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, 1999
-----------------------------------------------
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 9, 1999, the latest practicable date, 875,289 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 18 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 Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
<PAGE>
<TABLE>
Harvest Home Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, September 30,
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 801 $ 1,505
Federal funds sold 900 200
Interest-bearing deposits in other financial institutions 2,306 1,182
------- ------
Cash and cash equivalents 4,007 2,887
Investment securities designated as available for sale - at market 5,970 4,032
Mortgage-backed securities designated as available for sale -
at market 35,600 37,864
Loans receivable - net 51,029 48,797
Office premises and equipment - at depreciated cost 1,212 1,117
Federal Home Loan Bank stock - at cost 1,692 1,606
Accrued interest receivable on loans 261 257
Accrued interest receivable on mortgage-backed securities 161 173
Accrued interest receivable on investments and
interest-bearing deposits 154 47
Prepaid expenses and other assets 145 114
Prepaid federal income taxes 22 -
------- ------
Total assets $100,253 $96,894
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 66,597 $60,225
Advances from the Federal Home Loan Bank 23,500 25,850
Advances by borrowers for taxes and insurance 54 119
Accrued interest payable 118 126
Other liabilities 162 230
Accrued federal income taxes - 65
Deferred federal income taxes - 302
------- ------
Total liabilities 90,431 86,917
Stockholders' equity
Common stock - 2,000,000 shares of no par value authorized;
991,875 shares issued - -
Additional paid-in capital 6,900 6,903
Retained earnings - restricted 5,290 5,191
Shares acquired by Employee Stock Ownership Plan (224) (301)
Shares acquired by Recognition and Retention Plan (194) (291)
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects (499) 87
Less 116,586 and 129,518 shares of treasury stock - at cost (1,451) (1,612)
------- ------
Total stockholders' equity 9,822 9,977
------- ------
Total liabilities and stockholders' equity $100,253 $96,894
======= ======
</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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $2,837 $2,698 $ 945 $ 917
Mortgage-backed securities 1,595 1,506 540 468
Investment securities 224 329 85 100
Interest-bearing deposits and other 229 259 70 61
----- ----- ----- -----
Total interest income 4,885 4,792 1,640 1,546
Interest expense
Deposits 2,250 2,210 757 737
Borrowings 913 886 310 237
----- ----- ----- -----
Total interest expense 3,163 3,096 1,067 974
----- ----- ----- -----
Net interest income 1,722 1,696 573 572
Provision for losses on loans 9 9 3 3
----- ----- ----- -----
Net interest income after provision
for losses on loans 1,713 1,687 570 569
Other income
Gain on sale of investment and mortgage-backed
securities designated as available for sale - 43 - 37
Other operating 61 46 21 15
----- ----- ----- -----
Total other income 61 89 21 52
General, administrative and other expense
Employee compensation and benefits 686 671 232 216
Occupancy and equipment 239 219 89 72
Federal deposit insurance premiums 27 27 9 9
Franchise taxes 87 93 27 32
Other operating 148 163 42 55
----- ----- ----- -----
Total general, administrative and other expense 1,187 1,173 399 384
----- ----- ----- -----
Earnings before income taxes 587 603 192 237
Federal income taxes
Current 199 158 (44) 82
Deferred 1 38 110 (1)
----- ----- ----- -----
Total federal income taxes 200 196 66 81
----- ----- ----- -----
NET EARNINGS $ 387 $ 407 $ 126 $ 156
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.44 $.47 $.14 $.18
=== === === ===
Diluted $.43 $.45 $.14 $.17
=== === === ===
</TABLE>
4
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<TABLE>
Harvest Home Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Nine months Three months
ended June 30, ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings $ 387 $407 $ 126 $156
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (586) 184 (426) 124
Reclassification adjustment for realized gains
included in earnings - (28) - (24)
---- --- ---- ---
Comprehensive income (loss) $(199) $563 $(300) $256
==== === ==== ===
</TABLE>
5
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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)
1999 1998
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 387 $ 407
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (25) (33)
Depreciation and amortization 55 41
Amortization of premiums and discounts on mortgage-backed
and investment securities - net 19 (7)
Gain on sale of investment and mortgage-backed securities - (43)
Amortization expense of stock benefit plans 210 193
Provision for losses on loans 9 9
Federal Home Loan Bank stock dividends (86) (73)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (4) (3)
Accrued interest receivable on mortgage-backed securities 12 (16)
Accrued interest receivable on investments and interest-
bearing deposits (107) (27)
Prepaid expenses and other assets (31) (73)
Accrued interest payable (8) 5
Other liabilities (68) (104)
Federal income taxes
Current (87) 67
Deferred 1 38
------ -----
Net cash provided by operating activities 277 381
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 13,381 16,367
Purchase of mortgage-backed securities (11,963) (21,984)
Proceeds from sale of mortgage-backed securities - 1,884
Purchase of investment securities (4,000) -
Proceeds from maturity of investment securities 2,000 2,000
Principal repayments on loans 9,182 9,254
Loan disbursements (11,398) (12,679)
Purchase of Federal Home Loan Bank stock - (286)
Purchase of office equipment (150) (187)
------ ------
Net cash used in investing activities (2,948) (5,631)
Cash flows provided by (used in) financing activities:
Net increase in deposits 6,372 826
Proceeds from Federal Home Loan Bank advances 8,000 24,100
Repayment of Federal Home Loan Bank advances (10,350) (22,600)
Advances by borrowers for taxes and insurance (65) (53)
Dividends paid on common stock (288) (296)
Purchase of treasury stock - (516)
Stock options exercised 122 -
------ ------
Net cash provided by financing activities 3,791 1,461
------ ------
Net increase (decrease) in cash and cash equivalents 1,120 (3,789)
Cash and cash equivalents at beginning of period 2,887 5,264
------ ------
Cash and cash equivalents at end of period $ 4,007 $ 1,475
====== ======
</TABLE>
6
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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)
1999 1998
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 295 $ 182
===== =====
Interest on deposits and borrowings $3,171 $3,091
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (586) $ 156
===== =====
</TABLE>
7
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Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine and three month periods ended June 30, 1999 and 1998
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, 1998. 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, 1999
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 20,337 unallocated ESOP shares, totaled 871,073 and 875,289 for
the nine and three month periods ended June 30, 1999. 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.
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 910,516
and 899,498 for the nine and three month periods ended June 30, 1999, and
897,444 and 899,573 for the nine and three month periods ended June 30, 1998.
Incremental shares related to the assumed exercise of stock options included in
the computation of diluted earnings per share totaled 39,443 and 24,209 for the
nine and three months ended June 30, 1999 and 35,425 and 37,523 for the nine and
three months ended June 30, 1998, respectively.
8
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Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three month periods ended June 30, 1999 and 1998
4. Effects of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established 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. 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.
Management adopted SFAS No. 130 effective October 1, 1998, as required, without
material effect on the Corporation's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changed 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 established 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. Management adopted SFAS No. 131 effective October 1, 1998, as
required, without material impact on the Corporation's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
9
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Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three month periods ended June 30, 1999 and 1998
4. Effects of Recent Accounting Pronouncements (continued)
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale or trading category
without calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material impact
on the Corporation's financial statements.
10
<PAGE>
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, 1998 to June 30,
1999
At June 30, 1999, the Corporation had total assets of $100.3 million, an
increase of $3.4 million, or 3.5%, from September 30, 1998. The increase in
assets was funded primarily through growth in deposits of $6.4 million,
partially offset by a decrease in borrowings of $2.4 million, and consisted
primarily of a $2.0 million increase in investment securities, and a $2.2
million increase in loans receivable, offset by a $2.3 million decrease in
mortgage-backed securities.
Cash and due from banks, federal funds sold, interest-bearing deposits in other
financial institutions and investment securities increased by $3.1 million, to a
total of $10.0 million at June 30, 1999. The increase in liquid assets was
primarily the result of a $6.4 million increase in deposits, offset by a $2.2
million increase in loans receivable.
Mortgage-backed securities decreased by $2.3 million, or 6.0%, to a total of
$35.6 million at June 30, 1999, as compared to $37.9 million at September 30,
1998. Principal repayments of $13.4 million during the 1999 nine month period
exceeded purchases of $12.0 million. Proceeds from repayments of mortgage-backed
securities were utilized to repay advances from Federal Home Loan Bank, as such
securities were matched with these advances in leveraged purchase transactions
during fiscal 1999 and 1998.
Loans receivable increased by $2.2 million, or 4.6%, to a total of $51.0 million
at June 30, 1999. Loan origination volume of $11.4 million during the 1999 nine
month period exceeded principal repayment on loans of $9.2 million.
The Savings Bank's allowance for loan losses totaled $136,000 at June 30, 1999,
and $127,000 at September 30, 1998. 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, 1999, the Corporation had $79,000 in nonperforming
loans, as compared to $49,000 in nonperforming loans at September 30, 1998.
Although management believes that its allowance for loan losses at June 30,
1999, 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.
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, 1998 to June 30,
1999 (continued)
Deposits totaled $66.6 million at June 30, 1999, an increase of $6.4 million, or
10.6%, over the $60.2 million of deposits outstanding at September 30, 1998. The
increase primarily reflects growth in certificates of deposit, as management
maintained interest rates on these products slightly higher than those available
in the overall market. Proceeds from such deposit growth were redeployed,
subsequent to June 30, 1999, to fund purchases of short term investment
securities and growth in the loan portfolio.
Advances from the Federal Home Loan Bank decreased by $2.4 million, or 9.1%,
during the current period due to repayments resulting 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.
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, 1999, the Savings Bank's regulatory capital substantially
exceeded all minimum capital requirements.
12
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Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Nine Month Periods Ended June 30, 1999
and 1998
General
Net earnings for the nine months ended June 30, 1999, totaled $387,000, a
decrease of $20,000, or 4.9%, from the comparable nine month period in fiscal
1998. The decrease in net earnings resulted primarily from a $14,000 increase in
general, administrative and other expense, a $28,000 decrease in other income,
and a $4,000 increase in federal income tax provision, which were partially
offset by a $26,000 increase in the net interest income.
Net Interest Income
Interest income on loans totaled $2.8 million for the nine months ended June 30,
1999, an increase of $139,000, or 5.2%, over the nine months ended June 30,
1998, due primarily to a $4.1 million increase in the average portfolio balance
outstanding, partially offset by a decrease in the yield of approximately 27
basis points, to 7.62% for the nine month period ended June 30, 1999. Interest
income on mortgage-backed securities increased by $89,000, or 5.9%, due to a
$4.2 million increase in the average portfolio balance outstanding year to year,
partially offset by a 40 basis point decrease in the weighted-average yield.
Interest income on investment securities and other interest-earning assets
decreased by $135,000, or 23.0%. This decrease was primarily due to a $990,000
decrease in the weighted-average balance outstanding, coupled with a 109 basis
point decrease in the weighted-average yield.
Interest expense on deposits increased by $40,000, or 1.8%, during the nine
months ended June 30, 1999. The increase was primarily the result of a $4.6
million increase in the average balance of deposits outstanding, offset by a
decrease in cost of deposits of approximately 27 basis points to 4.64% for the
nine months ended June 30, 1999,
Interest expense on borrowings increased by $27,000, or 3.0%, as a result of a
$3.1 million increase in the average outstanding balance of advances from the
Federal Home Loan Bank, partially offset by a 58 basis point decrease in the
weighted-average cost of funds.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $26,000 or 1.5%, during the nine months ended
June 30, 1999, as compared to the nine months ended June 30, 1998. The interest
rate spread decreased by 8 basis points during the nine months ending June 30,
1999 to 2.03%, while the net interest margin decreased by 16 basis point for the
same period, amounting to 2.39%.
Other Income
Other income totaled $61,000 for the nine months ended June 30, 1999, a decrease
of $28,000, or 31.5%, from the comparable 1998 nine month period. This decrease
was primarily due to the absence of the $43,000 gain on the sale of a
mortgage-backed security recorded in the 1998 period, offset by an increase in
NOW account fees.
13
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Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Nine Month Periods Ended June 30, 1999
and 1998 (continued)
General, Administrative and Other Expense
General, administrative and other expense totaled $1.2 million for the nine
months ended June 30, 1999, an increase of $14,000, or 1.2%, over the same
period in 1998, reflecting management's continuing efforts to control operating
costs.
Federal Income Taxes
The provision for federal income taxes totaled $200,000 for the nine months
ended June 30, 1999, an increase of $4,000, or 2.0%. The Corporation's effective
tax rates amounted to 34.1% and 32.5% during the nine months ended June 30, 1999
and 1998, respectively.
Comparison of Operating Results for the Three Month Periods Ended June 30, 1999
and 1998
General
Net earnings for the three months ended June 30, 1999, totaled $126,000, a
decrease of $30,000, or 19.2%, from the comparable quarter in fiscal 1998. The
decrease in net earnings resulted primarily from a $31,000 decrease in other
income and a $15,000 increase in general, administrative and other expenses,
partially offset by a $15,000 decrease in the federal income tax provision.
Net Interest Income
Interest income on loans totaled $945,000 for the three months ended June 30,
1999, an increase of $28,000, or 3.1%, over the 1998 quarter, due primarily to a
$3.4 million increase in the average portfolio balance outstanding, partially
offset by a decrease in the yield of approximately 31 basis points, to 7.51% for
the quarter ended June 30, 1999. Interest income on mortgage-backed securities
increased by $72,000, or 15.4%, due to a $5.6 million increase in the average
portfolio balance outstanding year to year, partially offset by a 12 basis point
decrease in the weighted-average yield. Interest income on investment securities
and other interest-earning assets decreased by $6,000, or 3.7%. This decrease
was primarily the result of 96 basis point decrease in the weighted-average
yield, offset by a $1.1 million increase in the average portfolio balance
outstanding.
14
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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, 1999
and 1998 (continued)
Net Interest Income (continued)
Interest expense on deposits increased by $20,000, or 2.7%, during the three
months ended June 30, 1999. The increase was primarily the result of a $6.2
million increase in the average balance of deposits outstanding in the quarter
ended June 30, 1999, offset by a decrease in cost of deposits of approximately
34 basis points to 4.56%.
Interest expense on borrowings increased by $73,000, or 30.8%, as a result of a
$4.7 million increase in the average balance outstanding, coupled with a 26
basis point increase in the average cost of advances outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1,000, or 0.2%, during the three months ended
June 30, 1999, as compared to the three months ended June 30, 1998. The interest
rate spread decreased by 17 basis points to 2.00% for the current quarter, while
the net interest margin declined by 27 basis points to 2.34% as compared to the
same quarter in 1998.
Other Income
Other income totaled $21,000 for the three months ended June 30, 1999, a
decrease of $31,000, or 59.6%, from the comparable 1998 quarter. This decrease
was primarily due to the absence of the $37,000 gain on sale of a
mortgage-backed security recorded in the 1998 period.
General, Administrative and Other Expense
General, administrative and other expense increased by approximately $15,000, or
3.9%, during the three months ended June 30, 1999, as compared to the same
quarter in 1998. This increase was primarily the result of a $16,000, or 7.4%,
increase in employee compensation and benefits, and a $17,000, or 23.6%,
increase in occupancy and equipment expense, offset by a $5,000, or 15.6%,
decrease in franchise taxes and a $13,000, or 23.6% decrease in other operating
expense. The increase in employee compensation and benefits resulted primarily
from normal merit increases and increased health insurance premiums. The
increase in occupancy and equipment was due to an increase in data processing
costs, including depreciation on the teller operating system upgrade completed
this past quarter. The decrease in other operating expense was primarily due to
management's continuing efforts to control costs.
Federal Income Taxes
The provision for federal income taxes decreased by $15,000, or 18.5%, during
the three months ended June 30, 1999, due primarily to a decrease in earnings
before income taxes of $45,000, or 19.0%. The Corporation's effective tax rates
amounted to 34.4% and 34.2% during the three months ended June 30, 1999 and
1998, respectively.
15
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Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance 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.
Harvest Home's primary data processing applications are handled by a third-party
service bureau, NCR. NCR has advised Harvest Home that it has migrated to a
fully Year 2000 compliant processing system that has been fully tested as of
January 1, 1999. Management has also reviewed Harvest Home's ancillary equipment
and is in the process of providing the appropriate remedial measures, including
requesting service providers to assure the Savings Bank that their systems and
products are fully year 2000 compliant. Harvest Home has upgraded its existing
teller operating system with capital expense of approximately $170,000.
No assurance can be given, however, that significant expense will not be
incurred in future periods. In the unlikely event that the Savings Bank is
ultimately required to purchase replacement computer systems, programs and
equipment, or incur substantial expense to make the Savings Bank's current
systems, programs and equipment year 2000 compliant, the Savings Bank's net
earnings and financial condition could be adversely affected.
Management has developed a contingency plan which includes access to an
alternative processing site provided by NCR. Additionally, the Savings Bank can
process transactions manually for a period of several weeks, if necessary, upon
arrival of the year 2000.
In addition to possible expense related to its own systems, Harvest Home could
incur losses if loan payments are delayed due to year 2000 problems affecting
any major borrowers in Harvest Home's primary market area. Because Harvest
Home's loan portfolio is highly diversified with regard to individual borrowers
and types of businesses and Harvest Home's primary market area is not
significantly dependent upon one employer or industry, Harvest Home does not
expect any significant or prolonged difficulties that will affect net earnings
or cash flow.
16
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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.
Exhibit 27: Financial Data Schedule for the six
month period ended June 30, 1999.
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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, 1999 By: /s/John E. Rathkamp
John E. Rathkamp
President, Chief Executive Officer
and Secretary
Date: August 12, 1999 By: /s/Dennis J. Slattery
Dennis J. Slattery
Executive Vice President,
Treasurer
18
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<FISCAL-YEAR-END> SEP-30-1999
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