UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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 November 13, 2001 was 1,296,854.
There are a total of 12 pages filed in this document.
HFB FINANCIAL CORPORATION
I N D E X
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PAGE NO
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
Consolidated Balance sheet
Consolidated Statement of Income 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-8
ITEM 2. MANAGEMENT'S' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-10
PART 11 - OTHER INFORMATION 11
SIGNATURES 12
2
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
2001 2001
ASSETS
Cash and cash equivalents $ 9,567,171 $ 13,887,788
Trading securities 562,448 1,049,327
Investment securities available for sale 65,845,975 57,109,780
Loans 139,892,381 137,581,692
Allowance for loan losses (735,523) (718,267)
------------------ ------------------
Net loans 139,156,858 136,863,425
Premises and equipment 4,642,164 4,642,655
Federal Home Loan Bank stock 1,555,000 1,527,400
Interest Receivable 1,685,317 1,790,607
Other assets 595,947 533,607
------------------ ------------------
Total assets $ 223,610,880 $ 217,404,589
================== ==================
LIABILITIES
Deposits
Interest bearing $ 184,247,212 $ 177,316,986
Non-interest bearing 2,168,100 4,631,492
------------------ ------------------
Totals 186,415,312 181,948,478
Short term borrowings - -
Long term debt 12,433,021 12,452,796
Interest payable 1,754,696 962,143
Other liabilities 1,985,987 1,572,344
------------------ ------------------
Total liabilities 202,589,016 196,935,761
------------------ ------------------
STOCKHOLDERS' EQUITY
Issued and outstanding - 1,579,582, respectively 1,579,582 1,579,582
Additional paid-in-capital 8,729,990 8,729,990
Less: Common stock acquired by Rabbi trusts for deferred
compensation plans (488,102) (488,102)
Treasury stock, at cost, 282,728 shares, respectively (2,484,267) (2,484,267)
Retained earnings 12,917,726 12,839,997
Accumulated other comprehensive income 766,935 291,628
------------------ ------------------
Total stockholders' equity 21,021,864 20,468,828
------------------ ------------------
Total liabilities and stockholders' equity $ 223,610,880 $ 217,404,589
================== ==================
See notes to condensed consolidated financial statements.
3
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
THREE-MONTHS ENDED
SEPTEMBER 30,
2001 2000
Interest Income
Loans receivable $2,926,681 $2,758,211
Investment securities 895,982 1,048,091
Other dividend income 3,464 6,984
Deposits with financial institutions 85,595 14,029
---------- ----------
Total interest income 3,911,722 3,827,315
---------- ----------
INTEREST EXPENSE
Deposits 2,179,567 2,163,320
Short term borrowings -- 1,540
Long term debt 171,411 172,501
---------- ----------
Total interest expense 2,350,978 2,337,361
---------- ----------
NET INTEREST INCOME 1,560,744 1,489,954
Provision for loan losses 37,500 22,500
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,523,244 1,467,454
---------- ----------
OTHER INCOME
Service charges for deposit accounts 164,902 129,457
Other customer fees 22,841 16,742
Net gain on trading securities 9,450 61,543
Net realized gain on sales of
available for sale securities 6,053 --
Other income 22,674 12,057
---------- ----------
Total other income 225,920 219,799
---------- ----------
OTHER EXPENSES
Salaries and employee benefits 613,880 517,748
Net occupancy expenses 95,391 88,175
Equipment expenses 115,455 91,738
Data processing fees 59,414 67,569
Deposit insurance expense 8,321 8,705
Legal and professional fees 59,437 67,731
Advertising 60,000 41,653
State franchise and deposit taxes 43,875 45,886
Other expenses 219,595 249,102
---------- ----------
Total other expenses 1,275,368 1,178,307
---------- ----------
INCOME BEFORE INCOME TAX 473,796 508,946
Income tax expense 149,665 175,236
---------- ----------
NET INCOME $ 324,131 $ 333,710
========== ==========
BASIC EARNINGS PER SHARE $ 0.25 $ 0.26
DILUTED EARNINGS PER SHARE $ 0.25 $ 0.26
See notes to condensed consolidated financial statements.
4
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE-MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
ACCUMULATED
ADDITIONAL COMPRE- OTHER TOTAL
COMMON PAID-IN RABBI TREASURY HENSIVE RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL TRUSTS STOCK INCOME EARNINGS INCOME EQUITY
------------------------------------------------------------------------------------------------------
Balances, June 30, 2001 $1,579,582 $8,729,990 ($488,102) ($2,484,267) $12,839,997 $291,628 $20,468,828
Net income $324,131 324,131 324,131
Other comprehensive
income, net of tax
Unrealized gain
on securities 475,307 475,307 475,307
--------
Comprehensive income $799,438
========
Cash dividend declared
($.19 per share) (246,402) (246,402)
---------------------------------------------- --------------------------------------------
BALANCES, SEPTMBER 30, 2001 $1,579,582 $8,729,990 ($488,102) ($2,484,267) $12,917,726 $766,935 $21,021,864
============================================== ============================================
See notes to condensed consolidated financial statements.
5
HFB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE-MONTHS ENDED
SEPTMBER 30,
2001 2000
Operating Activities
Net cash provided by operating activities $ 2,012,148 $ 1,899,953
------------ ------------
INVESTING ACTIVITIES
Purchases of securities available for sale (31,946,008) (500,000)
Proceeds from maturities of securities available for sale 14,788,132 527,877
Proceeds from sales of securities available for sale 9,128,907 --
Proceeds from maturities of securities held to maturity -- 588,998
Net change in loans (2,396,267) (2,383,098)
Purchases of premises and equipment (108,186) (609,249)
------------ ------------
Net cash used by investing activities (10,533,422) (2,375,472)
------------ ------------
FINANCING ACTIVITIES
Net change in
Non interest-bearing, interest-bearing and
savings deposits 707,218 (879,180)
Certificates of deposit 3,759,616 1,926,117
Short term borrowings -- 475,000
Repayment of long term debt (19,775) (18,252)
Cash dividends (246,402) (246,838)
Proceeds from exercise of options on common stock -- 24,000
Purchase of treasury stock -- (11,874)
------------ ------------
Net cash provided by financing activities 4,200,657 1,268,973
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (4,320,617) 793,454
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,887,788 3,171,389
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,567,171 $ 3,964,843
============ ============
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 1,558,425 $ 1,433,149
Income tax paid 29,420 1,812
See notes to condensed consolidated financial statements.
6
HFB FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial information for the
three month periods ended September 30, 2001 and 2000 includes the
results of operations of HFB Financial Corporation (the "Company") and
its wholly owned subsidiary Home Federal Bank, Federal Savings Bank
("Home Federal" or the "Bank"). The accompanying unaudited financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim
financial statements and with the instructions to Form 10-QSB. These
statements and notes should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report
for the year ended June 30, 2001 on Form 10-KSB 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 ASSETS AND PROBLEM ASSETS
The following sets forth the activity in the Bank's allowance for loan
losses for the three-months ended September 30, 2001 and 2000:
(Dollars in thousands)
2001 2000
---- ----
Balance July 1 $718 $645
Charge offs (20) (6)
Recoveries - 1
Provision for loan losses 38 23
-- --
Balance September 30 $736 $663
Information on impaired loans is summarized below
AT SEPTEMBER 30 2001
----
Impaired loans with an allowance $1,521
Allowance for impaired loans (included in the Company's $152
Allowance for loan losses)
THREE-MONTHS ENDED SEPTEMBER 2001
----
Average balance of impaired loans $1,454
Interest income recognized on impaired loans $0
Cash-basis interest received $0
7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Quarterly Report on Form 10-QSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes",
"anticipates", "expects", "estimates" or words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which could cause actual results to differ materially from those
anticipated as of the date of this report. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included herein are
only made as of the date of this report and the Company undertakes no obligation
to publicly update such forward-looking statements to reflect subsequent events
or circumstances.
GENERAL:
HFB Financial Corporation is the holding company of Home Federal Bank, Federal
Savings Bank a federal stock savings bank located in Middlesboro, Kentucky. The
Corporation's primary operation is its investment in the common stock of the
Bank. All references to the Corporation include 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.
Home Federal Bank has branch offices in Harlan, Kentucky and Tazewell,
Tennessee.
FINANCIAL CONDITION
The Corporation's assets increased by 2.85% to $223.6 million at September 30,
2001 compared to $217.4 million at June 30, 2001.
Cash and cash equivalents decreased by $4.3 million to $9.6 million at September
30, 2001 from $13.9 million at June 30, 2001. This decrease was primarily due to
increases in the Banks investment portfolio.
The Corporation maintains a portfolio of trading-account securities, which is
comprised of common stock of other financial institutions. The balance of the
portfolio was $562,000 at September 30, 2001 compared to $1.0 million at June
30, 2001. This decrease was primarily attributable to the sale of securities.
8
The Corporation's loan portfolio increased by $2.3 million to $139.2 million at
September 30, 2001 from $136.9 million at June 30, 2001 due to an increased
effort to market loans. The Corporation continues to maintain a high percentage
of its loan portfolio in 1-4 family residential mortgage loans.
At September 30, 2001, the allowance for loan losses was $736,000 or .53% of
loans receivable compared to $718,000 or .52% of loans receivable at June 30,
2001.
Total deposits increased by $4.5 million to $186.4 million at September 30, 2001
from $181.9 million at June 30, 2001. During the three-months ended September
30, 2001, certificates of deposit increased $3.7 million, while NOW accounts and
savings deposits increased $800,000.
The Bank's regulatory liquidity ratio was 35.1% at September 30, 2001 as
compared to 36.2% at June 30, 2001. At September 30, 2001 the Bank met all the
regulatory capital requirements to be considered "well capitalized" under bank
regulations. Tangible, core and risk-based capital ratios were 8.4%, 8.4% and
15.2% respectively at September 30, 2001 as compared to 8.7%, 8.7% and 15.7%
respectively, at June 30, 2001.
RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Net income decreased by $10,000 to $324,000 for the three-month period ended
September 30, 2001 from $334,000 for the three-month period ended September 30,
2000. The primary reasons for the decrease were a $71,000 increase in net
interest income, a $15,000 increase in provision for loan losses, an increase of
$9,000 in non-interest income, an increase of $100,000 in non-interest expense,
and a $25,000 decrease in income tax expense.
Net interest income increased by $71,000 for the three-month period ended
September 30, 2001 as compared to the three-month period ended September 30,
2000, primarily as the result of higher loan volume during the quarter ended
September 30, 2001.
Interest on loans increased by $169,000 to $2.927 million for the three-month
period ended September 30, 2001 as compared to $2.758 million for the
three-month period ended September 30, 2000. This increase is mainly
attributable to a higher volume of loans during the quarter ended September 30,
2001.
Interest on investment securities and other dividend income decreased by
$156,000 to $899,000 for the three-month period ended September 30, 2001 from
$1.055 million for the three-month period ended September 30, 2000. This
decrease is primarily the result of the current low interest rate environment.
Interest on deposits with other financial institutions increased by $72,000 to
$86,000 for the three-month period ended September 30, 2001 from $14,000 for the
three-month period ended September 30, 2000 primarily due to a higher level of
interest-bearing cash balances.
Interest on deposits increased by $17,000 to $2.180 million for the three-month
period ended September 30, 2001 from $2.163 million for the three-month period
ended September 30, 2000 as a result of higher volumes. A lower cost of funds
helped mitigate the impact of increased interest expense.
Interest on long term debt and short-term borrowings decreased by $3,000 to
$171,000 for the three-month period ended September 30, 2001 from $174,000 for
the three-month period ended September 30, 2000 primarily due to a lower level
of debt during the period ended September 30, 2001.
The provision for loan losses increased $15,000 for the three-month period ended
September 30, 2001 as compared to the same period in 2000. The provision was the
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 September 30, 2001 was .53%.
9
The Corporation's non-interest income increased by $6,000 to $226,000 for the
three-month period ended September 30, 2001 as compared to $220,000 for the same
period in 2000. The increase was primarily attributable to a decrease in trading
account realized and unrealized gains and gains on the sale of securities
available for sale of $46,000, an increase of $35,000 in service charges on
deposit accounts and a $17,000 increase in other customer fees and other income.
The Corporation has a portfolio of approximately $562,000 in common stock of
other financial institutions. The market value of these stocks has fluctuated
substantially during the past year, due to market volatility.
Non-interest expense increased by $97,000 to $1.275 million for the three-month
period ended September 30, 2001 as compared to $1.178 million for the same
period in 2000. Compensation and benefits increased by $96,000 to $614,000 for
the three-month period ended September 30, 2001 as compared to $518,000 for the
same period in 2000. This increase is primarily attributable to a general
increase in salaries and wages of $58,000 and an increase of $38,000 in the cost
of funding the Banks' retirement plan.
Occupancy expense increased by $7,000 to $95,000 for the three-month period
ended September 30, 2001 compared to $88,000 for the same period in 2000.
Equipment expense increased by $23,000 to $115,000 for the three-month period
ended September 30, 2001 compared to $92,000 for the same period in 2000,
primarily due to the increased depreciation expense related to the purchase of
new computer and communications equipment.
Data processing fees decreased by $9,000 to $59,000 for the three-month period
ended September 30, 2001 from $68,000 for the three-month period ended September
30, 2000, primarily due to a greater level of efficiency achieved during the
period ended September 30, 2001.
Legal and professional fees decreased by $9,000 to $59,000 for the three-month
period ended September 30, 2001 from $68,000 for the three-month period ended
September 30, 2000, primarily due to legal expenses incurred in the Company's
listing on the Nasdaq SmallCap Market during the quarter ended September 30,
2000.
Advertising expense increased by $18,000 to $60,000 for the three-month period
ended September 30, 2001 as compared to $42,000 for the three-months ended
September 30, 2000, primarily due to a higher level of advertising during the
period.
Other expenses decreased by $29,000 to $220,000 for the three-month period ended
September 30, 2001 from $249,000 for the three-month period ended September 30,
2000, primarily as the result of a $13,000 decrease in REO expense.
Income tax expense decreased by $25,000 to $150,000 for the three-month period
ended September 30, 2001 compared to $175,000 for the three-months ended
September 30, 2000 due to lower earnings.
10
HFB FINANCIAL CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
a. The Corporation held its annual meeting of Stockholders on
October 17, 2001.
b. Not Applicable
c. At the Annual Meeting, shareholders voted on the following
matters:
(1) The election of the following persons to three-year terms as
directors of the Corporation:
Nominees For Withheld
-------- --- --------
Robert V. Costanzo 999,387 94,000
Kenneth V. Jones 999,387 94,000
As a result, all were elected as directors of the Corporation for
terms to expire in 2004
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
11
HFB FINANCIAL CORPORATION
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on 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: November 13, 2001
12