U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
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
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of April 30, 1996:
5,735,678 SHARES COMMON STOCK, $12.50 PAR VALUE
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS.
------------------------------
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
MARCH 31, December 31,
(Dollars in thousands, except per share data) 1996 1995
----------------------------------------------------------------------
ASSETS
Cash and due from banks $ 50,659 $ 46,072
Federal funds sold 42,800 73,850
-----------------------------------------------------------------------
Total cash and cash equivalents 93,459 119,922
Securities available for sale (amortized
cost $214,053 in 1996 and $216,565 in 1995) 214,398 217,556
Loans
Commercial, financial, and agricultural 180,331 178,662
Commercial real estate 225,363 213,957
Consumer real estate 315,822 318,461
Consumer 135,538 133,709
-----------------------------------------------------------------------
Total loans 857,054 844,789
Allowance for loan losses (9,093) (8,603)
-----------------------------------------------------------------------
Net loans 847,961 836,186
Premises and equipment 24,658 24,609
Intangible assets 17,934 18,471
Other assets 17,391 16,163
-----------------------------------------------------------------------
Total assets $1,215,801 $1,232,907
=======================================================================
LIABILITIES
Deposits
Noninterest bearing demand $ 114,249 $ 123,902
Interest bearing demand 104,974 106,447
Money market 168,121 174,000
Savings 67,574 68,477
Time 488,551 489,893
-----------------------------------------------------------------------
Total deposits 943,469 962,719
Federal funds purchased 62,675 70,225
Other short-term borrowings 15,703 15,587
Accrued expenses and other liabilities 17,086 13,130
Long-term borrowings 47,141 43,925
-----------------------------------------------------------------------
Total liabilities 1,086,074 1,105,586
-----------------------------------------------------------------------
Commitments and Contingencies (Notes 4 and 5)
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value; 25,000,000
shares authorized; 5,768,578 shares issued
and outstanding (5,740,513 in 1995) 72,107 71,756
Additional paid-in capital 632 246
Retained earnings 56,771 54,697
Net unrealized gain on securities available
for sale, net of income taxes 217 622
-----------------------------------------------------------------------
Total stockholders' equity 129,727 127,321
-----------------------------------------------------------------------
Total liabilities and stockholders' equity $1,215,801 $1,232,907
=======================================================================
See notes to consolidated financial statements
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
(Dollars in thousands, except per share data) 1996 1995
-----------------------------------------------------------------------
Interest income
Loans $19,009 $17,413
Taxable securities 2,714 3,909
Tax-exempt securities 448 559
Federal funds sold 800 226
-----------------------------------------------------------------------
Total interest income 22,971 22,107
-----------------------------------------------------------------------
Interest expense
Deposits 8,710 8,821
Short-term borrowings 1,166 1,732
Long-term borrowings 687 44
-----------------------------------------------------------------------
Total interest expense 10,563 10,597
-----------------------------------------------------------------------
Net interest income 12,408 11,510
Provision for loan losses 410 114
-----------------------------------------------------------------------
Net interest income after provision for
loan losses 11,998 11,396
-----------------------------------------------------------------------
Noninterest income
Data processing services 630 650
Trust services 599 535
Student loan servicing fees 319 264
Deposit account service charges 849 704
Securities gains 14 28
Other 660 460
-----------------------------------------------------------------------
Total noninterest income 3,071 2,641
-----------------------------------------------------------------------
Noninterest expenses
Personnel 5,075 4,593
Occupancy 673 545
Equipment 635 629
Supplies 246 415
Advertising and promotion 396 560
FDIC insurance 150 532
Intangible amortization 537 537
Other real estate owned 2 (52)
Other 1,344 1,448
-----------------------------------------------------------------------
Total noninterest expenses 9,058 9,207
-----------------------------------------------------------------------
Income before income taxes 6,011 4,830
Income tax expense 2,366 1,754
-----------------------------------------------------------------------
NET INCOME $3,645 3,076
=======================================================================
NET INCOME PER SHARE $ .63 $ .54
=======================================================================
AVERAGE NUMBER OF SHARES OUTSTANDING 5,752,649 5,738,713
=======================================================================
See notes to consolidated financial statements
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
(Dollars in thousands) 1996 1995
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 3,645 $ 3,076
Adjustments to reconcile net income to net
cash provided by operating activities
Amortization and accretion 774 446
Depreciation 491 509
Provision for loan losses 410 114
Provision for deferred income taxes (425) 263
Net gain on securities
Available for sale (14) (21)
Held to maturity --- (7)
Net gain on sales of other assets (34) (74)
Increase in other assets (948) (1,392)
Increase in accrued expenses and other
liabilities 4,381 346
-----------------------------------------------------------------------
Net cash provided by operating activities 8,280 3,260
-----------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of securities available for
sale 44 129
Proceeds from maturities and calls of securities
Available for sale 18,360 9,704
Held to maturity --- 18,011
Purchases of securities available for sale (17,053) (27,896)
Net increase in loans (11,304) (18,432)
Purchases of premises and equipment (577) (861)
Proceeds from sales of other assets 89 164
-----------------------------------------------------------------------
Net cash used for investing activities (10,441) (19,181)
-----------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (19,250) (4,542)
Net increase (decrease) in federal funds
purchase (7,550) 30,800
Net increase (decrease) in other short-term
borrowings 116 (18,499)
Proceeds from long-term borrowings 3,300 ---
Repayments of long-term borrowings (84) (75)
Payments of cash dividends (1,263) (1,205)
Proceeds from stock options 1,514 ---
Purchase of common stock (1,085) ---
-----------------------------------------------------------------------
Net cash provided by (used for) financing
activities (24,302) 6,479
-----------------------------------------------------------------------
Net decrease in cash and cash equivalents (26,463) (9,442)
Cash and cash equivalents at beginning of
period 119,922 61,392
-----------------------------------------------------------------------
Cash and cash equivalents at end of period $ 93,459 $ 51,950
=======================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid
Interest $ 10,956 $ 10,585
Income taxes 8 ---
Noncash investing and financing activities
Loans transferred to foreclosed property 96 16
Sales of foreclosed property financed by
Homeland --- 26
=======================================================================
See notes to consolidated financial statements
HOMELAND BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
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, 1996 $ 71,756 $ 246 $54,697 $ 622 $ 127,321
Net income --- --- 3,645 --- 3,645
Cash dividends - $.22 per share --- --- (1,263) --- (1,263)
Common stock issued under stock option plans 814 700 --- --- 1,514
Common stock purchased (463) (314) (308) --- (1,085)
Net unrealized loss on securities available
for sale --- --- --- (405) (405)
-------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 $ 72,107 $ 632 $56,771 $ 217 $ 129,727
=============================================================================================================
Balance at January 1, 1995 $ 71,734 $ 227 $46,068 $ (3,287) $ 114,742
Net income --- --- 3,076 --- 3,076
Cash dividends - $.21 per share --- --- (1,205) --- (1,205)
Net unrealized gain on securities available
for sale --- --- --- 1,542 1,542
-------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 $ 71,734 $ 227 $47,939 $ (1,745) $ 118,155
=============================================================================================================
<FN>
See notes to consolidated financial statements
</FN>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited consolidated financial statements: The accompanying interim
consolidated financial statements are unaudited. In the opinion of
management, all adjustments consisting of normal recurring accruals
considered necessary for fair presentation have been included. Certain
balances previously reported have been reclassified to conform with 1996
financial statement presentation. Further information may be obtained by
reference to the consolidated financial statements and accompanying footnotes
included in the Homeland Bankshares Corporation ("Homeland") 1995 Annual
Report on Form 10-K.
Securities available for sale: Securities available for sale are reported
at fair value, with the unrealized gains and losses reported as a separate
component of stockholders' equity. Securities available for sale 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.
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 March 31, 1996 and 1995,
accumulated intangible amortization was $5,991,000 and $5,453,000,
respectively.
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 common stock equivalents arising from the assumed exercise of
outstanding stock options.
Recently-adopted accounting standards: Effective January 1, 1996,
Homeland adopted 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." This statement specifies when certain long-lived
assets should be reviewed for impairment and how to measure and report an
impairment loss. The effect of the statement on Homeland's consolidated
financial statements was not material.
Effective January 1, 1996, Homeland adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." 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. The effect of the statement on Homeland's
consolidated financial statements was not material.
SFAS No. 123, "Accounting for Stock-Based Compensation," was effective for
Homeland beginning January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on
the fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. Homeland will continue to apply APB Opinion No. 25 to its stock
based compensation awards to employees.
2. SECURITIES AVAILABLE FOR SALE
REALIZED GAINS AND LOSSES THREE MONTHS ENDED
MARCH 31,
(Dollars in thousands) 1996 1995
----------------------------------------------------------------
Gross realized gains $ 14 $ 28
Gross realized losses --- ---
----------------------------------------------------------------
Total $ 14 $ 28
================================================================
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(Dollars in thousands) COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------------
U.S. Treasury $ 65,756 $ 231 $ (326) $ 65,661
U.S. Government agencies 18,386 178 (77) 18,487
U.S. Government agencies mortgage-backed 66,343 387 (566) 66,164
Student loan participation certificates 19,447 --- --- 19,447
States and political subdivisions 33,190 750 (109) 33,831
Corporate mortgage-backed 3,838 --- (123) 3,715
Other 7,093 --- --- 7,093
--------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 $ 214,053 $ 1,546 $ (1,201) $ 214,398
========================================================================================================
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
========================================================================================================
3. ALLOWANCE FOR LOAN LOSSES
THREE MONTHS ENDED
MARCH 31,
(Dollars in thousands) 1996 1995
----------------------------------------------------------------
Balance at beginning of period $8,603 $9,082
Provision for loan losses 410 114
Loan loss recoveries 814 103
Loans charged off (734) (442)
----------------------------------------------------------------
Balance at end of period $9,093 $8,857
================================================================
Impairment of loans has been recognized in conformity with SFAS Nos. 114
and 118. No interest income related to such loans has been recognized.
MARCH 31, Dec. 31,
(Dollars in thousands) 1996 1995
------------------------------------------------------------------
Balance of impaired loans $ 496 $ 664
Less portion for which no allowance for loan
losses was allocated (---) (---)
------------------------------------------------------------------
Portion of impaired loan balance for which an
allowance for loan losses was allocated $ 496 $ 664
==================================================================
Portion of allowance for loan losses allocated
to the impaired loan balance $ 36 $ 52
==================================================================
Average investment in impaired loans during
the period $ 689 $2,057
==================================================================
4. OTHER SHORT-TERM BORROWINGS
At March 31, 1996, other short-term borrowings consisted of $10 million of
advances from the Federal Home Loan Bank ("FHLB") and $5.7 million in U.S.
Treasury tax depository accounts. The short-term FHLB advances were secured
by certain U.S. Government securities, FHLB stock, and eligible consumer real
estate loans, with a weighted average interest rate of 5.8%.
In the normal course of business, Homeland banks have established lines of
credit for overnight borrowings for the management of daily liquidity needs.
At March 31, 1996, these unused lines of credit aggregated $141 million.
5. LONG-TERM BORROWINGS
At March 31, 1996, long-term borrowings consisted of FHLB advances to
Homeland subsidiaries with an average fixed interest rate of 5.8%. 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 $ 189
1997 40,486
1998 290
1999 294
2000 1,498
Thereafter 4,384
-----------------------------------------------------------------
Balance at end of period $47,141
=================================================================
6. STOCKHOLDERS' EQUITY
On March 20, 1996, the Board of Directors authorized the continuation of
Homeland's common stock buyback program by approving the repurchase of up to
500,000 shares of Homeland common stock through stock market transactions
until March 31, 1997. For the three months ended March 31, 1996, Homeland
repurchased approximately 37,000 shares at a total cost of $1,085,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
HOMELAND BANKSHARES CORPORATION
FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED MARCH 31,
(Dollars in thousands, except per share data) 1996 1995 % Change
-----------------------------------------------------------------------------
OPERATING RESULTS
Net interest income $12,408 $11,510 7.8%
Provision for loan losses 410 114 259.6
Noninterest income 3,071 2,641 16.3
Noninterest expenses 9,058 9,207 -1.6
Income tax expense 2,366 1,754 34.9
Net income 3,645 3,076 18.5
PER SHARE DATA
Net income $.63 $.54 16.7%
Cash dividends .22 .21 4.8
Book value 22.49 20.59 9.2
Market price 29.13 23.44 24.3
END OF PERIOD BALANCES
Loans $857,054 $812,817 5.4%
Deposits 943,469 944,818 -0.1
Stockholders' equity 129,727 118,155 9.8
Total assets 1,215,801 1,202,076 1.1
Nonperforming assets 5,091 5,928 -14.1
AVERAGE BALANCES
Loans $848,523 $796,208 6.6%
Deposits 941,122 949,232 -0.9
Stockholders' equity 128,968 115,801 11.4
Total assets 1,220,030 1,194,082 2.2
Total earning assets 1,124,917 1,096,319 2.6
FINANCIAL RATIOS
Return on average total assets 1.20% 1.04%
Return on average stockholders' equity 11.37 10.77
Net interest margin 4.51 4.36
Efficiency ratio 54.33 60.59
Stockholders' equity to total assets 10.67 9.83
Leverage capital ratio 9.29 8.48
EARNINGS ANALYSIS
PERFORMANCE SUMMARY
Homeland Bankshares Corporation's net earnings reached $3,645,000 for the
three months ended March 31, 1996. This was a $569,000 increase over the
first quarter earnings of 1995. Net earnings per share also improved to $.63
from $.54 for the first three months of 1996 and 1995, respectively. Higher
net interest margin, combined with an improved efficiency ratio, boosted
consolidated net income by 18.5% and per share earnings by 16.7% for the
first quarter of 1996 compared to 1995.
Return on average assets was 1.20% and 1.04% for the three months of 1996
and 1995, respectively. Return on average stockholders' equity was 11.37%
and 10.77% for the same three-month periods. Homeland's relatively high
equity-to-assets ratio, while providing a solid foundation for the company to
operate from, has served to restrain the return on equity in recent years.
In an effort to improve return on stockholders' equity and to reduce
excess capital, Homeland announced a continuation of its common stock buyback
program in March 1996, authorizing the repurchase of up to 500,000 shares of
Homeland common stock through stock market transactions until March 31, 1997.
Through May 1, 1996, Homeland repurchased approximately 70,000 shares at a
total cost of $2,090,000.
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 $12,408,000 through March 31, 1996
and $11,510,000 for the previous year's first quarter. Taxable-equivalent
net interest income was $12,624,000 and $11,784,000 for the three months
ended March 31, 1996 and 1995, respectively.
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 the first quarter of 1996,
approximately $300,000 of interest income was recognized due to the
collection of interest on loans previously charged off or on nonaccrual
status.
NET INTEREST SPREAD AND MARGIN
THREE MONTHS ENDED
MARCH 31,
(Taxable-equivalent basis) 1996 1995
------------------------------------------------------------------
Yield on earning assets 8.29% 8.28%
Rate on interest bearing liabilities 4.44 4.51
------------------------------------------------------------------
NET INTEREST SPREAD 3.85 3.77
Noninterest bearing funds contribution .66 .59
------------------------------------------------------------------
NET INTEREST MARGIN 4.51% 4.36%
==================================================================
Net interest spread improved by 8 basis points for the first quarter of
1996, compared to the first quarter of 1995, while net interest margin
improved by 15 basis points for the same period. The collection of $300,000
of interest income on troubled loans mentioned above also contributed to the
net interest margin improvement. Excluding this unusual income, the net
interest spread and margin for 1996 would have been 3.74% and 4.41%,
respectively.
NONINTEREST INCOME
Total noninterest income for the first three months of 1996 improved from
the same period in 1995 by $430,000, or 16.3%. Trust services revenue
increased by 12.0% for the first quarter comparisons. Student loan servicing
fees generated by the Homeland Student Loan Company totaled $319,000 through
March 31, 1996, compared to $264,000 for the same period of 1995, a 20.8%
increase. Deposit account service charges grew by 20.6% and the recognition
of income generated from the sales and servicing of real estate loans was
$172,000 higher for the first quarter of 1996.
NONINTEREST EXPENSES
Noninterest expenses declined by $149,000 for the first three months of
1996 compared to the same three months of 1995. Expenses associated with the
1995 corporate name change had boosted noninterest expenses for that quarter
by approximately $365,000. Excluding those one-time expenses, total
noninterest expenses increased from the first quarter of 1995 to the first
quarter of 1996 by a modest 2.4%.
Personnel costs, typically the largest component of noninterest expense,
showed a $482,000 or 10% increase for the first quarter of 1996 compared to
the same quarter of 1995. The majority of the increase was due to higher
health insurance and other employee benefit costs during the 1996 quarter.
The reduction in the FDIC deposit insurance premiums for commercial banks
from $.23 per $100 of deposits prior to June 1, 1995 to virtually zero after
January 1, 1996, contributed $382,000 to Homeland's decline in noninterest
expenses in the first quarter of 1996 compared to the 1995 first quarter.
Homeland's net noninterest expenses as a percentage of average assets was
1.97% compared to 2.23% for the three months ended March 31, 1996 and 1995,
respectively. Another measure 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 of 54% for the 1996 first quarter,
improved from 1995's first quarter efficiency ratio of 61%. Systems
conversions, departmental consolidations, and centralization of banking
functions is an ongoing process designed to improve operating efficiencies as
well as customer services.
During 1995, Federal legislation was proposed which would have required
the recapitalization of the FDIC's Savings Association Insurance Fund
("SAIF") by assessing a special one-time charge on SAIF deposits and in turn
reducing subsequent SAIF deposit insurance premiums. That legislation was
not passed, and there is no similar legislation proposed as of the date of
this report.
CREDIT RISK MANAGEMENT
NONPERFORMING ASSETS AND RESTRUCTURED LOANS
MARCH 31, Dec. 31, March 31,
(Dollars in thousands) 1996 1995 1995
----------------------------------------------------------------------
Loans past due 90 days or more (1) $3,137 $2,766 $1,774
Nonaccrual loans 1,710 1,852 3,709
Foreclosed property 244 325 445
----------------------------------------------------------------------
Total nonperforming assets $5,091 $4,943 $5,928
======================================================================
Total nonperforming assets as a percentage
of total loans and foreclosed property .59% .58% .73%
======================================================================
Restructured loans $ 299 $ 307 $ 347
======================================================================
(1) Includes government sponsored student loans totaling $1.6 million at
March 31, 1996 and December 31, 1995, and $1.0 million at March 31, 1995, for
which there is minimal risk of loss.
Expressed as a percentage of total loans and foreclosed property,
nonperforming assets remained stable at .59% at March 31, 1996 from .58% at
year-end 1995, and down from .73% at March 31, 1995. Homeland's asset
quality is a reflection of the company's community-based banking focus and
conservative lending policies.
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 bank every quarter. However, actual losses could differ
significantly from the amounts estimated by management.
The allowance for loan losses stood at $9.1 million at March 31, 1996,
representing 1.06% of total loans and 179% of nonperforming assets. The
allowance at March 31, 1995, stood at 1.09% of total loans and 149% of
nonperforming assets.
Homeland's loan loss recoveries exceeded loans charged off for the first
quarter by $80,000 due to the recoveries of several large commercial credits.
Previous year first quarter charge offs exceeded recoveries by $339,000. The
provision for loan losses was $410,000 and $114,000, respectively, for the
first quarters of 1996 and 1995. The higher provision in 1996 was
necessitated by loan growth during the past twelve months.
CAPITAL RESOURCES
CAPITAL RATIOS REGULATORY
CAPITAL REQUIREMENTS
-------------------------
MARCH 31, March 31, WELL MINIMUM
1996 1995 CAPITALIZED REQUIREMENT
---------------------------------------------------------------------------
Tier I risk-based capital 14.15% 13.05% 6.00% 4.00%
Total risk-based capital 15.27 14.16 10.00 8.00
Leverage capital 9.29 8.48 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. Homelands' capital ratios have consistently exceeded the
"well-capitalized" regulatory capital requirements for financial
institutions.
Homeland's stockholders' equity totaled $129.7 million at March 31, 1996,
a 9.8% increase from March 31, 1995. Out of net income of $3.6 million
during the first three months of 1996, Homeland retained $2.3 million after
paying dividends to stockholders of $1.3 million. The net unrealized gain on
securities available for sale, net of deferred income taxes, was $217,000 at
March 31, 1996, compared to a $1,745,000 net unrealized loss at March 31,
1995. Declining market interest rates during 1995 were responsible for the
securities market value improvement.
The stockholders' equity-to-asset ratio was 10.67% at March 31, 1996
compared to 9.83% the prior year. Homeland's book values per share were
$22.49 and $20.59 at March 31, 1996 and 1995, respectively. The closing
market trade price of Homeland's common stock was $29.13 per share at March
31, 1996.
Homeland had no commitments for any significant capital expenditures at
March 31, 1996, 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. 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.
Cash and cash equivalents were provided by $8.3 million of operating
activities. Investing activities used $10.4 million and financing activities
used $24.3 million during the first quarter of 1996. Total cash and cash
equivalents were $93.5 million at March 31, 1996, compared to $52.0 million
at March 31, 1995. 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 March 31, 1996.
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 1.13, and as a percentage of total
assets was 5.71%.
Because of inherent limitations of gap analysis, Homeland periodically
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
MARCH 31, 1996
---------------------------------------------------------------------------------
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 $ 42,800 $ --- $ --- $ 42,800 $ --- $ 42,800
Securities 24,750 8,903 50,550 84,203 130,195 214,398
Loans 230,714 48,871 191,114 470,699 386,355 857,054
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Total interest earning assets 298,264 57,774 241,664 597,702 516,550 1,114,252
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Sources of funds
Interest bearing demand deposits(1) 20,995 --- --- 20,995 83,979 104,974
Money market deposits(1) 127,064 --- --- 127,064 41,057 168,121
Savings deposits(1) 13,515 --- --- 13,515 54,059 67,574
Time deposits 51,801 66,800 169,393 287,994 200,557 488,551
Federal funds purchased 62,675 --- --- 62,675 --- 62,675
Other short-term borrowings 15,703 --- --- 15,703 --- 15,703
Long-term borrowings 5 159 120 284 46,857 47,141
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Total rate sensitive liabilities 291,758 66,959 169,513 528,230 426,509 954,739
Demand deposits, net of cash and
due from banks --- --- --- --- 63,590 63,590
Other, net --- --- --- --- 95,923 95,923
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Total sources of funds 291,758 66,959 169,513 528,230 586,022 1,114,252
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Interest sensitivity gap $ 6,506 $ (9,185) $ 72,151 $ 69,472 $ (69,472) $ ---
============================================================================================================================
Cumulative gap $ 6,506 $ (2,679) $ 69,472 $ 69,472
Cumulative gap as a percentage
of total assets 1.36% .60% 5.71% 5.71%
Cumulative ratio of interest sensitive
assets to interest sensitive liabilities 1.02 .99 1.13 1.13
===========================================================================================================================
<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>
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.
======= ------------------
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
======= ---------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
======= -------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
======= ---------------------------------------------------
(a) The Annual Meeting of Shareholders of Homeland Bankshares
Corporation was held on April 16, 1996.
(b) There was no solicitation in opposition to management's nominees
for directors listed in Homeland's Proxy Statement dated March 19,
1996. All nominees were elected.
ITEM 5. OTHER INFORMATION.
======= -----------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
======= --------------------------------
(a) EXHIBITS: Index to Exhibits - Page 16.
Exhibit 11 Statement Re Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the quarter ended
March 31, 1996.
*** SIGNATURES ***
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HOMELAND BANKSHARES CORPORATION
(Registrant)
Date May 9, 1996 /s/ Erl A. Schmiesing
----------- ----------------------------------------------
Erl A. Schmiesing, Chairman, President & CEO
(Principal Executive Officer)
Date May 9, 1996 /s/ Robert S. Kahler
----------- ----------------------------------------------
Robert S. Kahler, EVP & CFO
(Principal Financial and Accounting Officer)
------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
INDEX TO EXHIBITS
TO FORM 10-Q QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------
HOMELAND BANKSHARES CORPORATION
229 EAST PARK AVENUE
WATERLOO, IOWA 50704-5300
EXHIBIT NO. ITEM PAGE
----------- ------------------------------------------------------- ----
11 Statement Re Computation of Earnings Per Share 17
27 Financial Data Schedule 18
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