UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
( x ) Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period Ended MARCH 31, 1996.
( ) Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ______ to ______.
COMMISSION FILE NUMBER: 0-18284
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HOMECORP, INC.
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(Exact name of Registrant as specified in its Charter)
DELAWARE 36-3680814
- - ------------------------------- ---------------------
(State of Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification Number
1107 EAST STATE STREET, ROCKFORD, IL 61104-2259
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(Address of Principal Executive Offices) (ZIP Code)
815-987-2200
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(Issuer's Telephone Number, including Area Code)
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 past 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 MARCH 31, 1996 there were 1,126,371 issued and outstanding shares of the
Issuer's Common Stock.
HOMECORP, INC.
AND SUBSIDIARY
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets as of March 31, 1996
(unaudited) and December 31, 1995 1
Statements of Operations
(unaudited) for the three months
ended March 31, 1996 and 1995 2
Statements of Cash Flows
(unaudited) for the three months
ended March 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures
CONSOLIDATED BALANCE SHEETS (UNAUDITED) HOMECORP, INC.
(IN THOUSANDS) AND SUBSIDIARY
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March 31, December 31,
1996 1995
--------- -----------
ASSETS:
Cash and cash equivalents:
Cash on hand and non-interest bearing deposits $ 5,996 $ 7,634
Interest bearing deposits 2,306 388
Federal funds sold 5,848 2,390
Total cash and cash equivalents 14,150 10,412
Certificates of deposit 3,000 -
Securities available for sale, at market value 8,886 8,311
Investment securities (approximate market value of
$5,657 in 1996 and $6,412 in 1995) 5,758 6,504
Mortgage-backed securities (approximate market value of
$22,993 in 1996 and $24,146 in 1995) 23,425 24,488
Federal Home Loan Bank Stock, at cost 2,108 2,279
Loans receivable, net 257,981 260,572
Mortgage loans held for sale 5,298 4,741
Real estate acquired in settlement of loans 10,225 10,240
Investment in real estate developments 4,225 4,060
Premises and equipment 3,575 3,630
Other assets, principally accrued interest 3,111 2,790
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Total Assets $341,742 $338,027
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LIABILITIES:
Deposits $316,935 $314,294
Advance payments by borrowers for taxes & insurance 2,728 2,075
Other liabilities 1,348 1,234
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Total Liabilities 321,011 317,603
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SHAREHOLDERS' EQUITY:
Preferred stock-Par Value $.01; 1,000,000 shares authorized;
no shares outstanding - -
Common stock-Par Value $.01; 5,000,000 shares authorized;
1,126,371 shares issued and outstanding 11 11
Paid-in capital 6,465 6,465
Retained earnings 14,329 13,974
Unrealized loss on securities available for sale, net of taxes (74) (26)
- - ------------------------------------------------------------------------------------------
Total Shareholders' Equity 20,731 20,424
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Total Liabilities and Shareholders' Equity $341,742 $338,027
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1
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) HOMECORP, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA) AND SUBSIDIARY
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Three Months Ended
March 31,
1996 1995
------ ------
INTEREST INCOME:
Loans receivable $5,304 $4,959
Mortgage-backed securities 329 415
Securities available for sale 134 108
Investment securities and other 206 385
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Total interest income 5,973 5,867
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INTEREST EXPENSE:
Deposits 3,707 3,460
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Total interest expense 3,707 3,460
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Net interest income 2,266 2,407
Provision for loan losses 115 90
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Net interest income after provision for loan losses 2,151 2,317
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NON-INTEREST INCOME:
Fees and service charges 397 337
Net gains on sale of loans, investment securities,
and mortgage-backed securities 338 23
Loss from real estate developments - (53)
Operations of real estate owned 115 -
Other 33 33
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Total non-interest income 883 340
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Non-interest expense:
Compensation and benefits 1,258 1,126
Office occupancy and equipment 314 269
Data processing 219 169
Federal deposit insurance premium 202 218
Other 451 392
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Total non-interest expense 2,444 2,174
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Income before income taxes 590 483
Income taxes 234 181
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NET INCOME $ 356 $ 302
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Earnings per common and common equivalent share:
Earnings per share $ 0.30 $ 0.26
====== ======
2
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) HOMECORP, INC.
(IN THOUSANDS) AND SUBSIDIARY
- - --------------------------------------------------------------------------------
Three Months Ended
March 31,
1996 1995
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Cash flows from operating activities:
Net income $ 355 $ 302
Adjustment to reconcile net income to net cash
used in operating activities:
Amortization of:
Premiums and discounts on loans, and
mortgage-backed and investment securities 26 9
Net (income)/loss from real estate developments 1 53
Provision for loan losses 115 90
Net (gain) loss on sale of:
Loans receivable (338) (23)
Depreciation and amortization of premises and equipment 118 106
Decrease (Increase) in loans held for sale (557) (1,167)
Decrease (Increase) in cash flows due to changes in:
Accrued interest and other assets (293) (143)
Deferred taxes and other liabilities 115 (210)
Total adjustments (813) (1,285)
Net cash provided by (used in) operating activities (458) (983)
Cash flows from investing activities:
Loan originations, net of principal payments on loans 2,594 (9,888)
Purchases of:
Securities available for sale (3,000) (17)
Certificates of deposit (6,000) (7,000)
Premises and equipment (64) (95)
Investment in foreclosed real estate (46) (807)
Investment in real estate developments (298) (505)
Principal payments on mortgage-backed securities 1,012 789
Principal repayments of securities available for sale 352 227
Proceeds from sales of:
Real estate developments - 67
Foreclosed real estate 61 58
Proceeds from maturities of:
Certificates of deposit 3,000 5,000
Investment securities 1,000 -
Securities available for sale 1,986 -
Redemption of investments required by law 172 -
Distributions of income of real estate partnerships 133 121
Net cash provided by investing activities 902 (12,050)
Continued next page
3
Cash flows from investing activities continued:
Three Months Ended
March 31,
1996 1995
------ ------
Cash flows from financing activities:
Net increase (decrease) in deposits $ 2,641 $ 4,158
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 653 719
Proceeds from issuance of common stock - 29
Net cash used in financing activities 3,294 4,906
Net increase (decrease) in cash and cash equivalents 3,738 (8,127)
Cash and cash equivalents at beginning of year 10,412 17,983
Cash and cash equivalents at end of year 14,150 9,856
Supplemental disclosures of cash flow information -
payment during the period for:
Interest 3,532 3,307
Taxes 240 110
Loans to facilitate - -
4
HOMECORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) MANAGEMENT'S STATEMENT
In the opinion of management the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring
in nature) necessary to present fairly the financial position of HomeCorp,
Inc. and Subsidiary (the Company) at March 31, 1996 and December 31, 1995
and the results of operations for the quarters ended March 31, 1996 and
1995 and cash flows for the year-to-date periods ended March 31, 1996 and
1995. The Notes to the Consolidated Financial Statements which are
contained in the 1995 Annual Report to Shareholders and incorporated by
reference into the 1995 Form 10-K should be read in conjunction with these
Consolidated Financial Statements.
(2) LOANS RECEIVABLE
Following is a summary of loans receivable for the dates indicated:
March 31, December 31,
(In Thousands) 1996 1995
---------- ------------
Conventional first mortgage loans $185,588 $195,423
Short-term construction and land loans 11,029 9,102
Commercial business loans 5,111 4,007
Auto loans 42,256 38,687
Home equity and improvement loans 17,570 16,268
Other consumer loans 1,244 1,294
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Total loans receivable, gross 262,798 264,781
Less:
Loans in process 3,301 2,754
Deferred loan origination costs (439) (440)
Unearned discount, principally on
loans purchased 234 270
Allowance for possible loan losses 1,721 1,625
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Total loans receivable net $257,981 $260,572
======== ========
Adjustable-rate loans totaled $108.2 million and $111.7 million at March
31, 1996 and December 31, 1995, respectively. The Bank serviced first
mortgage loans for other institutions approximating $138.5 million and
$125.8 million at March 31, 1996 and December 31, 1995, respectively.
5
The following summarizes activity in the allowance for loan losses for the
three month periods indicated:
March 31, March 31,
(In Thousands) 1996 1995
--------- ---------
Balance at beginning of year $1,625 $1,498
Charge-offs (21) (80)
Recoveries 2 -
Provision for possible loan losses 115 90
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Balance at end of year $1,721 $1,508
====== ======
In addition to residential and commercial mortgage loans and consumer loans
90 days or more delinquent, which totaled $854,000, the Bank identified as
impaired one loan totaling $207,000 to a borrower who also had a commercial
real estate loan that was greater than 90 days delinquent as of March 31,
1996. The $207,000 loan was current at March 31, 1996. Total indebtedness
of this borrower was $983,000 at March 31, 1996. The indebtedness is
secured by a commercial building which is being leased to retail
businesses. Lease activity continued favorably during the first quarter. A
reserve of $45,000 had been established for this borrower at December 31,
1995.
A total of $6,000 in interest income was recognized during the first
quarter of 1996 on impaired loans, all on an accrual basis. The average
recorded investment in impaired loans during the quarter ended March 31,
1996 was approximately $1.1 million.
At March 31, 1995, the recorded investment in loans that were considered to
be impaired was $5.9 million (of which $439,000 were on a nonaccrual
basis). There was no allowance for loan losses related to the impaired
loans. The average recorded investment in impaired loans during the three
months ended March 31, 1995 was approximately $6.0 million. For the three
months ended March 31, 1995, the Bank recognized interest income on
impaired loans of $118,000, all of which was recognized on an accrual
basis.
The Bank has no restructured loans at March 31, 1996.
(3) EARNINGS PER SHARE
Earnings per share for the quarter ended March 31, 1996 was computed by
dividing net income by 1,171,311, the average number of common and common
equivalent shares (using the treasury share method) outstanding at the end
of the period. The Company's equivalent shares consist entirely of common
stock options.
6
Earnings per share for the quarter ended March 31, 1995 was computed by
dividing net income by 1,158,955, the weighted average number of shares
outstanding during the quarter as adjusted for the dilutive effect of
common stock options.
(4) CHANGES IN ACCOUNTING PRINCIPLES
During the quarter ended March 31, 1996, the Company adopted FASB Statement
No. 122, "Accounting for Mortgage Servicing Rights," which requires that an
allocation of costs be made between loans and their related servicing
rights for loans originated with a definitive plan to sell with servicing
rights retained. Statement No. 122 requires entities to recognize a
separate asset for servicing rights which will increase the gain on sale of
loans when the servicing rights are retained. Statement No. 122 is being
applied on a prospective basis to mortgage servicing rights acquired after
December 31, 1995. Mortgage servicing rights acquired prior to January 1,
1996 will continue to be accounted for under the prior accounting rules,
under which costs were fully allocated to the loan and servicing income was
recognized as it was received over the life of the loan. The effect of
adopting this statement was to increase net income after income taxes by
$101,000 during the three months ended March 31, 1996.
7
HOMECORP, INC.
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties, that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made. The Company wishes to advise readers that the factors
listed below could affect the Company's financial performance and could cause
the Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake -- and specifically declines any obligation -- to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
8
FINANCIAL CONDITION
The Company continued its focus upon community banking during the first quarter
of 1996, as evidenced by the continued growth in the consumer and commercial
loan portfolios. The loan portfolio declined in the aggregate during the first
quarter due to scheduled repayments as well as increased prepayments experienced
within the residential mortgage portfolio. The conventional mortgage portfolio
declined $9.8 million or 5.0% during the three month period. Residential
mortgage loan originations were primarily fixed rate during the first quarter of
1996 and all such loans were originated for sale. The consumer loan portfolio
increased $4.8 million, which represented an 8.6% increase in outstanding
balance. The majority of the increase was due to automobile loan originations,
primarily through area automobile dealers. Outstanding auto loans totaled $42.3
million at March 31, 1996. Delinquent consumer loans of all types totaled
$57,000 at March 31, 1996.
The net reduction in the loan portfolio together with deposit growth increased
the liquidity position of the Company as of March 31, 1996. Excess funds were
invested in overnight funds or short term Federal Home Loan Bank certificates of
deposit. The mortgage-backed securities portfolio declined $1.1 million,
consistent with the cash flow performance of the Company's mortgage loan
portfolio.
Deposits increased $2.6 million during the first quarter. More important than
the increase in total deposits was the shift in mix of the deposit base into
core deposits. Core deposits, defined as checking, NOW, money market and
passbook, increased $5.1 million or 6.0%. The largest increase was noted in
checking and NOW, which increased 6.7% during the first quarter of 1996. The
Company undertook a checking account marketing campaign in the second half of
1995 and several new checking account products were introduced at that time. The
marketing efforts focused specifically on checking products were continued
during the first quarter of 1996. Management intends to focus upon increasing
the core base, subject to market conditions. Long term certificates of deposit,
generally the highest cost deposits generated, declined $2.0 million during the
first quarter of 1996.
Stockholder's equity increased to $20.7 million at March 31, 1996 from $20.4
million at December 31, 1995. Stockholder's equity increased from first quarter
earnings and was reduced by the increase in the Company's unrealized loss on
securities available for sale. The increase in the unrealized loss was
reflective of generally higher levels of interest rates at March 31, 1996 as
compared to December 31, 1995.
9
RESULTS OF OPERATION
The following table presents, for the period indicated, the yields on average
interest-earning assets as well as the cost of average interest-bearing
liabilities. The table does not reflect the impact of income taxes. All
averages are monthly average balances.
Three Months Ended
March 31,
1996 1995
------ ------
Loans receivable 8.01% 7.94%
Other earning assets 5.58 5.95
---- ----
Total interest-earning assets 7.64 7.55
Deposits 4.85 4.58
---- ----
Interest rate spread 2.79% 2.97%
==== ====
Net interest rate margin 2.90% 3.10%
==== ====
THREE MONTHS ENDED MARCH 31, 1996 VS 1995:
Net income increased 17.6% to $356,000 for the first three months of 1996
compared to $302,000 during the first three months of 1995. The most
significant increase was in loan sale gains, which totaled $338,000 during first
quarter 1996 as compared to $23,000 in the first quarter of 1995. Originations
of fixed rate conventional mortgage loans increased during first quarter 1996
and the Bank sold all fixed rate loans originated. Mortgage loan sales totaled
$18.6 million during the first quarter 1996 compared to $2.0 million during the
first quarter 1995. The increase in originations is reflective of generally
higher origination levels due to a decline in long term interest rates during
the first quarter of 1996 and a gain in market share in the origination of
conventional residential mortgage loans. The Company adopted Statement of
Financial Accounting Standards Number 122 on January 1, 1996. The statement
requires the recognition of the value of the servicing right retained when a
loan is sold. This change in accounting resulted in an increase of $168,000 in
pre-tax income.
Interest revenue from the loan portfolio increased approximately 7.0% due to the
continued growth in the portfolio balance and an increase in portfolio yield as
the result of increasing consumer, construction and commercial loans, which
generally have higher interest rates than one-to-four family mortgage loans.
Such loans generally have a higher degree of credit risk than one-to-four family
mortgage loans. Interest earnings on investments, mortgage-backed securities
and other interest bearing assets declined in the aggregate, due primarily to
declines in average outstanding balances as compared to the prior year period.
The cost of deposits increased to 4.85% for the first quarter of 1996 from 4.58%
during the first quarter of 1995. The increase was largely the result of
customers selecting longer term, higher cost certificates of deposit over other
deposit products during the first several months
10
of 1995. As noted, management began to focus upon lower cost deposit products
in the last six months of 1995.
During the first quarter, the Company has made notable progress in attracting
deposit balances into core deposit products, which are generally lower cost
deposit products.
The increases noted in loan originations and core deposit products generated
increases in fee and service charge income during 1996. Loan fees and service
charges increased $61,000, or 18.0%, during first quarter 1996 compared to first
quarter 1995. The increase is the result of loan origination related fees as
well as fees generated from the servicing of loans sold. The Company retains
the servicing rights on the majority of the mortgage loans sold. The servicing
portfolio totaled $138.5 million at March 31, 1996 compared to $125.8 million at
December 31, 1995 and $83.9 million at March 31, 1995. The increase in deposit
service charges was primarily the result of increased fees due to a higher
number of checking and NOW accounts.
Income of $115,000 was generated from the operation of foreclosed real estate
during the first quarter of 1996. The income was generated from a shopping
center foreclosed upon in late September 1995. The center is currently listed
for sale.
Operating expenses increased to $2.4 million for the three month period ended
March 31, 1996 as compared to $2.2 million during the prior year period. The
increase resulted largely from increased mortgage loan originations, which are
commission based, and the opening of the Company's supermarket office in April
1995.
11
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is generally regarded as the ability to generate sufficient cash flow
to meet all present and future funding commitments. The Bank's primary source
of funds, or liquidity, are deposits, amortization and repayment of loan
principal (including mortgage-backed securities) operations and, to a lesser
extent, maturities and sales or mortgage-backed securities and short-term
investments. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, general economic conditions and competition.
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operative activities, investing activities and financing activities. These
activities are summarized as follows for the three month periods ended March 31,
1996 and 1995.
1996 1995
------- --------
(In Thousands)
Operating Activities:
Net income $ 356 $ 302
Adjustments to reconcile
net income to net cash
used in operating activities (814) (1,285)
------- --------
Net cash used in operating activities (458) (983)
Net cash investing activities 902 (12,050)
Net cash financing activities 3,294 4,906
------- --------
Net increase (decrease) in cash
and cash equivalents 3,738 (8,127)
Cash and cash equivalents
at beginning of year 10,412 17,983
------- --------
Cash and cash equivalents
at end of period $14,150 $ 9,856
======= ========
The largest difference in the adjustments to reconcile net income to net cash
used in operating activities between 1996 and 1995 was the increase in mortgage
loans held for sale, which increased $557,000 in 1996 and $1.2 million in 1995.
Cash investing activities provided $902,000 in cash in the first quarter of 1996
as compared to the use of $12.0 million during the first quarter of 1995.
Principal payments on loans exceeded originations for investment by $2.6 million
in 1996. This compares to excess originations of $9.9 million during 1995.
Repayments increased significantly within the Bank's mortgage loan portfolio
during the first quarter of 1996. Also, the growth and seasoning of the
consumer loan portfolio has resulted in increased cash flows as well.
12
Financing activities provided $3.3 million in cash in 1996, down from $4.9
million during 1995. The decline was attributable primarily to $2.6 million in
net deposit growth in 1996 compared to $4.2 million of net growth experienced in
1995. The 1996 growth was noted primarily in core deposits as opposed to the
1995 growth which was concentrated in longer term certificates of deposits.
The Bank met all regulatory capital requirements on a fully phased-in basis as
of March 31, 1996.
13
HOMECORP, INC.
AND SUBSIDIARY
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Index to exhibits
(11) Statement regarding computation of earnings per share
(included in Note 3)
(27) Financial Data Schedule
(attached as Exhibit 27)
(b) Reports on Form 8-K
HomeCorp filed the following Form 8-K during the quarter
ended March 31, 1996.
January 22, 1996 - The Registrant issued a release announcing
the results of operations for the fourth quarter of 1995 and for
the year ended December 31, 1995.
14
HOMECORP, INC.
AND SUBSIDIARY
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.
HOMECORP, INC.
--------------
(Registrant)
Date: May 14, 1996 /s/ C. Steven Sjogren
------------ -----------------------------
C. Steven Sjogren
President
Chief Executive Officer
Date: May 14, 1996 /s/ John R. Perkins
------------ -----------------------------
John R. Perkins
Executive Vice President
Chief Financial Officer
Date: May 14, 1996 /s/ Dirk J. Meminger
------------ -----------------------------
Dirk J. Meminger
Treasurer
Chief Accounting Officer