SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission file number 0-14507
HOMELAND BANKSHARES CORPORATION
Incorporated in Iowa I.R.S. Employer Identification
No. 42-1168487
229 EAST PARK AVENUE, WATERLOO, IOWA 50704-5300
TELEPHONE NUMBER: (319) 291-5260
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $12.50 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 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. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of January 31, 1996 was $155,606,000.
The number of shares outstanding of each of the registrant's classes of
common stock as of January 31, 1996:
5,740,513 SHARES COMMON STOCK, $12.50 PAR VALUE
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Homeland Bankshares Corporation Proxy Statement for its
1996 Annual Meeting of Shareholders are incorporated herein by reference into
Parts III and IV.
PART I
ITEM 1. BUSINESS
(A) General Description of Business
-------------------------------
Homeland Bankshares Corporation ("Homeland") is a multi-bank holding
company incorporated in Iowa in 1981 and registered under the Bank Holding
Company Act of 1956, as amended. Based on total assets of $1,232,907,000 at
December 31, 1995, Homeland was the second largest multi-bank holding company
headquartered in Iowa, and the seventh largest multi-bank holding company
conducting business in Iowa.
From 1981 until 1994, the company was known as Iowa National Bankshares
Corp. Effective December 31, 1994, the company changed its name to Homeland
Bankshares Corporation, and all of the company's operating subsidiaries
adopted corporate names that reflected the "Homeland" trademark.
Homeland operates four wholly-owned commercial banks, one wholly-owned
savings and loan association, and three wholly-owned subsidiaries which
provide retail financial services. At December 31, 1995, Homeland and its
subsidiaries had 502 full-time and 115 part-time employees.
Homeland Bank, N.A., Waterloo, became a subsidiary of Homeland pursuant to
the terms of a plan of reorganization which was consummated on December 31,
1981. The bank is the successor bank to a national bank which was originally
organized in 1933 under the laws of the United States. The bank is engaged
in the general commercial banking business providing full-service banking to
individuals and businesses, and also offers correspondent banking services to
over 170 financial institutions throughout Iowa. Based on total assets of
$579,150,000 at December 31, 1995, Homeland Bank, N.A. was the largest
commercial bank headquartered in Waterloo, and the fifth largest bank in
Iowa.
Homeland Savings Bank, FSB and its parent thrift holding company, Homeland
Financial Corporation (formerly MidAmerica Financial Corporation), were
acquired by Homeland on June 1, 1994. Homeland Savings Bank, FSB is a
federally chartered savings and loan association which is the successor to a
savings and loan which was originally organized in 1905. Homeland Savings
Bank, FSB provides banking services primarily in the Des Moines, Waterloo,
Cedar Rapids, and Iowa City banking markets. Based on total assets of
$381,319,000 at December 31, 1995, it was the fourth largest thrift
institution headquartered in Iowa.
Homeland Bank in Indianola, which was acquired by Homeland on December 31,
1986, is an Iowa banking corporation which was originally chartered in 1919.
Based on total assets of $125,942,000 at December 31, 1995, the bank was the
largest full-service commercial bank in its principal market area of Warren
County, Iowa. Warren County is adjacent to Des Moines, which is Iowa's
largest city in terms of population.
Homeland Bank in Oelwein, which was acquired by Homeland on December 31,
1988, is an Iowa banking corporation and successor to a state bank originally
chartered in 1946. At December 31, 1995, the bank had total assets of
$90,705,000, making it the largest commercial bank in its principal market
area of Fayette County, which is located in the northeast section of Iowa.
Homeland Bank in Monticello, which was acquired by Homeland on April 23,
1990, is an Iowa banking corporation and successor to a state bank originally
chartered in 1875. Based on total assets of $141,462,000 at December 31,
1995, the bank was the largest commercial bank in its primary market area of
Jones County, located in the east-central portion of Iowa.
Homeland Trust Company is an Iowa corporation formed in 1987 as a wholly-
owned subsidiary of Homeland Savings Bank, FSB. The company, which is
located in Des Moines, provides personal and commercial trust services.
Homeland Student Loan Company is an Iowa corporation formed in 1987, and
is a wholly-owned subsidiary of Homeland Savings Bank, FSB. The company,
which is located in West Des Moines, originates and services government-
sponsored student loans for Homeland and for other financial institutions
located throughout Iowa and surrounding states.
Homeland Investment Company is an Iowa corporation formed in 1994 as a
wholly-owned subsidiary of Homeland Bank in Indianola. The company provides
securities brokerage services and engages in the sale of various insurance
products for all Homeland banks through a third-party relationship.
Statistical data and financial information related to Homeland's business
and operations are found under Items 6, 7, and 8 of this report.
(B) Competition and Iowa Banking Law
--------------------------------
The commercial banking business in Iowa is highly competitive. Homeland
and its subsidiaries are in direct competition with other commercial banks,
savings and loan associations, credit unions, brokerage firms, finance
companies, insurance companies, and other financial institutions.
Iowa's banking laws regarding interstate banking and interstate branching
are currently more restrictive than those of most other states. Prior to
1991, Iowa banking law prohibited interstate banking altogether, except for
certain grandfathered rights extended to the largest bank holding company
conducting business in Iowa, Norwest Corporation, which is headquartered in
Minnesota. Since January 1, 1991, Iowa banking law has been less restrictive
by allowing limited interstate banking by permitting financial institutions
whose operations are principally conducted in Illinois, Missouri, Nebraska,
South Dakota, Minnesota, or Wisconsin to conduct business in Iowa by
acquiring an existing Iowa banking organization. Conversely, Iowa financial
institutions may expand operations into Iowa's six neighboring states,
provided such expansion is accomplished by acquisition rather than by
branching. Since the law was enacted in 1991, a number of Iowa-based
financial institutions have been acquired by out-of-state bank holding
companies including Firstar Corporation, Boatmen's Bancshares, Inc.,
Mercantile Bancorporation Inc., First Bank System, Inc., and Community First
Bankshares, Inc.
Interstate branching by out-of-state banks into Iowa is still expressly
prohibited by Iowa statutes. Iowa also currently has a deposit concentration
limit of 10% on the amount of deposits that any one banking organization can
control and continue to acquire banks, which applies to both in-state and
out-of-state banks. Iowa also has a 35% limit on the aggregate amount of
deposits all out-of-state banking organizations can control within Iowa.
As with its laws regarding interstate banking and branching, Iowa's
intrastate branching statutes are also rather restrictive when compared with
those of other states. Generally, bank branch offices may only be operated
or acquired in counties contiguous to or cornering upon the county in which
the bank has its principal place of business. Also, a bank in Iowa may not
establish a new branch office in a city in which there exists an office of
another bank, other than by acquisition of an existing office or bank.
Furthermore, the number of bank branch offices allowed within a municipal
corporation or an urban complex is limited to four offices in populations of
100,000 or less, five offices in populations of over 100,000 to 200,000, and
six offices in areas with populations over 200,000. However, some of Iowa's
intrastate branching limitations regarding geographic location of branch
offices and the number of branch offices which may be established in an urban
complex may be overcome by merging two or more affiliated banking
organizations that have been in continuous operation in Iowa for at least
five years into a "united community bank."
In September 1994, Congress passed interstate banking and branching
legislation which permitted nationwide interstate banking effective September
29, 1995, and subject to ratification by each particular state, would permit
interstate bank branching and would increase each state's deposit
concentration limit to 30% effective June 1, 1997. If Iowa elects to do so,
it may continue to 1) limit the means by which an out-of-state bank may
acquire a bank within the state, 2) prohibit out-of-state banks from
branching into the state, and 3) set its own deposit concentration limit.
Management believes that Iowa is likely to adopt legislation that would be
equivalent to the federal bank branching statutes. However, if Iowa were to
continue its restrictive posture toward future interstate banking and
branching operations, Homeland, nevertheless, has the ability to enter new
markets both inside and outside Iowa by utilizing its thrift subsidiary,
Homeland Savings Bank, FSB. As a savings and loan institution, Homeland
Savings Bank, FSB presently has the distinct advantage of not being subject
to branching limitations imposed upon banks operating in Iowa. Since savings
and loans currently have virtually unlimited nationwide branch office
expansion capabilities, Homeland is capable of expanding geographically.
During 1995, Congress proposed federal legislation which would require
thrift institutions to convert to banks by January 1, 1998, and relinquish
certain branching capabilities. The likelihood of proposed federal or Iowa
legislation being enacted and any related competitive impact upon Homeland is
uncertain at this time.
(C) Regulation and Governmental Policies
------------------------------------
Homeland and its subsidiaries, as affiliates, are subject to regulation by
the Board of Governors of the Federal Reserve System. Homeland Bank, N.A.,
as a national bank, is supervised and regularly examined by the Office of the
Comptroller of the Currency. Homeland Savings Bank, FSB, as a federally-
chartered savings and loan institution, is supervised and regularly examined
by the Office of Thrift Supervision. The Homeland Banks in Indianola,
Oelwein, and Monticello, as state-chartered nonmember banks of the Federal
Reserve System, are supervised and regularly examined by the Iowa Division of
Banking and the Federal Deposit Insurance Corporation. These banking
regulators have capital adequacy guidelines which stipulate that minimum
capital-to-asset ratios be maintained. At December 31, 1995, Homeland and
each of its subsidiaries were in compliance with those capital standards.
The operations and profitability of Homeland and its subsidiaries are
influenced by general economic conditions (particularly those in the
midwestern United States), fiscal and monetary policies of the federal
government and its agencies, and banking statutes and legislation at both the
federal and state levels. Specifically, federal fiscal and monetary policies
affect interest rates and the availability of funds, while banking
legislation frequently changes the competitive environment of the banking
industry. Just as future governmental policies and legislation cannot be
predicted, neither can the effects of such events be accurately determined.
(D) Executive Officers
------------------
The following is a list of executive officers of Homeland as of the date
of this report. Executive officers include only the key policy-making
officers of Homeland and its subsidiaries. None of the executive officers
are related to each other.
Executive Officer Age Principal Positions
------------------ --- ------------------------------------------
Erl A. Schmiesing 56 Chairman, President, and CEO of Homeland
Robert S. Kahler 44 Executive Vice President and CFO of Homeland
Josef M. Vich 48 President and CEO of Homeland Bank, N.A.
Gregory L. O'Hara 42 President and CEO of Homeland Savings Bank, FSB
Thomas G. Turner 43 Vice President-Human Resources of Homeland
Everett P. Brown 63 President and CEO of Homeland Bank-Indianola
Dan R. Crandall 47 President and CEO of Homeland Bank-Oelwein
Kendall B. Messer 46 President and CEO of Homeland Bank-Monticello
James F. Freet 57 Senior Vice President-Management Information
Systems of Homeland Bank, N.A.
Greg E. Stibal 53 Marketing Director of Homeland Bank, N.A.
Stacy Ware 53 Senior Vice President-Operations of Homeland
Bank, N.A.
Erl A. Schmiesing has been Chairman since April 1992, as well as President
and CEO, and a director of Homeland since 1990. He is currently Chairman of
Homeland Bank, N.A. and has been an officer in the Homeland system since
1969.
Robert S. Kahler has been Executive Vice President and CFO, and a director
of Homeland since October 1993. He served as Treasurer of Homeland from 1982
to 1995. He has also been a director of Homeland Bank in Oelwein since 1990,
and a director of Homeland Savings Bank, FSB since December 1994.
Josef M. Vich has been President and CEO, and a director of Homeland Bank,
N.A. since January 1994. He served as a Senior Vice President from June 1992
through 1993, and as a Vice President of that bank from 1988 until June 1992.
He has also been a director of Homeland Bank in Monticello since February
1996.
Gregory L. O'Hara has been President and CEO, and Chairman of the Board of
Homeland Savings Bank, FSB since June 1992. He served as Executive Vice
President and director of that bank from 1987 until June 1992. He has also
been a director of Homeland Bank in Indianola since February 1996.
Thomas G. Turner has been Vice President-Human Resources of Homeland since
June 1994. Prior to joining Homeland, he was Director of Human Resources for
Iowa Power in Des Moines, Iowa, from 1981 through 1993.
Everett P. Brown has been President and CEO, and a director of Homeland
Bank in Indianola since 1987. He has also been a director of Homeland
Savings Bank, FSB since December 1994.
Dan R. Crandall has been President and CEO of Homeland Bank in Oelwein
since January 1993, and a director since 1987. He served as a Vice President
of that bank from 1983 through 1992.
Kendall B. Messer has been President and CEO of Homeland Bank in
Monticello since January 1994, and a director since 1990. He served as
Executive Vice President of that bank from 1990 through 1993.
James F. Freet has been a Senior Vice President of Homeland Bank, N.A.
since 1984.
Greg E. Stibal has been Marketing Director for Homeland Bank, N.A. since
1981.
Stacy Ware has been a Senior Vice President of Homeland Bank, N.A. since
1991, and served as a Vice President of Homeland Bank in Oelwein from 1980
through 1990. He has also been a director of Homeland Savings Bank, FSB
since December 1994.
ITEM 2. PROPERTIES
The corporate offices of Homeland are located at 229 East Park Avenue,
Waterloo, Iowa 50704-5300. Homeland Bank, N.A.'s operations are conducted
from eight facilities located in Waterloo, three offices in Cedar Falls,
Iowa, four offices located in communities surrounding Waterloo and Cedar
Falls, and a data processing facility located in Des Moines. Homeland
Savings Bank, FSB has two offices in Waterloo, three offices in metropolitan
Des Moines, and single offices in Cedar Rapids, Iowa City, Decorah, and
Vinton. Homeland Bank in Monticello has one banking location. Homeland Bank
in Indianola has five offices located in Indianola, Iowa, and surrounding
communities. Homeland Bank in Oelwein has three offices located in Oelwein,
Iowa, and nearby communities. Of the thirty-four banking facilities, twenty-
eight are owned and six are leased. All of Homeland's facilities are modern,
well-maintained, and adequate for its operating needs.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings are pending against Homeland or its subsidiaries
which would have a materially adverse effect on the financial condition of
Homeland.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to Homeland shareholders for voting purposes
during the quarter ended December 31, 1995.
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Homeland common stock is traded on the Nasdaq Stock Market under the
trading symbol "HLND." At January 31, 1996, there were approximately 1,700
common shareholders of record, and the closing market trade price was $28.25
per share.
Homeland has consistently paid quarterly cash dividends to its
shareholders in each of the last 19 years. As a multi-bank holding company,
Homeland's primary source of funds for payment of cash dividends to its
shareholders is the receipt of cash dividends from its subsidiaries (see Note
15 in the Notes to Consolidated Financial Statements under Item 8 of this
report).
MARKET TRADE PRICES
CALENDAR ------------------------ DIVIDENDS
QUARTER HIGH LOW CLOSE PER SHARE
-------------------------------------------------------------
1995
First $23-3/4 $21 $23-7/16 $ .21
Second 24 20-3/424 .22
Third 29-3/4 23-1/429-3/4 .22
Fourth 29-7/8 27-1/229-3/4 .22
-------------------------------------------------------------
Total $.87
=============================================================
1994
First $25-1/2 $23 $24 $ .21
Second 25 23 25 .21
Third 25 23-1/224-1/4 .21
Fourth 24-1/4 22-1/423-1/4 .21
------------------------------------------------------------
Total $ .84
=============================================================
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
(Dollars in thousands,
except per share data) 1995 1994 1993 1992 1991
------------------------------------------------------------
FINANCIAL RESULTS
Interest income $ 92,480 $ 72,096 $ 56,786 $ 64,046 $ 73,573
Interest expense 44,804 30,440 21,941 28,832 40,319
Net interest income 47,676 41,656 34,845 35,214 33,254
Net interest income -
taxable-equivalent 48,653 42,923 36,290 36,935 35,904
Provision for loan losses 941 296 770 2,145 3,730
Noninterest income 11,665 9,676 9,277 8,335 7,852
Noninterest expenses 36,350 32,332 25,650 24,502 22,870
Income before income taxes 22,050 18,704 17,702 16,902 14,506
Income tax expense 8,429 6,443 5,682 5,346 4,144
Net income 13,621 12,261 12,020 11,556 10,362
Cash dividends 4,992 4,808 4,656 4,496 4,308
-------------------------------------------------------------------------------------------
FINANCIAL POSITION
Securities $ 217,556 $ 282,450 $ 279,077 $ 306,295 $ 312,333
Loans 844,789 792,796 464,992 438,588 442,433
Deposits 962,719 949,360 708,805 736,452 799,362
Stockholders' equity 127,321 114,742 109,601 102,228 97,431
Total assets 1,232,907 1,190,633 865,032 902,817 940,008
-------------------------------------------------------------------------------------------
AVERAGE BALANCES
Securities $ 268,242 $ 292,303 $ 296,593 $ 306,660 $ 288,351
Loans 827,017 636,543 441,993 438,175 438,957
Deposits 947,967 862,170 722,031 767,728 762,676
Stockholders' equity 120,852 112,930 106,338 99,045 94,078
Total assets 1,224,759 1,069,638 880,836 916,719 906,037
-------------------------------------------------------------------------------------------
PER SHARE DATA(1)<F1>
Weighted average number
of shares outstanding 5,744,836 5,732,133 5,698,464 5,700,786 5,786,132
Net income $ 2.37 $ 2.14 $ 2.11 $ 2.03 $ 1.79
Cash dividends .87 .84 .82 .79 .75
Book value 22.18 19.99 19.30 18.00 16.77
Market price range(2)<F2>
Low 20.75 22.25 20.50 16.00 16.25
High 29.88 25.50 25.50 22.25 19.25
Close 29.75 23.25 24.62 22.25 16.75
-------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average total assets 1.11% 1.15% 1.36% 1.26% 1.14%
Return on average stockholders'
equity 11.27 10.86 11.30 11.67 11.01
Efficiency ratio(3)<F3> 57.19 59.75 54.69 52.32 50.51
Dividend payout ratio 36.65 39.21 38.74 38.91 41.57
Average stockholders' equity
to average total assets 9.87 10.56 12.07 10.80 10.38
Leverage capital ratio 8.63 8.11 11.76 10.76 9.76
-------------------------------------------------------------------------------------------
<FN>
(1)<F1> Per share data have been retroactively restated to reflect a two-for-one
common stock split on August 16, 1993.
(2)<F2> Market prices represent actual trade prices obtained from the Nasdaq
Stock Market.
(3)<F3> Operating expenses (excluding other real estate owned expense and
amortization of intangibles) as a percentage of net interest income, on a
fully taxable-equivalent basis, and noninterest income (excluding gains or
losses on securities transactions).
Note: The comparability of the financial information presented herein is
significantly affected by Homeland's acquisition of MidAmerica Financial
Corporation on June 1, 1994, which was accounted for as a purchase
transaction.
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL REVIEW
This financial review section presents management's discussion and
analysis of Homeland Bankshares Corporation ("Homeland") for 1995, 1994, and
1993. It is provided to enable a better understanding of the significant
factors affecting Homeland's operations. This financial review should be
read in conjunction with the consolidated financial statements, accompanying
notes, and the financial statistics presented elsewhere within this Form 10-K.
===========================================================================
EARNINGS ANALYSIS
PERFORMANCE SUMMARY
Homeland reported consolidated net earnings for 1995 of $13,621,000, the
highest in the company's history. This represented an 11.1% increase over
1994 net earnings of $12,261,000. The increase in net income also improved
earnings per share to $2.37 from $2.14 the previous year. Net income in
1993 was $12,020,000 with per share earnings of $2.11.
COMPONENTS OF NET INCOME PER SHARE
(Dollars per share) 1995 1994 1993
-----------------------------------------------------------------------
Net interest income $8.30 $7.27 $ 6.12
Provision for loan losses .16 .05 .14
Noninterest income 2.03 1.68 1.63
Noninterest expenses 6.33 5.64 4.50
-----------------------------------------------------------------------
Income before income taxes 3.84 3.26 3.11
Income tax expense 1.47 1.12 1.00
-----------------------------------------------------------------------
NET INCOME PER SHARE $2.37 $2.14 $ 2.11
=======================================================================
Earnings during 1995 benefited from increases in net interest income and
noninterest income, but were partially offset by higher loan loss provision
and noninterest expenses. Solid loan growth and improvement in nonperforming
assets also contributed to the higher 1995 financial results. Increases in
net interest income similarly benefited 1994 earnings compared to 1993, as
well as a reduction in the loan loss provision for that year; however,
increased noninterest expenses held down 1994 net income to a modest 2.0%
increase over 1993.
Comparisons of 1995 results of operations with prior years are
significantly affected by the addition of MidAmerica Financial Corporation
("MidAmerica") which was acquired by Homeland on June 1, 1994. MidAmerica's
total assets at its acquisition date were $356 million. The cash acquisition
was accounted for as a purchase, and therefore, the results of operations of
MidAmerica are only included subsequent to the date of acquisition.
MidAmerica provided $616,000 and $606,000 to Homeland's consolidated net
income during 1995 and 1994, respectively, increasing consolidated earnings
per share by $.11 each year.
RETURN ON AVERAGE ASSETS AND EQUITY
(Taxable-equivalent basis)
(Percentage of average assets) 1995 1994 1993
---------------------------------------------------------------------
Net interest income 3.98% 4.01% 3.96%
Provision for loan losses .08 .03 .09
Noninterest income .95 .90 1.05
Noninterest expenses 2.96 3.02 2.91
Income tax expense .78 .71 .65
---------------------------------------------------------------------
RETURN ON AVERAGE ASSETS 1.11 1.15 1.36
x Average assets to equity 10.13X 9.47x 8.28x
----------------------------------------------------------------------
RETURN ON AVERAGE EQUITY 11.27% 10.86% 11.30%
======================================================================
Homeland's return on average assets was 1.11% in 1995, compared to 1.15%
and 1.36% in 1994 and 1993, respectively. This ratio was lowered
significantly following Homeland's thrift acquisition in 1994 as savings
institutions typically operate with a lower return on assets than do
commercial banks.
Return on average equity is another standard measurement that indicates
how effectively a company has generated earnings on the capital invested by
its shareholders. Homeland's return on average equity was 11.27% in 1995
compared to 10.86% in 1994 and 11.30% in 1993. Homeland's relatively high
equity-to-assets ratio, while providing a solid foundation for the company to
operate from, has served to restrain the company's return on equity over the
last few years. The equity-to-assets ratios at December 31, 1995 and 1994
were 10.33% and 9.64%, respectively. Management continues to search for
profitable uses for its excess capital.
NET INTEREST INCOME
Net interest income is the excess of the interest and fees received on
interest earning assets over the interest expense paid on interest bearing
liabilities, while taxable-equivalent net interest income includes an
adjustment to ensure that interest income on taxable and nontaxable assets is
comparable. Net interest income totaled $47,676,000 in 1995, $41,656,000 in
1994, and $34,845,000 in 1993. Taxable-equivalent net interest income was
$48,653,000 in 1995, $42,923,000 in 1994, and $36,290,000 in 1993.
Homeland has experienced substantial growth in net interest income from a
combination of earning assets growth and effective management of overall
interest rate sensitivity and liquidity. During 1995, a 15.1% growth in
average earning assets offset a modest seven basis point reduction in net
interest margin and resulted in a 14.5% increase in net interest income.
Although a significant part of the earning asset growth was due to the
inclusion of MidAmerica balances since June 1, 1994, net interest income also
benefited as lower-yielding securities matured and were reinvested into
higher-yielding quality loans.
NET INTEREST SPREAD AND MARGIN
(Taxable-equivalent basis) 1995 1994 1993
----------------------------------------------------------------------
Yield on interest earning assets 8.30% 7.50% 7.25%
Rate on interest bearing liabilities 4.60 3.66 3.33
---------------------------------------------------------------------
NET INTEREST SPREAD 3.70 3.84 3.92
Noninterest bearing funds contribution .62 .55 .60
---------------------------------------------------------------------
NET INTEREST MARGIN 4.32% 4.39% 4.52%
=====================================================================
Net interest spread is the difference between the yield on interest
earning assets and the rate paid on interest bearing liabilities, while net
interest margin includes the benefit of noninterest bearing funds.
Management attempts to maintain an appropriate mixture of interest sensitive
assets and liabilities to stabilize net interest income in times of volatile
market interest rates. From a declining market interest rate environment in
1993, short-term market rates increased dramatically during 1994 by as much
as 300 basis points, and then beginning early in 1995 began to ease back,
until by the end of 1995 they had fallen by approximately 100 basis points
from their earlier peak. Homeland's net interest margin declined from 4.52%
in 1993 to 4.39% in 1994 and 4.32% in 1995.
The net interest margin decline was largely attributable to Homeland's
thrift acquisition in mid-1994, since savings institutions generally operate
at a lower net interest margin than commercial banks. Although MidAmerica's
substantially lower net interest margin of 4.13% in 1994 and 3.75% in 1995
had an initial negative effect on Homeland's consolidated net interest
margin, Homeland is compensated by the earnings growth potential gained
through the thrift's capabilities of entering new markets currently
unavailable to commercial banks in Iowa.
NONINTEREST INCOME
(Percentage of average assets) 1995 1994 1993
---------------------------------------------------------------------
Data processing services .21% .24% .28%
Trust services .20 .21 .29
Student loan servicing fees .09 .02 ---
Deposit account service charges .25 .25 .28
Securities gains (losses) --- --- .01
Other .20 .18 .19
---------------------------------------------------------------------
Total .95% .90% 1.05%
=====================================================================
Management's ability to provide diversified financial services to its
customers has created steady growth in noninterest income. Total noninterest
income increased by 20.6% in 1995 to $11,665,000 from $9,676,000 in 1994 due
mainly to the inclusion of a full year of MidAmerica's noninterest income.
During 1994, noninterest income showed an increase of $399,000 or 4.3% over
1993. As a percentage of average assets, noninterest income improved to .95%
in 1995 after a decline in 1994 to .90% from 1.05% in 1993.
Data processing service fees remained relatively stable at $2,511,000,
$2,529,000, and $2,452,000 for 1995, 1994, and 1993, respectively. Homeland
provides data processing and correspondent banking services to over 170
financial institutions from its main processing center in Waterloo and from a
satellite location in Des Moines.
Trust revenues increased by 10.0% to $2,450,000 during 1995 from
$2,228,000 in 1994, after declining from $2,534,000 in 1993. Trust fee
income benefited from the managed asset growth during 1995 after a
disappointing year in 1994. Increased competition from insurance and
brokerage companies continue to be a significant factor in restraining trust
revenues.
The primary reason for the higher noninterest income during 1995 was an
increase of $814,000 in student loan servicing fees, a source of fee income
that originated for Homeland with its acquisition of MidAmerica in mid-1994.
The student loan servicing fees during 1994 were $272,000, rising to
$1,086,000 in 1995.
Deposit account service charge income increased during 1995 and 1994 by
$361,000 and $277,000, respectively. Deposit account service charges have
remained relatively stable as a percentage of average assets during the last
three years.
Other noninterest income increased by $562,000 or 29.1% in 1995 to
$2,493,000. The prior year totaled $1,931,000, increasing from $1,740,000 in
1993. Revenue generated from real estate loans sold on the secondary market
contributed $916,000 to other noninterest income in 1995, $363,000 in 1994,
and $316,000 in 1993. The addition of a full year's mortgage operations from
the acquired thrift was the main reason for the increase in 1995.
NONINTEREST EXPENSES
(Percentage of average assets) 1995 1994 1993
---------------------------------------------------------------------
Salaries and wages 1.23% 1.18% 1.16%
Employee benefits .32 .38 .39
Occupancy .22 .23 .24
Equipment .19 .22 .22
Supplies .09 .08 .09
Advertising and promotion .14 .16 .12
Professional fees .08 .11 .08
FDIC insurance .11 .18 .19
Intangible amortization .18 .14 .08
Insurance .03 .04 .04
Communications .06 .06 .05
Postage and freight .05 .05 .06
Other real estate owned (.02) (.05) .01
Other .29 .24 .18
---------------------------------------------------------------------
Total 2.97% 3.02% 2.91%
=====================================================================
Total noninterest expenses increased by $4.0 million in 1995 compared to
1994, and $6.7 million in 1994 compared to 1993. A significant component of
this expense increase was the inclusion of a full year of MidAmerica's costs
in 1995 and seven months of expense in 1994. During 1995 and 1994,
MidAmerica added expenses of $11,765,000 and $6,562,000, respectively. Total
noninterest expense as a percentage of average assets declined to 2.97% in
1995 from 3.02% in 1994, after increasing from 2.91% in 1993.
One measurement of effective management of cost control is the efficiency
ratio which represents adjusted operating expenses as a percentage of
noninterest income and net interest income on a fully taxable-equivalent
basis. Homeland's efficiency ratio was 57.19% for 1995, 59.75% for 1994, and
54.69% for 1993. The improvement during 1995 reflects management's efforts
to reduce post-acquisition noninterest expenses through systems conversions,
departmental consolidations, and centralization of banking functions to gain
operating efficiencies and to improve customer services.
Personnel costs were $18,998,000 in 1995, $16,655,000 in 1994, and
$13,652,000 in 1993. Excluding MidAmerica costs, personnel expenses declined
to $13,678,000 in 1995 from $13,723,000 in 1994. Management has controlled
noninterest expenses related to human resources through savings realized in
group health insurance premiums and reductions of full-time equivalent staff.
Advertising and promotion expenses included costs associated with
Homeland's name change in 1995 which totaled approximately $550,000. The
increase in 1994 from 1993 resulted from the addition of MidAmerica and its
costs of $481,000 for the seven months of 1994.
A significant development during 1995 was the reduction in FDIC deposit
insurance premiums for commercial banks from $.23 per $100 of deposits to
$.04 per $100 of deposits effective as of June 1, 1995. This resulted in a
$590,000 reduction in Homeland's FDIC insurance expense during 1995. All
Homeland institutions currently maintain a "well-capitalized" status which
qualify them for the lowest applicable FDIC premium rates. In addition,
starting January 1, 1996, the commercial bank deposit premium was further
lowered to virtually zero.
Federal legislation has been proposed which would require the
recapitalization of the FDIC's Savings Association Insurance Fund ("SAIF").
The proposal would assess a special one-time charge of $.85 per $100 of SAIF
deposits, which could result in an estimated expense to Homeland of
approximately $2,200,000 sometime in the future, and would reduce Homeland's
future SAIF deposit insurance premiums from the present $.23 per $100 of
deposits to as low as zero, in turn reducing Homeland's future FDIC premium
expense by an estimated $500,000 per year.
Homeland recognized intangible amortization expense of $2,149,000,
$1,462,000, and $731,000 in 1995, 1994, and 1993, respectively. The
increased level of amortization during 1994 was a result of the MidAmerica
acquisition. Intangible assets consist of core deposit intangibles and
goodwill.
Gains from the disposition of other real estate owned resulted in net
income of $276,000 during 1995 and $566,000 in 1994, compared to net expense
of $52,000 in 1993. Other real estate owned properties were reduced to a
nominal level by the end of 1995.
Total other noninterest expenses were $5,183,000 in 1995, a 23.1% increase
as a full year of MidAmerica expenses were included in comparison to seven
months of expense in 1994. Excluding the expense of MidAmerica, other
noninterest expenses were $2,969,000 in 1995, $3,344,000 in 1994, and
$2,984,000 in 1993.
INCOME TAX EXPENSE
Homeland's effective income tax rate increased to 38.2% in 1995, up from
34.4% in 1994, and 32.1% in 1993. The effective income tax rates differ from
the marginal income tax rate of 35% primarily because of interest income on
tax-exempt securities and loans. Homeland's reduction of its investment in
tax-exempt obligations, as well as the increased nondeductible amortization
of intangible assets, have contributed to the effective rate increases.
NEWLY-ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," was issued in March 1995 with an effective date for fiscal
years beginning after December 15, 1995. This statement specifies when
certain long-lived assets should be reviewed for impairment and how to
measure and report an impairment loss. Management believes that the effect
of the statement on Homeland's consolidated financial statements will not be
material.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," was issued in
May 1995 with an effective date for fiscal years beginning after December 31,
1995. This statement amends SFAS No. 65 by establishing a new standard for
capitalizing mortgage servicing rights. Under SFAS No. 122, the accounting
principles for mortgage servicing rights are the same for mortgages
originated by the servicer as for those acquired through purchase
transactions. Accordingly, under the new statement, a bank would record an
asset for mortgage servicing rights when it sold mortgages and retained the
servicing. Management believes that the effect of the statement on
Homeland's financial statements will not be material.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995 with an effective date for fiscal years beginning after December
15, 1995. This statement established financial accounting and reporting
standards for stock-based employee compensation plans applying a fair value
based method to measure the compensation cost. Management believes that the
effect of the statement on Homeland's financial statements will not be
material.
CREDIT RISK MANAGEMENT
CREDIT ORIGINATION, MANAGEMENT, AND REVIEW
The management of Homeland believes that sound lending represents a
desirable and profitable means of employing bank funds. During 1995,
management upheld its objective to strengthen credit management and credit
review, both which are essential for maintaining a quality loan portfolio.
Credit approval functions are locally-based and include a review process
to ensure that sound and consistent credit decisions are made. Each credit
request is analyzed and passed through an approval process to ensure that
proper documentation and underwriting standards are met before credit is
extended. Larger transactions require higher levels of authorization,
including review by Homeland's executive management. Once credit has been
extended, the borrower's financial condition is continually monitored to
maintain credit quality. In addition, a holding company credit review
function reviews, tests, and monitors credit quality on an ongoing basis.
A uniform credit risk rating system is utilized by all Homeland
subsidiaries, allowing risk to be analyzed and controlled on a consistent
companywide basis. When credits reach a predetermined level of risk, they
are placed in watch list categories and receive increased attention from
senior management and each institution's board of directors. This credit
risk rating system drives the process of determining the adequacy of the
allowance for loan losses and the amount of the provision for loan losses.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation reserve for estimated losses
inherent in the loan portfolio. Actual credit losses, net of recoveries, are
deducted from the allowance for loan losses when they occur. Factors
considered in the evaluation of the allowance level include estimated future
losses from loan agreements and obligations, deterioration in credit
concentrations or pledged collateral, and historical loss experience, as well
as trends in portfolio volume, composition, delinquencies, and nonaccruals.
Management assesses the adequacy of the allowance for loan losses of each
subsidiary every quarter. However, actual losses could differ significantly
from the amounts estimated by management.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," was
adopted January 1, 1995. Under this standard, loans considered to be
impaired are reduced to the present value of the expected future cash flows
or to the fair value of collateral by allocating a portion of the allowance
for loan losses to such loans. If these allocations cause the allowance for
loan losses to require increase, such increase is reported as provision for
loan losses. Adopting the standard resulted in no initial increase to either
the allowance for loan losses or the provision for loan losses for Homeland.
The balance in the reserve for loan losses was $8.6 million at December
31, 1995, representing 1.02% of total loans and 174% of nonperforming assets.
At December 31, 1994, the allowance stood at $9.1 million, or 1.15% of total
loans and 122% of nonperforming assets. The 1993 loan loss reserve was $7.3
million, representing 1.57% of total loans and 69% of nonperforming assets at
December 31, 1993. The lower allowance-to-loans percentages in 1994 and 1995
reflect the shift in Homeland's loan composition to a higher percentage of
consumer real estate loans that generally carry less inherent risk than do
commercial loans.
Net charge offs totaled $1,420,000, $129,000, and $867,000 for the three
years ending December 31, 1995. As a percentage of average loans, net charge
offs were .17% in 1995, .02% in 1994, and .20% in 1993. Over the last five
years Homeland's net charge offs have averaged .25% of average loans.
Homeland's provision for loan losses was $941,000 in 1995, $296,000 in 1994,
and $770,000 in 1993. The year 1994 benefited from the $665,000 recovery of
a single commercial real estate loan which had been previously charged off.
RISK ELEMENT LOANS
DECEMBER 31,
-----------------------
(Dollars in millions) 1995 1994 1993
--------------------------------------------------------------------
Loans past due 90 days or more (1)<F1> $ 2.8 $ 1.6 $ .4
Nonaccrual loans 1.8 5.4 9.7
--------------------------------------------------------------------
Total nonperforming loans 4.6 7.0 10.1
Restructured loans .3 .3 .5
Potential problem loans 13.4 17.1 14.2
--------------------------------------------------------------------
Total risk element loans $18.3 $24.4 $24.8
====================================================================
(1)<F1> Includes government sponsored student loans totaling $1.6 million in
1995 and $1.1 million in 1994, for which there is minimal risk of loss.
Complementing Homeland's loan volume growth has been a decline in the
level of nonperforming assets. Nonperforming loans decreased by $2.4 million
during 1995, including a 66% reduction in nonaccrual loans. During 1995,
Homeland's largest problem loan was satisfied through a negotiated sale of
Homeland's rights which reduced total nonperforming loans by approximately $1
million. Nonperforming loans decreased by $3.1 million during 1994,
primarily from loan principal paydowns.
Expressed as a percentage of total loans and foreclosed property,
nonperforming assets improved to .58% at December 31, 1995, compared to .94%
and 2.28% at the end of 1994 and 1993, respectively. Homeland's asset
quality is a reflection of the company's community-based banking focus and
conservative lending policies.
If nonaccrual and restructured loans had been current in accordance with
their original terms, interest income would have been increased by $105,000
in 1995 and $545,000 in 1994. In addition to nonperforming and restructured
loans at December 31, 1995, Homeland management identified loans totaling
$13.4 million for which payments were presently current, but the borrowers
were experiencing financial difficulties. These potential problem loans
included loans that have been identified by the credit review process as
being inadequately protected by the current worth and payment capacity of the
borrowers, or of the collateral pledged as security.
Foreclosed property declined to $325,000 at December 31, 1995, down from
$356,000 and $562,000 at December 31, 1994 and 1993, respectively, as
dispositions continued to exceed new additions of foreclosed property.
Agricultural loans are the only industry concentration that exceeded 10%
of total loans. At December 31, 1995, Homeland had $46.3 million of
agricultural operating loans and $55.8 million of real estate loans secured
by farmland, which together aggregated 12.1% of total loans. These
agricultural related loans included $446,000 classified by management as
nonaccrual and $8.5 million as potential problem loans, aggregating 1.1% of
total loans. No agricultural related loans were restructured at December 31,
1995.
At December 31, 1995, Homeland had no interest earning assets, other than
loans, that met past due, nonaccrual, restructured, or potential problem loan
criteria.
BALANCE SHEET ANALYSIS
FEDERAL FUNDS AND SECURITIES
Homeland's core deposits have historically provided adequate funding to
satisfy customer loan demand. Any excess funds are invested in federal funds
sold or securities. Also, on a daily basis, Homeland purchases federal funds
from its respondent banks as a correspondent banking service.
At December 31, 1995, total securities were $217.6 million compared to
$282.5 million the prior year-end, a decrease of 23%. Excluding the
securities acquired in connection with the MidAmerica acquisition in 1994,
securities declined during 1994 from 1993, by approximately 28%. Homeland
has downsized it securities portfolio by utilizing maturing securities to
satisfy increased loan demand. Homeland's securities portfolio had an
average maturity of 1.9 years at December 31, 1995, compared to 2.3 years and
2.5 years at December 31, 1994 and 1993, respectively.
Effective January 1, 1994, Homeland adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which resulted in a net
increase to stockholders' equity of $778,000, net of deferred income taxes.
In November 1995, the Financial Accounting Standards Board issued
implementation guidance for SFAS No. 115. Accordingly, on December 31, 1995,
Homeland reclassified securities with an amortized cost of $79,680,000 and
net unrealized gains of $952,000 from held to maturity to available for sale.
Homeland does not engage in any speculative trading with its securities
portfolio, nor does it hold any exotic derivative instruments which have
recently received much attention from the financial press and regulatory
agencies. Management feels that while these transactions may offer benefits
to some investors, Homeland's balance sheet is more efficiently managed with
conventional strategies.
LOANS
Management's ability to lend money at profitable rates to attract
borrowers is greatly affected by economic conditions. Loan growth during
1995 benefited from the favorable economic conditions in Homeland's market
area. Total loans grew by 6.6% from 1994 to 1995, reaching $845 million at
December 31, 1995. Consumer real estate loans led all loan categories with
an 11.3% increase, followed by consumer loans with an 8.2% growth during
1995. The more modest increases in commercial and commercial real estate
loans were accompanied by an improvement in credit quality, as indicated by
the reduced amount of nonperforming assets. Total loans increased during
1994 from 1993 by 70.5%, primarily due to $233 million in loans acquired with
the MidAmerica acquisition.
DEPOSITS
Customer deposits are the principal source of funds available for lending
and investing activities. Deposit levels were up slightly from $949 million
the previous year to $963 million at December 31, 1995. Homeland's
loan-to-deposit ratio increased from 84% in 1994 to 88% in 1995.
Supplementing the funding provided by customer deposits, Homeland utilizes a
variety of other funding sources including Federal Home Loan Bank borrowings
and federal funds purchased from other banks.
BORROWINGS
During 1995, Homeland elected to reduce its borrowing costs by extending
$40 million of short-term borrowings to long-term debt maturing in 1997.
CAPITAL RESOURCES
CAPITAL RATIOS REGULATORY
CAPITAL REQUIREMENTS
-------------------------
WELL MINIMUM
1995 1994 CAPITALIZED REQUIREMENT
------------------------------------------------------------------------
Tier I risk-based capital 13.78% 13.03% 6.00% 4.00%
Total risk-based capital 14.84 14.18 10.00 8.00
Leverage capital 8.63 8.11 5.00 4.00
Banking is an extensively regulated industry. To maintain the
shareholders' and customers' security, banking regulatory agencies have set
forth capital requirements based upon the relative risk of different assets
held by banks. Homeland's capital ratios have consistently exceeded the
"well-capitalized" regulatory capital requirements for financial
institutions. While successfully maintaining an adequate level of capital,
Homeland has consistently paid quarterly cash dividends to its shareholders.
Dividends received from Homeland's subsidiaries are the primary source of
funds available to Homeland for payment of cash dividends to its
shareholders, for acquisitions, and for debt repayment. State and federal
banking regulations require minimum capital levels to be maintained and
impose certain restrictions on the amount of cash dividends that subsidiaries
can pay to their parent company in any given year. At December 31, 1995,
stockholders' equity of Homeland subsidiaries totaled $122 million, of which
approximately $13 million was available for the payment of cash dividends to
Homeland.
Homeland's stockholders' equity totaled $127.3 million at December 31,
1995, 11.0% higher than December 31, 1994. The net unrealized gain on
securities available for sale, net of deferred income taxes, was $622,000 at
December 31, 1995, compared to a net unrealized loss at year-end 1994 of
$3,287,000. Declining market interest rates during 1995 were responsible for
the securities portfolio market value improvement.
Homeland's closing market trade prices were $29.75 and $23.25 at December
31, 1995 and 1994, with book values per share of $22.18 and $19.99,
respectively. Homeland common stock is traded on the Nasdaq Stock Market
under the trading symbol "HLND."
During 1993, Homeland had a two-for-one common stock split which was the
seventh split since Homeland was organized in 1981. The split was effected
in the form of a 100% stock dividend with Homeland issuing 2,839,073 new
common shares.
Homeland had no commitments for any significant capital expenditures at
December 31, 1995, and currently carries no long-term debt at the parent
company.
ASSET-LIABILITY MANAGEMENT
Asset-liability management encompasses both the maintenance of adequate
liquidity and the management of interest rate sensitivity. Liquidity
management involves planning to meet anticipated funding needs, while
interest rate sensitivity management attempts to provide the optimal level of
net interest income while managing exposure to risks associated with interest
rate movements.
LIQUIDITY
Core deposits have historically provided Homeland with a major source of
stable and relatively low cost funding. Secondary sources of liquidity
include federal funds sold, maturing securities and loans, securities
available for sale, and borrowed funds. In the normal course of business,
Homeland banks have established short-term lines of credit for the management
of daily liquidity needs. At December 31, 1995, these unused lines of credit
aggregated $111 million.
During 1995, cash and cash equivalents increased to $119.9 million at
year-end compared to $61.4 million at the end of 1994. The $58 million
increase was provided by $18 million of operating activities, $16 million of
investing activities, and $24 million of financing activities. An increase
in the amount of federal funds purchased from downstream respondent banks was
largely responsible for generating the higher level of cash and cash
equivalents at December 31, 1995.
INTEREST RATE SENSITIVITY
Interest rate sensitivity has traditionally been measured by gap analysis,
which represents the difference between assets and liabilities that reprice
in certain time periods. This method, while useful, has a number of
limitations as it is a static point-in-time measurement and does not take
into account the varying degrees of sensitivity to interest rates within the
balance sheet. As shown in the following table, on a static-gap basis, the
cumulative ratio of interest sensitive assets to interest sensitive
liabilities in a one-year time frame was 1.24, and as a percentage of total
assets was 10.29%.
Because of the inherent limitations of gap analysis, Homeland uses an
earnings simulation model to more realistically measure its sensitivity to
changing interest rates. Management monitors the rate sensitivity and
liquidity positions on an ongoing basis and, when necessary, appropriate
action is taken to minimize any adverse effects of rapid interest rate
movements or any unexpected liquidity concerns.
INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1995
-------------------------------------------------------------------
AFTER ONE AFTER THREE
WITHIN THROUGH THROUGH
ONE THREE TWELVE TOTAL AFTER ONE
(Dollars in thousands) MONTH MONTHS MONTHS ONE YEAR YEAR TOTAL
----------------------------------------------------------------------------------------------------
Interest earning assets
Federal funds sold $ 73,850 $ --- $ --- $ 73,850 $ --- $ 73,850
Securities 27,125 8,435 50,735 86,295 131,261 217,556
Loans 241,058 55,549 209,713 506,320 338,469 844,789
----------------------------------------------------------------------------------------------------
Total interest earning
assets 342,033 63,984 260,448 666,465 469,730 1,136,195
----------------------------------------------------------------------------------------------------
Sources of funds
Interest bearing
demand deposits (1)<F1> 21,399 --- --- 21,399 85,048 106,447
Money market deposits(1)<F1> 129,304 --- --- 129,304 44,696 174,000
Savings deposits(1)<F1> 13,695 --- --- 13,695 54,782 68,477
Time deposits 49,868 55,364 183,971 289,203 200,690 489,893
Federal funds purchased 70,225 --- --- 70,225 --- 70,225
Other short-term borrowings 15,587 --- --- 15,587 --- 15,587
Long-term borrowings --- 75 150 225 43,700 43,925
----------------------------------------------------------------------------------------------------
Total rate sensitive liabilities 300,078 55,439 184,121 539,638 428,916 968,554
Demand deposits, net of cash
and due from banks --- --- --- --- 77,830 77,830
Other, net --- --- --- --- 89,811 89,811
----------------------------------------------------------------------------------------------------
Total sources of funds 300,078 55,439 184,121 539,638 596,557 1,136,195
----------------------------------------------------------------------------------------------------
Interest sensitivity gap $ 41,955 $ 8,545 $ 76,327 $ 126,827 $(126,827) $ ---
====================================================================================================
Cumulative gap $ 41,955 $ 50,500 $126,827 $126,827
Cumulative gap as a percentage
of total assets 4.21% 4.91% 4.83% 10.29%
Cumulative ratio of interest
sensitive assets to interest
sensitive liabilities 1.14 1.14 1.24 1.24
====================================================================================================
<FN>
(1)<F1> On the basis of historical studies, deposits determined to be less sensitive to changes in
market interest rates are included in the "after one year" category.
</FN>
QUARTERLY FINANCIAL INFORMATION
(Unaudited)
1995 QUARTER ENDED
----------------------------------------
(Dollars in thousands,
except per share data) MAR 31 JUNE 30 SEPT 30 DEC 31
------------------------------------------------------------------------------
Interest income $22,107 $22,902 $23,404 $24,067
Interest expense 10,597 11,070 11,319 11,818
Provision for loan losses 114 269 229 329
Noninterest income 2,641 2,948 3,093 2,983
Noninterest expenses 9,207 9,241 8,882 9,020
Income tax expense 1,754 2,036 2,425 2,214
------------------------------------------------------------------------------
NET INCOME $ 3,076 $ 3,234 $ 3,642 $ 3,669
==============================================================================
NET INCOME PER SHARE $ .54 $ .56 $ .63 $ .64
==============================================================================
1994 Quarter ended
----------------------------------------
(Dollars in thousands,
except per share data) Mar 31 June 30 Sept 30 Dec 31
------------------------------------------------------------------------------
Interest income $13,276 $15,861 $21,047 $21,912
Interest expense 5,069 6,465 8,938 9,968
Provision for loan losses 25 (20) 40 251
Noninterest income 2,392 2,565 2,385 2,334
Noninterest expenses 6,088 7,473 9,446 9,325
Income tax expense 1,496 1,599 1,864 1,484
------------------------------------------------------------------------------
Net income $ 2,990 $ 2,909 $ 3,144 $ 3,218
==============================================================================
Net income per share $ .52 $ .51 $ .55 $ .56
==============================================================================
Fourth quarter net income was $3,669,000 in 1995 compared to $3,218,000 in
1994, a 14.0% increase. Net income per share comparisons were $.64 and $.56,
respectively.
Net interest income increased by $305,000 for the last three months of
1995 compared to the same three-month period in 1994 due to a higher level of
earning assets. Net interest margin for the fourth quarter was 4.22% in 1995
and 4.36% in 1994. The net interest income increase was supplemented by a
total $954,000 benefit of higher noninterest income and lower noninterest
expenses in the fourth quarter of 1995 compared to the same quarter in 1994;
however, higher loan loss provision and income tax expense lowered the
overall 1995 fourth quarter net income increase to $451,000.
The noninterest income for the fourth quarter of 1995 included a $242,000
increase in trust service revenue and $169,000 increase in student loan
servicing fees compared to the 1994 fourth quarter.
The reduction of FDIC insurance premiums totaling $334,000 was the primary
reason for the decrease in 1995 fourth quarter noninterest expenses compared
to the same period of 1994. Other expense categories showing a decrease in
the fourth quarter comparisons included equipment, supplies, advertising and
promotion, and professional fees. This aggregate decline of certain expenses
was offset by higher personnel costs for the final three months of 1995 in
comparison to the same period of 1994.
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(Taxable-equivalent basis)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- -------------------------- --------------------------
AVERAGE AVERAGE Average Average Average Average
(Dollars in thousands) BALANCE INTEREST RATE balance Interest rate balance Interest rate
-------------------------------------------------------------------------------------------------------------------
ASSETS
Federal funds sold $ 30,910 $ 1,847 5.98% $ 44,408 $ 1,915 4.31% $ 57,425 $ 1,761 3.07%
Other short-term investments --- --- --- 5,008 153 3.06 7,139 191 2.68
Taxable securities 231,338 14,520 6.28 245,643 14,389 5.86 249,431 14,848 5.95
Tax-exempt securities 36,904 2,879 7.80 46,660 3,894 8.35 47,162 4,208 8.92
Loans 827,017 74,211 8.97 636,543 53,013 8.33 441,993 37,223 8.42
-------------------------------------------------------------------------------------------------------------------
Total interest earning assets 1,126,169 93,457 8.30% 978,262 73,364 7.50% 803,150 58,231 7.25%
-------------------------------------------------------------------------------------------------------------------
Noninterest earning assets
Cash and due from banks 45,427 46,791 48,271
Premises and equipment 24,757 20,553 14,164
Other assets 37,394 32,440 22,632
Allowance for loan losses (8,988) (8,408) (7,381)
-------------------------------------------------------------------------------------------------------------------
Total assets $1,224,759 $1,069,638 $880,836
===================================================================================================================
LIABILITIES
Interest bearing demand
deposits $ 101,831 2,110 2.07% $ 99,567 2,082 2.09% $ 90,383 1,939 2.15%
Money market deposits 168,287 6,067 3.61 173,143 5,028 2.90 167,122 4,629 2.77
Savings deposits 66,638 1,520 2.28 63,576 1,476 2.32 51,787 1,251 2.42
Time deposits 495,243 26,542 5.36 411,274 17,899 4.35 304,842 12,842 4.21
Federal funds purchased 60,513 3,586 5.93 39,534 1,660 4.20 42,072 1,181 2.81
Other short-term borrowings 56,447 3,474 6.15 41,297 2,135 5.17 3,507 99 2.82
Long-term borrowings 25,485 1,505 5.91 2,239 161 7.19 --- --- ---
-------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 974,444 44,804 4.60% 830,630 30,441 3.66% 659,713 21,941 3.33%
-------------------------------------------------------------------------------------------------------------------
Noninterest bearing liabilities
Demand deposits 115,968 114,610 107,897
Accrued expenses and other
liabilities 13,495 11,468 6,888
-------------------------------------------------------------------------------------------------------------------
Total liabilities 1,103,907 956,708 774,498
STOCKHOLDERS' EQUITY 120,852 112,930 106,338
-------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $1,224,759 $1,069,638 $880,836
===================================================================================================================
NET INTEREST INCOME $48,653 $42,923 $ 36,290
===================================================================================================================
NET INTEREST SPREAD 3.70% 3.84% 3.92%
===================================================================================================================
NET INTEREST MARGIN 4.32% 4.39% 4.52%
===================================================================================================================
<FN>
Notes: Interest income for tax-exempt loans and securities is shown on a
fully taxable-equivalent basis. The adjustments for 1995, 1994, and 1993
were $977,000, $1,267,000, and $1,445,000, respectively, based on a marginal
income tax rate of 35%.
Nonaccrual loans are included in loan balances.
</FN>
CHANGES IN NET INTEREST INCOME
(Taxable-equivalent basis)
1995/94 1994/93
---------------------------- -----------------------------
CHANGE DUE TO Change due to
---------------- TOTAL ----------------- Total
(Dollars in thousands) RATE VOLUME CHANGE Rate Volume change
-------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN INTEREST INCOME
Federal funds sold $ 514 $ (582) $ (68) $ 554 $ (400) $ 154
Other short-term investments --- (153) (153) 19 (57) (38)
Taxable securities 654 (523) 131 (326) (133) (459)
Tax-exempt securities (200) (815) (1,015) (269) (45) (314)
Loans 5,408 15,790 21,198 (1,119) 16,909 15,790
-------------------------------------------------------------------------------------------------------
Change in interest income 6,376 13,717 20,093 (1,141) 16,274 15,133
-------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN INTEREST EXPENSE
Interest bearing demand deposits (17) 45 28 (49) 192 143
Money market deposits 1,041 (2) 1,039 233 166 399
Savings deposits (27) 71 44 (60) 285 225
Time deposits 5,004 3,638 8,642 589 4,468 5,057
Federal funds purchased 1,045 881 1,926 550 (71) 479
Other short-term borrowings 556 783 1,339 970 --- 161
Long-term borrowings (327) 1,671 1,344 161 1,066 2,036
-------------------------------------------------------------------------------------------------------
Change in interest expense 7,275 7,087 14,362 2,394 6,106 8,500
------------------------------------------------------------------------------------------------------
Change in net interest income $ (899) $ 6,630 $ 5,731 $(3,535) $10,168 $ 6,633
======================================================================================================
<FN>
Notes: Interest income for tax-exempt loans and securities is shown on a
fully taxable-equivalent basis. The adjustments for 1995, 1994, and 1993
were $977,000, $1,267,000, and $1,445,000, respectively, based on a marginal
income tax rate of 35%.
Rate change is computed as the difference in the rate between the current and
prior year times the volume of the current year, while the volume
change is computed as the difference in volume between the current and prior
year times the prior year's rate. The rate/volume variance is
allocated entirely to rate change.
</FN>
SECURITIES BY TYPE
DECEMBER 31,
-------------------------------
(Dollars in thousands) 1995 1994 1993
---------------------------------------------------------------------------
U.S. Treasury $ 64,288 $ 85,495 $131,723
U.S. Government agencies 21,771 30,886 32,832
U.S. Government agencies mortgage-backed 69,368 78,236 55,061
Student loan participation certificates 16,708 30,105 ---
States and political subdivisions 34,095 42,436 48,021
Corporate 427 1,955 9,107
Corporate mortgage-backed 3,906 4,573 556
Other 6,993 8,764 1,777
---------------------------------------------------------------------------
Total $217,556 $282,450 $279,077
===========================================================================
MATURITIES AND AVERAGE YIELDS OF SECURITIES
DECEMBER 31, 1995
--------------------------------------------------------------------------
AFTER ONE AFTER FIVE
WITHIN ONE YEAR THROUGH FIVE YEARS THROUGH TEN YEARS AFTER TEN YEARS
--------------- ------------------ ----------------- ---------------
(Dollars in thousands) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-----------------------------------------------------------------------------------------------------
U.S. Treasury $32,654 5.03% $ 31,462 5.50% $ --- ---% $ 172 7.50%
U.S. Government agencies 7,361 7.15 14,410 6.19 --- --- --- ---
U.S. Government agencies
mortgage-backed 8,212 6.71 52,357 6.22 7,450 7.78 1,349 8.50
Student loan participation
certificates 16,708 5.95 --- --- --- --- --- ---
States and political
subdivisions 6,427 7.57 10,894 8.10 16,517 7.79 257 8.23
Corporate 427 5.87 --- --- --- --- --- ---
Corporate mortgage-backed 900 5.80 3,006 5.80 --- --- --- ---
Other --- --- 115 6.28 --- --- 6,878 6.96
-----------------------------------------------------------------------------------------------------
Total $72,689 5.89% $112,244 6.19% $ 23,967 7.79% $8,656 7.25%
=====================================================================================================
<FN>
Note: Yields on tax-exempt securities are computed on a fully
taxable-equivalent basis using a marginal income tax rate of 35%.
</FN>
NONPERFORMING ASSETS AND RESTRUCTURED LOANS
DECEMBER 31,
-------------------------------------------
(Dollars in thousands) 1995 1994 1993 1992 1991
------------------------------------------------------------------------------
Loans past due 90 days or
more (1)<F1> $2,766 $1,622 $ 413 $ 341 $ 246
Nonaccrual loans 1,852 5,443 9,653 4,338 1,958
Foreclosed property 325 356 562 1,199 2,959
------------------------------------------------------------------------------
Total nonperforming assets $4,943 $7,421 $10,628 $5,878 $5,163
==============================================================================
Total nonperforming assets as a
percentage of total loans and
foreclosed property .58% .94% 2.28% 1.34% 1.16%
==============================================================================
Restructured loans $ 307 $ 296 $ 486 $4,012 $5,557
==============================================================================
(1)<F1> Includes government sponsored student loans of $1,643,000 in 1995 and
$1,131,000 in 1994, for which there is minimal risk of loss.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) 1995 1994 1993 1992 1991
------------------------------------------------------------------------------
Balance at beginning of year $ 9,082 $ 7,315 $ 7,412 $ 5,946 $ 5,338
------------------------------------------------------------------------------
Provision for loan losses 941 296 770 2,145 3,730
------------------------------------------------------------------------------
Recoveries
Commercial, financial, and
agricultural 78 316 474 712 368
Commercial real estate 249 953 140 35 ---
Consumer real estate 33 13 17 11 25
Consumer 194 156 214 104 78
------------------------------------------------------------------------------
Total recoveries 554 1,438 845 862 471
------------------------------------------------------------------------------
Charge offs
Commercial, financial, and
agricultural 391 631 422 1,106 3,181
Commercial real estate 236 341 935 199 72
Consumer real estate 51 33 17 31 32
Consumer 1,296 562 338 205 308
------------------------------------------------------------------------------
Total charge offs 1,974 1,567 1,712 1,541 3,593
------------------------------------------------------------------------------
Net charge offs 1,420 129 867 679 3,122
------------------------------------------------------------------------------
Allowance of purchased
financial institution --- 1,600 --- --- ---
------------------------------------------------------------------------------
Balance at end of year $ 8,603 $ 9,082 $ 7,315 $ 7,412 $ 5,946
==============================================================================
Average loans $827,017 $636,543 $441,993 $438,175 $438,957
Total loans 844,789 792,796 464,992 438,588 442,433
Recoveries as a percentage
of total charge offs 28.06% 91.77% 49.36% 55.94% 13.11%
Net charge offs as a
percentage of average loans .17% .02% .20% .15% .71%
Allowance for loan losses as a
percentage of total loans 1.02% 1.15% 1.57% 1.69% 1.34%
==============================================================================
LOANS BY TYPE
DECEMBER 31,
------------------------------------------------
(Dollars in thousands) 1995 1994 1993 1992 1991
------------------------------------------------------------------------------
Commercial $104,466 $ 97,342 $ 80,749 $ 80,250 $ 91,260
Bank stock 27,914 29,602 31,316 31,997 29,899
Agricultural 46,282 48,679 61,305 61,252 78,971
Commercial real estate 158,206 148,276 68,955 64,948 59,219
Agricultural real estate 55,751 59,219 53,700 49,123 34,244
Consumer real estate 318,461 286,085 107,564 100,646 98,787
Consumer 133,709 123,593 61,403 50,372 50,053
------------------------------------------------------------------------------
Total $844,789 $792,796 $464,992 $438,588 $442,433
==============================================================================
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------- ------------------- ------------------- ------------------- -------------------
RATIO OF Ratio of Ratio of Ratio of Ratio of
ALLOWANCE LOANS TO Allowance loans to Allowance loans to Allowance loans to Allowance loans to
(Dollars in thousands) AMOUNT TOTAL amount total amount total amount total amount total
--------------------------------------------------------------------------------------------------------------------------------
Commercial $1,377 12.61% $1,407 12.31% $1,954 17.37% $1,864 18.30% $1,563 20.63%
Bank stock 302 3.10 298 3.73 337 6.73 334 7.29 159 6.76
Agricultural 928 5.44 1,173 6.11 1,588 13.18 995 13.97 1,489 17.85
Commercial real estate 1,692 18.71 2,052 18.74 858 14.83 2,466 14.81 1,488 13.38
Agricultural real estate 1,349 6.61 1,740 7.43 1,590 11.55 958 11.20 451 7.74
Consumer real estate 1,536 37.70 1,281 36.09 475 23.13 450 22.95 440 22.33
Consumer 1,419 15.83 1,131 15.59 513 13.21 345 11.48 356 11.31
--------------------------------------------------------------------------------------------------------------------------------
Total $8,603 100.00% $9,082 100.00% $7,315 100.00% $7,412 100.00% $5,946 100.00%
================================================================================================================================
LOAN MATURITIES AND INTEREST RATE SENSITIVITY
DECEMBER 31, 1995
-----------------------------------------
AFTER ONE AFTER
WITHIN THROUGH FIVE
(Dollars in thousands) ONE YEAR FIVE YEARS YEARS TOTAL
-----------------------------------------------------------------------------
Commercial, financial, and
agricultural loans outstanding $ 123,170 $ 48,117 $ 7,375 $ 178,662
=============================================================================
Note: Included in the above loans due after one year were variable rate
loans of $25,890,000 and fixed rate loans of $29,602,000. Loan
maturities are based on contractual terms. Such terms do not vary
significantly as a result of loan rollovers.
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
DECEMBER 31, 1995
-------------------------------------------------------
AFTER THREE AFTER SIX
WITHIN THROUGH SIX THROUGH TWELVE AFTER
(Dollars in thousands) THREE MONTHS MONTHS MONTHS ONE YEAR TOTAL
------------------------------------------------------------------------------
Time certificates $13,893 $ 9,116 $17,065 $19,434 $59,508
Other time deposits 664 102 1,321 2,445 4,532
------------------------------------------------------------------------------
Total $14,557 $ 9,218 $18,386 $21,879 $64,040
==============================================================================
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(Dollars in thousands, except per share data) 1995 1994
-----------------------------------------------------------------------
ASSETS
Cash and due from banks $ 46,072 $ 46,692
Federal funds sold 73,850 14,700
-----------------------------------------------------------------------
Total cash and cash equivalents 119,922 61,392
Securities
Available for sale (amortized cost $216,565
in 1995 and $166,271 in 1994) 217,556 161,096
Held to maturity (fair value $119,190
in 1994) --- 121,354
-----------------------------------------------------------------------
Total securities 217,556 282,450
Loans
Commercial, financial, and agricultural 178,662 175,623
Commercial real estate 213,957 207,495
Consumer real estate 318,461 286,085
Consumer 133,709 123,593
-----------------------------------------------------------------------
Total loans 844,789 792,796
Allowance for loan losses (8,603) (9,082)
-----------------------------------------------------------------------
Net loans 836,186 783,714
Premises and equipment 24,609 24,676
Intangible assets 18,471 20,620
Other assets 16,163 17,781
-----------------------------------------------------------------------
Total assets $1,232,907 $1,190,633
=======================================================================
LIABILITIES
Deposits
Noninterest bearing demand $ 123,902 $ 118,949
Interest bearing demand 106,447 110,749
Money market 174,000 171,746
Savings 68,477 68,254
Time 489,893 479,662
-----------------------------------------------------------------------
Total deposits 962,719 949,360
Federal funds purchased 70,225 27,425
Other short-term borrowings 15,587 84,320
Accrued expenses and other liabilities 13,130 12,336
Long-term borrowings 43,925 2,450
-----------------------------------------------------------------------
Total liabilities 1,105,586 1,075,891
-----------------------------------------------------------------------
Commitments and Contingencies (Notes 6, 8, 9, 14, and 15)
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value; 25,000,000
shares authorized; 5,740,513 shares issued
and outstanding (5,738,713 in 1994) 71,756 71,734
Additional paid-in capital 246 227
Retained earnings 54,697 46,068
Net unrealized gain (loss) on securities
available for sale, net of income taxes 622 (3,287)
-----------------------------------------------------------------------
Total stockholders' equity 127,321 114,742
-----------------------------------------------------------------------
Total liabilities and stockholders' equity $1,232,907 $1,190,633
=======================================================================
See notes to consolidated financial statements
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(Dollars in thousands, except per share data) 1995 1994 1993
----------------------------------------------------------------------------
Interest income
Loans $74,098 $52,913 $37,042
Taxable securities 14,520 14,390 14,847
Tax-exempt securities 2,015 2,725 2,945
Federal funds sold 1,847 1,915 1,761
Other short-term investments --- 153 191
----------------------------------------------------------------------------
Total interest income 92,480 72,096 56,786
----------------------------------------------------------------------------
Interest expense
Deposits 36,239 26,484 20,661
Short-term borrowings 7,060 3,795 1,280
Long-term borrowings 1,505 161 ---
----------------------------------------------------------------------------
Total interest expense 44,804 30,440 21,941
----------------------------------------------------------------------------
Net interest income 47,676 41,656 34,845
Provision for loan losses 941 296 770
----------------------------------------------------------------------------
Net interest income after provision for
loan losses 46,735 41,360 34,075
----------------------------------------------------------------------------
Noninterest income
Data processing services 2,511 2,529 2,452
Trust services 2,450 2,228 2,534
Student loan servicing fees 1,086 272 ---
Deposit account service charges 3,094 2,733 2,456
Securities gains (losses) 31 (17) 95
Other 2,493 1,931 1,740
----------------------------------------------------------------------------
Total noninterest income 11,665 9,676 9,277
----------------------------------------------------------------------------
Noninterest expenses
Personnel 18,998 16,655 13,652
Occupancy 2,712 2,479 2,090
Equipment 2,367 2,358 1,960
Supplies 1,111 889 801
Advertising and promotion 1,741 1,716 1,023
Professional fees 984 1,159 713
FDIC insurance 1,381 1,971 1,644
Intangible amortization 2,149 1,462 731
Other real estate owned (276) (566) 52
Other 5,183 4,209 2,984
----------------------------------------------------------------------------
Total noninterest expenses 36,350 32,332 25,650
----------------------------------------------------------------------------
Income before income taxes 22,050 18,704 17,702
Income tax expense 8,429 6,443 5,682
----------------------------------------------------------------------------
NET INCOME $13,621 $12,261 $12,020
============================================================================
NET INCOME PER SHARE $ 2.37 $ 2.14 $ 2.11
============================================================================
AVERAGE NUMBER OF SHARES OUTSTANDING 5,744,836 5,732,133 5,698,464
============================================================================
See notes to consolidated financial statements
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1995 1994 1993
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 13,621 $ 12,261 $ 12,020
Adjustments to reconcile net income to net
cash provided by operating activities
Amortization and accretion 2,525 741 2,752
Depreciation 1,972 1,927 1,496
Provision for loan losses 941 296 770
Provision for deferred income taxes 958 (44) (354)
Net loss (gain) on securities
Available for sale (21) 20 (25)
Held to maturity (10) (3) (70)
Net gain on sales of other assets (154) (632) (32)
Decrease (increase) in other assets (1,398) 2,198 149
Decrease in accrued expenses and
other liabilities (164) (4,210) (894)
-------------------------------------------------------------------------
Net cash provided by operating activities 18,270 12,554 15,812
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Cash and cash equivalents acquired, net
of payment for purchase of financial
institution --- (41,932) ---
Divestiture of branch offices, net of
cash and cash equivalents --- (46,853) ---
Proceeds from sales of securities
Available for sale 149 25,841 2,032
Held to maturity --- --- 2,005
Proceeds from maturities and calls
of securities
Available for sale 78,403 55,650 29,436
Held to maturity 47,774 48,603 103,473
Purchases of securities
Available for sale (56,649) (50,152) (62,779)
Held to maturity (616) (9,066) (48,948)
Net increase in loans (52,300) (95,839) (26,940)
Purchases of premises and equipment (2,205) (2,391) (2,844)
Proceeds from sales of other assets 1,754 1,286 772
-------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 16,310 (114,853) (3,793)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 13,359 17,542 (27,647)
Net increase (decrease) in federal
funds purchased 42,800 (12,575) (15,875)
Net increase (decrease) in other
short-term borrowings (68,733) 69,986 (742)
Proceeds from long-term borrowings 41,700 2,450 ---
Repayments of long-term borrowings (225) (3,000) ---
Payments of cash dividends (4,992) (4,808) (4,656)
Proceeds from stock options 41 975 9
-------------------------------------------------------------------------
Net cash provided by (used for)
financing activities 23,950 70,570 (48,911)
-------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 58,530 (31,729) (36,892)
Cash and cash equivalents at beginning
of year 61,392 93,121 130,013
-------------------------------------------------------------------------
Cash and cash equivalents at end of year $119,922 $ 61,392 $ 93,121
=========================================================================
See notes to consolidated financial statements
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NET
ADDITIONAL UNREALIZED
COMMON PAID-IN RETAINED SECURITIES
(Dollars in thousands, except per share data) STOCK CAPITAL EARNINGS GAIN (LOSS) TOTAL
-------------------------------------------------------------------------------------------------
Balance at January 1, 1993 $35,488 $ 17,347 $ 49,393 $ --- $102,228
Net income --- --- 12,020 --- 12,020
Cash dividends - $.82 per share --- --- (4,656) --- (4,656)
Stock split (effected in the form of a
100% stock dividend) 35,489 (17,347) (18,142) --- ---
Common stock issued under stock option plans 7 2 --- --- 9
-------------------------------------------------------------------------------------------------
Balance at December 31, 1993 70,984 2 38,615 --- 109,601
Net unrealized gain on securities available
for sale at January 1, 1994 --- --- --- 778 778
Net income --- --- 12,261 --- 12,261
Cash dividends - $.84 per share --- --- (4,808) --- (4,808)
Common stock issued under stock option plans 750 225 --- --- 975
Net unrealized loss on securities available
for sale --- --- --- (4,065) (4,065)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1994 71,734 227 46,068 (3,287) 114,742
Net income --- --- 13,621 --- 13,621
Cash dividends - $.87 per share --- --- (4,992) --- (4,992)
Common stock issued under stock option plans 22 19 --- --- 41
Reclassification of securities from held to
maturity to available for sale --- --- --- 597 597
Net unrealized gain on securities available
for sale --- --- --- 3,312 3,312
-------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $71,756 $ 246 $54,697 $ 622 $127,321
=================================================================================================
<FN>
See notes to consolidated financial statements
</FN>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Homeland Bankshares Corporation ("Homeland") is a diversified financial
services company. Homeland owns and operates four commercial banks and one
savings and loan association that provide a wide variety of financial
services through a network of 34 locations in Iowa. Homeland also provides
data processing and correspondent banking services to more than 170 financial
institutions in Iowa and bordering states.
The accounting and financial reporting policies of Homeland and its
subsidiaries conform with generally accepted accounting principles and
prevailing practices within the financial services industry. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Homeland and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Certain
balances for 1994 and 1993 have been reclassified to conform with 1995
consolidated financial statement presentation.
CASH AND CASH EQUIVALENTS: Cash equivalents include amounts due from banks
and federal funds sold. For cash flow statement purposes, management
considers all securities, including those with original maturities of three
months or less, to be part of operating or investing activities rather than
cash equivalents.
SECURITIES: Securities available for sale are reported at fair value, with
the unrealized gains and losses reported as a separate component of
stockholders' equity. Available for sale securities may be sold for
management of general liquidity needs, response to market interest rate
fluctuations, implementation of asset-liability management strategy, funding
increased loan demand, changes in securities prepayment risk, or other
similar factors. Realized gains and losses on sales are computed on a
specific identification basis and are shown separately as a component of
noninterest income.
Securities held to maturity are carried at amortized cost and consist of debt
securities for which Homeland has the positive intent and the ability to hold
to maturity. Securities held to maturity are stated at cost, net of premium
amortization and discount accretion, computed on a specific identification
basis.
Effective January 1, 1994, Homeland adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which resulted in a net increase to stockholders' equity
of $778,000, net of deferred income taxes. In November 1995, the Financial
Accounting Standards Board issued implementation guidance for SFAS No. 115.
Accordingly, on December 31, 1995, Homeland reclassified securities with an
amortized cost of $79,680,000 and net unrealized gains of $952,000 from held
to maturity to available for sale.
LOANS: Loans are stated at the principal amounts outstanding with interest
income recognized based upon those outstanding loan balances. Loans are
generally placed on nonaccrual status when principal or interest has been in
default for a period of 90 days or more, or when collection of the loan
principal or the related interest is otherwise considered doubtful. At the
time a loan is placed on nonaccrual status, accrued interest receivable is
reversed against interest income of the current period. Loans are returned
to accrual status when factors indicating doubtful collectability no longer
exist.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," were adopted January 1, 1995. Under these
statements, loans considered to be impaired are reduced to the present value
of expected future cash flows or to the fair value of collateral, by
allocating a portion of the allowance for loan losses to such loans. If
these allocations cause the allowance for loan losses to require an increase,
such increase is reported as provision for loan losses. Adopting these
standards resulted in no initial increase to either the allowance for loan
losses or the provision for loan losses.
The carrying values of impaired loans are periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and increases in the
present value of expected cash flows due to the passage of time. Cash
payments are reported as reductions in carrying value, while increases or
decreases due to changes in estimates of future payments and due to the
passage of time are reported as provision for loan losses.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
reserve for estimated losses inherent in the loan portfolio. Actual credit
losses, net of recoveries, are deducted from the allowance for loan losses
when they occur. Factors considered in the evaluation of the allowance level
include estimated future losses from loan agreements and obligations,
deterioration in credit concentrations or pledged collateral, and historical
loss experience, as well as trends in portfolio volume, composition,
delinquencies, and nonaccruals. Management assesses the adequacy of the
allowance for loan losses every quarter. However, actual losses could differ
significantly from the amounts estimated by management.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is charged to operating expense
primarily on the straight-line method over the estimated useful lives of the
assets. Maintenance and repairs are expensed as incurred while major
additions and improvements are capitalized.
FORECLOSED PROPERTY: Foreclosed properties consist primarily of real estate
acquired as a result of customer loan defaults that are carried at the lower
of the recorded investments in the defaulted loans or at fair value less
estimated selling costs. Losses arising at the time of acquisition of the
properties are charged to the allowance for loan losses.
INTANGIBLE ASSETS: Goodwill and core deposit intangibles arise from net
assets acquired in purchase transactions. Purchased assets and liabilities
are recorded at their estimated fair values on the acquisition dates.
Intangible assets are reviewed for possible impairment when events or changed
circumstances may indicate that the carrying amount of the assets may not be
recoverable. Goodwill is amortized on a straight-line basis over 15 years.
Core deposit intangibles are amortized on a straight-line basis over an
average estimated life of approximately 7 years. At December 31, 1995 and
1994, accumulated intangible amortization was $5,453,000 and $3,304,000,
respectively.
TRUST ASSETS: Assets held by Homeland's subsidiaries in fiduciary or agency
capacities are not included in the consolidated financial statements. Trust
services fee income is reported on the accrual method.
INCOME TAXES: Homeland files a consolidated federal income tax return, and
income tax expense is generally allocated as if each affiliate files a
separate income tax return. Deferred tax assets and liabilities are recorded
based on differences between the financial statement and tax basis of assets
and liabilities and income tax rates currently in effect.
NET INCOME PER SHARE: Net income per share calculations are based on the
weighted average number of common shares outstanding, adjusted for stock
splits and for common stock equivalents arising from the assumed exercise of
outstanding stock options.
INDUSTRY SEGMENT REPORTING: Homeland operates principally in a single
business segment offering general commercial banking services.
NEWLY-ISSUED ACCOUNTING STANDARDS: SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
was issued in March 1995 with an effective date for fiscal years beginning
after December 15, 1995. This statement specifies when certain long-lived
assets should be reviewed for impairment and how to measure and report an
impairment loss. Management believes that the effect of the statement on
Homeland's consolidated financial statements will not be material.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," was issued in May
1995 with an effective date for fiscal years beginning after December 15,
1995. This statement amends SFAS No. 65 by establishing a new standard for
capitalizing mortgage servicing rights. Under SFAS No. 122, the accounting
principles for mortgage servicing rights are the same for mortgages
originated by the servicer as for those acquired through purchase
transactions. Accordingly, under the new statement, a bank would record an
asset for mortgage servicing rights when it sold mortgages and retained the
servicing. Management believes that the effect of the statement on
Homeland's consolidated financial statements will not be material.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995 with an effective date for fiscal years beginning after December
15, 1995. This statement established financial accounting and reporting
standards for stock-based employee compensation plans applying a fair value
based method to measure the compensation cost. Management is evaluating
whether or not Homeland will change to the recognition provisions of SFAS No.
123; therefore, there has been no determination of the financial effect, if
any, of adopting SFAS No. 123 in the year ended December 31, 1996.
2. SUPPLEMENTAL CASH FLOW INFORMATION
(Dollars in thousands) 1995 1994 1993
------------------------------------------------------------------------------
Cash paid
Interest $44,512 $31,687 $22,425
Income taxes 7,353 7,295 6,373
Noncash investing and financing activities
Securities reclassified to available
for sale category 79,680 1,777 ---
Loans transferred to foreclosed property 1,347 325 190
Sales of foreclosed property financed by Homeland 199 108 408
Acquisitions accounted for as purchase transactions
Cash paid (including acquisition costs) --- 47,881 ---
Liabilities assumed --- 308,198 ---
Fair value of assets acquired --- 356,079 ---
Divestiture of branch offices
Cash paid --- 46,853 ---
Liabilities assumed by purchaser --- 56,698 ---
Fair value of assets sold --- 9,845 ---
Common stock was issued in connection with a
two-for-one common stock split (effected in
the form of a 100% stock dividend) on
August 16, 1993. --- --- 35,489
3. ACQUISITION
On June 1, 1994, Homeland acquired Homeland Savings Bank, FSB and its parent
company, the former MidAmerica Financial Corporation ("MidAmerica"), at a
cash purchase price of approximately $50.9 million. The acquisition was
accounted for as a purchase transaction with the results of MidAmerica's
operations subsequent to the acquisition date included in Homeland's
consolidated financial statements.
Included in other liabilities is $3,000,000, which was withheld from the
purchase proceeds of MidAmerica to secure the payment of certain claims
asserted within 24 months of the acquisition date. Homeland will distribute
these funds, less any reductions, together with interest on the average
balance at the annual compound rate of 4%, to the former shareholders of
MidAmerica on June 1, 1996.
The following unaudited pro forma financial information contains the results
of operations for the years ended December 31, 1994 and 1993, assuming the
acquisition of MidAmerica had occurred on January 1, 1993. The pro forma
amounts are not necessarily indicative of the financial results that would
have actually occurred had the acquisition taken place on January 1, 1993,
nor are they necessarily indicative of future consolidated operations of
Homeland.
(Dollars in thousands, except per share data) 1994 1993
-----------------------------------------------------------------------
Total revenues $ 93,402 $ 95,207
Net interest income 45,712 44,929
Provision for loan losses 426 947
Net income 11,694 12,167
Net income per share 2.04 2.14
4. SECURITIES
AVAILABLE FOR SALE GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(Dollars in thousands) COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------
U.S. Treasury $ 64,275 $ 341 $ (328) $ 64,288
U.S. Government agencies 21,532 277 (38) 21,771
U.S. Government agencies mortgage-backed 69,267 560 (459) 69,368
Student loan participation certificates 16,708 --- --- 16,708
States and political subdivisions 33,316 881 (102) 34,095
Corporate 427 --- --- 427
Corporate mortgage-backed 4,047 --- (141) 3,906
Other 6,993 --- --- 6,993
---------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $216,565 $2,059 $(1,068) $217,556
=======================================================================================
U.S. Treasury $ 32,512 $ 1 $(1,234) $ 31,279
U.S. Government agencies 8,441 --- (302) 8,139
U.S. Government agencies mortgage-backed 81,668 2 (3,434) 78,236
Student loan participation certificates 30,105 --- --- 30,105
Corporate mortgage-backed 4,781 --- (208) 4,573
Other 8,764 --- --- 8,764
---------------------------------------------------------------------------------------
Balance at December 31, 1994 $166,271 $ 3 $(5,178) $161,096
=======================================================================================
HELD TO MATURITY GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(Dollars in thousands) COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------
U.S. Treasury $ 54,216 $ --- $(1,740) $ 52,476
U.S. Government agencies 22,747 30 (141) 22,636
States and political subdivisions 42,436 735 (1,026) 42,145
Corporate 1,955 --- (22) 1,933
---------------------------------------------------------------------------------------
Balance at December 31, 1994 $121,354 $ 765 $(2,929) $119,190
=======================================================================================
At December 31, 1995, fair values of U.S. Government Agency mortgage-backed
securities included $38,045,000 of collateralized mortgage obligations.
These securities have expected average lives of 1 to 4 years and utilize
defensive sequential payment structures to shelter cash flow streams.
Student loan participation certificates are backed by government sponsored
student loans and are issued through trust arrangements. At December 31,
1995 and 1994, there were no privately issued securities which aggregated
more than 10% of Homeland's stockholders' equity.
REALIZED GAINS AND LOSSES
(Dollars in thousands) 1995 1994 1993
--------------------------------------------------------------
Gross realized gains $ 31 $ 41 $ 95
Gross realized losses -- (58) --
--------------------------------------------------------------
Total gains (losses) $ 31 $ (17) $ 95
==============================================================
Included in realized gains was the sale of one security in 1993 from the held
to maturity category which was sold within 90 days of maturity. All other
realized gains resulted from sales of securities available for sale or from
gains related to calls of securities prior to their maturities.
The amortized cost and fair value of securities at December 31, 1995, are
shown below by expected maturity. Expected maturities differ from
contractual maturities because issuers may have the right to call or prepay
obligations. Expected maturities for mortgage-backed securities are
determined by using industry derived prepayment assumptions.
EXPECTED MATURITIES
AMORTIZED FAIR
(Dollars in thousands) COST VALUE
-------------------------------------------------------------------
Within one year $ 65,420 $ 65,504
After one through five years 125,583 125,864
After five through ten years 16,748 17,273
After ten years 8,814 8,915
-------------------------------------------------------------------
Total $216,565 $217,556
===================================================================
5. LOANS
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) 1995 1994 1993
-------------------------------------------------------------------------
Balance at beginning of year $ 9,082 $ 7,315 $ 7,412
Allowance of purchased financial institution --- 1,600 ---
Provision for loan losses 941 296 770
Loan loss recoveries 554 1,438 845
Loans charged off (1,974) (1,567) (1,712)
-------------------------------------------------------------------------
Balance at end of year $ 8,603 $ 9,082 $ 7,315
=========================================================================
Impairment of loans having a recorded investment of $664,000 at December 31,
1995, has been recognized in conformity with SFAS Nos. 114 and 118. The
total allowance for loan losses related to these loans was $52,000. The
average recorded investment in impaired loans during 1995 was $2,057,000. No
interest income was recognized on impaired loans during 1995.
CREDIT RISK
At December 31, 1995 and 1994, Homeland had nonaccrual loans of $1,852,000
and $5,443,000, and restructured loans of $307,000 and $296,000,
respectively. Total interest income that would have been recorded under the
original terms of these loans was $247,000 in 1995 and $664,000 in 1994.
Actual interest income recorded from these loans was $142,000 in 1995 and
$119,000 in 1994. At December 31, 1995, there were no material commitments
to lend additional funds to customers whose loans were classified as
nonaccrual or restructured.
Significant portions of Homeland's loan portfolio consisted of consumer real
estate loans, and loans related to agriculture, the primary industry in
Homeland's market area. In addition, a substantial amount of credit extended
to banks include overnight federal funds sold and term bank stock loans.
Certain directors and executive officers of Homeland and its subsidiaries are
customers of Homeland banks in the ordinary course of business. Activity of
aggregate loans exceeding $60,000 to such directors, executive officers, and
their business interests during 1995 was as follows:
(Dollars in thousands)
----------------------------------------------------------------------
Balance at beginning of year $ 16,121
New loans 7,257
Repayments (4,987)
Other changes (2,461)
----------------------------------------------------------------------
Balance at end of year $ 15,930
======================================================================
Other changes include the addition of loans to new directors and executive
officers net of the reduction of loans to persons who no longer meet the
related party criteria.
6. PREMISES AND EQUIPMENT
DECEMBER 31,
(Dollars in thousands) 1995 1994
-------------------------------------------------------------------
Land $ 4,808 $ 4,556
Buildings and improvements 23,270 22,498
Furniture and equipment 12,132 11,463
-------------------------------------------------------------------
Total cost 40,210 38,517
Accumulated depreciation (15,601) (13,841)
-------------------------------------------------------------------
Total $ 24,609 $ 24,676
===================================================================
Homeland has noncancelable operating leases covering certain premises and
equipment. Total rent expense was $417,000 in 1995, $297,000 in 1994, and
$184,000 in 1993. Minimum future commitments for leases in effect at
December 31, 1995 were as follows:
(Dollars in thousands)
-------------------------------------------------------------------
1996 $ 156
1997 107
1998 60
1999 37
2000 3
Thereafter ---
------------------------------------------------------------------
Total $ 363
==================================================================
7. FEDERAL FUNDS PURCHASED
The outstanding balances for federal funds purchased as of December 31, 1995,
1994, and 1993, and the weighted average interest rates paid during each of
the years then ended and at each year-end were as follows:
(Dollars in thousands) 1995 1994 1993
------------------------------------------------------------------------
Ending balance $ 70,225 $ 27,425 $ 40,000
Highest month-end balance 105,850 64,475 68,675
Average daily balance 60,513 39,534 42,072
Weighted average interest rate
Paid during year 5.93% 4.20% 2.81%
At year-end 5.63 5.62 2.58
8. OTHER SHORT-TERM BORROWINGS
At December 31, 1995, other short-term borrowings consisted of $11 million of
advances from the Federal Home Loan Bank ("FHLB") and $4.6 million in U.S.
Treasury tax depository accounts. The short-term FHLB advances were secured
by certain U.S. Government securities, FHLB stock, and a blanket pledge of
eligible consumer real estate loans, with a weighted average interest rate at
year-end of 5.82%. During 1995, the highest month-end balance of FHLB
advances was $67.5 million, and the average daily balance was $51.9 million,
with an average interest rate during 1995 of 6.18%. In the normal course of
business, Homeland banks have established lines of credit for overnight
borrowings for the management of daily liquidity needs. At December 31,
1995, these unused lines of credit aggregated $111 million.
9. LONG-TERM BORROWINGS
At December 31, 1995, long-term borrowings consisted of FHLB advances to
Homeland subsidiaries with an average fixed interest rate of 5.77%. The
long-term advances were secured by eligible consumer real estate loans and
FHLB stock and were scheduled to mature as follows:
(Dollars in thousands)
-------------------------------------------------------------------------
1996 $ 225
1997 40,225
1998 225
1999 225
2000 225
Thereafter 2,800
-------------------------------------------------------------------------
Total $43,925
=========================================================================
10. STOCKHOLDERS' EQUITY
Homeland is required to ensure capital adequacy by maintaining minimum
amounts of capital to total risk-weighted assets, as defined by the banking
regulators. Homeland's capital ratios have consistently exceeded the "well-
capitalized" regulatory capital requirements for financial institutions as
set forth in the following table:
REGULATORY CAPITAL REQUIREMENTS
-------------------------------
WELL MINIMUM
1995 1994 CAPITALIZED REQUIREMENT
----------------------------------------------------------------------------
Tier I risk-based capital 13.78% 13.03% 6.00% 4.00%
Total risk-based capital 14.84 14.18 10.00 8.00
Leverage capital 8.63 8.11 5.00 4.00
============================================================================
On August 16, 1993, Homeland had a two-for-one common stock split (effected
in the form of a 100% stock dividend), whereby one new share of Homeland
common stock was distributed for each share held by shareholders of record as
of August 5, 1993. In connection with the stock split, 2,839,073 new common
shares were issued. The average number of shares outstanding, net income per
share, and dividend per share information have been retroactively restated as
a result of the stock split.
11. INCOME TAXES
(Dollars in thousands) 1995 1994 1993
---------------------------------------------------------------
Current
Federal $6,554 $5,520 $5,063
State 917 967 973
--------------------------------------------------------------
Total current 7,471 6,487 6,036
---------------------------------------------------------------
Deferred
Federal 809 45 (314)
State 149 (89) (40)
---------------------------------------------------------------
Total deferred 958 (44) (354)
---------------------------------------------------------------
Total income tax expense $8,429 $6,443 $5,682
===============================================================
Included in total income taxes were income tax expenses (credits) of $12,000,
$(7,000), and $36,000 for 1995, 1994, and 1993, respectively, relating to
securities transactions.
The tax effects of temporary differences that give rise to significant
portions of deferred income tax assets and deferred income tax liabilities at
December 31, 1995 and 1994 were as follows:
(Dollars in thousands) 1995 1994
------------------------------------------------------------------------------
Deferred income tax assets
Loan losses $1,131 $1,477
Net unrealized loss on securities available for sale --- 1,889
Employee benefits 60 223
Other 390 540
------------------------------------------------------------------------------
Total deferred income tax assets 1,581 4,129
------------------------------------------------------------------------------
Deferred income tax liabilities
Premises and equipment 381 438
Purchase price allocations 1,404 946
Net unrealized gain on securities available for sale 367 ---
Securities discount accretion 282 323
Other 13 74
------------------------------------------------------------------------------
Total deferred income tax liabilities 2,447 1,781
------------------------------------------------------------------------------
Net deferred income tax assets (liabilities) $ (866) $2,348
==============================================================================
The base year bad debt income tax reserve, defined as income tax reserves
arising in tax years beginning before December 31, 1987, was $4,308,000 at
December 31, 1995. In accordance with SFAS No. 109, no deferred income tax
liability has been recognized on this amount as management does not
anticipate that this bad debt income tax reserve will become taxable in the
foreseeable future.
The effective income tax rate differs from the federal statutory income tax
rate in effect each year as a result of the following items:
1995 1994 1993
---------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) from
Tax-exempt interest income (3.6) (5.6) (6.6)
State income taxes 3.2 3.1 3.5
Amortization of intangibles 3.4 2.7 1.0
Other .2 (.8) (.8)
---------------------------------------------------------------
Effective income tax rate 38.2% 34.4% 32.1%
===============================================================
12. EMPLOYEE BENEFIT PLANS
PENSION PLAN
Homeland has a qualified defined benefit pension plan covering all eligible
full-time employees. Benefits under this plan are based on years of service
and compensation during the years immediately preceding retirement. The
plan's primary assets include mutual funds, fixed income mortgages, and cash
equivalents. Homeland's funding policy is based on an actuarially determined
cost method allowable under Internal Revenue Service regulations. Homeland's
contributions to the pension plan for 1995, 1994, and 1993 were $609,000,
$400,000, and $391,000, respectively.
The components of net pension expense consisted of the following:
(Dollars in thousands) 1995 1994 1993
------------------------------------------------------------------------
Service cost - benefits earned during the year $ 444 $ 314 $ 301
Interest cost on projected benefit obligation 216 184 180
Actual loss (return) on plan assets (428) 21 (169)
Net amortization and deferral 241 (229) (26)
------------------------------------------------------------------------
Net pension expense $ 473 $ 290 $ 286
========================================================================
Homeland reviews the actuarial assumptions annually and provides adjustments
based on current economic conditions and plan characteristics. Although the
actual return on plan assets is shown, the expected long-term rate of return
used in determining net periodic pension expense was 8% for all periods
presented. The difference between the actual return and expected return is
included in net amortization and deferral. For all periods presented, the
actuarial present value of benefits was determined using a discount rate of
7%, and the rate of compensation increase used to measure the projected
benefit obligation was 5%.
The funded status of the pension plan at December 31, 1995 and 1994 was as
follows:
(Dollars in thousands) 1995 1994
---------------------------------------------------------------------
Actuarial present value of benefit obligations
Vested benefit obligation $(2,469) $(2,253)
Nonvested benefit obligation (158) (52)
---------------------------------------------------------------------
Accumulated benefit obligation (2,627) (2,305)
Effect of projected future compensation increases (1,059) (782)
---------------------------------------------------------------------
Projected benefit obligation (3,686) (3,087)
Plan assets at fair value 3,488 2,678
---------------------------------------------------------------------
Plan assets less than the projected
benefit obligation (198) (409)
Unrecognized net transition liability being
recognized over employee service lives 107 115
Unrecognized net loss from past experience
different from that assumed 447 602
Unrecognized prior service cost 102 13
---------------------------------------------------------------------
Prepaid pension expense $ 458 $ 321
=====================================================================
PROFIT SHARING PLAN
Homeland has a qualified profit sharing plan covering all eligible full-time
employees. Contributions to the plan are made when certain consolidated
profit conditions are achieved. Additionally, beginning in 1995, employees
may participate by contributing a percentage of their salary, a portion of
which is matched by Homeland. Total expenses for the profit sharing plan
were $894,000, $826,000, and $962,000 in 1995, 1994, and 1993, respectively.
STOCK OPTION PLANS
Homeland has incentive stock option plans under which 406,250 shares of
common stock have been reserved for issuance to officers of Homeland and its
subsidiaries. Stock option plans are granted by the board of directors of
Homeland for issuance at the market value of the common stock determined as
of the date of grant. Shares reserved for issuance under the stock option
plans, option prices, and shares available for future option grants have been
adjusted for stock splits. Stock option activity during 1995, 1994, and 1993
was as follows:
SHARES PRICE
----------------------------------------------------------------------
Outstanding at January 1, 1993 68,800 $ 16.25
Granted --- ---
Exercised (600) 16.25
Canceled (7,400) 16.25
----------------------------------------------------------------------
Outstanding at December 31, 1993 60,800 16.25
Granted 82,000 23.25
Exercised (59,967) 16.25
Canceled (5,933) 16.25-23.25
----------------------------------------------------------------------
Outstanding at December 31, 1994 76,900 23.25
Granted --- ---
Exercised (1,800) 23.25
Canceled (9,000) 23.25
----------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1995 66,100 $ 23.25
======================================================================
Since the inception of the incentive stock option plans, options have been
granted and exercised for 324,779 shares. At December 31, 1995, all 66,100
outstanding stock options were exercisable in 1996, and 15,371 shares were
available for future option grants until the plan governing these shares
expires in May 1997.
OTHER PLAN
During 1995, Homeland implemented a supplemental retirement income plan for
certain key executives and purchased life insurance policies to actuarially
finance all future liabilities of the plan. Total expense related to the
plan was $79,000 in 1995.
13. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
Estimated fair value disclosures are reported in accordance with SFAS No.
107, "Disclosures About Fair Value of Financial Instruments." The estimated
fair value of securities is based primarily upon quoted market prices within
an active market. For the remaining financial instruments, the estimated
fair values presented are management's estimates of the amount at which the
instrument could be exchanged in a current transaction between willing
parties, based upon estimates using present value and other valuation
methods. As these estimates are significantly affected by the assumptions
used, estimated fair values may not be comparable between entities, nor would
they be realizable in an immediate liquidation of the instruments. SFAS No.
107 excludes certain items from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented are not intended to represent, and
do not represent, the underlying value of Homeland. The carrying values and
estimated fair values of Homeland's financial instruments at December 31,
1995 and 1994 were as follows:
1995 1994
------------------- --------------------
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
(Dollars in thousands) VALUE VALUE Value Value
---------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $119,922 $119,922 $ 61,392 $ 61,392
Securities 217,556 217,556 282,450 280,286
Net loans 836,186 843,705 783,714 766,463
LIABILITIES
Deposits 962,719 968,288 949,360 928,092
Federal funds purchased 70,225 70,225 27,425 27,425
Other short-term borrowings 15,587 15,587 84,320 84,320
Long-term borrowings 43,925 43,965 2,450 2,323
CASH AND CASH EQUIVALENTS: The carrying value approximates estimated fair
value.
SECURITIES: The estimated fair value of securities is based on quoted market
prices where available. Where not available, fair values are based on quoted
market prices of similar securities, adjusted for any differences in credit
ratings or maturities.
NET LOANS: The estimated fair value of loans is calculated by discounting
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and maturities, adjusted for
credit and prepayment risks.
DEPOSITS: The estimated fair value of demand, money market, and savings
deposits is the amount payable on demand at the reporting date. The fair
value of time deposits is estimated using a discounted cash flow calculation
that applies rates currently offered for deposits of similar remaining
maturities.
FEDERAL FUNDS PURCHASED AND OTHER SHORT-TERM BORROWINGS: The carrying value
of federal funds purchased and other short-term borrowings approximate the
estimated fair value.
LONG-TERM BORROWINGS: The fair value of long-term borrowings is estimated
using rates currently available for debt with similar terms and remaining
maturities.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: The estimated fair value of
commitments to extend credit and standby letters of credit are estimated
using the fees currently charged to enter into similar agreements. Neither
the fees earned during the year or the off-balance instruments' fair value at
year-end are material.
14. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Homeland engages in off-balance sheet activities to meet the financing needs
of customers. Such activities consist principally of commitments to extend
credit and standby letters of credit. Exposure to credit losses is
represented by the contractual amounts of the commitments to extend credit or
standby letters of credit, and credit losses may be incurred when a customer
fails to perform in accordance with the contractual terms. Homeland uses the
same credit standards in making commitments and conditional obligations as it
uses for making loans. Collateral may be obtained if deemed necessary by
management's credit evaluation. Collateral held varies, but generally may
include receivables, inventory, equipment, or real estate. The contractual
amounts of these financial instruments at December 31, 1995 and 1994 were as
follows:
(Dollars in thousands) 1995 1994
-----------------------------------------------------------------
Commitments to extend credit
Conditional business lines $139,307 $132,544
Credit card lines 23,989 22,530
Home equity lines 28,994 21,624
Other commitments 32,271 21,763
Standby letters of credit 16,805 17,467
Commitments to extend credit are contractual agreements to lend money to
customers for a specific period of time provided there is no violation of any
condition established in the contract. Such commitments may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.
Standby letters of credit are issued on behalf of bank customers in
connection with contracts between the customers and third parties. Under a
standby letter of credit, the bank assures that the third party will not
suffer a loss if the customer fails to meet the contractual obligation.
Those guarantees are primarily issued to support public and private borrowing
arrangements such as bond financing and similar transactions.
15. CONTINGENCIES AND STATUTORY RESTRICTIONS
Congress is considering legislation that would recapitalize the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. This legislation would require the SAIF to be fully capitalized
by a special assessment levied on all SAIF-insured deposits. Enactment of
the proposed legislation could result in a one-time expense of approximately
$2.2 million to Homeland in the period of such enactment, and would reduce
Homeland's future SAIF deposit insurance premiums from the present $.23 per
$100 of deposits to as low as zero, lowering Homeland's future FDIC premium
expense by an estimated $500,000 per year.
In the normal course of business, Homeland and its subsidiaries are
periodically involved in legal proceedings. Management is of the opinion,
after review with legal counsel, that there are no such actions at December
31, 1995, that will have a material effect upon the consolidated financial
statements.
The subsidiaries of Homeland are required to maintain reserve balances at the
Federal Reserve Bank based upon deposit levels and other factors. The
average balances of reserves required to be maintained were $11,105,000 in
1995 and $10,771,000 in 1994.
At December 31, 1995, securities with amortized cost of $52,835,000 were
pledged to secure public deposits and for other purposes as required or
permitted by law.
Dividends received from Homeland's subsidiaries are the primary source of
funds available to Homeland for payment of dividends to its shareholders.
State and federal banking regulations require minimum capital levels to be
maintained and impose certain restrictions on the amount of dividends that
subsidiaries may pay in any given year. At December 31, 1995, stockholders'
equity of Homeland's subsidiaries totaled $122,327,000, of which
approximately $13,000,000 was available for the payment of dividends to
Homeland in accordance with these regulatory requirements.
16. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS
DECEMBER 31,
(Dollars in thousands) 1995 1994
-----------------------------------------------------------------------
ASSETS
Cash and due from banks $ 7,622 $ 141
Securities available for sale --- 1,500
Investments in subsidiaries 122,327 115,625
Deferred income taxes 98 101
Other assets 608 667
-----------------------------------------------------------------------
Total assets $130,655 $118,034
=======================================================================
LIABILITIES
Deferred compensation $ 251 $ 277
Supplemental retirement plan 79 ---
Other liabilities 3,004 3,015
-----------------------------------------------------------------------
Total liabilities 3,334 3,292
-----------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 71,756 71,734
Additional paid-in capital 246 227
Retained earnings 54,697 46,068
Net unrealized gain (loss) on securities
available for sale, net of income taxes 622 (3,287)
-----------------------------------------------------------------------
Total stockholders' equity 127,321 114,742
-----------------------------------------------------------------------
Total liabilities and stockholders' equity $130,655 $118,034
=======================================================================
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1995 1994 1993
-----------------------------------------------------------------------
INCOME
Dividends from subsidiaries $ 11,200 $ 44,250 $ 10,750
Interest from subsidiaries 130 46 19
Other interest 113 153 191
Management fees from subsidiaries 583 401 262
-----------------------------------------------------------------------
Total income 12,026 44,850 11,222
-----------------------------------------------------------------------
EXPENSES
Interest --- 48 ---
Personnel 693 511 410
Advertising and promotion 102 104 93
Professional fees 186 488 224
Other 133 93 26
-----------------------------------------------------------------------
Total expenses 1,114 1,244 753
-----------------------------------------------------------------------
Income before income taxes and equity
in undistributed income of
subsidiaries 10,912 43,606 10,469
Income tax expense (credit) 84 (13) (97)
-----------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries 10,828 43,619 10,566
Equity in undistributed income of
subsidiaries 2,793 (31,358) 1,454
-----------------------------------------------------------------------
NET INCOME $ 13,621 $ 12,261 $12,020
=======================================================================
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1995 1994 1993
-----------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 13,621 $ 12,261 $ 12,020
Adjustments to reconcile net income
to net cash provided by operating
activities
Equity in undistributed income
of subsidiaries (2,793) 31,358 (1,454)
Provision for deferred income taxes 3 57 (52)
Decrease (increase) in other assets 59 (36) (111)
Increase (decrease) in deferred
compensation (26) (18) (17)
Increase (decrease) in other
liabilities 68 15 ---
-----------------------------------------------------------------------
Net cash provided by operating activities 10,932 43,637 10,386
-----------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of securities
available for sale 6,000 --- ---
Purchases of securities available
for sale (4,500) (1,500) ---
Purchase of financial institution --- (47,881) ---
-----------------------------------------------------------------------
Net cash provided by (used for)
investing activities 1,500 (49,381) ---
-----------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of cash dividends (4,992) (4,808) (4,656)
Proceeds from stock options exercised 41 975 9
-----------------------------------------------------------------------
Net cash used for financing activities (4,951) (3,833) (4,647)
-----------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 7,481 (9,577) 5,739
Cash and cash equivalents at beginning
of year 141 9,718 3,979
-----------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,622 $ 141 $ 9,718
=======================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
(Dollars in thousands) 1995 1994 1993
-----------------------------------------------------------------------
Cash paid (received)
Interest $ --- $ 48 $ ---
Income taxes (32) 125 (173)
Noncash investing and financing activities
Homeland issued shares of its common
stock in connection with a two-for-one
common stock split (effected in the
form of a 100% stock dividend) on
August 16, 1993. --- --- 35,489
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Homeland Bankshares Corporation
Waterloo, Iowa
We have audited the accompanying consolidated balance sheets of Homeland
Bankshares Corporation and its subsidiaries (Homeland) as of December 31,
1995 and 1994, and the related consolidated statements of income, cash flows,
and changes in stockholders' equity for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility
of Homeland's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Homeland as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/S/Deloitte & Touche LLP
----------------------------
Deloitte & Touche LLP
Des Moines, Iowa
January 17, 1996
MANAGEMENT'S REPORT OF FINANCIAL RESPONSIBILITY
The management of Homeland Bankshares Corporation ("Homeland") is responsible
for the preparation and integrity of the accompanying consolidated financial
statements and all other information contained in this 1995 Annual Report on
Form 10-K. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and necessarily
include amounts that are based on management's informed judgments and
estimates.
To fulfill its responsibilities for the integrity of financial information,
management maintains and relies on Homeland's systems of internal controls.
These systems include written policies, an organizational structure providing
division of responsibilities, and the selection and training of qualified
personnel. Homeland also maintains a staff of internal auditors to review
and evaluate the adequacy of Homeland's internal control systems and
adherence to its policies and procedures. Management believes that
Homeland's internal control systems provide reasonable assurance that
financial information is accurate, and that material errors or irregularities
will be prevented or detected within a timely period.
The Board of Directors oversees financial information through an Audit
Committee composed solely of nonmanagement directors of Homeland and its
subsidiaries. The Audit Committee meets regularly with Homeland's
independent auditors, internal auditors, and management to assure that all
are properly discharging their responsibilities. The Audit Committee also
approves the scope of the internal audits, and reviews any recommendations
for improving internal accounting controls. Homeland's independent auditors
and internal auditors have free access to the Audit Committee, and the Audit
Committee has free access to outside legal counsel. The Board of Directors,
on recommendation from the Audit Committee, appoints the independent
auditors, Deloitte & Touche LLP.
/S/Erl A. Schmiesing
--------------------------------
Erl A. Schmiesing
Chairman, President, and CEO
/S/Robert S. Kahler
--------------------------------
Robert S. Kahler
Executive Vice President and CFO
January 17, 1996
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in Homeland's independent auditors, nor any
disagreements between the management of Homeland and its independent auditors
relating to accounting or financial disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information pertaining to directors of Homeland is incorporated herein by
reference from pages 2-3 of Homeland Bankshares Corporation's Proxy Statement
for its 1996 Annual Meeting of Shareholders. Information pertaining to the
executive officers of Homeland is presented in Item 1 of this report under
the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information pertaining to executive compensation is incorporated herein by
reference from pages 4-7 of Homeland Bankshares Corporation's Proxy Statement
for its 1996 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to management ownership and principal holders of
Homeland common stock is incorporated herein by reference from page 8 of
Homeland Bankshares Corporation's Proxy Statement for its 1996 Annual Meeting
of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information pertaining to transactions with management is incorporated
herein by reference from page 3 of Homeland Bankshares Corporation's Proxy
Statement for its 1996 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following financial statements of Homeland Bankshares
Corporation and its subsidiaries are included in Item 8 of this
report:
Consolidated balance sheets - December 31, 1995 and 1994
Consolidated statements of income -
Years ended December 31, 1995, 1994, and 1993
Consolidated statements of cash flows -
Years ended December 31, 1995, 1994, and 1993
Consolidated statements of changes in stockholders' equity -
Years ended December 31, 1995, 1994, and 1993
(a)2. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have not been included in the
consolidated financial statements as they are not applicable.
(a)3. EXHIBITS
Index to Exhibits - Page 47
Exhibit 3.1 Articles of Incorporation of Homeland Bankshares
Corporation as amended April 25, 1995.
Exhibit 3.2 Homeland Bankshares Corporation Bylaws as adopted
November 10, 1994 are incorporated herein by
reference to Exhibit 3.2 to the company's Current
Report on Form 8-K dated January 5, 1995.
Exhibit 10.1 Incentive Stock Option II dated January 21, 1987
is incorporated herein by reference to Exhibit
10.1 to the company's Annual Report on Form 10-K
for December 31, 1993.
Exhibit 10.2 Agreement for Deferred Compensation for R. Scott
Fetner dated March 10, 1987 is incorporated herein
by reference to Exhibit 10.2 to the company's
Annual Report on Form 10-K for December 31, 1993.
Exhibit 10.3 Form of Severance Agreement providing 2.5 times
includible compensation to certain executive
officers is incorporated herein by reference to
Exhibit 10.3 to the company's Annual Report on
Form 10-K for December 31, 1993.
Exhibit 10.4 Form of Severance Agreement providing 1.5 times
includible compensation to certain executive
officers is incorporated herein by reference to
Exhibit 10.4 to the company's Annual Report on
Form 10-K for December 31, 1993.
Exhibit 10.5 Supplemental Retirement Income Plan dated June 20,
1995 and related agreements with certain executive
officers are incorporated herein by reference to
Exhibit 10.5 to the company's Quarterly Report on
Form 10-Q for September 30, 1995.
Exhibit 10.6 Employment and Noncompetition Agreement with
Gregory L. O'Hara dated June 1, 1994 is
incorporated herein by reference to Exhibit 10.6
to the company's Annual Report on Form 10-K for
December 31, 1994.
Exhibit 11 Statement Re Computation of Earnings Per Share.
Exhibit 21 Homeland Bankshares Corporation's subsidiaries are
incorporated herein by reference from Item 1 of
this Annual Report on Form 10-K.
Exhibit 23 Consent of Deloitte & Touche LLP, independent
auditors, to the use of their report dated January
17, 1996 on the consolidated financial statements
of Homeland Bankshares Corporation as of December
31, 1995 and 1994 and for each of the three years
in the period ended December 31, 1995.
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the quarter ended December
31, 1995.
***SIGNATURES***
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 19,
1996.
HOMELAND BANKSHARES CORPORATION
-------------------------------
/S/ Erl A. Schmiesing /S/ Robert S. Kahler
------------------------- --------------------------------
Erl A. Schmiesing Robert S. Kahler
Chairman, President & CEO Executive Vice President & CFO
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities as indicated on March 19, 1996.
/S/ Joy C. Corning
------------------------------- -------------------------------
Joy C. Corning, Director Douglas K. Shull, Director
/S/ Robert S. Kahler /S/ James R. Walker
------------------------------- -------------------------------
Robert S. Kahler, Director, James R. Walker, Director
Executive Vice President & CFO
/S/ James E. McKinstry /S/ Herbert E. Williams
------------------------------- -------------------------------
James E. McKinstry, Director Herbert E. Williams, Director
/S/ Erl A. Schmiesing
-------------------------------
Erl A. Schmiesing, Director,
Chairman, President & CEO
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
INDEX TO EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995
----------------------------
HOMELAND BANKSHARES CORPORATION
229 EAST PARK AVENUE
WATERLOO, IOWA 50704-5300
EXHIBIT NO. ITEM PAGE
----------- ------------------------------------------------
3.1 Articles of Incorporation of Homeland Bankshares
Corporation as amended April 25, 1995. 48
3.2 Homeland Bankshares Corporation Bylaws as adopted
November 10, 1994 are incorporated herein by reference
to Exhibit 3.2 to the company's Current Report on Form
8-K dated January 5, 1995.
10.1 Incentive Stock Option II dated January 21, 1987 is
incorporated herein by reference to Exhibit 10.1 to the
company's Annual Report on Form 10-K for December 31, 1993.
10.2 Agreement for Deferred Compensation for R. Scott Fetner
dated March 10, 1987 is incorporated herein by reference to
Exhibit 10.2 to the company's Annual Report on Form 10-K
for December 31, 1993.
10.3 Form of Severance Agreement providing 2.5 times includible
compensation to certain executive officers is incorporated
herein by reference to Exhibit 10.3 to the company's Annual
Report on Form 10-K for December 31, 1993.
10.4 Form of Severance Agreement providing 1.5 times includible
compensation to certain executive officers is incorporated
herein by reference to Exhibit 10.4 to the company's Annual
Report on Form 10-K for December 31, 1993.
10.5 Supplemental Retirement Income Plan dated June 20, 1995 and
related agreements with certain executive officers are
incorporated herein by reference to Exhibit 10.5 to the
company's Quarterly Report on Form 10-Q for September 30,
1995.
10.6 Employment and Noncompetition Agreement with Gregory L.
O'Hara dated June 1, 1994 is incorporated herein by
reference to Exhibit 10.6 to the company's Annual Report
on Form 10-K for December 31, 1994.
11 Statement Re Computation of Earnings Per Share. 49
21 Homeland Bankshares Corporation's subsidiaries are
incorporated herein by reference from Item 1 of this
Annual Report on Form 10-K.
23 Consent of Deloitte & Touche LLP, independent auditors,
to the use of their report dated January 17, 1996 on the
consolidated financial statements of Homeland Bankshares
Corporation as of December 31, 1995 and 1994 and for
each of the three years in the period ended December
31, 1995. 50
27 Financial Data Schedule 51