UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-20956
HFB FINANCIAL CORPORATION
A Tennessee Corporation I.R.S. Employer Identification
No. 61-1228266
Address Telephone Number
------- ----------------
1602 Cumberland Avenue (606) 248-1095
Middlesboro, Kentucky 40965
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding twelve 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 .
--- ---
The number of shares of the registrant's $1 par value common stock outstanding
at March 31, 1996 was 637,296.
There are a total of 17 pages filed in this document.
1
HFB FINANCIAL CORPORATION
I N D E X
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PAGE NO.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-15
PART II - OTHER INFORMATION 16
SIGNATURES 17
2
HFB FINANCIAL CORPORATION
Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
------------ ------------
Assets
Cash and cash equivalents $ 7,437,545 $ 4,010,205
Investment securities, available for sale, at market value
(amortized cost of $10,456,762 and $4,170,190 at March 31, 1996
and June 30, 1995, respectively) 10,421,813 4,175,150
Investment securities, held to maturity, at amortized cost
(including unrealized gain of $34,134 at March 31, 1996
market value of $6,968,233 and $11,920,290 at March 31, 1996
and June 30, 1995, respectively) 7,096,329 11,988,086
Loans receivable, net 94,146,722 87,500,291
Mortgage-backed securities, available for sale, at market value
(amortized cost of $8,413,347 and $-0- at March 31, 1996
and June 30, 1995, respectively) 8,289,565 -
Mortgage-backed securities, held to maturity, at amortized cost
(market value of $11,725,714 and $20,358,871 at March 31, 1996
and June 30, 1995, respectively) 11,944,931 20,718,490
Accrued interest receivable 988,338 799,943
Real estate owned - 84,539
Premises and equipment, net 2,335,514 1,851,837
Other assets (including prepaid income taxes of $0 and $15,482
at March 31, 1996 and June 30, 1995, respectively) 116,538 131,878
------------ ------------
Total assets $142,777,295 $131,260,419
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $122,838,365 $110,104,218
Accrued interest on deposits 1,015,764 360,184
Advances from Federal Home Loan Bank 2,663,325 4,575,733
Advances from borrowers for taxes and insurance 106,950 156,692
Accrued expenses and other liabilities 603,979 567,898
Income taxes payable 80,974 87,071
------------ ------------
Total liabilities 127,309,357 115,851,796
------------ ------------
Commitments and contingencies - -
Stockholders' Equity:
Preferred stock, $1 par value, authorized: 1,000,000 shares; none issued - -
Common stock, $1 par value; authorized: 5,000,000 shares: issued; 746,064
and 742,064 shares at March 31, 1996 and June 30, 1995, respectively 746,064 742,064
Additional paid-in capital 6,297,130 6,232,552
Less: Common stock acquired by ESOP with borrowed funds (222,277) (293,200)
Common stock acquired by Management Recognition Plan and
Supplemental Executive retirement Plan (121,250) (166,850)
Common stock acquired by Rabbi trusts for deferred compensation plans (242,429) (247,608)
Treasury stock, at cost 108,768 shares and 95,518 at March 31, 1996
and June 30, 1995, respectively (1,749,345) (1,496,242)
Net unrealized gain (loss) on securities available for sale (79,842) 3,178
Retained earnings - substantially restricted 10,839,887 10,634,729
------------ ------------
Total stockholders' equity 15,467,938 15,408,623
------------ ------------
Total liabilities and stockholders' equity $142,777,295 $131,260,419
============ ============
See accompanying notes to consolidated financial statements.
3
HFB FINANCIAL CORPORATION
Consolidated Statements of Earnings
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Interest income:
Loans receivable $1,948,064 $1,786,414 $5,704,338 $5,111,793
Mortgage-backed securities 313,100 341,002 934,614 1,083,950
Investment securities 277,776 310,858 809,366 866,655
Other interest-earning assets 56,613 19,127 138,631 72,992
---------- ---------- ---------- ----------
Total interest income 2,595,553 2,457,401 7,586,949 7,135,390
---------- ---------- ---------- ----------
Interest expense:
Deposits 1,497,229 1,160,650 4,314,339 3,267,653
Borrowed funds 36,696 157,469 132,096 380,469
---------- ---------- ---------- ----------
Total interest expense 1,533,925 1,318,119 4,446,435 3,648,122
---------- ---------- ---------- ----------
Net interest income 1,061,628 1,139,282 3,140,514 3,487,268
Provision for loan losses 5,583 6,997 24,991 24,621
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 1,056,045 1,132,285 3,115,523 3,462,647
---------- ---------- ---------- ----------
Noninterest income:
Loan service charges 7,711 7,607 22,871 25,083
Service charges on NOW accounts 61,920 61,481 192,585 179,663
Gain (loss) on sale of investment securities
available for sale - - (625) 58,366
Gain (loss) on sale of mortgage-backed securities
available for sale - - - (71,608)
Gain (loss) on sale of premises and equipment 950 - (1,640) -
Other 18,717 15,136 46,420 38,187
---------- ---------- ---------- ----------
Total noninterest income 89,298 84,224 259,611 229,691
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and benefits 407,734 352,332 1,199,379 1,025,380
Occupancy expense 40,971 37,182 123,345 91,299
Equipment and data processing expense 104,464 82,378 273,580 234,828
SAIF deposit insurance premium 65,613 60,988 189,055 181,519
Professional services 53,162 55,928 142,076 147,426
Loss (Gain) on sale of real estate owned - 0 - (1,731)
Kentucky savings and loan tax 29,185 25,445 81,685 77,945
Other 125,281 140,034 418,637 368,573
---------- ---------- ---------- ----------
Total noninterest expense 826,410 754,287 2,427,757 2,125,239
---------- ---------- ---------- ----------
Earnings before income taxes 318,933 462,222 947,377 1,567,099
---------- ---------- ---------- ----------
Income taxes:
Current 105,450 164,975 286,309 512,750
Deferred 3,800 (3,400) 43,800 39,175
---------- ---------- ---------- ----------
Total income taxes 109,250 161,575 330,109 551,925
---------- ---------- ---------- ----------
Net earnings $ 209,683 $ 300,647 $ 617,268 $1,015,174
---------- ---------- ---------- ----------
Earnings per share $ 0.31 $ 0.44 $ 0.92 $ 1.50
---------- ---------- ---------- ----------
Dividends per share $ 0.32 $0.32 $ 0.64 $ 0.63
---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements.
4
HFB FINANCIAL CORPORATION
Consolidated Statement of Stockholders' Equity
Nine Months Ended March 31, 1996
(Unaudited)
Net
Unrealized
Gain
(Loss) on
Additional MRP Securities Total
Common Paid-in ESOP* and Rabbi Treasury Retained Available Stockholders'
Stock Capital Debt SERP** Trusts Stock Earnings for Sale Equity
-------- ---------- --------- --------- --------- ----------- ----------- ----------- -------------
Balance at June 30,1995 $742,064 $6,232,552 $(293,200) $(166,850) $(247,608) $(1,496,242) $10,634,729 $ 3,178 $15,408,623
Net earnings - - - - - - 617,268 - 617,268
Stock issued upon
exercise of stock
options 4,000 41,747 - - - - - - 45,747
Dividends declared - - - - - - (412,110) - (412,110)
Treasury stock -
13,250 shares purchased - - - - - (253,103) - - (253,103)
Reduction of ESOP debt - 5,394 70,923 - - - - - 76,317
Stock issued under MRP - 16,046 - 45,600 - - - - 61,646
Distribution of Rabbi
trusts assets - 1,391 - - 5,179 - - - 6,570
Net change in unrealized
gain on available
securities for sale - - - - - - - (83,020) (83,020)
-------- ---------- --------- --------- --------- ----------- ----------- ----------- -------------
Balance at March 31, 1996 $746,064 $6,297,130 $(222,277) $(121,250) $(242,429) $(1,749,345) $10,839,887 $(79,842) $15,467,938
======== ========== ========= ========= ========= =========== =========== =========== =============
* Employees Stock Ownership Plan
**Management Recognition Plan (MRP) and Supplemental Executive Retirement
Plan (SERP)
See accompanying notes to consolidated financial statements.
HFB FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
March 31,
1996 1995
---------- ----------
Cash flows from operating activities:
Net earnings $617,268 $1,015,354
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 125,871 93,197
Amortization of cost ESOP 70,923 73,370
Amortization of cost of Management Recognition Plan 45,600 9,000
Distribution of Rabbi trusts assets 5,179 -
Amortization of premiums and discounts on investment
securities and mortgage-backed securities 36,538 62,959
FHLB stock dividend (54,400) (46,500)
Deferred income taxes 43,800 39,175
Provision for loan losses 24,991 24,621
Loss (gain) on sale of real estate owned - (1,731)
Loss (gain) on sale of premises & equipment 1,640 -
Loss (gain) on sale of investment securities available for sale 625 (58,366)
Loss (gain) on sale of mortgage-backed securities
available for sale - 71,608
Decrease (increase) in accrued interest receivable (188,395) (136,179)
Decrease (increase) in other assets (142) (134,014)
Increase (decrease) in accrued interest on deposits 655,580 515,817
Increase (decrease) in accrued expenses and other liabilities 36,081 119,289
Increase (decrease) in income taxes payable 40,700 (2,800)
----------- -----------
Net Cash provided by (used in) operating activities 1,461,859 1,644,800
----------- -----------
Cash flows from investing activities:
Principal collected on investment securities available for sale 505,727 308,566
Proceeds from sales of investment securities
available for sale 3,999,375 4,046,406
Purchase of investment securities, available for sale (3,973,546) (4,989,375)
Proceeds from sale of FHLB stock - 14,100
Proceeds from investment securities matured 3,153,352 2,315
Purchase of investment securities (5,000,000) (2,000,000)
Principal collected on mortgage-backed securities
available for sale 643,523 187,664
Proceeds from sales of mortgage-backed securities
available for sale - 4,394,777
Purchased of mortgage-backed securities
available for sale (1,984,005) -
Principal collected on mortgage-backed securities 1,670,972 1,588,905
Mortgage loans originated, net of principal collected (6,401,234) (7,205,948)
Purchases of, net of principal collected on, mortgage loans
serviced by other institutions 762,393 (1,901,193)
(Increase) decrease in consumer loans (1,085,268) (267,692)
Proceeds from sales of real estate owned 138,596 182,616
Proceeds from sales of premises and equipment 5,150 -
Acquisition of premises and equipment used in
Bank's business (616,338) (320,754)
----------- -----------
Net cash provided by (used in) investing activities ($8,181,303) ($5,959,613)
----------- -----------
(continued)
6
HFB FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
March 31,
1996 1995
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock $ 40,000 $ 135,792
Purchase of treasury stock (253,103) (499,997)
Dividends paid to stockholders (412,110) (413,941)
Proceeds from advances from Federal Home Loan Bank - 4,000,000
Repayment of advances from Federal Home Loan Bank (1,912,408) (1,034,523)
Repayment of reverse repurchase agreement - (131,000)
Net increase (decrease) in deposits 12,734,147 2,168,017
Net increase (decrease) in advances
from borrowers for taxes and insurance (49,742) (6,641)
----------- -----------
Net cash provided by (used in) financing activities 10,146,784 4,217,707
----------- -----------
Net increase (decrease) in cash and cash equivalents 3,427,340 (97,106)
Cash and cash equivalents at beginning of the period 4,010,205 2,959,917
----------- -----------
Cash and cash equivalents at end of the period $ 7,437,545 $ 2,862,811
=========== ===========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest $ 3,797,292 $ 3,109,681
=========== ===========
Income taxes $ 245,609 $ 515,350
=========== ===========
Noncash activity:
Acquisition of real estate in settlement of loans $ 44,736 $ 236,880
=========== ===========
Transfer of investment securities,
available for sale to held to maturity $ 1,475,985 $ -
=========== ===========
Transfer of investment securities,
held to maturity to available for sale $ 8,307,712 $ -
=========== ===========
Transfer of mortgage-backed securities,
held to maturity to available for sale $ 7,082,419 $ -
=========== ===========
See accompanying notes to consolidated financial statements.
7
HFB FINANCIAL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION:
The unaudited consolidated financial information for the three and nine
month periods ended March 31, 1996 and 1995 includes the results of
operations of HFB Financial Corporation (the "Corporation") and its wholly
owned subsidiary Home Federal Bank, Federal Savings Bank ("Home Federal" or
the "Bank"). HFB Financial Corporation acquired 100 percent of the Bank's
stock during the completion of the Bank's conversion from mutual to stock
form on December 28, 1992. The accompanying unaudited financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to
Form 10-Q. It is suggested that these statements and notes be read in
conjunction with the financial statements and notes thereto included in the
Bank's annual report for the year ended June 30, 1995 on Form 10-K filed
with the Securities and Exchange Commission.
In the opinion of management, the financial information reflects all
adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of the results of operations for such
periods but should not be considered as indicative of results for a full
year.
2. NONPERFORMING LOANS AND PROBLEM ASSETS
Management reviews the Bank's loans on a regular basis. After residential
mortgage loans become past due more that 90 days, the Bank generally
establishes an allowance for uncollectible interest for the amount by which
the principal balance and uncollected interest exceeds 90% of the appraised
value of the property. Commercial and multi-family real estate loans
generally are placed on non-accrual status if the borrower is placed in
bankruptcy proceedings, or management concludes that payment in full is not
likely. Consumer and commercial loans generally are charged off, or an
allowance is established for any expected loss after they become more than
90 days past due. The Bank accrues interest on delinquent loans past due
more than 90 days without establishing a reserve when management concludes
such action is warranted, such as in the event the loan is exceptionally
well collateralized or the borrower establishes the temporary nature of the
delinquency. Loans are charged off when management concludes that they are
uncollectible.
The Bank's collection procedures provide that when a loan becomes past due
30 days, the borrower is contacted in person or by telephone or mail, and
payment is requested. If payment is not promptly received, the borrower is
contacted again, and efforts are made to formulate an affirmative plan to
cure the delinquency. After a loan becomes past due 90 days the Bank
generally initiates legal proceedings. Loans delinquent 90 days or greater
and still accruing are managed based on a work out plan developed by the
Bank. Interest accrues based on the work out plan and the value of the
collateral when collateral value is more than sufficient to fully cover the
loan balance. Interest is not accrued on loans in the process of
foreclosure.
Real estate acquired by the Bank as a result of foreclosure is classified
as real estate owned until such time as it is sold. When such property is
acquired, it is recorded at the lower of the unpaid principal balance or
its fair value less estimated selling cost. Any required write-down of the
loan to its fair market value upon foreclosure is charged against the
allowance for loan losses.
8
The following sets forth information with respect to the Bank's non-performing
assets at March 31, 1996 and June 30, 1995:
(Dollars in thousands)
March 31, June 30,
1996 1995
---------- ---------
Loans accounted for on a nonaccrual basis (1) $ 0 $ 0
----- -----
Accruing loans which are contractually past due
90 days or more: (1)
Real estate $ 565 $ 260
Consumer 3 15
Commercial 0 0
----- -----
$568 $ 275
----- -----
Total of nonaccrual and 90 days or more
past due loans $ 568 $ 275
Real estate owned - 85
Total non-performing assets $ 568 $ 360
===== =====
Nonaccrual and 90 days or more past due loans
as a percentage of total loans, net .60% .31%
===== =====
Nonaccrual and 90 days or more past due loans
as a percentage of total assets .40% .21%
===== =====
Non-performing assets as a percentage of total assets .40% .27%
===== =====
(1) Interest on delinquent loans is accrued to income to the extent
considered collectible. Nonaccrual loans did not have a material effect on
the Bank's interest income for the periods ended March 31, 1996 and June
30, 1995.
9
The following sets forth the activity in the Bank's allowance for loan losses
for the nine months ended March 31, 1996:
(Dollars in thousands)
Balance at June 30, 1995 $633
Charge offs:
Domestic:
Commercial, financial and agricultural 0
Real estate-construction 0
Real estate-mortgage 0
Installment loans to individuals 9
----
9
----
Recoveries:
Domestic:
Commercial, financial and agricultural 0
Real estate-construction 0
Real estate-mortgage 10
Installment loans to individuals 1
----
11
----
Net charge offs (Recoveries): (2)
Additions charged to operations 25
----
Balance March 31, 1996 $660
====
Ratio of net charge offs during
the period to average loans outstanding
during the period -
====
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
GENERAL:
HFB Financial Corporation, a Tennessee Corporation, was formed in
September 1992 at the direction of Home Federal Bank, Federal Savings Bank for
the purpose of becoming a holding company for the Bank as part of its conversion
from mutual to stock form ("the "Conversion"). Prior to the Conversion, the
Corporation did not engage in any material operations and at March 31, 1996, its
primary operation was its investment in the common stock of the Bank.
The Bank is principally engaged in the business of accepting deposits from
the general public and originating permanent loans which are secured by one-to-
four family residential properties located in its market area. The Bank also
originates consumer loans and commercial real estate loans, and maintains a
substantial investment portfolio of mortgage-backed and other investment
securities.
The operations of Home Federal, and savings institutions generally, are
significantly influenced by general economic conditions and the monetary and
fiscal policies of government regulatory agencies. Deposit flows and costs of
funds are influenced by interest rates on competing investments and prevailing
market rates of interest. Lending activities are affected by the demand for
financing real estate and other types of loans, which in turn are influenced by
the interest rates at which such financing may be offered and other factors
related to loan demand and the availability of funds. Just as the Bank's
operations are influenced by regulatory authorities, so are its liquidity levels
and capital resources. As of March 31, 1996, management is not aware of any
current recommendations by the regulatory authorities, which if implemented,
would have a material effect on the Bank's operations, liquidity or resources.
ASSET/LIABILITY MANAGEMENT
Key components of a successful asset/liability strategy are the monitoring
and managing of interest rate sensitivity of both the interest-earning asset and
interest-bearing liability portfolios. Home Federal has employed various
strategies intended to minimize the adverse affect of interest rate risk on
future operations by providing a better match between the interest rate
sensitivity of its assets and liabilities. In particular, the Bank's strategies
are intended to stabilize net interest income for the long-term by protecting
its interest rate spread against increases in interest rates. Such strategies
include the origination of adjustable-rate mortgage loans secured by one-to-four
family residential real estate and the origination of consumer and other loans
with greater interest rate sensitivities than long-term, fixed-rate residential
mortgage loans. Although customers typically prefer fixed-rate mortgage loans
in a low interest rate environment, Home Federal has been successful in
originating adjustable-rate loans in recent years. In addition, the Bank has
used excess funds to invest in various short-term investments including
mortgage-backed securities with terms of seven years or less, U.S. Government
Treasury and Agency securities with terms of ten years or less and other short-
term investments.
Asset/liability management in the form of structuring cash instruments
provides greater flexibility to adjust exposure to interest rates. During
periods of high interest rates, management believes it is prudent to offer
competitive rates on short-term deposits and less competitive rates for long-
term liabilities. This posture allows the Bank to benefit quickly from declines
in interest rates. Likewise, offering more competitive rates on long-term
deposits during the low interest rate periods allows the Bank to extend the
repricing and/or maturity of its liabilities thus reducing its exposure to
rising interest rates.
FINANCIAL CONDITION
The Corporation's assets increased by 8.76% to $142.8 million at March 31,
1996 compared to $131.3 million at June 30, 1995. The majority of this increase
is reflected in cash and equivalents, investment securities,
11
loans receivable and premises and equipment, which was primarily funded by an
increase in deposits.
Cash and cash equivalents increased by $3.4 million to $7.4 million at March
31, 1996 from $4.0 million at June 30, 1995. This increase was primarily
funded by increased deposits in the quarter ended March 31, 1996.
The Bank's asset composition continues to change due to volatility in
interest rates and a strong loan demand. In the current interest rate
environment, a substantial portion of loans originated were adjustable-rate
residential mortgages. During the nine months ended March 31, 1996, the Bank
originated $22.6 million in mortgages. Total loans receivable, net increased
7.54% to $94.1 million at March 31, 1996 compared to $87.5 million at June 30,
1995.
The Bank augments its lending activities and increases its asset yields by
investing in mortgage-backed securities "MBSs " and U.S. Government securities.
During the nine months ended March 31, 1995, management purchased $11.0 million
in investment securities and MBSs. These purchases were funded primarily by
proceeds from called and maturing investment securities and principal collected
on MBSs. At December 29, 1995, the Bank restructured its investment and MBS
portfolios as a result of the window of opportunity provided when the Financial
Accounting Standards Board "FASB" announced that it was suspending, for a brief
period, the transfer provisions of Statement of Financial Accounting Standards
"SFAS" No. 115, Accounting for Certain Investments in Debt and Equity
Securities. In order to more effectively manage these portfolios, the available
for sale "AFS" portfolios were increased by $13.9 million representing
approximately 50% of the total investment and MBS portfolios. At March 31,
1996, investment securities, AFS and MBSs, AFS were $18.7 million with a net
unrealized loss of $80,000.
Accrued interest receivable increased by $188,000 from $800,000 at June 30,
1995 to $988,000 at March 31, 1996 due to a higher volume of interest-earning
assets and the timing of interest payments.
Premises and equipment increased by $.5 million to $2.3 million at March 31,
1996 from $1.8 million at June 30, 1995 primarily due to construction and
equipment costs associated with the Bank's new branch in New Tazewell,
Tennessee. The New Tazewell branch opened for business in early October of
1995.
Total deposits increased by $12.7 million to $122.8 million at March 31,
1996 from $110.1 million at June 30, 1995. Of this increase, $7.8 million was
attributable to the New Tazewell branch, which opened in October of 1995. The
deposit mix continues to change with low cost savings and money market deposit
accounts shifting into higher rate certificates of deposit ("CDs"). During the
nine months ended March 31, 1996, CDs increased $14.9 million and NOW accounts
increased $238,000, while passbook savings and money market deposit accounts
decreased by $2.4 million.
Accrued interest on deposits increased by $656,000 to $1.016 million at
March 31, 1996 from $360,000 at June 30, 1995. The increase was due to
increased volume and the timing of interest payments.
Advances from Federal Home Loan Bank decreased by $1.9 million during the
nine months ended March 31, 1996 due to a maturing advance paid off in October
of 1995.
Advances from borrowers for taxes and insurance decreased by $50,000 for the
nine months ended March 31, 1996 due to the timing of tax and insurance
payments.
Accrued expenses and other liabilities increased by $36,000 during the nine
months ended March 31, 1996 primarily as the result of the timing of payments of
Kentucky saving and loan taxes and other expenses.
Income taxes payable decreased by $6,000 for the nine months ended March 31,
1996, due to the timing of tax payments.
Certain components of stockholders' equity increased during the nine months
ended March 31, 1996 as the
12
result of employee stock options exercised, reduction of the Employee Stock
Ownership Plan debt and stock issued under the Management Recognition Plan.
Also, 13,250 shares of treasury stock were purchased at a cost of $253,000
during the nine month period ended March 31, 1996.
The Bank's regulatory liquidity ratio was 19.16% at March 31, 1996 as
compared to 18.38% at June 30, 1995. At March 31, 1996 the Bank met all the
fully phased-in regulatory capital requirements under FIRREA. Tangible, core and
risk-based capital ratios were 10.5%, 10.5% and 23.5% respectively at March 31,
1996 as compared to 10.8%, 10.8% and 24.2% at June 30, 1995.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net earnings decreased by $91,000 to $210,000 for the three months ended
March 31, 1996 from $301,000 for the three months ended March 31, 1995. The
primary reasons for the decrease were a $77,000 decrease in net interest income
and a $72,000 increase in non-interest expense offset by a $1,000 decrease in
provision for loan losses, $5,000 increase in non-interest income and a $52,000
decrease in income tax expense.
Net interest income decreased by $77,000 for the three month period ended
March 31, 1996 as compared to the three month period ended March 31, 1995.
Interest income increased during the quarter as the result of the increase in
interest-earning assets, but it was not sufficient to offset the increased cost
of CDs. The decline in the Bank's net interest margin was partially due to it's
negative gap position with much of the effect mitigated by higher loan volume.
Interest on loans increased by $162,000 to $1.948 million for the three
month period ended March 31, 1996 as compared to $1.786 million for the three
month period ended March 31, 1995. This increase is mainly attributable to a
higher weighted average balance of loans receivable outstanding.
Interest on MBSs decreased by $28,000 to $313,000 during the three month
period ended March 31, 1996 from $341,000 for the three month period ended March
31, 1995, primarily due to a lower weighted average balance.
Interest on investment securities decreased by $33,000 to $278,000 for the
three month period ended March 31, 1996 from $311,000 for the three month period
ended March 31, 1995. This decrease was primarily due to decreased volume and
lower rates on new purchases.
Interest on other interest-earning bearing assets increased by $38,000 to
$57,000 for the three month period ended March 31, 1996 from $19,000 for the
three month period ended March 31, 1995 due to a higher level of interest-
bearing cash balances.
Interest on deposits increased by $336,000 to $1.497 million for the three
month period ended March 31, 1996 from $1.161 million for the three month period
ended March 31, 1995 as a result of higher interest rates, higher volume and a
change in the overall deposit mix. Lower rate savings accounts declined, while
CDs increased. In addition, the Bank aggressively priced its CDs as a result of
entering the New Tazewell market, thus reflecting a higher interest cost than
the Bank has traditionally incurred.
Interest on borrowed funds decreased by $120,000 to $37,000 for the three
month period ended March 31, 1996 from $157,000 for the three month period ended
March 31, 1995 due to lower levels of borrowing.
Provision for loan losses was $6,000 for the three month period ended March
31, 1996 as compared to $7,000 for the three month period ended March 31, 1995.
The decrease in the provision was a result of Management's evaluation of the
adequacy of the allowance for loan losses including consideration of recoveries
of loans previously charged off, the perceived risk exposure among loan types,
actual loss experience, delinquency
13
rates, and current economic conditions. The Bank's allowance for loan losses as
a percent of total loans at March 31, 1996 was .70%.
The Banks non-interest income increased by $5,000 to $89,000 for the three
month period ended March 31, 1996 as compared to $84,000 for the same period in
1995. The increase was attributable to several categories of non-interest
income with no significant changes in any single classification.
Non-interest expense increased by $72,000 to $826,000 for the three month
period ended March 31, 1996 as compared to $754,000 for the same period in 1995.
Compensation and benefits increased by $56,000 to $408,000 for the three month
period ended March 31, 1996 as compared to $352,000 for the same period in 1995.
This increase is due to higher wages and additional personnel, primarily
attributable to the establishment of the Bank's new branch office in New
Tazewell, Tennessee.
Occupancy expense increased by $4,000 to $41,000 for the three month period
ended March 31, 1996 compared to $37,000 for the same period in 1995. This
increase was mainly the result of expenses associated with the new branch office
in New Tazewell.
Equipment and data processing expense increased by $22,000 to $104,000 for
the three month period ended March 31, 1996 from $82,000 for the three month
period ended March 31, 1995 primarily due to increased data processing fees and
depreciation expense identifiable with the New Tazewell branch.
SAIF deposit insurance premiums increased by $5,000 to $66,000 for the three
month period ended March 31, 1996 as compared to the three month period ended
March 31, 1995. Other expense decreased by $15,000 to $125,000 for three the
month period ended March 31, 1996 from $140,000 for the three month period ended
March 31, 1995 as the result of small reductions in several expense categories.
Income taxes decreased by $52,000 to $109,000 for the three month period
ended March 31, 1996 compared to $162,000 for the three months ended March 31,
1995 due to lower earnings.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
Net earnings decreased by $398,000 to $617,000 for the nine months ended
March 31, 1996 from $1.015 million for the nine months ended March 31, 1995.
The primary reasons for the decrease were a $347,000 decrease in net interest
income and a $303,000 increase in non-interest expense offset by a $30,000
increase in non-interest income and a $222,000 decrease in income tax expense.
Net interest income decreased by $347,000 for the nine month period ended
March 31, 1996 as compared to the nine month period ended March 31, 1995.
During the quarter ended March 31, 1996, the Bank's net interest margin declined
due to it's negative gap position , but much of the effect was mitigated as a
result of higher loan volume. In addition, the Bank paid higher rates on CDs at
the New Tazewell branch as a means to penetrate this new market.
Interest on loans increased by $592,000 to $5.704 million for the nine month
period ended March 31, 1996 as compared to $5.112 million for the nine month
period ended March 31, 1995. This increase is mainly attributable to a higher
volume of loans receivable outstanding.
Interest on MBSs decreased by $149,000 to $935,000 during the nine month
period ended March 31, 1996 from $1.084 million for the nine month period ended
March 31, 1995 primarily due to a lower weighted average balance.
Interest on investment securities decreased by $58,000 to $809,000 for the
nine month period ended March
14
31, 1996 from $867,000 for the nine month period ended March 31, 1995. This
decrease was primarily due to decreased volume and lower yields on new
purchases.
Interest on other interest-earning assets increased by $66,000 to $139,000
for the nine month period ended March 31, 1996 from $73,000 for the nine month
period ended March 31, 1995 due to a higher level of interest-bearing cash
balances.
Interest on deposits increased by $1.046 million to $4.314 million for the
nine month period ended March 31, 1996 from $3.268 million for the nine month
period ended March 31, 1995 as a result of higher interest rates, higher volume
and a change in the overall deposit mix. Lower rate NOW accounts and savings
accounts declined, while CDs increased.
Interest on borrowed funds decreased by $248,000 to $132,000 for the nine
month period ended March 31, 1996 from $380,000 for the nine month period ended
March 31, 1995 due to lower levels of borrowing.
Provision for loan losses remained unchanged at $25,000 for the nine month
period ended March 31, 1996 compared to the nine month period ended March 31,
1995. This level of provision was a result of Management's evaluation of the
adequacy of the allowance for loan losses including consideration of recoveries
of loans previously charged off, the perceived risk exposure among loan types,
actual loss experience, delinquency rates, and current economic conditions. The
Bank's allowance for loan losses as a percent of total loans at March 31, 1996
was .70%.
The Banks non-interest income increased by $30,000 to $260,000 for the nine
month period ended March 31, 1996 as compared to $230,000 for the same period in
1995. Service charges on deposit accounts increased by $13,000 and a net loss
on the sale securities decreased by $13,000, accounting for most of the
increase. There were no significant changes in any other single category of
non-interest income.
Non-interest expense increased by $303,000 to $2.428 million for the nine
month period ended March 31, 1996 as compared to $2.125 million for the same
period in 1995. Compensation and benefits increased by $174,000 to $1.199
million for the nine month period ended March 31, 1996 as compared to $1.025
million for the same period in 1995. This increase is due to higher wages and
additional personnel, primarily attributable to the establishment of the Bank's
new branch office in New Tazewell, Tennessee.
Occupancy expense increased by $32,000 to $123,000 for the nine month period
ended March 31, 1996 compared to $91,000 for the same period in 1995. This
increase was mainly the result of expenses associated with the new branch office
in New Tazewell.
Equipment and data processing expense increased by $39,000 to $274,000 for
the nine month period ended March 31, 1996 from $235,000 for the nine month
period ended December 31, 1995 primarily due to increased data processing fees
and depreciation expense identifiable with the New Tazewell branch.
Other expense increased by $50,000 to $419,000 for nine the month period
ended March 31, 1996 from $369,000 for the nine month period ended March 31,
1995. The principal components of this increase were attributable to
advertising expense, printing supplies and expenses associated with automated
teller machines brought into service during the period.
Income taxes decreased by $222,000 to $330,000 for the nine month period
ended March 31, 1996 compared to $552,000 for the nine months ended March 31,
1995 due to lower earnings.
15
HFB FINANCIAL CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Form 8-K
1. The Company filed a form 8-K dated September 26, 1995,
reporting that it was commencing an open market stock
repurchase program to purchase up to 5% of the outstanding
shares of its $1 par value common stock.
16
HFB FINANCIAL CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned, thereunto duly authorized.
HFB FINANCIAL CORPORATION
By: /s/ DAVID B COOK
---------------------------------
David B. Cook
President and
Chief Executive Officer
By: /s/ STANLEY ALEXANDER, JR.
--------------------------------
Stanley Alexander, Jr.
Chief Financial Officer
Dated: May 8, 1996
17