Unassociated Document
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 June 30, 2008
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: 000-52995
HOME
FEDERAL BANCORP, INC.
|
(Exact
name of registrant as specified in its charter)
Maryland
|
26-0886727 |
(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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
[ ] Accelerated
filer
[X] Non-accelerated
filer [ ]
Smaller reporting company
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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, 17,348,229 shares outstanding as of August 1,
2008.
HOME
FEDERAL BANCORP, INC.
FORM
10-Q
TABLE
OF CONTENTS
PART
1 - FINANCIAL INFORMATION
Item 1 -
Financial Statements
Page
|
Consolidated
Balance Sheets as of
|
June 30, 2008 and September 30,
2007 1
|
Consolidated
Statements of Income for the Three and Nine
Months
|
ended June 30, 2008 and
2007
2
|
Consolidated
Statements of Changes in Stockholders’ Equity
and
|
|
Comprehensive
Income for the Nine Months
|
ended June 30, 2008 and
for the Year Ended September 30, 2007
|
|
3
|
|
Consolidated
Statements of Cash Flows for the Nine
Months
|
ended June 30, 2008 and
2007
|
|
5
|
Selected Notes to Interim Consolidated Financial
Statements
|
|
7
|
Item 2 -
Management’s Discussion and Analysis of Financial Condition
and Results of
Operations
11
Item 3 -
Quantitative and Qualitative Disclosures About Market
Risk 24
Item 4 -
Controls and
Procedures 25
PART
II - OTHER INFORMATION
Item
1 - Legal
Proceedings 26
Item
1A - Risk
Factors 26
Item
2 - Unregistered Sales of Equity Securities and Use of
Proceeds 26
Item
3 - Defaults upon Senior
Securities 27
Item
4 - Submission of Matters to a Vote of Security
Holders 27
Item
5 - Other
Information 27
Item
6 -
Exhibits 28
SIGNATURES 29
Item
1. Financial Statements
HOME
FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share data) (Unaudited)
|
June
30,
2008
|
|
September
30,
2007
|
ASSETS
|
|
|
|
Cash
and amounts due from depository institutions
|
$ 25,187
|
|
$ 20,588
|
Certificate
of deposit in correspondent bank
|
5,000
|
|
--
|
Mortgage-backed
securities available for sale, at fair value
|
194,753
|
|
162,258
|
Federal
Home Loan Bank of Seattle (“FHLB”) stock, at cost
|
9,591
|
|
9,591
|
Loans
receivable, net of allowance for loan losses
of $3,801
|
|
|
|
and
$2,988
|
468,343
|
|
480,118
|
Loans
held for sale
|
3,971
|
|
4,904
|
Accrued
interest receivable
|
2,799
|
|
2,804
|
Property
and equipment, net
|
14,356
|
|
12,364
|
Mortgage
servicing rights, net
|
1,840
|
|
2,047
|
Bank
owned life insurance
|
11,482
|
|
11,168
|
Real
estate and property owned
|
707
|
|
549
|
Deferred
income tax asset, net
|
1,765
|
|
1,245
|
Other
assets
|
2,154
|
|
2,318
|
TOTAL
ASSETS
|
$741,948
|
|
$709,954
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
Deposit
accounts:
|
|
|
|
Noninterest-bearing
demand deposits
|
$ 35,258
|
|
$ 38,643
|
Interest-bearing
demand deposits
|
140,401
|
|
127,659
|
Savings
deposits
|
26,409
|
|
23,116
|
Certificates
of deposit
|
180,274
|
|
215,191
|
Total
deposit accounts
|
382,342
|
|
404,609
|
Advances
by borrowers for taxes and insurance
|
657
|
|
1,605
|
Interest
payable
|
580
|
|
731
|
Deferred
compensation
|
5,028
|
|
4,515
|
FHLB
advances
|
145,582
|
|
180,730
|
Other
liabilities
|
4,227
|
|
5,127
|
Total
liabilities
|
538,416
|
|
597,317
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
Serial
preferred stock, $.01 par value; 10,000,000 authorized,
|
|
|
|
issued
and outstanding, none
|
--
|
|
--
|
Common
stock, $.01 par value; 90,000,000 authorized,
|
|
|
|
issued
and outstanding:
|
173
|
|
152
|
June
30, 2008 – 17,386,517 issued, 17,348,229 outstanding
|
|
|
|
Sept.
30, 2007 – 15,278,803 issued, 15,232,243 outstanding
|
|
|
|
Additional
paid-in capital
|
157,089
|
|
59,613
|
Retained
earnings
|
59,707
|
|
58,795
|
Unearned
shares issued to employee stock ownership plan (“ESOP”)
|
(11,329)
|
|
(3,698)
|
Accumulated
other comprehensive loss
|
(2,108)
|
|
(2,225)
|
Total
stockholders’ equity
|
203,532
|
|
112,637
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$741,948
|
|
$709,954
|
|
|
|
|
See
accompanying notes.
HOME
FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except share data) (Unaudited)
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
Loan
interest
|
$
7,544
|
|
$
8,334
|
|
$23,390
|
|
$25,331
|
Investment
interest
|
117
|
|
179
|
|
891
|
|
223
|
Mortgage-backed
security interest
|
2,372
|
|
2,123
|
|
6,463
|
|
6,673
|
FHLB
dividends
|
60
|
|
14
|
|
110
|
|
33
|
Total
interest and dividend income
|
10,093
|
|
10,650
|
|
30,854
|
|
32,260
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
Deposits
|
2,429
|
|
3,131
|
|
8,515
|
|
9,146
|
FHLB
advances
|
1,752
|
|
2,207
|
|
5,594
|
|
6,942
|
Total
interest expense
|
4,181
|
|
5,338
|
|
14,109
|
|
16,088
|
Net
interest income
|
5,912
|
|
5,312
|
|
16,745
|
|
16,172
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
652
|
|
-
|
|
1,317
|
|
71
|
Net
interest income after provision for loan losses
|
5,260
|
|
5,312
|
|
15,428
|
|
16,101
|
|
|
|
|
|
|
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
Service
charges and fees
|
2,396
|
|
2,318
|
|
6,731
|
|
6,979
|
Gain
on sale of loans
|
213
|
|
491
|
|
560
|
|
1,168
|
Increase
in cash surrender value of bank owned life insurance
|
106
|
|
102
|
|
314
|
|
301
|
Loan
servicing fees
|
116
|
|
134
|
|
369
|
|
420
|
Mortgage
servicing rights, net
|
(63)
|
|
(48)
|
|
(206)
|
|
(223)
|
Other
|
(33)
|
|
18
|
|
75
|
|
39
|
Total
noninterest income
|
2,735
|
|
3,015
|
|
7,843
|
|
8,684
|
|
|
|
|
|
|
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
Compensation
and benefits
|
3,840
|
|
3,498
|
|
11,592
|
|
11,363
|
Occupancy
and equipment
|
771
|
|
716
|
|
2,242
|
|
2,145
|
Data
processing
|
615
|
|
548
|
|
1,668
|
|
1,549
|
Advertising
|
241
|
|
362
|
|
786
|
|
940
|
Postage
and supplies
|
147
|
|
167
|
|
468
|
|
487
|
Professional
services
|
130
|
|
209
|
|
533
|
|
620
|
Insurance
and taxes
|
158
|
|
114
|
|
383
|
|
323
|
Other
|
272
|
|
213
|
|
809
|
|
765
|
Total
noninterest expense
|
6,174
|
|
5,827
|
|
18,481
|
|
18,192
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
1,821
|
|
2,500
|
|
4,790
|
|
6,593
|
Income
tax expense
|
702
|
|
934
|
|
1,779
|
|
2,517
|
NET
INCOME
|
$
1,119
|
|
$
1,566
|
|
$
3,011
|
|
$
4,076
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
|
$ 0.07
|
|
$ 0.09(1)
|
|
$ 0.19(1)
|
|
$ 0.25(1)
|
Diluted
|
0.07
|
|
0.09(1)
|
|
0.19(1)
|
|
0.24(1)
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
16,007,599
|
|
16,615,053(1)
|
|
16,237,911(1)
|
|
16,579,847(1)
|
Diluted
|
16,043,435
|
|
16,716,164(1)
|
|
16,255,548(1)
|
|
16,717,563(1)
|
|
|
|
|
|
|
|
|
Dividends
declared per share:
|
$0.055
|
|
$0.048(1)
|
|
$0.158(1)
|
|
$0.145(1)
|
(1)
Earnings per share, average shares outstanding, and dividends per share have
been adjusted to reflect the impact of the second-step conversion and
reorganization (“Conversion”) of Home Federal Bancorp, Inc. (“Company”), which
occurred on December 19, 2007.
See
accompanying notes.
HOME
FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
(In
thousands, except share data) (Unaudited)
|
Common
Stock
|
Additional
Paid-In Capital
|
Retained
Earnings
|
Unearned
Shares
Issued
to
Employee
Stock
Ownership
Plan
|
Accumulated
Other
Comprehensive
Loss
|
Total
|
Shares
|
Amount
|
Balance
at Sept. 30, 2006
|
15,169,114
|
$152
|
$
57,222
|
$
54,805
|
$
(4,134)
|
$ (176)
|
$107,869
|
|
|
|
|
|
|
|
|
Restricted
stock issued, net of forfeitures
|
(6,924 )
)
|
|
|
|
|
|
--
|
ESOP
shares committed to be released
|
|
|
357
|
|
436
|
|
793
|
Exercise
of stock options
|
70,053
|
|
854
|
|
|
|
854
|
Share-based
compensation
|
|
|
1,036
|
|
|
|
1,036
|
Excess
tax benefits from equity compensation plans
|
|
|
144
|
|
|
|
144
|
Dividends
paid
($0.190
per share) (1) (2)
|
|
|
|
(1,281)
|
|
|
(1,281)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
5,271
|
|
|
5,271
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
Change in unrealized holding loss on securities available for sale,
net of taxes
|
|
|
|
|
|
(100)
|
(100)
|
Change in unrealized holding loss resulting from transfer of
securities from held to maturity to available for sale, net of
taxes
|
|
|
|
|
|
(1,949)
|
(1,949)
|
Comprehensive
income:
|
|
|
|
|
|
|
3,222
|
Balance
at Sept. 30, 2007
|
15,232,243 3
|
152
|
59,613
|
58,795
|
(3,698)
|
(2,225)
|
112,637
|
|
|
|
|
|
|
|
|
Second
Step Conversion(3)
|
2,073,619
|
21
|
96,425
|
|
(8,160)
|
|
88,286
|
Dissolution
of Mutual Holding Company
|
|
|
50
|
|
|
|
50
|
Restricted
stock issued, net of forfeitures
|
13,502
|
|
|
|
|
|
-
|
ESOP
shares committed to be released
|
|
|
(106)
|
|
529
|
|
423
|
Exercise
of stock options
|
28,865
|
|
328
|
|
|
|
328
|
Share-based
compensation
|
|
|
779
|
|
|
|
779
|
Dividends
paid
($0.158)
per share) (1) (2)
|
|
|
|
(2,099)
|
|
|
(2,099)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
3,011
|
|
|
3,011
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
Change in unrealized holding loss on securities available for sale, net
of taxes
|
|
|
|
|
|
117
|
117
|
Comprehensive income:
|
|
|
|
|
|
|
3,128
|
Balance
at June 30, 2008
|
17,348,229
|
$173
|
$157,089
|
$
59,707
|
$(11,329)
|
$
(2,108)
|
$203,532
|
(continues
on next page)
(1) Home
Federal MHC waived its receipt of dividends on the 8,979,246 shares that it
owned.
(2)
Dividends per share have been adjusted to reflect the impact of the Conversion
of the Company, which occurred on December 19, 2007.
(3) The
total effect on equity accounts from the Conversion has changed from the
December 31, 2007 reported numbers due to adjustments such as true-up of total
new shares issued in relation to conversion once total affect of fractional
shares was known, payment of additional expenses related to conversion,
etc.
See
accompanying notes.
HOME
FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands) (Unaudited)
|
Nine
Months Ended
June
30,
|
|
2008
|
|
2007
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
income
|
$ 3,011
|
|
$ 4,076
|
Adjustments
to reconcile net income to cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
1,247
|
|
1,294
|
Net
accretion of premiums and discounts on investments
|
(18)
|
|
(49)
|
Loss
(Gain) on sale of fixed assets and repossessed assets
|
119
|
|
(3)
|
Gain
on sale of mortgage-backed securities
|
-
|
|
(4)
|
ESOP
shares committed to be released
|
423
|
|
618
|
Equity
compensation expense
|
779
|
|
783
|
Provision
for loan losses
|
1,317
|
|
71
|
Accrued
deferred compensation expense, net
|
513
|
|
543
|
Net
deferred loan fees
|
54
|
|
139
|
Deferred
income tax benefit
|
(598)
|
|
(357)
|
Net
gain on sale of loans
|
(560)
|
|
(1,168)
|
Proceeds
from sale of loans held for sale
|
38,579
|
|
78,989
|
Originations
of loans held for sale
|
(37,193)
|
|
(78,303)
|
Net
decrease in value of mortgage servicing rights
|
207
|
|
223
|
Net
increase in value of bank owned life insurance
|
(314)
|
|
(301)
|
Change
in assets and liabilities:
|
|
|
|
Interest
receivable
|
5
|
|
145
|
Other
assets
|
158
|
|
(837)
|
Interest
payable
|
(151)
|
|
(198)
|
Other
liabilities
|
(903)
|
|
(553)
|
Net
cash provided by operating activities
|
6,675
|
|
5,108
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Proceeds
from maturity of mortgage-backed securities held to
maturity
|
-
|
|
13,094
|
Proceeds
from maturity of mortgage-backed securities available for
sale
|
23,976
|
|
12,264
|
Purchases
of mortgage-backed securities available for sale
|
(56,257)
|
|
(2,102)
|
Investment
in certificate of deposit
|
(5,000)
|
|
|
Purchases
of property and equipment
|
(3,218)
|
|
(672)
|
Net
decrease in loans
|
9,720
|
|
11,337
|
Proceeds
from sale of fixed assets and repossessed assets
|
501
|
|
9
|
Net
cash (used) provided by investing activities
|
(30,278)
|
|
33,930
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Net
decrease in deposits
|
(22,267)
|
|
(11,583)
|
Net
decrease in advances by borrowers for taxes and insurance
|
(948)
|
|
(1,212)
|
Proceeds
from FHLB advances
|
59,715
|
|
143,835
|
Repayment
of FHLB advances
|
(94,863)
|
|
(165,330)
|
Net
proceeds from stock issuance and exchange pursuant to second step
conversion
|
88,336
|
|
-
|
Proceeds
from exercise of stock options
|
328
|
|
854
|
Excess
tax benefit from equity compensation plans
|
-
|
|
58
|
Dividends
paid
|
(2,099)
|
|
(959)
|
Net
cash provided (used) by financing activities
|
28,202
|
|
(34,337)
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
4,599
|
|
4,701
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
20,588
|
|
18,385
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$
25,187
|
|
$ 23,086
|
(continues
on next page)
HOME
FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(In
thousands) (Unaudited)
|
Nine
Months Ended
June
30,
|
|
2008
|
|
2007
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
$14,259
|
|
$
16,286
|
Income taxes
|
2,610
|
|
2,825
|
|
|
|
|
NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
Acquisition
of real estate and other assets in settlement of loans
|
1,137
|
|
153
|
Fair
value adjustment to securities available for sale, net of
taxes
|
117
|
|
(3,301)
|
Transfer
of securities from held to maturity to available for sale
|
-
|
|
171,688
|
Fair value adjustment to securities available for sale, net of taxes as
a
result
of transferring securities from held to maturity to available for
sale
|
-
|
|
(1,949)
|
|
|
|
|
See
accompanying notes.
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 Home Federal Bancorp, Inc., a Maryland corporation (the “Company”),
and its wholly-owned subsidiary, Home Federal Bank (the “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 adjustments necessary for a fair presentation of the financial
condition and results of operations for the interim periods included herein have
been made. Operating results for the three and nine month periods ended June 30,
2008, are not necessarily indicative of the results that may be expected for the
year ending September 30, 2008.
The
Company was formed as the new stock holding company for the Bank in connection
with the Bank’s Conversion from the mutual holding company structure to the
stock holding company structure, which was completed on December 19,
2007. Prior to the completion of the Conversion, the Bank was the
subsidiary of Home Federal Bancorp, Inc., a federally-chartered stock mid-tier
holding company (“Mid-Tier”), and the Mid-Tier was a subsidiary of Home Federal
MHC, a federally-chartered mutual holding company. The Bank formed
the mutual holding company structure in December 2004. As a result of
the Conversion, Home Federal MHC and the Mid-Tier ceased to exist and were
replaced by the Company as the successor to the Mid-Tier. See Note 3
below for additional information regarding the Conversion.
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 Mid-Tier’s audited financial statements and notes included
in the Annual Report on Form 10-K for the year ended September 30, 2007 (“2007
Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on
December 14, 2007.
Note
2 - Critical Accounting Estimates and Related 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.
Allowance for loan losses.
The procedures for assessing the adequacy of the allowance for loan losses
reflect evaluation of credit risk after careful consideration and
interpretation of relevant information. In developing this assessment,
management must rely on estimates and exercise judgment regarding matters where
the ultimate outcome is unknown such as economic factors, developments affecting
companies in specific industries and issues with respect to single borrowers.
The allowance for loan losses is maintained at a level that management believes
to be adequate to absorb probable, incurred losses inherent in the loan
portfolio at the balance sheet dates presented. Depending on changes in
circumstances, future assessments of credit risk may yield materially different
results, which may require an increase or a decrease in the allowance for loan
losses.
Mortgage servicing rights.
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 speed
assumptions. The Company performs a quarterly review of mortgage
servicing rights to assess changes 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 computed using the asset and liability approach as
prescribed in 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.
Note
3 –Conversion and Reorganization
The
Company is a Maryland corporation that was formed as the new stock holding
company for Home Federal Bank in connection with the Conversion, which was
completed on December 19, 2007.
As part
of the Conversion, a total of 9,384,000 new shares of the Company were sold at
$10 per share in subscription, community and syndicated community offerings
through which the Company received proceeds of approximately $88.3 million, net
of offering costs of approximately $5.4 million. The Company contributed $48.3
million or approximately 50% of the net proceeds to the Bank in the form of a
capital contribution. The Company loaned $8.2 million to the Bank’s Employee
Stock Ownership Plan (the “ESOP”) and the ESOP used those funds to acquire
816,000 shares of the Company’s common stock at $10 per share. As part of the
Conversion, shares of outstanding common stock of the Mid-Tier were exchanged
for 1.136 shares of the Company’s common stock. No fractional shares were
issued. Instead, cash was paid to stockholders at $10 per share for any
fractional shares that would otherwise be issued. The exchange resulted in an
additional 852,865 outstanding shares of the Company for a total of 17,325,901
outstanding shares as of the closing of the Conversion on December 19, 2007,
after giving effect to the redemption of fractional shares.
The
Conversion was accounted for as a reorganization in corporate form with no
change in the historical basis of the Company’s assets, liabilities and equity.
All references to the number of shares outstanding, with the exception of those
reported on the Balance Sheet, are restated to give retroactive recognition to
the exchange ratio applied in the Conversion.
Note
4 – Income Taxes
At
October 1, 2007, the Company adopted Financial Accounting Standards Board
("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes
("FIN 48"). FIN 48 requires recognition and measurement of
uncertain tax positions using a "more-likely-than-not" approach. The
Company’s approach to adopting FIN 48 consisted of an examination of its
financial statements, its income tax provision, and its federal and state income
tax returns. The Company analyzed its tax positions including the
permanent and temporary differences as well as the major components of income
and expense.
As of
October 1, 2007, and June 30, 2008, the Company did not believe that it had any
uncertain tax positions that would rise to the level of having a material effect
on its financial statements. In addition, the Company had no accrued
interest or penalties as of October 1, 2007 or June 30, 2008. It is
the Company’s policy to record interest and penalties as a component of income
tax expense. The adoption of this accounting standard did not have a
material impact on the Company’s financial position or results of
operations.
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 by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed by
dividing net income by the diluted weighted average shares outstanding, which
include common stock equivalent shares outstanding using the treasury stock
method, unless such shares are anti-dilutive. Common stock equivalents arise
from assumed conversion of outstanding stock options awarded under the Company’s
Stock Option and Incentive Plan (“SOP”) and from assumed vesting of shares
awarded but not released under the Company’s Recognition and Retention Plan
(“RRP”) plan. ESOP shares are not considered outstanding for earnings
per share purposes until they are committed to be released. The
decrease in weighted-average common shares outstanding for EPS purposes for the
three and nine month periods ended June 30, 2008 is primarily attributable to
the 816,000 shares that were acquired for the ESOP in connection with the
Conversion.
The
following table presents the computation of basic and diluted EPS for the
periods indicated:
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
(in
thousands, except share and per share data)
|
Basic
EPS:
|
|
|
|
|
|
|
|
Net
income
|
$1,119
|
|
$1,566
|
|
$3,011
|
|
$4,076
|
Weighted-average
common shares outstanding
|
16,007,599
|
|
16,615,053
|
|
16,237,911
|
|
16,579,847
|
Basic
EPS
|
$ 0.07
|
|
$ 0.09
|
|
$
0.19
|
|
$ 0.25
|
|
|
|
|
|
|
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
Net
income
|
$1,119
|
|
$1,566
|
|
$3,011
|
|
$4,076
|
Weighted-average
common shares outstanding
|
16,007,599
|
|
16,615,053
|
|
16,237,911
|
|
16,579,847
|
Net
effect of dilutive SOP awards
|
2,986
|
|
52,908
|
|
-
|
|
85,367
|
Net
effect of dilutive RRP awards
|
32,850
|
|
48,203
|
|
17,637
|
|
52,349
|
Weighted-average common shares
outstanding
and common stock
equivalents
|
16,043,435
|
|
16,716,164
|
|
16,255,548
|
|
16,717,563
|
Diluted
EPS
|
$
0.07
|
|
$
0.09
|
|
$
0.19
|
|
$
0.24
|
|
|
|
|
|
|
|
|
Note
6 - Mortgage-Backed Securities
Mortgage-backed
securities available for sale consisted of the following:
|
June
30, 2008
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Issued
by U.S. Government sponsored enterprises
|
$194,861
|
|
$588
|
|
$(3,997)
|
|
$191,452
|
Other
|
3,405
|
|
-- -
|
|
(104)
|
|
3,301
|
Total
|
$198,266
|
|
$588
|
|
$(4,101)
|
|
$194,753
|
|
|
|
|
|
|
|
|
|
September 30,
2007
|
|
|
|
|
|
|
|
|
Issued
by U.S. Government sponsored enterprises
|
$162,503
|
|
$191
|
|
$(3,823)
|
|
$158,871
|
Other
|
3,464
|
|
--
-
|
|
(77)
|
|
3,387
|
Total
|
$165,967
|
|
$191
|
|
$(3,900)
|
|
$162,258
|
The fair
value of temporarily impaired securities, the amount of unrealized losses and
the length of time these unrealized losses existed as of June 30, 2008 were as
follows:
|
Less
than 12 months
|
|
12
months or longer
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
(in
thousands)
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
securities,
available
|
|
|
|
|
|
|
|
|
|
|
|
for
sale
|
$129,250
|
|
$(3,199)
|
|
$18,036
|
|
$(902)
|
|
$147,286
|
|
$(4,101)
|
Management
has evaluated these securities and has determined that the decline in the value
is temporary and not related to the underlying credit quality of the issuers or
an industry specific event. The declines in value are on securities
that have contractual maturity dates and future principal payments will be
sufficient to recover the current amortized cost of the
securities. The Company has the ability and intent to hold the
securities for a reasonable period of time for a forecasted recovery of the
amortized cost.
As of
June 30, 2008, the Bank had pledged mortgage-backed securities with an amortized
cost of $83.1 million and a fair value of $80.8 million as collateral for FHLB
advances. Mortgage-backed securities with an amortized cost of $6.0
million and a fair value of $5.8 million at June 30, 2008, were pledged to the
Federal Reserve Bank as collateral for treasury tax and loan funds held by the
Bank and for borrowings from the discount window. The Company has
also pledged a mortgage-backed security with an amortized cost of $2.0 million
and a fair value of $1.9 million as collateral for a $1.5 million revolving line
of credit from the Bank. As of June 30, 2008, there was no balance
owed on the line of credit or through the Federal Reserve Bank discount
window.
Note
7 - Loans Receivable
Loans
receivable are summarized as follows:
|
June
30, 2008
|
|
September
30, 2007
|
|
Balance
|
|
Percent
of
Total
|
|
Balance
|
|
Percent
of
Total
|
|
(dollars
in thousands)
|
Real
Estate:
|
|
|
|
|
|
|
|
One-
to four-family residential
|
$217,517
|
|
45.98%
|
|
$249,545
|
|
51.55%
|
Multi-family
residential
|
8,514
|
|
1.80
|
|
6,864
|
|
1.42
|
Commercial
|
152,071
|
|
32.14
|
|
133,823
|
|
27.64
|
Total
real estate
|
378,102
|
|
79.92
|
|
390,232
|
|
80.61
|
|
|
|
|
|
|
|
|
Real
Estate Construction:
|
|
|
|
|
|
|
|
One-
to four-family residential
|
16,794
|
|
3.55
|
|
20,545
|
|
4.24
|
Multi-family
residential
|
920
|
|
0.19
|
|
1,770
|
|
0.36
|
Commercial
|
4,958
|
|
1.05
|
|
13,691
|
|
2.83
|
Acquisition
and land development
|
12,270
|
|
2.59
|
|
8,208
|
|
1.69
|
Total
real estate construction
|
34,942
|
|
7.38
|
|
44,214
|
|
9.12
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
Home
equity
|
51,912
|
|
10.97
|
|
42,990
|
|
8.88
|
Automobile
|
2,063
|
|
0.44
|
|
2,173
|
|
0.45
|
Other
consumer
|
1,396
|
|
0.30
|
|
1,405
|
|
0.29
|
Total
consumer
|
55,371
|
|
11.71
|
|
46,568
|
|
9.62
|
|
|
|
|
|
|
|
|
Commercial
business
|
4,705
|
|
0.99
|
|
3,122
|
|
0.65
|
|
473,120
|
|
100.00%
|
|
484,136
|
|
100.00%
|
Less:
|
|
|
|
|
|
|
|
Deferred
loan fees
|
(976)
|
|
|
|
(1,030)
|
|
|
Allowance
for loan losses
|
(3,801)
|
|
|
|
(2,988)
|
|
|
Loans
receivable, net
|
$468,343
|
|
|
|
$480,118
|
|
|
Note
8 – Mortgage Servicing Rights
Mortgage
servicing rights represent the fair value of the future loan servicing fees from
the right to service loans for others. The unpaid principal balances
of loans serviced at June 30, 2008, and September 30, 2007, were $173.0 million
and $191.6 million, respectively. Loans serviced for others are not
included in the Consolidated Balance Sheets. In general, during
periods of falling interest rates, the mortgage loans prepay faster and the
value of the mortgage servicing asset declines. Conversely, during
periods of rising rates, the value of mortgage servicing rights
generally
increases as a result of slower rates of prepayments. The Company
does not use derivatives to hedge fluctuations in the fair value of the
servicing rights.
As of
October 1, 2006, the Company adopted SFAS No. 156, Accounting for Servicing of
Financial Assets, to measure mortgage servicing rights using the fair
value method. As a result, the Company will measure each class of
mortgage servicing rights at fair value at each reporting date, and report
changes in fair value in earnings in the period in which the change
occurs. Prior to the adoption of SFAS No. 156, the Company elected to
account for its mortgage servicing rights using the amortization method
previously required by SFAS No. 140.
The
Company has identified two classes of mortgage servicing assets based upon the
nature of the collateral, interest rate mechanism and nature of the
loan. The Company uses an independent third party to periodically
value the residential mortgage servicing rights using information such as
anticipated prepayment speeds, discount rates and servicing fees associated with
the type of loans sold.
Upon the
change from the amortization method to fair value accounting under SFAS No. 156,
the calculation of amortization and the assessment of impairment were
discontinued. Those measurements have been replaced by adjustments to
fair value that encompass market-driven valuation changes. Under the
fair value method, the changes in fair value are reported in “Mortgage servicing
rights, net” on the Consolidated Statements of Income.
The
following table lists the classes of servicing rights and the activities in the
balance of each class for the periods indicated:
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
Servicing
Right Classes
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
(in
thousands)
|
One-
to four-family residential loans:
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$1,894
|
|
$2,298
|
|
$2,033
|
|
$2,468
|
Additions
for new mortgage servicing rights capitalized
|
|
--
-
|
|
42
|
|
--
-
|
|
45
|
Adjustments
to fair value
|
|
(61)
)
|
|
(87)
|
|
(200)
|
|
(260)
|
Ending
Balance
|
|
$1,833
|
|
$2,253
|
|
$1,833
|
|
$2,253
|
|
|
|
|
|
|
|
|
|
Commercial
real estate loans:
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$ 9
|
|
$
19
|
|
$ 14
|
|
$ 24
|
Adjustments
to fair value
|
|
(2)
|
|
(3)
|
|
(7)
|
|
(8)
|
Ending
Balance
|
|
$
7
|
|
$ 16
|
|
$
7
|
|
$ 16
|
|
|
|
|
|
|
|
|
|
The
amount of contractually specified servicing fees for one- to four-family
residential loans for the three and nine months ended June 30, 2008 were
$116,000 and $369,000, respectively. The servicing fees for one- to
four-family residential loans are recorded in “Loan Servicing Fees” on the
Consolidated Statements of Income. The amount of contractually
specified servicing fees for commercial real estate loans as well as late fees
and other ancillary fees earned for the periods indicated were immaterial in
amount.
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,” “intends,” “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 plan, 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 as a result of, among others, the
following factors:
·
|
general
economic conditions, including real estate values, either nationally or in
the Company’s market area, that are worse than
expected;
|
·
|
changes
in the interest rate environment that reduce the Company’s interest
margins or reduce the fair value of financial
instruments;
|
·
|
the
credit risk of lending activities, including risks related to construction
and development lending and commercial and small business
banking;
|
·
|
changes
in the level and trend of loan delinquencies and
write-offs;
|
·
|
results
of examinations by banking
regulators;
|
·
|
increased
competitive pressures among financial services
companies;
|
·
|
changes
in consumer spending, borrowing and savings
habits;
|
·
|
changes
in the value of mortgage servicing
rights;
|
·
|
legislative
or regulatory changes that adversely affect the Company’s
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.
|
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.
Background
and Overview
The
Company is the successor to Home Federal MHC and the Mid-Tier in connection with
the Conversion, which was completed on December 19, 2007.
On May
11, 2007, the Boards of Directors of the Company, Home Federal MHC and the Bank
adopted a Plan of Conversion and Reorganization (the “Plan”) pursuant to which
the Bank reorganized from the mutual holding company structure to the stock
holding company structure. Pursuant to the terms of the Plan, shares of
outstanding common stock of the Mid-Tier were exchanged for 1.136 shares of the
Company’s common stock. Cash was paid in lieu of fractional
shares. The exchange ratio was designed to preserve the aggregate
percentage ownership interest of the existing public shareholders of Mid-Tier
following the sale of up to 10,200,000 shares of the Company’s common stock to
the Bank’s eligible account holders, to the Bank’s tax-qualified employee
benefit plans and to members of the general public. The Conversion was approved
by the Bank’s depositors, the Company’s stockholders (including the approval of
a majority of the shares held by persons other than Home Federal MHC) and
regulatory agencies. The Company’s common stock is traded on the
NASDAQ Global Select Market under the symbol “HOME” and is included in the
America’s Community Bankers NASDAQ Index.
The Bank
was founded in 1920 as a building and loan association and reorganized as a
federal mutual savings and loan association in 1936. On December 6,
2004, the Bank reorganized into the two-tiered mutual holding company form of
organization. In connection with that transaction, the Mid-Tier 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
Mid-Tier. In connection with that transaction, the Mid-Tier also
established and capitalized the Home Federal Foundation (“Foundation”) for the
purpose of supporting charitable organizations and activities that enhance the
quality of life for residents within the Bank’s market area. The Foundation was
capitalized with a $1.8 million one-time contribution, which consisted of
146,004 shares of its common stock and $365,010 in cash. Lastly, the Bank
converted from a federally-chartered mutual savings and loan association to a
federally-chartered stock savings bank and became the wholly owned subsidiary of
the Mid-Tier.
The Bank
is a community-oriented financial institution dedicated to serving the financial
service needs of consumers and businesses within its market area. The
Bank’s primary business is attracting deposits from the general public and using
these funds to originate loans. The Bank emphasizes the origination
of commercial business loans, commercial real estate loans, construction and
residential development loans, consumer loans and loans secured by first
mortgages on owner-occupied residential real estate. As a result of a
comprehensive and continuing review of
its
strategic business plan, the Company continues to expand its commercial and
small business banking programs, including a variety of loan and deposit
products.
The Bank
serves the Treasure Valley region of southwestern Idaho, which includes Ada,
Canyon, Elmore and Gem counties, through its 15 full-service banking offices and
one loan center. 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
capital. Home Federal Bank maintains its largest branch presence in
Ada County with eight locations, followed by Canyon County with five branches,
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 the Bank serves, followed by Nampa, the state’s second largest
city. The area has experienced a slowdown in the residential housing
market similar to the United States as a whole. Housing prices have
declined recently, although not as significantly as the nation as a whole, and
single-family housing permits have decreased from prior year
levels. The regional economy is well diversified with government,
healthcare, manufacturing, service, 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 and J.R. Simplot Company. Other major employers include
Hewlett-Packard, Supervalu, 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. While Idaho’s
unemployment rate was significantly below the national unemployment rate at June
30, 2008, the state’s unemployment rate has been steadily increasing in 2008 to
3.80% in June 2008 compared to 2.70% in December 2007. Additionally,
Hewlett-Packard announced in June 2008 that it will consolidate its worldwide
Imaging & Printing Group from five to three global business units. The Boise
facility for Hewlett-Packard focuses on research, development and marketing of
printers, ink and related printing and image-making goods and services and the
impact of the reorganization on employees in Boise has not been
determined.
The
following items summarize the financial performance of the Company and the key
strategic initiatives undertaken by management during the Company’s fiscal third
quarter of 2008:
§
|
Net
income fell to $1.1 million, or $0.07 per diluted share, compared to $1.6
million, or $0.09 per diluted share, for the same period a year
ago;
|
§
|
Revenues
increased 5% compared to the third quarter of 2007 as the net interest
margin increased 27 basis points to 3.29% from
3.02%;
|
§
|
Nonperforming
assets increased to 0.56% of assets at June 30, 2008, compared to 0.07% at
June 30, 2007;
|
§
|
Net
loans receivable declined $8.8 million as the Bank’s loan portfolios
secured by one- to- four family residences continue to decline, falling
$11.5 million during the quarter;
|
§
|
Deposits
decreased $13.8 million during the third quarter as high interest rates
offered by competitors drew certificates of deposit from the
Bank;
|
§
|
The
efficiency ratio increased compared to the third quarter of fiscal 2007 as
increases in expenses outweighed higher revenues in
2008;
|
§
|
In
order to improve credit risk management, the credit administration and
workout teams were realigned to report directly to the President and Chief
Executive Officer and a Chief Credit Officer was
appointed;
|
§
|
Additional
steps were taken to build strong commercial and small business lending
programs by acquiring key management personnel to lead the development of
those programs;
|
§
|
In
order to become more efficient, lower costs and improve customer service
in the bank’s consumer line of business, the residential and consumer
lending teams were reorganized;
|
§
|
Construction
began on a new banking office in Boise, Idaho, which is expected to open
in October 2008; and,
|
§
|
The
Bank maintained its very strong capital position with a risk-based capital
ratio of 32.3% at June 30, 2008.
|
Critical
Accounting Estimates and Related Accounting Policies
Allowance for Loan Losses.
Management recognizes that losses may occur over the life of a loan and
that the allowance for loan losses must be maintained at a level necessary to
absorb specific losses on impaired loans and probable losses inherent in the
loan portfolio. Management assesses the allowance for loan losses on a quarterly
basis by analyzing several factors including delinquency rates, charge-off rates
and the changing risk profile of the Bank’s loan portfolio, as well as local
economic conditions such as unemployment rates, bankruptcies and vacancy rates
of business and residential properties.
The
Company 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
probable, incurred losses on loans inherent in the loan portfolio at the balance
sheet date. The impact of a sudden large loss could deplete the allowance and
require increased provisions to replenish the allowance, which would negatively
affect earnings.
The
Company’s methodology for analyzing the allowance for loan losses consists of
specific allocations on significant individual credits and a general allowance
amount, including a range of losses. The specific allowance component is
determined when management believes that the collectibility of an individually
reviewed loan has been impaired and a loss is probable. The general allowance
component relates to assets with no well-defined deficiency or weakness and
takes into consideration loss that is inherent within the portfolio but has not
been identified. The general allowance is determined by applying a historical
loss percentage to various types of loans with similar characteristics and
classified loans that are not analyzed specifically. Adjustments are made to
historical loss percentages to reflect current economic and internal
environmental factors, such as changes in underwriting standards and management,
that may increase or decrease those loss factors. As a result of the imprecision
in calculating inherent and potential losses, a range is added to the general
allowance to provide an allowance for loan losses that is adequate to cover
losses that may arise as a result of changing economic conditions and other
qualitative factors that may alter historical loss experience.
The
allowance is increased by the provision for loan losses, which is charged
against current period operating results and decreased by the amount of actual
loan charge-offs, net of recoveries.
The
Company also estimates a reserve related to unfunded loan
commitments. In assessing the adequacy of the reserve, the Company
uses a similar approach used in the development of the allowance for loan
losses. The reserve for unfunded loan commitments is included in
other liabilities on the Consolidated Balance Sheets. The provision
for unfunded commitments is charged to noninterest expense.
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
are the mortgage loan prepayment rate assumptions. The mortgage loan prepayment
rate assumptions are significantly impacted by interest rates. In general,
during periods of falling interest rates, the mortgage loans prepay faster and
the value of mortgage servicing asset declines. Conversely, during periods of
rising rates, the value of mortgage servicing rights generally increases due to
slower rates of prepayments. The Company performs a quarterly review of mortgage
servicing rights to assess changes 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 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, deferred compensation, mark to
market adjustments on our available for sale securities, and dividends received
from the Federal Home Loan Bank of Seattle. Deferred income taxes do not include
a liability for pre-1988 bad debt deductions allowed to thrift institutions that
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, 2008 and September 30, 2007
Total
assets increased $32.0 million, or 4.5%, to $741.9 million at June 30, 2008 from
$710.0 million at September 30, 2007. The increase in total assets
was attributable primarily to $88.3 million in net proceeds raised from the
Company’s Conversion and stock offering completed on December 19, 2007, which
was partially offset by a decrease in deposits and borrowings during the same
period of $22.3 million and $35.2 million, respectively. Cash
and due
from other banks increased $4.6 million, or 22.3%, to $25.2
million. Loans receivable, net, decreased $11.8 million, or 2.5%, to
$468.3 million. Mortgage-backed securities increased $32.5 million,
or 20.0%, to $194.8 million. Total deposits decreased $22.3 million,
or 5.5%, to $382.3 million. FHLB advances decreased $35.1 million, or
19.5%, to $145.6 million.
Assets. For the
nine months ended June 30, 2008, total assets increased $32.0
million. The increases and decreases were primarily concentrated in
the following asset categories:
|
|
|
Increase
(decrease)
|
|
|
|
|
|
|
|
|
|
Balance
at
June
30,
2008
|
|
Balance
at
September
30,
2007
|
|
Amount
|
|
Percent
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
Cash
and amounts due from depository institutions
|
$
25,187
|
|
$
20,588
|
|
$ 4,599
|
|
22.3%
|
Mortgage-backed
securities, available for sale
|
194,753
|
|
162,258
|
|
32,495
|
|
20.0
|
Loans
receivable, net of allowance for loan losses
|
468,343
|
|
480,118
|
|
(11,775)
|
|
(2.5)
|
Cash and
amounts due from depository institutions increased $4.6 million to $25.2 million
at June 30, 2008, from $20.6 million at September 30, 2007. The
higher cash balance at June 30, 2008 is due to a portion of the proceeds from
the Company’s Conversion and stock offering being invested in overnight funds
and cash equivalents. In June 2008, the Company invested $15.0 million of excess
cash in certificates of deposit issued by the FHLB with $10.0 million reported
as cash equivalents at June 30, 2008. The remaining $5.0 million certificate of
deposit is scheduled to mature in December 2008. As discussed in greater detail
below, competitive pricing for deposits has resulted in the runoff of some
deposit balances, which was funded with some of the net proceeds received from
the Conversion.
Mortgage-backed
securities increased $32.5 million to $194.8 million at June 30, 2008, from
$162.3 million at September 30, 2007. The increase was primarily
attributable to mortgage-backed securities purchased with proceeds from the
Company’s Conversion and stock offering. Management decided to invest in
mortgage-backed securities in order to quickly invest Conversion funds and to
provide liquidity in future periods to fund loan growth with proceeds from
principal repayments.
Nearly
all of the Company’s mortgage-backed securities are issued by U.S. Government
sponsored enterprises, primarily Fannie Mae and Freddie Mac. Non-agency
mortgage-backed securities with a fair value of $3.3 million at June 30, 2008,
were purchased in fiscal 2005 and carried a rating of ‘AAA’ by Moody’s and
Standard & Poors at that date. The Company does not own preferred stock
issued by Fannie Mae or Freddie Mac. While the U.S. Government has recently
affirmed its support for government sponsored enterprises, significant
deterioration in the financial strength of Fannie Mae, Freddie Mac or
mortgage-backed security insurers may have a material effect on the valuation
and performance of the Company’s mortgage-backed securities portfolio in future
periods.
Loans
receivable, net, decreased $11.8 million to $468.3 million at June 30, 2008,
from $480.1 million at September 30, 2007. One- to four-family
residential mortgage loans decreased $32.4 million as the Company sold a
majority of the one-to four-family loans that were originated. Commercial loans
increased $12.2 million to $156.0 million at June 30, 2008 from $143.8 million
at September 30, 2007. Construction loans increased $346,000 to $44.2 million at
June 30, 2008 from $43.9 million at September 30, 2007. The Bank has made
significant progress in building commercial and small business banking programs,
including the addition of an experienced commercial banking team to expand the
commercial banking activities, including business banking, cash management and
other products associated with a full-service commercial bank. As reported in
Note 7 to the consolidated financial statements, nonresidential commercial loans
increased $11.1 million during the nine months ended June 30, 2008 and comprised
approximately 34% of the loan portfolio at June 30, 2008, compared to 31% at
September 30, 2007. This increase was offset by a decrease in loans secured by
one- to four-family residential properties of $26.9 million during the same
period. Management anticipates further declines in the outstanding balance of
one- to four family mortgage loans as the lending focus shifts toward commercial
loan originations.
Home
sales and residential construction projects in the Boise metropolitan
statistical area have slowed significantly in fiscal 2008 compared to the strong
growth in development projects experienced between 2005 and 2007. As a result, a
number of financial institutions are experiencing increases in nonperforming
acquisition and development loans. Loans to construct one- to four-family homes
and to finance land development projects comprised
approximately
6% of the Bank’s loan portfolio at June 30, 2008, and September 30, 2007. While
management believe the quality of these credits was strong overall at June 30,
2008, further deterioration of the residential market in the Treasure Valley MSA
may have direct and indirect effects on these portfolios as home inventories and
foreclosures increase.
Deposits. Deposits
decreased $22.3 million, or 5.5%, to $382.3 million at June 30, 2008, from
$404.6 million at September 30, 2007. The increase in
interest-bearing demand deposits was primarily attributed to growth in money
market accounts as the Bank continued its emphasis on deposit products
associated with a full-service commercial bank. The decrease in
certificates of deposit was primarily the result of choosing not to match rates
offered by local competitors that in many cases exceeded the Bank’s cost of
alternative funding sources. The Bank had no brokered deposits at June 30, 2008,
or September 30, 2007. The following table details the changes in deposit
accounts:
|
|
|
Increase
(decrease)
|
|
|
|
|
|
|
|
|
|
Balance
at
June
30,
2008
|
|
Balance
at
September
30,
2007
|
|
Amount
|
|
Percent
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand deposits
|
$ 35,258
|
|
$ 38,643
|
|
$ (3,385)
|
|
(8.8)%
|
Interest-bearing
demand deposits
|
140,401
|
|
127,659
|
|
12,742
|
|
10.0
|
Savings
deposits
|
26,409
|
|
23,116
|
|
3,293
|
|
14.3
|
Certificates
of deposit
|
180,274
|
|
215,191
|
|
(34,917)
|
|
(16.2)
|
Total
deposit accounts
|
$382,342
|
|
$404,609
|
|
$(22,267)
|
|
(5.5)%
|
Borrowings. FHLB
advances decreased $35.1 million, or 19.5%, to $145.6 million at June 30, 2008,
from $180.7 million at September 30, 2007. The decrease resulted from
the repayment of maturing advances and overnight borrowings with excess
liquidity that resulted from the Conversion. The Bank uses FHLB
advances as an alternative funding source to deposits, manage funding costs,
reduce interest rate risk, and to leverage the balance sheet.
Deferred Income Tax
Asset/Liability. The deferred tax asset increased $520,000 or
41.8% to $1.8 million at June 30, 2008, from $1.2 million at
September 30, 2007. This increase was mainly due to both the loan
loss provision as well as expenses related to the Company’s deferred
compensation plans.
Equity. Stockholders’
equity increased $90.9 million, or 80.7%, to $203.5 million at June 30, 2008,
from $112.6 million at September 30, 2007. The increase was primarily
attributable to the $88.3 million in net proceeds received from the Conversion
and stock offering. The Company sold approximately 9.4 million shares
of stock in subscription, community and syndicated community offerings and
issued approximately 7.1 million additional shares of its stock in exchange for
the previously outstanding shares of Home Federal Bancorp, Inc., the Bank’s
former “mid-tier” holding company.
A portion
of the offering proceeds were used to make a loan to the Company’s employee
stock ownership plan, which purchased 816,000 shares of the Company’s common
stock for an aggregate cost of $8.2 million. In addition, other
significant activity among equity accounts over the past nine months included
$3.0 million in net income, the allocation of earned employee stock ownership
plan shares, equity compensation and the exercise of stock options totaling $1.5
million, and a $117,000 increase in the market value of mortgage-backed
securities, offset by $2.1 million in cash dividends paid to
stockholders. On June 13, 2008, the Company paid $0.055 per share in
cash dividends to stockholders of record as of May 30, 2008.
Comparison
of Operating Results for the Three Months Ended June 30, 2008, and June 30,
2007
Net
income for the three months ended June 30, 2008 was $1.1 million, or $0.07 per
diluted share, compared to net income of $1.6 million, or $0.09 per diluted
share, for the three months ended June 30, 2007. Earnings per share
for the prior period have been adjusted to reflect the impact of the Conversion
and reorganization of the Company.
Net Interest
Income. Net interest income increased $600,000, or 11.3%, to
$5.9 million for the three months ended June 30, 2008, from $5.3 million for the
three months ended June 30, 2007. The increase in net interest income
was primarily attributable to a lower balance of certificates of deposit and
FHLB advances. The decrease in FHLB
advances
resulted from the repayment of maturing advances and overnight funds with excess
liquidity generated from the Conversion and stock offering.
The
Company’s net interest margin increased 27 basis points to 3.29% for the quarter
ended June 30, 2008, from 3.02% for the same quarter last year. The improvement
in the net interest margin is primarily attributable to the increase in interest
earning assets that resulted from the proceeds of the Conversion and stock
offering completed on December 19, 2007. In addition, decreases in
interest expense and a shift in the loan portfolio toward higher yielding
commercial loans from residential mortgage loans also contributed to the
increase in the margin in 2008.
The
following table sets forth the impacts to the Company’s net interest income from
changes in balances of interest earning assets and interest bearing liabilities
as well as changes in interest rates. The rate column shows the
effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). Changes attributable to
both rate and volume, which cannot be segregated, are allocated proportionately
to the changes in rate and volume.
|
Three
Months Ended June 30, 2008
Compared
to Three Months Ended
June 30,
2007
|
|
Increase
(Decrease) Due to
|
|
|
|
|
|
|
|
|
|
Rate
|
|
Volume
|
|
Total
|
|
(in
thousands)
|
Interest-earning
assets:
|
|
|
|
|
|
Loans
receivable, net
|
$(439)
|
|
$(328)
|
|
$
(767)
|
Loans
held for sale
|
(3)
|
|
(20)
|
|
(23)
|
Investment
securities, including interest-bearing deposits in other
banks
|
(148)
|
|
86
|
|
(62)
|
Mortgage-backed
securities
|
(71)
|
|
320
|
|
249
|
FHLB
stock
|
46
|
|
-
|
|
46
|
Total
net change in income on interest-earning assets
|
$(615)
|
|
$
58
|
|
$ (557)
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
Savings
deposits
|
$
15
|
|
$
2
|
|
$
17
|
Interest-bearing
demand deposits
|
(15)
|
|
(17)
|
|
(32)
|
Money
market accounts
|
(159)
|
|
128
|
|
(31)
|
Certificates
of deposit
|
(178)
|
|
(478)
|
|
(656)
|
Total
deposits
|
(337)
|
|
(365)
|
|
(702)
|
FHLB
advances
|
55
|
|
(510)
|
|
(455)
|
Total
net change in expense on interest-bearing liabilities
|
$(282)
|
|
$(875)
|
|
$(1,157)
|
Total
increase in net interest income
|
|
|
|
|
$
600
|
|
|
|
|
|
|
Interest and Dividend
Income. Total interest and dividend income for the three
months ended June 30, 2008 decreased $557,000, or 5.2%, to $10.1 million, from
$10.7 million for the three months ended June 30, 2007. The decrease
during the quarter was primarily attributable to a decrease on yields earned on
interest earning assets. Market interest rates, including yields on U.S.
Treasury notes, were significantly lower in 2008 compared to 2007. For example,
the U.S. Prime rate, which is a key index rate for the Bank’s commercial loans
and home equity lines of credit, was 325 basis points lower during the quarter
ended June 30, 2008, compared to the quarter ended June 30, 2007.
The
following table compares detailed average earning asset balances, associated
yields, and resulting changes in interest and dividend income:
|
Three
Months Ended June 30,
|
|
2008
|
|
2007
|
|
Increase/
|
|
Average
Balance
|
|
Yield
|
|
Average
Balance
|
|
Yield
|
|
(Decrease)
in
Interest
and
Dividend
Income
from
2007
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable, net
|
$478,806
|
|
6.26%
|
|
$499,101
|
|
6.62%
|
|
$(767)
|
Loans
held for sale
|
3,208
|
|
6.06
|
|
4,546
|
|
6.33
|
|
(23)
|
Investment
securities, available for sale, including interest-bearing deposits in
other banks
|
23,698
|
|
1.97
|
|
13,757
|
|
5.20
|
|
(62)
|
Mortgage-backed
securities
|
202,904
|
|
4.68
|
|
175,718
|
|
4.83
|
|
249
|
FHLB
stock
|
9,591
|
|
2.50
|
|
9,591
|
|
0.58
|
|
46
|
Total
interest-earning assets
|
$718,207
|
|
5.62%
|
|
$702,713
|
|
6.06%
|
|
$(557)
|
Interest
Expense. Interest expense decreased $1.2 million, or 21.7%, to
$4.2 million for the three months ended June 30, 2008 from $5.3 million for the
three months ended June 30, 2007. The average balance of total
interest-bearing liabilities decreased $77.3 million, or 13.3%, to $504.7
million for the three months ended June 30, 2008 from $582.0 million for the
three months ended June 30, 2007. The decrease in interest expense in
2008 was mainly due to reductions in the outstanding balances of FHLB advances
and certificates of deposit, as well as a significantly lower interest rate
environment in 2008 compared to 2007. The following table details average
balances, cost of funds and the change in interest expense:
|
Three
Months Ended June 30,
|
|
2008
|
|
2007
|
|
Increase/
|
|
Average
Balance
|
|
Cost
|
|
Average
Balance
|
|
Cost
|
|
(Decrease)
in
Interest
Expense
from
2007
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
$ 25,337
|
|
0.74%
|
|
$ 23,567
|
|
0.51%
|
|
$ 17
|
Interest-bearing
demand
deposits
|
80,634
|
|
0.54
|
|
92,534
|
|
0.61
|
|
(32)
|
Money
market deposits
|
61,902
|
|
1.90
|
|
41,063
|
|
3.17
|
|
(31)
|
Certificates
of deposit
|
183,791
|
|
4.31
|
|
227,237
|
|
4.64
|
|
(656)
|
FHLB
advances
|
153,016
|
|
4.58
|
|
197,619
|
|
4.47
|
|
(455)
|
Total
interest-bearing liabilities
|
$504,680
|
|
3.31%
|
|
$582,020
|
|
3.67%
|
|
$(1,157)
|
Provision for Loan
Losses. A provision for loan losses of $652,000 was
established in connection with an analysis of the loan portfolio for the quarter
ended June 30, 2008, compared to no provision for loan losses for the same
quarter of the prior year. The increase in the provision reflects the
increase in nonperforming loans during the three months ended June 30, 2008 and
the shift in the loan portfolio towards commercial loans.
While
management believes the estimates and assumptions used in its determination of
the adequacy of the allowance are reasonable, there can be no assurance that
such estimates and assumptions will not be proven incorrect in the future, or
that the actual amount of future provisions will not exceed the amount of past
provisions or that any increased provision that may be required will not
adversely impact the Company’s financial condition and results of
operations. In addition, the determination of the amount of the
allowance for loan losses is subject to review by bank regulators, as part of
the routine examination process, which may result in the establishment of
additional reserves based upon their judgment of information available to them
at the time of their examination.
Standard
provisions for loan losses are established based upon the type of loan and the
risk factors associated with that loan type. As the Bank increases
its commercial loan portfolio, the Bank anticipates it will increase its
allowance
for loan losses based upon the higher risk characteristics associated with
commercial loans compared with one- to four- family residential loans, which
have historically comprised the majority of the Bank’s loan
portfolio.
The
following table details selected activity associated with the allowance for loan
losses:
|
At
or For the Three Months
Ended
June 30,
|
|
2008
|
|
2007
|
|
(dollars
in thousands)
|
|
|
|
|
Provision
for loan losses
|
$ 652
|
|
$ -
|
Net
charge-offs
|
158
|
|
100
|
Allowance
for loan losses
|
3,801
|
|
2,748
|
Allowance
for loan losses as a percentage of gross loans receivable at the end of
the period
|
0.81%
|
|
0.56%
|
Nonperforming
loans
|
$ 3,462
|
|
$ 367
|
Allowance
for loan losses as a percentage of nonperforming loans at the end of the
period
|
109.79%
|
|
748.77%
|
Nonaccrual
and 90 days or more past due loans as a percentage of loans receivable,
net, at the end of the period
|
0.73
3
|
|
0.07
|
Loans
receivable, net
|
$468,343
|
|
$491,768
|
At June
30, 2008, nonperforming loans consisted of $2.1 million of loans secured by one-
to four-family residences and $1.2 million of acquisition and development and
speculative construction loans. The increase in nonperforming loans secured by
one- to four-family residences is primarily attributable to out-of-market loans
acquired from a third party in fiscal 2006. Nonperforming acquisition and
development loans consist of two properties: one was secured by undeveloped land
and the other by a speculative construction loan on a single-family residence.
At June 30, 2008, management was considering a short sale offer through the
borrower, and we anticipate this $458,000 loan to be paid off in the fourth
fiscal quarter with no additional loss than the $55,000 specific reserve. Total
loans delinquent 30-89 days totaled $2.0 million and $1.3 million at June 30,
2008 and 2007, respectively.
Noninterest
Income. Noninterest income decreased $280,000, or 9.3%, to
$2.7 million for the three months ended June 30, 2008 from $3.0 million for the
three months ended June 30, 2007. The decrease was primarily
attributable to a $278,000 decrease in gain on sale of one-to four-family
residential loans in the secondary market. The decrease in the gain
on sale of loans was a result of lower volume of sold loans consistent with the
slowdown in the local residential real estate market.
The
following table provides a detailed analysis of the changes in components of
noninterest income:
|
Three
Months Ended
June
30,
|
|
Increase
(decrease)
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
Service
fees and charges
|
$2,396
|
|
$2,318
|
|
$ 78
|
|
3.4%
|
Gain
on sale of loans
|
213
|
|
491
|
|
(278)
)
|
|
(56.6)
|
Increase
in cash surrender value of bank owned life insurance
|
106
|
|
102
|
|
4
|
|
3.9
|
Loan
servicing fees
|
116
|
|
134
|
|
(18)
|
|
(13.4)
|
Mortgage
servicing rights, net
|
(63)
|
|
(48)
|
|
(15)
|
|
31.3
|
Other
|
(33)
|
|
18
|
|
(51)
|
|
283.3
|
Total
noninterest income
|
$2,735
|
|
$3,015
|
|
$(280)
|
|
(9.3)%
|
Noninterest
Expense. Noninterest expense increased $347,000, or 6.0%, to
$6.2 million for the three months ended June 30, 2008 from $5.8 million for the
three months ended June 30, 2007. While total revenues increased 3.8% in the
third fiscal quarter of 2008 from the same quarter in 2007, the increase in
noninterest expenses caused the Company’s efficiency ratio (the percentage of
noninterest expense to net interest income plus noninterest income) to increase
to 71.4% for the three months ended June 30, 2008, from 70.0% for the three
months ended June 30, 2007.
The
following table provides a detailed analysis of the changes in components of
noninterest expense:
|
Three
Months Ended
June
30,
|
|
Increase
(decrease)
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
$3,840
|
|
$3,498
|
|
$
342
|
|
9.8%
|
Occupancy
and equipment
|
771
|
|
716
|
|
55
|
|
7.7
|
Data
processing
|
615
|
|
548
|
|
67
|
|
12.2
|
Advertising
|
241
|
|
362
|
|
(121)
|
|
(33.4)
|
Other
|
707
|
|
703
|
|
4
|
|
0.1
|
Total
noninterest expense
|
$6,174
|
|
$5,827
|
|
$
347
|
|
6.0%
|
Compensation
and benefits increased $342,000, or 9.8%, to $3.8 million for the quarter ended
June 30, 2008 from $3.5 million for the same quarter a year ago. The
majority of the increase is attributable to the reversal of incentive accruals
in the prior year as well as the additional 816,000 shares added to the
Company’s ESOP in conjunction with the Conversion.
Income Tax
Expense. Income tax expense decreased $232,000, or 24.8%, to
$702,000 for the three months ended June 30, 2008 from $934,000 for the same
period a year ago. Income before income taxes was $1.8 million for
the three months ended June 30, 2008 compared to $2.5 million for the three
months ended June 30, 2007. The Company’s combined federal and state
effective income tax rate for the current quarter was 38.6% compared to 37.4%
for the same quarter of the prior fiscal year.
Comparison
of Operating Results for the Nine Months Ended June 30, 2008 and June 30,
2007
Net
income for the nine months ended June 30, 2008 was $3.0 million, or $0.19 per
diluted share, compared to net income of $4.1 million, or $0.24 per diluted
share, for the nine months ended June 30, 2007. Earnings per share
for the prior period have been adjusted to reflect the impact of the Conversion
and reorganization of the Company, which occurred on December 19,
2007.
Net Interest
Income. Net interest income increased $573,000, or 3.5%, to
$16.7 million for the nine months ended June 30, 2008, from $16.2 million for
the nine months ended June 30, 2007. While both total interest income
and expense were lower for the nine months ended June 30, 2007 than for the same
period of the prior year, interest expense had the larger decrease due mainly to
a decrease in the volume of Federal Home Loan Bank advances and certificates of
deposit.
The
Company’s net interest margin increased 12 basis points to 3.14% for the nine
months ended June 30, 2008, from 3.02% for the same period last
year. This increase was primarily attributable to the interest
earnings on the proceeds of the Conversion and reorganization of the
Company. In addition, the deposit mix shift toward lower cost
deposits as well as a shift in the loan portfolio toward higher yielding
commercial loans from residential mortgage loans also contributed to the
increase.
The
following table sets forth the impacts to the Company’s net interest income from
changes in balances of interest earning assets and interest bearing liabilities
as well as changes in interest rates. The rate column shows the
effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). Changes attributable to
both rate and volume, which cannot be segregated, are allocated proportionately
to the changes in rate and volume.
|
Nine
Months Ended June 30, 2008
Compared
to Nine Months Ended
June
30, 2007
|
|
Increase
(Decrease) Due to
|
|
|
|
Rate
|
|
Volume
|
|
Total
|
|
(in
thousands)
|
Interest-earning
assets:
|
|
|
|
|
|
Loans
receivable, net
|
$(509)
|
|
$(1,379)
|
|
$(1,888)
|
Loans
held for sale
|
(8)
|
|
(45)
|
|
(53)
|
Investment
securities, including interest-bearing deposits in other
banks
|
(154)
|
|
822
|
|
668
|
Mortgage-backed
securities
|
(81)
|
|
(129)
|
|
(210)
|
FHLB
stock
|
77
|
|
-
|
|
77
|
Total
net change in income on interest-earning assets
|
$(675)
|
|
$ (731)
|
|
$(1,406)
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
Savings
deposits
|
$ 56
|
|
$
-
|
|
$ 56
|
Interest-bearing
demand deposits
|
42
|
|
(81)
|
|
(39)
|
Money
market accounts
|
(84)
|
|
436
|
|
352
|
Certificates
of deposit
|
109
|
|
(1,109)
|
|
(1,000)
|
Total
deposits
|
123
|
|
(754)
|
|
(631)
|
FHLB
advances
|
317
|
|
(1,665)
|
|
(1,348)
|
|
|
|
|
|
|
Total
net change in expense on interest-bearing liabilities
|
$ 440
|
|
$(2,419)
|
|
$(1,979)
|
|
|
|
|
|
|
Total
increase in net interest income
|
|
|
|
|
$ 573
|
Interest and Dividend
Income. Total interest and dividend income for the nine months
ended June 30, 2008 decreased $1.4 million, or 4.4%, to $30.9 million, from
$32.3 million for the nine months ended June 30, 2007. The decrease
during the period was attributable to both a decrease in the average balance of
interest-earning assets of $3.3 million as well as a drop in yields earned on
interest-earning assets of 24 basis points.
The
following table compares detailed average earning asset balances, associated
yields, and resulting changes in interest and dividend income:
|
Nine
Months Ended June 30,
|
|
2008
|
|
2007
|
|
Increase/
|
|
Average
Balance
|
|
Yield
|
|
Average
Balance
|
|
Yield
|
|
(Decrease)
in
Interest
and
Dividend
Income
from
2007
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable, net
|
$480,477
|
|
6.46%
|
|
$508,782
|
|
6.59%
|
|
$(1,888)
|
Loans
held for sale
|
2,716
|
|
6.22
|
|
3,675
|
|
6.54
|
|
(53)
|
Investment
securities, available for sale, including interest-bearing deposits in
other banks
|
35,301
|
|
3.37
|
|
5,713
|
|
5.20
|
|
668
|
Mortgage-backed
securities
|
182,080
|
|
4.73
|
|
185,694
|
|
4.79
|
|
(210)
|
FHLB
stock
|
9,591
|
|
1.53
|
|
9,591
|
|
0.46
|
|
77
|
Total
interest-earning assets
|
$710,165
|
|
5.79%
|
|
$713,455
|
|
6.03%
|
|
$(1,406)
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense. Interest expense decreased $2.0 million, or 12.3%, to
$14.1 million for the nine months ended June 30, 2008 from $16.1 million for the
nine months ended June 30, 2007. The average balance of total
interest-bearing liabilities decreased $70.3 million, or 11.9%, to $522.1
million for the nine months ended June 30, 2008 from $592.4 million for the nine
months ended June 30, 2007. The primary contributing factors to the
decrease in interest bearing liabilities were the decreases in average FHLB
advances and certificates of deposit of $45.0 million and $31.1 million,
respectively.
The
following table details average balances, cost of funds and the change in
interest expense:
|
Nine
Months Ended June 30,
|
|
2008
|
|
2007
|
|
|
|
Average
Balance
|
|
Cost
|
|
Average
Balance
|
|
Cost
|
|
Increase/
(Decrease)
in
Interest
Expense
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
$ 23,570
|
|
0.70%
|
|
$ 23,457
|
|
0.39%
|
|
$ 56
|
Interest-bearing
demand
deposits
|
79,065
|
|
0.64
|
|
93,330
|
|
0.60
|
|
(39)
|
Money
market deposits
|
57,793
|
|
2.69
|
|
37,852
|
|
2.87
|
|
352
|
Certificates
of deposit
|
199,179
|
|
4.58
|
|
230,242
|
|
4.54
|
|
(1,000)
|
FHLB
advances
|
162,471
|
|
4.59
|
|
207,517
|
|
4.46
|
|
(1,348)
|
Total
interest-bearing liabilities
|
$522,078
|
|
3.60%
|
|
$592,398
|
|
3.62%
|
|
$(1,979)
|
Provision for Loan
Losses. A provision for loan losses of $1.3 million was
established in connection with an analysis of the loan portfolio for the nine
months ended June 30, 2008, compared to a provision for loan losses of $71,000
established for the same period of the prior year. The increase in
the provision reflects the increase in nonperforming loans in fiscal 2008
compared to fiscal 2007 as well as a shift in the asset mix from residential
loans toward commercial loans. Net charge-offs totaled $505,000 and
$105,000 during the nine months ended June 30, 2008 and 2007,
respectively.
Noninterest
Income. Noninterest income decreased $841,000, or 9.7%, to
$7.8 million for the nine months ended June 30, 2008 from $8.7 million for the
nine months ended June 30, 2007. The decrease was primarily
attributable to a $248,000, or 3.6%, decrease in service fees and charges and a
$608,000 decrease in gain on sale of one-to four-family residential loans in the
secondary market. The decrease in the gain on sale of loans was a
result of lower volume of loans sold consistent with the slowdown in the
residential real estate market.
The
following table provides a detailed analysis of the changes in components of
noninterest income:
|
Nine
Months Ended
June
30,
|
|
Increase
(decrease)
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
Service
fees and charges
|
$6,731
|
|
$6,979
|
|
$(248)
|
|
(3.6)%
|
Gain
on sale of loans
|
560
|
|
1,168
|
|
(608)
|
|
(52.1)
|
Increase
in cash surrender value of bank owned life insurance
|
314
|
|
301
|
|
13
|
|
4.3
|
Loan
servicing fees
|
369
|
|
420
|
|
(51)
|
|
(12.1)
|
Mortgage
servicing rights, net
|
(206)
|
|
(223)
|
|
17
|
|
7.6
|
Other
|
75
|
|
39
|
|
36
|
|
92.3
|
Total
noninterest income
|
$7,843
|
|
$8,684
|
|
$(841)
|
|
(9.7)%
|
Noninterest
Expense. Noninterest expense increased $289,000, or 1.6%, to
$18.5 million for the nine months ended June 30, 2008 from $18.2 million for the
nine months ended June 30, 2007. Compensation and benefits increased
$229,000 between the two periods, primarily due to the additional 816,000 shares
added to the Company’s ESOP in conjunction with the Conversion.
The
following table provides a detailed analysis of the changes in components of
noninterest expense:
|
Nine
Months Ended
June
30,
|
|
Increase
(decrease)
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
$11,592
|
|
$11,363
|
|
$
229
|
|
2.0%
|
Occupancy
and equipment
|
2,242
|
|
2,145
|
|
97
|
|
4.5
|
Data
processing
|
1,668
|
|
1,549
|
|
119
|
|
7.7
|
Advertising
|
786
|
|
940
|
|
(154)
|
|
(16.4)
|
Other
|
2,193
|
|
2,195
|
|
(2)
|
|
(0.1)
|
Total
noninterest expense
|
$18,481
|
|
$18,192
|
|
$
289
|
|
1.6%
|
The
Company’s efficiency ratio, which is the percentage of noninterest expense to
net interest income plus noninterest income, was 75.2% for the nine months ended
June 30, 2008 compared to 73.2% for the nine months ended June 30, 2007. The
increase in efficiency ratio was primarily attributable to a decrease in
revenues.
Income Tax
Expense. Income tax expense decreased $738,000, or 29.3%, to
$1.8 million for the nine months ended June 30, 2008 from $2.5 million for the
same period a year ago. Income before income taxes was $4.8 million
for the nine months ended June 30, 2008 compared to $6.6 million for the nine
months ended June 30, 2007. The Company’s combined federal and state
effective income tax rate for the nine months ended June 30, 2008 was 37.1%
compared to 38.2% for the same period of the prior fiscal year. The
decrease in the effective income tax rate was primarily attributable to a
decrease in expenses not deductible for tax purposes.
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 the
"Consolidated Statements of Cash Flows" contained in Item 1 - Financial
Statements, included herein.
The
primary sources of funds are customer deposits, loan repayments, loan sales,
maturing investment securities, and FHLB advances. These sources of
funds 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 the
Company’s current liquidity position and forecasted operating results are
sufficient to fund all of the Bank’s existing commitments.
At June
30, 2008, the Bank maintained a line of credit with the FHLB equal to 40% of
total assets to the extent the Bank provides qualifying collateral and holds
sufficient FHLB stock. At June 30, 2008, the Bank was in compliance
with the collateral requirements and $124.0 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 June
30, 2008, certificates of deposit amounted to $180.3 million, or 47.1% of total
deposits, including $139.0 million that are scheduled to mature by June 30,
2009. Historically, the Bank has been able to retain a significant
amount of deposits as they mature. However, recent disruptions in the credit
markets have resulted in a highly price-competitive market for certificates of
deposit. These rates currently exceed alternative costs of borrowings and are
high compared to historical spreads to U.S. Treasury note rates. Additionally,
since loan demand has slowed in 2008, Management has been reluctant to offer
rates in excess of wholesale borrowing costs. This has resulted in some deposit
runoff as customers are moving their maturing balances to competitors at a
higher pace than the Bank has historically experienced. Nonetheless, management
believes the Company has adequate resources to fund all loan commitments through
FHLB advances, loan repayments, maturing investment securities, and the sale of
mortgage loans in the secondary markets.
Commitments and contingencies.
The following table sets forth information regarding the Bank’s
obligations and commitments to make future payments under contract as of June
30, 2008.
|
Payments
due by period
|
|
Less
than one
year
|
1 –
3 years
|
3 –
5 years
|
More
than 5
years
|
Total
|
|
(dollars
in thousands)
|
Certificates
of deposit
|
$139,030
|
$31,546
|
$ 9,523
|
$
175
|
$180,274
|
FHLB
advances
|
76,192
|
45,690
|
18,000
|
5,700
|
145,582
|
Off-Balance Sheet
Arrangements. The Bank is party to financial instruments with
off-balance sheet risk in the normal course of business in order to meet the
financing needs of the Bank’s 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. The Bank’s
maximum exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amount of those
instruments. Because some commitments may expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The same credit policies are used in making commitments
as are used for on-balance sheet instruments. Collateral is required
in instances where deemed necessary.
Undisbursed
balances of loans closed include funds not disbursed but committed for
construction projects. Unused lines of credit include funds not
disbursed, but committed for, home equity, commercial and consumer lines of
credit.
Commercial
letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. Those guarantees are
primarily used to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers.
The
following is a summary of commitments and contingent liabilities with
off-balance sheet risks as of June 30, 2008:
|
Contract
or
Notional
Amount
|
|
(in
thousands)
|
Commitments
to originate loans:
|
|
Fixed
rate
|
$ 9,206
|
Adjustable
rate
|
5,457
|
Undisbursed
balance of loans closed
|
6,270
|
Unused
lines of credit
|
43,975
|
Commercial
letters of credit
|
500
|
Total
|
$65,543
|
Capital. Consistent with the Bank’s
goal to operate a sound and profitable financial organization, efforts are
ongoing to actively seek to maintain a “well capitalized” institution in
accordance with regulatory standards. The Bank’s total regulatory capital was
$144.1 million at June 30, 2008, or 20.9%, of total assets on that date. As of
June 30, 2008, the Bank exceeded all regulatory capital requirements. The Bank’s
regulatory capital ratios at June 30, 2008 were as follows: Tier 1 capital
21.1%; Tier 1 (core) risk-based capital 31.6%; and total risk-based capital
32.3%. The applicable regulatory capital requirements to be considered well
capitalized are 5%, 6% and 10%, respectively.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
The
Company’s 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 asset/liability positions
consistent with the business plan and Board-approved policies, as well as to
price savings and lending products, and to develop new products.
One of
the Bank’s 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 the Company earns on assets and pays on
liabilities generally are established contractually for a period of
time. Market interest rates change over time. The Bank’s
loans generally have longer maturities than the
deposits. Accordingly, the Company’s results of operations, like
those of other financial institutions, are affected by changes in interest rates
and the interest rate sensitivity of assets and liabilities. The Bank
measures its interest rate sensitivity on a quarterly basis using an internal
model.
Management
employs various strategies to manage the Company’s interest rate sensitivity
including: (1) selling long-term fixed-rate mortgage loans in the secondary
market; (2) borrowing intermediate to long-term funds at fixed rates from the
FHLB; (3) originating commercial and 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 June 30, 2008, 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 2007 Form 10-K.
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
Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange 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 as of June 30, 2008 the Company’s disclosure controls and
procedures were 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.
There
have been no changes in the Company’s internal control over financial reporting
(as defined in 13a-15(f) of the Exchange Act) that occurred during the quarter
ended June 30, 2008, that have materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting. A number of internal control procedures were, however,
modified during the quarter in conjunction with the Bank's internal control
testing. The Company also continued to implement suggestions from its
internal auditor and independent auditors to strengthen existing
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. The Company does not expect that its
disclosure controls and procedures and internal control over financial reporting
will prevent every error or instance of fraud. A control procedure,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control procedure are
met. Because of the inherent limitations in all control procedures,
no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns in controls or
procedures can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any control procedure is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, controls become
inadequate because of changes in
conditions,
or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective
control procedure, misstatements due to error or fraud may occur and not be
detected.
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 1A. Risk
Factors
Our business is subject to general
economic risks that could adversely impact our results of operations and
financial condition.
·
|
Changes
in economic conditions, particularly a further economic slowdown in The
Treasure Valley, could hurt our
business.
|
Our
business is directly affected by market conditions, trends in industry and
finance, legislative and regulatory changes, and changes in governmental
monetary and fiscal policies and inflation, all of which are beyond our
control. In 2007, the housing and real estate sectors experienced an
economic slowdown that has continued into 2008. Further deterioration
in economic conditions, and the real estate market, in particular within the
Treasure Valley, could result in the following consequences, among others, any
of which could hurt our business materially:
o
|
loan
delinquencies may increase;
|
o
|
problem
assets and foreclosures may
increase;
|
o
|
demand
for our products and services may decline;
and
|
o
|
collateral
for loans made by us, especially real estate, may decline in value, in
turn reducing a customer’s borrowing power and reducing the value of
assets and collateral securing our
loans.
|
·
|
Downturns
in the real estate markets in our primary market area could hurt our
business.
|
Our
business activities and credit exposure are primarily concentrated in the
Treasure Valley. Our construction and land loan portfolios, our
commercial and multifamily loan portfolios and certain of our other loans have
been affected by the downturn in the residential real estate
market. We anticipate that further declines in the real estate
markets in our primary market area will hurt our business. As of June
30, 2008, substantially all of our loan portfolio consisted of loans secured by
real estate located in the Treasure Valley. If real estate values
continue to decline the collateral for our loans will provide less
security. As a result, our ability to recover on defaulted loans by
selling the underlying real estate will be diminished, and we would be more
likely to suffer losses on defaulted loans. The events and conditions
described in this risk factor could therefore have a material adverse effect on
our business, results of operations and financial condition.
·
|
We
may suffer losses in our loan portfolio despite our underwriting
practices.
|
We seek
to mitigate the risks inherent in our loan portfolio by adhering to specific
underwriting practices. Although we believe that our underwriting
criteria are appropriate for the various kinds of loans we make, we may incur
losses on loans that meet our underwriting criteria, and these losses may exceed
the amounts set aside as reserves in our allowance for loan losses.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Not
applicable.
Stock
Repurchases. The Company did not repurchase any shares of its
outstanding common stock during the nine months ended June 30,
2008. In addition, the Company has no publicly announced plans to
repurchase any shares of 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.
Item
6. Exhibits
|
2.1
|
Plan
of Conversion and Reorganization (1)
|
|
3.1
|
Articles
of Incorporation of the Registrant (2)
|
|
3.2
|
Bylaws
of the Registrant (2)
|
|
10.1
|
Amended
Employment Agreement entered into by Home Federal Bank with Len E.
Williams (9)
|
|
10.2
|
Employment
Agreement entered into by Home Federal Bancorp, Inc. with Len E. Williams
(9)
|
|
10.3
|
Amended
Employment Agreement entered into by Home Federal Bank with Daniel L.
Stevens (9)
|
|
10.4
|
Amended
Employment Agreement entered into by Home Federal Bancorp, Inc. with
Daniel L. Stevens (9)
|
|
10.5
|
Form
of Amended Severance Agreement for Executive Officers
(7)
|
|
10.6
|
Form
of Amended Severance Agreement for new Executive Officers
(7)
|
|
10.7
|
Form
of Home Federal Savings and Loan Association of Nampa Employee Severance
Compensation Plan (2)
|
|
10.8
|
Form
of Director Indexed Retirement Agreement entered into by Home Federal
Savings and Loan Association of Nampa with each of its Directors
(2)
|
|
10.9
|
Form
of Director Deferred Incentive Agreement entered into by Home Federal
Savings and Loan Association of Nampa with each of its Directors
(2)
|
|
10.10
|
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 (2)
|
|
10.11
|
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, and Lynn A. Sander (2)
|
|
10.12
|
Form
of Amended and Restated Salary Continuation Agreement entered into by Home
Federal Savings and Loan Association of Nampa with Daniel L. Stevens, Len
E. Williams, Steven E. Emerson, Robert A. Schoelkoph, and Lynn A. Sander
(2)
|
|
10.13
|
2005
Stock Option and Incentive Plan approved by stockholders on June 23, 2005
and Form of Incentive Stock Option Agreement and Non-Qualified Stock
Option Agreement (3)
|
|
10.14
|
2005
Recognition and Retention Plan approved by stockholders on June 23, 2005
and Form of Award Agreement (3)
|
|
10.15
|
Form
of new Director Retirement Plan entered into by Home Federal Bank with
each of its Directors (4)
|
|
10.16
|
Transition
Agreement with Daniel L. Stevens (5)
|
|
10.17
|
Agreement
Regarding Terms of Employment Offer with Steven K. Eyre
(6)
|
|
10.18
|
Agreement
Regarding Terms of Employment Offer with Eric S. Nadeau
(8)
|
|
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 Current Report on Form 8-K dated May 11,
2007. |
(2)
|
Filed
as an exhibit to the Registrant's Registration Statement on Form S-1
(333-35817). |
(3)
|
Filed
as an exhibit to the Registrant’s Registration Statement on Form S-8
(333-127858). |
(4)
|
Filed
as an exhibit to the Registrant’s Current Report on Form 8-K dated October
21, 2005. |
(5)
|
Filed
as an exhibit to the Registrant’s Current Report on Form 8-K dated August
21, 2006.
|
(6)
|
Filed
as an exhibit to the Registrant’s Current Report on Form 8-K dated
November 15, 2007.
|
(7)
|
Filed
as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended December 31, 2007.
|
(8)
|
Filed
as an exhibit to the Registrant’s Current Report on Form 8-K dated May 15,
2008.
|
(9)
|
Filed
as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2008
|
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: August 5,
2008 /s/ Len E.
Williams
Len E. Williams
President and
Chief Executive Officer
(Principal Executive
Officer)
Date: August 5,
2008 /s/ Eric S.
Nadeau
Eric S. Nadeau
Executive Vice President
and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
EXHIBIT INDEX
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
|
EXHIBIT
31.1
Certification
of Chief Executive Officer Pursuant to
Section
302 of the Sarbanes-Oxley Act of 2002
I, Len E.
Williams, 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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 quarterly report is
being prepared;
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
(c)
|
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
|
(d)
|
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: August 5,
2008 /s/ Len E.
Williams
Len E.
Williams
President
and
Chief Executive
Officer
EXHIBIT
31.2
Certification
of Chief Financial Officer Pursuant to
Section
302 of the Sarbanes-Oxley Act of 2002
I, Eric
S. Nadeau, 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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 quarterly report is
being prepared;
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
(c)
|
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
|
(d)
|
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: August 5,
2008 /s/ Eric S.
Nadeau
Eric S. Nadeau
Executive Vice President and
Chief Financial Officer
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
as of the dates and for the periods presented in the financial statements
included in the Report.
|
/s/ Len E.
Williams /s/ Eric S.
Nadeau
Len E.
Williams
Eric
S. Nadeau
President
and
Executive
Vice President and
Chief
Executive
Officer
Chief
Financial Officer
Dated:
August 5,
2008