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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: O-18847
HOME FEDERAL BANCORP
(Exact name of registrant as specified in its charter)
Indiana 35-1807839
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Origination) Identification No.)
501 Washington Street, Columbus, Indiana 47201
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (812) 522-1592
Indicate by check mark whether the registrant (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___
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act.)
YES X NO___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 7, 2004.
Common Stock, no par value - 4,156,318 shares outstanding
HOME FEDERAL BANCORP
FORM 10-Q
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets................................ 3
Consolidated Statements of Income.......................... 4
Consolidated Statements of Cash Flows...................... 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8
Forward looking statements................................. 8
Critical accounting policies............................... 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................. 11
Item 4. Controls and Procedures....................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 12
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities.............................. 12
Item 3. Defaults Upon Senior Securities.............................. 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 5. Other Information............................................ 12
Item 6. Exhibits and Reports on Form 8-K............................. 12
Signatures............................................................ 13
- 2 -
HOME FEDERAL BANCORP
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited) March 31, December 31,
2004 2003
--------- ----------
ASSETS:
Cash .................................................. $ 25,567 $ 22,734
Interest-bearing deposits ............................. 27,350 11,444
--------- ---------
Total cash and cash equivalents ..................... 52,917 34,178
--------- ---------
Securities available for sale at fair value
(amortized cost $123,068 and $123,243) ............... 124,428 123,638
Securities held to maturity
(fair value $1,649 and $1,883) ....................... 1,596 1,828
Loans held for sale (fair value $13,028 and $6,357) ... 12,855 6,272
Loans receivable, net of allowance for
loan losses of $7,609 and $7,506 ..................... 621,373 630,672
Investments in joint ventures ......................... 5,578 5,501
Federal Home Loan Bank stock .......................... 9,965 9,965
Accrued interest receivable, net ...................... 3,856 3,733
Premises and equipment, net ........................... 14,257 13,987
Real estate owned ..................................... 1,289 1,739
Prepaid expenses and other assets ..................... 8,018 9,061
Cash surrender value of life insurance ................ 11,477 11,359
Goodwill .............................................. 1,395 1,395
--------- ---------
TOTAL ASSETS ....................................... $ 869,004 $ 853,328
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits .............................................. $ 608,253 $ 588,915
Advances from Federal Home Loan Bank .................. 145,457 154,296
Senior debt ........................................... 14,242 14,242
Other borrowings ...................................... 6,364 624
Advance payments by borrowers for taxes and insurance . 349 76
Accrued expenses and other liabilities ................ 10,867 11,153
--------- ---------
Total liabilities .................................. 785,532 769,306
--------- ---------
Shareholders' equity:
No par preferred stock; Authorized: 2,000,000 shares
Issued and outstanding: None
No par common stock; Authorized: 15,000,000 shares
Issued and outstanding: ............................. 12,664 12,616
4,252,631 shares at March 31, 2004
4,312,805 shares at December 31, 2003
Retained earnings, restricted ........................ 70,172 71,436
Accumulated other comprehensive income (loss),
net of taxes ......................................... 636 (30)
--------- ---------
Total shareholders' equity ......................... 83,472 84,022
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......... $ 869,004 $ 853,328
========= =========
See notes to consolidated financial statements (unaudited)
-3 -
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(unaudited) Three Months Ended
March 31,
--------------------------
Interest income: 2004 2003
----------- ------------
Loans receivable ................................... $ 9,670 $ 10,824
Securities available for sale and held to maturity . 996 1,107
Other interest income .............................. 56 127
----------- -----------
Total interest income ............................... 10,722 12,058
----------- -----------
Interest expense:
Deposits ........................................... 2,684 3,397
Advances from Federal Home Loan Bank ................ 2,055 2,397
Other borrowings .................................... 201 222
----------- -----------
Total interest expense .............................. 4,940 6,016
----------- -----------
Net interest income ................................. 5,782 6,042
Provision for loan losses ........................... 246 210
----------- -----------
Net interest income after provision for loan losses . 5,536 5,832
----------- -----------
Other income:
Gain on sale of loans .............................. 683 2,144
Income from joint ventures ......................... 61 481
Insurance, annuity income, other fees .............. 499 430
Service fees on deposit accounts ................... 656 600
Net gain (loss) on real estate owned and
repossessed assets................................. 72 11
Loan servicing income, net of impairments .......... 124 (10)
Miscellaneous ...................................... 297 481
----------- -----------
Total other income .................................. 2,392 4,137
----------- -----------
Other expenses:
Compensation and employee benefits ................. 3,123 2,937
Occupancy and equipment ............................ 811 777
Service bureau expense ............................. 257 240
Federal insurance premium .......................... 23 25
Marketing .......................................... 177 202
Miscellaneous ...................................... 1,406 1,101
----------- -----------
Total other expenses ................................ 5,797 5,282
----------- -----------
Income before income taxes .......................... 2,131 4,687
Income tax provision ................................ 744 1,733
----------- -----------
Net Income .......................................... $ 1,387 $ 2,954
=========== ===========
Basic earnings per common share ..................... $ 0.32 $ 0.70
Diluted earnings per common share ................... $ 0.31 $ 0.66
Basic weighted average number of shares ............. 4,298,748 4,236,669
Dilutive weighted average number of shares .......... 4,488,434 4,458,610
Dividends per share ................................. $ 0.188 $ 0.163
See notes to consolidated financial statements (unaudited)
- 4 -
HOME FEDERAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Three Months Ended
(unaudited) March 31,
----------------------
2004 2003
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 1,387 $ 2,954
Adjustments to reconcile net income to net cash
from operating activities:
Accretion of discounts, amortization
and depreciation .......................... 581 473
Provision for loan losses ................... 246 210
Net gain from sale of loans ................. (683) (2,144)
(Income)/loss from joint ventures and
net (gain)/loss from real estate owned .... (133) (492)
Loan fees deferred (recognized), net ........ (40) (6)
Proceeds from sale of loans held for sale ... 37,868 114,548
Origination of loans held for sale .......... (43,768) (105,117)
Increase (decrease) in accrued interest
and other assets .......................... 664 (521)
Increase (decrease) in other liabilities .... 21 3,570
--------- ---------
Net cash from operating activities ............... (3,857) 13,475
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net principal received (disbursed) on loans ...... 12,566 12,639
Proceeds from:
Maturities/Repayments of:
Securities held to maturity ........... 232 695
Securities available for sale ......... 11,111 46,858
Sales of:
Securities available for sale ......... 10,029 6,750
Real estate owned and other asset sales 327 449
Purchases of:
Loans .................................... (3,473) (1,284)
Securities available for sale ............ (21,134) (58,278)
Repayment of (investment in) joint ventures ...... (16) 737
Acquisition of property and equipment ............ (682) (276)
--------- ---------
Net cash from investing activities ............... 8,960 8,290
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits .............. 19,338 (1,553)
Proceeds from advances from FHLB ................. 1,000 --
Repayment of advances from FHLB .................. (9,839) (5,628)
Net proceeds from (net repayment of)
overnight borrowings ............................ 5,740 3,942
Common stock options exercised ................... 155 559
Repurchase of common stock ....................... (1,961) --
Payment of dividends on common stock ............. (797) (690)
--------- ---------
Net cash from financing activities ............... 13,636 (3,370)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........ 18,739 18,395
Cash and cash equivalents, beginning of period ... 34,178 53,692
--------- ---------
Cash and cash equivalents, end of period ......... $ 52,917 $ 72,087
========= =========
Supplemental information:
Cash paid for interest ........................... $ 4,830 $ 7,051
Cash paid for income taxes ....................... $ -- $ --
Assets acquired through foreclosure .............. $ 116 $ 891
See notes to consolidated financial statements (unaudited)
- 5 -
Notes to Consolidated Financial Statements (unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Home Federal
Bancorp (the "Company") and its wholly-owned subsidiaries, HomeFed Financial,
Inc. and HomeFederal Bank (the "Bank") and the Bank's wholly owned subsidiaries.
These consolidated interim financial statements at March 31, 2004, and for the
three month period ended March 31, 2004, have not been audited by independent
auditors, but reflect, in the opinion of the Company's management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations for such
periods, including elimination of all significant intercompany balances and
transactions.
These statements should be read in conjunction with the consolidated financial
statements and related notes, which are incorporated by reference in the
Company's Annual Report on Form 10-K for the twelve month period ended December
31, 2003.
2. Earnings Per Share
The following is a reconciliation of the weighted average common shares for the
basic and diluted earnings per share computations:
Three months ended
March 31,
---------------------
2004 2003
---- ----
Basic EPS:
Weighted average common shares . 4,298,748 4,236,669
========= =========
Diluted EPS:
Weighted average common shares . 4,298,748 4,236,669
Dilutive effect of stock options 189,686 221,941
--------- ---------
Weighted average common and
incremental shares ............. 4,488,434 4,458,610
========= =========
3. Comprehensive Income
The following is a summary of the Company's total comprehensive income for the
interim three month periods ended March 31, 2004 and 2003. (In thousands)
Three months ended
March 31,
---------------------
2004 2003
-------- --------
Net Income .............................................. $ 1,387 $ 2,954
Other comprehensive income:
Unrealized holding gains (losses) from securities
available for sale.................................. 965 (509)
Reclassification adjustment for (gains) losses
realized in income ................................. -- --
Unrealized gains (losses) from cash flow hedge ....... 56 55
-------- --------
Net unrealized gains (losses) ........................... 1,021 (454)
Tax effect .............................................. (355) 153
-------- --------
Other comprehensive income (loss), net of tax ........... 666 (301)
-------- --------
Comprehensive Income .................................... $ 2,053 $ 2,653
======== ========
4. Stock Based Compensation
The Company has stock-based employee compensation plans, which are accounted for
under the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the company had
- 6 -
applied the fair value recognition provisions of SFAS Statement No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee compensation.
For the three months ended
March 31,
--------------------------
2004 2003
------- -------
Net income, as reported ......................... $ 1,387 $ 2,954
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects ..... (16) (16)
-------- --------
Pro forma net income ............................ $ 1,371 $ 2,938
======== ========
Earnings per share:
Basic---as reported ........................ $ .32 $ .70
Basic---pro forma .......................... $ .32 $ .69
Diluted---as reported ...................... $ .31 $ .66
Diluted---pro forma ........................ $ .31 $ .66
5. Segment Reporting
Management has concluded that the Company is comprised of a single operating
segment, community banking activities, and has disclosed all required
information relating to its one reportable segment. Management considers parent
company activity to represent an overhead function rather than an operating
segment. The Company operates in one geographical area and does not have a
single customer from which it derives 10 percent or more of its revenue.
- 7 -
Part I, Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements that
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-Q are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-Q
identifies important factors that could cause such differences. These factors
include changes in interest rates, loss of deposits and loan demand to other
financial institutions, substantial changes in financial markets, changes in
real estate values and the real estate market, regulatory changes, changes in
the financial condition of issuers of the Company's investments and borrowers,
changes in economic condition of the Company's market area, increases in
compensation and employee expenses, or unanticipated results in pending legal
proceedings.
Home Federal Bancorp (the "Company") is organized as a financial holding company
and owns all the outstanding capital stock of HomeFederal Bank (the "Bank"). The
business of the Bank and therefore, the Company, is to provide consumer and
business banking services to certain markets in the south-central portions of
the State of Indiana. The Bank does business through 18 full service banking
branches.
CRITICAL ACCOUNTING POLICIES
The notes to the consolidated financial statements contain a summary of the
Company's significant accounting policies presented on pages 24 through 28 of
the annual report for the twelve month period ended December 31, 2003. Certain
of these policies are important to the portrayal of the Company's financial
condition, since they require management to make difficult, complex or
subjective judgments, some of which may relate to matters that are inherently
uncertain. Management believes that its critical accounting policies include
determining the allowance for loan losses, ("ALL"), and the valuation of
mortgage servicing rights, ("MSR's").
Allowance for Loan Losses
A loan is considered impaired when it is probable the Company will be unable to
collect all contractual principal and interest payments due in accordance with
the terms of the loan agreement. Impaired loans are measured based on the loan's
observable market price or the estimated fair value of the collateral if the
loan is collateral dependent. The amount of impairment, if any, and any
subsequent changes are included in the allowance for loan losses.
The allowance for loan losses is established through a provision for loan losses
charged to operating expense. Loan losses are charged against the allowance when
management believes the loans are uncollectible. Subsequent recoveries, if any,
are credited to the allowance.
The Company maintains an allowance for loan losses to absorb probable loan
losses inherent in the portfolio. The allowance for loan losses is maintained at
a level management considers to be adequate to absorb probable loan losses
inherent in the portfolio, based on evaluations of the collectibility and
historical loss experience of loans. The allowance is based on ongoing
assessments of the probable estimated losses inherent in the loan portfolio. The
Company's methodology for assessing the appropriate allowance level consists of
several key elements, as described below.
All delinquent loans that meet regulatory requirements are included on the Asset
Watch List. The Asset Watch List is reviewed quarterly by the Asset Watch
Committee for any classification beyond the regulatory rating based on the
loans' delinquency.
Commercial and commercial real estate loans are individually risk rated per the
loan policy. Homogeneous loans such as consumer and residential mortgage loans
are not individually risk rated by management. They are risk rated based on
computer file data that management believes will provide a good basis for the
loans' quality. For all loans not listed individually on the Asset Watch List,
historical loss rates based on the last four years are the basis for developing
expected charge-offs for each pool of loans.
Historical loss rates for commercial and consumer loans may be adjusted for
significant factors that, in management's judgment, reflect the impact of any
current conditions on loss recognition. Factors which management considers in
the analysis include the effects of the local economy, trends in the nature and
- 8 -
volume of loans (delinquencies, charge-offs, nonaccrual and problem loans),
changes in the internal lending policies and credit standards, collection
practices, and examination results from bank regulatory agencies and the
Company's internal credit review function.
A portion of the allowance is not allocated to any particular loan type and is
maintained in recognition of the inherent inability to precisely determine the
loss potential in any particular loan or pool of loans. Among the factors used
by management in determining the unallocated portion of the allowance are
current economic conditions; trends in the Company's loan portfolio delinquency,
losses and recoveries; level of under performing and nonperforming loans; and
concentrations of loans in any one industry.
Valuation of Mortgage Servicing Rights
The Company recognizes the rights to service mortgage loans as separate assets,
which are included in other assets in the consolidated balance sheet. The total
cost of loans when sold is allocated between loans and mortgage servicing
rights, ("MSR's"), based on the relative fair values of each. MSR's are
subsequently carried at the lower of the initial carrying value, adjusted for
amortization, or fair value. MSR's are evaluated for impairment based on the
fair value of those rights. The Company uses a present value cash flow valuation
model to establish the fair value of the MSR's. Factors included in the
calculation of fair value of the MSR's include estimating the present value of
future net cash flows, market loan prepayment speeds for similar loans, discount
rates, servicing costs, and other economic factors. Servicing rights are
amortized over the estimated period of net servicing revenue. It is likely that
these economic factors will change over the life of the MSR's, resulting in
different valuations of the MSR's. The differing valuations will affect the
carrying value of the MSR's on the balance sheet as well as the income recorded
from loan servicing in the income statement. As of March 31, 2004, MSR's had a
carrying value of $3.2 million.
RESULTS OF OPERATIONS:
Quarter Ended March 31, 2004 Compared to Quarter Ended March 31, 2003
General
The Company reported net income of $1,387,000 for the quarter ended March 31,
2004, compared to $2,954,000 for the quarter ended March 31, 2003, a decrease of
$1,567,000 or 53.1%. Basic earnings per common share for the current quarter
were $0.32 compared to $0.70 for the quarter ended March 31, 2003. Diluted
earnings per common share were $0.31 for the quarter ended March 31, 2004
compared to $0.66 for the quarter ended March 31, 2003.
Net Interest Income
Net interest income before provision for loan losses decreased by $260,000 or
4.3% for the quarter ended March 31, 2004, compared to the quarter ended March
31, 2003. This decrease was due primarily to a 6 basis point, (a basis point is
defined as 1/100th of a percent), decrease in the net interest margin to average
interest earning assets, as yields on interest earning assets declined more
rapidly than the decline in the cost of funds. A factor that positively
influenced net interest margin was a net decrease of $5,504,000 in average
interest bearing liabilities versus average interest earning assets for the
three month period ended March 31, 2004, compared to the same quarter last year.
The provision for loan losses was $246,000 for the quarter ended March 31, 2004,
an increase of $36,000, compared to the quarter ended March 31, 2003. At March
31, 2004, the loan loss allowance covered 106.2% of non-performing loans. The
$246,000 charge to the loan loss provision reflects the increase in
nonperforming loans of $3,281,000 from December 31, 2003 to March 31, 2004. See
the Critical Accounting Policies, Allowance for Loan Losses section for a
description of the systematic analysis the Bank uses to determine its allowance
for loan losses.
The change to the loan loss allowance for the three month period ended March 31,
2004 and 2003 is as follows:
Quarter ended March 31: (in thousands) 2004 2003
- -------------------------------------- ---- ----
Allowance beginning balance ................ $ 7,506 $ 7,172
Provision for loan losses .................. 246 210
Charge-offs ................................ (157) (220)
Recoveries ................................. 14 24
------- -------
Loan Loss Allowance ending balance ......... $ 7,609 $ 7,186
====== =======
Allowance to Total Loans.................... 1.18% 1.11%
Allowance to Nonperforming Assets........... 90% 100%
Net interest income after provision for loan loss decreased $296,000 or 5.1% for
the three month period ended March 31, 2004 compared to the three months ended
March 31, 2003.
- 9 -
Interest Income
Total interest income for the three month period ended March 31, 2004, decreased
$1,336,000, or 11.1%, over the same period of the prior year. This decrease is
the result of a $19,320,000 decrease in average interest earning assets as well
as a 53 basis point decrease in the weighted average interest rate earned on
average interest earning assets for the quarter ended March 31, 2004, as
compared to the quarter ended March 31, 2003.
Interest Expense
Total interest expense for the three month period ended March 31, 2004 decreased
$1,076,000, or 17.9%, as compared to the same period a year ago. The factors
that caused the decrease in interest expense mirrors the same two factors for
the decrease in interest income. The interest rate paid on average interest
bearing liabilities declined 49 basis points in the quarter ended March 31,
2004, as compared to the quarter ended March 31, 2003, and the balance of
average interest bearing liabilities declined $24,824,000 over the same two
periods.
Other Income
Total other income for the three-month period ended March 31, 2004, decreased
$1,745,000 or 42.2% over the same period a year ago. This decrease was primarily
the result of a decrease of $1,461,000 from the gain on sale of loans. For the
three-month period ended March 31, 2003, the Bank originated approximately
$114.0 million in residential loans, compared to $51.0 million for the
three-month period ended March 31, 2004. In the first quarter of 2003 the Bank
sold approximately $111.0 of the loans originated versus $37.0 million in the
first quarter of 2004. The difference in loan activity for these two periods was
the result of the low rate environment in 2003 and the high volumes of loan
refinance activity. Another factor reducing other income for the three months
ended March 31, 2004, was a $420,000 decrease in the income from joint ventures.
The primary reason for the decrease was the result of large sales recorded on a
commercial joint venture in the three months ended March 31, 2003. These sales
were not replicated in the quarter ended March 31, 2004. On December 31, 2001,
the Bank changed its charter from a Federal savings bank charter to an Indiana
commercial bank charter. Commercial banks are not permitted to participate in
real estate development joint ventures at March 2004. The Bank, as mandated by
the regulators, is in the process of divesting itself of these investments by
December 31, 2004, with two one-year extensions available, subject to regulatory
approval.
Other Expenses
Other expense for the three month period ended March 31, 2004 increased
$515,000, or 9.8% over the three month period ended March 31, 2003. This
increase resulted primarily from the $305,000 increase in miscellaneous expenses
for the three months ended March 31, 2004 compared to the three months ended
March 31, 2003. The bulk of the increase in miscellaneous expenses was due to a
$201,000 write down of a commercial real estate owned property, in anticipation
of selling the property at auction. Another increase to miscellaneous expenses
was $82,000 in expenses for consulting services related to the Bank's
outsourcing of the internal audit function, as well as consulting expenses
related to compliance issues. Compensation and employee benefits increased
$186,000 for the three months ended March 31, 2004, compared to the same quarter
of the prior year. The increase was due to increases in retirement costs, as
well as normal salary increases.
FINANCIAL CONDITION:
Total assets as of March 31, 2004, were $869,004,000, which was an increase of
$15,676,000 from December 31, 2003, total assets of $853,328,000. Changes within
the various balance sheet categories included a $18,739,000 increase in cash and
cash equivalents. The increase in cash equivalents was funded by a $19,338,000
increase in deposits. Loans receivable, net decreased $9,299,000. These funds
helped reduce the outstanding balance of FHLB advances, which decreased
$8,839,000 from $154,296,000 at December 31, 2003 to $145,457,000 at March 31,
2004.
Shareholders' equity decreased $550,000 during the same period. Retained
earnings increased $1,387,000 from net income and decreased $797,000 for
dividends paid and $1,854,000 from stock buy backs. Common stock increased
$155,000 from the exercise of common stock options. Common stock decreased
$107,000 from stock buy backs. The Company had an increase from $260,000 in
unrealized gains in its securities available for sale portfolio, net of tax, to
$892,000 over the three month period ended March 31, 2004. This increase in
unrealized gains resulted in $632,000 of other comprehensive gains, net of tax,
for the three months ended March 31, 2004. Additionally, the Company had other
comprehensive gain, net of tax, from the change in fair value of a cash flow
hedge of $34,000 for the same three month period.
- 10 -
At March 31, 2004, the Company and the Bank exceeded all current applicable
regulatory capital requirements as follows:
As of March 31, 2004
(Dollars in Thousands)
To be "Well-
Capitalized" under
Minimum Prompt Corrective
Actual Requirements Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Consolidated
Tier I Capital to Risk-
Weighted Assets $81,186 12.07% $26,905 4.00% $40,358 6.00%
Total Risk-Based Capital
to Risk-Weighted Assets $88,795 13.20% $53,810 8.00% $67,263 10.00%
Tier I Leverage Ratio $81,186 9.40% $34,533 4.00% $43,166 5.00%
HomeFederal Bank
Tier I Capital to Risk-
Weighted Assets $87,994 13.10% $26,868 4.00% $40,303 6.00%
Total Risk-Based to Risk-
Weighted Assets $95,603 14.23% $53,737 8.00% $67,171 10.00%
Tier I Leverage Ratio $87,994 10.23% $34,396 4.00% $42,995 5.00%
Liquidity and Capital Resources
Historically, the Bank has maintained its liquid assets at a level believed
adequate to meet requirements of normal daily activities, repayment of maturing
debt and potential deposit outflows. Cash flow projections are regularly
reviewed and updated to assure that adequate liquidity is maintained. Cash for
these purposes is generated through the sale or maturity of investment
securities and loan sales and repayments, and may be generated through increases
in deposits. Loan payments are a relatively stable source of funds, while
deposit flows are influenced significantly by the level of interest rates and
general money market conditions. Borrowings may be used to compensate for
reductions in other sources of funds such as deposits. As a member of the
Federal Home Loan Bank ("FHLB") system, the Bank may borrow from the FHLB of
Indianapolis. At March 31, 2004, the Bank had $145,457,000 in such borrowings.
In addition, at March 31, 2004, the Bank had commitments to fund loan
originations of $34,416,000, unused home equity lines of credit of $69,369,000
and unused commercial lines of credit of $37,073,000, as well as commitments to
sell loans of $30,278,000. Generally, a significant portion of amounts available
in lines of credit will not be drawn. In the opinion of management, the Bank has
sufficient cash flow and borrowing capacity to meet current and anticipated
funding commitments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
In the opinion of management the interest rate sensitivity results for the
quarter ended March 31, 2004 is not materially different from the results
presented on page 14 of the annual report for the twelve month period ended
December 31, 2003, which is incorporated by reference herein.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as
defined in Sections 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended), as of the end of the most recent
fiscal quarter covered by this quarterly report (the "Evaluation
Date"), have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and are designed to
ensure that material information relating to the Company would be
made known to such officers by others within the Company on a timely
basis.
(b) Changes in internal controls. There were no significant changes in
the Company's internal control over financial reporting identified in
connection with the Company's evaluation of controls that occurred
during the Company's last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
N/A
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
The following table provides information on the Company's repurchases of shares
of its common stock during the quarter ended March 31, 2004.
(a) (b) (c) (d)
Total number of Maximum number of
shares purchased shares that
Average as part of may yet be
Total number of price paid publicly announced purchased under the
Period shares purchased per share plans or programs (1) plans or programs (1)
- -------------- ---------------- ---------- --------------------- ---------------------
January 2004 - $ 0.00 - 71,299
February 2004 - $ 0.00 - 71,299
March 2004 71,299 $ 27.49 71,299 -
---------------- ---------- ---------------------- ----------------------
First Quarter 71,299 $ 27.49 71,299 0
================ ======================
(1) The Company's current stock repurchase program, announced February 25,
2003, authorized the repurchase of 5% of the Company's outstanding
shares of common stock, or 211,699 such shares, on the open market, in
block transactions or in private transactions. The program had no
expiration date. The Company completed the repurchase of these shares
on March 8, 2004.
On April 27, 2004, the Board of Directors approved the Company's seventh stock
repurchase program. The Company intends to purchase, from time to time, on the
open market up to 7% of the Company's outstanding shares of common stock,
without par value ("Common Stock"), or approximately 297,000 such shares. Such
purchases will be made subject to market conditions in open market, block
transactions or in private transactions. Repurchases may begin April 30, 2004.
This repurchase plan does not have an expiration date. As of May 7, 2004, the
Company had repurchased 100,000 shares under this plan.
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submission of Matters to a Vote of Security Holders
N/A
Item 5. Other information
N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31(1) Certification required by 12 C.F.R. 240.13a-14(a).
31(2) Certification required by 12 C.F.R. 240.13a-14(a).
32 - Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbances-Oxley Act of 2002.
(b) On January 27, 2004 Home Federal Bancorp filed an 8-K containing a press
release announcing its results of operations for the quarter ended
December 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on behalf of
the undersigned thereto duly authorized.
Home Federal Bancorp
DATE: May 7, 2004 /S/ Lawrence E. Welker
Lawrence E. Welker, Executive Vice President,
Treasurer, and Chief Financial Officer
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