UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
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 Number: 000-50901
HOME FEDERAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
United States 20-0945587
------------- ------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
500 12th Avenue South, Nampa, Idaho 83651
----------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (208) 466-4634
---------------
Indicate by check mark whether the registrant (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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $.01 par value
per share, 15,208,750 shares outstanding as of April 30, 2005.
HOME FEDERAL BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements.
Home Federal Bancorp, Inc. (the "Company") was formed to serve as the stock
holding company for Home Federal Savings and Loan Association of Nampa (the
"Association") pursuant to the Association's mutual holding company
reorganization. In connection with the mutual holding company reorganization,
the Association converted to a federally chartered stock savings bank and
changed its name to Home Federal Bank (the "Bank"). On December 6, 2004, the
Company's minority stock offering closed and 6,083,500 shares were sold at
$10.00 per share, with an additional 146,004 shares issued to the Home Federal
Foundation, Inc. (the "Foundation"). For further discussion of the Company's
formation and operations, see the Company's Annual Report on Form 10-K for the
year ended September 30, 2004. Based upon the foregoing, the Unaudited Interim
Consolidated Financial Statements filed as a part of this quarterly report for
periods prior to December 6, 2004, are those of the Bank as a federal mutual
savings and loan association and its wholly-owned subsidiary, Idaho Home Service
Corporation, as follows:
Page
Consolidated Balance Sheets as of
March 31, 2005 and September 30, 2004 1
Consolidated Statements of Income for the Three and Six
Months ended March 31, 2005 and 2004 2
Consolidated Statements of Stockholders' Equity 3
Consolidated Statements of Cash Flows for the Six months
ended March 31, 2005 and 2004 4
Selected Notes to Unaudited Interim Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 23
Item 4 - Controls and Procedures 24
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 25
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3 - Defaults upon Senior Securities 25
Item 4 - Submission of Matters to a Vote of Security Holders 25
Item 5 - Other Information 25
Item 6 - Exhibits 26
SIGNATURES 27
HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (Unaudited)
March 31, September 30,
2005 2004
ASSETS -------- ----------
Cash and amounts due from depository institutions $ 11,875 $215,663
Mortgage-backed securities available for sale, at
fair value 19,120 871
Mortgage-backed securities held to maturity, at cost 155,030 96,595
Federal Home Loan Bank stock, at cost 8,112 7,317
Loans receivable, net of allowance for loan losses
of $2,827 and $2,637 419,146 392,634
Loans held for sale 1,566 3,577
Accrued interest receivable 2,261 2,019
Property and equipment, net 10,992 10,967
Mortgage servicing rights, net 2,998 3,152
Bank owned life insurance 10,214 10,052
Real estate and other property owned 567 113
Other assets 1,549 907
------- -------
TOTAL ASSETS $ 643,430 $ 743,867
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts
Demand deposits $166,639 $153,409
Savings deposits 25,917 25,453
Certificates of deposit 180,594 164,225
------- -------
Total deposit accounts 373,150 343,087
Advances by borrowers for taxes and insurance 3,710 3,716
Interest payable 1,607 1,420
Deferred compensation 2,796 2,463
Federal Home Loan Bank advances 154,717 122,797
Deferred income tax liability 1,317 2,264
Income taxes payable 207 -
Other liabilities 3,984 223,023
------- -------
Total liabilities 541,488 698,770
STOCKHOLDERS' EQUITY
Serial preferred stock, $.01 par value; 5,000,000
authorized, issued and outstanding, none - -
Common stock, $.01 par value; 50,000,000 authorized,
issued and outstanding: 152 -
Mar. 31, 2005 - 15,208,750 issued and outstanding
Sept. 30, 2004 - none issued and outstanding
Additional paid-in capital 59,884 -
Retained earnings 46,847 45,099
Unearned shares issued to employee stock
ownership plan "ESOP" (4,784) -
Accumulated other comprehensive loss (157) (2)
------- -------
Total stockholders' equity 101,942 45,097
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $643,430 $743,867
======= =======
See accompanying notes.
1
HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data) (Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
2005 2004 2005 2004
------ ------ ------ ------
Interest and dividend income:
Loan interest $6,315 $5,965 $12,384 $11,941
Investment interest 17 36 260 68
Mortgage-backed security interest 2,045 618 3,408 1,060
Federal Home Loan Bank dividends 30 66 30 148
------ ------ ------ ------
Total interest and dividend income 8,407 6,685 16,082 13,217
------ ------ ------ ------
Interest expense:
Deposits 1,465 1,207 2,890 2,383
Federal Home Loan Bank advances 1,448 1,146 2,709 2,299
Total interest expense 2,913 2,353 5,599 4,682
------ ------ ------ ------
Net interest income 5,494 4,332 10,483 8,535
Provision for loan losses 236 300 295 600
Net interest income after provision ------ ------ ------ ------
for loan losses 5,258 4,032 10,188 7,935
------ ------ ------ ------
Noninterest income:
Service charges and fees 1,952 1,770 3,911 3,475
Gain on sale of loans 72 125 140 344
Increase in cash surrender value of
bank owned life insurance 87 124 162 249
Loan servicing fees 168 166 340 332
Mortgage servicing rights, net (58) (183) (154) (114)
Other 420 12 459 55
------ ------ ------ ------
Total noninterest income 2,641 2,014 4,858 4,341
------ ------ ------ ------
Noninterest expense:
Compensation and benefits 3,096 2,692 6,149 5,340
Occupancy and equipment 682 674 1,401 1,375
Data processing 376 357 819 724
Advertising 310 304 650 515
Postage and supplies 188 214 398 408
Professional services 203 67 422 180
Insurance and taxes 84 111 150 209
Charitable contribution to Foundation - - 1,825 -
Other 254 203 436 467
------ ------ ------ ------
Total noninterest expense 5,193 4,622 12,250 9,218
------ ------ ------ ------
Income before income taxes 2,706 1,424 2,796 3,058
Income tax expense 1,032 509 1,048 1,105
------ ------ ------ ------
NET INCOME $1,674 $ 915 $1,748 $1,953
====== ====== ====== ======
Earnings per common share:
Basic $0.11 nm (1) $0.12 nm (1)
Diluted $0.11 nm (1) $0.12 nm (1)
Weighted average number of shares outstanding:
Basic 14,720,524 nm (1)14,718,364 nm (1)
Diluted 14,720,524 nm (1)14,718,364 nm (1)
(1) Shares outstanding and earnings per share information are not meaningful.
The Company did not complete its minority stock offering until December 6,
2004 and did not have any outstanding shares prior to that date.
See accompanying notes.
2
HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data) (Unaudited)
Unearned
Shares
Issued to
Employee Accumulated
Common Stock Additional Stock Other
Paid-In Retained Ownership Comprehensive
Shares Amount Capital Earnings Plan Income (Loss) Total
------ ------ ---------- -------- --------- ------------- -------
Balance at Sept.30, 2003 - $ - $ - $ 40,415 $ - $ (16) $ 40,399
Comprehensive income:
Net income 4,684 4,684
Other comprehensive income:
Change in unrealized holding
loss on securities available
for sale, net of deferred
income taxes 14 14
-----
Comprehensive income: 4,698
------ ------ ---------- -------- --------- ------------- -------
Balance at Sept. 30, 2004 - - - 45,099 - (2) 45,097
Common stock issued 15,062,746 151 58,424 (4,984) 53,591
Common stock issued
to Foundation 146,004 1 1,459 1,460
Distribution to
capitalize Mutual
Holding Company (50) (50)
ESOP shares committed
to be released 51 200 251
Comprehensive income:
Net income 1,748 1,748
Other comprehensive income:
Change in unrealized
holding loss on
securities available for
sale, net of deferred
income taxes (155) (155)
-----
Comprehensive loss: 1,593
------ ------ ---------- -------- --------- ------------- -------
Balance at March 31,
2005 15,208,750 $152 $59,884 $46,847 $(4,784) $(157) $101,942
========== ====== ========== ======== ========= ============= =======
See accompanying notes.
3
HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Six Months Ended
March 31,
----------------
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,748 $ 1,953
Adjustments to reconcile net income to cash
provided (used) by operating activities:
Depreciation and amortization 857 804
Net amortization (accretion) of premiums
and discounts on investments (24) (5)
Gain on sale of fixed assets and repossessed assets (391) (12)
ESOP shares committed to be released 251 -
Contribution to Foundation 1,825 -
Provision for losses 295 600
Federal Home Loan Bank stock dividend (30) (148)
Deferred compensation expense 333 41
Net deferred loan fees (130) 667
Provision (benefit) for deferred income taxes (834) (361)
Net gain on sale of loans (140) (344)
Proceeds from sale of loans held for sale 25,757 37,702
Originations of loans held for sale (23,628) (35,452)
Impairment of mortgage servicing asset 100 230
Net increase in value of bank owned life insurance (162) (221)
Change in assets and liabilities:
Interest receivable (242) (115)
Other assets (613) (119)
Interest payable 187 252
Other liabilities 1,564 (8)
------- -------
Net cash provided by operating activities 6,723 5,464
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of mortgage-backed securities
held to maturity 8,040 5,702
Purchase of mortgage-backed securities held to
maturity (66,443) (36,305)
Proceeds from sale and maturity of mortgage-backed
securities available for sale 746 33
Purchase of mortgage-backed securities available
for sale (19,261) (991)
Purchases of property and equipment (1,028) (1,135)
Purchase of Federal Home Loan Bank stock (766) -
Loan originations and principal collections, net (27,245) (12,588)
Proceeds from disposition of property and equipment 543 -
Proceeds from sale of repossessed assets 148 -
------- -------
Net cash used in investing activities (105,266) (45,284)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 30,063 28,242
Net decrease in advances by borrowers for taxes
and insurance (6) (95)
Proceeds from Federal Home Loan Bank advances 132,400 30,245
Repayment of Federal Home Loan Bank advances (100,480) (13,698)
Stock subscription orders refunded (220,813) -
Net proceeds from stock issuance 53,591 -
------- -------
Net cash (used in) provided by financing activities (105,245) 44,694
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (203,788) 4,874
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 215,663 11,118
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,875 $ 15,992
======= =======
4
HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands) (Unaudited)
Six Months Ended
March 31,
----------------
2005 2004
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 5,412 $ 4,195
Income taxes 1,675 818
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of real estate and other assets in
settlement of loans 591 -
Fair value adjustment to securities available for
sale, net of taxes (155) -
See accompanying notes.
5
HOME FEDERAL BANCORP, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The consolidated financial statements presented in this quarterly report include
the accounts of the Company and its wholly-owned subsidiary, Home Federal Bank.
The financial statements of the Company have been prepared in conformity with
accounting principles generally accepted in the United States of America for
interim financial information and are unaudited. All significant intercompany
transactions and balances have been eliminated. In the opinion of the Company's
management, all adjustments consisting of normal recurring accruals necessary
for a fair presentation of the financial condition and results of operations for
the interim periods included herein have been made. The consolidated statement
of financial condition as of September 30, 2004 has been derived from the
audited consolidated statement of financial condition of the Bank as a federal
mutual savings and loan association as of that date.
Certain information and note disclosures normally included in the Company's
annual consolidated financial statements have been condensed or omitted.
Therefore, these consolidated financial statements and notes thereto should be
read in conjunction with the Company's September 30, 2004 audited financial
statements and notes included in the Form 10-K filed with the Securities and
Exchange Commission on December 29, 2004.
Note 2 - Summary of Significant Accounting Policies
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect amounts
reported in the consolidated financial statements. Changes in these estimates
and assumptions are considered reasonably possible and may have a material
impact on the consolidated financial statements, and thus actual results could
differ from the amounts reported and disclosed herein. The Company considers
the allowance for loan losses, mortgage servicing rights, and deferred income
taxes to be critical accounting estimates.
The accounting estimate related to the allowance for loan losses is a critical
accounting estimate because it is highly susceptible to change from period to
period requiring management to make assumptions about future losses on loans.
The impact of a sudden large loss could deplete the allowance and potentially
require increased provisions to replenish the allowance, which would negatively
affect earnings.
The most critical accounting policy associated with mortgage servicing is the
methodology used to determine the fair value of capitalized mortgage servicing
rights, which requires the development of a number of estimates, the most
critical of which is the mortgage loan prepayment speeds assumption. The
Company performs a quarterly review of mortgage servicing rights for potential
declines in value. This review may include an independent appraisal by an
outside party of the fair value of the mortgage servicing rights.
Deferred income taxes are computed using the asset and liability approach as
prescribed in the Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes. Under this method, a deferred tax asset or
liability is determined based on the currently enacted tax rates applicable to
the period in which the differences between the financial statement carrying
amounts and tax basis of the existing assets and liabilities are expected to be
reported in the Company's income tax returns.
At March 31, 2005, there were no material changes in the Company's significant
accounting policies or critical accounting estimates from those disclosed in the
Company's Form 10-K for the fiscal year ended September 30, 2004.
6
Note 3 - Mutual Holding Company Reorganization
On May 18, 2004, the Board of Directors of the Association unanimously adopted a
Plan of Reorganization and Stock Issuance. At the special meeting of members of
the Association held on September 20, 2004, members approved the plan of
reorganization and stock issuance and the contribution to the Foundation by more
than the required majority of the total votes entitled to be cast at the special
meeting.
Pursuant to the Plan of Reorganization and Stock Issuance, the Association: (i)
converted to a federal stock savings bank (Stock Savings Bank) as the successor
to the Association in its current mutual form; (ii) organized a Stock Holding
Company as a federally-chartered corporation that owns 100% of the common stock
of the Stock Savings Bank; and (iii) organized a Mutual Holding Company as a
federally-chartered mutual holding company that owns at least 51% of the common
stock of the Stock Holding Company for as long as the Mutual Holding Company
remains in existence. The Stock Savings Bank succeeded to the business and
operations of the Association in its mutual form, and the Stock Holding Company
sold 40.0% of its common stock in a public stock offering that was completed on
December 6, 2004.
All depositors who had membership or liquidation rights with respect to the
Association as of December 6, 2004 (the effective date of the reorganization)
continue to have such rights solely with respect to the Mutual Holding Company
for as long as they continue to hold deposit accounts with the Bank. In
addition, all persons who become depositors of the Bank subsequent to the
reorganization have membership and liquidation rights with respect to the Mutual
Holding Company. Borrower members of the Association at the time of the
reorganization have the same membership rights in the Mutual Holding Company
that they had in the Association immediately prior to the reorganization for as
long as their existing borrowings remain outstanding.
On December 6, 2004, the Bank completed the mutual holding company
reorganization and minority stock offering. The Company sold 6,083,500 shares
of its common stock, $0.01 par value, at a price of $10.00 per share. As part
of the reorganization and minority stock offering, the Company also established
and capitalized the Foundation with a $1.8 million one-time contribution, which
consisted of 146,004 shares of its common stock and $365,010 in cash. In
addition, the Company issued 8,979,246 additional shares, or 59.04% of its
outstanding shares, to Home Federal MHC, a federally-chartered mutual holding
company.
Note 4 - Employee Stock Ownership Plan
In connection with the minority stock offering, the Company established an ESOP
for the benefit of its employees. The Company issued 498,360 shares of common
stock to the ESOP in exchange for a ten-year note of approximately $5.0 million,
which has been recorded as "Unearned shares issued to employee stock ownership
plan" within stockholders' equity. As shares are released from collateral, the
Company will report compensation expense equal to the current market price of
the shares. Dividends on allocated ESOP shares reduce retained earnings;
dividends on unearned ESOP shares reduce accrued interest on the ESOP loan.
Note 5 - Earnings Per Share
Earnings per share ("EPS") is computed using the basic and diluted weighted
average number of common shares outstanding during the period. Basic EPS is
computed by dividing the Company's net income or loss by the weighted average
number of common shares outstanding for the period. Diluted EPS is computed by
dividing net income or loss by diluted weighted average shares outstanding,
which include common stock equivalent shares outstanding using the treasury
stock method, unless such shares are anti-dilutive. There were no outstanding
securities or contracts that could be exercised or converted into common stock
as of March 31, 2005. Therefore, basic and diluted earnings per share are the
same. ESOP shares are not considered outstanding for earnings per share
purposes until they are committed to be released.
7
The following table presents the computation of basic and diluted earnings per
share for the periods indicated (in thousands, except share data):
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
2005 2004 2005 2004
------ ------ ------ ------
Net income $1,674 $915 $1,748 $1,953
Weighted average shares outstanding 14,720,524 nm(1)14,718,364 nm(1)
Basic and diluted earnings per share $0.11 nm(1) $0.12 nm(1)
(1) Shares outstanding and earnings per share information are not meaningful.
The Company did not complete its minority stock offering until December
6, 2004.
Note 6 - Recent Developments and Significant Events
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 (Revised 2004), Share-Based Payment. This Statement replaces SFAS No.
123, Accounting for Stock Based Compensation, and supersedes Accounting
Principles Bulletin ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123(R) requires that the compensation cost relating to
share-based payment transactions (for example, stock options granted to
employees of the Company) be recognized in the Company's financial statements.
That cost will be measured based on the fair value of the equity or liability
instruments used. SFAS No. 123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans. On April 21, 2005 the SEC issued a ruling extending the mandatory
compliance date for SFAS 123(R). Under the ruling public entities (other than
those filing as small business issuers) will be required to apply SFAS No.
123(R) as of the first interim or annual reporting period beginning after
December 15, 2005. The Company plans to adopt the provisions of SFAS No.
123(R) effective January 1, 2006, and is in the process of evaluating the impact
on its consolidated financial position or consolidated results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets
- An Amendment of APB Opinion No. 29. Guidance under APB Opinion No. 29,
Accounting for Nonmonetary Transactions, is based on the principal that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. SFAS No. 153 amends Opinion No. 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exemption for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange is considered to have commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The adoption of SFAS No. 153,
effective July 1, 2005, is not expected to have any impact on the Company's
current financial condition or results of operations.
In December 2003, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 03-3, Accounting for Certain Loans or Debt
Securities Acquired in a Transfer. The SOP addresses accounting for differences
between contractual cash flows and cash flows expected to be collected from an
investor's initial investment in loans or debt securities acquired in a transfer
if those differences are attributable, at least in part, to credit quality. The
SOP does not apply to loans originated by the Company. Provisions of the SOP
limit the yield that may be accreted to the excess of the investor's estimate at
acquisition of expected cash flows to be collected over the investor's initial
investment in the loan. Additionally, the SOP prohibits the recognition of this
excess as an adjustment of yield, loss accrual or valuation allowance.
Subsequent increases in cash flows expected to be collected are generally to be
recognized prospectively through adjustment of the loan's yield over its
remaining life. Decreases in cash flows expected to be collected should be
recognized as impairment. The SOP prohibits "carrying over" or creation of
valuation allowance in the initial accounting of all loans acquired in a
transfer. The SOP was effective for loans acquired starting January 1 and is
not expected to have any impact on the Company's current financial condition or
results of operations.
8
Note 7 - Mortgage-Backed Securities
Mortgage-backed securities available for sale consisted of the following (in
thousands):
March 31, 2005
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
Agency mortgage-backed securities $19,383 $- $(263) $19,120
========= ========== ========== =======
September 30, 2004
---------------------------------------------
Agency mortgage-backed securities $ 874 $- $ (3) $ 871
========= ========== ========== =======
The contractual maturities of mortgage-backed securities available for sale are
shown below. Expected maturities may differ from contractual maturities because
borrowers have the right to prepay obligations without prepayment penalties (in
thousands).
March 31, 2005
----------------------
Amortized Fair
Cost Value
--------- -------
Due after five years through ten years $ 798 $ 779
Due after ten years 18,585 18,341
--------- --------
Total $ 19,383 $ 19,120
========= ========
The Company realized no gains or losses on sales of mortgage-backed securities
available for sale for the three months ended March 31, 2005 and 2004.
Mortgage-backed securities held to maturity consisted of the following (in
thousands):
March 31, 2005
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
Agency mortgage-backed securities $151,307 $446 $(2,557) $149,196
Non-agency mortgage-backed
securities 3,723 - (107) 3,616
--------- ---------- ---------- -------
Total $155,030 $446 $(2,664) $152,812
========= ========== ========== =======
September 30, 2004
---------------------------------------------
Agency mortgage-backed securities $96,595 $1,215 $(284) $ 97,526
========= ========== ========== =======
The contractual maturities of mortgage-backed securities held to maturity are
shown below. Expected maturities may differ from contractual maturities because
borrowers have the right to prepay obligations without prepayment penalties (in
thousands).
March 31, 2005
----------------------
Amortized Fair
Cost Value
--------- -------
Due within one year $ 2 $ 2
Due after one year through five years 2,452 2,536
Due after five years through ten years 8,071 7,839
Due after ten years 144,505 142,435
--------- -------
Total $155,030 $152,812
========= =======
9
The fair value of temporarily impaired securities, the amount of unrealized
losses and the length of time these unrealized losses existed as of March 31,
2005 are as follows (in thousands):
Less than 12 months 12 months or longer Total
----------------- ----------------- -------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
----- ---------- ----- ---------- ----- ----------
Mortgage-backed
securities, available
for sale $18,122 $ (263) $ - $ - $18,122 $ (263)
Mortgage-backed
securities, held to
maturity 126,870 (2,664) - - 126,870 (2,664)
------- ---------- ----- ---------- ----- ----------
Total $144,992 $ (2,927) $ - $ - $144,992 $(2,927)
======= ========== ===== ========== ====== =========
Management has evaluated these securities and has determined that the decline in
the value is temporary and not related to any company or industry specific
event. The Company has the ability and intent to hold the securities for a
reasonable period of time for a forecasted recovery of the fair value in the
event of a more favorable interest rate environment.
Note 8 -Loans Receivable
Loans receivable are summarized as follows (dollars in thousands):
March 31, 2005 September 30, 2004
------------------ ------------------
Percent Percent
Balance of Total Balance of Total
Real Estate Loans ------- -------- ------- --------
One-to four family residential $253,496 59.94% $242,818 61.27%
Multi-family residential 5,844 1.38 6,265 1.58
Commercial 103,183 24.40 93,575 23.61
------- ------ ------- ------
Total real estate loans 362,523 85.72 342,658 86.46
------- ------ ------- ------
Real Estate Construction Loans
One-to four family residential 9,183 2.17 7,207 1.82
Multi-family residential 1,428 0.34 834 0.21
Commercial and land development 13,195 3.12 11,151 2.81
Total real estate construction ------- ------ ------- ------
loans 23,806 5.63 19,192 4.84
------- ------ ------- ------
Consumer Loans
Home equity lines of credit 28,540 6.75 27,351 6.90
New and used automotive and RV 4,366 1.03 3,838 0.97
Other consumer 1,686 0.40 1,949 0.49
------- ------ ------- ------
Total consumer loans 34,592 8.18 33,138 8.36
------- ------ ------- ------
Commercial/business loans 1,979 0.47 1,363 0.34
------- ------ ------- ------
422,900 100.0% 396,351 100.0%
Less: ====== ======
Deferred loan fees 927 1,080
Allowance for loan losses 2,827 2,637
------- -------
Loans receivable, net $419,146 $392,634
======= =======
10
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
Forward-Looking Statements
This report contains forward-looking statements, which can be identified by the
use of words such as "believes", "expects", "anticipates", "estimates" or
similar expressions. Forward-looking statements include, but are not limited
to:
* statements of our goals, intentions and expectations;
* statements regarding our business plans, prospects, growth and operating
strategies;
* statements regarding the quality of our loan and investment portfolios; and
* estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks and
uncertainties. Actual results may differ materially from those contemplated by
the forward-looking statements due to, among others, the following factors:
* general economic conditions, either nationally or in our market area, that
are worse than expected;
* changes in the interest rate environment that reduce our interest margins
or reduce the fair value of financial instruments;
* increased competitive pressures among financial services companies;
* changes in consumer spending, borrowing and savings habits;
* legislative or regulatory changes that adversely affect our business;
* adverse changes in the securities markets; and
* changes in accounting policies and practices, as may be adopted by the bank
regulatory agencies, the Public Company Accounting Oversight Board or the
FASB.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements. The Company
undertakes no obligation to publish revised forward-looking statements to
reflect the occurrence of unanticipated events or circumstances after the date
hereof.
Overview
The Company was organized as a federally-chartered stock corporation at the
direction of the Association in connection with its mutual holding company
reorganization. The reorganization was completed on December 6, 2004. In
connection with the reorganization, the Association converted to a federally-
chartered stock savings bank and changed its corporate title to "Home Federal
Bank". In the reorganization, the Company sold 40.00% of its outstanding shares
of common stock (6,083,500 shares) to the public and issued 59.04% of its
outstanding shares of common stock (8,979,246 shares) to Home Federal MHC, the
mutual holding company parent of the Company. In connection with the
reorganization, the Company also established and capitalized the Foundation with
a $1.8 million one-time contribution, which consisted of 146,004 shares of its
common stock and $365,010 in cash. The Company's common stock is traded on the
NASDAQ Stock Market under the symbol "HOME."
The Bank was founded in 1920 as a building and loan association and reorganized
as a federal mutual savings and loan association in 1936. The Bank is a
community-oriented financial institution dedicated to serving the financial
service needs of consumers and businesses within our market area. The Bank's
primary business is attracting deposits from the general public and using these
funds to originate loans. We emphasize the origination of loans secured by
first mortgages on owner-occupied, residential real estate, residential
development and construction, and commercial real estate. To a lesser extent,
we originate other types of real estate loans, commercial business loans and
consumer loans.
The Bank serves the Treasure Valley region of southwestern Idaho, which includes
Ada, Canyon, Elmore and Gem Counties, through our 15 full-service banking
offices and two loan centers. Nearly 40% of the state's population lives and
works in the four counties served by Home Federal Bank. Ada County has the
largest population and includes the city of Boise, the state capitol. Home
Federal Bank maintains its largest branch presence in Ada County with eight
locations, followed by Canyon County with five offices, including the Company's
corporate headquarters in Nampa. The two remaining branches are located in
Elmore and Gem Counties.
The local economy is primarily urban with the city of Boise being the most
populous of the markets that we serve, followed by Nampa, the state's second
largest city. The regional economy is well diversified with government,
11
healthcare, manufacturing, high technology, call centers and construction
providing sources of employment. In addition, agriculture and related
industries continue to be key components of the economy in southwestern Idaho.
Generally, sources of employment are concentrated in Ada and Canyon Counties and
include the headquarters of Micron Technology, Albertsons, Washington Group
International, J.R. Simplot Company and Boise Cascade, LLC. Other major
employers include Hewlett-Packard, two regional medical centers and Idaho state
government agencies. The city of Boise is also home to Boise State University,
the state's largest and fastest growing university.
Critical Accounting Policies
Allowance for Loan Losses. Management believes that the accounting estimate
related to the allowance for loan losses is a critical accounting estimate
because it is highly susceptible to change from period to period requiring
management to make assumptions about future losses on loans; and the impact of a
sudden large loss could deplete the allowance and potentially require increased
provisions to replenish it, which would negatively affect earnings.
Our methodology for analyzing the allowance for loan losses consists of three
components: formula, specific and general allowances. The formula allowance is
determined by applying an estimated loss percentage to various groups of loans
based on historical measures such as the amount and type of classified loans,
past due ratios and loss experience, which could affect the collectibility of
the respective loan types. The specific allowance component is created when
management believes that the collectibility of a specific large loan has been
impaired and a loss is probable. The general allowance element relates to
assets with no well-defined deficiency of weakness and takes into consideration
loss that is inherent within the portfolio but has not been realized.
Mortgage Servicing Rights. Mortgage servicing rights represent the present
value of the future loan servicing fees from the right to service loans for
others. The most critical accounting policy associated with mortgage servicing
is the methodology used to determine the fair value of capitalized mortgage
servicing rights, which requires the development of a number of estimates, the
most critical of which is the mortgage loan prepayment speeds assumption. The
Company performs a quarterly review of mortgage servicing rights for potential
declines in value. This review may include an independent appraisal by an
outside party of the fair value of the mortgage servicing rights.
Deferred Income Taxes. Deferred income taxes are reported for temporary
differences between items of income or expense reported in the financial
statements and those reported for income tax purposes. Deferred taxes are
computed using the asset and liability approach as prescribed in SFAS No. 109,
Accounting for Income Taxes. Under this method, a deferred tax asset or
liability is determined based on the currently enacted tax rates applicable to
the period in which the differences between the financial statement carrying
amounts and tax basis of existing assets and liabilities are expected to be
reported in the Company's income tax returns. The deferred tax provision for
the year is equal to the net change in the net deferred tax asset from the
beginning to the end of the year, less amounts applicable to the change in value
related to investments available for sale. The effect on deferred taxes of a
change in tax rates is recognized as income in the period that includes the
enactment date. The primary differences between financial statement income and
taxable income result from depreciation expense, mortgage servicing rights, loan
loss reserves and dividends received from the Federal Home Loan Bank of Seattle
("FHLB"). Deferred income taxes do not include a liability for pre-1988 bad debt
deductions allowed to thrift institutions which may be recaptured if the
institution fails to qualify as a thrift for income tax purposes in the future.
Comparison of Financial Condition at March 31, 2005 and September 30, 2004
General. Total assets decreased $100.5 million or 13.5% to $643.4 million at
March 31, 2005 compared to $743.9 million at September 30, 2004. Assets at
September 30, 2004 included $220.8 million that was received from subscribers in
the Company's minority stock offering. These subscription funds were
subsequently refunded to subscribers in the quarter ended December 31, 2004 as a
result of a change in the appraisal of the Company, which increased the
valuation range of the offering. Following the refund to subscribers, the
Company conducted a resolicitation and received $153.1 million from subscribers.
The Company's minority stock offering, however, was oversubscribed and as a
result, $97.2 million of the $153.1 million of subscription funds received by
the Company were returned to investors.
12
Assets. For the six months ended March 31, 2005 total assets decreased $100.5
million. The increases and decreases were primarily concentrated in the
following asset categories:
Increase / Percentage
Balance at (Decrease) from Increase /
March 31, 2005 September 30, 2004 (Decrease)
-----------------------------------------------
(dollars in thousands)
Cash and amounts due from
depository institutions $ 11,875 $(203,788) (94.5)%
Mortgage-backed securities,
available for sale, at
fair value 19,120 18,249 2,095.2
Mortgage-backed securities,
held to maturity 155,030 58,435 60.5
Loans receivable, net of
allowance for loan losses 419,146 26,512 6.8
Loans held for sale 1,566 (2,011) (56.2)
Cash and amounts due from depository institutions decreased $203.8 million as a
result of the completion of the Company's minority stock offering. Assets at
September 30, 2004 included $220.8 million that was received from subscribers in
the Company's minority stock offering. These subscription funds were
subsequently refunded to subscribers in the quarter ended December 31, 2004 as
described above.
The Company invested the net proceeds from the offering and additional
borrowings in mortgage-backed securities to leverage the balance sheet and
achieve the desired level of interest-earning assets. For the six months ended
March 31, 2005, mortgage-backed securities increased $76.7 million, or 78.7%, to
$174.2 million from $97.5 million at September 30, 2004. The increase in
mortgage-backed securities consisted of intermediate-term securities, including
hybrid adjustable and fixed rate securities with terms of 20 years or less.
Loans receivable, net, increased $26.5 million to $419.1 million at March 31,
2005, from $392.6 million at September 30, 2004. Single-family residential
loans and commercial real estate loans increased $12.7 million and $11.7
million, respectively, during the six months ended March 31, 2005. Over 90% of
the Company's loan portfolio is secured by real estate, either as primary or
secondary collateral, located in its primary market areas.
Loans held for sale decreased $2.0 million to $1.6 million at March 31, 2005,
from $3.6 million at September 30, 2004. The Company originates fixed-rate
residential loans, the majority of which are sold in the secondary market.
Selling fixed-rate mortgage loans allows the Company to reduce interest rate
risk associated with long term, fixed-rate products and provides funds to make
new loans and diversify the loan portfolio. The Company retains the servicing
rights on most loans sold in the secondary market, thereby maintaining the
customer relationship and generating ongoing noninterest income.
Deposits. Deposits increased $30.1 million during the six months ended March
31, 2005. The following table details the changes in deposit accounts.
Percentage
Balance at Increase from Increase /
March 31, 2005 September 30, 2004 (Decrease)
----------------------------------------------
(dollars in thousands)
Savings deposits $ 25,917 $ 464 1.8%
Demand deposits 166,639 13,230 8.6
Certificates of deposit 180,594 16,369 10.0
----------------------------------------------
Total deposit accounts $ 373,150 $ 30,063 8.8%
==============================================
Noninterest-bearing demand deposits increased $4.7 million to $34.3 million at
March 31, 2005, from $29.6 million at September 30, 2004. Interest-bearing
deposits grew $8.5 million to $132.3 million at March 31, 2005, from $123.8
million at September 30, 2004. Certificates of deposit increased $16.4 million
with the majority of the increase in 12 to 23 month terms.
13
Borrowings. Advances from the FHLB increased $31.9 million or 26.0%, to $154.7
million during the six months ended March 31, 2005. The Company uses advances
from the FHLB as an alternative funding source to deposits in order to manage
funding costs, reduce interest rate risk, and to leverage the balance sheet.
The net effect was to fund increases in total interest-earning assets, thereby
incrementally increasing net interest income.
Equity. Total stockholders' equity increased $56.8 million, or 125.9%, to
$101.9 million at March 31, 2005 from $45.1 million at September 30, 2004. The
increase was primarily as a result of the $53.6 million net proceeds from the
stock offering and $1.5 million for the 146,004 shares of common stock issued to
the Foundation.
Comparison of Operating Results for the Three Months ended March 31, 2005 and
March 31, 2004
General. Net income for the three months ended March 31, 2005 was $1.7 million,
or $0.11 per basic share, compared to net income of $915,000 for the three
months ended March 31, 2004. On December 6, 2004, the Bank completed its mutual
holding company reorganization, at which time the Company was organized. As a
result, comparisons to prior periods refer to the results of the Bank as a
federal mutual savings and loan association, and per share data is not
applicable.
During the current quarter, the Company sold a former branch for a pre-tax gain
of $386,000. Excluding the sale of the branch, the Company had net income of
$1.4 million, or $0.10 per share for the three months ended March 31, 2005,
compared to $915,000 for the same period a year ago. The following table
reconciles the Company's actual net income to pro forma net income, exclusive of
the sale of the branch and as adjusted for federal and state taxes:
Three Months Ended
March 31,
------------------
2005 2004
------- -------
(in thousands, except per share data)
Pro forma disclosure
Net income, as reported $ 1,674 $ 915
Sale of branch (386) -
Federal and state income tax effect 151 -
------- -------
Pro forma net income $ 1,439 $ 915
======= =======
Earnings per share
Basic as reported $ 0.11 nm (1)
Pro forma basic $ 0.10 nm (1)
(1) Earnings per share information is not meaningful. The Company did not
complete its minority stock offering until December 6, 2004.
Net Interest Income. Net interest income increased $1.2 million, or 27.9%, to
$5.5 million for the three months ended March 31, 2005, from $4.3 million for
the three months ended March 31, 2004. Average total interest-earning assets
increased $151.7 million primarily as a result of the purchase of
mortgage-backed securities with the net proceeds of the minority stock offering
and additional purchases throughout the past 12 months to achieve a desired
level of interest-earning assets. The additional mortgage-backed securities
contributed to a 36 basis point decline in the Company's average asset yields
for the three months ended March 31, 2005. During that same period our average
cost of funds increased 5 basis points, resulting in a 41 basis point decrease
in our net interest spread.
Interest and Dividend Income. Total interest and dividend income for the three
months ended March 31, 2005 increased $1.7 million, or 25.4%, to $8.4 million,
from $6.7 million for the three months ended March 31, 2004. The increase was
the result of the $151.7 million increase in the average balance of
interest-earning assets. The increase in the average balance of
interest-earning assets was partially offset by lower interest rates on
mortgage-backed securities purchased, prepayment of higher rate loans and
mortgage-backed securities in the portfolio, and the decision by the FHLB to
significantly reduce the dividend paid on FHLB stock for the near future. We do
not expect the impact of the reduction in FHLB dividend income to have a
significant effect on our results of operations or financial condition.
14
The following table compares detailed average earning asset balances, associated
yields, and resulting changes in interest and dividend income for the three
months ended March 31, 2005 and 2004:
Three Months Ended March 31,
------------------------------------------------
2005 2004
------------------------------------------------
Increase /
(Decrease) in
Interest and
Dividend
Average Average Income from
Balance Yield Balance Yield 2004
------- ----- ------- ----- -----------
(dollars in thousands)
Loans receivable, net $413,365 6.09% $383,821 6.18% $ 369
Loans held for sale 1,471 5.41 2,721 5.66 (19)
Investment securities,
available for sale,
including interest-bearing
deposits in other banks 2,982 2.28 8,135 1.77 (19)
Mortgage-backed securities 173,396 4.72 46,302 5.34 1,427
FHLB stock 8,044 1.49 6,616 3.99 (36)
------- ----- ------- ----- -----------
Total interest-earning assets $599,258 5.61% $447,595 5.97% $1,722
======= ==== ======= ==== ===========
Interest Expense. Interest expense increased $560,000, or 23.3%, to $2.9
million for the three months ended March 31, 2005 from $2.4 million for the
three months ended March 31, 2004. The average balance of total
interest-bearing liabilities was $487.5 million, an increase of $85.8 million,
for the three months ended March 31, 2005 compared to $401.7 million for the
three months ended March 31, 2004. The increase was primarily a result of
additional advances from the FHLB to leverage the balance sheet and achieve the
desired level of interest-earning assets. The average cost of funds for total
interest-bearing liabilities was 2.39%, an increase of 5 basis points for the
three months ended March 31, 2005 compared to 2.34% for the three months ended
March 31, 2004.
The following table details average balances, cost of funds and the change in
interest expense for the three months ended March 31, 2005 and 2004:
Three Months Ended March 31,
------------------------------------------------
2005 2004
------------------------------------------------
Increase /
(Decrease) in
Interest
Average Average Expense from
Balance Cost Balance Cost 2004
------- ----- ------- ----- -----------
(dollars in thousands)
Savings deposits $ 25,358 0.21% $ 23,511 0.29% $ (4)
Interest-bearing demand
deposits 95,453 0.27 82,023 0.28 8
Money market deposits 37,730 1.08 32,668 0.71 44
Certificates of deposit 176,139 2.92 149,495 2.88 210
FHLB advances 152,786 3.79 114,000 4.02 302
Total interest-bearing ------- ----- ------- ----- -----------
liabilities $487,466 2.39% $401,697 2.34% $ 560
======= ==== ======= ==== ===========
Provision for Loan Losses. The Company's Asset Liability Committee (the
"Committee") assesses the adequacy of the allowance for loan losses on a
quarterly basis. The Committee also analyzes several different factors,
including delinquency, charge-off rates, and the changing risk profile of the
loan portfolio, as well as local economic conditions including unemployment
rates, bankruptcies and vacancy rates of business and residential properties.
The Committee's methodology for analyzing the allowance for loan losses consists
of three components: formula, specific and general allowances. The formula
allowance is determined by applying an estimated loss percentage to various
groups of loans. The loss percentages are based on various historical measures
such as the amount and type of classified loans, past due ratios and loss
experience, which could affect the collectibility of the respective loan types.
The specific allowance component is determined when management believes that the
collectibility of a
15
specific large loan has been impaired and a loss is probable. The general
allowance component is established to ensure the adequacy of the allowance for
loan losses in situations where the Committee believes there are risk factors
associated with the collectibility of the portfolio that may not be adequately
addressed in the formula or specific allowance components.
The provision for loan losses decreased $64,000 to $236,000 for the three
months ended March 31, 2005 from $300,000 for the three months ended March 31,
2004. The following table details selected activity associated with the
allowance for loan losses for the three months ended March 31, 2005 and 2004:
At or For the Three Months
Ended March 31,
----------------------------
2005 2004
----------------------------
(dollars in thousands)
Provision for loan losses $236 $ 300
Net charge-offs 84 14
Allowance for loan losses 2,827 2,411
Allowance for loan losses
as a percentage of total
loans receivable and loans
held for sale at the end
of the period 0.67% 0.62%
Allowance for loan losses
as a percentage of non-
performing loans at the
end of the period 1,197.88% 425.97%
Nonperforming loans 236 566
Nonaccrual and 90 days or
more past due loans as a
percentage of loans receiv-
able 0.06% 0.14%
Total loans, net 419,146 383,950
The Company increased its provision for loan losses for the prior fiscal year in
connection with the unseasoned nature of its loan portfolio that resulted from a
record volume of refinanced mortgage loans. In management's judgment, the
increase in the amount of refinanced mortgage loans resulted in an increase in
the level of unseasoned loans within the loan portfolio thereby increasing the
inherent risk of loss to the Company. In addition, management revised the
estimated loss ratios of several loan categories to more accurately reflect the
Company's loss history. Industry or peer loss rates were used if the Company
did not have a meaningful history of losses. Management considers the allowance
for loan losses at March 31, 2005 to be adequate to cover probable losses
inherent in the loan portfolio based on the assessment of the above-mentioned
factors affecting the loan portfolio.
Noninterest Income. Noninterest income increased $627,000 to $2.6 million for
the three months ended March 31, 2005 from $2.0 million for the three months
ended March 31, 2004. For the quarter ended March 31, 2005 other noninterest
income included a $386,000 pre-tax gain on the sale of a former branch. The
slowdown in mortgage refinance activity also affected the gains on the sale of
single-family residential loans.
Mortgage servicing rights is an accounting estimate of the present value of the
future servicing fees from the right to service mortgage loans for others. This
estimate is affected by prepayment speeds of the underlying mortgages and
interest rates. In general, during periods of falling interest rates, mortgage
loans prepay faster and the value of the mortgage-servicing asset declines. The
Company performs a quarterly review of mortgage servicing rights for potential
declines in value. For the quarter ended March 31, 2005, amortization of the
asset exceeded the servicing rights capitalized as loan sales have declined as
compared to prior quarters. For the quarter ended March 31, 2004, the Company
determined the value of the mortgage servicing right had declined $230,000. The
mortgage servicing right was 1.17% of mortgage loans serviced for others at
March 31, 2005, compared to 1.19% at March 31, 2004.
16
The following table provides a detailed analysis of the changes in components of
noninterest income:
Increase / Percentage
Three Months Ended (Decrease)from Increase /
March 31, 2005 March 31, 2004 (Decrease)
-----------------------------------------------------
(dollars in thousands)
Service fees and
charges $1,952 $182 10.3%
Gain on sale of
loans 72 (53) (42.4)
Increase in cash
surrender value
of bank owned life
insurance 87 (37) (29.8)
Loan servicing fees 168 2 1.2
Mortgage servicing rights,
net (58) 125 68.3
Other 420 408 3,400.0
-----------------------------------------------------
Total noninterest
income $2,641 $627 31.1%
-----------------------------------------------------
Noninterest Expense. Noninterest expense increased $571,000, or 12.4%, to $5.2
million for the three months ended March 31, 2005 compared to $4.6 million for
the three months ended March 31, 2004.
The following table provides a detailed analysis of the changes in components of
noninterest expense:
Increase / Percentage
Three Months Ended (Decrease)from Increase /
March 31, 2005 March 31, 2004 (Decrease)
-----------------------------------------------------
(dollars in thousands)
Compensation and
benefits $3,096 $404 15.0%
Occupancy and
equipment 682 8 1.2
Data processing 376 19 5.3
Advertising 310 6 2.0
Other 729 134 22.5
-----------------------------------------------------
Total noninterest
expense $5,193 $571 12.4%
-----------------------------------------------------
Compensation expense increased as a result of the establishment of the ESOP,
annual merit pay increases, and an increase in the number of employees. As of
March 31, 2005, the Company employed 240 full-time equivalent employees,
compared to 224 at March 31, 2004. Other expenses increased as a result of
professional expenses related to being a publicly held company. The efficiency
ratio (excluding the $386,000 gain on the sale of the former branch), which is
defined as the percentage of noninterest expense to net interest income plus
noninterest income, decreased to 67.01% for the three months ended March 31,
2005 compared to 72.83% for the three months ended March 31, 2004. By
definition, a lower efficiency ratio is an indication that the Company is
efficiently utilizing resources to generate net interest income and other fee
income.
Income Tax Expense. Income tax expense increased $523,000 to $1.0 million for
the three months ended March 31, 2005 from $509,000 for the same period a year
ago. Income before income taxes was $2.7 million for the three months ended
March 31, 2005 compared to $1.4 million for the three months ended March 31,
2004. The Company's combined federal and state effective income tax rate for
the current quarter was 38.1% compared to 35.7% for the same quarter of the
prior fiscal year. The increase in the effective tax rate was as a result of
decrease in the noninterest income related to the cash surrender value of the
bank owned life insurance which is not subject to income taxes and an increase
in nondeductible compensation expense related to the ESOP.
Comparison of Operating Results for the Six Months ended March 31, 2005 and
March 31, 2004
General. Net income for the six months ended March 31, 2005 was $1.7 million,
or $0.12 per basic share, compared to net income of $2.0 million for the six
months ended March 31, 2004. On December 6, 2004, the Bank completed its mutual
holding company reorganization, at which time the Company was organized. As a
result, comparisons to prior periods refer to the results of the Bank as a
federal mutual savings and loan association, and per share data is not
applicable. The per share data for the six months ended March 31, 2005 is being
reported on shares
17
outstanding from December 6, 2004 through March 31, 2005, since the Bank
completed its reorganization on December 6, 2004.
As part of the reorganization and minority stock offering, the Company formed
and capitalized the Foundation with a one-time contribution of $1.8 million,
which consisted of 146,004 shares of its common stock and $365,010 in cash. The
Foundation was formed for the purpose of supporting charitable organizations and
activities that enhance the quality of life for residents within the Company's
market area. In addition, during the second quarter ended March 31, 2005, the
Company sold a former branch for a pre-tax gain of $386,000. The contribution
to the Foundation, net of the gain on sale of the branch, was the primary factor
in the net income decrease from the same period a year ago.
Excluding the contribution to the Foundation and the sale of the branch, the
Company had net income of $2.6 million, or $0.18 per share for the six months
ended March 31, 2005, compared to $2.0 million for the same six-month period a
year ago. The following table reconciles the Company's actual net income to pro
forma net income, exclusive of the contribution to the Foundation and sale of
the branch and as adjusted for federal and state taxes:
Six Months Ended
March 31,
-------------------------
2005 2004
-------- ----------
(in thousands, except per
share data)
Pro forma disclosure
Net income, as reported $1,748 $1,953
Contribution to Foundation 1,825 -
Sale of branch (386) -
Federal and state income
tax effect (561) -
------ ------
Pro forma net income $2,626 $1,953
------ ------
Earnings per share
Basic as reported $0.12 nm (1)
Pro forma basic $0.18 nm (1)
(1) Earnings per share information is not meaningful. The Company did not
complete its minority stock offering until December 6, 2004.
Net Interest Income. Net interest income increased $2.0 million, or 23.5%, to
$10.5 million for the six months ended March 31, 2005, from $8.5 million for the
six months ended March 31, 2004. Average total interest-earning assets
increased $146.9 million primarily as a result of the purchase of
mortgage-backed securities with the net proceeds of the minority stock offering
and additional purchases throughout the past 12 months to achieve a desired
level of interest-earning assets. Also included is cash that was received from
subscribers in the minority stock offering and invested in
lower-yielding overnight funds. The additional mortgage-backed securities and
cash contributed to a 54 basis point decline in the Company's average asset
yields during the six months ended March 31, 2005. During that same period our
average cost of funds declined 12 basis points, resulting in a 42 basis point
decrease in our net interest spread.
Interest and Dividend Income. Total interest and dividend income for the six
months ended March 31, 2005 increased $2.9 million, or 22.0%, to $16.1 million,
from $13.2 million for the six months ended March 31, 2004. The increase was
the result of the $146.9 million increase in the average balance of
interest-earning assets. The increase in average balance of interest-earning
assets was partially offset by lower interest rates on mortgage-backed
securities purchased, prepayment of higher rate loans and mortgage-backed
securities in the portfolio, and the decision by the FHLB to significantly
reduce the dividend paid on FHLB stock for the near future. We do not expect
the impact of the reduction in FHLB dividend income to have a significant effect
on our results of operations or financial condition.
18
The following table compares detailed average earning asset balances,
associated yields, and resulting changes in interest and dividend income for the
six months ended March 31, 2005 and 2004:
Six Months Ended March 31,
---------------------------------------------------
2005 2004
---------------------------------------------------
Increase /
(Decrease)in
Interest and
Dividend
Average Average Income from
Balance Yield Balance Yield 2004
---------------------------------------------------
(dollars in thousands)
Loans receivable, net $406,417 6.07% $381,614 6.21% $ 472
Loans held for sale 1,953 5.58 2,927 5.63 (28)
Investment securities,
available for sale,
including interest-
bearing deposits in
other banks 26,717 1.95 7,070 1.95 191
Mortgage-backed securit-
ies 140,938 4.84 38,674 5.48 2,348
FHLB stock 7,735 0.78 6,575 4.50 (118)
---------------------------------------------------
Total interest-earning
assets $583,760 5.51% $436,860 6.05% $2,865
---------------------------------------------------
Interest Expense. Interest expense increased $917,000, or 19.5%, to $5.6
million for the six months ended March 31, 2005 from $4.7 million for the six
months ended March 31, 2004. The average balance of total interest-bearing
liabilities was $491.4 million, an increase of $100.7 million, for the six
months ended March 31, 2005 compared to $390.7 million for the six months ended
March 31, 2004. The increase was primarily a result of cash received from stock
subscription requests prior to the completion of the minority stock offering and
additional advances from the FHLB to leverage the balance sheet and to achieve
the desired level of interest-earning assets. The average cost of funds for
total interest-bearing liabilities was 2.28%, a decrease of 12 basis points for
the six months ended March 31, 2005 compared to 2.40% for the six months ended
March 31, 2004.
The following table details average balances, cost of funds and the change in
interest expense for the six months ended March 31, 2005 and 2004:
Six Months Ended March 31,
---------------------------------------------------
2005 2004
---------------------------------------------------
Increase /
(Decrease)in
Interest
Average Average Expense from
Balance Cost Balance Cost 2004
---------------------------------------------------
(dollars in thousands)
Savings deposits $ 25,446 0.20% $23,910 0.29% $(10)
Interest-bearing
demand deposits 113,861 0.26 78,286 0.24 56
Money market deposits 39,158 1.01 32,090 0.61 100
Certificates of deposit 172,067 2.93 147,759 2.92 361
FHLB advances 140,827 3.85 108,637 4.23 410
---------------------------------------------------
Total interest-bearing
liabilities $491,359 2.28% $390,682 2.40% $917
---------------------------------------------------
Provision for Loan Losses. The Company's Asset Liability Committee assesses the
adequacy of the allowance for loan losses on a quarterly basis. The Committee
analyzes several different factors, including delinquency, charge-off rates, and
the changing risk profile of the loan portfolio, as well as local economic
conditions including unemployment rates, bankruptcies and vacancy rates of
business and residential properties. The Committee's methodology for analyzing
the allowance for loan losses consists of three components: formula, specific
and general allowances. The formula allowance is determined by applying an
estimated loss percentage to various groups of loans. The loss percentages are
based on various historical measures such as the amount and type of classified
loans, past due ratios and loss experience, which could affect the
collectibility of the respective loan types. The specific
19
allowance component is determined when management believes that the
collectibility of a specific large loan has been impaired and a loss is
probable. The general allowance component is established to ensure the adequacy
of the allowance for loan losses in situations where the Committee believes
there are risk factors associated with the collectibility of the portfolio that
may not be adequately addressed in the formula or specific allowance components.
The provision for loan losses decreased $305,000 to $295,000 for the six months
ended March 31, 2005 from $600,000 for the six months ended March 31, 2004. The
following table details selected activity associated with the allowance for loan
losses for the six months ended March 31, 2005 and 2004:
At or For the Six Months
Ended March 31,
------------------------
2005 2004
------------------------
(dollars in thousands)
Provision for loan losses $295 $600
Net charge-offs 105 42
Allowance for loan losses 2,827 2,411
Allowance for loan losses
as a percentage of total
loans receivable and loans
held for sale at the end of
the period 0.67% 0.62%
Allowance for loan losses
as a percentage of
nonperforming loans at the
end of the period 1,197.88% 425.97%
Nonperforming loans 236 566
Nonaccrual and 90 days or
more past due loans as a
percentage of loans receiv-
able 0.06% 0.14%
Total loans, net 419,146 383,950
The Company increased its provision for loan losses for the prior fiscal year in
connection with the unseasoned nature of its loan portfolio that resulted from a
record volume of refinanced mortgage loans. In management's judgment, the
increase in the amount of refinanced mortgage loans resulted in an increase in
the level of unseasoned loans within the loan portfolio thereby increasing the
inherent risk of loss to the Company. In addition, management revised the
estimated loss ratios of several loan categories to more accurately reflect the
Company's loss history. Industry or peer loss rates were used if the Company
did not have a meaningful history of losses. Management considers the allowance
for loan losses at March 31, 2005 to be adequate to cover probable losses
inherent in the loan portfolio based on the assessment of the above-mentioned
factors affecting the loan portfolio.
Noninterest Income. Noninterest income increased $517,000 to $4.9 million for
the six months ended March 31, 2005 from $4.3 million for the six months ended
March 31, 2004. Noninterest income for the six months ended March 31, 2005
included a $386,000 pre-tax gain on the sale of a branch. The slowdown in
mortgage refinance activity also affected the gains on the sale of single-family
residential loans.
Mortgage servicing rights is an accounting estimate of the present value of the
future servicing fees from the right to service mortgage loans for others. This
estimate is affected by prepayment speeds of the underlying mortgages and
interest rates. In general, during periods of falling interest rates, mortgage
loans prepay faster and the value of the mortgage-servicing asset declines. The
Company performs a quarterly review of mortgage servicing rights for potential
declines in value. For the six months ended March 31, 2005, amortization of the
asset exceeded the servicing rights capitalized as loan sales have declined as
compared to the six months ended March 31, 2004. In addition, the Company
determined the value of the mortgage servicing right had declined $100,000 and
$230,000 for the six months ended March 31, 2005 and 2004. The mortgage
servicing right was 1.17% of mortgage loans serviced for others at March 31,
2005, compared to 1.19% at March 31, 2004.
20
The following table provides a detailed analysis of the changes in components of
noninterest income:
Increase / Percentage
Six Months Ended (Decrease)from Increase /
March 31, 2005 March 31, 2004 (Decrease)
-----------------------------------------------------
(dollars in thousands)
Service fees and
charges $3,911 $436 12.5%
Gain on sale of
loans 140 (204) (59.3)
Increase in cash
surrender value
of bank owned life
insurance 162 (87) (34.9)
Loan servicing fees 340 8 2.4
Mortgage servicing
rights, net (154) (40) 35.1
Other 459 404 734.6
-----------------------------------------------------
Total noninterest
income $4,858 $517 11.9%
-----------------------------------------------------
Noninterest Expense. Noninterest expense increased $3.0 million, or 32.9%, to
$12.2 million for the six months ended March 31, 2005 from $9.2 million for the
six months ended March 31, 2004. Excluding the $1.8 million one-time
contribution to the Foundation, noninterest expense increased $1.2 million, or
13.0%.
The following table provides a detailed analysis of the changes in components of
noninterest expense:
Increase / Percentage
Six Months Ended (Decrease)from Increase /
March 31, 2005 March 31, 2004 (Decrease)
-----------------------------------------------------
(dollars in thousands)
Compensation and
benefits $ 6,149 $ 809 15.1%
Occupancy and
equipment 1,401 26 1.9
Data processing 819 95 13.1
Advertising 650 135 26.2
Contribution to
Foundation 1,825 1,825 100.0
Other 1,406 142 11.2
-----------------------------------------------------
Total noninterest
expense $12,250 $3,032 32.9%
-----------------------------------------------------
Compensation expense increased due to the establishment of the ESOP, annual
merit pay increases, and an increase in the number of employees. As of March
31, 2005, the Company employed 240 full-time equivalent employees, compared to
224 at March 31, 2004. Advertising expense increased as a result of additional
marketing campaigns in the current fiscal year. Other expenses increased
primarily as a result of professional expenses related to being a publicly held
company. The efficiency ratio (excluding the charitable contribution to the
Foundation and the gain on the sale of the branch), which is defined as the
percentage of noninterest expense to net interest income plus noninterest
income, decreased to 69.71% for the six months ended March 31, 2005 compared to
71.59% for the six months ended March 31, 2004. By definition, a lower
efficiency ratio is an indication that the Company is efficiently utilizing
resources to generate net interest income and other fee income.
Income Tax Expense. Income tax expense decreased $57,000 to $1.0 million for
the six months ended March 31, 2005 from $1.1 million for the same period a year
ago. Income before income taxes was $2.8 million for the six months ended March
31, 2005 compared to $3.1 million for the six months ended March 31, 2004. The
Company's combined federal and state effective income tax rate for the second
quarter was 37.5% compared to 36.1% for the same quarter of the prior fiscal
year. The increase in the effective tax rate was as a result of a decrease in
noninterest income related to the cash surrender value of the bank owned life
insurance which is not subject to income taxes and an increase in nondeductible
compensation expense related to the ESOP.
21
Liquidity, Commitments and Capital Resources
Liquidity. The Company actively analyzes and manages the Bank's liquidity with
the objectives of maintaining an adequate level of liquidity and to ensure the
availability of sufficient cash flows to support loan growth, fund deposit
withdrawals, fund operations and satisfy other financial commitments. See
"Consolidated Statements of Cash Flows" contained in the Financial Statements
included in this document.
The primary sources of funds are customer deposits, loan repayments, loan sales,
maturing investment securities, and advances from the FHLB. These sources of
funds, together with retained earnings and equity, are used to make loans,
acquire investment securities and other assets, and fund continuing operations.
While maturities and the scheduled amortization of loans are a predictable
source of funds, deposit flows and mortgage prepayments are greatly influenced
by the level of interest rates, economic conditions and competition. Management
believes that our current liquidity position and our forecasted operating
results are sufficient to fund all of our existing commitments.
At March 31, 2005, the Company maintained a line of credit with the FHLB equal
to 40% of total assets to the extent the Company provides qualifying collateral
and holds sufficient FHLB stock. At March 31, 2005, the Company was in
compliance with the collateral requirements and $49.3 million of the line of
credit was available. In addition, the Company holds readily saleable loans and
mortgage-backed securities available for sale for liquidity purposes.
At March 31, 2005, certificates of deposits amounted to $180.6 million, or 48.4%
of total deposits, including $78.7 million which are scheduled to mature by
March 31, 2006. Historically, we have been able to retain a significant amount
of our deposits as they mature. Management believes the Company has adequate
resources to fund all loan commitments through deposits, advances from the FHLB,
loan repayments, maturing investment securities, and the sale of mortgage loans
in the secondary markets.
Contractual Obligations. On March 31, 2005, the Company selected Open Solutions
Inc. for the conversion of the Company's core data processing systems to Open
Solutions technology platform for financial institutions. The Company's
contract with its current vendor expires November 30, 2005. The contract with
Open Solutions Inc. is for a term of 60 months with options to renew for
additional successive twenty-four month terms. The Company expects the
conversion to be completed in November 2005. The majority of the costs related
to the conversion, including software license fees, hardware and conversion
costs, will be capitalized and amortized using the straight-line method over
their estimated useful life.
Off-Balance Sheet Arrangements. The Company is a party to financial instruments
with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments generally include
commitments to originate mortgage, commercial and consumer loans, and involve to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet. Our maximum exposure to credit loss in
the event of nonperformance by the borrower is represented by the contractual
amount of those instruments. Since some commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company uses the same credit policies in making
commitments as it does for on-balance sheet instruments. Collateral is not
required to support commitments.
Undisbursed balances of loans closed include funds not disbursed but committed
for construction projects. Unused lines of credit include funds not disbursed,
but committed to, home equity, commercial and consumer lines of credit.
Commercial letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party.
22
The following is a summary of commitments and contingent liabilities with
off-balance sheet risks as of March 31,2005:
Contract or
Notional Amount
---------------
(in thousands)
Commitments to originate loans:
Fixed rate $12,167
Adjustable rate 6,542
Undisbursed balance of loans closed 19,130
Unused lines of credit 23,815
Commercial letters of credit 69
---------------
Total $61,723
---------------
Capital. Consistent with our objective to operate a sound and profitable
financial institution, the Company has maintained and will continue to focus on
maintaining a "well capitalized" rating from regulatory authorities. In
addition, the Company is subject to certain capital requirements set by our
regulatory agencies. At March 31, 2005, the Company exceeded all regulatory
capital requirements. Total equity of the Company was $101.9 million at March
31, 2005, or 15.8% of total assets on that date.
The Bank's regulatory capital ratios at March 31, 2005 were as follows: Tier 1
capital of 12.40%; Tier 1 risk-based capital of 20.51%; and total risk-based
capital of 21.26%. The regulatory capital requirements to be considered well
capitalized are 5%, 6%, and 10%, respectively.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
-------------------------------------------------------------------
Our Board of Directors has established an asset and liability management policy
to guide management in maximizing net interest spread by managing the
differences in terms between interest-earning assets and interest-bearing
liabilities while maintaining acceptable levels of liquidity, capital adequacy,
interest rate sensitivity, credit risk and profitability. The Asset Liability
Management Committee, consisting of certain members of senior management,
communicate, coordinate and manage our asset/liability positions consistent with
our business plan and Board-approved policies, as well as to price savings and
lending products, and to develop new products.
One of our primary financial objectives is to generate ongoing profitability.
The Company's profitability depends primarily on its net interest income, which
is the difference between the income it receives on its loan and investment
portfolio and its cost of funds, which consists of interest paid on deposits and
borrowings. The rates we earn on assets and pay on liabilities generally are
established contractually for a period of time. Market interest rates change
over time. Our loans generally have longer maturities than our deposits.
Accordingly, our results of operations, like those of other financial
institutions, are affected by changes in interest rates and the interest rate
sensitivity of our assets and liabilities. We measure our interest rate
sensitivity on a monthly basis using an internal model.
Management employs various strategies to manage our interest rate sensitivity
including: (1) selling long-term fixed-rate mortgage loans in the secondary
market to Fannie Mae, Freddie Mac and the FHLB; (2) borrowing intermediate to
long-term funds at fixed rates from the FHLB; (3) originating consumer loans at
shorter maturities or at variable rates; (4) originating adjustable rate
mortgage loans; (5) appropriately modifying loan and deposit pricing to
capitalize on the then current market opportunities; and (6) increasing lower
cost core deposits, such as savings and checking accounts. At March 31, 2005,
the Company had no off-balance sheet derivative financial instruments, and the
Bank did not maintain a trading account for any class of financial instruments
or engage in hedging activities or purchase high risk derivative instruments.
Furthermore, the Company is not subject to foreign currency exchange rate risk
or commodity price risk.
There has not been any material change in the market risk disclosures contained
in the Company's Annual Report on Form 10-K for the year ended September 30,
2004.
23
Item 4 - Controls and Procedures
--------------------------------
(a) Evaluation of Disclosure Controls and Procedures.
An evaluation of the Company's disclosure controls and procedures (as defined in
Section 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the
"Act")) was carried out under the supervision and with the participation of the
Company's Chief Executive Officer, Chief Financial Officer, and other members of
the Company's management team as of the end of the period covered by this
quarterly report. The Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures as
currently in effect are effective in ensuring that the information required to
be disclosed by the Company in the reports it files or submits under the Act is
(i) accumulated and communicated to the Company's management (including the
Chief Executive Officer and Chief Financial Officer) in a timely manner, and
(ii) recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms.
(b) Changes in Internal Controls.
In the quarter ended March 31, 2005, the Company did not make any changes in,
nor take any corrective actions regarding its internal controls or other
factors, that could materially affect these controls. The Company intends to
continually review and evaluate the design and effectiveness of its disclosure
controls and procedures and to improve its controls and procedures over time and
to correct any deficiencies that it may discover in the future. The goal is to
ensure that senior management has timely access to all material financial and
non-financial information concerning the Company's business. While the Company
believes the present design of its disclosure controls and procedures is
effective to achieve its goal, future events affecting its business may cause
the Company to modify its disclosure controls and procedures.
24
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
--------------------------
From time to time, the Company is engaged in legal proceedings in the ordinary
course of business, none of which are currently considered to have a material
impact on the Company's financial position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
---------------------------------------------------------------------
On August 12, 2004, the Company's Registration Statement on Form S-1 (File No.
333-113731) was declared effective. On December 6, 2004, the Bank completed
the mutual holding company reorganization and minority stock offering. The
Company issued 6,083,500 shares of its common stock, $0.01 par value, that
were sold at a price of $10.00 per share in the subscription offering. As part
of the reorganization and minority stock offering, the Company formed and
capitalized the Foundation with a one-time contribution of $1.8 million, which
consisted of 146,004 shares of its common stock and $365,010 in cash. In
addition, the Company issued 8,979,246 additional shares to Home Federal MHC, a
federally-chartered mutual holding company.
The Company incurred approximately $2.2 million in expenses as of December 31,
2004 in connection with the issuance and distribution of the securities
registered. Keefe, Bruyette & Woods, Inc. acted as Investment Advisor to the
Company and assisted in the sale of the Company's common stock on a "best
efforts" basis. A success fee of $698,000 was paid to Keefe, Bruyette and
Woods, Inc. while the remaining $1.5 million represented other expenses of the
offering. No payments were made directly or indirectly to any directors or
officers of the Company or their associates, persons owning ten percent or more
of any class of equity securities of the Company, or to affiliates of the
Company.
In connection with the minority stock offering, the Company received $53.6
million in net proceeds after deducting expenses of $2.2 million and net of
unfunded ESOP proceeds of $5.0 million. The Company invested $29.3 million of
the net proceeds into the Bank in exchange for 100% of the Bank's capital stock.
The remaining $24.3 million in net proceeds was retained by the Company as
working capital.
Stock Repurchases. The Company did not repurchase any shares of its outstanding
Common Stock during the three months ended March 31, 2005. In addition, the
Company has no publicly announced plans to repurchase its common stock.
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
--------------------------
Not applicable.
25
Item 6. Exhibits
-----------------
3.1 Articles of Incorporation of the Registrant (1)
3.2 Bylaws of the Registrant (1)
10.1 Form of Employment Agreement for President and Chief Executive Officer
with Home Federal Bank (1)
10.2 Form of Employment Agreement for President and Chief Executive Officer
with Home Federal Bancorp, Inc. (1)
10.3 Form of Severance Agreement for Executive Officers (1)
10.4 Form of Home Federal Savings and Loan Association of Nampa Employee
Severance Compensation Plan (1)
10.5 Form of Director Indexed Retirement Agreement entered into by Home
Federal Savings and Loan Association of Nampa with Each of its
Directors (1)
10.6 Form of Director Deferred Incentive Agreement entered into by Home
Federal Savings and Loan Association of Nampa with Each of its
Directors (1)
10.7 Form of Split Dollar Agreement entered into by Home Federal Savings
and Loan Association of Nampa with Daniel L. Stevens, N. Charles
Hedemark, Fred H. Helpenstell, M.D., Richard J. Schrandt,
James R. Stamey and Robert A. Tinstman (1)
10.8 Form of Executive Deferred Incentive Agreement, and amendment thereto,
entered into by Home Federal Savings and Loan Association of Nampa
with Daniel L. Stevens, Robert A. Schoelkoph, Roger
D. Eisenbarth, Lynn A. Sander and Karen Wardwell (1)
10.9 Form of Amended and Restated Salary Continuation Agreement entered
into by Home Federal Savings and Loan Association of Nampa with Daniel
L. Stevens, Robert A. Schoelkoph, Roger D. Eisenbarth,
Lynn A. Sander and Karen Wardwell (1)
14 Code of Ethics (2)
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (333-35817).
(2) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the year ended September 30,2004.
26
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.
Home Federal Bancorp, Inc.
Date: May 12, 2005 /s/ Daniel L. Stevens
------------ ---------------------
Daniel L. Stevens
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 2005 /s/ Robert A. Schoelkoph
------------ ------------------------
Robert A. Schoelkoph
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
27
EXHIBIT 31.1
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Daniel L. Stevens, President and Chief Executive Officer of Home Federal
Bancorp, Inc., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Home Federal
Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and we have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fiscal
fourth quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weakness in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial data information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting
Date: May 12, 2005 /s/ Daniel L. Stevens
------------ ---------------------
Daniel L. Stevens
Chairman, President and
Chief Executive Officer
28
EXHIBIT 31.2
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert A. Schoelkoph, Chief Financial Officer of Home Federal Bancorp, Inc.,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Home Federal
Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and we have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fiscal
fourth quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weakness in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial data information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting
Date: May 12, 2005 /s/ Robert A. Schoelkoph
----------- ------------------------
Robert A. Schoelkoph
Senior Vice President and
Chief Financial Officer
29
EXHIBIT 32
Certification of Chief Executive Officer and Chief Financial Officer of Home
Federal Bancorp, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and in connection with this Quarterly Report on Form 10-Q, that:
1. the Report fully complies with the requirements of Section 13(a) or
15(d)of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ Daniel L. Stevens /s/ Robert A. Schoelkoph
--------------------- ------------------------
Daniel L. Stevens Robert A. Schoelkoph
Chairman, President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
Dated: May 12, 2005
------------
30