UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 000-50901
HOME FEDERAL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Federal 20-0945587
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 12th Avenue South, Nampa, Idaho 83651
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(Address of principal executive offices and zip code)
(208) 466-4634
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check 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.
(1) Yes No X *
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(2) Yes No X *
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X *
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class: As of June 30, 2004
--------------- -------------------
Common stock, no par value No shares*
* The registrant's Registration Statement on Form S-1 was declared effective
on August 12, 2004. The registrant has conducted no business except the
offering of shares in connection with its subsidiary financial
institution's, Home Federal Savings and Loan Association of Nampa,
conversion from mutual to stock form. As of September 27, 2004 the
registrant had no outstanding shares of common stock.
Explanatory Note:
This amendment is being filed to include certain amounts under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources" that were inadvertently omitted in
the original filing.
HOME FEDERAL BANCORP, INC.
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 "Bank") pursuant to the Bank's
mutual-to-stock conversion. As of the date hereof, the Bank has
not completed its conversion, and accordingly, the Company has not
yet issued any stock, has no assets or liabilities, and has not
conducted any business other than that of an organizational nature.
For a further discussion of the Company's formation and operations,
see the Company's Registration Statement on Form S-1, as amended,
initially filed on July 19, 2004, and declared effective on August
12, 2004. Based upon the foregoing, the Unaudited Interim
Consolidated Financial Statements (File Number 333-113731) filed as
a part of this quarterly report are those of Home Federal Savings
and Loan Association of Nampa and its wholly-owned subsidiary,
Idaho Home Service Corporation, as follows:
Page
Consolidated Statements of Financial Condition as of
June 30, 2004 and September 30, 2003 1
Consolidated Statements of Income for the three- and
nine-month periods ended June 30, 2004 and June 30, 2003 2
Consolidated Statements of Cash Flows for the nine-month
periods ended June 30, 2004 and 2003 4
Selected Notes to Unaudited Interim Consolidated Financial
Statements 6
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Forward-Looking Statements 7
Critical Accounting Policies 8
Comparison of Financial Condition at June 30, 2004
and September 30, 2003 9
Comparison of Operating Results
For the nine months ended June 30, 2004 and 2003 11
Comparison of Operating Results
For the nine months ended June 30, 2004 and 2003 15
Liquidity and Capital Resources 20
ITEM 3 - Quantitative and Qualitative Disclosures about
Market Risk 20
ITEM 4 - Controls and Procedures 21
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 22
ITEM 2 - Changes in Securities and Use of Proceeds 22
ITEM 3 - Defaults upon Senior Securities 22
ITEM 4 - Submission of Matters to a Vote of Security Holders 22
ITEM 5 - Other Information 22
ITEM 6 - Exhibits and Reports on Form 8-K 23
SIGNATURES 24
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF NAMPA
Consolidated Statements of Financial Condition
(Unaudited)
Dollars In Thousands
June 30, 2004 September 30, 2003
----------------------------------
ASSETS
Cash and amounts due from depository
institutions $13,694 $11,118
Securities, available for sale, at fair
value 893 5,440
Securities held to maturity, at cost
(fair value at June 30, 2004: $82,347;
at September 30, 2003: $25,423) 82,653 24,425
Federal Home Loan Bank capital stock, at
cost 7,117 6,533
Loans held for sale 1,813 5,066
Loans receivable, net of allowance for loan
losses of $2,706 at June 30, 2004 and
$1,853 at September 30, 2003 386,837 372,629
Accrued interest receivable 1,797 1,585
Properties and equipment, net 10,346 9,758
Mortgage servicing rights, net 3,303 3,130
Investment in life insurance contracts 9,947 9,621
Other assets 851 891
---------------------------
TOTAL ASSETS $519,251 $450,196
===========================
LIABILITIES AND EQUITY CAPITAL
DEPOSIT ACCOUNTS
Savings deposits $ 25,104 $ 24,423
Demand deposits 149,956 131,778
Certificates of deposit 158,462 145,072
---------------------------
Total deposit accounts 333,522 301,273
Advances by borrowers for taxes and insurance 1,840 3,553
Interest payable on FHLB advances and other
borrowings 378 368
Interest payable on deposit accounts 905 571
Deferred compensation 1,976 1,803
Advances from Federal Home Loan Bank 131,756 96,527
Deferred income tax liability 2,120 2,475
Income taxes payable 83 365
Other liabilities 2,995 2,862
---------------------------
Total liabilities 475,575 409,797
EQUITY CAPITAL
Retained earnings, substantially restricted 43,686 40,415
Accumulated comprehensive loss, net of
deferred income taxes (10) (16)
Total equity capital 43,676 40,399
---------------------------
TOTAL LIABILITIES AND EQUITY $519,251 $450,196
===========================
The accompanying notes are an integral part of these financial statements.
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1
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF NAMPA
Consolidated Statements of Income
(Unaudited)
Dollars In Thousands, Except Earnings Per Share
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------------------
2004 2003 2004 2003
---------------------------------------
Interest and dividend income
Loan interest $5,948 $6,059 $17,889 $18,244
Investment interest 16 147 86 223
Mortgage-backed security interest 849 465 1,897 1,676
Federal Home Loan Bank stock
dividends 67 80 215 267
Interest-bearing deposits in
other banks 4 2 14 14
---------------------------------------
Total interest and dividend income 6,884 6,753 20,101 20,424
---------------------------------------
Interest expense
Deposits 1,233 1,238 3,617 3,875
Federal Home Loan Bank advances 1,158 1,183 3,456 3,468
---------------------------------------
Total interest expense 2,391 2,421 7,073 7,343
---------------------------------------
Net interest income 4,493 4,332 13,028 13,081
Provision for loan losses 300 150 900 437
---------------------------------------
Net interest income after
provision for loan losses 4,193 4,182 12,128 12,644
---------------------------------------
Noninterest income
Service fees and charges 2,198 2,463 6,004 6,113
Gain on sale of loans 77 6 421 593
122 299 371 500
Mortgage servicing rights
Loan servicing income 226 402 704 1,574
Amortization of mortgage
servicing rights (39) (94) (401) (538)
Mortgage servicing rights impairment 100 - (130) -
Other (68) (100) (13) 53
---------------------------------------
Total noninterest income 2,616 2,976 6,957 8,295
---------------------------------------
NONINTEREST EXPENSE
Compensation and benefits 2,753 2,026 8,094 7,856
Occupancy and equipment 686 731 2,062 2,206
Data processing 374 335 1,098 1,000
Advertising 309 268 824 890
Postage and supplies 193 204 601 567
Professional services 73 60 253 316
Insurance and taxes 117 88 325 269
Other 216 201 682 607
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2
Total noninterest expense 4,721 3,913 13,939 13,711
---------------------------------------
Income before income taxes 2,088 3,245 5,146 7,228
Income tax expense 770 1,397 1,875 2,955
---------------------------------------
NET INCOME 1,318 1,848 3,271 4,273
=======================================
EARNINGS PER SHARE
Basic n/a n/a n/a n/a
Diluted n/a n/a n/a n/a
The accompanying notes are an integral part of these financial statements.
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3
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF NAMPA
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
June 30,
--------------------
2004 2003
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,271 $ 4,273
Adjustments to reconcile net income to net cash
Provided (used) by operating activities:
Depreciation of properties and equipment 1,187 1,226
Net amortization and accretion of premiums and
discounts on investments (4) 45
(Gain) loss on sale of fixed assets and repossessed
assets 55 30
(Gain) loss on sale of securities available for sale 39 (3)
Provision for loan losses 900 437
Federal Home Loan Bank stock dividend (215) (267)
Deferred compensation expense 504 556
Net deferred loan fees (220) (811)
Change in accrued income tax (637) 1,275
Net gain on sale of loans (421) (593)
Proceeds from sale of loans held for sale 55,861 113,458
Originations of loans held for sale (52,148) (109,560)
Amortization of mortgage servicing rights 401 538
Impairment of mortgage servicing asset 130 -
Net increase in value of life insurance contracts (326) (721)
Change in assets and liabilities:
Accrued interest receivable (212) 8
Other assets 40 130
Interest payable on deposits and FHLB advances 344 436
Other liabilities 133 2,570
Other (1169) (1951)
--------------------
Net cash provided (used) by operating activities 7,513 11,076
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from principal repayments and maturities
of securities available for sale 81 -
Proceeds from sale of securities available for sale 5,468 35,000
Purchase of securities available for sale (991) (50,005)
Proceeds from principal repayments and maturities
of mortgage-backed securities held to maturity 9,136 17,407
Purchase of mortgage-backed securities held to
maturity (67,360) -
Purchases of properties and equipment (1,978) (749)
Purchase of Federal Home Loan Bank stock (369) (752)
Loan originations and principal collections, net (14,770) (41,935)
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4
Proceeds from disposition of property and equipment 80 7
Proceeds from sale of repossessed assets 505
Investment in life insurance contracts - -
--------------------
Net cash used by investing activities (70,703) (40,522)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 32,249 23,783
Net increase (decrease) in advances by borrowers
for taxes and insurance (1,713) (1,398)
Advances from Federal Home Loan Bank 35,229 21,277
--------------------
Net cash provided by financing activities 65,765 43,662
--------------------
CHANGE IN CASH AND CASH EQUIVALENTS 2,576 14,216
Cash and cash equivalents, beginning of year 11,118 9,286
--------------------
Cash and cash equivalents, end of year $13,694 $ 23,502
====================
SUPPLEMENTAL CASH FLOW DISCLOSURE
INFORMATION
Cash paid during the year for:
Interest on deposit accounts and other borrowings $ 6,729 $ 6,907
--------------------
Income taxes $ 2,512 $ 1,680
--------------------
SUPPLEMENTAL CASH FLOWS DISCLOSURE ON
NONCASH INVESTING TRANSACTIONS
Acquisition of real estate and other assets in
settlement of loans $ 10 $ 409
--------------------
Dollars In Thousands
The accompanying notes are an integral part of these financial statements.
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5
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF NAMPA
SELECTED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
Note 1 - Basis of Presentation
The consolidated financial statements presented in this quarterly report
include the accounts of Home Federal Savings and Loan Association of Nampa and
its wholly owned subsidiary, Idaho Home Services Corporation. The financial
statements of Home Federal Savings and Loan Association of Nampa and Idaho
Home Services Corporation (the "Bank") have been prepared in conformity with
accounting principles generally accepted in the United State of America for
interim financial information and predominant practice followed by the
financial services industry, and are unaudited. All significant intercompany
transactions and balances have been eliminated. In the opinion of the Bank'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 of the Bank as of September 30, 2003, has
been derived from the audited consolidated statement of financial condition of
the Bank as of that date.
Certain information and note disclosures normally included in the Bank's
annual financial statements have been condensed or omitted. Therefore, these
consolidated financial statements and notes thereto should be read in
conjunction with a reading of the financial statements and notes included in
the Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission (File Number 333-113731), as amended,
initially filed on July 19, 2004, and declared effective on August 12, 2004,
("Registration Statement"). Certain amounts in the 2003 financial statements
have been reclassified to conform to the 2004 presentation.
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 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 Bank 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;
and 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 Bank
performs an independent valuation review of mortgage servicing rights for
potential declines in value. This valuation may include an independent
appraisal of the fair value of the servicing portfolio.
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6
Deferred income taxes are computed using the asset and liability approach as
proscribed in the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, a deferred tax asset or
liability is determined based on the enacted tax rates that will be in effect
when the differences between the financial statement carrying amounts and tax
basis of the existing assets and liabilities are expected to be reported in an
institution's income tax returns.
At June 30, 2004, there were no material changes in the Company's significant
accounting policies or critical accounting estimates from those disclosed in
the Company's Registration Statement.
Note 3 - Commitments to extend credit
In the normal course of business, the Company makes various commitments and
incurs certain contingent liabilities that are not presented in the
accompanying consolidated financial statements. The commitments and contingent
liabilities include various guarantees and commitments to extend credit.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if it is deemed necessary by the Company upon extension of the
credit, is based on management's credit evaluation of the borrower. Collateral
held varies but may include securities, accounts receivable, inventory, fixed
assets, and/or real estate properties. The distribution of commitments to
extend credit approximates the distribution of loans outstanding.
At June 30, 2004 (unaudited), and September 30, 2003, commitments to extend
credit were as follows (dollars in thousands):
(unaudited)
June 30, 2004 September 30, 2003
----------------------------------------
Unfunded commitments
under lines of credit $18,800 $16,701
Other loan commitments 14,698 13,396
----------------------------------------
Total commitments to
extend credit $34,498 $30,097
========================================
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;
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7
* 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 Financial Accounting Standards Board.
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 the allowance, 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 represent the present
value of the future servicing fees from the right to service loans for
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8
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 amount and timing of mortgage servicing rights amortization
is adjusted quarterly based on actual results and updated projections. In
addition, on a quarterly basis, we perform an independent valuation review of
mortgage servicing rights for potential declines in value.
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 Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
this method, a deferred tax asset or liability is determined based on the
enacted tax rates that will be in effect when the differences between the
financial statement carrying amounts and tax basis of existing assets and
liabilities are expected to be reported in an institution'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. 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 bank for
income tax purposes in the future.
Comparison of Financial Condition at June 30, 2004 and September 30, 2003.
General. Our total assets increased $69.1 million or 15.3% to $519.3
million at June 30, 2004 compared to $450.2 million at September 30, 2003.
Asset growth was concentrated primarily in mortgage-backed securities, which
increased $58.2 million, and loans originated in our local market area, which
increased $14.2 million. The growth was funded by $32.2 million in increased
deposits, $35.2 million in additional borrowings from the Federal Home Loan
Bank of Seattle, and $3.3 million in net income.
In connection with our asset and liability management practices, we use
asset and liability duration measures as a component of interest rate risk
measurement. Duration measures cash flows that are generated from
investments, loans or deposits by weighting the present value of the cash
flows according to the periods of time when the cash flows are received with
the result being an average date when the cash flows are received or paid. We
use months as the measure of time. Our goal is to manage the mismatch between
the duration maturities of cash inflows that comes from loans and investments,
and cash outflows that come from deposits and borrowings. We accomplish this
by reducing our asset durations, or cash inflows, and lengthening our
liability durations, or cash outflows, so that the net duration mismatch
between assets and liabilities is within our policy guidelines. During the
nine months ended June 30, 2004, total asset duration decreased 3.93 months to
38.87 months, and liability duration decreased 5.23 months to 22.25 months for
a net duration gap of 16.62 months, up 1.3 months from September 30, 2003.
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9
Assets. During the nine months ended June 30, 2004 total assets grew
$69.1 million. The growth was primarily concentrated in the following asset
categories:
Increase/ Percentage
Balance at (Decrease) from Increase/
June 30, 2004 September 30, 2003 (Decrease)
--------------------------------------------------
(Dollars in Thousands)
Cash and amounts due from
depository institutions $13,694 $2,576 23.2%
Securities available for
sale, at fair value 893 (4,547) (83.6)
Mortgage-backed securities,
held to maturity 82,653 58,228 238.4
Loans held for sale (1) 1,813 (3,253) (64.2)
Loans receivable, net of
allowance for loan losses 386,837 14,208 3.8%
(1) Loans held for sale includes one- to four-family residential loans that
have been sold into the secondary market awaiting delivery to the
purchaser.
Cash and amounts due from depository institutions increased $2.6 million
primarily as the result of an increase in customer checking account deposit
clearing items that were due from other banks. In addition, cash balances
held at the Federal Home Loan Bank of Seattle increased.
During the nine months ended June 30, 2004, we purchased Fannie Mae and
Freddie Mac mortgage-backed securities in order to leverage the balance sheet
and achieve the desired level of total interest-earning assets.
Mortgage-backed securities have payment characteristics that are similar to
those of residential loans. The net increase of $58.2 million represented
84.3% of total asset growth. Net loans receivable, increased $14.2 million
from loans originated in our local area.
Deposits. Deposits increased $32.2 million during the nine months ended
June 30, 2004. Deposits growth resulted from increases in demand deposits and
certificates of deposits. The following table details the source of that
growth.
Balance at Increase from Percentage
June 30, 2004 September 30, 2003 Increase
------------------------------------------------
(Dollars in Thousands)
Savings deposits $ 25,104 $ 681 2.8%
Demand deposits 149,956 18,178 13.8
Certificates of deposit 158,462 13,390 9.2
-------------------------------------------
Total deposit accounts $333,522 $32,249 10.7%
===========================================
Demand deposits increased $18.2 million during the nine months ended June 30,
2004, and accounted for 56.4% of the $32.2 million in total deposit growth.
Noninterest-bearing demand deposits grew $2.0 million and interest-bearing
demand deposits grew $16.2 million. Certificates of deposit increased $13.4
million primarily as a result of local advertised specials for certificate
accounts with maturities ranging from 19 to 39 months.
Borrowings. Advances from Federal Home Loan Bank of Seattle increased $35.2
million or 36.5% to $131.8 million during the nine months ended June
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10
30, 2004. We use advances from the Federal Home Loan Bank of Seattle 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 our net interest income.
Equity. Total equity increased $3.3 million or 8.1%, to $43.7 million
at June 30, 2004 as compared to $40.4 million at September 30, 2003. The
source of increase was $3.3 million in net income for the nine months ended
June 30, 2004. Our total tier 1 (core) capital ratio was 8.35% and our total
tier 1 risk-based capital ratio was 13.69% at June 30, 2004.
Comparison of Operating Results for the Three Months ended June 30, 2004 and
June 30, 2003.
General. Our net income for the three months ended June 30, 2004 was
$1.3 million, a decrease of $530,000 from the comparable three months ended
June 30, 2003. The reduction in net income was caused, in part, by an
increase in the provision for loan losses of $150,000, a decrease in total
noninterest income of $360,000 and an increase in total noninterest expense of
$808,000. This was partially offset by an increase in net interest income of
$161,000 and a decrease in income tax expense of $627,000.
Net Interest Income. Our net interest income increased $161,000 for the
three months ended June 30, 2004 compared to the three months ended June 30,
2003. Average total interest-earning assets increased $39.6 million between
the two three month time periods. Loan refinancing driven by low interest
rates resulted in a 43 basis point decline in our average asset yields.
During that same period our average cost of funds declined 26 basis points,
resulting in a 17 basis point increase in our net interest spread.
Interest and Dividend Income. Total interest and dividend income for the
three months ended June 30, 2004 increased $131,000 to $6.9 million compared
to the three months ended June 30, 2003. The following table compares
detailed average earning asset balances, associated yields, and resulting
changes in interest and dividend income for the three months ended June 30,
2004 and 2003:
Three Months Ended June 30,
-----------------------------------------------
2004 2003
----------------------------------
Increase/
(Decrease)
in
Interest
and
Dividend
Average Average Income
Balance Yield Balance Yield from 2003
-----------------------------------------------
(Dollars in Thousands)
Loans receivable, net $384,123 6.01% $357,192 6.61% $(132)
Loans held for sale 3,246 5.57 2,879 5.56 21
Investment securities,
available for sale,
including interest-bearing
deposits in other banks 4,346 1.84 27,825 2.14 (129)
Mortgage-backed securities,
held to maturity 66,380 5.12 31,263 5.95 384
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11
Federal Home Loan Bank stock 6,711 3.99 6,086 5.26 (13)
---------------------------------------------
Total interest-earning
assets $464,806 5.92% $425,245 6.35% $131
=============================================
We had a 43 basis point decline in the average yield on total interest-
earning assets; however, the increase in average total interest-earning assets
of $39.6 million for the three months ended June 30, 2004 when compared to the
three months ended June 30, 2003 resulted in an increase of $131,000 in total
interest income. Continuing low interest rates and customer loan refinances
resulted in a 60 basis point reduction in the average yield on net loans
receivable and a $132,000 reduction in related interest income. Rapid
prepayments received on higher coupon mortgage-backed securities and decreased
reinvestment rates for purchased securities resulted in an 83 basis point
reduction in the associated average yield. Mortgage-backed security interest
income increased $384,000 as the result of a $35.1 million or 112.3% increase
in the average balance between the three months ended June 30, 2004 and 2003.
Interest Expense. Total interest expense for the three months ended June
30, 2004 was $2.4 million, virtually unchanged from the three months ended
June 30, 2003. The following table details average balances, cost of funds
and the change in interest expense for the three months ended June 30, 2004
and 2003:
Three Months Ended June 30,
---------------------------------------------------
2004 2003
----------------------------------------
Increase/
(Decrease)
in
Interest
Average Average Expense
Balance Cost Balance Cost from 2003
---------------------------------------------------
(Dollars in Thousands)
Savings deposits $24,971 0.19% $24,988 0.40% $(13)
Interest-bearing
demand deposits 87,291 0.24 73,148 0.22 12
Money market deposits 33,734 0.70 31,689 0.67 6
Certificates of deposit 156,547 2.84 142,635 3.14 (10)
Federal Home Loan Bank
advances 115,425 4.01 108,001 4.38 (25)
-------------------------------------------------
Total Interest-bearing
liabilities $417,968 2.29% $380,461 2.55% $(30)
=================================================
The average balance of total interest-bearing liabilities increased $37.5
million for the three months ended June 30, 2004 compared to that of the three
months ended June 30, 2003; however, our average cost of funds for total
interest-bearing liabilities decreased 26 basis points, and total interest
expense decreased $30,000. The average balance of certificates of deposit
increased $13.9 million during the same time period; however, the average cost
of funds decreased 30 basis points and interest expense declined $10,000.
Similarly, the average balance of interest-bearing demand deposits increased
$14.1 million and the average cost of funds increased 2 basis points resulting
in a $12,000 increase in related interest expense. The current low interest
rate environment is the primary cause for the reduction of the cost of funds.
------------------------------------------------------------------------------
12
Provision for Loan Losses. Our 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 our loan portfolio, as well as local economic
conditions including unemployment rates, bankruptcies and vacancy rates of
business and residential properties. 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. The loss percentages are
generally 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 created when management believes that the collectibility of a specific
large loan, such as a real estate or multi-family or commercial real estate
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 Asset Liability Management Committee believes
that there are risk factors associated with the collectibility of the
portfolio that may not be adequately addressed in the formula or specific
allowance components. Information considered for the general allowance element
includes regional economic and employment data.
Our provision for loan loss increased $150,000 for the three months ended June
30, 2004 compared to the same period in the prior year. The following table
details selected activity associated with the allowance for loan losses for
the three months ended June 30, 2004 and 2003:
At or For the Three Months
Ended June 30,
---------------------------
2004 2003
---------------------------
(Dollars in Thousands)
Provision for loan losses $ 300 $ 150
Net charge-offs 13 35
Allowance for loan losses 2,706 1,691
Allowance for loan losses as a
percentage of total loans outstanding
at the end of the period 0.69% 0.46%
Allowance for loan losses as a
percentage of nonperforming loans at
the end of the period 400.30% 3315.69%
Nonperforming loans 676 51
Nonaccrual and 90 days or more past
due loans as a percentage of loans
receivable 0.17% 0.01%
Total loans, net 388,650 370,305
Total commercial real estate and
construction loans, net 117,402 97,270
The increase in the provision was due to an $16.5 million increase in net
loans receivable at June 30, 2004 as compared to June 30, 2003, increased risk
associated with the continued growth of our net commercial real estate and
construction loan portfolio as a percentage of total gross loans, and the
increase in nonperforming loans from $51,000 at June 30, 2003 to $676,000 at
June 30, 2004. Total net commercial real estate and construction loans
represented 30.3% of our total net loans receivable at June 30, 2004 compared
to 26.3% at June 30, 2003. Nonaccrual and 90 days or more past due loans as a
percentage of loans receivable at June 30, 2004 and 2003 were 0.17% and
------------------------------------------------------------------------------
13
0.01% respectively. Management expects the allowance for loan losses as a
percentage of loans receivable to continue to increase in the future as the
concentration of commercial real estate and construction loans increases in
the portfolio.
Noninterest Income. Noninterest income for the three months ended June
30, 2004 was $2.6 million, a decrease of $360,000 or 12.1% from the three
months ended June 30, 2003. The following table provides a detail analysis of
the changes in components of noninterest income:
Increase/ Percentage
Three Months Ended (Decrease) from Increase/
June 30, 2004 June 30, 2003 (Decrease)
----------------------------------------------------
(Dollars in Thousands)
Service fees and charges $2,198 $(265) (10.8%)
Increase in cash surrender
value of life insurance 122 (177) (59.2)
Mortgage servicing
rights, net 287 (21) (6.8)
Other 9 103 N/A
-----------------------------------------
Total noninterest income $2,616 $(360) (12.1%)
=========================================
Service fees and charges declined mainly due to lower debit card fee income.
Income from the change in the cash surrender value of life insurance decreased
due to lower due to interest rates. Mortgage servicing rights, net was
$287,000 for the three months ended June 30, 2004, a decrease of $21,000
compared to the three months ended June 30, 2003. Mortgage servicing rights,
net is an accounting estimate that represents the present value of the future
servicing fees from the right to service mortgage loans for others. It is
impacted by prepayment speeds of the underlying mortgages and interest rates.
In general, during periods of falling interest rates, such as we experienced
during the three months ended June 30, 2004, mortgage loans prepay faster and
the value of our mortgage-servicing asset declines. On a quarterly basis we
perform an independent valuation review of mortgage servicing rights in order
to determine if there has been a decline in the fair market value.
Noninterest Expense. Total noninterest expense for the three months
ended June 30, 2004 was $4.7 million, an increase of $808,000 or 20.6%
compared to the three months ended June 30, 2003. The following table
provides a detail analysis of the changes in components of noninterest
expense:
Increase/ Percentage
Three Months Ended (Decrease) from Increase/
June 30, 2004 June 30, 2003 (Decrease)
----------------------------------------------------
(Dollars in Thousands)
Compensation and benefits $2,753 $727 35.9%
Occupancy and equipment 686 (45) (6.2)
Data processing 374 39 11.6
Advertising 309 41 15.3
Postage and supplies 193 (11) (5.4)
------------------------------------------------------------------------------
14
Other 406 57 16.3
-----------------------------------------
Total noninterest expense $4,721 $808 20.6%
=========================================
Compensation and benefits accounted for $727,000 in increased noninterest
expense. Compensation increased due to salary increases and an increase in
the number of employees. Data processing expense increased principally as a
result of an increase in the expense to operate our Internet banking system.
Advertising expense increased primarily die to production costs of television
advertising.
Income Tax Expense. Income tax expense for the three months ended June
30, 2004 was $770,000, which represented a decrease of $627,000 from the three
months ended June 30, 2003. Income before income taxes was $2.1 million for
the three months ended June 30, 2004 compared to $3.2 million for the three
months ended June 30, 2003, a decrease of $1.2 million or 35.7%. Income
recognized from the increase in the cash surrender value of life insurance is
generally not subject to income tax and this reduced income tax by $48,000 and
$117,000 for the three months ended June 30, 2004 and 2003 respectively. The
effective income tax rate for the three months ended June 30, 2004 was 34.0%
for federal and 7.6% for the State of Idaho.
Comparison of Operating Results for the Nine Months ended June 30, 2004 and
June 30, 2003.
General. Our net income for the nine months ended June 30, 2004 was $3.3
million, a decrease of $1.0 million compared to the nine months ended June 30,
2003. Income and expense items that contributed to the reduction in net
income include decreases in net interest income and total noninterest income
of $53,000 and $1.3 million respectively, and increases in the provision for
loan losses and total noninterest expense of $463,000 and $228,000,
respectively. This was partially offset by a decrease in income tax expense
of $1.1 million.
Net Interest Income. Our net interest income was $13.0 million for the
nine months ended June 30, 2004 compared to $13.1 million for the nine months
ended June 30, 2003, a decrease of $53,000. Average total interest-earning
assets increased $39.1 million between the two nine month time periods as a
result of a record number of customer loan refinancings driven by historically
low interest rates; however, lower interest rates resulted in a 69 basis point
decline in our average asset yields. During that same period our average cost
of funds declined only 31 basis points, resulting in a 38 basis point
reduction in our net interest spread.
------------------------------------------------------------------------------
15
Interest and Dividend Income. Total interest and dividend income for the
nine months ended June 30, 2004 decreased $323,000 to $20.1 million compared
to the nine months ended June 30, 2003. The following table compares detailed
average earning asset balances, associated yields, and resulting changes in
interest and dividend income for the nine months ended June 30, 2004 and 2003:
Nine months ended June 30,
------------------------------------------------------
2004 2003
----------------------------------------
Increase/
(Decrease) in
Interest and
Dividend
Average Average Income
Balance Yield Balance Yield from 2003
------------------------------------------------------
(Dollars in Thousands)
Loans receivable,
net $381,052 6.20% $344,608 6.99% $(349)
Loans held for sale 3,036 5.78 3,171 5.73 (6)
Investment securities,
available for sale,
including interest
bearing deposits in
other banks 6,809 1.96 15,436 2.05 (137)
Mortgage-backed
securities, held
to maturity 47,500 5.32 37,013 6.04 221
Federal Home Loan
Bank stock 6,620 4.33 5,648 6.30 (52)
---------------------------------------------------
Total Interest-
earning assets $445,017 6.02% $405,876 6.71% $(323)
===================================================
Average total interest-earning assets increased $39.1 million during the nine
months ended June 30, 2004 when compared to the nine months ended June 30,
2003; however, we had a 69 basis point decrease in the average yield on total
interest-earning assets and a decrease of $323,000 in total interest income.
Historically low interest rates and a record number of customer loan
refinancings resulted in a 79 basis point reduction in the average yield on
net loans receivable and a $349,000 reduction in related interest income.
Rapid repayments received on higher coupon mortgage-backed securities and
decreased reinvestment rates for purchased securities resulted in a 72 basis
points reduction in the associated average yield.
------------------------------------------------------------------------------
16
Interest Expense. Total interest expense for the nine months ended June
30, 2004 was $7.1 million, a decrease of $270,000 from that of the nine months
ended June 30, 2003. The following table details average balances, cost of
funds and the resulting decrease in interest expense for the nine months ended
June 30, 2004 and 2003:
Nine months ended June 30,
----------------------------------------------------
2004 2003
----------------------------------------
Increase/
Decrease
in
Interest
Average Average Expense
Balance Cost Balance Cost from 2003
----------------------------------------------------
(Dollars in Thousands)
Savings deposits $ 24,262 0.26% $ 24,279 0.47% $ (38)
Interest-bearing
demand deposits 81,277 0.24 70,052 0.31 (19)
Money market deposits 32,636 0.64 33,231 0.80 (43)
Certificates of deposit 150,678 2.89 137,578 3.32 (158)
Federal Home Loan Bank
advances 110,892 4.16 101,879 4.54 (12)
--------------------------------------------------
Total Interest-bearing
Liabilities $399,745 2.36% $367,019 2.67% $(270)
==================================================
The average balance of total interest-bearing liabilities increased $32.7
million for the nine months ended June 30, 2004 compared to that at June 30,
2003; however, our average total cost of funds decreased 31 basis points, and
total interest expense decreased $270,000. The average balance of
certificates of deposit increased $13.1 million during the same period;
however, the average cost of funds decreased 43 basis points and interest
expense declined $158,000. Similarly, the average balance of interest-bearing
demand deposits increased $11.2 million; however, the average cost of funds
decreased 7 basis points resulting in a $19,000 reduction in related interest
expense. In addition, the average balance of money market deposits decreased
$595,000 and the average cost of funds decreased 16 basis points. The current
low interest rate environment has resulted in a significant reduction in our
average cost of funds and total interest expense.
Provision for Loan Losses. Our provision for loan losses for the nine
months ended June 30, 2004 was $900,000, an increase of $463,000 from the nine
months ended June 30, 2003. The following table details selected activity
associated with the allowance for loan loss for the nine months ended June 30,
2004 and 2003:
At or For the Nine months
Ended June 30,
-------------------------
2004 2003
-------------------------
(Dollars in Thousands)
Provision for loan losses $ 900 $ 437
Net charge-offs 64 136
Allowance for loan losses 2,706 1,691
Allowance for loan losses as a percentage
of total loans outstanding at the end of
the period 0.69% 0.46%
------------------------------------------------------------------------------
17
Allowance for loan losses as a percentage
of nonperforming loans at the end of the
period 400.30% 3315.69%
Nonperforming loans 676 51
Nonaccrual and 90 days or more past due
loans as a percentage of total loans 0.17% 0.01%
Total loans receivable, net 388,650 370,305
Total commercial real estate and
construction loans, net 117,402 97,270
The increase in the provision for loan losses was due to an $16.5 million
increase in net loans at June 30, 2004 as compared to June 30, 2003, increased
risk associated with the growth of our net commercial real estate and
construction loan portfolio as a percentage of total gross loans from $51,000
at June 30, 2003 to $676,000 at June 30, 2004. Total net commercial real
estate and construction loans represented 30.2% of our total net loans
receivable at June 30, 2004 compared to 26.3% at June 30, 2003.
Noninterest Income. Noninterest income for the nine months ended June 30,
2004 was $7.0 million, a decrease of $1.3 million, or 16.1% from the nine
months ended June 30, 2003. The following table provides a detailed analysis
of the changes in components of noninterest income:
Increase/ Percentage
Nine months Ended (Decrease) from Increase/
June 30, 2004 June 30, 2003 (Decrease)
---------------------------------------------------
(Dollars in Thousands)
Service fees and charges $6,004 $ (109) (1.8%)
Gain on sale of loans 421 (172) (29.0)
Mortgage servicing rights,
net 173 (863) (83.3)
Other 359 (194) (31.5)
----------------------------------------
Total noninterest income $6,957 $(1,338) (16.1%)
========================================
Service fees and charges totaled $6.0 million for the nine months ended June
30, 2004, a decrease of $109,000 or 1.8% over the comparable nine months ended
June 30, 2003. Service fees and charges represented 86.3% of total
noninterest income for the nine months ended June 30, 2004 up from 73.7% for
the nine months ended June 30, 2003.
Gain on the sale of loans was $421,000 for the nine months ended June 30,
2004, a decrease of $172,000 from that of the nine months ended June 30, 2003.
Gain on the sale of loans is directly related to mortgage loan originations
that are sold in the secondary market. The reduction in the income was the
result of a $67.4 million or 59.0% reduction in the sale of mortgage loans
during the nine months ended June 30, 2004 as compared to the nine months
ended June 30, 2003. Mortgage servicing rights, net was $173,000 for the nine
months ended June 30, 2004; a decrease of $863,000 compared to the nine months
ended June 30, 2003. The volume of consumer mortgage loans sold declined
$67.4 million or 59.0% to $46.8 million for the nine months ended June 30,
2004 compared to the same period in 2003.
------------------------------------------------------------------------------
18
Noninterest Expense. Total noninterest expense for the nine months ended
June 30, 2004 was $13.9 million compared to $13.7 million for the nine months
ended June 30, 2003, an increase of $228,000. The following table provides a
detail analysis of the changes in components of noninterest expense:
Increase/ Percentage
Nine months Ended (Decrease) from Increase/
June 30, 2004 June 30, 2003 (Decrease)
---------------------------------------------------
(Dollars in Thousands)
Compensation and benefits $ 8,094 $238 3.0%
Occupancy and equipment 2,062 (144) (6.5)
Data processing 1,098 98 9.8
Advertising 824 (66) (7.4)
Postage and supplies 601 34 6.0
Other 1,260 68 5.7
-------------------------------------------
Total noninterest expense $13,939 $228 1.7%
===========================================
Compensation and benefits accounted for $238,000 in increased noninterest
expense. The deferral of salary and benefit expense related to mortgage
originations was the primary cause of the increase in compensation and
benefits expense. This deferral decreased from $1.1 million for the nine
months ended June 30, 2003 to $571,000 for the same period in 2004; a decrease
in the deferral results in a net increase in salary and benefit expense.
Commissions and incentive compensation expense decreased $306,000 and
$121,000, respectively, for the nine months ended June 30, 2004 compared to
the nine months ended June 30, 2003. Commissions are paid to our loan
originators based on residential mortgage dollar origination volumes; those
volumes decreased $160.6 million or 66.1% for the nine months ended June 30,
2004 compared to the nine months ended June 30, 2003.
Occupancy expense declined $144,000 principally as a result of decreased rent
expense, as we closed three Wal-Mart in-store branch locations in the nine
months ending June 30, 2003. Data processing expense increased $98,000 due to
increased expense to operate our Internet banking operations. Advertising
expense was $824,000 for the nine months ended June 30, 2004, a $66,000
decrease from the $890,000 in expense for the nine months ended June 30, 2003.
The primary reason for the decrease was a $53,000 reduction in market research
expense.
Income Tax Expense. Income tax expense for the nine months ended June
30, 2004 was $1.9 million for a decrease of $1.1 million from that of the nine
months ended June 30, 2003. Income before income taxes was $5.1 million for
the nine months ended June 30, 2004 compared to $7.2 million for the nine
months ended June 30, 2003, a decrease of $2.1 million or 28.8%. Income
realized from the increase in the cash surrender value of life insurance is
generally no subject to income tax and this reduced income tax by $145,000 and
$195,000 for the nine months ended June 30, 2004 and 2003, respectively. The
effective income tax rate for the nine months ended June 30, 2004 was 34.0%
for federal and 7.6% for the State of Idaho.
------------------------------------------------------------------------------
19
Liquidity and Capital Resources.
Liquidity. We actively analyze and manage 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 Consolidated
Financial Statements included in this document.
Our primary sources of funds are from customer deposits, loan repayments,
loan sales, maturing investment securities, and advances from the Federal Home
Loan Bank of Seattle. 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. We believe that our current liquidity
position and our forecasted operating results are sufficient to fund all of
our existing commitments.
At June 30, 2004, we maintained a line of credit with the Federal Home
Loan Bank of Seattle equal to 40% of total assets, with an unused portion of
the line of credit amounting to 25.4% of total assets. This line of credit is
dependent on us having sufficient collateral to pledge to the Federal Home
Loan Bank of Seattle. At June 30, 2004, we were in compliance with our
collateral requirements, and 14.6% of our line of credit with the Federal Home
Loan Bank of Seattle was available. In addition, we held readily saleable
loans available for liquidity purposes.
At June 30, 2004, certificates of deposits amounted to $158.5 million, or
47.5% of total deposits, including $57.9 million which are scheduled to mature
by June 30, 2005. Historically, we have been able to retain a significant
amount of our deposits as they mature. Management believes that we have
adequate resources to fund all loan commitments through deposits, advances
from the Federal Home Loan Bank of Seattle, loan repayments, maturing
investment securities, and the sale of mortgage loans in the secondary
markets.
Capital. Consistent with our objective to operate a sound and profitable
financial institution, we have maintained and will continue to focus on
maintaining a "well capitalized" rating from regulatory authorities. In
addition, we are subject to certain capital requirements set by our regulatory
agencies. At June 30, 2004, we exceeded all regulatory capital requirements.
Total equity was $43.7 million at June 30, 2004, or 8.41% of total assets on
that date. Our regulatory capital ratios at June 30, 2004, were as follows:
Tier I capital of 8.35%; Tier I risk-based capital of 12.90%; and total
risk-based capital of 13.69%. 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
------------------------------------------------------------------------------
20
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 Bank'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 is 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 impacted 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 utilizing 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 and Freddie Mac; (2) borrowing intermediate- to
long-term funds at fixed rates from the Federal Home Loan Bank of Seattle; (3)
originating consumer 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 June 30, 2004, there were no material changes in the Bank's market risk
from the information provided in the Company's Registration Statement.
At June 30, 2004, the Bank had no off-balance sheet derivative financial
instruments, and the Bank did not maintain a trading account for any class of
financial instruments nor engage in hedging activities or purchase high risk
derivative instruments. Furthermore, the Bank is not subject to foreign
currency exchange rate risk or commodity price risk.
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 13(a)-14(c) 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 June 30, 2004, the Company did not make any
significant changes in, nor take any corrective actions regarding its internal
controls or other factors, that could significantly affect these controls.
------------------------------------------------------------------------------
21
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
From time to time, the Corporation or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are currently
considered to have a material impact on the Corporation's financial position
or results of operations.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
------------------------------------------------------------------------------
22
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Articles of Incorporation of Home Federal Savings and Loan
Association,(1)
3.2 Bylaws of Home Federal Savings and Loan Association (1)
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 of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
--------------
(1) Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (Registration No. 333-113731), and incorporated
herein by reference.
(b) Reports on Form 8-K:
Not applicable.
------------------------------------------------------------------------------
23
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.
October 7, 2004 /s/ Daniel L. Stevens
--------------- ----------------------------------
Date Daniel L. Stevens
President and Chief Executive Officer
(Principal Executive Officer)
October 7, 2004 /s/ Robert A. Schoelkoph
--------------- -----------------------------------
Date Robert A. Schoelkoph
Chief Financial Officer
(Principal Financial and Accounting Officer)
------------------------------------------------------------------------------
24
EXHIBIT 31.1
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Daniel L. Stevens, 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 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 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 fourth
fiscal 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 the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses 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 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: October 7, 2004 /s/ Daniel L. Stevens
-----------------------------------
Daniel L. Stevens
President and Chief Executive Officer
------------------------------------------------------------------------------
25
EXHIBIT 31.2
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert A. Schoelkoph, 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 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 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 fourth
fiscal 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 the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses 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 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: October 7, 2004 /s/ Robert A. Schoelkoph
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Robert A. Schoelkoph
Chief Financial Officer
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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
President and Chief Executive Officer Chief Financial Officer
Dated: October 7, 2004
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