FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20552
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 033-75820
HARVEST HOME FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-1402988
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
3621 Harrison Avenue
Cheviot, Ohio 45211
(Address of principal (Zip Code)
executive office)
Issuer's telephone number, including area code: (513) 661-6612
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
As of February 7, 1997 the latest practicable date, 934,857 shares of the
registrant's common stock, without par value, were issued and outstanding.
Harvest Home Financial Corporation
INDEX
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
Consolidated Statements of Earnings
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
PART II - OTHER INFORMATION
SIGNATURES
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, September 30,
ASSETS 1996 1996
Cash and due from banks $ 329 $ 520
Federal funds sold 700 400
Interest-bearing deposits in other
financial institutions 2,285 788
Cash and cash equivalents 3,314 1,708
Investment securities designated as
available for sale - at market 10,111 12,105
Mortgage-backed securities designated
as available for sale - at market 24,969 20,429
Loans receivable - net 42,721 42,267
Office premises and equipment - at
depreciated cost 941 952
Stock in Federal Home Loan Bank - at cost 761 588
Accrued interest receivable on loans 196 209
Accrued interest receivable on
mortgage-backed securities 100 102
Accrued interest receivable on investments
and interest-bearing deposits 251 211
Prepaid expenses and other assets 58 74
Prepaid federal income taxes 237 73
Total assets $83,659 $78,718
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $57,754 $57,958
Advances from the Federal Home Loan Bank 15,000 10,000
Advances by borrowers for taxes and
insurance 143 96
Accounts payable on mortgage loans
serviced for others 10 3
Accrued interest payable 92 77
Other liabilities 57 813
Deferred federal income taxes 204 46
Total liabilities 73,260 68,993
Stockholders' Equity
Common stock - 2,000,000 shares of no
par value authorized;
991,875 shares issued 0 0
Additional paid-in capital 6,957 6,740
Shares acquired by Employee Stock
Ownership Plan (378) (674)
Shares acquired by Recognition and
Retention Plan (389) (486)
Retained earnings - substantially
restricted 4,851 4,787
Less 57,018 shares of treasury
stock - at cost (633) (633)
Unrealized losses on securities
designated as available for sale,
net of related tax effects (9) (9)
Total stockholders' equity 10,399 9,725
Total liabilities and stockholders' equity $83,659 $78,718
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended December 31,
(In thousands, except share data)
1996 1995
Interest income
Loans $ 856 $ 793
Mortgage-backed securities 299 106
Investment securities 193 288
Interest-bearing deposits and other 44 51
Total interest income 1,392 1,238
Interest expense
Deposits 691 701
Borrowings 151 0
Total interest expense 842 701
Net interest income 550 537
Other income
Gain on sale of investments and mortgage-
backed securities designated as available
for sale 6 0
Other 17 13
Total other income 23 13
General, administrative and other expense
Employee compensation and benefits 171 179
Occupancy and equipment 61 58
Federal deposit insurance premiums 0 32
Franchise taxes 34 22
Other 69 67
Total general, administrative and other expense 335 358
Earnings before income taxes 238 192
Federal income taxes
Current (77) 57
Deferred 158 7
Total federal income taxes 81 64
NET EARNINGS $ 157 $ 128
EARNINGS PER SHARE $.18 $.15
The Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31,
(In thousands)
1996 1995
Cash flows provided by (used in) operating
activities:
Net earnings for the period $ 157 $ 128
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Amortization of deferred loan origination fees (12) (8)
Depreciation and amortization 14 10
Amortization of premiums on investment and
mortgage-backed securities 11 26
Gain on sale of investment and mortgage-
backed securities (6) 0
Amortization of employee stock benefit plans 236 120
Federal Home Loan Bank stock dividends (11) (10)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 13 11
Accrued interest receivable on mortgage-
backed securities 2 1
Accrued interest receivable on investments
and interest-bearing deposits (40) 8
Prepaid expenses and other assets 16 67
Accounts payable on mortgage loans serviced
for others 7 (12)
Accrued interest payable 15 2
Other liabilities (382) (68)
Federal income taxes
Current (164) 57
Deferred 158 7
Net cash provided by operating activities 14 339
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 310 283
Purchase of mortgage-backed securities (5,000) 0
Proceeds from maturity of investment securities 0 1,000
Proceeds from sale of investment securities 2,004 0
Proceeds from sale of mortgage-backed securities 135 0
Principal repayments on loans 860 1,662
Loan disbursements (1,302) (1,874)
Purchase of office equipment (3) (178)
Purchase of Federal Home Loan Bank stock (162) 0
Net cash provided by (used in) investing
activities (3,158) 893
Cash flows provided by (used in) financing
activities:
Net increase (decrease) in deposit accounts (204) 194
Proceeds from Federal Home Loan Bank advances 5,000 0
Advances by borrowers for taxes and insurance 47 40
Dividends on common stock (93) (90)
Purchase of treasury shares 0 (80)
Net cash provided by financing activities 4,750 64
Net increase in cash and cash equivalents 1,606 1,296
Cash and cash equivalents at beginning of period 1,708 2,313
Cash and cash equivalents at end of period $3,314 $ 3,609
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 0 $ 0
Interest on deposits and borrowings $ 827 $ 699
Supplemental disclosure of noncash investing
activities:
Transfer of investment and mortgage-backed
securities to an available for sale
classification $ 0 $25,732
Unrealized gains on securities designated
as available for sale, net of related
tax effects $ 0 $ 330
Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three month periods ended
December 31, 1996 and 1995
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Accordingly, these financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto of the Corporation included in the Annual Report on
Form 10-KSB for the year ended September 30, 1996. However, in the opinion of
management, all adjustments (consisting of only normal recurring accruals) which
are necessary for a fair presentation of the consolidated financial statements
have been included. The results of operations for the three month periods ended
December 31, 1996 and 1995 are not necessarily indicative of the results which
may be expected for an entire fiscal year.
2. Principes of Consolidation
The accompanying consolidated financial statements include the accounts of
Harvest Home Financial Corporation (the Corporation) and Harvest Home Savings
Bank (the Savings Bank). All significant intercompany items have been
eliminated.
3. Earnings Per Share
Earnings per share is computed based upon the weighted-average shares
outstanding during the period plus those stock options that are dilutive, less
shares in ESOP that are unallocated and not committed to be released. Weighted-
average common shares deemed outstanding, which gives effect to 37,826 and
67,385 unallocated ESOP shares, totaled 897,031 and 883,106 for the three month
periods ended December 31, 1996 and 1995, respectively.
4. Effects of Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", establishing financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
to measure compensation cost for those plans using the intrinsic value based
method of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting are required to disclose in a footnote to the financial statements
pro forma net earnings and, if presented, earnings per share, as if SFAS No.
123 had been adopted. The accounting requirements of SFAS No. 123 are
effective for transactions entered into during fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
Management has determined that the Corporation will continue to account for
stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25, and therefore the provisions of SFAS No. 123 will have no effect
on its consolidated financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights, and Extinguishment of Liabilities", that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, the
financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include,
among others, transfers involving repurchase agreements, securitizations of
financial assets, loan participations, factoring arrangements, and transfers
of receivables with recourse.
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing
assets and liabilities are amortized in proportion to and over the period of
estimated net servicing income or net servicing loss and are subject to
subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on the Corporation's consolidated financial position or results
of operations.
Forward-Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Corporation's operations and the Corporation's
actual results could differ significantly from those discussed in the forward-
looking statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount of allowance for losses on
loans and the effect of certain accounting pronouncements.
Discussion of Financial Condition Changes from September 30, 1996 to December
31, 1996
At December 31, 1996, the Corporation had total assets of $83.7 million, an
increase of $4.9 million, or 6.3%, from September 30, 1996. The increase in
assets was funded primarily through a $5.0 million increase in advances from the
Federal Home Loan Bank.
Cash and due from banks, interest-bearing deposits in other financial
institutions and investment securities decreased by $388,000, to a total of
$13.4 million at December 31, 1996. Investment securities decreased by $2.0
million, or 16.5%, due to sales of securities during the quarter.
Mortgage-backed securities increased by $4.5 million, or 22.2%, to a total of
$25.0 million at December 31, 1996, as compared to $20.4 million at September
30, 1996, as purchases of $5.0 million exceeded principal repayments and
sales of $310,000 and $135,000, respectively. During the current quarter,
management purchased $5.0 million of long-term, adjustable-rate U.S.
Government agency REMIC's with a yield of 6.63%. Such purchases were funded
with proceeds from Federal Home Loan Bank advances.
Loans receivable increased by $454,000, or 1.1%, as loan disbursements of $1.3
million exceeded principal repayments of $860,000.
At December 31, 1996, Harvest Home's allowance for loan losses totaled $111,000,
which equaled the level maintained at September 30, 1996. The allowance for
loan losses is evaluated by management based upon an assessment of current and
anticipated economic conditions applied to the loan portfolio, as well as,
evaluating the quality of the portfolio. At December 31, 1996, the Corporation
had $217,000 in nonperforming loans, as compared to $164,000 in nonperforming
loans at September 30, 1996. Although management believes that its allowance
for loan losses at December 31, 1996 was adequate based on facts and
circumstances available to it, there can be no assurances that additions to such
allowance will not be necessary in future periods, which could adversely affect
Harvest Home's results of operations.
Deposits totaled $57.8 million at December 31, 1996, a decrease of $204,000, or
.4%, from the $58.0 million of deposits outstanding at September 30, 1996.
Advances from the Federal Home Loan Bank increased by $5.0 million, or 50.0%,
during the current quarter as management elected to fund the purchase of
mortgage-backed securities with long-term adjustable-rate advances bearing
interest at a rate of 5.43%.
The Federal Deposit Insurance Corporation (FDIC) has adopted risk-based capital
ratio guidelines to which the Savings Bank is subject. The guidelines establish
a systematic analytical framework that makes regulatory capital requirements
more sensitive to differences in risk profiles among banking organizations.
Risk-based capital ratios are determined by allocating assets and specified off-
balance sheet commitments to four risk-weighted categories, with higher levels
of capital being required for the categories perceived as representing greater
risk.
These guidelines divide the Savings Bank's capital into two tiers. The first
tier ("Tier 1") includes common equity, certain non-cumulative perpetual
preferred stock (excluding auction rate issues) and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit card
relationships, subject to certain limitations). Supplementary ("Tier II")
capital includes, among other items, cumulative perpetual and long-term limited-
life preferred stock, mandatory convertible securities, certain hybrid capital
instruments, term subordinated debt and the allowance for loan losses, subject
to certain limitations, less required deductions. Savings banks are required to
maintain a total risk-based capital ratio of 8%, of which 4% must be Tier 1
capital. The FDIC may, however, set higher capital requirements when particular
circumstances warrant. Savings banks experiencing or anticipating significant
growth are expected to maintain capital ratios, including tangible capital
positions, well above the minumum levels.
In addition, the FDIC established guidelines prescribing a minimum Tier 1
leverage ratio (Tier 1 capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of 3%
for savings banks that meet certain specified criteria, including that they have
the highest regulatory rating and are not experiencing or anticipating
significant growth. All other savings banks are required to maintain a Tier 1
leverage ratio of 3% plus an additional cushion of at least 100 or 200 basis
points.
As of December 31, 1996, the Savings Bank's regulatory capital substantially
exceeded all minimum capital requirements.
Comparison of Operating Results for the Three Month Periods Ended December 31,
1996 and 1995
General
Net earnings for the three months ended December 31, 1996 totaled $157,000, an
increase of $29,000, or 22.7%, over the $128,000 of net earnings recorded for
the three months ended December 31, 1995. The increase in earnings resulted
primarily from a $13,000 increase in net interest income, a $10,000 increase
in other income and a $23,000 decrease in general, administrative and other
expense, which were partially offset by a $17,000 increase in the federal income
tax provision.
Net Interest Income
Interest income on loans for the three months ended December 31, 1996 increased
by $63,000, or 7.9%. The increase was primarily due to a $4.2 million increase
in average portfolio balance year-to-year, which was partially offset by a 22
basis point decrease in yield, from 8.27% in 1995 to 8.05% in 1996. Interest
income on mortgage-backed securities increased $193,000, or 182.1%, due to a
$13.8 million increase in average portfolio balance outstanding year-to-year.
Interest income on investment securities and other interest-earning assets
decreased by $102,000, or 30.1%. This decrease was primarily the result of a
$6.5 million decrease in average portfolio balance outstanding year-to-year.
Interest expense on deposits decreased by $10,000, or 1.4%, during the three
months ended December 31, 1996. This decrease was the result of a 20 basis
point decline in the average cost of deposits, from 4.96% in 1995 to 4.76% in
1996.
Interest expense on borrowings increased by $151,000 as a result of the increase
in advances from the Federal Home Loan Bank, as previously discussed.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $13,000, or 2.4%, during the three months ended
December 31, 1996, as compared to the three months ended December 31, 1995.
Other Income
Other income increased by $10,000, or 76.9%, during the three months ended
December 31, 1996. This increase was due primarily to a $6,000 gain on sale
of investment and mortgage-backed securities, coupled with an increase in
service charges and other fees year-to-year.
General, Administrative and Other Expense
General, administrative and other expense decreased by approximately $23,000, or
6.4%, during the three months ended December 31, 1996, to a total of $335,000,
as compared to the $358,000 total reported for the same period in 1995. This
decrease was primarily the result of a $32,000, or 100.0%, decrease in federal
deposit insurance premiums, which was partially offset by a $12,000, or 54.5%,
increase in franchise taxes. The decline in federal deposit insurance premiums
was due primarily to a reduction in premium rates following the SAIF
recapitalization charge recorded by the Corporation at September 30, 1996. The
increase in franchise taxes was due to the increase in stockholders' equity
following the conversion to stock form in 1994.
Federal Income Taxes
The provision for federal income taxes increased by $17,000, or 26.6%, during
the three months ended December 31, 1996, due primarily to an increase in
earnings before income taxes of $46,000, or 24.0%. Harvest Home's effective tax
rates amounted to 34.0% and 33.3% during the three months ended December 31,
1996 and 1995, respectively.
Harvest Home Financial Corporation
PART II
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
On December 29, 1996, the Annual Meeting of the Corporation's Stockholders was
held. Three directors (John E. Rathkamp, George C. Eyrich and Herbert E.
Menkhaus) were each elected to terms expiring in 1999 by the following votes:
For: 765,918 Against: 13,791
One other matter was submitted to the stockholders, for which the following
vote was cast:
Ratification of the appointment of Grant Thornton LLP as independent auditors
of the Corporation for the fiscal year ended September 30, 1997.
For: 765,918 Against: 10,494 Abstain: 3,300
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed on November 6, 1996 to reflect a payment of a one-time
cash distribution of $3.00 per share to all shareholders of record as of
September 6, 1996. The distribution was issued following a response in the form
of a Private Letter Ruling from the Internal Revenue Service.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 1997 By:________________________
John E. Rathkamp
President, Chief
Executive Officer
and Secretary
Date: February 14, 1997 By:_________________________
Dennis J. Slattery
Executive Vice
President, Treasurer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 1997 By:/s/John E. Rathkamp
John E. Rathkamp
President, Chief
Executive Officer
and Secretary
Date: February 14, 1997 By:/s/Dennis J. Slattery
Dennis J. Slattery
Executive Vice
President, Treasurer