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SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2004
or
[x] Transition report pursuant to Section 13 or 15(d) or the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
Commission file number: 0-18847
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 organization) 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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by check mark whether the Registrant (l) 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act. YES __X___ NO ______
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of June 30, 2004, was $87.4 million.
The number of shares of the registrant's Common Stock, no par value, outstanding
as of February 25, 2005, was 3,984,491 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
2004, are incorporated into Part II. Portions of the Proxy Statement for the
annual meeting of shareholders to be held on April 26, 2005, are incorporated
into Part I and Part III.
Exhibit Index on Page 35
Page 2 of 38 Pages
HOME FEDERAL BANCORP
FORM 10-K
INDEX
Forward Looking Statements 4
Item 1. Business 4
Item 2. Properties 27
Item 3. Legal Proceedings 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 4.5 Executive Officers of Home Federal Bancorp 29
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters, And Issuer Purchases of Equity Securities 29
Item 6. Selected Financial Data 30
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 30
Item 7.A Quantitative and Qualitative Disclosures About Market Risk 30
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 30
Item 9A. Controls and Procedures 30
Item 9B. Other information 31
Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 31
Item 13. Certain Relationships and Related Transactions 32
Item 14. Principal Accountant Fees and Services 32
Item 15. Exhibits and Financial Statement Schedules 32
Signatures 34
- 3 -
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K ("Form 10-K") contains statements, which
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-K 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-K 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-K
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 the issuers of the Company's investments and
borrowers, changes in the economic condition of the Company's market area,
increases in compensation and employee expenses or unanticipated results in
pending legal proceedings.
PART I
Item 1. Business
General
Home Federal Bancorp (the "Company" or "HFB") is an Indiana corporation
organized as a bank holding company authorized to engage in activities
permissible for a financial holding company. The principal asset of the Company
consists of 100% of the issued and outstanding capital stock of HomeFederal Bank
("HomeFederal" or the "Bank").
HomeFederal Bank began operations in Seymour, Indiana under the name New
Building and Loan Association in 1908. The Bank received its federal charter and
changed its name to Home Federal Savings and Loan Association in 1950. On
November 9, 1983, Home Federal Savings and Loan Association became a federal
savings bank and its name was changed to Home Federal Savings Bank. On January
14, 1988, Home Federal Savings Bank converted to stock form and on March 1,
1993, Home Federal Savings Bank reorganized by converting each outstanding share
of its common stock into one share of common stock of the Company, thereby
causing the Company to be the holding company of Home Federal Savings Bank. On
December 31, 2001 HomeFederal Bank, a member of the Federal Reserve System,
completed a charter conversion to an Indiana commercial bank. On September 24,
2002, the Company announced a change in its fiscal year end from June 30 to
December 31.
On October 22, 2002, Home Federal Savings Bank changed its name to
HomeFederal Bank. HomeFederal Bank currently provides services through its main
office at 501 Washington Street in Columbus, Indiana, eighteen full service
branches located in south central Indiana and the STAR network of automated
teller machines at thirteen locations in Seymour, Columbus, North Vernon, Salem,
Madison, Batesville, Edinburgh, Greensburg, Greenwood and Indianapolis. As a
result, HomeFederal serves primarily Bartholomew, Jackson, Jefferson, Jennings,
Scott, Ripley, Decatur, Marion, Johnson and Washington Counties in Indiana.
- 4 -
HomeFederal also participates in the nationwide electronic funds transfer
networks known as Plus System, Inc. and Cirrus System.
Online banking and telephone banking are also available to HomeFederal Bank
customers. Online Banking, including Online Bill Payment, services are accessed
through the Company's website, www.homf.com. In addition to online banking
services, the Company also makes available, free of charge at the website, the
Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and any amendments to those reports filed pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after such material is electronically filed with the SEC.
The information on the Company's website is not incorporated into this Form
10-K.
Management analyzes the operation of Home Federal Bancorp assuming one
operating segment, community banking services. HomeFederal Bank directly and,
through its service corporation subsidiary indirectly, offers a wide range of
consumer and commercial community banking services. These services include: (i)
residential and commercial real estate loans; (ii) checking accounts; (iii)
regular and term savings accounts and savings certificates; (iv) full-service
securities brokerage services; (v) consumer loans; (vi) debit cards; (vii)
business credit cards; (viii) annuity and life insurance products; (ix)
Individual Retirement Accounts and Keogh plans; (x) commercial loans; (xi) trust
services: and (xii) commercial demand deposit accounts.
HomeFederal Bank's primary source of revenue is interest from lending
activities. Its principal lending activity is the origination of conventional
mortgage loans to enable borrowers to purchase or refinance one-to-four family
residential real property. These loans are generally secured by first mortgages
on the property and constituted 26.1% of the Bank's loans at December 31, 2004.
Virtually all of the real estate loans originated by HomeFederal Bank are
secured by properties located in Indiana, although HomeFederal Bank has
authority to make or purchase real estate loans throughout the United States. In
addition, HomeFederal Bank makes secured and unsecured consumer related loans
(including consumer auto, second mortgage, home equity, mobile home, and savings
account loans) and commercial loans secured by mortgages on the underlying
property. At December 31, 2004, approximately 17.5% of its loans were
consumer-related loans, and 27.2% of its loans were commercial mortgage and
multi-family loans. HomeFederal Bank also makes construction loans, which
constituted 12.8% of HomeFederal Bank's loans at December 31, 2004. Finally,
HomeFederal Bank makes commercial loans, which constituted 16.0% of its loans at
December 31, 2004.
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Lending Activities
Loan Portfolio Data
The following two tables set forth the composition of HomeFederal Bank's loan
porfolio by loan type and security type as of the dates indicated. The third
table represents a reconciliation of gross loans receivable after consideration
of undisbursed portions of loans in process, deferred loans, and the allowance
for loan losses. (dollars in thousands)
Dec 31, 2004 Dec 31, 2003 Dec 31, 2002
------------ ------------ ------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
TYPE OF LOAN
First mortgage loans:
One-to-four family residential loans $172,738 26.1% $178,159 27.0% $195,255 29.9%
Commercial and multi-family......... 180,175 27.2% 171,397 25.9% 183,369 28.1%
Loans on property under construction 84,655 12.8% 94,431 14.3% 63,017 9.6%
Loans on unimproved acreage......... 2,730 0.4% 3,201 0.5% 2,795 0.4%
Second mortgage, home equity............. 80,346 12.2% 80,044 12.1% 80,274 12.3%
Commercial loans......................... 105,495 16.0% 99,085 15.0% 90,063 13.8%
Consumer loans........................... 4,157 0.6% 4,221 0.6% 4,681 0.7%
Auto loans............................... 24,921 3.8% 23,244 3.5% 25,149 3.8%
Mobile home loans........................ 3,289 0.5% 4,365 0.7% 5,834 0.9%
Savings accounts loans................... 2,340 0.4% 2,736 0.4% 3,018 0.5%
----------------- ----------------- -----------------
Gross loans receivable.............. $660,846 100.0% $660,883 100.0% $653,455 100.0%
================= ================= =================
TYPE OF SECURITY
Residential:
One-to-four family.................. $277,095 41.9% $280,942 42.5% $293,886 45.0%
Multi-dwelling units................ 27,018 4.1% 22,034 3.3% 22,767 3.5%
Commercial real estate................... 213,801 32.3% 221,055 33.5% 205,262 31.4%
Commercial............................... 105,495 16.0% 99,085 15.0% 90,063 13.8%
Mobile home.............................. 3,289 0.5% 4,365 0.7% 5,834 0.9%
Savings account.......................... 2,340 0.4% 2,736 0.4% 3,018 0.5%
Auto..................................... 24,921 3.8% 23,244 3.5% 25,149 3.8%
Other consumer........................... 4,157 0.6% 4,221 0.6% 4,681 0.7%
Land acquisition......................... 2,730 0.4% 3,201 0.5% 2,795 0.4%
----------------- ----------------- -----------------
Gross loans receivable.............. $660,846 100.0% $660,883 100.0% $653,455 100.0%
================= ================= =================
LOANS RECEIVABLE-NET
Gross loans receivable................... $660,846 105.0% $660,883 104.8% $653,455 103.9%
Deduct:
Undisbursed portion of loans in process.. (23,016) -3.7% (22,150) -3.5% (16,856) -2.7%
Deferred net loan fees................... (476) -0.1% (555) -0.1% (544) -0.1%
Allowance for loan losses................ (7,864) -1.2% (7,506) -1.2% (7,172) -1.1%
----------------- ----------------- -----------------
Net loans receivable................ $629,490 100.0% $630,672 100.0% $628,883 100.0%
================= ================= =================
Table continued
June 30, 2002 June 30, 2001 June 30, 2000
------------- ------------- -------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
TYPE OF LOAN
First mortgage loans:
One-to-four family residential loans $214,565 32.6% $270,124 38.2% $282,555 41.3%
Commercial and multi-family......... 172,495 26.2% 153,169 21.6% 102,974 15.1%
Loans on property under construction 54,639 8.3% 67,789 9.6% 89,248 13.0%
Loans on unimproved acreage......... 4,712 0.7% 5,017 0.7% 17,440 2.5%
Second mortgage, home equity............. 85,819 13.0% 94,140 13.3% 85,300 12.5%
Commercial loans......................... 86,435 13.1% 74,687 10.5% 60,948 8.9%
Consumer loans........................... 4,535 0.7% 5,864 0.8% 9,446 1.4%
Auto loans............................... 25,355 3.9% 25,852 3.6% 22,587 3.3%
Mobile home loans........................ 6,625 1.0% 8,308 1.2% 9,963 1.5%
Savings accounts loans................... 3,092 0.5% 3,738 0.5% 3,625 0.5%
----------------- ----------------- ------------------
Gross loans receivable.............. $658,272 100.0% $708,688 100.0% $684,086 100.0%
================= ================= ==================
TYPE OF SECURITY
Residential:
One-to-four family.................. $320,256 48.6% $388,770 55.0% $409,174 59.9%
Multi-dwelling units................ 29,640 4.5% 34,008 4.8% 32,937 4.8%
Commercial real estate................... 177,622 27.0% 162,444 22.9% 117,966 17.2%
Commercial............................... 86,435 13.1% 74,687 10.5% 60,948 8.9%
Mobile home.............................. 6,625 1.0% 8,308 1.2% 9,963 1.5%
Savings account.......................... 3,092 0.5% 3,738 0.5% 3,625 0.5%
Auto..................................... 25,355 3.9% 25,852 3.6% 22,587 3.3%
Other consumer........................... 4,535 0.7% 5,864 0.8% 9,446 1.4%
Land acquisition......................... 4,712 0.7% 5,017 0.7% 17,440 2.5%
----------------- ----------------- ------------------
Gross loans receivable.............. $658,272 100.0% $708,688 100.0% $684,086 100.0%
================= ================= ==================
LOANS RECEIVABLE-NET
Gross loans receivable................... $658,272 104.2% $708,688 105.1% $684,086 104.9%
Deduct:
Undisbursed portion of loans in process.. (19,498) -3.1% (27,999) -4.2% (26,628) -4.1%
Deferred net loan fees................... (508) -0.1% (447) -0.1% (502) -0.1%
Allowance for loan losses................ (6,451) -1.0% (5,690) -0.8% (4,949) -0.7%
----------------- ----------------- ------------------
Net loans receivable................ $631,815 100.0% $674,552 100.0% $652,007 100.0%
================= ================= ==================
- 6 -
The following tables summarize the contractual maturities for HomeFederal Bank's
loan portfolio (including participations and mortgage-backed certificates) for
the fiscal periods indicated and the interest rate sensitivity of loans due
after one year: (in thousands)
Balance Maturites in Fiscal
Outstanding 2008 2010 2015 2019
At December 31, to to to and
2004 2005 2006 2007 2009 2014 2019 thereafter
---- ---- ---- ---- ---- ---- ---- ----------
Real estate.................. $ 355,643 $ 4,088 $ 4,393 $ 4,242 $ 31,520 $ 109,992 $ 53,069 $ 148,339
Mortgage-backed
certificates,
collateralized
mortgage obligations... 62,717 - 15 777 1,352 35,640 8,047 16,886
Construction loans........... 84,655 27,643 9,212 - 6,458 13,445 2,226 25,671
Commercial loans............. 105,495 56,357 12,236 4,892 18,779 7,995 4,474 762
Other loans.................. 115,053 7,031 8,935 13,936 34,714 24,954 11,577 13,906
---------- ---------- --------- --------- --------- ---------- --------- ----------
Total.................. $ 723,563 $ 95,119 $ 34,791 $ 23,847 $ 92,823 $ 192,026 $ 79,393 $ 205,564
========== ========== ========= ========= ========= ========== ========= ==========
Interest Rate Sensitivity: (in thousands)
Due After December 31, 2005
---------------------------------
Fixed Variable Rate
Rate and Balloon
---- -----------
Real estate.............................. $ 47,268 $ 304,287
Mortgage-backed certificates,
collateralized mortgage obligations 62,583 134
Construction loans....................... 558 56,454
Commercial loans......................... 17,540 31,598
Other loans.............................. 84,016 24,006
----------- ------------
Total.............................. $ 211,965 $ 416,479
=========== ============
Residential Mortgage Loans
HomeFederal Bank is authorized to make one-to-four family residential loans
without any limitation as to interest rate (within State usury laws) amount or
number of interest rate adjustments. Pursuant to federal regulations, if the
interest rate is adjustable, the interest rate must be correlated with changes
in a readily verifiable index. HomeFederal Bank also makes residential and
commercial mortgage loans secured by mid-size multi-family dwelling units and
apartment complexes. The residential mortgage loans included in HomeFederal
Bank's portfolio are primarily conventional loans. As of December 31, 2004,
$199.1 million, or 30.1%, of HomeFederal Bank's total loan portfolio consisted
of residential first mortgage loans, $172.7 million, or 26.1%, of which were
secured by one-to-four family homes.
Many of the residential mortgage loans currently offered by HomeFederal
Bank have adjustable rates. These loans generally have interest rates that
adjust (up or down) semi-annually or annually, with maximum rates that vary
depending upon when the loans are written and contractual floors and ceilings.
The adjustment for the majority of these loans is currently based upon the
weekly average of the one-year Treasury constant maturity rate.
The rates offered on HomeFederal Bank's adjustable-rate and fixed-rate
residential mortgage loans are competitive with the rates offered by other
financial institutions in its south central and central Indiana market area.
Although HomeFederal Bank's residential mortgage loans are written for
amortization terms up to 30 years, due to prepayments and refinancing, its
residential mortgage loans in the past have generally remained outstanding for a
- 7 -
substantially shorter period of time than the maturity terms of the loan
contracts.
All of the residential mortgages HomeFederal Bank currently originates
include "due on sale" clauses, which give HomeFederal Bank the right to declare
a loan immediately due and payable in the event that, among other things, the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid. HomeFederal Bank utilizes the due on sale
clause as a means of protecting the funds loaned by insuring payoff on sale of
the property collateralizing the loan.
Under applicable banking policies, HomeFederal Bank must establish
loan-to-value ratios consistent with supervisory loan-to-value limits. The
supervisory limits are 65% for raw land loans, 75% for land development loans,
80% for construction loans consisting of commercial, multi-family and other
non-residential construction, and 85% for improved property. Multi-family
construction includes condominiums and cooperatives. A loan-to-value limit has
been established at 100% total loan-to-value for permanent mortgage or home
equity loans on owner-occupied one-to-four family residential property. However,
for any such loan with a loan-to-value ratio that exceeds 90% at origination, an
institution should require appropriate credit enhancement in the form of either
mortgage insurance or readily marketable collateral. The Board of Directors of
HomeFederal Bank approved a set of loan-to-value ratios consistent with these
supervisory limits.
It may be appropriate in individual cases to originate loans with
loan-to-value ratios in excess of the FDIC limits based on the support provided
by other credit factors. The aggregate amount of all loans in excess of these
limits should not exceed 100% of total capital. Moreover, loans for all
commercial, agricultural, multi-family or other non-one-to-four family
residential properties should not exceed 30% of total capital.
Commercial Mortgage Loans
At December 31, 2004, 36.5% of HomeFederal Bank's total loan portfolio
consisted of mortgage loans secured by commercial real estate, of which 9.2%
were commercial construction loans. These properties consisted primarily of
condominiums, apartment buildings, office buildings, warehouses, motels,
shopping centers, nursing homes, manufacturing plants, and churches located in
central or south central Indiana. The commercial mortgage loans are generally
adjustable-rate loans, written for terms not exceeding 20 years, and require an
85% loan-to-value ratio. Commitments for these loans in excess of $1.5 million
must be approved in advance by HomeFederal Bank's Board of Directors. The
largest such loan as of December 31, 2004 had a balance of $4.6 million. At that
date, all of HomeFederal Bank's commercial real estate loans consisted of loans
secured by real estate located in Indiana.
Generally, commercial mortgage loans involve greater risk to HomeFederal
Bank than residential loans. Commercial mortgage loans typically involve large
loan balances to single borrowers or groups of related borrowers. In addition,
the payment experience on loans secured by income-producing properties is
typically dependent on the successful operation of the related project and thus
may be subject to adverse conditions in the real estate market or in the general
economy.
Construction Loans
HomeFederal Bank offers conventional short-term construction loans. At
December 31, 2004, 12.8% of HomeFederal Bank's total loan portfolio consisted of
construction loans. Normally, a 95% or less loan-to-value ratio is required from
owner-occupants of residential property, an 80% loan-to-value ratio is required
from persons building residential property for sale or investment purposes, and
an 80% loan-to-value ratio is required for commercial property. Construction
loans are also made to builders and developers for the construction of
residential or commercial properties on a to-be-occupied or speculative basis.
Construction normally must be completed in six to nine months for residential
loans. The largest such loan on December 31, 2004 was $5.5 million.
- 8 -
Consumer Loans
Consumer-related loans, consisting of second mortgage and home equity
loans, mobile home loans, automobile loans, loans secured by savings accounts
and consumer loans were $115.1 million on December 31, 2004 or approximately
17.5% of HomeFederal Bank's total loan portfolio.
Second mortgage loans are made for terms of 1 - 20 years, and are
fixed-rate, fixed term or variable- rate line of credit loans. HomeFederal
Bank's minimum for such loans is $5,000. HomeFederal Bank will loan up to 100%
of the appraised value based on the product and borrower qualifications of the
property, less the existing mortgage amount(s). As of December 31, 2004,
HomeFederal Bank had $43.2 million of second mortgage loans, which equaled 6.5%
of its total loan portfolio. HomeFederal Bank markets home equity credit lines,
which are adjustable-rate loans. As of December 31, 2004, HomeFederal Bank had
$37.1 million drawn on its home equity loans, or 5.6% of its total loan
portfolio, with $64.4 million of additional credit available to its borrowers
under existing home equity loans.
Automobile loans are generally made for terms of up to six years. The
vehicles are required to be for personal or family use only. As of December 31,
2004, $24.9 million, or 3.8%, of HomeFederal Bank's total loan portfolio
consisted of automobile loans.
As of December 31, 2004, $3.3 million, or 0.5%, of HomeFederal Bank's total
loan portfolio consisted of mobile home loans. Generally, these loans are made
for terms of one year for each $1,000 of the sales price, with a maximum term of
15 years. On new mobile home loans, HomeFederal Bank permits a loan-to-value
ratio of up to 125% of the manufacturer's invoice price plus sales tax or up to
90% of the actual sales price, whichever is lower. Also, HomeFederal Bank makes
loans for previously occupied mobile homes up to a 90% loan-to-value ratio based
upon the actual sales price or value as appraised, whichever is lower.
Loans secured by savings account deposits may be made up to 95% of the
pledged savings collateral at a rate 2% above the rate of the pledged savings
account or a rate equal to HomeFederal Bank's highest seven-year certificate of
deposit rate, whichever is higher. The loan rate will be adjusted as the rate
for the pledged savings account changes. As of December 31, 2004, $2.3 million,
or 0.4%, of HomeFederal Bank's total loan portfolio consisted of savings account
loans.
Although consumer-related loans generally involve a higher level of risk
than one-to-four family residential mortgage loans, their relatively higher
yields, lower average balance, and shorter terms to maturity are believed to be
helpful in HomeFederal Bank's asset/liability management.
Commercial Loans
Collateral for HomeFederal Bank's commercial loans includes manufacturing
equipment, real estate, inventory, accounts receivable, and securities. Terms of
these loans are normally for up to ten years and have adjustable rates tied to
the reported prime rate and treasury indexes. Generally, commercial loans are
considered to involve a higher degree of risk than residential real estate
loans. However, commercial loans generally carry a higher yield and are made for
a shorter term than real estate loans. As of December 31, 2004, $105.5 million,
or 16.0%, of HomeFederal Bank's total loan portfolio consisted of commercial
loans.
Origination, Purchase and Sale of Loans
HomeFederal Bank originates residential loans in conformity with standard
underwriting criteria of the Federal Home Loan Mortgage Corporation ("Freddie
Mac"), the Federal National Mortgage Association ("Fannie Mae") and the Federal
Home Loan Bank ("FHLB"), to assure maximum eligibility for possible resale in
the secondary market. Although HomeFederal Bank currently has authority to lend
anywhere in the United States, it has confined its loan origination activities
primarily to the central and south central Indiana area. HomeFederal Bank's loan
originations are generated primarily from referrals from real estate brokers,
builders, developers and existing customers, newspaper, radio and periodical
advertising and walk-in customers. HomeFederal Bank's loan approval process is
intended to assess the borrower's ability to repay the loan, the viability of
the loan and the adequacy of the value of the property that will secure the
loan.
- 9 -
HomeFederal Bank studies the employment, credit history, and information on
the historical and projected income and expenses of its individual mortgagors to
assess their ability to repay its mortgage loans. Additionally, HomeFederal Bank
utilizes Freddie Mac's Loan Prospector and Fannie Mae's Desktop Underwriter as
origination, processing, and underwriting tools. It uses staff appraisers or
independent appraisers to appraise the property securing its loans. It requires
title insurance evidencing HomeFederal Bank's valid lien on its mortgaged real
estate and a mortgage survey or survey coverage on all first mortgage loans and
on other loans when appropriate. HomeFederal Bank requires fire and extended
coverage insurance in amounts at least equal to the value of the insurable
improvements or the principal amount of the loan, whichever is lower. It may
also require flood insurance to protect the property securing its interest. When
private mortgage insurance is required, borrowers must make monthly payments to
an escrow account from which HomeFederal Bank makes disbursements for taxes and
insurance. Otherwise, such escrow arrangements are optional.
The procedure for approval of loans on property under construction is the
same as for residential mortgage loans, except that the appraisal obtained
evaluates the building plans, construction specifications and estimates of
construction costs, in conjunction with the land value. HomeFederal Bank also
evaluates the feasibility of the construction project and the experience and
track record of the builder or developer.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
In order to generate loan fee and servicing income and recycle funds for
additional lending activities, HomeFederal Bank seeks to sell loans in the
secondary market. Loan sales can enable HomeFederal Bank to recognize
significant fee income and to reduce interest rate risk while meeting local
market demand. HomeFederal Bank sold $143.7 million of fixed-rate loans in the
fiscal year ended December 31, 2004. HomeFederal Bank's current lending policy
is to sell fixed-rate residential mortgage loans exceeding 10-year maturities.
In addition, when in the opinion of management cash flow demands and
asset/liability concerns warrant, HomeFederal Bank will consider keeping
fixed-rate loans with up to 15-year maturities. Typically HomeFederal Bank
retains adjustable-rate loans in its portfolio. HomeFederal Bank may sell
participating interests in commercial real estate loans in order to share the
risk with other lenders. Mortgage loans held for sale are carried at the lower
of cost or market value, determined on an aggregate basis. The servicing is
retained on most loan sales except Veteran's Administration ("VA"), Federal
Housing Administration ("FHA") and Indiana Housing Finance Authority ("IHFA")
loans.
When loans are sold, HomeFederal Bank typically retains the responsibility
for collecting and remitting loan payments, inspecting the properties securing
the loans, making certain that monthly principal and interest payments and
escrow payments are made on behalf of borrowers, and otherwise servicing the
loans. HomeFederal Bank receives a servicing fee for performing these services.
The amount of fees received by HomeFederal Bank varies, but is generally
calculated as an amount equal to 25 basis points per annum on the outstanding
principal amount of the loans serviced. The servicing fee is recognized as
income over the life of the loans. At December 31, 2004, HomeFederal Bank
serviced $605.0 million of loans sold to other parties. Gains and losses on sale
of loans, loan participations and mortgage-backed securities are recognized at
the time of sale.
Management believes that purchases of loans and loan participations may be
desirable and evaluates potential purchases as opportunities arise. Such
purchases can enable HomeFederal Bank to take advantage of favorable lending
markets in other parts of the state, diversify its portfolio and limit
origination expenses. Any participation it acquires in commercial real estate
loans requires a review of financial information on the borrower, a review of
the appraisal on the property by a local designated appraiser, an inspection of
the property by a senior loan officer, and a financial analysis of the loan. The
seller generally does servicing of loans purchased. At December 31, 2004, others
serviced approximately 3.4%, or $22.6 million, of HomeFederal Bank's gross loan
portfolio.
- 10 -
The following table shows loan activity for HomeFederal Bank during the periods
indicated: (dollars in thousands)
Dec 31, Dec 31, Dec. 31, June 30,
2004 2003 2002 2002
--------------------------------------------
Gross loans receivable at beginning of period $660,883 $653,455 $658,272 $708,688
-------- -------- -------- --------
Loans Originated:
Mortgage loans and contracts:
Construction loans:
Residential ............................. 30,373 28,253 16,254 28,970
Commercial .............................. 26,558 33,643 20,627 29,468
Permanent loans:
Residential ............................. 59,468 60,225 35,142 124,902
Commercial .............................. 39,201 18,721 17,506 32,874
Refinancing ............................... 92,140 333,727 205,771 202,000
Other ..................................... 1,092 1,227 262 1,321
-------- -------- -------- --------
Total ................................... 248,832 475,796 295,562 419,535
Commercial ................................. 81,819 65,823 29,321 50,382
Consumer ................................... 25,416 24,200 13,610 28,598
-------- -------- -------- --------
Total loans originated .................. 356,067 565,819 338,493 498,515
Loans purchased:
Residential ............................... -- -- -- --
Other ..................................... 9,116 10,605 7,384 4,271
-------- -------- -------- --------
Total loans originated and purchased .... 365,183 576,424 345,877 502,786
Real estate loans sold ..................... 143,661 381,900 208,264 260,022
Loan repayments and other deductions ....... 221,559 187,096 142,430 293,180
-------- -------- -------- --------
Total loans sold, loan repayments
and other deductions .................. 365,220 568,996 350,694 553,202
Net loan activity .......................... (37) 7,428 (4,817) (50,416)
-------- -------- -------- --------
Gross loans receivable at end of period .... 660,846 660,883 653,455 658,272
Adjustments ................................ (31,356) (30,211) (24,572) (26,457)
-------- -------- -------- --------
Net loans receivable at end of period ...... $629,490 $630,672 $628,883 $631,815
======== ======== ======== ========
A commercial bank generally may not make any loan to a borrower or its
related entities if the total of all such loans by the commercial bank exceeds
15% of its capital (plus up to an additional 10% of capital in the case of loans
fully collateralized by readily marketable collateral). The maximum amount that
HomeFederal Bank could have loaned to one borrower and the borrower's related
entities at December 31, 2004, under the 15% of capital limitation was $13.8
million. At that date, the highest outstanding balance of loans by HomeFederal
Bank to one borrower and related entities was approximately $11.3 million, an
amount within such loans-to-one borrower limitations.
Origination and Other Fees
HomeFederal Bank realizes income from loan related fees for originating
loans, collecting late charges and fees for other miscellaneous loan services.
HomeFederal Bank charges origination fees that range from 0% to 1.0% of the loan
amount. HomeFederal Bank also charges processing fees of $150 to $225,
underwriting fees from $0 to $150 and a $50 fee for any loan closed by
HomeFederal Bank personnel. In addition, HomeFederal Bank makes discount points
available to customers for the purpose of obtaining a discounted interest rate.
The points vary from loan to loan and are quoted on an individual basis. In
accordance with Financial Accounting Standards Board Statement No. 91,
Accounting for Non Refundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases, the Bank amortizes costs and
fees associated with originating a loan over the life of the loan as an
adjustment to the yield earned on the loan. Late charges are assessed fifteen
days after payment is due.
- 11 -
Non-performing Assets
HomeFederal Bank assesses late charges on mortgage loans if a payment is
not received by the 15th day following its due date. Any borrower whose payment
was not received by this time is mailed a past due notice. At the same time the
notice is mailed, the delinquent account is downloaded to a PC- based collection
system and assigned to a specific loan service representative. The loan service
representative will attempt to make contact with the customer via a phone call
to resolve any problem that might exist. If contact by phone is not possible,
mail, in the form of preapproved form letters, will be used commencing on the
25th day following a specific due date. Between the 30th and 45th day following
any due date, or at the time a second payment has become due, if no contact has
been made with the customer, a personal visit will be conducted by a Loan
Service Department employee to interview the customer and inspect the property
to determine the borrower's ability to repay the loan. Prompt follow up is a
goal of the Loan Service Department with any and all delinquencies.
When an advanced stage of delinquency appears (generally around the 60th
day of delinquency) and if repayment cannot be expected within a reasonable
amount of time, HomeFederal Bank will make a determination of how to proceed to
protect the interests of both the customer and the Bank. It may be necessary for
the borrower to attempt to sell the property at HomeFederal Bank's request. If a
resolution cannot be arranged, HomeFederal Bank will consider avenues necessary
to obtain title to the property which include foreclosure and/or accepting a
deed-in-lieu of foreclosure, whichever may be most appropriate. However,
HomeFederal Bank attempts to avoid taking title to the property if at all
possible.
HomeFederal Bank has acquired certain real estate in lieu of foreclosure by
acquiring title to the real estate and then reselling it. HomeFederal Bank
performs an updated title check of the property and, if needed, an appraisal on
the property before accepting such deeds.
On December 31, 2004, HomeFederal Bank held $2.0 million of real estate and
other repossessed collateral acquired as a result of foreclosure, voluntary
deed, or other means. Such assets are classified as "real estate owned" until
sold. When property is so acquired, it is recorded at the lower of cost or fair
market value less estimated cost to sell at the date of acquisition, and any
subsequent write down resulting from this is charged to the allowance for losses
on real estate owned. Interest accrual ceases on the date of acquisition. All
costs incurred from the acquisition date in maintaining the property are
expensed.
Consumer loan borrowers who fail to make payments are contacted promptly by
the Loan Service Department in an effort to cure any delinquency. A notice of
delinquency is sent 10 days after any specific due date when no payment has been
received. The delinquent account is downloaded to a PC-based collection system
and assigned to a specific loan service representative. The loan service
representative will then attempt to contact the borrower via a phone call.
Continued follow-up in the form of phone calls, letters, and personal
visits (when necessary) will be conducted to resolve delinquency. If a consumer
loan delinquency continues and advances to the 60-90 days past due status, a
determination will be made by HomeFederal Bank on how to proceed. When a
consumer loan reaches 90 days past due, HomeFederal Bank determines the
loan-to-value ratio by performing an inspection of the collateral (if any).
HomeFederal Bank may initiate action to obtain the collateral, (if any) or
collect the debt through available legal remedies. Collateral obtained as a
result of loan default is retained by HomeFederal Bank as an asset until sold or
otherwise disposed.
The table below sets forth the amounts and categories of HomeFederal Bank's
non-performing assets (non-accrual loans, loans past due 90 days or more, real
estate owned and other repossessed assets) for the last five years. It is the
policy of HomeFederal Bank that all earned but uncollected interest on
conventional loans be reviewed monthly to determine if any portion thereof
should be classified as uncollectible, for any portion that is due but
uncollected for a period in excess of 90 days.
The determination is based upon factors such as the loan amount outstanding as a
percentage of the appraised value of the property and the delinquency record of
the borrower.
- 12 -
Dec 31, Dec 31, Dec 31, June 30, June 30, June 30,
2004 2003 2002 2002 2001 2000
---- ---- ---- ---- ---- ----
Non-performing Assets:
Loans:
Non-accrual.................... $ 9,535 $ 2,499 $ 3,264 $ 2,281 $ 6,351 $ 2,422
Past due 90 days or
more and still accruing....... 168 1,130 1,166 1,110 - -
Restructured loans............... 3,141 258 316 374 879 632
-------- ------- ------- ------- ------- --------
Total non-performing loans....... 12,844 3,887 4,746 3,765 7,230 3,054
Real estate owned, net (1)....... 2,009 1,729 1,416 2,168 1,238 1,210
Other repossessed assets, net.... 10 10 56 71 60 25
-------- -------- -------- -------- -------- --------
Total non-performing assets (2) $ 14,863 $ 5,626 $ 6,218 $ 6,004 $ 8,528 $ 4,289
======== ======== ======== ======== ======== ========
Total non-performing assets
to total assets 1.71% 0.66% 0.70% 0.70% 0.99% 0.52%
Loans with allowance for
uncollected interest $ 9,535 $ 2,521 $ 3,343 $ 2,295 $ 6,440 $ 2,422
(1) Refers to real estate acquired by HomeFederal Bank through foreclosure,
voluntary deed, or insubstance foreclosure, net of reserve.
(2) At December 31, 2004, 9.5% of HomeFederal Bank's non-performing assets
consisted of residential mortgage loans, 2.8% consisted of home
equities/second mortgages, 37.9% consisted of commercial real estate loans,
14.1% consisted of commercial loans, 1.0% consisted of consumer-related
loans, 21.1% consisted of restructured loans, 4.9% consisted of residential
real estate owned, 8.6% consisted of commercial real estate owned and 0.1%
consisted of other repossessed assets.
For the year ended December 31, 2004, the income that would have been
recorded under original terms on the above non-accrual and restructured loans
was $906,000 compared to actual income recorded of $407,000. At December 31,
2004, HomeFederal Bank had approximately $5.7 million in loans that were 30-89
days past due. Total non-performing assets increased $9.2 million to $14.9
million at December 31, 2004. This increase resulted from a $9.0 million
increase in non-performing loans and by an increase of $280,000 in real estate
owned. The increase in non-performing loans related primarily to two commercial
loans that are discussed in the Allowance for Loan Losses section incorporated
by reference to pages 15 and 16 of the 2004 Shareholder Annual Report.
Investments
HomeFederal Bank's investment portfolio consists primarily of
mortgage-backed securities, collateralized mortgage obligations, overnight funds
with the FHLB of Indianapolis, U.S. Treasury obligations, U.S. Government agency
obligations, corporate debt and municipal bonds. At December 31, 2004, December
31, 2003, December 31, 2002 and June 30, 2002, HomeFederal Bank had
approximately $154.2 million, $136.9 million, $143.8 million, and $138.0 million
in investments, respectively.
HomeFederal Bank's investment portfolio is managed by its officers in
accordance with an investment policy approved by the Board of Directors. The
Board reviews all transactions and activities in the investment portfolio on a
quarterly basis. HomeFederal Bank does not purchase corporate debt securities
which are not rated in one of the top four investment grade categories by one of
several generally recognized independent rating agencies. HomeFederal Bank's
investment strategy has enabled it to (i) shorten the average term to maturity
of its assets, (ii) improve the yield on its investments, (iii) meet federal
liquidity requirements and (iv) maintain liquidity at a level that assures the
availability of adequate funds.
Effective March 31, 2002, HomeFederal Bank transferred the management of
approximately $90 million in securities to its wholly-owned subsidiary, Home
Investments, Inc. Home Investments, Inc., a Nevada corporation, holds, services,
manages, and invests that portion of the Bank's investment portfolio as may be
transferred from time to time by the Bank to Home Investments, Inc. Home
Investments Inc's investment policy mirrors that of the Bank. At December 31,
2004, of the $154.2 million in consolidated investments owned by HomeFederal
Bank, $105.8 million was held by Home Investments, Inc.
- 13 -
Source Of Funds
General
Deposits have traditionally been the primary source of funds of HomeFederal
Bank for use in lending and investment activities. In addition to deposits,
HomeFederal Bank derives funds from loan amortization, prepayments, borrowings
from the FHLB of Indianapolis and income on earning assets. While loan
amortization and income on earning assets are relatively stable sources of
funds, deposit inflows and outflows can vary widely and are influenced by
prevailing interest rates, money market conditions and levels of competition.
Borrowings may be used to compensate for reductions in deposits or deposit
inflows at less than projected levels and may be used on a longer-term basis to
support expanded activities. See "-- Borrowings."
Deposits
Consumer and commercial deposits are attracted principally from within
HomeFederal Bank's primary market area through the offering of a broad selection
of deposit instruments including checking accounts, fixed-rate certificates of
deposit, NOW accounts, individual retirement accounts, savings accounts and
commercial demand deposit accounts. HomeFederal Bank does not actively solicit
or advertise for deposits outside of the counties in which its branches are
located, with the exception of brokered deposits. Deposit account terms vary,
with the principal differences being the minimum balance required, the amount of
time the funds remain on deposit and the interest rate. To attract funds,
HomeFederal Bank may pay higher rates on larger balances within the same
maturity class.
Under regulations adopted by the FDIC, well-capitalized insured depository
institutions (those with a ratio of total capital to risk-weighted assets of not
less than 10%, with a ratio of core capital to risk-weighted assets of not less
than 6%, with a ratio of core capital to total assets of not less than 5% and
which have not been notified that they are in troubled condition) may accept
brokered deposits without limitations. Undercapitalized institutions (those that
fail to meet minimum regulatory capital requirements) are prohibited from
accepting brokered deposits. Adequately capitalized institutions (those that are
neither well-capitalized nor undercapitalized) are prohibited from accepting
brokered deposits unless they first obtain a waiver from the FDIC. Under these
standards, HomeFederal Bank would be deemed a well-capitalized institution. At
December 31, 2004 HomeFederal had $38.2 million in brokered deposits.
An undercapitalized institution may not solicit deposits by offering rates
of interest that are significantly higher than the prevailing rates of interest
on insured deposits (i) in such institution's normal market areas or (ii) in the
market area in which such deposits would otherwise be accepted.
HomeFederal Bank on a periodic basis establishes interest rates paid,
maturity terms, service fees and withdrawal penalties. Determination of rates
and terms are predicated on funds acquisition and liquidity requirements, rates
paid by competitors, growth goals, federal regulations, and market area of
solicitation.
The following table sets forth, by nominal interest rate categories, the
composition of deposits of HomeFederal Bank at the dates indicated:
(dollars in thousands)
Dec 31, Dec 31, Dec 31, June 30,
2004 2003 2002 2002
---- ---- ---- ----
Non-interest bearing and
below 1.99%................ $ 402,130 $ 375,815 $ 325,605 $ 292,155
2.00% - 2.99%............... 123,942 47,912 72,379 60,575
3.00% - 3.99%............... 19,039 59,853 71,880 58,294
4.00% - 4.99%............... 51,421 54,985 74,978 64,302
5.00% - 5.99%............... 38,013 42,163 53,695 53,631
Over 6.00%.................. 5,636 7,938 10,821 48,521
--------- --------- --------- ---------
Total....................... $ 640,181 $ 588,666 $ 609,358 $ 577,480
========= ========= ========= =========
- 14 -
The following table sets forth the change in dollar amount of deposits in the
various accounts offered by HomeFederal Bank for the periods indicated.(dollars
in thousands)
DEPOSIT ACTIVITY
Balance Balance
at at
Dec 31, % of Increase Dec 31, % of Increase
2004 Deposits (Decrease) 2003 Deposits (Decrease)
---- ------------------- ---- -------- ----------
Withdrawable:
Non-interest bearing........ $ 60,150 9.4% $ 4,615 $ 55,535 9.4% $ 3,815
Statement savings........... 49,835 7.8% (434) 50,269 8.5% 2,460
Money market savings........ 132,363 20.7% 19,566 112,797 19.2% (8,147)
Checking.................... 88,247 13.7% 20,714 67,533 11.5% (6,157)
--------------------------- -----------------------------
Total Withdrawable......... 330,595 51.6% 44,461 286,134 48.6% (8,029)
--------------------------- -----------------------------
Certificates:
Less than one year.......... 55,187 8.6% 3,671 51,516 8.8% 6,477
12 to 23 months............. 46,557 7.3% 8,287 38,270 6.5% (10,650)
24 to 35 months............. 92,673 14.4% (3,992) 96,665 16.4% (11,404)
36 to 59 months............. 23,623 3.7% (6,998) 30,621 5.2% (13,144)
60 to 120 months............ 91,546 14.4% 6,086 85,460 14.5% 16,058
--------------------------- -----------------------------
Total certificate accounts. 309,586 48.4% 7,054 302,532 51.4% (12,663)
--------------------------- -------------------- --------
Total deposits............ $640,181 100.0% $ 51,515 $ 588,666 100.0% $(20,692)
=========================== =============================
Table Continued
DEPOSIT ACTIVITY
Balance Balance
at at
Dec 31, % of Increase June 30, % of Increase
2002 Deposits (Decrease) 2002 Deposits (Decrease)
---- -------- ---------- ---- -------------------
Withdrawable:
Non-interest bearing........$ 51,720 8.5% $ 1,836 $ 49,884 8.6% $ 8,561
Statement savings........... 47,809 7.8% (573) 48,382 8.4% 5,129
Money market savings........ 120,944 19.9% (1,034) 121,978 21.1% (9,536)
Checking.................... 73,690 12.1% 6,328 67,362 11.7% 13,543
------------------------------ -----------------------------
Total Withdrawable......... 294,163 48.3% 6,557 287,606 49.8% 17,697
------------------------------ -----------------------------
Certificates:
Less than one year.......... 45,039 7.4% 17,864 27,175 4.7% (13,453)
12 to 23 months............. 48,920 8.0% (10,039) 58,959 10.2% (65,886)
24 to 35 months............. 108,069 17.7% 661 107,408 18.6% 13,201
36 to 59 months............. 43,765 7.2% 16,206 27,559 4.8% 15,650
60 to 120 months............ 69,402 11.4% 629 68,773 11.9% 33,728
------------------------------ -----------------------------
Total certificate accounts. 315,195 51.7% 25,321 289,874 50.2% (16,760)
------------------------------ -----------------------------
Total deposits............$ 609,358 100.0% $ 31,878 $ 577,480 100.0% $ 937
============================== =============================
- 15 -
The following table represents, by various interest rate categories, the amounts
of deposits maturing during each of the three years following December 31, 2004,
and the percentage of such maturities to total deposits. Matured certificates
which have not been renewed as of December 31, 2004 have been allocated based
upon certain rollover assumptions. (dollars in thousands)
DEPOSIT MATURITIES
------------------
1.99% 2.00% 3.00% 4.00% 5.00%
or to to to to Over Percent of
less 2.99% 3.99% 4.99% 5.99% 6.00% Total Total
---- ----- ----- ----- ----- ----- ----- -----
Certificate accounts maturing
in the year ending:
December 31, 2005............ $64,337 $ 68,557 $ 1,731 $ 9,429 $ 4,053 $ 3,887 $ 151,994 49.1%
December 31, 2006............ 7,198 52,098 3,574 9,608 7,512 482 80,472 26.0%
December 31, 2007............ - 2,916 3,588 11,168 22,279 603 40,554 13.1%
Thereafter................... - 371 10,146 21,216 4,169 664 36,566 11.8%
------------------------------------------------------------------------------------
Total........................ $71,535 $123,942 $ 19,039 $ 51,421 $38,013 $ 5,636 $ 309,586 100.0%
====================================================================================
Included in the deposit totals in the above table are savings certificates of
deposit with balances exceeding $100,000. The majority of these deposits are
from regular customers of HomeFederal Bank, excluding $38.2 million, which were
from brokered deposits. The following table provides a maturity breakdown at
December 31, 2004, of certificates of deposits with balances greater than
$100,000, by various interest rate categories. (dollars in thousands)
ACCOUNTS GREATER THAN $100,000
------------------------------
1.99% 2.00% 3.00% 4.00% 5.00%
or to to to to Over Percent of
less 2.99% 3.99% 4.99% 5.99% 6.00% Total Total
---- ----- ----- ----- ----- ----- ----- -----
Certificate accounts maturing
in the year ending:
December 31, 2005.............. $12,358 $ 48,918 $ 100 $ 6,179 $ 544 $ 2,486 $ 70,585 58.3%
December 31, 2006.............. 747 10,002 893 1,365 1,717 100 14,824 12.2%
December 31, 2007.............. - 422 767 6,161 12,174 117 19,641 16.2%
Thereafter..................... - - 2,030 11,003 2,486 564 16,083 13.3%
------------------------------------------------------------------------------------
Total.......................... $13,105 $ 59,342 $ 3,790 $ 24,708 $16,921 $ 3,267 $ 121,133 100.0%
====================================================================================
- 16 -
Borrowings
HomeFederal Bank relies upon advances (borrowings) from the FHLB of
Indianapolis to supplement its supply of lendable funds, meet deposit withdrawal
requirements and to extend the term of its liabilities. This facility has
historically been HomeFederal Bank's major source of borrowings. Advances from
the FHLB of Indianapolis are typically secured by HomeFederal Bank's stock in
the FHLB of Indianapolis and a portion of HomeFederal Bank's mortgage loans.
Each FHLB credit program has its own interest rate, which may be fixed or
variable, and a range of maturities. Subject to the express limits in FIRREA,
the FHLB of Indianapolis may prescribe the acceptable uses to which these
advances may be put, as well as limitations on the size of the advances and
repayment provisions. At December 31, 2004, HomeFederal Bank had advances
totaling $125.4 million outstanding from the FHLB of Indianapolis.
The Company has a revolving note with LaSalle Bank N.A. whereby the Company
may borrow $17.5 million. The note accrues interest at a variable rate based on
the ninety-day LIBOR index, on the date of the draw, plus 150 basis points. The
ninety-day LIBOR index was 2.56% at December 31, 2004. Interest payments are due
ninety days after the date of any principal draws made on the loan and every
ninety days thereafter. The revolving note matures on February 15, 2006. The
Company used the funds to buy back shares of the Company's common stock. The
assets of the Company collateralize the note. Under terms of the agreement, the
Company is bound by certain restrictive debt covenants relating to earnings, net
worth and various financial ratios. On September 20, 2004, with the payment of
its third quarter dividend, the Company violated a covenant in its revolving
note agreement with LaSalle Bank that restricts the declaration and payment of
dividends during any year in excess of 50% of the Company's net annual income.
LaSalle Bank has waived this covenant breach and the applicability of the
covenant for the quarter ended December 31, 2004. Management anticipates full
compliance with this covenant during 2005.
As of December 31, 2004, the company has a swap agreement with LaSalle Bank
N.A. The Company has agreed to make fixed-rate payments at 5.77% and receive
variable-rate payments at the three-month LIBOR on a notional amount of $4.6
million. The maturity date of the swap agreement is February 1, 2006. The
interest rate swap is settled on a net basis. The Company is exposed to credit
loss, in the event of nonperformance by LaSalle Bank N.A., for the net interest
rate differential when floating rates exceed the fixed maximum rate. However,
the Company does not anticipate nonperformance by the counter party.
Other than the FHLB advances and the Senior Debt, HomeFederal Bank's only
borrowings in recent years have been short-term borrowings. The following table
sets forth the maximum amount of each category of short-term borrowings
(borrowings with remaining maturities of one year or less) outstanding at any
month-end during the periods shown and the average aggregate balances of
short-term borrowings for such periods. (dollars in thousands)
Six
Year Year Months Year
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, June 30,
2004 2003 2002 2002
-------------------------------------
Official check overnight remittance $ 6,364 $ 6,419 $ 4,727 $ 9,248
FHLB advances ..................... $48,150 $37,200 $31,400 $46,400
Money order remittance ............ $ -- $ -- $ -- $ 42
FHLB overnight remittance ......... $ -- $ 2,043 $ -- $ --
Average amount of total
short-term borrowings outstanding $36,520 $31,491 $30,946 $40,385
- 17 -
The following table sets forth the amount of short-term FHLB advances
outstanding at period end during the period shown and the weighted average rate
of such FHLB advances. (dollars in thousands)
Dec 31, Dec 31, Dec 31, June 30,
2004 2003 2002 2002
-------------------------------------------
FHLB advances:
Amount .............. $ 48,150 $ 37,200 $ 30,900 $ 30,600
Weighted average rate 5.0% 5.4% 6.0% 6.4%
Service Corporation and Other Subsidiaries
On December 31, 2001 HomeFederal 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. One of
HomeFederal Bank's subsidiaries, Home Savings Corporation ("HSC"), is a partner
in three real estate development joint ventures for which exit strategies are
either developed, or are currently being developed. HFB is currently mandated to
divest itself of these activities by December 31, 2005, with a one-year
extension available, subject to regulatory approval. HSC, an Indiana
corporation, is currently engaged in two types of activities: (i) real estate
development and (ii) full-service securities brokerage services. With the
exception of its securities brokerage services, all of HSC's activities are
conducted through joint ventures in which it is an equity investor.
HSC markets Raymond James Financial Services full-service securities
brokerage services. For the year ended December 31, 2004, HSC received $985,000
in commissions from its Raymond James financial activities.
At December 31, 2004, HomeFederal Bank's aggregate investment in HSC,
including loans, was $2.8 million. For the year ended December 31, 2004, HSC
reported pretax income of $154,000 from these operations. HSC's office is
located at 501 Washington Street, Columbus, Indiana. The consolidated statements
of operations of HomeFederal Bank and its subsidiaries included elsewhere herein
includes the operations of HSC. Intercompany balances and transactions have been
eliminated in the consolidation.
The following table sets forth certain information regarding each of the
joint ventures in which HSC was involved at December 31, 2004.
Date
HSC Loans from Home
Entered Savings Corp.
into the Equity Outstanding
Name Type of Project Project Investment December 31, 2004
- ---- --------------- ------- ---------- -----------------
Heritage Woods II Rental apartment project of low income 11/15/89 $ 37,000 $ -
housing (22 units)
McCullough's Run Real estate development 7/1/94 $ 1,410,000 $ 1,622,000
in Columbus, Indiana
Bloomington Technology Industrial park in Bloomington, Indiana 11/10/97 $ 122,000 $ -
Park, LLC
Courtyard Homes at Single family homes in Indianapolis, 6/14/99 $ 1,189,000 $ 920,000
Sycamore Springs, LLC Indiana
In November 1989, HSC invested $184,000 as a limited partner in Heritage
Woods II, a low income housing project in Columbus, Indiana. HSC received
low-income housing tax credits for 10 years from this project and must maintain
the investment for 15 years to avoid any tax credit recapture.
On July 1, 1994, HSC entered into a joint venture agreement with Breeden
Investment Group, Inc. to develop a 320 lot starter home subdivision with
additional multi-family and commercial land ("McCullough's Run"). McCullough's
Run is located on the east side of Columbus, Indiana. Loan documents were
executed on July 1, 1994 for land acquisition and development of phases I and
II. Subsequent closings have encompassed the balance of six phases and on March
6, 2000, loan documents were executed in an amount not to exceed $2.1 million.
- 18 -
The outstanding loan balance of $1.6 million as of December 31, 2004 reflects
the development costs to date of all six phases, the condominium site and
commercial acreage. HSC is entitled to 50% of the profit from sale of lots
within McCullough's Run.
On November 10, 1997 HSC entered into an LLC agreement with
Wininger-Stolberg HC, II, Inc. to develop the Bloomington Technology Park in
Bloomington, IN. The City of Bloomington and Monroe County are providing an
$800,000 grant to build infrastructure. HSC provided a matching amount, which
has been repaid along with a fee of $150,000. The eighty-two acre site was
purchased from Otis Elevator Company, Inc. and work started late spring, 1998.
HSC is entitled to 50% of all profit from the sale of lots in Bloomington
Technology Park.
On June 14, 1999, HSC entered into an LLC agreement with Curtis
Enterprises, Inc. to build 54 homes at Courtyard Homes at Sycamore Springs, a
planned community in Indianapolis, Indiana. The LLC purchased the land and will
develop lots and build the homes. HSC has provided a line of credit in the
amount of $2 million to build the homes, and is entitled to one third of the
profits from the home sales.
HomeFederal Bank also organized a subsidiary under Nevada law, Home
Investments, Inc., ("HII"). Effective March 31, 2002, HomeFederal Bank
transferred the management of approximately $90 million in securities to HII.
Home Investments, Inc. holds, services, manages, and invests that portion of the
Bank's investment portfolio as may be transferred from time to time by the Bank
to HII. Home Investments Inc.'s, investment policy mirrors that of the Bank. At
December 31, 2004, of the $154.2 million in consolidated investments owned by
HomeFederal Bank, $105.8 million was held by Home Investments, Inc.
The Company owns another corporation organized under Indiana law, HomeFed
Financial Corp, ("HFF"). At December 31, 2004, the Company's aggregate
investment in HFF was $792,000. HFF has a 14% interest in Consortium Partners, a
Louisiana partnership, which owns 50% of the outstanding shares of the Family
Financial Holding Inc. of New Orleans ("Family Financial"). The remaining 50% of
the outstanding shares of Family Financial is owned proportionately by the
partners of Consortium Partners. Family Financial administers programs for debt
protection services, life, accident, and health insurance as well as annuity
products to the customers of the partners' parent-thrifts and banks. HFF
receives (1) dividends paid on Family Financial shares owned directly by it, (2)
a pro rata allocation of dividends received on shares held by Consortium
Partners, which are divided among the partners based on the actuarially
determined value of Family Financial's various lines of insurance generated by
customers of these partners, and (3) commissions on sales of insurance products
made to customers. For the year ended December 31, 2004, the Company had income
of $218,000, on a consolidated basis, from commissions and dividends paid on
Family Financial activities.
Employees
As of December 31, 2004, the Company employed 279 persons on a full-time
basis and 10 persons on a part-time basis. None of the Company's employees are
represented by a collective bargaining group. Management considers its employee
relations to be excellent.
Competition
HomeFederal Bank operates in south central Indiana and makes almost all of
its loans to, and accepts almost all of its deposits from, residents of
Bartholomew, Jackson, Jefferson, Jennings, Johnson, Scott, Ripley, Washington,
Decatur and Marion counties in Indiana.
HomeFederal Bank is subject to competition from various financial
institutions, including state and national banks, state and federal thrift
associations, credit unions and other companies or firms, including brokerage
houses, that provide similar services in the areas of HomeFederal Bank's home
and branch offices. Also, in Seymour, Columbus, North Vernon, Batesville, and
the Greenwood area, HomeFederal Bank must compete with banks and savings
institutions in Indianapolis. To a lesser extent, HomeFederal Bank competes with
financial and other institutions in the market areas surrounding Cincinnati,
Ohio and Louisville, Kentucky. HomeFederal Bank also competes with money market
funds that currently are not subject to reserve requirements, and with insurance
companies with respect to its Individual Retirement and annuity accounts.
- 19 -
Under current law, bank holding companies may acquire thrifts. Thrifts may
also acquire banks under federal law. Affiliations between banks and thrifts
based in Indiana have increased the competition faced by HomeFederal Bank and
the Company. See "Branching and Acquisitions."
The Gramm-Leach-Bliley Act allows insurers and other financial service
companies to acquire banks; removes various restrictions that previously applied
to bank holding company ownership of securities firms and mutual fund advisory
companies; and establishes the overall regulatory structure applicable to bank
holding companies that also engage in insurance and securities operations. These
provisions in the Act may increase the level of competition HomeFederal Bank
faces from securities firms and insurance companies.
The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. Competition is affected by,
among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels, and other factors that
are not readily predictable.
REGULATION
Both the Company and HomeFederal operate in highly regulated environments
and are subject to supervision, examination and regulation by several
governmental regulatory agencies, including the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), the Federal Deposit Insurance
Corporation (the "FDIC"), and the Indiana Department of Financial Institutions
(the "DFI"). The laws and regulations established by these agencies are
generally intended to protect depositors, not shareholders. Changes in
applicable laws, regulations, governmental policies, income tax laws and
accounting principles may have a material effect on the Company's business and
prospects. The following summary is qualified by reference to the statutory and
regulatory provisions discussed.
Home Federal Bancorp
The Bank Holding Company Act. Because the Company owns all of the
outstanding capital stock of HomeFederal, it is registered as a bank holding
company under the federal Bank Holding Company Act of 1956 and is subject to
periodic examination by the Federal Reserve and required to file periodic
reports of its operations and any additional information that the Federal
Reserve may require.
Investments, Control, and Activities. With some limited exceptions, the
Bank Holding Company Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before acquiring another bank holding company or
acquiring more than 5% of the voting shares of a bank (unless it already owns or
controls the majority of such shares).
Bank holding companies are prohibited, with certain limited exceptions,
from engaging in activities other than those of banking or of managing or
controlling banks. They are also prohibited from acquiring or retaining direct
or indirect ownership or control of voting shares or assets of any company which
is not a bank or bank holding company, other than subsidiary companies
furnishing services to or performing services for their subsidiaries, and other
subsidiaries engaged in activities which the Federal Reserve determines to be so
closely related to banking or managing or controlling banks as to be incidental
to these operations. The Bank Holding Company Act does not place territorial
restrictions on such nonbank activities.
Effective March 11, 2000, the Gramm-Leach Bliley Act of 1999, which was
signed into law on November 12, 1999, allows a bank holding company to qualify
as a "financial holding company" and, as a result, be permitted to engage in a
broader range of activities that are "financial in nature" and in activities
that are determined to be incidental or complimentary to activities that are
financial in nature. The Gramm-Leach-Bliley Act amends the Bank Holding Company
Act of 1956 to include a list of activities that are financial in nature, and
the list includes activities such as underwriting, dealing in and making a
market in securities, insurance underwriting and agency activities and merchant
banking. The Federal Reserve is authorized to determine other activities that
are financial in nature or incidental or complimentary to such activities. The
Gramm-Leach-Bliley Act also authorizes banks to engage through financial
subsidiaries in certain of the activities permitted for financial holding
companies.
- 20 -
In order for a bank holding company to engage in the broader range of
activities that are permitted by the Gramm-Leach-Bliley Act (1) all of its
depository institutions must be well capitalized and well managed and (2) it
must file a declaration with the Federal Reserve that it elects to be a
"financial holding company." In addition, to commence any new activity permitted
by the Gramm-Leach-Bliley Act, each insured depository institution of the
financial holding company must have received at least a "satisfactory" rating in
its most recent examination under the Community Reinvestment Act. The Company
has elected to be a financial holding company.
Dividends. The Federal Reserve's policy is that a bank holding company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income or which could only be funded in ways that weaken the bank holding
company's financial health, such as by borrowing. Additionally, the Federal
Reserve possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies.
Source of Strength. In accordance with Federal Reserve policy, the Company
is expected to act as a source of financial strength to HomeFederal and to
commit resources to support HomeFederal in circumstances in which the Company
might not otherwise do so.
HomeFederal Bank
General Regulatory Supervision. HomeFederal as an Indiana commercial bank
and a member of the Federal Reserve System is subject to examination by the DFI
and the Federal Reserve. The DFI and the Federal Reserve regulate or monitor
virtually all areas of HomeFederal's operations. HomeFederal must undergo
regular on-site examinations by the Federal Reserve and DFI and must submit
periodic reports to the Federal Reserve and the DFI.
Lending Limits. Under Indiana law, HomeFederal may not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of its
unimpaired capital and surplus. Additional amounts may be lent, not in excess of
10% of unimpaired capital and surplus, if such loans or extensions of credit are
fully secured by readily marketable collateral, including certain debt and
equity securities but not including real estate. At December 31, 2004,
HomeFederal did not have any loans or extensions of credit to a single or
related group of borrowers in excess of its lending limits.
Deposit Insurance. Deposits in HomeFederal are insured by the Savings
Association Insurance Fund of the FDIC up to a maximum amount, which is
generally $100,000 per depositor subject to aggregation rules. HomeFederal is
subject to deposit insurance assessments by the FDIC pursuant to its regulations
establishing a risk-related deposit insurance assessment system, based upon the
institution's capital levels and risk profile. HomeFederal is also subject to
assessment for the Financing Corporation (FICO) to service the interest on its
bond obligations. The amount assessed on individual institutions, including
HomeFederal, by FICO is in addition to the amount paid for deposit insurance
according to the risk-related assessment rate schedule. HomeFederal paid deposit
insurance assessments of $90,000 during the year ended December 31, 2004. Future
increases in deposit insurance premiums or changes in risk classification would
increase HomeFederal's deposit related costs.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe and
unsound condition to continue operations or has violated any applicable law,
regulation, order or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital.
Transactions with Affiliates and Insiders. HomeFederal is subject to
limitations on the amount of loans or extensions of credit to, or investments
in, or certain other transactions with, affiliates and on the amount of advances
to third parties collateralized by the securities or obligations of affiliates.
Furthermore, within the foregoing limitations as to amount, each covered
transaction must meet specified collateral requirements. Compliance is also
required with certain provisions designed to avoid the acquisition of low
quality assets. HomeFederal is also prohibited from engaging in certain
- 21 -
transactions with certain affiliates unless the transactions are on terms
substantially the same, or at least as favorable to such institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
nonaffiliated companies.
Extensions of credit by HomeFederal to its executive officers, directors,
certain principal shareholders, and their related interests must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties, and not
involve more than the normal risk of repayment or present other unfavorable
features.
Dividends. Under Indiana law, HomeFederal is prohibited from paying
dividends in an amount greater than its undivided profits, or if the payment of
dividends would impair HomeFederal's capital. Moreover, HomeFederal is required
to obtain the approval of the DFI and the Federal Reserve for the payment of any
dividend if the aggregate amount of all dividends paid by HomeFederal during any
calendar year, including the proposed dividend, would exceed the sum of
HomeFederal's retained net income for the year to date combined with its
retained net income for the previous two years. For this purpose, "retained net
income" means the net income of a specified period, calculated under the
consolidated report of income instructions, less the total amount of all
dividends declared for the specified period.
Federal law generally prohibits HomeFederal from paying a dividend to its
holding company if the depository institution would thereafter be
undercapitalized. The FDIC may prevent an insured bank from paying dividends if
the bank is in default of payment of any assessment due to the FDIC. In
addition, payment of dividends by a bank may be prevented by the applicable
federal regulatory authority if such payment is determined, by reason of the
financial condition of such bank, to be an unsafe and unsound banking practice.
Branching and Acquisitions. Branching by HomeFederal requires the approval
of the Federal Reserve and the DFI. Under current law, Indiana chartered banks
may establish branches throughout the state and in other states, subject to
certain limitations. Congress authorized interstate branching, with certain
limitations, beginning in 1997. Indiana law authorizes an Indiana bank to
establish one or more branches in states other than Indiana through interstate
merger transactions and to establish one or more interstate branches through de
novo branching or the acquisition of a branch. There are some states where the
establishment of de novo branches by out-of-state financial institutions is
prohibited.
Capital Regulations. The federal bank regulatory authorities have adopted
risk-based capital guidelines for banks and bank holding companies that are
designed to make regulatory capital requirements more sensitive to differences
in risk profiles among banks and bank holding companies and account for
off-balance sheet items. Risk-based capital ratios are determined by allocating
assets and specified off-balance sheet commitments to four risk weighted
categories of 0%, 20%, 50%, or 100%, with higher levels of capital being
required for the categories perceived as representing greater risk.
The capital guidelines divide a bank holding company's or bank's capital
into two tiers. The first tier ("Tier I") includes common equity, certain
non-cumulative perpetual preferred stock 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 and lease
losses, subject to certain limitations, less required deductions. Banks and bank
holding companies are required to maintain a total risk-based capital ratio of
8%, of which 4% must be Tier I capital. The federal banking regulators may,
however, set higher capital requirements when a bank's particular circumstances
warrant. Banks experiencing or anticipating significant growth are expected to
maintain capital ratios, including tangible capital positions, well above the
minimum levels.
Also required by the regulations is the maintenance of a leverage ratio
designed to supplement the risk-based capital guidelines. This ratio is computed
by dividing Tier I capital, net of all intangibles, by the quarterly average of
total assets. The minimum leverage ratio is 3% for the most highly rated
institutions, and 1% to 2% higher for institutions not meeting those standards.
Pursuant to the regulations, banks must maintain capital levels commensurate
with the level of risk, including the volume and severity of problem loans, to
which they are exposed.
- 22 -
The following is a summary of the Company's and HomeFederal's regulatory capital
and capital requirements at December 31, 2004.
To Be Categorized As
"Well Capitalized"
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
-----------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------
As of December 31, 2004
Total risk-based capital
(to risk-weighted assets)
HomeFederal Bank $ 92,117 13.60% $ 54,173 8.0% $ 67,717 10.0%
Home Federal Bancorp Consolidated $ 84,122 12.41% $ 54,238 8.0% $ 67,798 10.0%
Tier 1 risk-based capital
(to risk-weighted assets)
HomeFederal Bank $ 84,253 12.44% $ 27,087 4.0% $ 40,630 6.0%
Home Federal Bancorp Consolidated $ 76,258 11.25% $ 27,119 4.0% $ 40,679 6.0%
Tier 1 leverage capital
(to average assets)
HomeFederal Bank $ 84,253 9.65% $ 34,921 4.0% $ 43,652 5.0%
Home Federal Bancorp Consolidated $ 76,258 8.76% $ 34,804 4.0% $ 43,505 5.0%
Prompt Corrective Regulatory Action. Federal law provides the federal
banking regulators with broad powers to take prompt corrective action to resolve
the problems of under-capitalized institutions. The extent of the regulators'
powers depends on whether the institution in question is "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
or "critically undercapitalized," as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators' corrective
powers include: requiring the submission of a capital restoration plan; placing
limits on asset growth and restrictions on activities; requiring the institution
to issue additional capital stock (including additional voting stock) or to be
acquired; restricting transactions with affiliates; restricting the interest
rate the institution may pay on deposits; ordering a new election of directors
of the institution; requiring that senior executive officers or directors be
dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest on subordinated debt; and,
ultimately, appointing a receiver for the institution. At December 31, 2004,
HomeFederal was categorized as "well capitalized," meaning that HomeFederal's
total risk-based capital ratio exceeded 10%, HomeFederal's Tier I risk-based
capital ratio exceeded 6%, HomeFederal's leverage ratio exceeded 5%, and
HomeFederal was not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure.
Other Regulations. Interest and other charges collected or contracted for
by HomeFederal are subject to state usury laws and federal laws concerning
interest rates. HomeFederal's loan operations are also subject to federal laws
applicable to credit transactions, such as the:
o Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers;
o Home Mortgage Disclosure Act of 1975, requiring financial institutions to
provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to
help meet the housing needs of the community it serves;
o Equal Credit Opportunity Act, prohibiting discrimination on the basis of
race, creed or other prohibited factors in extending credit;
o Fair Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting agencies;
- 23 -
o Fair Debt Collection Act, governing the manner in which consumer debts
may be collected by collection agencies; and
o Rules and regulations of the various federal agencies charged with the
responsibility of implementing such federal laws.
The deposit operations of HomeFederal also are subject to the:
o Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records; and
o Electronic Funds Transfer Act, and Regulation E issued by the Federal
Reserve to implement that Act, which governs automatic deposits to and
withdrawals from deposit accounts and customers' rights and liabilities
arising from the use of automated teller machines and other electronic
banking services.
State Bank Activities. Under federal law, as implemented by regulations
adopted by the FDIC, FDIC-insured state banks are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. Federal law, as
implemented by FDIC regulations, also prohibits FDIC-insured state banks and
their subsidiaries, subject to certain exceptions, from engaging as principal in
any activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and could continue to meet, its minimum
regulatory capital requirements and the FDIC determines that the activity would
not pose a significant risk to the deposit insurance fund of which the bank is a
member. Impermissible investments and activities must be divested or
discontinued within certain time frames set by the FDIC. It is not expected that
these restrictions will have a material impact on the operations of HomeFederal.
Enforcement Powers. Federal regulatory agencies may assess civil and
criminal penalties against depository institutions and certain
"institution-affiliated parties," including management, employees, and agents of
a financial institution, as well as independent contractors and consultants such
as attorneys and accountants and others who participate in the conduct of the
financial institution's affairs. In addition, regulators may commence
enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance.
Furthermore, regulators may issue cease-and-desist orders to, among other
things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications or
guarantees against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the regulator to be appropriate.
Recent Legislative Developments. On November 12, 1999, President Clinton
signed into law the Gramm-Leach-Bliley Financial Services Modernization Act of
1999 -- federal legislation which modernizes the laws governing the financial
services industry. The new law establishes a comprehensive framework to permit
affiliations among commercial banks, insurance companies, securities firms and
other financial service providers. As a result of this legislation, bank holding
companies are permitted to engage in a wider variety of financial activities
than permitted under prior law, particularly with respect to insurance and
securities activities. To the extent the law permits banks, securities firms and
insurance companies to affiliate, the financial services industry may experience
further consolidation. This could result in a growing number of larger financial
institutions that offer wider varieties of financial services than are currently
offered by the Company and that could aggressively compete in the markets
currently served by the Company. The law also increases commercial banks' access
to loan funding by the Federal Home Loan Bank System, and includes new
provisions in the privacy area, restricting the ability of financial
institutions to share nonpublic personal customer information with third
parties.
On October 26, 2001, President Bush signed the USA Patriot Act of 2001 (the
"Patriot Act"). The Patriot Act is intended to strengthen the ability of U.S.
Law Enforcement to combat terrorism on a variety of fronts. The potential impact
of the Patriot Act on financial institutions is significant and wide-ranging.
The Patriot Act contains sweeping anti-money laundering and financial
transparency laws and requires financial institutions to implement additional
policies and procedures with respect to, or additional measures designed to
address, any or all the following matters, among others: money laundering,
suspicious activities and currency transaction reporting, and currency crimes.
- 24 -
In addition, financial institutions are required under this statute to adopt
reasonable procedures to verify the identity of any person seeking to open an
account and maintain records to verify such person's identity.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act represents a
comprehensive revision of laws affecting corporate governance, accounting
obligations and corporate reportings. The Sarbanes-Oxley Act is applicable to
all companies with equity or debt securities registered under the Securities
Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new
requirements for audit committees, including independence, expertise, and
responsibilities; (ii) additional responsibilities regarding financial
statements for the Chief Executive Officer and Chief Financial Officer of the
reporting company; (iii) new standards for auditors and regulation of audits;
(iv) increased disclosure and reporting obligations for the reporting company
and their directors and executive officers; and (v) new and increased civil and
criminal penalties for violation of the securities laws.
The Securities and Exchange Commission has adopted final rules implementing
Section 404 of the Sarbanes-Oxley Act of 2002. Commencing with this Report on
Form 10-K, the Company is required to include a report of management on the
Company's internal control over financial reporting. The internal control report
must include a statement of management's responsibility for establishing and
maintaining adequate control over financial reporting of the Company, identify
the framework used by management to evaluate the effectiveness of the Company's
internal control over financial reporting, provide management's assessment of
the effectiveness of the Company's internal control over financial reporting and
state that the Company's independent accounting firm has issued an attestation
report on management's assessment of the Company's internal control over
financial reporting. Significant efforts were required to comply with Section
404 this year and the Company anticipates additional efforts will be required in
future years. The costs of such compliance are described in Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Shareholder Annual Report included as Exhibit 13 to this Form 10-K.
Effect of Governmental Monetary Policies. HomeFederal's earnings are
affected by domestic economic conditions and the monetary and fiscal policies of
the United States government and its agencies. The Federal Reserve's monetary
policies have had, and are likely to continue to have, an important impact on
the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to curb inflation or
combat a recession. The monetary policies of the Federal Reserve have major
effects upon the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through its
regulation of the discount rate on borrowings of member banks and the reserve
requirements against member bank deposits. It is not possible to predict the
nature or impact of future changes in monetary and fiscal policies.
Federal Home Loan Bank System
HomeFederal is a member of the FHLB of Indianapolis, which is one of twelve
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned region. The FHLB is funded primarily from funds deposited by
banks and savings associations and proceeds derived from the sale of
consolidated obligations of the FHLB system. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB. All FHLB advances must be fully secured by sufficient
collateral as determined by the FHLB. The Federal Housing Finance Board
("FHFB"), an independent agency, controls the FHLB System, including the FHLB of
Indianapolis.
As a member of the FHLB, HomeFederal is required to purchase and maintain
stock in the FHLB of Indianapolis in an amount equal to at least 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts, or similar
obligations at the beginning of each year. At December 31, 2004, HomeFederal's
investment in stock of the FHLB of Indianapolis was $10.0 million. The FHLB
imposes various limitations on advances such as limiting the amount of certain
types of real estate-related collateral to 30% of a member's capital and
limiting total advances to a member. Interest rates charged for advances vary
depending upon maturity, the cost of funds to the FHLB of Indianapolis and the
purpose of the borrowing.
- 25 -
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. For the year ended December 31,
2004, dividends paid by the FHLB of Indianapolis to HomeFederal totaled
approximately $456,000, for an annualized rate of 4.6%.
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC place limitations on the ability of
insured depository institutions to accept, renew or roll over deposits by
offering rates of interest which are significantly higher than the prevailing
rates of interest on deposits offered by other insured depository institutions
having the same type of charter in the institution's normal market area. Under
these regulations, "well-capitalized" depository institutions may accept, renew
or roll such deposits over without restriction, "adequately capitalized"
depository institutions may accept, renew or roll such deposits over with a
waiver from the FDIC (subject to certain restrictions on payments of rates) and
"undercapitalized" depository institutions may not accept, renew or roll such
deposits over. The regulations contemplate that the definitions of
"well-capitalized," "adequately-capitalized" and "undercapitalized" will be the
same as the definition adopted by the agencies to implement the corrective
action provisions of federal law. Management does not believe that these
regulations will have a materially adverse effect on HomeFederal's current
operations.
Federal Reserve System
Under regulations of the Federal Reserve, HomeFederal is required to
maintain reserves against its transaction accounts (primarily checking accounts)
and non-personal money market deposit accounts. The effect of these reserve
requirements is to increase HomeFederal's cost of funds. HomeFederal is in
compliance with its reserve requirements.
Federal Securities Law
The shares of Common Stock of the Company are registered with the
Securities and Exchange Commission, (the "SEC") under the Securities Exchange
Act of 1934 (the "1934 Act"). The Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the 1934
Act and the rules of the SEC thereunder. If the Company has fewer than 300
shareholders, it may deregister its shares under the 1934 Act and cease to be
subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the Company
may not be resold without registration unless sold in accordance with the resale
restrictions of Rule 144 under the Securities Act of 1933 (the "1933 Act"). If
the Company meets the current public information requirements under Rule 144,
each affiliate of the Company who complies with the other conditions of Rule 144
(including a one-year holding period for restricted securities and conditions
that require the affiliate's sale to be aggregated with those of certain other
persons) will be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (i) l
% of the outstanding shares of the Company or (ii) the average weekly volume of
trading in such shares during the preceding four calendar weeks.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- using terms such as satisfactory and
unsatisfactory -- and a written evaluation of each institution's performance.
Each FHLB is required to establish standards of community investment or service
that its members must maintain for continued access to long-term advances from
the FHLBs. The standards take into account a member's performance under the CRA
and its record of lending to first-time homebuyers. The FHLBs have established
an "Affordable Housing Program" to subsidize the interest rate of advances to
member associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. HomeFederal is
participating in this program. The examiners have determined that HomeFederal
has a satisfactory record of meeting community credit needs.
- 26 -
Taxation
Federal Taxation
Beginning with the six months ended December 31, 2002, the Company and its
subsidiary began to file a consolidated federal income tax return on the accrual
basis for a fiscal year ending December 31. Previously, the Company's fiscal and
tax years ended June 30th. The consolidated federal income tax return has the
effect of eliminating intercompany distributions, including dividends, in the
computation of consolidated taxable income. Income of the Company generally
would not be taken into account in determining the bad debt deduction allowed to
HomeFederal, regardless of whether a consolidated tax return is filed. However,
certain "functionally related" losses of the Company would be required to be
taken into account in determining the permitted bad debt deduction which,
depending upon the particular circumstances, could reduce the bad debt
deduction.
Historically, HomeFederal had been permitted to compute bad debt deductions
using either the bank experience method or the percentage of taxable income
method. However, for years beginning after December 31, 1995, HomeFederal was no
longer able to use the percentage of taxable income method of computing its
allocable tax bad debt deduction. HomeFederal is required to compute its
allocable deduction using the experience method. As a result of the repeal of
the percentage of taxable income method, reserves taken after 1987 using the
percentage of taxable income method generally must be included in future taxable
income over a six-year period, although a two-year delay may be permitted for
institutions meeting a residential mortgage loan origination test. HomeFederal
began recapturing approximately $2.3 million over a six-year period beginning in
fiscal 1999. In addition, the pre-1988 reserve, in which no deferred taxes have
been recorded, will not have to be recaptured into income unless (i) HomeFederal
no longer qualifies as a bank under the Code, or (ii) excess dividends are paid
out by HomeFederal.
Depending on the composition of its items of income and expense, a bank may
be subject to the alternative minimum tax. A bank must pay an alternative
minimum tax equal to the amount (if any) by which 20% of alternative minimum
taxable income ("AMTI"), as reduced by an exemption varying with AMTI, exceeds
the regular tax due. AMTI equals regular taxable income increased or decreased
by certain tax preferences and adjustments, including depreciation deductions in
excess of that allowable for alternative minimum tax purposes, tax-exempt
interest on most private activity bonds issued after August 7, 1986 (reduced by
any related interest expense disallowed for regular tax purposes), the amount of
the bad debt reserve deduction claimed in excess of the deduction based on the
experience method and 75% of the excess of adjusted current earnings over AMTI
(before this adjustment and before any alternative tax net operating loss). AMTI
may be reduced only up to 90% by net operating loss carryovers, but alternative
minimum tax paid that is attributable to most preferences (although not to
post-August 7, 1986 tax-exempt interest) can be credited against regular tax due
in later years.
State Taxation
HomeFederal is subject to Indiana's Financial Institutions Tax ("FIT"),
which is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted
gross income," for purposes of FIT, begins with taxable income as defined by
Section 63 of the Internal Revenue Code, and thus, incorporates federal tax law
to the extent that it affects the computation of taxable income. Federal taxable
income is then adjusted by several Indiana modifications. Other applicable state
taxes include generally applicable sales and use taxes plus real and personal
property taxes.
HomeFederal's state income tax returns have not been audited in the last
five years.
Item 2. Properties.
At December 31, 2004, HomeFederal conducted its business from its main
office at 501 Washington Street, Columbus, Indiana and 17 full-service branches.
HomeFederal owns two buildings that it uses for certain administrative
operations located at 218 West Second Street, Seymour, and 211 North Chestnut
Street, Seymour. The headquarters of its securities operations, conducted
through one of its subsidiaries, are located at 501 Washington Street, Columbus,
Indiana. Information concerning these properties, as of December 31, 2004, is
presented in the following table:
- 27 -
Net Book Value of
Property, Approximate
Description and Owned or Furniture and Square Lease
Address Leased Fixtures Footage Expiration
------- ------ -------- ------- ----------
Principal Office
501 Washington Street Owned $ 4,077,168 21,600 N/A
Operations Center
218 West Second Street Owned $ 1,066,177 20,000 N/A
Loan Processing Center
211 North Chestnut Owned $ 422,125 5,130 N/A
Branch Offices:
Columbus Branches:
1020 Washington Street Owned $ 409,856 800 N/A
3805 25th Street Owned $ 251,722 5,800 N/A
2751 Brentwood Drive Owned $ 396,078 3,200 N/A
4330 West Jonathon Moore Pike Owned $ 536,088 2,600 N/A
Hope Branch
8475 North State Road 9, Suite 4 Leased $ 114,856 1,500 03/2007
Austin Branch
67 West Main Street Owned $ 49,185 3,600 N/A
Brownstown Branch Month to
101 North Main Street Leased $ 6,629 2,400 Month
North Vernon Branches
111 North State Street Owned $ 281,580 1,900 N/A
1540 North State Street Leased $ 20,009 1,600 Month to Month
Osgood Branch
820 South Buckeye Street Owned $ 90,906 1,280 N/A
Salem Branch
1208 South Jackson Owned $ 623,370 1,860 N/A
Seymour Branches
222 W. Second Street Owned $ 1,548,538 9,200 N/A
1117 East Tipton Street Owned $ 359,041 6,800 N/A
Batesville Branch
114 State Rd 46 East Owned $ 507,597 2,175 N/A
Madison Branch
201 Clifty Drive Owned $ 391,246 2,550 N/A
Greensburg Branch
1801 Greensburg Crossing Owned $ 743,260 1,907 N/A
Indianapolis/Greenwood Branch
8740 South Emerson Avenue Owned $ 2,098,752 5,000 N/A
- 28 -
Table Continued
Net Book Value of
Property, Approximate
Description and Owned or Furniture and Square Lease
Address Leased Fixtures Footage Expiration
------- ------ -------- ------- ----------
New Office Opening 01/03/2005:
1510 West Southport Road-Indianapolis Owned $ 1,762,031 3,100 N/A
HomeFederal owns its computer and data processing equipment that is used
for accounting, financial forecasting, and general ledger work. HomeFederal also
has contracted for the data processing and reporting services of Bisys
headquartered in Cherry Hill, New Jersey. The contract with Bisys expires in
October 2006.
Item 3. Legal Proceedings.
The Company and the Bank are involved from time to time as plaintiff or
defendant in various legal actions arising in the normal course of business.
While the ultimate outcome of these proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these
proceedings should not have a material effect on the Company's consolidated
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's shareholders during the
quarter ended December 31, 2004.
Item 4.5. Executive Officers of Home Federal Bancorp.
Presented below is certain information regarding the executive officers
of HFB who are not also directors.
Position with HFB
-----------------
S. Elaine Pollert Executive Vice President
Lawrence E. Welker Executive Vice President, Treasurer,
Chief Financial Officer and Secretary
Charles R. Farber Executive Vice President
S. Elaine Pollert (age 45) has been employed by HomeFederal since 1986. She
was elected Vice President Branch Administration in 1989, Senior Vice President
Retail Banking in 1996 and Executive Vice President in 1998.
Lawrence E. Welker (age 57) has been employed by HomeFederal since 1979. He
was Controller from 1979 to 1982. In 1982, he was elected as Chief Financial
Officer and Treasurer, and in 1994 he became an Executive Vice President. Mr.
Welker has announced his intention to retire from his positions with the Company
and HomeFederal on June 30, 2005.
Charles R. Farber (age 55) has been employed by HomeFederal since March
2002 as its Executive Vice President. He served as Law Firm Administrator for
the Indianapolis, Indiana law firm Locke Reynolds LLP from 2000 to 2002. Prior
thereto, he served for 28 years at Peoples Bank and Trust Company in
Indianapolis, Indiana, with his final position at Peoples Bank and Trust being
Executive Vice President.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters,
and Issuer Purchases of Equity Securities.
HFB's common stock ("Common Stock") is quoted on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), National Market
System, under the symbol "HOMF." For certain information related to the stock
prices and dividends paid by HFB, see "Quarterly Results of Operations" on page
4 of HFB's Shareholder Annual Report for the year ended December 31, 2004 (the
- 29 -
"Shareholder Annual Report"). As of December 31, 2004, there were 455
shareholders of record of HFB's Common Stock.
It is currently the policy of HFB's Board of Directors to continue to pay
quarterly dividends, but any future dividends are subject to the Board's
discretion based on its consideration of HFB's operating results, financial
condition, capital, income tax considerations, regulatory restrictions and other
factors.
Since HFB has no independent operations or other subsidiaries to generate
income, its ability to accumulate earnings for the payment of cash dividends to
its shareholders is directly dependent upon the ability of HomeFederal to pay
dividends to the Company. For a discussion of the regulatory limitations on
HomeFederal's ability to pay dividends see Item 1, "Business-Regulation -
HomeFederal Savings Bank - Dividends", and on the Company's ability to pay
dividends, see Item 1, "Business-Regulation - Home Federal Bancorp - Dividends".
Income of HomeFederal appropriated to bad debt reserves and deducted for
federal income tax purposes is not available for payment of cash dividends or
other distributions to HFB without the payment of federal income taxes by
HomeFederal on the amount of such income deemed removed from the reserves at the
then-current income tax rate. At December 31, 2004, approximately $2.1 million
of HomeFederal's retained income represented bad debt deductions for which no
federal income tax provision had been made. See "Taxation--Federal Taxation" in
Item 1 hereof.
The Company sold no equity securities during the period covered by this
report that were not registered under the Securities Act of 1933.
The Company repurchased no shares during the fiscal quarter ended December
31, 2004.
The disclosures regarding equity compensation plans required by Reg. ss.
229.201(d) is set forth in Item 12 hereof.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference to the
material under the heading "Summary of Selected Consolidated Financial Data" on
page 4 of the Shareholder Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information required by this item is incorporated by reference to pages
6 to 18 of the Shareholder Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is incorporated by reference to page
13 of the Shareholder Annual Report.
Item 8. Financial Statements and Supplementary Data.
The Company's Consolidated Financial Statements and Notes thereto contained
on pages 22 to 42 of the Shareholder Annual Report are incorporated herein by
reference. HFB's Quarterly Results of Operations contained on page 5 of the
Shareholder Annual Report are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There are no such changes and disagreements during the applicable period.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. As of December 31, 2004,
an evaluation was carried out under the supervision and with the participation
of the Company's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
- 30 -
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures are, to the best of their knowledge, effective to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
Annual Report on Internal Control Over Financial Reporting. Management's
Report on Internal Controls is included on page 19 of the Shareholder's Annual
Report and is incorporated herein by reference.
Attestation Report of Registered Public Accounting Firm. The Attestation
Report of the Company's public accounting firm is included on page 20 of the
Shareholder's Annual Report and is incorporated herein by reference.
Changes in Internal Controls. Our Chief Executive Officer and Chief
Financial Officer have concluded that, during the Company's fiscal quarter ended
December 31, 2004, there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect its
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors is
incorporated by reference to page 2 to 3 of the Company's Proxy Statement for
its annual shareholder meeting to be held in April 2005 (the "2005 Proxy
Statement"). Information concerning the Company's executive officers who are not
also directors is included in Item 4.5 in Part I of this report.
The information required by this item with respect to the compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to page 13 of the 2005 Proxy Statement.
The information required by this item with respect to members of the
Company's Audit Committee and whether any such members qualify as an Audit
Committee Financial Expert is incorporated by reference to pages 5-6 of the 2005
Proxy Statement.
The Company has adopted an Ethics Policy that applies to all officers,
employees, and directors of the Company and its subsidiaries.
Item 11. Executive Compensation.
The information required by this item with respect to executive
compensation is incorporated by reference to page 6 through page 12 of the 2005
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Other information required by this item is incorporated by reference to
pages 1 to 3 of the 2005 Proxy Statement.
Equity Compensation Plan Information
The following table provides the information about the Company's common
stock that may be issued upon the exercise of options and rights under all
existing equity compensation plans as of December 31, 2004.
- 31 -
Number of securities
remaining available for
future issuance under
Number of securities to equity compensation
be issued upon exercise Weighted-average plans as of
of outstanding options, exercise price of December 31, 2004
warrants and rights as outstanding (excluding securities
of options, warrants reflected in
December 31, 2004 and rights column (a))
Plan category (a) (b) (c)
- -------------------------- ------------------------- --------------------------- ----------------------------
Equity compensation
plans approved by
security holders 686,658(1) $ 20.87(1) 311,756(1)
Equity compensation
plans not approved by
security holders --- --- ---
------------------------- --------------------------- ----------------------------
Total 686,658 $ 20.87 311,756
========================= =========================== ============================
(1) Includes the following plans: the Company's 1993 stock option plan, 1995
stock option plan, 1997 stock option plan and 2001 stock option plan, and
individual awards of options to directors.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to pages
12-13 of the 2005 Proxy Statement.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to page
13 of the 2005 Proxy Statement.
- 32 -
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) List the following documents filed as a part of the report:
Page in 2004
Shareholder
Annual Report
Report of Deloitte & Touche LLP Independent Registered Public
Accounting Firm 21
Financial Statements
Consolidated Balance Sheets as of December 31, 2004 and December 31, 2003 22
Consolidated Statements of Income for the years ended December 31, 2004
and December 31, 2003 and the six month period ended December 31, 2002
and the year ended June 30, 2002 23
Consolidated Statements of Shareholders' Equity for the years ended December 31,
2004 and December 31, 2003 and the six month period
ended December 31, 2002 and the year ended June 30, 2002 24
Consolidated Statements of Cash Flows for the years ended December 31, 2004
and December 31, 2003 and the six month period ended December 31, 2002
and the year ended June 30, 2002 25
Notes to Consolidated Financial Statements 26
(b) The exhibits filed herewith or incorporated by reference herein are set
forth on the Exhibit Index on page 35.
(c) All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or
related notes.
- 33 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 28th day of February
2005.
HOME FEDERAL BANCORP
DATE: February 28, 2005 By: /s/ John K. Keach. Jr.
- ----------------------- ----------------------
John K. Keach, Jr., President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 28th day of February 2005.
/s/ Lawrence E. Welker /s/ John K. Keach. Jr.
Lawrence E. Welker, Executive John K. Keach, Jr.,
Vice President, Treasurer, Chairman of the Board,
Chief Financial Officer and Secretary President and
(Principal Financial Officer) Chief Executive Officer
(Principal Executive
/s/ Melissa A. McGill Officer)
Melissa A. McGill,
Senior Vice President and Controller /s/John K. Keach. Jr.
(Principal Accounting Officer) John K. Keach, Jr,Director
/s/ Harvard W. Nolting. Jr. /s/ John T. Beatty
Harvard W. Nolting, Jr., Director John T. Beatty, Director
/s/ David W. Laitinen /s/ Harold Force
David W. Laitinen, Director Harold Force, Director
/s/ John M. Miller
John M. Miller, Director
- 34 -
EXHIBIT INDEX
Reference to
Regulation S-K Sequential
Exhibit Number Document Page Number
3(a) Articles of Incorporation (incorporated by reference from
Exhibit B to Registrant's Registration Statement on Form S-4
(Registration No. 33-55234)).
3(b) Code of By-Laws (incorporated by reference from Exhibit C to
Registrant's Registration Statement on From S-4
(Registration No. 33-55234)); amendment thereto dated
October 22, 2002 (incorporated by reference from
Exhibit 3(b) of Registrant's Transition Report on Form 10-K
Transition Report for the six months ended December 31,
2002)
4(a) Articles of Incorporation (incorporated by reference from
Exhibit B to Registrant's Registration Statement on Form S-4
(Registration No.33-55234)).
4(b) Code of By-Laws (incorporated by reference from Exhibit C to
Registrant's Registration Statement on From S-4
(Registration No. 33-55234); amendment thereto dated October
22, 2002 (incorporated by reference from Exhibit 3(b) of
Registrant's Transition Report on Form 10-K Transition
Report for the six months Ended December 31, 2002).
10(a) Stock Option Plan (incorporated by reference from Exhibit 10(a) to
Registrant's Registration Statement on Form S-4
(Registration No. 33-55234).
10(b) 1993 Stock Option Plan (incorporated by reference from Exhibit 10(b)
to Registrant's Form 10-K for the year ended June 30, 1994).
10(c) Employment Agreement with Lawrence E. Welker (incorporated
by reference from Exhibit 10(c) to Registrants Registration
Statement on Form S-4 (Registration No. 33-55234)); first,
second and third Amendments thereto (incorporated by
reference to Exhibit 10(c) of Registrant's Form 10-K for the
year ended June 30, 1998); fourth amendment thereto
(incorporated by reference to Exhibit 10(c) of Registrant's
Form 10-K for the year ended June 30, 2001); fifth
amendment thereto (incorporated by reference from
Exhibit l0(c) to Registrant's Form 10-K the fiscal
year ended June 30, 2002).
10(d) Employment Agreement with John K. Keach, Jr. (incorporated
by reference from Exhibit 10(d) to Registrant's Registration
Statement
on Form S-4 (Registration No. 33-55234)); first,
second and third amendments thereto (incorporated by
reference to Exhibit 10(d) of Registrant's Form 10-K for the
year ended June 30, 1998); fourth amendment thereto
(incorporated by reference to Exhibit 10 (d) of Registrant's
Form 10-K for the year ended June 30, 2001); fifth amendment
thereto (incorporated by reference from Exhibit l0(d) to
Registrant's Form 10-K for the fiscal year ended June 30,
2002).
10(f) HomeFederal Savings Bank Excess Benefit Plan Agreement with
John K. Keach, Jr. dated April 1, 2001 (incorporated by
reference to Exhibit 10 (f) of Registrant's Form 10-K for
the year ended June 30, 2001).
- 35 -
10(g) 1999 Stock option plan incorporated by reference to Exhibit
J to the registrant's proxy statement for its 1999 Annual
shareholder's meeting.
10(i) Stock Option Agreement with Harvard W. Nolting, Jr. (incorporated by
reference from Exhibit 10(i) to HomeFederal Bank's Form 10-K
for the fiscal year ended June 30, 1991).
10(j) Stock Option Agreement with David W. Laitinen (incorporated
by reference from Exhibit 10(j) to HomeFederal Bank's Form
10-K for the fiscal year ended June 30, 1991).
10(k) Stock Option Agreement with John T. Beatty (incorporated by reference
from Exhibit 10(k) to HomeFederal Bank's Form 10-K for the
fiscal year ended June 30, 1991).
10(l) Stock Option Agreement with Harold Force (incorporated by reference
from Exhibit 10(l) to HomeFederal Bank's Form 10-K for the
fiscal year ended June 30, 1991).
10(n) Supplemental Executive Retirement Plan with John K. Keach, Jr.
dated April 1, 2001(incorporated by reference from Exhibit 10(n) to
Registrant's Form 10-K for the year ended June 30, 2002).
10(o) Supplemental Executive Retirement Plan with Lawrence E. Welker
dated April 1, 2001 (incorporated by reference from Exhibit 10(o) to
Registrant's Form 10-K for the year ended June 30, 2002).
10(p) Supplemental Executive Retirement Plan with Elaine Pollert dated
April 1, 2001(incorporated by reference from Exhibit 10(p) to
Registrant's Form 10-K for the year ended June 30, 2002).
10(v) Deferred Compensation Agreement with John K. Keach, Sr
(incorporated by reference from Exhibit 10(v) to HomeFederal
Bank Form 10-K for the fiscal year ended June 30, 1992) and
First Amendment to Deferred Compensation Agreement
(incorporated by Reference from Exhibit 10(v) to
Registrant's Form 10-K for the year ended June 30, 1994) and
Second Amendment to Deferred Compensation Agreement
(incorporated by reference from Exhibit 10(v) to
Registrant's Form 10-K for the year ended June 30, 1998).
10(w) Employment Agreement with S. Elaine Pollert (incorporated by
reference from Exhibit l0(w) to HomeFederal Bank Form 10-K
for the fiscal year ended June 30, 1998); and First
Amendment to Employment Agreement (incorporated by reference
from Exhibit 10(w) to Registrant's Form 10-K for the year
ended June 30, 1998); second amendment thereto (incorporated
by reference from Exhibit 10(w) to Registrant's Form 10-K
for the year ended June 30, 2002); third amendment to
Employment Agreement (incorporated by reference from Exhibit
l0(w) to Registrant's Form 10-K for the fiscal year ended
June 30, 2002).
10(x) Supplemental Executive Retirement Plan with Gerald L.
Armstrong dated April 1, 2001(incorporated by reference from
Exhibit 10(x) to Registrant's Form 10-K for the year ended
June 30, 2002).
10(ab) Stock Option Agreement with Gerald L. Armstrong (incorporated by
reference from Exhibit 10(ab) to HomeFederal Bank Form
10-K for the fiscal year ended June 30, 1992).
10(ac) Director Deferred Compensation Agreement with John Beatty
(incorporated by reference from Exhibit l0(ac) to
HomeFederal Bank Form 10-K for the fiscal year ended June
30, 1992); first and second amendments thereto (incorporated
by reference from Exhibit 10(ac) to Registrant's Form 10-K
for the year ended June 30, 1998).
- 36 -
10(ad) Director Deferred Compensation Agreement with Lewis Essex
(incorporated by reference from Exhibit 10(ad) to
HomeFederal Bank Form 10-K for the fiscal year ended June
30, 1992); first and second amendments thereto (incorporated
by reference from Exhibit 10(ad) to Registrant's Form 10-K
for the year ended June 30, 1998).
10(ae) Director Deferred Compensation Agreement with Harold Force
(incorporated by reference from Exhibit 10(ae) to
HomeFederal Bank Form l0-K for the fiscal year ended June
30, 1992); first, second and third amendments thereto
(incorporated by reference from Exhibit 10(ae) to
Registrant's Form 10-K for the year ended June 30, 1998).
10(af) Director Deferred Compensation Agreement with David W.
Laitinen (incorporated by reference from Exhibit 10(af) to
HomeFederal Bank Form 10-K for the fiscal year ended June
30, 1992); first, second and third amendments thereto
(incorporated by reference from Exhibit 10(af) to
Registrant's Form 10-K for the year ended June 30, 1998).
10(ag) Director Deferred Compensation Agreement with William Nolting
(incorporated by reference from Exhibit 10(ag) to HomeFederal
Bank Form 10-K for the fiscal year ended June 30, 1992); );
first and second amendments thereto (incorporated by reference from
Exhibit 10(ag) to Registrant's Form 10-K for the year ended
June 30, 1998).
10(ah) Non-Qualified Stock Option Agreement, dated December 22, 1992,
with John T. Beatty (incorporated by reference from Exhibit 10(ah) to
Registrant's Form 10-K for the year ended June 30, 1994).
10(ai) Non-Qualified Stock Option Agreement, dated December 22, 1992,
with Lewis W. Essex (incorporated by reference from Exhibit 10(ai) to
Registrant's Form 10-K for the year ended June 30, 1994).
10(aj) Non-Qualified Stock Option Agreement, dated December 22, 1992,
with Harold Force (incorporated by reference from Exhibit 10(aj) to
Registrant's Form 10-K for the year ended June 30, 1994).
10(ak) Non-Qualified Stock Option Agreement, dated December 22, 1992,
with David W. Laitinen (incorporated by reference from Exhibit 10(ak)
to Registrant's Form 10-K for the year ended June 30, 1994).
10(al) Non-Qualified Stock Option Agreement, dated December 22, 1992,
with Harvard W. Nolting, Jr (incorporated by reference from Exhibit 10
(al) to Registrant's Form 10-K for the year ended June 30, 1994).
10(am) Non-Qualified Stock Option Agreement, dated August 24,1993,
with John T. Beatty (incorporated by reference from Exhibit
10(am) to Registrant's Form 10-K for the year ended June 30,
1994).
10(an) Non-Qualified Stock Option Agreement, dated August 24,1993,
with Lewis W. Essex (incorporated by reference from Exhibit
10(an) to Registrant's Form 10-K for the year ended June 30,
1994).
- 37 -
10(ao) Non-Qualified Stock Option Agreement, dated August 24, 1993,
with Harold Force (incorporated by reference from Exhibit
10(ao) to Registrant's Form 10-K for the year ended June 30,
1994).
10(ap) Non-Qualified Stock Option Agreement, dated August 24, 1993,
with David W. Laitinen (incorporated by reference from Exhibit 10(ap)
to Registrant's Form 10-K for the year ended June 30, 1994).
10(aq) Non-Qualified Stock Option Agreement, dated August 24, 1993,
with Harvard W. Nolting, Jr. (incorporated by reference from Exhibit 10
(aq) to Registrant's Form 10-K for the year ended June 30, 1994).
10(ar) Form of Non-Qualified Stock Option Agreement
10(as) 1995 Stock Option Plan (incorporated by reference from
Exhibit A to Registrant's Proxy Statement for its 1995
annual shareholder meeting).
10(at) 2001 stock option plan (incorporated by reference from
Exhibit B to the Registrant's Proxy Statement for its 2001
annual shareholder meeting.
10(au) Employment Agreement with Charles R. Farber (incorporated by reference
from Exhibit l0(au) to Registrant's Form 10-K for the
fiscal year ended June 30, 2002).
10(av) Executive Supplemental Retirement Income Agreement with
Charles R. Farber dated November 1, 2002 (incorporates by
reference to Exhibit 10(av) to Registrant's Transition
Report on Form 10-K for the six months ended December 31,
2002).
10(aw) Form of Incentive Stock Option Agreement
13 Home Federal Bancorp Annual Report December 31, 2004.
14 Code of Ethics (incorporated by reference from Exhibit l4 to the
Registrant's Form 10-K for the year ended December 31, 2003).
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21
of the Registrant's Transition Report on Form 10-K for the six months
ended December 31, 2002).
23.1 Independent Registered Public Accounting Firms' Consent.
31.1 Certification of John K. Keach, Jr. required by 12 C.F.R. ss. 240.13a-14(a)
31.2 Certification of Lawrence E. Welker required by 12 C.F.R. ss. 240.13a-14(a)
32 Certification pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
- 38 -