $51,000 for the same period in 1999,
primarily due to the increased depreciation expense related to the purchase of
new computer equipment and equipment for the new operations center in
Middlesboro.
Data processing fees increased by $24,000 to $68,000 for the three-month period
ended September 30, 2000 from $44,000 for the three-month period ended September
30, 1999, primarily due to increased costs for the new Harlan office and an
increased level of service provided.
Deposit insurance premiums decreased $14,000 to $8,000 for the three-month
period ended September 30, 2000 from $22,000 for the three-month period ended
September 30, 1999 as the result of a premium reduction in deposit insurance.
10
<PAGE>
Legal and professional fees increased by $7,000 to $68,000 for the three-month
period ended September 30, 2000 from $61,000 for the three-month period ended
September 30, 1999, primarily due to legal assistance in the Company's recent
listing on the Nasdaq SmallCap Market.
Advertising expense decreased by $13,000 to $42,000 for the three-month period
ended September 30, 2000 as compared to $55,000 for the three-months ended
September 30, 1999, primarily due to a lower level of advertising during the
period.
State franchise and deposit taxes increased by $7,000 to $46,000 for the quarter
ended September 30, 2000 compared to $39,000 for the quarter ended September 30,
1999 primarily due to a higher level of deposits.
Other expenses increased by $10,000 to $249,000 for the three-month period ended
September 30, 2000 from $239,000 for the three-month period ended September 30,
1999 with no major change in any specific category.
Income tax expense decreased by $233,000 to $175,000 for the three-month period
ended September 30, 2000 compared to $408,000 for the three-months ended
September 30, 1999 due to lower earnings.
11
<PAGE>
HFB FINANCIAL CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON 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
Thefollowing exhibit is filed as part of this Form 10-QSB
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
None
12
<PAGE>
HFB FINANCIAL CORPORATION
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on 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 10, 2000
13
