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, 1999
-------------------------------
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. 0-25300
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)
Registrant'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, 2000, the latest practicable date, 875,289 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 16 pages
Harvest Home Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 16
SIGNATURES 17
2
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, September 30,
ASSETS 1999 1999
Cash and due from banks $ 1,588 $ 1,347
Federal funds sold 100 100
Interest-bearing deposits in other financial institutions 294 1,402
------ ------
Cash and cash equivalents 1,982 2,849
Investment securities designated as available for sale - at market 5,936 5,951
Mortgage-backed securities designated as available for sale - 32,678 33,711
at market
Loans receivable - net 55,430 52,790
Office premises and equipment - at depreciated cost 1,215 1,236
Federal Home Loan Bank stock - at cost 1,753 1,723
Accrued interest receivable on loans 260 287
Accrued interest receivable on mortgage-backed securities 171 160
Accrued interest receivable on investments and
interest-bearing deposits 138 55
Prepaid expenses and other assets 89 117
Deferred federal income taxes 51 56
------ ------
Total assets $99,703 $98,935
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $64,561 $66,220
Advances from the Federal Home Loan Bank 24,800 22,600
Advances by borrowers for taxes and insurance 162 105
Accrued interest payable 128 115
Other liabilities 66 232
Accrued federal income taxes 70 10
------ ------
Total liabilities 89,787 89,282
Stockholders' equity
Common stock - 2,000,000 shares of no par value authorized;
991,875 shares issued - -
Additional paid-in capital 6,910 6,887
Retained earnings - restricted 5,390 5,329
Shares acquired by Employee Stock Ownership Plan (150) (224)
Shares acquired by Recognition and Retention Plan (97) (194)
Accumulated comprehensive losses, unrealized losses on
securities designated as available for sale, net of related tax effects (686) (694)
Less 116,586 shares of treasury stock - at cost (1,451) (1,451)
------- ------
Total stockholders' equity 9,916 9,653
------ ------
Total liabilities and stockholders' equity $99,703 $98,935
====== ======
3
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended December 31,
(In thousands, except share data)
1999 1998
Interest income
Loans $ 986 $ 953
Mortgage-backed securities 540 532
Investment securities 83 62
Interest-bearing deposits and other 42 77
----- -----
Total interest income 1,651 1,624
Interest expense
Deposits 728 743
Borrowings 309 303
----- -----
Total interest expense 1,037 1,046
Net interest income 614 578
Provision for losses on loans 3 3
----- -----
Net interest income after provision for losses on loans 611 575
Other operating income 34 20
----- -----
General, administrative and other expense
Employee compensation and benefits 234 224
Occupancy and equipment 56 49
Federal deposit insurance premiums 10 9
Franchise taxes 28 31
Data processing 30 21
Other operating 56 54
----- -----
Total general, administrative and other expense 414 388
----- -----
Earnings before income taxes 231 207
Federal income taxes
Current 77 115
Deferred 1 (45)
----- -----
Total federal income taxes 78 70
----- -----
NET EARNINGS $ 153 $ 137
===== =====
EARNINGS PER SHARE
Basic $.18 $.16
=== ===
Diluted $.17 $.15
=== ===
4
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
For the three months ended December 31,
(In thousands)
1999 1998
Net earnings $153 $137
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities during
the period, net of tax of $4 and $38 in 1999 and 1998, respectively 8 (74)
--- ---
Comprehensive income $ 161 $ 63
==== ===
Accumulated comprehensive income (losses) $(686) $ 13
==== ===
5
The Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31,
(In thousands)
1999 1998
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 153 $ 137
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Amortization of deferred loan origination fees (3) (17)
Depreciation and amortization 21 15
Amortization of premiums and discounts on investment and
mortgage-backed securities - net 2 2
Provision for losses on loans 3 3
Amortization expense of stock benefit plans 193 174
Federal Home Loan Bank stock dividends (30) (29)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 27 33
Accrued interest receivable on mortgage-backed securities (11) 29
Accrued interest receivable on investments and interest-
bearing deposits (83) (72)
Prepaid expenses and other assets 28 64
Accrued interest payable 13 (14)
Other liabilities (166) (168)
Federal income taxes
Current 60 29
Deferred 1 (45)
------ -----
Net cash provided by operating activities 208 141
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 1,059 6,572
Principal repayments on loans 2,071 3,066
Loan disbursements (4,711) (3,099)
Purchase of office equipment - (28)
------ ------
Net cash provided by (used in) investing activities (1,581) 6,511
------ ------
Net cash provided by (used in) operating and investing
activities (balance carried forward) (1,373) 6,652
------ ------
6
The Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31,
(In thousands)
1999 1998
Net cash provided by (used in) operating and investing
activities (balance brought forward) $(1,373) $ 6,652
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts (1,659) 4,629
Proceeds from Federal Home Loan Bank advances 2,600 -
Repayment of Federal Home Loan Bank advances (400) (5,850)
Advances by borrowers for taxes and insurance 57 38
Dividends on common stock (92) (95)
Stock options exercised - 161
------ ------
Net cash provided by (used in) financing activities 506 (1,117)
------ ------
Net increase (decrease) in cash and cash equivalents (867) 5,535
Cash and cash equivalents at beginning of period 2,849 2,887
----- -----
Cash and cash equivalents at end of period $1,982 $ 8,422
===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 30 $ 108
===== =====
Interest on deposits and borrowings $1,024 $1,060
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 8 $ (74)
===== =====
7
Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three month periods ended December 31, 1999 and 1998
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 Harvest Home Financial Corporation (the
"Corporation") included in the Annual Report on Form 10-KSB for the year ended
September 30, 1999. 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 period ended December 31, 1999 are not
necessarily indicative of the results which may be expected for an entire fiscal
year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Corporation and Harvest Home Savings Bank (the "Savings Bank"). All significant
intercompany items have been eliminated.
3. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares outstanding, which
gives effect to 20,337 unallocated ESOP shares, totaled 854,952 for the three
month period ended December 31, 1999. Weighted average common shares
outstanding, which gives effect to 28,252 unallocated ESOP shares, totaled
860,313 for the three month period ended December 31, 1998.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under the
Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled 889,600
for the three month period ended December 31, 1999, and 890,234 for the three
month period ended December 31, 1998.
Incremental shares related to the assumed exercise of stock options included in
the computation of diluted earnings per share totaled 34,648 and 29,921 for the
three month periods ended December 31, 1999 and 1998, respectively.
8
Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended December 31, 1999 and 1998
4. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to transfer
held-to-maturity debit securities to the available-for-sale or trading category
without calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material impact
on the Corporation's financial statements.
9
Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND 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 and adequacy of the allowance
for losses on loans and the effect of certain recent accounting pronouncements
on results of operations and financial position.
Discussion of Financial Condition Changes from September 30, 1999 to December
31, 1999
At December 31, 1999, the Corporation had total assets of $99.7 million, an
increase of $768,000 or 0.8%, from September 30, 1999. The increase in assets
was funded primarily through an increase in borrowings of $2.2 million,
partially offset by a decrease in deposits of $1.7 million, and consisted
primarily of a $2.6 million increase in loans receivable, offset by a $1.0
million decrease in mortgage-backed securities and an $867,000 decrease in cash
and cash equivalents.
Cash and due from banks, federal funds sold, interest-bearing deposits in other
financial institutions and investment securities decreased by $882,000, or
10.0%, to a total of $7.9 million at December 31, 1999. The decrease in liquid
assets was primarily the result of a $1.7 million decrease in deposits and a
$2.6 million increase in loans receivable, partially offset by a $1.0 million
decrease in mortgage-backed securities and an increase of $2.2 million in
advances from Federal Home Loan Bank.
Mortgage-backed securities decreased by $1.0 million, or 3.1%, to a total of
$32.7 million at December 31, 1999, as compared to $33.7 million at September
30, 1999. Principal repayments of $1.0 million during the 1999 three month
period were utilized to partially fund the $1.7 million decrease in deposits.
Loans receivable increased by $2.6 million, or 5.0%, to a total of $55.4 million
at December 31, 1999. Loan origination volume of $4.7 million during the 1999
three month period exceeded principal repayment on loans of $2.1 million.
The Savings Bank's allowance for loan losses totaled $142,000 at December 31,
1999, and $139,000 at September 30, 1999. 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, 1999, the Corporation had $292,000 in
nonperforming loans, as compared to $25,000 in nonperforming loans at September
30, 1999. Although management believes that its allowance for loan losses at
December 31, 1999, was adequate based on the available facts and circumstances,
there can be no assurance that additions to such allowance will not be necessary
in future periods, which could adversely affect Harvest Home's results of
operations.
10
Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from September 30, 1999 to December
31, 1999 (continued)
Deposits totaled $64.6 million at December 31, 1999, a decrease of $1.7 million,
or 2.5%, from the balance of deposits outstanding at September 30, 1999. The
decrease was primarily a result of competitive certificate of deposit rates in
the market area.
Advances from the Federal Home Loan Bank increased by $2.2 million, or 9.7%,
during the current period. These funds were utilized to partially fund the $2.6
million increase in loans receivable.
The Savings Bank is subject to risk-based capital ratio guidelines implemented
by the Federal Deposit Insurance Corporation ("FDIC"). 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 minimum 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 to 200 basis
points.
As of December 31, 1999, the Savings Bank's regulatory capital substantially
exceeded all minimum capital requirements.
11
Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Month Periods Ended December 31,
1999 and 1998
General
Net earnings for the three months ended December 31, 1999, totaled $153,000, an
increase of $16,000, or 11.7%, over the comparable quarter in fiscal 1998. The
increase in net earnings resulted primarily from a $36,000 increase in net
interest income and a $14,000 increase in other income, partially offset by a
$26,000 increase in general, administrative and other expenses and an $8,000
increase in the federal income tax provision.
Net Interest Income
Interest income on loans totaled $986,000 for the three months ended December
31, 1999, an increase of $33,000, or 3.5%, over the 1998 quarter, due primarily
to a $5.1 million increase in the average portfolio balance outstanding,
partially offset by a decrease in the yield of approximately 50 basis points, to
7.32% for the quarter ended December 31, 1999. Interest income on
mortgage-backed securities increased by $8,000, or 1.5%, due to a 20 basis point
increase in the weighted-average yield, partially offset by a $586,000 decrease
in the average portfolio balance outstanding year to year. Interest income on
investment securities and other interest-earning assets decreased by $14,000, or
10.1%. This decrease was primarily the result of a $1.4 million decrease in the
average portfolio balance outstanding, offset by a 24 basis point increase in
the weighted-average yield.
Interest expense on deposits decreased by $15,000, or 2.0%, during the three
months ended December 31, 1999. The decrease was primarily the result of a
decrease in cost of deposits of approximately 32 basis points to 4.43%, offset
by a $3.1 million increase in the average balance of deposits outstanding in the
quarter ended December 31, 1999.
Interest expense on borrowings increased by $6,000 or 2.0%, as a result of a
$25,000 increase in the average balance outstanding, coupled with a 10 basis
point increase in the average cost of advances outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $36,000 or 6.2%, during the three months ended
December 31, 1999, as compared to the three months ended December 31, 1998. The
interest rate spread increased by 11 basis points to 2.17% for the current
quarter, while the net interest margin increased by 8 basis points to 2.55% as
compared to the same quarter in 1998.
12
Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended December 31,
1999 and 1998 (continued)
Other Income
Other income totaled $34,000 for the three months ended December 31, 1999, an
increase of $14,000, or 70.0%, over the comparable 1998 quarter. This increase
was primarily due to a $7,000 increase in NOW account fees and a $7,000 increase
in ATM service charges.
General, Administrative and Other Expense
General, administrative and other expense increased by $26,000, or 6.7%, during
the three months ended December 31, 1999, as compared to the same quarter in
1998. This increase was primarily the result of a $10,000, or 4.5%, increase in
employee compensation and benefits, a $7,000, or 14.3%, increase in occupancy
and equipment expense, and a $9,000, or 42.9%, increase in data processing
expense. The increase in employee compensation and benefits resulted primarily
from normal merit increases and increased health insurance premiums. The
increase in occupancy and equipment was due to depreciation on the teller
operating system upgrade completed mid-1999. This system upgrade also resulted
in an increase in data processing expense.
Federal Income Taxes
The provision for federal income taxes increased by $8,000, or 11.4%, during the
three months ended December 31, 1999, due primarily to an increase in earnings
before income taxes of $24,000, or 11.6%. The Corporation's effective tax rates
amounted to 33.8% during each of the three month periods ended December 31, 1999
and 1998.
13
Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters
As with all providers of financial services, the Corporation's operations are
heavily dependent on information technology systems. During the three years
leading up to January 1, 2000, the Corporation addressed the potential problems
associated with the possibility that the computers that control or operate the
Corporation's information technology system and infrastructure may not be
programmed to read four-digit date codes and, upon arrival of the year 2000, may
recognize the two-digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous data. The Corporation worked with the
companies that supply or service its information technology systems to identify
and remedy any year 2000 related problems.
Harvest Home's primary data processing applications are handled by a third-party
service bureau, NCR. NCR advised Harvest Home that it had migrated to a fully
Year 2000 compliant processing system that had been fully tested as of January
1, 1999. Management had also reviewed Harvest Home's ancillary equipment and
provided the appropriate remedial measures, including requesting service
providers to assure the Savings Bank that their systems and products were fully
year 2000 compliant. During fiscal 1999, Harvest Home upgraded its existing
teller operating system with capital expense of approximately $170,000.
Management had also developed a contingency plan which included access to an
alternative processing site provided by NCR. Additionally, the Savings Bank had
the capability to process transactions manually for a period of several weeks,
if necessary, upon arrival of the year 2000.
Due to the preparation and testing outlined above, the Corporation encountered
no problems with its information technology systems upon arrival of the year
2000. However, Harvest Home could incur losses if loan payments are delayed due
to year 2000 problems affecting any major borrowers in Harvest Home's primary
market area. Because Harvest Home's loan portfolio is highly diversified with
regard to individual borrowers and types of businesses and Harvest Home's
primary market area is not significantly dependent upon one employer or
industry, Harvest Home does not expect any significant or prolonged difficulties
that will affect net earnings or cash flow.
14
Harvest Home Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None.
Exhibit 27: Financial Data Schedule for the three
month period ended December 31, 1999.
15
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: By: /s/John E. Rathkamp
John E. Rathkamp
President, Chief Executive Officer
and Secretary
Date: By: /s/Dennis J. Slattery
Dennis J. Slattery
Executive Vice President,
Treasurer
16