FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20552
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-25300
HARVEST HOME FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-1402988
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3621 Harrison Avenue
Cheviot, Ohio 45211
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (513) 661-6612
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
As of August 10, 1998, the latest practicable date, 879,357 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 17 pages
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Harvest Home Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION 16
SIGNATURES 17
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<TABLE>
Harvest Home Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, September 30,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 779 $ 558
Federal funds sold 100 2,600
Interest-bearing deposits in other financial institutions 596 2,106
------ ------
Cash and cash equivalents 1,475 5,264
Investment securities designated as available for sale - at market 6,027 8,039
Mortgage-backed securities designated as available for sale -
at market 36,498 32,466
Loans receivable - net 48,678 45,229
Office premises and equipment - at depreciated cost 1,127 981
Federal Home Loan Bank stock - at cost 1,578 1,219
Accrued interest receivable on loans 248 245
Accrued interest receivable on mortgage-backed securities 155 139
Accrued interest receivable on investments and
interest-bearing deposits 153 126
Prepaid expenses and other assets 146 73
Prepaid federal income taxes - 51
------ ------
Total assets $96,085 $93,832
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $59,612 $58,786
Advances from the Federal Home Loan Bank 25,500 24,000
Advances by borrowers for taxes and insurance 54 107
Accrued interest payable 94 89
Other liabilities 148 253
Accrued federal income taxes 16 -
Deferred federal income taxes 373 253
------ ------
Total liabilities 85,797 83,488
Stockholders' equity
Common stock - 2,000,000 shares of no par value authorized,
991,875 shares issued - -
Additional paid-in capital 6,903 6,884
Retained earnings - restricted 5,154 5,043
Shares acquired by Employee Stock Ownership Plan (301) (378)
Shares acquired by Recognition and Retention Plan (292) (389)
Unrealized gains on securities designated as available for sale,
net of related tax effects 196 40
Less 112,518 and 77,018 shares of treasury stock - at cost (1,372) (856)
------ ------
Total stockholders' equity 10,288 10,344
------ ------
Total liabilities and stockholders' equity $96,085 $93,832
====== ======
</TABLE>
3
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<TABLE>
Harvest Home Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Nine months ended Three months ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $2,698 $2,571 $ 917 $ 884
Mortgage-backed securities 1,506 1,175 468 453
Investment securities 329 532 100 169
Interest-bearing deposits and other 259 131 61 39
----- ----- ----- -----
Total interest income 4,792 4,409 1,546 1,545
Interest expense
Deposits 2,210 2,063 737 694
Borrowings 886 616 237 260
----- ----- ----- -----
Total interest expense 3,096 2,679 974 954
----- ----- ----- -----
Net interest income 1,696 1,730 572 591
Provision for losses on loans 9 6 3 3
----- ----- ----- -----
Net interest income after provision
for losses on loans 1,687 1,724 569 588
Other income
Gain on sale of investment and mortgage-backed
securities designated as available for sale 43 7 37 1
Other operating 46 44 15 14
----- ----- ----- -----
Total other income 89 51 52 15
General, administrative and other expense
Employee compensation and benefits 671 582 216 203
Occupancy and equipment 219 194 72 64
Federal deposit insurance premiums 27 19 9 10
Franchise taxes 93 92 32 29
Other operating 163 148 55 42
----- ----- ----- -----
Total general, administrative and other expense 1,173 1,035 384 348
----- ----- ----- -----
Earnings before income taxes 603 740 237 255
Federal income taxes
Current 158 94 82 85
Deferred 38 155 (1) (1)
----- ----- ----- -----
Total federal income taxes 196 249 81 84
----- ----- ----- -----
NET EARNINGS $ 407 $ 491 $ 156 $ 171
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.47 $.55 $.18 $.19
=== === === ===
Diluted $.45 $.54 $.17 $.19
=== === === ===
</TABLE>
4
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<TABLE>
The Harvest Home Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30,
(In thousands)
1998 1997
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 407 $ 491
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (33) (23)
Depreciation and amortization 41 38
Amortization of premiums and discounts on mortgage-backed securities 22 9
Amortization of premiums and discounts on investment securities - net (29) 31
Gain on sale of investment and mortgage-backed securities (43) (7)
Amortization expense of stock benefit plans 193 236
Provision for losses on loans 9 6
Federal Home Loan Bank stock dividends (73) (40)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (3) (59)
Accrued interest receivable on mortgage-backed securities (16) (6)
Accrued interest receivable on investments and interest-
bearing deposits (27) 46
Prepaid expenses and other assets (73) (18)
Accounts payable on mortgage loans serviced for others (6) (1)
Accrued interest payable 5 42
Other liabilities (98) (310)
Federal income taxes
Current 67 (38)
Deferred 38 155
------ -----
Net cash provided by operating activities 381 552
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 16,367 1,506
Purchase of mortgage-backed securities (21,984) (9,984)
Proceeds from sale of mortgage-backed securities 1,884 135
Proceeds from sale of investment securities - 4,005
Proceeds from maturity of investment securities 2,000 -
Principal repayments on loans 9,254 4,284
Loan disbursements (12,679) (7,063)
Purchase of Federal Home Loan Bank stock (286) (374)
Purchase of office equipment (187) (40)
------ ------
Net cash used in investing activities (5,631) (7,531)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits 826 (886)
Proceeds from Federal Home Loan Bank advances 24,100 10,000
Repayment of Federal Home Loan Bank advances (22,600) (350)
Advances by borrowers for taxes and insurance (53) (37)
Dividends paid on common stock (296) (281)
Purchase of treasury stock (516) (223)
------ ------
Net cash provided by financing activities 1,461 8,223
------ ------
Net increase (decrease) in cash and cash equivalents (3,789) 1,244
Cash and cash equivalents at beginning of period 5,264 1,708
------ ------
Cash and cash equivalents at end of period $ 1,475 $ 2,952
====== ======
</TABLE>
5
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<TABLE>
The Harvest Home Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended June 30,
(In thousands)
1998 1997
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 182 $ 222
===== =====
Interest on deposits and borrowings $3,091 $2,637
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 156 $ 27
===== =====
</TABLE>
6
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Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods ended
June 30, 1998 and 1997
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Accordingly, these financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto of Harvest Home Financial Corporation (the
"Corporation") included in the Annual Report on Form 10-KSB for the year ended
September 30, 1997. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for a fair
presentation of the consolidated financial statements have been included. The
results of operations for the nine and three month periods ended June 30, 1998
are not necessarily indicative of the results which may be expected for an
entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Corporation and Harvest Home Savings Bank (the "Savings Bank"). All significant
intercompany items have been eliminated.
3. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares outstanding, which
gives effect to 28,252 unallocated ESOP shares, totaled 862,019 and 862,050 for
the nine and three month periods ended June 30, 1998. Weighted average common
shares outstanding, which gives effect to 37,826 unallocated ESOP shares,
totaled 891,774 and 881,142 for the nine and three month periods ended June 30,
1997.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under the
Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled 897,444
and 899,573 for the nine and three month periods ended June 30, 1998,
respectively and 902,649 and 914,604 for the nine and three month periods ended
June 30, 1997, respectively.
4. Effects of Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
that provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the
7
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Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine month periods ended
June 30, 1998 and 1997
4. Effects of Recent Accounting Pronouncements (continued)
transaction, or otherwise has continuing involvement with the transferred
assets. The new accounting method, the financial components approach, provides
that the carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values. SFAS No. 125
provides criteria for determining whether control of assets has been
relinquished and whether a sale has occurred. If the transfer does not qualify
as a sale, it is accounted for as a secured borrowing. Transactions subject to
the provisions of SFAS No. 125 include, among others, transfers involving
repurchase agreements, securitizations of financial assets, loan participations,
factoring arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management adopted SFAS No. 125 effective January 1, 1998, as required, without
material effect on the Corporation's consolidated financial position or results
of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on the Corporation's financial statements.
8
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Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine month periods ended
June 30, 1998 and 1997
4. Effects of Recent Accounting Pronouncements (continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 is not expected to have a material impact on the
Corporation's financial statements.
9
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Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Corporation's operations and the Corporation's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, the effect of the year 2000 on certain information
technology systems and the effect of certain recent accounting pronouncements on
results of operations and financial position.
Discussion of Financial Condition Changes from September 30, 1997 to June 30,
1998
At June 30, 1998, the Corporation had total assets of $96.1 million, an increase
of $2.3 million, or 2.4%, from September 30, 1997. The increase in assets
resulted primarily from a $3.4 million increase in loans receivable, which was
funded by an $826,000 increase in deposits and a $1.5 million increase in
advances from the Federal Home Loan Bank.
Cash and due from banks, federal funds sold, interest-bearing deposits in other
financial institutions and investment securities decreased by $5.8 million, to a
total of $7.5 million at June 30, 1998. The decline in liquid assets was the
result of $2.0 million in maturities of investment securities and use of excess
funds to purchase higher yielding mortgage-backed securities.
Mortgage-backed securities increased by $4.0 million, or 12.4%, to a total of
$36.5 million at June 30, 1998, as compared to $32.5 million at September 30,
1997. Purchases of $22.0 million during the fiscal 1998 nine month period
exceeded principal repayments and sales of $16.4 million and $1.8 million,
respectively. During the most recent quarter, management purchased $9.6 million
of long term adjustable rate mortgage-backed securities with a yield of 6.50%.
Such purchases were funded with proceeds from Federal Home Loan Bank advances.
Proceeds from repayments of mortgage-backed securities were utilized to repay
advances from the Federal Home Loan Bank, as such securities were matched with
these advances in leveraged purchase transactions during fiscal 1998 and 1997.
The other $12.4 million of securities purchased during the nine month period
reflects management's decision to redeploy excess liquidity into higher-yielding
investments.
Loans receivable increased by $3.4 million, or 7.6%, as loan disbursements of
$12.7 million exceeded principal repayments of $9.3 million. Loan origination
volume during the 1998 period exceeded that of the 1997 period by $5.6 million,
or 79.5%. Growth in loan originations year to year consisted primarily of loans
secured by one- to four-family residential real estate.
10
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Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from September 30, 1997 to June 30,
1998 (continued)
The Savings Bank's allowance for loan losses totaled $124,000 at June 30, 1998,
and $115,000 at September 30, 1997. The allowance for loan losses is evaluated
by management based upon an assessment of current and anticipated economic
conditions applied to the loan portfolio, as well as, evaluating the quality of
the portfolio. At June 30, 1998, the Corporation had $86,000 in nonperforming
loans, as compared to $95,000 in nonperforming loans at September 30, 1997.
Although management believes that its allowance for loan losses at June 30,
1998, was adequate based on the available facts and circumstances, there can be
no assurance that additions to such allowance will not be necessary in future
periods, which could adversely affect Harvest Home's results of operations.
Deposits totaled $59.6 million at June 30, 1998, an increase of $826,000, or
1.4%, over the $58.8 million of deposits outstanding at September 30, 1997. The
increase reflects managements continuing efforts to maintain a moderate rate of
growth through marketing and pricing strategies.
Advances from the Federal Home Loan Bank increased by $1.5 million, or 6.3%,
during the current period as new borrowings totaling $24.1 million were
partially offset by repayments totaling $22.6 million. The repayments resulted
primarily from prepayments received on mortgage-backed securities which had been
matched with such advances at inception.
The Savings Bank is subject to risk-based capital ratio guidelines implemented
by the Federal Deposit Insurance Corporation ("FDIC"). The guidelines establish
a systematic analytical framework that makes regulatory capital requirements
more sensitive to differences in risk profiles among banking organizations.
Risk-based capital ratios are determined by allocating assets and specified
off-balance sheet commitments to four risk-weighted categories, with higher
levels of capital being required for the categories perceived as representing
greater risk.
These guidelines divide the Savings Bank's capital into two tiers. The first
tier ("Tier 1") includes common equity, certain non-cumulative perpetual
preferred stock (excluding auction rate issues) and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit card
relationships, subject to certain limitations). Supplementary ("Tier II")
capital includes, among other items, cumulative perpetual and long-term
limited-life preferred stock, mandatory convertible securities, certain hybrid
capital instruments, term subordinated debt and the allowance for loan losses,
subject to certain limitations, less required deductions. Savings banks are
required to maintain a total risk-based capital ratio of 8%, of which 4% must be
Tier 1 capital. The FDIC may, however, set higher capital requirements when
particular circumstances warrant. Savings banks experiencing or anticipating
significant growth are expected to maintain capital ratios, including tangible
capital positions, well above the minimum levels.
11
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Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from September 30, 1997 to June 30,
1998 (continued)
In addition, the FDIC established guidelines prescribing a minimum Tier 1
leverage ratio (Tier 1 capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of 3%
for savings banks that meet certain specified criteria, including that they have
the highest regulatory rating and are not experiencing or anticipating
significant growth. All other savings banks are required to maintain a Tier 1
leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis
points.
As of June 30, 1998, the Savings Bank's regulatory capital substantially
exceeded all minimum capital requirements.
Comparison of Operating Results for the Nine Month Periods Ended June 30, 1998
and 1997
General
Net earnings for the nine months ended June 30, 1998 totaled $407,000, a
decrease of $84,000, or 17.1%, from the $491,000 of net earnings recorded for
the nine months ended June 30, 1997. The decrease in earnings resulted primarily
from a $138,000 increase in general, administrative and other expense and a
$34,000 decrease in net interest income, which were partially offset by a
$38,000 increase in other income and a $53,000 decrease in the federal income
tax provision.
Net Interest Income
Interest income on loans for the nine months ended June 30, 1998 increased by
$127,000, or 4.9%. The increase was primarily due to a $2.3 million increase in
the average portfolio balance outstanding, partially offset by a decrease in the
yield of approximately 2 basis points year-to-year, to 7.85% for the nine month
period ended June 30, 1998. Interest income on mortgage-backed securities
increased by $331,000, or 28.2%, due primarily to an $8.9 million increase in
average portfolio balance outstanding year to year. Interest income on
investment securities and other interest-earning assets decreased by $75,000, or
11.3%. This decrease was primarily the result of a decrease in average yields
available on short term deposits year to year, coupled with a decline in the
average balances outstanding over the periods.
Interest expense on deposits increased by $147,000, or 7.1%, during the nine
months ended June 30, 1998. This increase was due primarily to a $2.1 million
increase in the average balance outstanding, coupled with a 16 basis point
increase in the average cost of deposits, from 4.78% in fiscal 1997 to 4.94% in
fiscal 1998.
Interest expense on borrowings increased by $270,000, or 43.8%, as a result of
the increase in the average outstanding balance of advances from the Federal
Home Loan Bank.
12
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Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended June 30, 1998
and 1997 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $34,000, or 2.0%, during the nine months ended
June 30, 1998, as compared to the nine months ended June 30, 1997.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Savings Bank, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Savings
Bank's market area, and other factors related to the collectibility of the
Savings Bank's loan portfolio. As a result of such analysis management recorded
a $9,000 and $6,000 provision for losses on loans during the nine month periods
ended June 30, 1998 and 1997, respectively. There can be no assurance that the
allowance for loan losses of the Savings Bank will be adequate to cover losses
on nonperforming assets in the future.
Other Income
Other income totaled $89,000 for the nine months ended June 30, 1998, an
increase of $38,000, or 74.5%, over the comparable nine month period in fiscal
1997, due primarily to a $36,000 increase in gain on the sales of investment and
mortgage-backed securities.
General, Administrative and Other Expense
General, administrative and other expense increased by $138,000, or 13.3%,
during the nine months ended June 30, 1998, to a total of $1.2 million, as
compared to the $1.0 million total reported for the same period in 1997. This
increase was primarily the result of an $89,000, or 15.3%, increase in employee
compensation and benefits, a $25,000, or 12.9%, increase in occupancy and
equipment, and an $8,000 increase in federal deposit insurance premiums. The
increase in employee compensation and benefits resulted primarily from increased
costs related to stock benefit plans, coupled with normal merit increases. The
increase in occupancy and equipment was due primarily to an increase in data
processing costs. The increase in federal deposit insurance premiums resulted
from the realization of a premium credit which offset expense in the fiscal 1997
period, following the Savings Association Insurance Fund recapitalization
assessment.
Federal Income Taxes
The provision for federal income taxes decreased by $53,000, or 21.3%, during
the nine months ended June 30, 1998, due primarily to a decrease in earnings
before income taxes of $137,000, or 18.5%. The Corporation's effective tax rates
amounted to 32.5% and 33.6% for the nine months ended June 30, 1998 and 1997,
respectively.
13
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Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended June 30, 1998
and 1997
General
Net earnings for the three months ended June 30, 1998, totaled $156,000, a
decrease of $15,000, or 8.8%, from the comparable quarter in fiscal 1997. The
decrease in net earnings resulted primarily from a $19,000 decrease in net
interest income and a $36,000 increase in general, administrative and other
expense, which were partially offset by a $37,000 increase in other income and a
$3,000 decrease in the federal income tax provision.
Net Interest Income
Interest income on loans totaled $917,000 for the three months ended June 30,
1998, an increase of $33,000, or 3.7%, due primarily to a $2.3 million increase
in the weighted-average portfolio balance outstanding, partially offset by a
decrease in the yield of approximately 11 basis points, to 7.82% for the quarter
ended June 30, 1998. Interest income on mortgage-backed securities increased by
$15,000, or 3.3%, due to an increase in the weighted average portfolio balance
outstanding year to year. Interest income on investment securities and other
interest-earning assets decreased by $47,000, or 22.6%. This decrease was
primarily the result of a decrease in yields available on short term deposits
year to year, coupled with a decrease in the weighted-average portfolio balance
outstanding year to year.
Interest expense on deposits and borrowings increased by $20,000, or 2.1%,
during the three months ended June 30, 1998. This increase was primarily the
result of a $2.5 million increase in the weighted-average balance of deposits
outstanding and an increase in cost of deposits of approximately 9 basis points,
to 4.93% in the quarter ended June 30, 1998, coupled with an increase in the
weighted average portfolio balance of Federal Home Loan Bank advances
outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $19,000, or 3.2%, during the three months ended
June 30, 1998, as compared to the three months ended June 30, 1997.
Other Income
Other income totaled $52,000 for the three months ended June 30, 1998, an
increase of $37,000 over the comparable 1997 quarter. This increase was due to a
gain on the sale of a mortgage-backed security.
General, Administrative and Other Expense
General, administrative and other expense increased by approximately $36,000, or
10.3%, during the three months ended June 30, 1998, as compared to 1997. This
increase was primarily the result of a $13,000, or 6.4%, increase in employee
compensation and benefits and an $8,000, or 12.5%, increase in occupancy and
equipment expense. The increase in employee compensation and benefits resulted
primarily from increased costs associated with stock benefit plans year to year.
14
<PAGE>
Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended June 30, 1998
and 1997 (continued)
Federal Income Taxes
The provision for federal income taxes decreased by $3,000, or 3.6%, during the
three months ended June 30, 1998, due primarily to a decrease in earnings before
income taxes of $18,000, or 7.1%. The Corporation's effective tax rates amounted
to 34.2% and 32.9% during the three months ended June 30, 1998 and 1997,
respectively.
Other Matters
As with all providers of financial services, the Corporation's operations are
heavily dependent on information technology systems. The Corporation is
addressing the potential problems associated with the possibility that the
computers that control or operate the Corporation's information technology
system and infrastructure may not be programmed to read four-digit date codes
and, upon arrival of the year 2000, may recognize the two-digit code "00" as the
year 1900, causing systems to fail to function or to generate erroneous data.
The Corporation is working with the companies that supply or service its
information technology systems to identify and remedy any year 2000 related
problems.
As of June 30, 1998, management has developed an estimate of expenses that are
reasonably likely to be incurred by the Corporation in connection with this
issue; however, the Corporation does not expect to incur significant operating
expense to implement the necessary corrective measures. No assurance can be
given, however, that significant expense will not be incurred in future periods.
In the event that the Corporation is ultimately required to purchase replacement
computer systems, programs and equipment, or incur substantial expense to make
the Corporation's current systems, programs and equipment year 2000 compliant,
the Corporation's net earnings and financial condition could be adversely
affected.
In addition to possible expense related to its own systems, the Corporation
could incur losses if loan payments are delayed due to year 2000 problems
affecting any major borrowers in the Corporation's primary market area. Because
the Corporation's loan portfolio is highly diversified with regard to individual
borrowers and types of businesses and the Corporation's primary market area is
not significantly dependent upon one employer or industry, the Corporation does
not expect any significant or prolonged difficulties that will affect net
earnings or cash flow.
15
<PAGE>
Harvest Home Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
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
Reports on Form 8-K: None.
Exhibits:
27.1 Financial Data Schedule for the nine month
period ended June 30, 1998.
27.2 Restated Financial Data Schedule for the
nine month period ended June 30, 1997.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1998 By: /s/John E. Rathkamp
--------------------------- -------------------
John E. Rathkamp
President, Chief Executive
Officer and Secretary
Date: August 12, 1998 By: /s/Dennis J. Slattery
--------------------------- ---------------------
Dennis J. Slattery
Executive Vice President,
Treasurer
17
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