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 March 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 May 12, 1999, the latest practicable date, 875,289 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 17 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 Other 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 10
PART II - OTHER INFORMATION 16
SIGNATURES 17
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, September 30,
ASSETS 1999 1998
Cash and due from banks $ 1,256 $ 1,505
Federal funds sold 100 200
Interest-bearing deposits in other financial institutions 1,630 1,182
------- ------
Cash and cash equivalents 2,986 2,887
Investment securities designated as available for sale - at market 5,992 4,032
Mortgage-backed securities designated as available for sale -
at market 39,077 37,864
Loans receivable - net 50,288 48,797
Office premises and equipment - at depreciated cost 1,119 1,117
Federal Home Loan Bank stock - at cost 1,663 1,606
Accrued interest receivable on loans 248 257
Accrued interest receivable on mortgage-backed securities 176 173
Accrued interest receivable on investments and
interest-bearing deposits 69 47
Prepaid expenses and other assets 146 114
------- ------
Total assets $101,764 $96,894
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 66,021 $60,225
Advances from the Federal Home Loan Bank 25,000 25,850
Advances by borrowers for taxes and insurance 108 119
Accrued interest payable 129 126
Other liabilities 114 230
Accrued federal income taxes 63 65
Deferred federal income taxes 111 302
------- ------
Total liabilities 91,546 86,917
Stockholders' equity
Common stock - 2,000,000 shares of no par value authorized;
991,875 shares issued - -
Additional paid-in capital 6,900 6,903
Retained earnings - restricted 5,260 5,191
Shares acquired by Employee Stock Ownership Plan (224) (301)
Shares acquired by Recognition and Retention Plan (194) (291)
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects (73) 87
Less 116,586 and 129,518 shares of treasury stock - at cost (1,451) (1,612)
------- ------
Total stockholders' equity 10,218 9,977
------- ------
Total liabilities and stockholders' equity $101,764 $96,894
======= ======
3
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Six months ended Three months ended
March 31, March 31,
1999 1998 1999 1998
Interest income
Loans $1,892 $1,781 $ 938 $ 889
Mortgage-backed securities 1,055 1,038 523 511
Investment securities 139 229 76 100
Interest-bearing deposits and other 159 198 83 105
----- ----- ----- -----
Total interest income 3,245 3,246 1,620 1,605
Interest expense
Deposits 1,493 1,473 750 728
Borrowings 603 649 299 308
----- ----- ----- -----
Total interest expense 2,096 2,122 1,049 1,036
----- ----- ----- -----
Net interest income 1,149 1,124 571 569
Provision for losses on loans 6 6 3 3
----- ----- ----- -----
Net interest income after provision
for losses on loans 1,143 1,118 568 566
Other income
Gain on sale of investment and mortgage-backed
securities designated as available for sale - 6 - -
Other operating 40 31 20 15
----- ----- ----- -----
Total other income 40 37 20 15
General, administrative and other expense
Employee compensation and benefits 454 455 230 238
Occupancy and equipment 150 147 81 76
Federal deposit insurance premiums 18 18 9 9
Franchise taxes 60 61 28 32
Other operating 106 108 52 48
----- ----- ----- -----
Total general, administrative and other expense 788 789 400 403
----- ----- ----- -----
Earnings before income taxes 395 366 188 178
Federal income taxes
Current 243 76 128 21
Deferred (109) 39 (64) 30
----- ----- ----- -----
Total federal income taxes 134 115 64 51
----- ----- ----- -----
NET EARNINGS $ 261 $ 251 $ 124 $ 127
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.30 $.29 $.14 $.15
=== === === ===
Diluted $.29 $.28 $.14 $.14
=== === === ===
4
Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(In thousands)
Six months Three months
ended March 31, ended March 31,
1999 1998 1999 1998
Net earnings $261 $251 $124 $127
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (160) 60 (86) (82)
Reclassification adjustment for realized gains
included in earnings - (4) - -
--- --- --- ---
Comprehensive income $101 $307 $ 38 $ 45
=== === === ===
5
The Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(In thousands)
1999 1998
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 261 $ 251
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (24) (34)
Depreciation and amortization 35 27
Amortization of premiums and discounts on mortgage-backed
securities and investment securities - net 12 4
Gain on sale of investment and mortgage-backed securities - (6)
Amortization expense of stock benefit plans 210 193
Provision for losses on loans 6 6
Federal Home Loan Bank stock dividends (57) (45)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 9 21
Accrued interest receivable on mortgage-backed securities (3) 4
Accrued interest receivable on investments and interest-
bearing deposits (22) 59
Prepaid expenses and other assets (32) (70)
Accrued interest payable 3 30
Other liabilities (116) (142)
Federal income taxes
Current (2) 31
Deferred (109) 39
------ -----
Net cash provided by operating activities 171 368
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 2,000 2,000
Proceeds from sale of mortgage-backed securities - 343
Principal repayments on mortgage-backed securities 10,536 11,066
Purchase of mortgage-backed securities (11,963) (12,371)
Purchase of investment securities (4,000) -
Principal repayments on loans 6,099 5,333
Loan disbursements (7,572) (5,188)
Purchase of office premises and equipment (37) (177)
Purchase of Federal Home Loan Bank stock - (286)
------ ------
Net cash provided by (used in) investing activities (4,937) 720
Cash flows provided by (used in) financing activities:
Net increase in deposits 5,796 1,162
Proceeds from Federal Home Loan Bank advances 8,000 14,500
Repayment of Federal Home Loan Bank advances (8,850) (18,525)
Advances by borrowers for taxes and insurance (11) (10)
Dividends paid on common stock (192) (198)
Purchase of treasury stock - (336)
Stock options exercised 122 -
------ ------
Net cash provided by (used in) financing activities 4,865 (3,407)
------ ------
Net increase (decrease) in cash and cash equivalents 99 (2,319)
Cash and cash equivalents at beginning of period 2,887 5,264
------ ------
Cash and cash equivalents at end of period $ 2,986 $ 2,945
====== ======
6
The Harvest Home Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended March 31,
(In thousands)
1999 1998
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 253 $ 138
===== =====
Interest on deposits and borrowings $2,093 $2,152
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (160) $ 56
===== =====
7
Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six and three month periods ended March 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, 1998. 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 six and three month periods ended March 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 28,252 unallocated ESOP shares, totaled 868,965 and 875,289 for
the six and three month periods ended March 31, 1999. Weighted average common
shares outstanding, which gives effect to 37,826 unallocated ESOP shares,
totaled 861,101 and 861,303 for the six and three month periods ended March 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 897,309
and 906,216 for the six and three month periods ended March 31, 1999, and
895,351 and 897,342 for the six and three month periods ended March 31, 1998.
4. Effects of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. It does not require a specific format for that financial statement
but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
8
Harvest Home Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six and three month periods ended March 31, 1999 and 1998
4. Effects of Recent Accounting Pronouncements (continued)
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Management adopted SFAS No. 130 effective October 1, 1998, as required, without
material effect on the Corporation's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management adopted SFAS No. 131 effective October 1, 1998, as
required, without material impact on the Corporation's financial statements.
In June 1998, the FASB issued 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 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt 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, the effect of the year 2000 on certain information
technology systems and the effect of certain recent accounting pronouncements on
results of operations and financial position.
Discussion of Financial Condition Changes from September 30, 1998 to March 31,
1999
At March 31, 1999, the Corporation had total assets of $101.8 million, an
increase of $4.9 million, or 5.0%, from September 30, 1998. The increase in
assets was funded primarily through growth in deposits of $5.8 million,
partially offset by a decrease in borrowings of $850,000, and consisted
primarily of a $1.2 million increase in mortgage-backed securities, a $2.0
million increase in investment securities, and a $1.5 million increase in loans
receivable.
Cash and due from banks, federal funds sold, interest-bearing deposits in other
financial institutions and investment securities increased by $2.1 million, to a
total of $9.0 million at March 31, 1999. The increase in liquid assets was
primarily the result of a $5.8 million increase in deposits, offset by a $1.5
million increase in loans receivable and a $1.2 million increase in
mortgage-backed securities.
Mortgage-backed securities increased by $1.2 million, or 3.2%, to a total of
$39.1 million at March 31, 1999, as compared to $37.9 million at September 30,
1998. Purchases of $12.0 million during the 1999 six month period exceeded
principal repayments of $10.5 million. During the most recent quarter,
management purchased $8.0 million of long-term adjustable rate mortgage-backed
securities with a yield of 5.95%. Such purchases were funded with proceeds from
Federal Home Loan Bank advances. Proceeds from repayments of mortgage-backed
securities were utilized to repay advances from Federal Home Loan Bank, as such
securities were matched with these advances in leveraged purchase transactions
during fiscal 1998 and 1997. The other $4.0 million of 5.50% fixed rate
mortgage-backed securities purchased during the most recent quarter reflects
managements decision to redeploy excess liquidity into higher yielding
investments.
Loans receivable increased by $1.5 million, or 3.1%, to a total of $50.3 million
at March 31, 1999. Loan origination volume during the 1999 period exceeded that
of the 1998 period by $2.4 million, or 46.0%. Growth in loan originations year
to year consisted primarily of loans secured by one- to four-family residential
real estate.
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, 1998 to March 31,
1999 (continued)
The Savings Bank's allowance for loan losses totaled $133,000 at March 31, 1999,
and $127,000 at September 30, 1998. 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 March 31, 1999, the Corporation had $69,000 in nonperforming
loans, as compared to $49,000 in nonperforming loans at September 30, 1998.
Although management believes that its allowance for loan losses at March 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.
Deposits totaled $66.0 million at March 31, 1999, an increase of $5.8 million,
or 9.6%, over the $60.2 million of deposits outstanding at September 30, 1998.
The increase primarily reflects growth in certificates of deposit, as management
maintained interest rates on these products slightly higher than those available
in the overall market. Proceeds from such deposit growth were redeployed,
subsequent to March 31, 1999, to fund purchases of short term investment
securities and growth in the loan portfolio.
Advances from the Federal Home Loan Bank decreased by $850,000, or 3.3%, during
the current period due to repayments resulting primarily from prepayments
received on mortgage-backed securities which had been matched with such advances
at inception.
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.
11
Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from September 30, 1998 to March 31,
1999 (continued)
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 March 31, 1999, the Savings Bank's regulatory capital substantially
exceeded all minimum capital requirements.
Comparison of Operating Results for the Six Month Periods Ended March 31, 1999
and 1998
General
Net earnings for the six months ended March 31, 1999, totaled $261,000, an
increase of $10,000, or 4.0%, over the comparable six month period in fiscal
1998. The increase in net earnings resulted primarily from a $25,000 increase in
net interest income and a $3,000 increase in other income, which were partially
offset by a $19,000 increase in the federal income tax provision.
Net Interest Income
Interest income on loans totaled $1.9 million for the six months ended March 31,
1999, an increase of $111,000, or 6.2%, over the six months ended March 31,
1998, due primarily to a $3.0 million increase in the average portfolio balance
outstanding, partially offset by a decrease in the yield of approximately 2
basis points, to 7.67% for the six month period ended March 31, 1999. Interest
income on mortgage-backed securities increased by $17,000, or 1.6%, due to a
$2.0 million increase in the average portfolio balance outstanding year to year,
partially offset by a 25 basis point decrease in the weighted-average yield.
Interest income on investment securities and other interest-earning assets
decreased by $129,000, or 30.2%. This decrease was primarily due to a $3.2
million decrease in the weighted-average balance outstanding, coupled with a 35
basis point decrease in the weighted-average yield.
Interest expense on deposits increased by $20,000, or 1.4%, during the six
months ended March 31, 1999. The increase was primarily the result of a $3.9
million increase in the average balance of deposits outstanding, offset by a
decrease in cost of deposits of approximately 24 basis points to 4.69% for the
six months ended March 31, 1999,
Interest expense on borrowings decreased by $46,000, or 7.1%, as a result of a
$1.6 million decrease in the average outstanding balance of advances from the
Federal Home Loan Bank.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $25,000 or 2.2%, during the six months ended
March 31, 1999, as compared to the six months ended March 31, 1998. The interest
rate spread increased by 5 basis points during the six months ending March 31,
1999 to 2.08%, while the net interest margin increased by 1 basis point for the
same period, amounting to 2.44%.
12
Harvest Home Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Six Month Periods Ended March 31, 1999
and 1998 (continued)
Other Income
Other income totaled $40,000 for the six months ended March 31, 1999, an
increase of $3,000, or 8.1%, over the comparable 1998 six month period. This
increase was primarily due to an increase in NOW account fees.
General, Administrative and Other Expense
General, administrative and other expense totaled $788,000 for the six months
ended March 31, 1999, as compared to $789,000 for the same period in 1998, a
decrease of $1,000, or .1%, generally reflecting management's continuing efforts
to control operating costs.
Federal Income Taxes
The provision for federal income taxes totaled $134,000 for the six months ended
March 31, 1999, an increase of $19,000, or 16.5%, due primarily to an increase
in earnings before income taxes of $ 29,000, or 7.9%. The Corporation's
effective tax rates amounted to 33.9% and 31.4% during the six months ended
March 31, 1999 and 1998, respectively.
Comparison of Operating Results for the Three Month Periods Ended March 31, 1999
and 1998
General
Net earnings for the three months ended March 31, 1999, totaled $124,000, a
decrease of $3,000, or 2.4%, from the comparable quarter in fiscal 1998. The
decrease in net earnings resulted primarily from a $13,000 increase in the
federal income tax provision, offset by a $2,000 increase in net interest
income, a $5,000 increase in other income, and a $3,000 decrease in general,
administrative and other expenses.
Net Interest Income
Interest income on loans totaled $938,000 for the three months ended March 31,
1999, an increase of $49,000, or 5.5%, due primarily to a $2.9 million increase
in the average portfolio balance outstanding, partially offset by a decrease in
the yield of approximately 4 basis points, to 7.57% for the quarter ended March
31, 1999. Interest income on mortgage-backed securities increased by $12,000, or
2.3%, due to a $346,000 increase in the average portfolio balance outstanding
year to year, coupled with an 8 basis point increase in the weighted-average
yield. Interest income on investment securities and other interest-earning
assets decreased by $46,000, or 22.4%. This decrease was primarily the result of
a $2.1 million decrease in the average portfolio balance outstanding, coupled
with a 40 basis point decrease in the weighted-average yield.
13
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 March 31, 1999
and 1998 (continued)
Net Interest Income (continued)
Interest expense on deposits increased by $22,000, or 3.0%, during the three
months ended March 31, 1999. The increase was primarily the result of a $5.2
million increase in the average balance of deposits outstanding in the quarter
ended March 31, 1999, offset by a decrease in cost of deposits of approximately
25 basis points to 4.58%.
Interest expense on borrowings decreased by $9,000, or 2.9%, as a result of a
$3.4 million decrease in the average balance outstanding, offset by a 55 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 $2,000, or 0.4%, during the three months ended
March 31, 1999, as compared to the three months ended March 31, 1998. The
interest rate spread increased by 3 basis points to 2.08% for the current
quarter, while the net interest margin declined by 2 basis points to 2.41% as
compared to the same quarter in 1998.
Other Income
Other income totaled $20,000 for the three months ended March 31, 1999, an
increase of $5,000, or 33.3%, from the comparable 1998 quarter. This increase
was primarily due to an increase in NOW account fees.
General, Administrative and Other Expense
General, administrative and other expense decreased by approximately $3,000,
or.7%, during the three months ended March 31, 1999, as compared to the same
quarter in 1998. This decrease was primarily the result of an $8,000, or 3.4%,
decrease in employee compensation and benefits, and a $4,000, or 12.5%, decrease
in franchise taxes, offset by a $5,000, or 6.6%, increase in occupancy and
equipment expense and a $4,000, or 8.3% increase in other operating expense.
Federal Income Taxes
The provision for federal income taxes increased by $13,000, or 25.5%, during
the three months ended March 31, 1999, due primarily to an increase in earnings
before income taxes of $10,000, or 5.6%. The Corporation's effective tax rates
amounted to 34.0% and 28.7% during the three months ended March 31, 1999 and
1998, respectively.
14
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. The Corporation is
addressing 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 is working 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 has advised Harvest Home that it has migrated to a
fully Year 2000 compliant processing system that has been fully tested as of
January 1, 1999. Management has also reviewed Harvest Home's ancillary equipment
and is in the process of providing the appropriate remedial measures, including
requesting service providers to assure the Savings Bank that their systems and
products are fully year 2000 compliant. Harvest Home is in the process of
upgrading its existing teller operating system with a capital expense budget of
$175,000.
No assurance can be given, however, that significant expense will not be
incurred in future periods. In the unlikely event that the Savings Bank is
ultimately required to purchase replacement computer systems, programs and
equipment, or incur substantial expense to make the Savings Bank's current
systems, programs and equipment year 2000 compliant, the Savings Bank's net
earnings and financial condition could be adversely affected.
Management has developed a contingency plan which includes access to an
alternative processing site provided by NCR. Additionally, the Savings Bank can
process transactions manually for a period of several weeks, if necessary, upon
arrival of the year 2000.
In addition to possible expense related to its own systems, 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.
15
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
None.
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 six
month period ended March 31, 1999.
16
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: May 14, 1999 By: /s/John E. Rathkamp
----------------------- --------------------------------
John E. Rathkamp
President, Chief Executive Officer
and Secretary
Date: May 14, 1999 By: /s/Dennis J. Slattery
----------------------- --------------------------------
Dennis J. Slattery
Executive Vice President,
Treasurer
17