[LOGO]
279 East Morgan Street
Spencer, Indiana 47460
(812) 829-2095
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On October 14, 1997
Notice is hereby given that the Annual Meeting of Shareholders of Home
Financial Bancorp (the "Holding Company") will be held at the Canyon Inn,
Sycamore Room, McCormicks Creek State Park, State Highway 46 (two miles east of
Spencer), Spencer, Indiana, on Tuesday, October 14, 1997, at 3:00 p.m., Eastern
Standard Time.
The Annual Meeting will be held for the following purposes:
1. Election of Directors. Election of two directors of the Holding
Company for terms expiring in 2000.
2. Approval of Stock Option Plan. Approval and ratification of the Home
Financial Bancorp Stock Option Plan (the "Option Plan").
3. Ratification of Auditors. Approval and ratification of the appointment
of Geo. S. Olive & Co., LLC as auditors for Home Financial Bancorp for
the fiscal year ending June 30, 1998.
4. Other Business. Such other matters as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on August 22, 1997, are
entitled to vote at the meeting or any adjournment thereof.
We urge you to read the enclosed Proxy Statement carefully so that you may
be informed about the business to come before the meeting, or any adjournment
thereof. At your earliest convenience, please sign and return the accompanying
proxy in the postage-paid envelope furnished for that purpose.
A copy of our Annual Report for the fiscal year ended June 30, 1997, is
enclosed. The Annual Report is not a part of the proxy soliciting material
enclosed with this letter.
By Order of the Board of Directors
/s/ Kurt J. Meier
Kurt J. Meier, President
Spencer, Indiana
September 11, 1997
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
HOME FINANCIAL BANCORP
279 East Morgan Street
Spencer, Indiana 47460
(812) 829-2095
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
October 14, 1997
This Proxy Statement is being furnished to the holders of common stock,
without par value (the "Common Stock"), of Home Financial Bancorp (the "Holding
Company"), an Indiana corporation, in connection with the solicitation of
proxies by the Board of Directors of the Holding Company to be voted at the
Annual Meeting of Shareholders to be held at 3:00 p.m., Eastern Standard Time,
on October 14, 1997, at the Canyon Inn, Sycamore Room, McCormicks Creek State
Park, State Highway 46, Spencer, Indiana, and at any adjournment of such
meeting. The principal asset of the Holding Company consists of 100% of the
issued and outstanding shares of common stock, $.01 par value per share, of Owen
Community Bank, s.b. (the "Bank"). This Proxy Statement is expected to be mailed
to the shareholders on or about September 11, 1997.
The proxy solicited hereby, if properly signed and returned to the Holding
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted for each of the matters described below and, upon
the transaction of such other business as may properly come before the meeting,
in accordance with the best judgment of the persons appointed as proxies.
Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Holding Company
written notice thereof (Charles W. Chambers, 279 East Morgan Street, Spencer,
Indiana 47460), (ii) submitting a duly executed proxy bearing a later date, or
(iii) by appearing at the Annual Meeting and giving the Secretary notice of his
or her intention to vote in person. Proxies solicited hereby may be exercised
only at the Annual Meeting and any adjournment thereof and will not be used for
any other meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only shareholders of record at the close of business on August 22, 1997
("Voting Record Date"), will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 469,526 shares of the Common Stock issued and
outstanding, and the Holding Company had no other class of equity securities
outstanding. Each share of Common Stock is entitled to one vote at the Annual
Meeting on all matters properly presented at the Annual Meeting. The holders of
over 50% of the outstanding shares of Common Stock as of the Voting Record Date
must be present in person or by proxy at the Annual Meeting to constitute a
quorum. In determining whether a quorum is present, shareholders who abstain,
cast broker non-votes, or withhold authority to vote on one or more director
nominees will be deemed present at the Annual Meeting.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of August 22, 1997, by each person who is known
by the Holding Company to own beneficially 5% or more of the Common Stock.
Unless otherwise indicated, the named beneficial owner has sole voting and
dispositive power with respect to the shares.
Number of Shares of
Name and Address of Common Stock Percent of
Beneficial Owner Beneficially Owned Class (5)
Chiplease, Inc. 50,592 (1)(2) 10.78%
c/o Goldsher & Goldsher
640 N. LaSalle Street
Suite 300
Chicago, Illinois 60610
William Lannan 32,000 6.82%
R.R. 4, Box 12
Loogootee, Indiana 47533
Frank R. Stewart 44,846 (1) (3) 9.55%
c/o Owen Community Bank, s.b.
279 East Morgan Street
Spencer, Indiana 47460
Community Trust & Investment 40,474 (1)(4) 8.62%
Company, Inc., Trustee
105 N. Pete Ellis Drive
Suite B
P.O. Box 5996
Bloomington, Indiana 47407
(1) The information in this chart is based on Schedule 13D or 13G Report(s)
filed by the above-listed person(s) with the Securities and Exchange
Commission (the "SEC") containing information concerning shares held by
them. It does not reflect any changes in those shareholdings which may have
occurred since the date of such filings.
(2) Includes 25,592 shares held by Chiplease, Inc. and 25,000 held by its
secretary, Leon Greenblatt.
(3) Of these shares, 42,000 are owned jointly by Mr. Stewart and his wife, and
2,846 are held under the Owen Community Bank, s.b. Recognition and
Retention Plan and Trust (the "RRP").
(4) These shares are held by the Trustee of the Owen Community Bank, s.b.
Employee Stock Ownership Plan and Trust. The employees participating in
that Plan are entitled to instruct the Trustee how to vote shares held in
their accounts under the Plan. Unallocated shares held in a suspense
account under the Plan are required under the Plan terms to be voted by the
Trustee in the same proportion as allocated shares are voted. (5) Based
upon 469,526 shares of Common Stock outstanding which does not include
options for 35,800 shares of Common Stock to be granted to certain
directors, officers and employees of the Holding Company and the Bank,
subject to the approval of the Option Plan by the shareholders at the
Annual Meeting.
PROPOSAL I -- ELECTION OF DIRECTORS
The Board of Directors consists of seven members. The By-Laws provide that
the Board of Directors is to be divided into three classes as nearly equal in
number as possible. The members of each class are to be elected for a term of
three years and until their successors are elected and qualified. One class of
directors is to be elected annually. The two nominees for election as a director
this year are John T. Gillaspy and Robert W. Raper, each of whom currently
serves as a director. Messrs. Gillaspy and Raper each have been nominated to
serve for a three-year term ending in 2000.
Unless otherwise directed, each proxy executed and returned by a
shareholder will be voted for the election of the nominees listed below. If any
person named as a nominee should be unable or unwilling to stand for election at
the time of the Annual Meeting, the proxy holders will nominate and vote for a
replacement nominee recommended by the Board of Directors. At this time, the
Board of Directors knows of no reason why the nominees listed below may not be
able to serve as directors if elected.
The following table sets forth certain information regarding the nominees
for the position of director of the Holding Company and each director continuing
in office after the Annual Meeting, including the number and percent of shares
of Common Stock beneficially owned by such persons as of the Voting Record Date.
Unless otherwise indicated, each nominee has sole investment and/or voting power
with respect to the shares shown as beneficially owned by him. Mr. Parrish is
married to Mr. Wilson's sister. No other nominee for director is related to any
other nominee for director or executive officer of the Holding Company by blood,
marriage, or adoption, and there are no arrangements or understandings between
any nominee and any other person pursuant to which such nominee was selected.
The table also sets forth the number of shares of Holding Company Common Stock
beneficially owned by all directors and executive officers of the Holding
Company as a group.
<TABLE>
<CAPTION>
Director Common Stock
of the Beneficially
Expiration of Director of Holding Owned as of
Term as the Bank Company August 22, Percentage
Name Director Since Since 1997 (1) of Class
- ------------------------------------------------------------------------------------------------------------------
Director Nominees
- -----------------
<S> <C> <C> <C> <C> <C>
John T. Gillaspy 1997 1986 1996 14,012(2) 2.98%
Robert W. Raper 1997 1970 1996 6,012(2) 1.28%
Directors Continuing
in Office
Charles W. Chambers 1998 1978 1996 1,512(2) 0.32%
Kurt J. Meier 1999 1991 1996 3,846(3) 0.82%
Stephen Parrish 1998 1982 1996 5,012(2) 1.07%
Frank R. Stewart 1999 1963 1996 44,846(4) 9.55%
Tad Wilson 1999 1978 1996 13,512(2) 2.88%
All directors and executive 91,499(5) 19.49%
officers as a group (8 persons)
</TABLE>
(1) Based upon information furnished by the respective director nominees. Under
applicable regulations, shares are deemed to be beneficially owned by a
person if he or she directly or indirectly has or shares the power to vote
or dispose of the shares, whether or not he or she has any economic power
with respect to the shares. Includes shares benefically owned by members of
the immediate families of the director nominees residing in their homes.
(2) Of these shares, 1,012 are held under the RRP and the balance are held
jointly by the director and his wife.
(3) Of these shares, 1,000 are owned jointly by Mr. Meier and his wife, and
2,846 are held under the RRP.
(4) Of these shares, 42,000 are owned jointly by Mr. Stewart and his wife, and
2,846 are held under the RRP.
(5) Of these shares, 12,649 are held under the RRP.
Presented below is certain information concerning the director nominees of
the Holding Company:
Charles W. Chambers (age 82), has served as a director of the Holding
Company since its formation and of the Bank since 1978. Mr. Chambers formerly
served as a staff appraiser for the Bank and has served as the Secretary of the
Bank since 1990.
John T. Gillaspy (age 69), has served as a director of the Holding
Company since its formation and of the Bank since 1986. Mr. Gillaspy has also
served as President until 1994 and Chief Executive Officer since 1994 of the
Spencer Evening World, Inc., a newspaper based in Spencer, Indiana.
Kurt J. Meier (age 47), has served as a director of the Holding Company
since its formation and of the Bank since 1991. Mr. Meier has also served as
President of the Bank since 1994. From 1990 to 1994, Mr. Meier served as
Managing Officer of the Bank.
Stephen Parrish (age 57), has served as a director of the Holding
Company since its formation and of the Bank since 1982. Mr. Parrish has also
served as a funeral director for the West-Parrish-Pedigo Funeral Home in
Spencer, Indiana, for more than five years.
Robert W. Raper (age 80), has served as a director of the Holding
Company since its formation and of the Bank since 1970, with which he has served
as Vice Chairman since 1994. Prior to 1994, Mr. Raper served as Vice President
of the Bank.
Frank R. Stewart (age 72), has served as Chairman of the Board of the
Holding Company since its formation and of the Bank since 1963. Mr. Stewart
served as President of the Bank from 1982 until 1994. Mr. Stewart has also
served as President of BSF, Inc., a subsidiary of the Bank, since its formation
in 1989. Mr. Stewart has extensive experience in real estate development and
sales.
Tad Wilson (age 62), has served as a director of the Holding Company
since its formation and of the Bank since 1978. Mr. Wilson is also the co-owner
of Metropolitan Printing Service, Inc., a printing company based in Bloomington,
Indiana, and is the owner of various rental properties located in Bloomington,
Indiana.
THE DIRECTORS SHALL BE ELECTED UPON RECEIPT OF A PLURALITY OF VOTES CAST AT
THE ANNUAL SHAREHOLDERS MEETING. PLURALITY MEANS THAT INDIVIDUALS WHO RECEIVE
THE LARGEST NUMBER OF VOTES CAST ARE ELECTED UP TO THE MAXIMUM NUMBER OF
DIRECTORS TO BE CHOSEN AT THE MEETING. ABSTENTIONS, BROKER NON-VOTES, AND
INSTRUCTIONS ON THE ACCOMPANYING PROXY TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR
MORE OF THE NOMINEES WILL RESULT IN THE RESPECTIVE NOMINEE RECEIVING FEWER
VOTES. HOWEVER, THE NUMBER OF VOTES OTHERWISE RECEIVED BY THE NOMINEE WILL NOT
BE REDUCED BY SUCH ACTION.
The Board of Directors and its Committees
During the fiscal year ended June 30, 1997, the Board of Directors of the
Holding Company acted by written consent three times. No director attended fewer
than 75% of the aggregate total number of meetings during the last fiscal year
of the Board of Directors of the Holding Company held while he served as
director and of meetings of committees which he served during that fiscal year.
The Board of Directors of the Holding Company has a Stock Compensation Committee
and Nominating Committee, among its other Board Committees. All committee
members are appointed by the Board of Directors.
The Stock Compensation Committee administers the RRP and the Option Plan
which is being submitted to a vote of the shareholders at the Annual Meeting.
The members of that Committee are Messrs. Gillaspy, Parrish and Wilson. It met
three times during fiscal 1997.
The Holding Company's Nominating Committee, consisting of Messrs. Gillaspy,
Parrish and Wilson, nominated the slate of directors set forth in the Proxy
Statement. Although the Board of Directors of the Holding Company will consider
nominees recommended by shareholders, it has not actively solicited
recommendations for nominees from shareholders nor has it established procedures
for this purpose. Article III, Section 12 of the Holding Company's By-Laws
provides that shareholders entitled to vote for the election of directors may
name nominees for election to the Board of Directors but there are certain
requirements that must be satisfied in order to do so. Among other things,
written notice of a proposed nomination must be received by the Secretary of the
Holding Company not less than 60 days prior to the Annual Meeting; provided,
however, that in the event that less than 70 days' notice or public disclosure
of the date of the meeting is given or made to shareholders (which notice or
public disclosure includes the date of the Annual Meeting specified in the
Holding Company's By-Laws if the Annual Meeting is held on such date), notice
must be received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made.
Management Remuneration and Related Transactions
Remuneration of Named Executive Officer
During the fiscal year ended June 30, 1997, no cash compensation was paid
directly by the Holding Company to any of its executive officers. Each of such
officers was compensated by the Bank.
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to the Holding Company and its
subsidiaries for the fiscal year ended June 30, 1997, of the person who served
as chief executive officer of the Holding Company during the fiscal year ended
June 30, 1997 (the "Named Executive Officer"). There were no other executive
officers of the Holding Company who earned over $100,000 in salary and bonuses
during that fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards
Name Other All
and Annual Restricted Securities Other
Principal Fiscal Compen- Stock Underlying Compen-
Position Year Salary ($) Bonus ($) sation($)(2) Awards($)(3) Options(#) sation($)(4)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kurt J. Meier 1997 $51,220 (1) $ --- --- $38,243 --- $1,399
President, Chief Executive 1996 $51,220 (1) $ --- --- --- --- $1,399
Officer and Treasurer 1995 $49,440 (1) $5,600 --- --- --- $1,357
</TABLE>
(1) Includes fees received for service on the Bank's Board of Directors and
amounts deferred by the Named Executive Officer pursuant to 401(k) of
the Internal Revenue Code of 1986, as amended (the "Code") under the
Bank's Thrift Plan.
(2) Mr. Meier received certain perquisites, but the incremental cost of
providing such perquisites did not exceed the lesser of $50,000 or 10%
of his salary and bonus.
(3) The value of the restricted stock awards was determined by multiplying
the fair market value of the Common Stock on the date the shares were
awarded by the number of shares awarded. These shares vest over a five
year period. As of June 30, 1997, the number and aggregate value of
restricted stock holdings by Mr. Meier were 2,846 and $43,757,
respectively. Dividends paid on the restricted shares are payable to
the grantee as the shares are vested and are not included in the table.
(4) Consists of the Bank's contribution on behalf of the Named Executive
Officer to the Thrift Plan.
Stock Options
No stock options were granted during fiscal 1997 or held as of June 30,
1997, by the Named Executive Officer. For information concerning grants of stock
options made in fiscal 1998, including a grant of a stock option for 5,000
shares of the Common Stock to the Named Executive Officer, see "Proposal
II--Stock Option Plan."
Employment Contracts
The Bank has entered into three-year employment contracts with each of
Messrs. Meier and Rosenberger (together, the "Employees"). The contracts with
the Employees, which became effective as of July 1, 1996, extend annually for an
additional one-year term to maintain their three-year term if the Board of
Directors of the Bank determines to so extend them, unless notice not to extend
is properly given by either party to the contract. Each Employee receives an
initial salary under the contract equal to his current salary subject to
increases approved by the Board of Directors. The contracts also provide, among
other things, for participation in other fringe benefits and benefit plans
available to the Bank's employees. Each Employee may terminate his employment
upon sixty days' written notice to the Bank. The Bank may discharge each
Employee for cause (as defined in the contract) at any time or in certain
specified events. If the Bank terminates an Employee's employment for other than
cause or if the Employee terminates his own employment for cause (as defined in
the contract), the Employee will receive his base compensation under the
contract for an additional three years if the termination follows a change of
control in the Holding Company (as defined below) or for the remaining term of
the Agreement, if the termination does not follow a change of control. In
addition, during such period, the Employee will continue to participate in the
Bank's group insurance plans or receive comparable benefits. Moreover, within a
period of three months after such termination following a change of control,
each Employee will have the right to cause the Bank to purchase any stock
options he holds for a price equal to the fair market value (as defined in the
contact) of the shares subject to such options minus their option price. If the
payments provided for in the contract, together with any other payments made to
the Employees by the Bank, are deemed to be payments in violation of the "golden
parachute" rules of the Code, such payments will be reduced to the largest
amount which would not cause the Bank to lose a tax deduction for such payments
under those rules. As of the date hereof, the cash compensation which would be
paid under the contracts to the Employees if the contracts were terminated
either after a change of control of the Holding Company, without cause by the
Bank, or for cause by the Employees, would be $141,960 for Mr. Meier and
$130,260 for Mr. Rosenberger. For purposes of these employment contracts, a
change of control of the Holding Company is generally an acquisition of control,
as defined in regulations issued under the Change in Bank Control Act and the
Bank Holding Company Act of 1956, as amended.
The employment contracts provide the Bank protection of its
confidential business information and protection from competition by each of the
Employees should he voluntarily terminate his employment without cause or be
terminated by the Bank for cause.
The Bank also entered into a three-year employment contract with Mr.
Stewart effective as of January 1, 1996. Mr. Stewart's employment agreement
provides for the payment by the Bank to Mr. Stewart of an annual salary equal to
$44,980, subject to increases as determined by the Board of Directors. In the
event Mr. Stewart's employment is terminated by the Bank without cause, Mr.
Stewart will continue to receive such compensation during the then-remaining
term of the contract.
The Bank is the owner and beneficiary of $100,000 in key man life
insurance on the lives of Mr. Meier and Mr. Rosenberger.
Compensation of Directors
All directors of the Bank are entitled to receive monthly director fees
for their services. Each of Mr. Gillaspy and Mr. Raper receive $650 per month,
and Mr. Stewart receives $450 per month. All other directors of the Bank receive
$350 per month.
Directors of the Holding Company are not currently paid directors'
fees. The Holding Company may, if it believes it is necessary to attract
qualified directors or otherwise beneficial to the Holding Company, adopt a
policy of paying directors' fees.
Transactions With Certain Related Persons
The Bank has followed a policy of offering to its directors and
executive officers real estate mortgage loans secured by their principal
residence and other loans. These loans are made in the ordinary course of
business with the same collateral, interest rates and underwriting criteria as
those of comparable transactions prevailing at the time and do not involve more
than the normal risk of collectibility or present other unfavorable features.
PROPOSAL II -- STOCK OPTION PLAN
The Board of Directors of the Holding Company adopted the Home Financial
Bancorp Stock Option Plan (the "Option Plan") on July 23, 1997. The essential
features of the Option Plan are summarized below, but the Option Plan is set
forth in full in Exhibit A to this Proxy Statement, and all statements made in
this summary are qualified by reference to the full text of the Option Plan.
Purpose
The purpose of the Option Plan is to provide to certain directors, officers
and other key employees of the Holding Company and its subsidiaries (currently
approximately nineteen persons) a favorable opportunity to acquire Common Stock
of the Holding Company and thereby increase the incentive of such persons to
work for the success of the Holding Company and its subsidiaries and better
enabling such entities to attract or retain capable directors and executive
personnel.
The Option Plan provides for the grant of both incentive stock options
(options that afford favorable tax treatment to recipients upon compliance with
certain restrictions and that do not normally result in tax deductions to the
Holding Company) and options that do not so qualify (non-qualified stock
options).
Administration
The Option Plan is administered, construed and interpreted by a committee
consisting of at least two members of the Holding Company's Board of Directors.
Currently, the Holding Company's Stock Compensation Committee administers the
Option Plan. The Stock Compensation Committee selects the individuals to whom
options or cash awards will be granted and determines the time of grant, the
number of shares of stock to be covered by each option, the amount of any cash
awards, the option price, the period within which the option may be exercised,
whether the option is an incentive stock option or non-qualified stock option,
and any other terms and conditions of the options or cash awards granted.
Members of the Stock Compensation Committee must be nonemployee directors of the
Holding Company. The current members of that Committee are set forth on page 4
of this Proxy Statement.
Reservation of Shares
The Holding Company has reserved 50,592 shares of its Common Stock for
issuance upon exercise of options to be granted under the Option Plan, and stock
options for 35,800 of such shares have already been granted, subject to and
effective as of the date the Holding Company's shareholders approve the Option
Plan. Shares issued under the Option Plan may be authorized but unissued shares
or treasury shares of the Holding Company. In the event of corporate changes
affecting the Holding Company's Common Stock, such as reorganizations,
recapitalizations, stock splits, stock dividends, mergers, consolidations,
liquidations, and extraordinary distributions (consisting of cash, securities,
or other assets), the Stock Compensation Committee may make appropriate
adjustments in the number and kind of shares reserved under the Option Plan and
in the option price under, and the number and kind of shares covered by,
outstanding options granted under the Option Plan. Any shares subject to an
option which expires or is terminated before exercise will again be available
for issuance under the Option Plan.
Options and cash awards may be granted to directors, officers (including
officers who are members of the Board of Directors) and other key employees of
the Holding Company and its subsidiaries who are materially responsible for the
management or operation of the business of the Holding Company or its
subsidiaries and have provided valuable services to the Holding Company or its
subsidiaries. Such individuals may be granted more than one option under the
Option Plan.
Since its adoption by the Board of Directors, the following incentive stock
options have been granted under the Option Plan. All such options were granted
effective as of the date the Holding Company's shareholders approve the Option
Plan, have an option price per share equal to the average between the high and
low sales prices for a share of the Holding Company's Common Stock ("Market
Value") on that date, and have ten-year terms. These options become fully
exercisable six months after date of grant. Such grants of incentive stock
options are as follows:
Shares Subject
Optionee To Options
-------------------- --------------
Kurt J. Meier 5,000
All other executive officers as a group
(2 persons) 10,000
All other employees as a group (12 persons) 13,300
------
Total 28,300
======
In addition, pursuant to the terms of the Option Plan, non-qualified stock
options were granted to the five directors of the Holding Company who are not
employees of the Holding Company or its subsidiaries ("Outside Directors").
These options for such Outside Directors were granted effective as of the date
the Holding Company's shareholders approve the Option Plan, and are each
non-qualified stock options to purchase 1,500 shares of the Holding Company
Common Stock at the Market Value of such shares on such date. The terms of these
options end ten years and one day following the date of grant and become
exercisable six months after date of grant. At September 3, 1997, the last sale
price for a share of the Holding Company's Common Stock was $16 7/16 per share.
Terms of the Options
Stock Option Price. The price to be paid for shares of Common Stock upon
the exercise of each incentive stock option shall not be less than the fair
market value of such shares on the date on which the option is granted. However,
the Committee does have the discretion to award non-qualified stock options to
eligible employees and directors of the Holding Company or of its subsidiaries
at a price no less than 85% of the fair market value of the Common Stock on the
date the option is granted. Incentive stock options granted to holders of more
than 10% of the combined voting power of all classes of stock of the Holding
Company may be granted at an option price no less than 110% of the fair market
value of the stock on the date of grant.
Option Term. No option may have a term longer than ten years and one day
from the date grant. However, under the Internal Revenue Code of 1986, as
amended (the "Code"), incentive stock options may not have terms in excess of
ten years. Incentive stock options granted to holders of more than 10% of the
combined voting power of all classes of stock of the Holding Company may not
have terms in excess of five years.
Exercise of Option. The option price of each share of stock is to be paid
in full in cash at the time of exercise. Under certain circumstances, the Option
Plan permits optionees to deliver a notice to their broker to deliver to the
Holding Company the total option price in cash and the amount of any taxes to be
withheld from the optionee's compensation as a result of any withholding tax
obligation of the Holding Company. Beginning on July 1, 1999, payment of the
option price may also be effected by tendering whole shares of the Holding
Company's Common Stock owned by the Optionee and cash having a fair market value
equal to the cash exercise price of the shares with respect to which the option
is being exercised. Options may be exercisable in full at any time during their
term or in such installments, on a cumulative basis, as the Stock Compensation
Committee may determine, except that no option may be exercised at any time as
to fewer than 100 shares unless the exercise is with respect to an entire
residue of fewer than 100 shares, and no option may be exercised during the
first six months of its term.
Exercise of Options by Other than Outside Directors. Except as provided
below, upon termination of an optionholder's employment by the Holding Company
and its subsidiaries, all rights under any options granted to him but not yet
exercised terminate. In the event that an optionee retires pursuant to any then
existing pension plan of the Holding Company or its subsidiaries, his option may
be exercised by him in whole or in part within three years after his retirement
until the expiration of the option term fixed by the Committee, whether or not
the option was otherwise exercisable by him at his date of retirement; provided,
however, that if he remains a director or director emeritus of the Holding
Company he may exercise such option until the later of (a) three years after his
retirement or (b) six months after he ceases to be a director or director
emeritus of the Holding Company. If an optionee's employment by the Holding
Company and its subsidiaries terminates by reason of permanent and total
disability, his option may be exercised by him in whole or in part within one
year after such termination of employment, whether or not the option was
otherwise exercisable by him at the time of such termination of employment. If
the optionee dies while employed by the Holding Company or its subsidiaries,
within three years after his retirement (or, if later, six months following his
termination of service as a director or director emeritus of the Holding
Company), or within one year after his termination of employment because of
permanent and total disability, his option may be exercised by his estate or by
the person or persons entitled thereto by will or by the applicable laws of
descent or distribution at any time within one year after the date of such
death, whether or not the option was otherwise exercisable by the optionee at
the date of his death. Notwithstanding the foregoing, in no event may any option
be exercised after the expiration of the option term set by the Stock
Compensation Committee.
Exercise of Options by Outside Directors. Options granted to Outside
Directors terminate six months after the date such Outside Director ceases to be
a director and director emeritus of the Holding Company for any reason. If an
optionee who is an Outside Director ceases to be a director and a director
emeritus by reason of disability, any option granted to him may be exercised in
whole or in part within one year of such termination of service, whether or not
the option was otherwise exercisable by him at the time of such termination of
service. In the event of the death of an Outside Director while serving as a
director or director emeritus of the Holding Company, within six months after he
ceases to be a director and a director emeritus of the Holding Company, or
within one year after he ceases to be a director and a director emeritus of the
Holding Company by reason of disability, any option granted to him may be
exercised by his estate or by the person or persons entitled thereto by will or
by the applicable laws of descent or distribution at any time within one year
after the date of such death, whether or not the option was exercisable by the
optionee at the date of his death. Notwithstanding the foregoing, in no event
may any option be exercised after the expiration of the option term set by the
Stock Compensation Committee.
Nontransferability of Option. Options may not be transferred except by will
or the laws of descent and distribution or pursuant to a qualified domestic
relations order. During the lifetime of an optionee, they may be exercised only
by him or his guardian or legal representative.
Maximum Incentive Stock Options. The aggregate fair market value of stock
with respect to which incentive stock options are exercisable for the first time
by an optionee during any calendar year under the Option Plan may not exceed
$100,000. For purposes of these computations, the fair market value of the
shares is to be determined as of the date the option is granted and computed in
the manner determined by the Stock Compensation Committee consistent with the
requirements of the Code. This limitation does not apply to non-qualified stock
options granted under the Option Plan.
Cash Awards. The Stock Compensation Committee may grant to optionees who
are granted non-qualified stock options the right to receive a cash amount which
is intended to reimburse the optionee for all or a portion of the federal, state
and local income taxes imposed upon the optionee as a result of the exercise of
a non-qualified stock option and the receipt of a cash award.
Replacement and Extension of the Terms of Options and Cash Awards. The
Stock Compensation Committee from time to time may permit an optionee under the
Option Plan or any other stock option plan adopted by the Holding Company or any
of its subsidiaries, to surrender for cancellation any unexercised outstanding
stock option and receive from the optionee's employing corporation in exchange
therefor an option for such number of shares of Common Stock as may be
designated by the Stock Compensation Committee. Such optionees may also be
granted related cash awards.
Change of Control. In the event of a change of control of the Holding
Company, and subject to certain limitations set forth in the Option Plan,
outstanding options which are not otherwise exercisable will become immediately
exercisable. Change of control, for this purpose, means an acquisition of
control of the Holding Company or the Bank as defined in regulations issued by
the Board of Governors of the Federal Reserve System under the Change in Bank
Control Act and the Bank Holding Company Act. This provision could result in
adverse tax consequences to the Holding Company and to the optionee as a result
of the golden parachute provisions in the Code. Under the golden parachute
provisions, compensatory payments made by the Holding Company to an employee
following a change in control which are contingent on a change in control and
which exceed certain limits based on the average annual compensation of the
employee for the five calendar years before the change in control are not
deductible by the Holding Company and would subject the optionee to a 20% excise
tax. The value of any option which would become immediately exercisable
following a change in control (the spread between the then fair market value of
the option shares and the option price) could be deemed to be a compensatory
payment contingent on a change in control, and, thus, if such amount, when added
to any other payments made by the Holding Company to the employee which are
contingent on a change in control, would exceed the limits described above, the
excess amounts would be non-deductible and subject to the excise tax.
The effect of this change of control provision which, under certain
circumstances, could accelerate benefits to optionholders may be to increase the
cost of a potential business combination or acquisition of control of the
Holding Company. To the extent that this increased cost is significant,
potential acquirors may be deterred from pursuing a transaction involving the
Holding Company, and its shareholders may be deprived of an opportunity to sell
their shares at a favorable price. However, the options which have been granted
to date under the Option Plan are fully exercisable within six months following
the date of the grant, so the change of control provision described above is not
expected to have a significant deterrent effect. Moreover, to the extent this
provision could operate to accelerate benefits under stock options awarded in
the future, the Board of Directors believes that the expected benefits of these
provisions in attracting and retaining qualified management personnel outweigh
these possible disadvantages.
Other Provisions
The Stock Compensation Committee may provide for such other terms,
provisions and conditions of an option as are not inconsistent with the Option
Plan. The Stock Compensation Committee may also prescribe, and amend, waive and
rescind rules and regulations relating to the Option Plan, may accelerate the
vesting of stock options or cash awards granted or made under the Option Plan,
may make amendments or modifications in the terms and conditions (including
exercisability) of the options relating to the effect of termination of
employment of the optionees, and may waive any restrictions or conditions
applicable to any option or the exercise thereof.
Amendment and Termination
The Board of Directors of the Holding Company may amend the Option Plan
from time to time, and, with the consent of the optionee, the terms and
provisions of his option or cash award, provided, however, that (1) no amendment
may, without the consent of an optionee, make any changes in any outstanding
option or cash award which would adversely affect the rights of the optionee and
(2) without approval of the holders of at least a majority of the shares of the
Holding Company voting in person or by proxy at a duly constituted meeting, or
adjournment thereof, the following changes in the Option Plan may not be made:
an increase in the number of shares reserved for issuance under the Option Plan
(except as permitted by the antidilutive provisions in the Option Plan); an
extension of the option terms to more than 10 years and one day from the date of
grant of the option; or a material modification of the class of employees
eligible to receive options or cash awards under the Option Plan. The Board of
Directors of the Holding Company may terminate the Option Plan at any time. In
any event, no incentive stock options may be granted under the Stock Option Plan
after July 22, 2007.
Federal Income Tax Consequences
The grant of incentive and non-qualified stock options will have no federal
tax consequences to the Holding Company or the optionee. Moreover, if an
incentive stock option is exercised (a) while the employee is employed by the
Holding Company or its subsidiaries, (b) within three months after the optionee
ceases to be an employee of the Holding Company or its subsidiaries, (c) after
the optionee's death, or (d) within one year after the optionee ceases to be an
employee of the Holding Company or its subsidiaries if the optionee's employment
is terminated because of permanent and total disability (within the meaning of
ss. 22(e)(3) of the Code), the exercise of the incentive stock option will
ordinarily have no federal income tax consequences to the Holding Company or the
optionee. However, the amount by which the fair market value of the shares at
the time of exercise exceeds the option price of the option will, along with
other specified items, be considered taxable income in the taxable year of the
optionee in which the option was exercised for purposes of determining the
applicability of the alternative minimum tax. As a result, the exercise of an
incentive stock option may subject an optionee to an alternative minimum tax
depending on that optionee's particular circumstances.
On the other hand, the recipient of a non-qualified stock option generally
will realize taxable ordinary income at the time of exercise of his option in an
amount equal to the excess of the fair market value of the shares acquired at
the time of such exercise over the option price. A like amount is generally
deductible by the Holding Company for federal income tax purposes as of that
date, as long as the Holding Company withholds federal income tax with respect
to that taxable amount, assuming the optionholder's income is subject to income
tax withholding by the Holding Company. The Option Plan permits, under certain
circumstances, holders of non-qualified stock options (other than Outside
Directors) to satisfy their withholding obligation by having shares equal in
value to the applicable withholding taxes withheld from the shares which they
would otherwise receive upon the exercise of a non-qualified stock option.
Upon the sale of the shares acquired upon the exercise of an incentive
stock option no sooner than two years after the grant of the option and no
sooner than one year after receipt of the shares by the optionee, any capital
gain recognized would be taxed to the optionee at long-term or mid-term rates.
Upon the sale of shares acquired upon the exercise of an incentive stock option
prior to two years after the grant of an option or prior to one year after
receipt of the shares by the optionee, the optionee will generally recognize, in
the year of disposition, ordinary income equal to the lesser of (a) the spread
between the fair market value of the shares on the date of exercise and the
exercise price; and (b) the gain realized upon the disposition of those shares.
The Holding Company will be entitled to a deduction equal to the amount of
income recognized as ordinary income by the optionee, so long as the Holding
Company withholds federal income tax with respect to that taxable amount
(assuming the optionholder's income is subject to income tax withholding by the
Holding Company). If the spread is the basis for determining the amount of
ordinary income realized by the optionee, there will be additional long-term,
mid-term or short-term capital gain realized if the proceeds of such sale exceed
such spread.
Upon the subsequent sale of shares acquired upon exercise of a
non-qualified stock option, the optionholder will recognize long-term capital
gain or loss if the shares are deemed to have been held for more than 18 months,
mid-term capital gain or loss if the shares have been held for more than 12
months but less than 18 months, and short-term capital gain or loss in all other
cases. Currently, long-term capital gains for noncorporate taxpayers are
generally taxed at a maximum rate of 20% and mid-term capital gains for
noncorporate taxpayers are generally taxed at a maximum rate of 28%. Short-term
capital gains are taxed at the same rates as ordinary income.
Financial Accounting Consequences
At this time, neither the grant of incentive or non-qualified stock options
nor the issuance of shares upon exercise of such options will result in a
compensation expense charge to the Holding Company's earnings for financial
accounting purposes, except that for non-qualified stock options, earnings will
be charged with the excess, if any, of the fair market value on the date of
grant over the exercise price of the option shares. Option proceeds from the
exercise of these options and tax savings from non-qualified stock options
(other than tax savings resulting from charges to earnings made when the
exercise price is less than fair market value of the option shares on the date
of grant) are credited to capital. The Financial Accounting Standards Board (the
"FASB") has adopted rules that require increased disclosure about the value of
stock options in financial statements for the Holding Company, including their
impact on earnings.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE AND
RATIFY THE OPTION PLAN. SUCH ACTION REQUIRES THE APPROVAL OF THE HOLDERS OF AT
LEAST A MAJORITY OF THE SHARES OF THE HOLDING COMPANY'S COMMON STOCK VOTING IN
PERSON OR BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL MEETING, OR ANY
ADJOURNMENT THEREOF. ABSTENTIONS WILL BE INCLUDED IN THE NUMBER OF SHARES
PRESENT AND ENTITLED TO VOTE ON THE PROPOSAL AND ACCORDINGLY TREATED AS "NO"
VOTES, BUT BROKER NON-VOTES WILL BE EXCLUDED FROM THE NUMBER OF SHARES PRESENT
AND ENTITLED TO VOTE ON THE PROPOSAL AND WILL HAVE NO EFFECT ON THE VOTE.
PROPOSAL III -- RATIFICATION OF AUDITORS
The Board of Directors proposes for the ratification of the shareholders at
the Annual Meeting the appointment of Geo. S. Olive & Co., LLC, certified public
accountants, as independent auditors for the fiscal year ended June 30, 1998.
Geo. S. Olive & Co., LLC has served as auditors for the Bank since 1989. A
representative of Geo. S. Olive & Co., LLC will be present at the Annual Meeting
with the opportunity to make a statement if he so desires. He will also be
available to respond to any appropriate questions shareholders may have.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"), requires that the Holding Company's officers and directors and
persons who own more than 10% of the Holding Company's Common Stock file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than 10% shareholders
are required by SEC regulations to furnish the Holding Company with copies of
all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it,
and/or written representations from certain reporting persons that no Forms 5
were required for those persons, the Holding Company believes that during the
fiscal year ended June 30, 1997, all filing requirements applicable to its
officers, directors and greater than 10% beneficial owners with respect to
Section 16(a) of the 1934 Act were satisfied in a timely manner.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have presented at the next
Annual Meeting of the Holding Company must be received at the main office of the
Holding Company for inclusion in the proxy statement no later than 120 days in
advance of September 11, 1998. Any such proposal should be sent to the attention
of the Secretary of the Holding Company at 279 East Morgan Street, Spencer,
Indiana 47460.
OTHER MATTERS
Management is not aware of any business to come before the Annual Meeting
other than those matters described in the Proxy Statement. However, if any other
matters should properly come before the Annual Meeting, it is intended that the
proxies solicited hereby will be voted with respect to those other matters in
accordance with the judgment of the persons voting the proxies.
The cost of solicitation of proxies will be borne by the Holding Company.
The Holding Company will reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to the beneficial owners of the Common Stock. In addition to
solicitation by mail, directors, officers, and employees of the Holding Company
may solicit proxies personally or by telephone without additional compensation.
Each shareholder is urged to complete, date and sign the proxy and return
it promptly in the enclosed envelope.
By Order of the Board of Directors
/s/ Kurt J. Meier
Kurt J. Meier, President
September 11, 1997
<PAGE>
REVOCABLE PROXY HOME FINANCIAL BANCORP
Annual Meeting of Shareholders
October 14, 1997
The undersigned hereby appoints Kurt D. Rosenberger and Jack Childers, with
full powers of substitution, to act as attorneys and proxies for the undersigned
to vote all shares of common stock of Home Financial Bancorp which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
at the Canyon Inn, Sycamore Room, McCormicks Creek State Park, State Highway 46,
Spencer, Indiana, on Tuesday, October 14, 1997, at 3:00 p.m., and at any and all
adjournments thereof, as follows:
1. The election as directors of all nominees listed below, except as marked to
the contrary [ ] FOR [ ] VOTE WITHHELD
INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name on the list below:
John T. Gillaspy Robert W. Raper
(each for a three year term)
2. Approval and Ratification of the Home Financial Bancorp Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification of the appointment of Geo S. Olive & Co. LLC as auditors for
the year ending June 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting or any adjournment thereof.
The Board of Directors recommends a vote "FOR" each of the listed propositions.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<PAGE>
This Proxy may be revoked at any time prior to the voting thereof.
The undersigned acknowledges receipt from Home Financial Bancorp, prior to the
execution of this Proxy, of a Notice of the Meeting, a Proxy Statement and an
Annual Report to Shareholders.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS
IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
______________________, 199___
------------------------- -------------------------
Print Name of Shareholder Print Name of Shareholder
------------------------- -------------------------
Signature of Shareholder Signature of Shareholder
Please sign as your name appears on the envelope
in which this card was mailed. When signing as
attorney, executor, administrator, trustee or
guardian, please give your full title. If shares
are held jointly, each holder should sign.
Message to Shareholders.................................................. 1
Selected Consolidated Financial Data..................................... 2
Management's Discussion and Analysis..................................... 3
Independent Auditor's Report............................................. 19
Consolidated Statement of Financial Condition............................ 20
Consolidated Statement of Income......................................... 21
Consolidated Statement of Changes in
Stockholders' Equity................................................ 22
Consolidated Statement of Cash Flows..................................... 23
Notes to Consolidated Financial Statements............................... 24
Directors and Officers................................................... 35
Shareholder Information.................................................. 37
Home Financial Bancorp (the "Holding Company" and together with the
Bank (as defined below), the "Company") is an Indiana corporation organized in
February 1996, to become a bank holding company upon its acquisition of all the
issued and outstanding capital stock of Owen Community Bank, s.b. (the "Bank")
in connection with the Bank's conversion from mutual to stock form. The Holding
Company became the Bank's holding company on July 1, 1996; therefore, all
historical financial and other data contained for periods prior to July 1, 1996
herein relate solely to the Bank while historical financial and other data
contained herein for the period after July 1, 1996 relate to the Company. The
principal asset of the Holding Company currently consists of 100% of the issued
and outstanding shares of common stock, $.01 par value per share, of the Bank.
The Bank was organized under the name Owen County Savings and Loan Association
in 1911. In 1972, the Bank converted to a federally chartered savings and loan
and changed its name to Owen County Federal Savings and Loan Association, and in
1989, the Bank converted to a federally chartered savings bank known as Owen
Federal Savings Bank. In 1994, the Bank became an Indiana savings bank known as
Owen Community Bank, s.b. The Bank's principal business consists of attracting
deposits from the general public and originating long-term adjustable-rate loans
secured primarily by first mortgage liens on one- to four-family real estate.
The Bank's deposit accounts are insured up to applicable limits by the Savings
Association Insurance Fund (the "SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC").
The Bank is the oldest continuously operating financial institution
headquartered in Owen County, Indiana. Management believes the Bank has
developed a solid reputation among its loyal customer base because of its
commitment to personal service and its strong support of the local community.
The Bank offers a number of consumer and commercial financial services. These
services include: (i) residential real estate loans; (ii) indemnification
mortgage loans ("ID Mortgage Loans"); (iii) mobile home loans; (iv) combination
land-mobile home loans ("Combo Loans"); (v) construction loans; (vi) share
loans; (vii) nonresidential real estate loans; (viii) multi-family loans; (ix)
installment loans; (x) NOW accounts; (xi) passbook savings accounts; and (xii)
certificates of deposit. The Company conducts business out of its main office
located in Spencer, Indiana. The Bank is and historically has been a significant
real estate mortgage lender in Owen County, Indiana, originating approximately
13% of the mortgages recorded in Owen County during the calendar year ended
December 31, 1996.
<PAGE>
[WATERMARK OF BANK APPEARS ON THIS PAGE]
TO OUR SHAREHOLDERS:
We are pleased to present the 1997 Annual Report of Home Financial
Bancorp, the holding company for Owen Community Bank, s.b. Throughout the past
year, residential and non-residential real estate mortgage loan demand continued
to be strong resulting in loan growth of $7,074,000 or 25.8%. This growth was
primarily funded with stock conversion proceeds and Federal Home Loan Bank
borrowings. Our fiscal year earnings were impacted by a one-time mandatory FDIC
special premium assessment in the amount of $142,000. The good news resulting
from the assessment is that current and future deposit insurance premiums have
been significantly reduced.
Our new 6,000 square foot annex building was completed this summer and
now provides office space for the Bank's subsidiary, collections and compliance
operations. Space is ample and will accommodate additional future growth.
Efforts toward building a bank branch in our neighboring community of
Cloverdale continue to move forward. Our branch application submitted to the
Indiana Department of Financial Institutions was recently approved while site
and building plans currently remain under discussion. We are optimistic about
the Cloverdale market and look forward to offering our host of services to the
area. Our target for the branch opening is slated for some time in the summer of
1998. It is our belief that Cloverdale and Spencer possess many similar
community characteristics and that our experience and sensitivity to serving the
needs of small rural communities will give us the proper foundation to do well
in the Cloverdale community. Currently only one other bank is located in
Cloverdale.
Operationally, several enhancements were implemented during the past
year. A new software system was installed in March of this year with
capabilities of interfacing with our outside data processing bureau. The chart
of accounts was reorganized as part of this conversion to improve internal and
external reporting requirements. Other features purchased with the software
package include automated safety deposit box administration, fixed asset
management and accounts payable processing. Our internal computer network system
was also expanded in recent months to accommodate growth of personnel and
improve customer service. In December 1996, we contracted with the Federal Home
Loan Bank of Indianapolis to utilize their coin and currency service and daily
deposit transit service. Both have resulted in improvements to cash management
and turn around time of items processing.
In an effort to maximize the use of Bank personnel and minimize the
number of employees, management will continue outsourcing labor-intensive
operations.
As part of our continuing efforts to attract new and lower cost
deposits, several new products were developed and introduced late in fiscal
1997. These new deposit products include IRAs, Statement Savings and Money
Management Accounts. A new non-interest-bearing commercial checking account and
a family of personal checking accounts will be introduced in the near future. We
will continue to aggressively promote our new deposit products which will
eventually allow us to pay down borrowings and reduce our average cost of funds.
We continue to look for new growth opportunities to enhance the value
of your Home Financial Bancorp stock investment. Contributing to your
shareholder value, we declared our first quarterly dividend in the second fiscal
quarter ending December 31, 1996 and continued to declare dividends during
ensuing quarters. We have also seen our stock price appreciate from a low of
$9.75 to a recent high of $15.75.
As always, we appreciate your past confidence and look forward to
serving you in the future.
Sincerely,
/s/ Kurt J. Meier
Kurt J. Meier
President
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF
HOME FINANCIAL BANCORP AND SUBSIDIARY
The following selected consolidated financial data of the Company is
qualified in its entirety by, and should be read in conjunction with, the
consolidated financial statements, including notes thereto, included elsewhere
in this Annual Report. In the opinion of management of the Company, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of results for and such periods have been included.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
At June 30 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Summary of Financial Condition:
Total assets....................................... $42,508 $39,426 $30,839 $26,008 $23,460
Loans receivable, net.............................. 34,117 27,125 25,547 21,479 19,368
Cash and cash equivalents.......................... 4,184 5,721 1,386 1,237 1,343
Securities available for sale...................... 2,102 4,901 934 --- ---
Securities held to maturity........................ --- --- 1,827 2,414 1,833
Deposits........................................... 26,157 28,726 22,500 21,451 20,174
Federal Home Loan Bank advances.................... 9,000 7,200 5,000 1,500 500
Stockholders' equity - substantially restricted.... 7,197 3,410 3,159 2,850 2,589
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Summary of Operating Results:
Interest and dividend income..................... $3,397 $2,955 $2,420 $2,023 $1,958
Interest expense................................. 1,703 1,593 1,174 949 993
------- ------- ------- ------- -------
Net interest income........................... 1,694 1,362 1,246 1,074 965
Provision for losses on loans.................... 85 94 36 14 6
------- ------- ------- ------- -------
Net interest income after provision for
losses on loans.......................... 1,609 1,268 1,210 1,060 959
------- ------- ------- ------- -------
Other income:
Service charges on deposit accounts........... 43 37 27 23 22
Gain on sale of real estate acquired
for development.......................... 31 57 78 145 117
Net realized gain on sales of available
for sale securities........................ 37 --- --- --- ---
Other......................................... 53 47 43 33 28
------- ------- ------- ------- -------
Total other income......................... 164 141 148 201 167
------- ------- ------- ------- -------
Other expense:
Salaries and employee benefits................ 563 415 404 344 254
Net occupancy and equipment expense........... 132 123 109 109 91
Deposit insurance expense..................... 165 54 49 48 32
Other......................................... 508 333 304 306 255
------- ------- ------- ------- -------
Total other expense...................... 1,368 925 866 807 632
------- ------- ------- ------- -------
Income before income tax and cumulative
effect of change in accounting principle...... 405 484 492 454 494
Income tax expense............................... 153 196 203 169 186
Cumulative effect of change
in accounting principle..................... --- --- --- (24) ---
------- ------- ------- ------- -------
Net income.................................... $ 252 $ 288 $ 289 $ 261 $ 308
======= ======= ======= ======= =======
Supplemental Data:
Return on assets (1) ............................ .63% .84% 1.00% 1.03% 1.34%
Return on equity (2)............................. 3.31 8.71 9.59 9.46 12.55
Interest rate spread (3) ........................ 3.56 3.78 4.19 4.11 4.11
Net yield on interest-earning assets (4)......... 4.41 4.13 4.54 4.42 4.43
Other expenses to average assets ................ 3.40 2.70 2.99 3.17 2.75
Net interest income to other expenses............ 1.24x 1.47x 1.44x 1.33x 1.53x
Equity-to-assets (5)............................. 16.93 8.65 10.24 10.96 11.04
Average equity capital to
average total assets.......................... 18.90 9.64 10.42 10.85 10.69
Average interest-earning assets to average
interest-bearing liabilities.................. 1.19x 1.07x 1.08x 1.08x 1.07x
Non-performing assets to total assets............ 1.76 1.03 .32 .10 ---
Non-performing loans to total loans.............. 1.65 1.32 .39 .13 ---
Loan loss allowance to total loans, net.......... .68 .55 .22 .12 .06
Loan loss allowance to non-performing loans...... 30.88 41.78 57.00 108.33 ---
Net charge-offs to average loans ................ .01 * .02 * .04
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average total equity.
(3) Interest rate spread is calculated by subtracting combined weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated.
(4) Net interest income divided by average interest-earning assets.
(5) Total equity divided by total assets.
* Less than .01%
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Holding Company was formed as an Indiana corporation on February 21, 1996,
for the purpose of issuing its common stock, without par value (the "Common
Stock") and owning all of the outstanding common stock of the Bank to be issued
in the Conversion as a unitary bank holding company. As a newly formed
corporation, the Holding Company has no operating history prior to July 1, 1996.
The principal business of savings banks, including the Bank, has
historically consisted of attracting deposits from the general public and making
loans secured by residential real estate. The Company's earnings are primarily
dependent upon its net interest income, the difference between interest income
and interest expense. Interest income is a function of the balances of loans and
investments outstanding during a given period and the yield earned on such loans
and investments. Interest expense is a function of the amount of deposits and
borrowings outstanding during the same period and interest rates paid on such
deposits and borrowings. The Company's earnings are also affected by provisions
for loan losses, service charges and other non-interest income, operating
expenses and income taxes.
The Company is significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
Deposit flows are influenced by a number of factors, including interest rates
paid on competing investments, account maturities and level of personal income
and savings within the Bank's market. In addition, deposit growth is affected by
how customers perceive the stability of the financial services industry amid
various current events such as regulatory changes, failures of other financial
institutions and financing of the deposit insurance fund. Lending activities are
influenced by the demand for and supply of housing lenders, the availability and
cost of funds and various other items. Sources of funds for lending activities
of the Bank include deposits, payments on loans, borrowings and income provided
from operations.
ASSET/LIABILITY MANAGEMENT
The Bank's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on
interest-earning assets, such as loans and securities, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. The Bank, like
other financial institutions, is subject to interest rate risk to the degree
that its interest-earning assets reprice differently than its interest-bearing
liabilities. The Bank manages its mix of assets and liabilities with the goals
of limiting its exposure to interest rate risk, ensuring adequate liquidity, and
coordinating its sources and uses of funds.
The Bank seeks to control its interest rate risk exposure in a manner
that will allow for adequate levels of earnings and capital over a range of
possible interest rate environments. The Bank has adopted formal policies and
practices to monitor and manage interest rate risk exposure. As part of this
effort, the Bank uses the market value ("MV") methodology to gauge interest rate
risk exposure.
Generally, MV is the discounted present value of the difference between
incoming cash flows on interest-earning assets and other assets and outgoing
cash flows on interest-bearing liabilities and other liabilities. The
application of the methodology attempts to quantify interest rate risk as the
change in the MV which would result from a theoretical 200 and 400 basis point
(1 basis point equals .01%) change in market interest rates. Both 200 and 400
basis point increases in market interest rates and 200 and 400 basis point
decreases in market interest rates are considered.
At June 30, 1997, it was estimated that the Bank's MV would decrease
5.2% and 13.7% in the event of 200 and 400 basis point increases in market
interest rates, respectively. The Bank's MV at the same date would increase 2.3%
and 5.4% in the event of 200 and 400 basis point decreases in market rates,
respectively.
<PAGE>
Presented below, as of June 30, 1997, is an analysis of the Bank's interest rate
risk as measured by changes in MV for instantaneous and sustained parallel
shifts of 200 and 400 basis point increments in market interest rates.
<TABLE>
<CAPTION>
MV as % of
Present Value (PV)
Change Market Value of Assets
In Rates $ Amount $ Change % Change MV Ratio Change
- ---------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 400 bp* $5,254 $ (831) (13.66)% 13.48% (121) bp
+ 200 bp 5,769 (317) (5.20) 14.32 (37) bp
0 bp 6,085 0 0.00 14.69 ---
- 200 bp 6,223 138 2.26 14.66 3 bp
- 400 bp 6,414 329 5.41 14.74 5 bp
</TABLE>
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock MV Ratio: MV as % of PV of Assets................ 14.69%
Exposure Measure: Post-Shock MV Ratio...................... 14.32%
Sensitivity Measure: Change in MV Ratio.................... 37 bp
Change in MV as % of PV of Assets.......................... 5.19%
Interest Rate Risk Capital Component....................... ---
*Basis points.
<PAGE>
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table presents, for the years ended June 30, 1997, 1996
and 1995, the month-end average balances of each category of the Bank's
interest-earning assets and interest-bearing liabilities, and the average yields
earned and interest rates paid on such balances. Such yields and costs are
determined by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented.
AVERAGE BALANCE SHEET/YIELD ANALYSIS
<TABLE>
<CAPTION>
Year Ended June 30, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------------------------------------------------------------------------------------
(Dollars in thousands)
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.......$ 2,692 $ 137 5.09% $ 2,782 $ 136 4.89% $ 1,298 $ 77 5.93%
Mortgage-backed
securities (1)................ 2,523 185 7.33 1,628 90 5.53 1,556 93 5.98
Other investment securities (1). 2,376 130 5.47 1,291 89 6.89 1,032 67 6.49
Loans receivable (2)............ 30,418 2,912 9.57 26,970 2,619 9.71 23,329 2,167 9.29
Stock in FHLB of Indianapolis... 433 33 7.63 274 21 7.66 224 16 7.14
------ ----- ------ ----- ------ -----
Total interest-earning assets. 38,442 3,397 8.84 32,945 2,955 8.97 27,439 2,420 8.82
----- ----- -----
Non-interest earning assets, net of
allowance for loan losses
and including unrealized
gain (loss) on securities
available for sale.............. 1,804 1,367 1,495
------- ------- -------
Total assets..................$40,246 $34,312 $28,934
======= ======= =======
Liabilities and
stockholders' equity:
Interest-bearing liabilities:
Savings accounts................$ 3,930 114 2.90 $ 4,235 117 2.76 $ 4,460 138 3.09
NOW accounts.................... 2,162 70 3.24 2,320 58 2.50 2,349 62 2.64
Certificates of deposit......... 18,465 1,032 5.59 18,672 1,086 5.82 15,145 763 5.04
Other borrowings................ --- --- --- 15 1 6.67 102 10 9.80
FHLB advances................... 7,725 487 6.30 5,475 331 6.05 3,321 201 6.05
------ ----- ------ ----- ------ -----
Total interest-bearing
liabilities................. 32,282 1,703 5.28 30,717 1,593 5.19 25,377 1,174 4.63
----- ----- -----
Other liabilities.................. 358 289 543
------- -------- --------
Total liabilities............. 32,640 31,006 25,920
------- -------- --------
Stockholders' equity............ 7,601 3,305 3,007
Net unrealized gain on securities
available for sale............ 5 1 7
------- -------- --------
Total stockholders' equity.... 7,606 3,306 3,014
------- -------- --------
Total liabilities and
stockholders' equity......$40,246 $34,312 $28,934
======= ======= =======
Net interest-earning assets........$ 6,160 $ 2,228 $ 2,062
======= ======== ========
Net interest income................ $ 1,694 $1,362 $1,246
======= ====== ======
Interest rate spread............... 3.56% 3.78% 4.19%
Net yield on weighted average
interest-earning assets......... 4.41% 4.13% 4.54%
Average interest-earning
assets to average interest-
bearing liabilities............. 118.99% 107.25% 108.13%
</TABLE>
(1) Yields for mortgage-backed securities and other investments available for
sale are computed based upon amortized cost.
(2) Non-accruing loans have been included in average balances.
In the foregoing table, no adjustment of interest on
tax-exempt securities to a tax-equivalent
<PAGE>
INTEREST RATE SPREAD
The Bank's results of operations have been determined primarily by net
interest income, and to a lesser extent, fee income, miscellaneous income and
general and administrative expenses including provisions for losses on loans.
Net interest income is determined by the interest rate spread between the yields
earned on interest-earning assets and the rates paid on interest-bearing
liabilities and by the relative amounts of interest-earning assets and
interest-bearing liabilities.
The following table sets forth the weighted average effective interest
rate earned by the Bank on its loan, investment portfolios and total
interest-earning assets. The table also includes weighted average effective cost
of the Bank's deposits and borrowings, the interest rate spread of the Bank, and
the net yield on weighted average interest-earning assets for the periods and as
of the date shown. Average balances are based on month-end average balances.
INTEREST RATE SPREAD ANALYSIS
<TABLE>
<CAPTION>
At June 30, Year Ended June 30,
1997 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average interest rate earned on:
Interest-earning deposits......................... 5.21% 5.09% 4.89% 5.93%
Mortgage-backed securities........................ 7.55 7.33 5.53 5.98
Other investment securities....................... 6.31 5.47 6.89 6.49
Loans receivable.................................. 9.51 9.57 9.71 9.29
Stock in FHLB of Indianapolis..................... 7.85 7.63 7.66 7.14
Total interest-earning assets................... 8.97 8.84 8.97 8.82
Weighted average interest rate cost of:
Savings accounts.................................. 3.00 2.90 2.76 3.09
NOW and money market accounts..................... 3.13 3.24 2.50 2.64
Certificates of deposit........................... 5.36 5.59 5.82 5.04
Other borrowings.................................. --- --- 6.67 9.80
FHLB advances..................................... 6.29 6.30 6.05 6.05
Total interest-bearing liabilities.............. 5.37 5.28 5.19 4.63
Interest rate spread (1)............................. 3.60% 3.56% 3.78% 4.19%
Net yield on weighted average
interest-earning assets (2)....................... 4.41% 4.13% 4.54%
</TABLE>
(1) Interest rate spread is calculated by subtracting weighted average interest
rate cost from weighted average interest rate earned for the period
indicated. Interest rate spread figures must be considered in light of the
relationship between the amounts of interest-earning assets and
interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated. No net yield percentage is presented at June 30,
1997 because the computation of net yield is applicable only over a period
rather than at a specific date.
The following table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected the
Bank's interest income and expense during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (i.e.,
changes in rate multiplied by old volume) and (2) changes in volume (i.e.,
changes in volume multiplied by old rate). Changes attributable to both rate and
volume have been allocated proportionally to the change due to volume and the
change due to rate.
<PAGE>
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
Total Net Due to Due to
Change Rate Volume
YEAR ENDED JUNE 30, 1997 COMPARED
TO YEAR ENDED JUNE 30, 1996
(In thousands)
Interest-earning assets:
<S> <C> <C> <C>
Interest-earning deposits.............................. $ 1 $ 5 $ (4)
Mortgage-backed securities............................. 95 35 60
Other investment securities............................ 41 (21) 62
Loans receivable....................................... 293 (43) 336
Stock in FHLB of Indianapolis.......................... 12 --- 12
---- ------ ----
Total................................................ 442 (24) 466
---- ------ ----
Interest-bearing liabilities:
Savings accounts....................................... (3) 5 (8)
NOW and money market accounts.......................... 12 16 (4)
Certificates of deposit................................ (54) (42) (12)
Other borrowings....................................... (1) --- (1)
FHLB advances.......................................... 156 15 141
---- ------ ----
Total................................................ 110 (6) 116
---- ------ ----
Change in net interest income............................. $332 $ (18) $350
==== ====== ====
YEAR ENDED JUNE 30, 1996
COMPARED TO YEAR ENDED JUNE 30, 1995
Interest-earning assets:
Interest-earning deposits.............................. $ 59 $ (16) $ 75
Mortgage-backed securities............................. (3) (7) 4
Other investment securities............................ 22 3 19
Loans receivable....................................... 452 102 350
Stock in FHLB of Indianapolis.......................... 5 1 4
---- ------ ----
Total................................................ 535 83 452
---- ------ ----
Interest-bearing liabilities:
Savings accounts....................................... (21) (14) (7)
NOW and money market accounts.......................... (4) (3) (1)
Certificates of deposit................................ 323 129 194
Other borrowings....................................... (9) (2) (7)
FHLB advances.......................................... 130 --- 130
---- ------ ----
Total................................................ 419 110 309
---- ------ ----
Change in net interest income............................. $ 116 $ (27) $ 143
====== ====== ======
YEAR ENDED JUNE 30, 1995
COMPARED TO YEAR ENDED JUNE 30, 1994
Interest-earning assets:
Interest-earning deposits.............................. $ 33 $ 28 $ 5
Mortgage-backed securities............................. (13) --- (13)
Other investment securities............................ 21 4 17
Loans receivable....................................... 353 76 277
Stock in FHLB of Indianapolis.......................... 3 3 ---
---- ------ ----
Total................................................ 397 111 286
---- ------ ----
Interest-bearing liabilities:
Savings accounts....................................... (28) 2 (30)
NOW and money market accounts.......................... (5) (1) (4)
Certificates of deposit................................ 83 6 77
Other borrowings....................................... 2 3 (1)
FHLB advances.......................................... 173 32 141
---- ------ ----
Total................................................ 225 42 183
---- ------ ----
Change in net interest income............................. $172 $ 69 $103
==== ====== ====
</TABLE>
<PAGE>
CHANGES IN FINANCIAL POSITION AND RESULTS OF OPERATIONS - YEAR ENDED JUNE 30,
1997, COMPARED TO YEAR ENDED JUNE 30, 1996:
General. Total assets increased $3.1 million at June 30, 1997 compared
to June 30, 1996. The increase was the net result of an increase in loans,
combined with decreases in investment securities and cash and cash equivalents.
Loans increased by $7.0 million or 25.8%, while the sale of securities decreased
investment securities by $2.8 million and cash and cash equivalents decreased by
$1.5 million to fund the increase in loans. The increase in loans was also
funded by additional advances of $1.8 million from the Federal Home Loan Bank
("FHLB") of Indianapolis.
Average assets increased from $34.3 million for the year ended June 30,
1996, to $40.2 million for the year ended June 30, 1997, an increase of 17.2%.
Average interest-earning assets represented 96.0% of average assets for the year
ended June 30, 1996 compared to 95.5% for the year ended June 30, 1997. Average
loans experienced the largest increase amounting to $3.4 million while other
interest-earning assets increased to a lesser extent. Average interest-bearing
liabilities as a percentage of average interest-earning assets were 84.0% for
1997 compared to 93.2% for 1996.
Investment Securities. Average investment securities and
mortgage-backed securities increased $1.1 million and $895,000 respectively for
the year ended June 30, 1997 compared to the year ended June 30, 1996 primarily
due to the initial investment of conversion proceeds in securities. During the
year ended June 30, 1997, mortgage-backed securities and selected other
securities were sold primarily to fund loan growth. Consequently, at June 30,
1997, the total of mortgage-backed securities and other investment securities
decreased $2.8 million compared to June 30, 1996. All investments are classified
as available for sale to provide maximum flexibility in managing the investment
portfolio. At June 30, 1997 and 1996 the net unrealized gain (loss) on
securities available for sale was $42,000 and ($28,000), respectively.
[Bar chart with area shaded that signifies conversion period]
<TABLE>
<CAPTION>
June, September, December, March, June,
1996 1996 1996 1997 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Mortgage Backed Securities $ 3,119 $ 3,791 $ 3,239 $ 2,266 $ 795
Loans Receivable $26,828 $27,655 $28,949 $31,647 $33,419
</TABLE>
Loans and Allowance for Loan Losses. Average loans increased approximately $3.4
million from the year ended June 30, 1996 to June 30, 1997. The growth in loans
was funded by decreases in other earning assets and increased average
borrowings. Average loans were $30.4 million for the period ended June 30, 1997
compared to $27.0 million for the period ended June 30, 1996. The average rate
on loans was 9.57% for the year ended June 30, 1997 compared to 9.71% for the
year ended June 30, 1996, a decrease of 14 basis points. The allowance for loan
losses as a percentage of net loans increased to .68% from .55% as a result of a
monthly provision for loan losses and nominal charge-offs. The ratio of the
allowance for loan losses to nonperforming loans was 41.1% at June 30, 1997
compared to 41.8% at June 30, 1996.
Residential mortgage loans increased by $1.7 million and comprised
57.2% of total loans at June 30, 1997 compared to 66.1% a year earlier.
Nonresidential mortgage loans increased by $4.4 million to $6.9 million, or
19.8% of total loans at June 30, 1997, compared to 9.22% of total loans at June
30, 1996.
LOAN MIX AT JUNE 30, 1997
[pie chart]
1-4 Residential 57%
Non residential 20
Mobile w/land 12
Mobile home 4
Multifamily 3
Commercial 2
Consumer 2
<PAGE>
Premises and Equipment. Premises and equipment increased approximately $451,000,
net of depreciation from June 30, 1996 to June 30, 1997. The largest increases
were related to the purchase of a property for a proposed branch office in
Cloverdale, Indiana and building construction for expanded facilities on
property adjacent to the Bank.
Deposits. Deposits decreased $2.5 million from $28.7 million at June
30, 1996 to $26.2 million at June 30, 1997. Passbook savings accounts decreased
approximately $4.7 million, substantially all of which was attributable to funds
withdrawn for the purchase of common stock related to the conversion of the Bank
from a mutual to a stock institution. All other deposits increased $2.2 million
during this period. Average total deposits decreased $670,000 to $24.5 million
for the year ended June 30, 1997 compared to $25.2 million for the year ended
June 30, 1996.
Interest-bearing demand deposits and money market deposits totaled $3.7
million or 14.1% of total deposits at June 30, 1997, compared to $2.4 million
and 8.3% of total deposits at June 30, 1996. Savings deposits, which were
unusually high at June 30, 1996, comprised 11.3% of total deposits at June 30,
1997 compared to 26.8% a year earlier. Savings deposits, at June 30, 1996,
included approximately $4.7 million of conversion proceeds for the purchase of
stock. Certificates of deposits increased to $19.5 million or 74.7% of total
deposits at June 30, 1997 compared to $16.0 million and 64.9% of deposits at
June 30, 1996.
DEPOSIT MIX AS OF JUNE 30, 1997
[pie chart]
C.D.'s 75
Checking 14
Savings 11
Borrowed Funds. Borrowed funds increased $1.8 million from June 30, 1996 to June
30, 1997. The increase in borrowed funds was used to fund a portion of the
Bank's loan growth. The weighted average interest rate on advances from the FHLB
of Indianapolis increased from 6.05% at June 30, 1996 to 6.30% at June 30, 1997.
Average borrowed funds increased to $7.7 million for the year ended June 1997
from $5.5 million for the year ended June 1996.
Stockholders' Equity. Stockholders' equity increased $3.8 million to
$7.2 million at June 30, 1997 compared to $3.4 million at June 30, 1996
primarily due to conversion proceeds and net income during the period. On July
1, 1996, the Bank completed the conversion and the formation of Home Financial
Bancorp as the holding company of the Bank. As part of the conversion, the
Company issued 505,926 shares of common stock at $10 per share, of which 40,474
shares were issued to an Employee Stock Ownership Plan. Net proceeds of the
Company's stock issuance, after costs, were approximately $4.7 million, of which
$2.5 million was used to acquire 100% of the stock and ownership of the Bank.
During the period ended June 30, 1997, 36,400 shares of common stock
were purchased and retired by the Company pursuant to a 10% stock repurchase
program. These repurchases reduced total outstanding shares of common stock to
469,526 at June 30, 1997, and the $565,000 cost represented a reduction in total
stockholders' equity.
<PAGE>
CHANGES IN FINANCIAL POSITION AND RESULTS OF OPERATIONS - YEAR ENDED JUNE 30,
1996, COMPARED TO YEAR ENDED JUNE 30, 1995:
General. Total assets increased $8.6 million at June 30, 1996 compared
to June 30, 1995. The increase was primarily a result of an increase in cash and
cash equivalents of $4.3 million. In addition, investment securities increased
$2.1 million and net loans increased $1.6 million. These increases in assets
were funded by increased deposits of $6.2 million or 27.6% and additional
advances of $2.2 million from the Federal Home Loan Bank ("FHLB") of
Indianapolis. The increase in deposits included $4.7 million of funds related to
the sale of common stock associated with the conversion of the Bank from a state
mutual savings bank to a state stock savings bank. The conversion and related
formation of a bank holding company were completed effective July 1, 1996.
Average assets increased from $28.9 million for the period ended June
30, 1995, to $34.3 million for the period ended June 30, 1996, an increase of
18.7%. Average interest-earning assets represented 94.8% of average assets for
the year ended June 30, 1995 compared to 96.0% for the year ended June 30, 1996.
Average loans experienced the largest increase amounting to $3.6 million while
other interest-earning assets increased to a lesser extent. Average
interest-bearing liabilities as a percentage of average interest-earning assets
were 93.2% for the year ended June 30, 1996 compared to 92.5% for the June 30,
1995.
Investment Securities. Total securities increased $2.1 million,
primarily in mortgage-backed securities at June 30, 1996 compared to June 30,
1995. The Bank availed itself of the opportunity in December 1995 to transfer
all of its held-to-maturity securities to available-for-sale as permitted by the
Financial Accounting Standards Board ("FASB"). All subsequent purchases have
been classified as available for sale. The Bank believes that maintaining all
investment securities as available for sale provides the most flexibility in
managing the investment portfolio.
Loans and Allowance for Loan Losses. Average loans increased
approximately $3.6 million from the period ended June 30, 1995 to June 30, 1996.
The growth in loans was funded by increased average deposits and increased
average borrowings. Average loans were $27.0 million for the year ended June 30,
1996 compared to $23.3 million for the year ended June 30, 1995. The average
rate on loans was 9.71% for the year ended June 30, 1996 compared to 9.29% for
the year ended June 30, 1995, an increase of 42 basis points. The allowance for
loan losses as a percentage of net loans increased to .55% from .22% as a result
of a larger provision for loan losses and nominal charge-offs. The ratio of the
allowance for loan losses to nonperforming loans was 41.7% at June 30, 1996
compared to 57.0% at June 30, 1995.
Premises and Equipment. Premises and equipment increased approximately
$41,000, net of depreciation and the disposition of a possible location for
future expansion, from June 30, 1995 to June 30, 1996. The largest increases
were related to the purchase of a property adjacent to the Bank and a property
across the street from the Bank. The Bank utilizes one-half of the location
adjacent to the main office primarily for additional office space and storage
for the Bank. The property located across the street from the main office is
used for employee parking. A location purchased for a loan origination office in
a nearby community was sold on contract for a nominal gain after management
determined that a full service branch was more desirable.
Deposits. Deposits increased $6.2 million from $22.5 million at June
30, 1995 to $28.7 million at June 30, 1996. Increased deposits were used to fund
loans and increases in other earning assets. Savings accounts increased
approximately $4 million, substantially all of which was attributable to funds
on deposit for the purchase of common stock related to the conversion of the
Bank from a mutual to a stock institution. NOW accounts and certificates of
deposit increased $2.3 million during this period. Average total deposits
increased $3.3 million to $25.2 million for the year ended June 30, 1996
compared $22.0 million for the year ended June 30, 1995.
Borrowed Funds. Borrowed funds increased $2.2 million from June 30,
1995 to June 30, 1996. The increase in borrowed funds was used to fund a portion
of the Bank's loan growth. The weighted average interest rate on advances from
the FHLB of Indianapolis decreased from 6.36% at June 30, 1995 to 6.08% at June
30, 1996. Average borrowed funds increased to $5.5 million for the year ended
June 30, 1996 from $3.4 million for the year ended June 30, 1995.
Equity Capital. Equity capital increased $251,000 to $3.4 million at
June 30, 1996 compared to $3.2 million at June 30, 1995 primarily due to net
income during the period.
COMPARISON OF OPERATING RESULTS FOR FISCAL YEARS ENDED JUNE 30, 1997, 1996 AND
1995
General. Net income for the fiscal year ended June 30, 1997 totaled
$252,000 compared to $288,000 for the year ended June 30, 1996, representing a
$36,000 or 12.5% decrease. The decline in net income was due primarily to a
one-time special assessment of $142,000 ($86,000 after tax) imposed by federal
legislation to recapitalize the Savings Association Insurance Fund (SAIF). The
return on average assets for the year ended June 30, 1997 was .63% as compared
to .84% and 1.00% for the prior years ended June 30, 1996 and June 30, 1995,
respectively.
The return on average equity was 3.31% for the year ended June 30,
1997, as compared to 8.71% and 9.59% for the years ended 1996 and 1995
respectively. Primary earnings per share were $.53 for the year ended June 30,
1997, based on 477,164 average shares of common stock outstanding.
Net income without the special SAIF assessment would have totaled
$338,000 or $.71 per share. The return on assets and the return on equity,
without the special SAIF assessment, would have been .84% and 4.44%,
respectively.
Interest Income. The Bank's total interest income was $3.4 million
compared to $3.0 million for 1996. Average earning assets increased $5.5 million
from $32.9 million to $38.4 million from 1996 to 1997. The increase in average
earning assets was accompanied by a decrease in average yields from 8.97% in
1996 to 8.84% in 1997. The increase in average loans was the primary factor
contributing to the increase in total interest income. Total interest income
increased $535,000 from 1995 to 1996. Average earning assets increased $5.5
million during the period ended June 30, 1996 compared to the period ended June
30, 1995 and the average yield increased 15 basis points to 8.97% from 8.82%.
Interest Expense. Interest expense increased $110,000 during the fiscal
year ended June 30, 1997 compared to 1996. The increase in interest expense was
the result of an increase in average interest-bearing liabilities of $1.6
million from $30.7 million to $32.3 million as well as an increase in the
average cost of funds of 9 basis points from 5.19% for 1996 to 5.28% for 1997.
The average balances of NOW and savings accounts decreased $463,000 while the
average balance of certificates of deposits decreased $207,000 during 1997.
Borrowed funds averaged $2.3 million higher during 1997 compared to 1996 as the
Bank continued to utilize borrowings from the FHLB to meet increased loan and
other asset growth. Interest expense increased $419,000 in 1996 compared to 1995
reflecting increases in interest rates of $110,000 and volume increases of
$309,000. The average cost of interest-bearing liabilities increased to 5.19% in
1996, or 56 basis points, compared to 4.63% in 1995.
Net Interest Income. Net interest income increased approximately
$332,000 to $1.7 million for the fiscal year ended June 30, 1997 compared to the
fiscal year ended June 30, 1996. The increase was due to an increase of $350,000
due to volume while interest rates accounted for a decrease of $18,000. The
increase of $116,000 for the year ended June 30, 1996 was the result of $143,000
due to volume while interest rates accounted for a decrease of $27,000. The
$172,000 increase in 1995 was the result of $103,000 due to volume and $69,000
due to rates. The Bank's interest spread for 1997 was 3.56% compared to 3.78%
for 1996 and 4.19 % for 1995.
Provision for Loan Losses. The Bank provided $85,000 for future loan
losses for the fiscal year ended June 30, 1997. The allowance for loan losses at
June 30, 1997 was considered adequate based on historical net chargeoffs and
other factors including the size, condition and components of the loan
portfolio. Consideration was also given to the growth in the loan portfolio and
the level of the allowance maintained by peers. The provision for loan losses
was $94,000 for 1996 and $36,000 for 1995. The Bank provides a general allowance
that reflects inherent losses based upon the types of outstanding loans as well
as the level of problem or nonperforming loans.
Other Income. Service charges on deposit accounts increased
approximately $5,000 in 1997
<PAGE>
compared to 1996 primarily as a result of an increase in the number of accounts
subject to such charges. Service charges on deposit accounts increased $10,000
in 1996 compared to 1995. The increase in other income in 1997 of $5,000
compared to 1996 was primarily the result of an increase in the number of
service fees assessed, including ATM and safe deposit box fees. The increase of
$5,000 in 1996 compared to 1995 was also the result of an increase in service
fees.
BSF Inc., the Bank's service corporation subsidiary ("BSF"), was
organized in 1989 and has historically engaged in the purchasing and developing
of large tracts of real estate. BSF's gain on sales of real estate acquired for
development was $31,000, $57,000 and $78,000 for 1997, 1996 and 1995. Management
has utilized the sale of lots and residences to provide an additional source of
income for the Bank. The level of income from this source fluctuates widely
since it is dependent on the volume of activity, primarily the number of lots
sold, and profits on residential properties. In connection with the Bank's
conversion to an Indiana mutual savings bank in 1996, the FDIC required the Bank
to cease BSF's land acquisitions and divest of BSF's non-conforming real estate
holdings within five years, among other conditions. BSF has ceased to acquire
land and is in process of divesting of its real estate holdings. BSF currently
anticipates that all non-conforming real estate will be sold within the required
disposition period. The loss of the income from this source will have an adverse
effect on net income subsequent to discontinuance of this business activity.
Salaries and Employee Benefits. Salaries and benefits increased 35.7%
to $563,000 for the fiscal year ended June 30, 1997 compared to 1996 reflecting
new employee benefit plans, two additional full-time employees and normal
increases in officers' and employees' compensation and payroll taxes. Salaries
and benefits increased 2.7% to $415,000 in 1996 compared to 1995.
Most of the increase in salaries and benefits in the period ended June
30, 1997 was the result of expenses related to the Employee Stock Ownership Plan
("ESOP") adopted in July 1996 and the Recognition and Retention Plan and Trust
("RRP") approved by shareholders on January 8, 1997. The expense under the ESOP
was $66,000 for the year ended June 30, 1997, while the expense under the RRP
was $25,000. Compensation expense related to the ESOP was recorded equal to the
fair market value of the stock when contributions were made by the Bank to the
ESOP. Restricted stock awards covering up to 4% of the common stock sold in the
conversion may be awarded to the Bank's directors, officers and key employees
under the RRP.
Net Occupancy and Equipment Expenses. Occupancy and equipment expenses
were $132,000 for 1997, $123,000 for 1996 and $109,000 for 1995. The increases
in 1997 and 1996 resulted primarily from increased depreciation on new equipment
placed in service for the Bank's operations.
Deposit Insurance Expense. Deposit insurance expense was $165,000
during 1997; an increase of $111,000, or 206% compared to 1996. Assessments for
1996 and 1995 were $54,000 and $49,000 respectively.
The Bank's deposits are presently insured by the Savings Association
Insurance Fund. A recapitalization plan for the SAIF was signed into law on
September 30, 1996, which provided for a special assessment on all SAIF-insured
institutions to enable the SAIF to achieve its required level of reserves. The
assessment of .65% was effected based on deposits as of June 30, 1996. The
Company's special assessment totaled $142,000 before taxes, and was charged
against current year income and included with deposit insurance expense.
Other Expenses. Expenses other than those discussed above, consisting
primarily of expenses related to computer processing, supplies, professional
fees, advertising, management fees, supervisory examination fees, telephone,
postage and insurance expenses, increased $174,000 or 52.1% in 1997 compared to
1996, and increased $30,000 in 1996 compared to 1995. In 1997, computer
processing expenses increased $4,000 compared to 1996 as a result of increased
usage and a higher volume of activity. Printing and office supplies in fiscal
year 1997 increased $5,000 due to increased volume and general price increases
compared to 1996. Legal, accounting and professional fees increased $124,000
during the year ended June 30, 1997 primarily as a result of costs related to
the conversion of the Bank to a stock company and the implementation of various
employee plans. Management fees paid to Mr. Stewart in connection with the
operations of BSF deceased during 1996 as a result of the termination of such
fees effective January 1, 1997. Other increases occurred as a result of general
increases in a variety of expense categories, including advertising, which
increased by $10,000 compared to 1996.
Income Tax Expense. Income tax expense was $152,000 for 1997 compared
to $196,000 for 1996 and $203,000 for 1995. The level of tax expense was
consistent with the amount of taxable income each year. The effective tax rate
was 37.7%, 40.5% and 41.3% for 1997, 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and proceeds from maturing securities.
While maturities and scheduled amortization of loans are predictable sources of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition and the restructuring of the
thrift industry.
The primary investing activity of the Bank is the origination of
mortgage loans. During the years ended June 30, 1997, 1996 and 1995, the Bank
originated mortgage loans in the amounts of $12.3 million, $7.6 million and $7.1
million, respectively. The Bank originated mobile home loans of $78,000,
$146,000 and $286,000, and consumer loans of $1.0 million, $962,000 and
$710,000, respectively, during these periods. Loan repayments and other
deductions were $6.0 million, $6.8 million and $3.9 million during the
respective three one-year periods.
During each of the years ended June 30, 1997 and 1996, the Bank and the
Holding Company purchased investment securities in the amounts of $3.3 million.
Securities totaling $605,000 were purchased during 1995. During 1997, in order
to fund loan growth, investment securities totaling $4.8 million were sold. No
investment securities were sold in the prior two years. Maturities and
repayments of securities were $1.3 million in 1997, $1.1 million in 1996 and
$291,000 in 1995.
During the year ended June 30, 1997, deposits decreased approximately
$2.6 million, which resulted primarily from $4.7 million in deposit withdrawals
related to the sale of stock associated with the conversion. The Bank also
utilized FHLB advances to fund increases in loans. FHLB advances increased
during each of the years in the periods presented.
The Bank's cash and cash equivalents decreased $1.5 million during the
year ended June 30, 1997. However, the amount at June 30, 1996 was substantially
higher than the preceding year as a result of deposits related to the conversion
being invested short term. Cash and cash equivalents were significantly lower in
1995 compared to 1996.
The Bank had outstanding loan commitments of $1.1 million and unused
lines of credit of $9,000 at June 30, 1997. The Bank anticipates that it will
have sufficient funds from loan repayments and cash and cash equivalents to meet
its current commitments without borrowing additional funds from the FHLB of
Indianapolis. Certificates of deposit scheduled to mature in one year or less at
June 30, 1997 totaled $11.2 million. Management believes that a significant
portion of such deposits will remain with the Bank based upon historical deposit
flow data and the Bank's competitive pricing in its market area.
Liquidity management is both a daily and long-term function of the
Bank's management strategy. In the event that the Bank should require funds
beyond its ability to generate them internally, additional funds are available
through the use of FHLB advances and through sales of securities. The Bank
regularly monitors its interest rate spread position to determine the
appropriate mix between retail and wholesale funds available to fund its loan
activities. From time-to-time the Bank offers higher cost deposit products to
generate funds for loans. The Bank also relies on advances from the FHLB of
Indianapolis to fund its lending activities when the cost of alternative sources
of funds makes it prudent to do so. The Bank will continue to monitor its
interest rate spread position and its mix of deposits and alternative sources of
funds. FHLB advances were $9.0 million at June 30, 1997. The Bank had $22.7
million in eligible assets available as collateral for advances from the FHLB of
Indianapolis as of June 30, 1997. Based on the
<PAGE>
Bank's blanket collateral agreements, advances from the FHLB of
Indianapolis must be collateralized by 160% of eligible assets. Therefore, the
Bank's eligible collateral would have supported approximately $14.2 million in
advances from the FHLB of Indianapolis as of June 30, 1997. However, the Bank's
Board of Directors has by resolution limited the amount of authorized borrowings
to $13 million.
The following is a summary of the Bank's three major types of cash
flows. Cash flows from operating activities consist primarily of net income
generated by cash. Investing activities generate cash flows through the
origination and principal collection on loans as well as purchases and sales of
securities. Investing activities will generally result in negative cash flows
when the Bank is experiencing loan growth. Cash flows from financing activities
include savings deposits, withdrawals and maturities and changes in borrowings.
The following table summarizes cash flows for each of the three years in the
period ended June 30, 1997.
SUMMARY OF CASH FLOWS
Year Ended June 30, 1997 1996 1995
- --------------------------------------------------------
(In thousands)
Operating activities.........$ 345 $ 261 $ 218
------- ------- ------
Investing activities:
Investment purchases...... (3,262) (1,918) (605)
Mortgage-backed
securities purchases.... --- (1,399) ---
Investment sales.......... 4,825 --- ---
Total investment
securities maturities
and paydowns............ 1,343 1,114 291
Changes in loans.......... (7,372) (1,762) (4,134)
Other..................... (300) (98) (118)
------- ------- ------
Total................... (4,766) (4,063) (4,566)
------- ------- ------
Financing activities:
Deposit increases
(decreases)............. (2,569) 6,226 1,049
Borrowings, net
of repayments........... 1,800 2,171 3,448
Other..................... 3,654 (260) ---
------- ------- ------
Total................... 2,885 8,137 4,497
------- ------- ------
Net change in cash and
cash equivalents..........$(1,536) $ 4,335 $ 149
======= ======= ======
During the years ended June 30, 1997, 1996 and 1995, operating and
financing activities provided the most significant portion of funds to support
growth in the loan portfolio. Sales of securities as well as increases in
borrowed funds funded loan growth during 1997. Loan growth in 1996 and 1995 was
funded primarily by increases in deposits and borrowed funds.
IMPACT OF INFLATION
The consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles. These
principles require the measurement of financial position and operating results
in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
The primary assets and liabilities of financial institutions such as
the Bank are monetary in nature. As a result, interest rates have a more
significant impact on the Bank's performance than the effects of general levels
of inflation. Interest rates, however, do not necessarily move in the same
direction or with the same magnitude as the price of goods and services, since
such prices are affected by inflation. In a period of rapidly rising interest
rates, the liquidity and maturity structure of the Bank's assets and liabilities
are critical to the maintenance of acceptable performance levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Such expense items as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans made by the Bank. The Bank is unable to determine the extent, if
any, to which properties securing the Bank's loans have appreciated in dollar
value due to inflation.
CURRENT ACCOUNTING ISSUES
Accounting for Mortgage Servicing Rights. During 1995, the FASB issued
Statement of Financial Accounting Standards ("SFAS") No. 122, entitled
Accounting for Mortgage Servicing Rights. SFAS No. 122 pertains to mortgage
banking enterprises and financial institutions that conduct operations that are
substantially similar to the primary operations of a mortgage banking
enterprise. This Statement eliminates the accounting distinction between
mortgage servicing rights that are acquired through loan origination activities
and those acquired through purchase transactions. Under this Statement, if a
mortgage banking enterprise sells or securitizes loans and retains the mortgage
servicing rights, the enterprise must allocate the total cost of the mortgage
loans to mortgage servicing rights and loans (without the rights) based on their
relative fair values if it is practicable to estimate those fair values. If it
is not practicable, the entire cost should be allocated to the mortgage loans
and no cost should be allocated to the mortgage servicing rights. An entity
would measure impairment of mortgage servicing rights and loans based on the
excess of the carrying amount of the mortgage servicing rights portfolio over
the fair value of that portfolio.
The Statement which was to be applied prospectively in fiscal years
beginning after December 15, 1995, to transactions in which an entity acquires
mortgage servicing rights and to impairment evaluations of all capitalized
mortgage servicing rights. Retroactive application is prohibited. The adoption
of No. 122 during 1996 did not have a material impact on either the Company's
financial position or results of operations.
Accounting For Stock-based Compensation. The FASB has issued SFAS No.
123, Accounting for Stock-based Compensation. This Statement establishes a fair
value based method of accounting for stock-based compensation plans. The FASB
encourages all entities to adopt this method for accounting for all arrangements
under which employees receive shares of stock or other equity instruments of the
employer, or the employer incurs liabilities to employees in amounts based on
the price of its stock.
Due to the extremely controversial nature of this project, the
Statement permits a company to continue the accounting for stock-based
compensation prescribed in Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees. If a company elects that option, pro
forma disclosures of net income (and EPS, if presented) are required in the
footnotes as if the provisions of this Statement had been used to measure
stock-based compensation.
The disclosure requirements of Opinion No. 25 have been superseded by
the disclosure requirements of this Statement.
Once an entity adopts the fair value based method for accounting for
these transactions, that election cannot be reversed.
Equity instruments granted or otherwise transferred directly to an
employee by a principal stockholder are stock-based employee compensation to be
accounted for in accordance with either Opinion 25 or this Statement, unless the
transfer clearly is for a purpose other than compensation.
The accounting requirements of this Statement are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The disclosure requirements are effective for financial statements for fiscal
years beginning after December 15, 1995. Pro forma disclosures required for
entities that elect to continue to measure compensation cost using Opinion 25
must include the effects of all awards granted in fiscal years that begin after
December 15, 1994.
During the initial phase-in period, the effects of applying this
Statement are not likely to be representative of the effects on reported net
income for future years because options vest over several years and additional
awards generally are made each year. If that situation exists, the entity must
include a statement to that effect.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Statement No. 125 breaks new ground in resolving
long-standing questions about whether transactions should be accounted for as
secured borrowings or as sales. The Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are considered secured borrowings.
<PAGE>
A transfer of financial assets in which the transferor surrenders
control over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange. The transferor has surrendered control over transferred
assets only if all of the following conditions are met:
The transferred assets have been isolated from the transferor -- put
presumptively beyond the reach of the transferor and its creditors, even in
bankruptcy or other receivership.
Each transferee obtains the right -- free of conditions that constrain
it from taking advantage of that right -- to pledge or exchange the transferred
assets, or the transferee is a qualifying special-purpose entity and the holders
of beneficial interests in that entity have the right -- free of conditions that
constrain them from taking advantage of that right -- to pledge or exchange
those interests.
The transferor does not maintain effective control over the transferred
assets through an agreement that both entitles and obligates the transferor to
repurchase or redeem them before their maturity, or an agreement that entitles
the transferor to repurchase or redeem transferred assets that are not readily
obtainable.
This Statement provides detailed measurement standards for assets and
liabilities included in these transactions. It also includes implementation
guidance for assessing isolation of transferred assets and for accounting for
transfers of partial interests, servicing of financial assets, securitizations,
transfers of sales-type and direct financing lease receivables, securities
lending transactions, repurchase agreements, "wash sales", loan syndications and
participations, risk participations in banker's acceptances, factoring
arrangements, transfers of receivables with recourse, and extinguishments of
liabilities.
The Statement supersedes FASB Statements No. 76, Extinguishment of
Debt, and No. 77, Reporting by Transferors for Transfers of Receivables with
Recourse, and No. 122, Accounting for Mortgage Servicing Rights and amends FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, in addition to clarifying or amending a number of other statements
and technical bulletins.
This Statement is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996 and
is to be applied prospectively. Earlier or retroactive application is not
permitted.
The adaption of No. 125 did not have any material effect on 1997
financial statements.
Earnings per Share. Statement No. 128 establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly held common stock or potential common stock, as well as any other
entity that chooses to present EPS in its financial statements.
This Statement simplifies the current standards of APB Opinion No. 15,
Earnings per Share, and makes them comparable to international EPS standards. It
eliminates the presentation of primary EPS and requires presentation of basic
EPS (the principal difference being that common stock equivalents are not
considered in the computation of basic EPS). It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if the potential common shares were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to that of fully
diluted EPS pursuant to Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
is not permitted. The Statement requires restatement of all prior-period EPS
data presented.
<PAGE>
Disclosure of Information about Capital Structure. Statement No. 129
continues the current requirements to disclose certain information about an
entity's capital structure found in APB Opinion No. 10, Omnibus Opinion ( 1966,
Opinion 15, and SFAS No. 47, Disclosure of Long-Term Obligations. It
consolidates specific disclosure requirements from those standards. SFAS No. 129
is effective for financial statements issued for periods ending after December
15, 1997, including interim periods.
Reporting Comprehensive Income. In June 1997, the FASB issued SFAS No.
130, Reporting Comprehensive Income, establishing standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. It requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This Statement
does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period in that financial statement.
SFAS No. 130 also requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position.
The Statement is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
Disclosures about Segments of an Enterprise. In June 1997, the FASB
issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishing standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This Statement supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, but retains the
requirement to report information about major customers. It amends SFAS No. 94,
Consolidation of All Majority-Owned Subsidiaries, to remove the special
disclosure requirements for previously unconsolidated subsidiaries. This
Statement does not apply to nonpublic business enterprises or to not-for-profit
organizations.
SFAS No. 131 requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
This Statement requires that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts in the enterprise's general-purpose financial
statements. This Statement also requires that a public business enterprise
report descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This Statement need
not be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of application.
<PAGE>
Accounting for Employee Stock Plans. In November 1993, AICPA issued
Statement of Position ("SOP") 93-6 which addresses the accounting for shares of
stock issued to employees by an ESOP. SOP 93-6 requires that the employer record
compensation expense in an amount equal to the fair value of shares committed to
be released to employees from the ESOP. SOP 93-6 is effective for fiscal years
beginning after December 15, 1993 and relates to shares purchased by an ESOP
after December 31, 1992. Assuming shares of Common Stock appreciate in value
over time, the adoption of SOP 93-6 will likely increase compensation expense
relative to the Company's ESOP established in connection with the Conversion, as
compared with prior guidance which would have required the recognition of
compensation expense based on the cost of shares acquired by the ESOP.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Home Financial Bancorp
Spencer, Indiana
We have audited the consolidated statement of financial condition of Home
Financial Bancorp (formerly Owen Community Bank, s. b.) and subsidiary as of
June 30, 1997 and 1996, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended June 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of Home
Financial Bancorp and subsidiary as of June 30, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
July 25, 1997
<PAGE>
HOME FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, 1997 1996
- ---------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash $ 296,805 $ 385,824
Short-term interest-bearing deposits 3,887,498 5,334,796
------------ ------------
Total cash and cash equivalents 4,184,303 5,720,620
Investment securities--available for sale 2,101,734 4,901,120
Loans 34,348,648 27,274,557
Allowance for loan losses (231,397) (149,833)
------------ ------------
Net loans 34,117,251 27,124,724
Real estate acquired for development 20,758 171,580
Premises and equipment 963,657 512,768
Federal Home Loan Bank stock 500,000 360,000
Interest receivable 268,648 235,678
Prepaid stock conversion costs 260,067
Other assets 351,876 139,754
------------ ------------
TOTAL ASSETS $ 42,508,227 $ 39,426,311
============ ============
LIABILITIES
Interest-bearing deposits $ 26,156,516 $ 28,725,700
Federal Home Loan Bank advances 9,000,000 7,200,000
Other liabilities 154,577 90,539
------------ ------------
TOTAL LIABILITIES 35,311,093 36,016,239
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY Preferred stock, without par value:
Authorized and unissued--2,000,000 shares
Common stock, without par value
Authorized--5,000,000
Issued--469,526 4,389,698
Retained earnings--substantially restricted 3,409,288 3,427,201
Unearned compensation (264,781)
Unearned ESOP shares (364,264)
Net unrealized gain (loss) on securities available for sale 27,193 (17,129)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,197,134 3,410,072
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,508,227 $ 39,426,311
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HOME FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C>
Loans $2,912,085 $2,618,394 $2,166,726
Deposits with financial institutions 136,538 135,553 76,678
Investment securities
Taxable 279,869 161,258 143,426
Tax exempt 30,073 18,206 17,745
Other interest and dividend income 38,105 21,210 15,728
--------- --------- ---------
Total interest and dividend income 3,396,670 2,954,621 2,420,303
--------- --------- ---------
INTEREST EXPENSE
Deposits 1,210,207 1,261,043 962,764
Federal Home Loan Bank advances 487,217 330,458 201,463
Other interest expense 5,758 1,282 9,994
--------- --------- ---------
Total interest expense 1,703,182 1,592,783 1,174,221
--------- --------- ---------
NET INTEREST INCOME 1,693,488 1,361,838 1,246,082
Provision for losses on loans 85,000 94,000 36,134
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS 1,608,488 1,267,838 1,209,948
OTHER INCOME
Service charges on deposit accounts 42,494 37,478 27,345
Gain on sale of real estate acquired for development 31,437 56,944 78,499
Net realized gain on sales of available-for-sale securities 37,155
Other income 52,750 47,535 42,567
--------- --------- ---------
Total other income 163,836 141,957 148,411
--------- --------- ---------
OTHER EXPENSES
Salaries and employee benefits 563,142 414,986 403,787
Net occupancy expenses 70,825 67,213 73,761
Equipment expenses 61,044 55,436 35,302
Deposit insurance expense 164,550 53,686 49,444
Computer processing fees 59,152 55,410 47,945
Printing and office supplies 38,274 33,479 32,215
Legal and professional fees 171,674 47,324 35,125
Advertising expense 34,004 24,346 25,518
Management fees 22,998 33,005
Other expenses 204,901 150,563 129,824
--------- --------- ---------
Total other expenses 1,367,566 925,441 865,926
--------- --------- ---------
INCOME BEFORE INCOME TAX 404,758 484,354 492,433
Income tax expense 152,441 195,964 203,210
--------- --------- ---------
NET INCOME $ 252,317 $ 288,390 $ 289,223
========= ========= =========
NET INCOME PER SHARE $.53
WEIGHTED AVERAGE SHARES OUTSTANDING 477,164
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HOME FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Unearned Securities
Common Stock Retained Unearned ESOP Available
Shares Amount Earnings Compensation Shares For Sale Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1994 $2,849,588 $2,849,588
Net income for 1995 289,223 289,223
Cumulative effect of change
in method of accounting
for securities $ 6,912 6,912
Net change in unrealized
gain (loss) on securities
available for sale 13,439 13,439
----------------------------------------------------------------------------------------
Balances, June 30, 1995 3,138,811 20,351 3,159,162
Net income for 1996 288,390 288,390
Net change in unrealized
gain (loss) on securities
available for sale (37,480) (37,480)
----------------------------------------------------------------------------------------
Balances, June 30, 1996 3,427,201 (17,129) 3,410,072
Net income for 1997 252,317 252,317
Common stock issued in
conversion, net of costs 505,926 $4,728,294 4,728,294
Cash dividends
($.15 per share) (68,818) (68,818)
Net change in unrealized
gain (loss) on securities
available for sale 44,322 44,322
Contributions for unearned
ESOP shares $(404,740) (404,740)
ESOP shares earned 25,404 40,476 65,880
Contribution for
unearned RRP shares $(290,172) (290,172)
RRP shares earned 25,391 25,391
Purchase of stock (36,400) (364,000) (201,412) (565,412)
----------------------------------------------------------------------------------------
Balances, June 30, 1997 469,526 $4,389,698 $3,409,288 $(264,781)$(364,264) $27,193 $7,197,134
========================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HOME FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 252,317 $ 288,390 $ 289,223
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses 85,000 94,000 36,134
Investment securities amortization, net 2,630 464 683
ESOP shares earned 65,880
RRP shares earned 25,391
Depreciation and amortization 83,193 74,367 58,813
Deferred income tax benefit (35,294) (41,460) (198)
Gain on sale of real estate acquired for development (31,437) (56,944) (78,499)
Gain on sale of other real estate (21,964) (3,250) (11,019)
Gain on sale of securities available for sale (37,155)
Change in
Interest receivable (32,970) (49,069) (74,994)
Other assets (74,794) (10,361) (13,636)
Other adjustments 64,038 (34,852) 11,360
---------- ---------- --------
Net cash provided by operating activities 344,835 261,285 217,867
---------- ---------- --------
INVESTING ACTIVITIES
Purchases of securities available for sale (3,261,591) (3,316,533) (399,719)
Purchase of securities held to maturity (205,000)
Proceeds from sales of securities available for sale 4,824,600
Proceeds from maturities and paydowns of
securities available for sale 1,342,922 1,002,691
Proceeds from maturities and paydowns of
securities held to maturity 111,071 290,803
Net changes in loans (7,371,895) (1,761,684) (4,134,319)
Improvements to real estate owned (12,621)
Proceeds from real estate owned sales 204,501 44,202 41,284
Purchase of premises and equipment (569,082) (164,998) (173,327)
Proceeds from disposal of premises and equipment 35,000 58,000
Purchase of real estate acquired for development (2,911) (38,421) (231,464)
Proceeds from sale of real estate acquired for development 185,170 112,170 274,247
Purchase of FHLB of Indianapolis stock (140,000) (110,000) (28,500)
---------- ---------- --------
Net cash used by investing activities (4,765,907) (4,063,502) (4,565,995)
---------- ---------- --------
FINANCING ACTIVITIES
Net change in
NOW and savings deposits (3,456,237) 4,309,021 (1,774,297)
Certificates of deposit 887,053 1,916,677 2,822,850
Advances from Federal Home Loan Bank of Indianapolis 4,300,000 2,200,000 3,500,000
Payments on advances from Federal
Home Loan Bank of Indianapolis (2,500,000)
Other borrowings 75,000
Payments on other borrowings (28,773) (126,400)
Sale of stock 4,578,341
Prepaid stock conversion costs (260,067)
Purchase of stock (565,412)
Dividends paid (68,818)
Contribution of RRP shares (290,172)
---------- ---------- --------
Net cash provided by financing activities 2,884,755 8,136,858 4,497,153
---------- ---------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,536,317) 4,334,641 149,025
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,720,620 1,385,979 1,236,954
---------- ---------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $4,184,303 $5,720,620 $1,385,979
========== ========== ==========
ADDITIONAL CASH FLOWS AND SUPPLEMENTARY INFORMATION
Interest paid $1,703,182 $1,592,783 $1,174,221
Income tax paid 178,988 179,305 144,375
Transfers from loans to other real estate 294,368
Stock issuance costs transferred from other
assets to stockholder's equity 254,787
Common stock issued to ESOP leveraged with an employer loan 404,740
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HOME FINANCIAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
- -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Home Financial Bancorp
("Company") and its wholly owned subsidiary, Owen Community Bank, s.b. ("Bank")
and the Bank's wholly owned subsidiary, BSF, Inc. ("BSF"), conform to generally
accepted accounting principles and reporting practices followed by the thrift
industry. The more significant of the policies are described below.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company is a bank holding company whose principal activity is the
ownership and management of the Bank. Commencing July 1, 1997, the Bank operates
under a state thrift charter, known as a stock savings bank, and provides full
banking services. Prior to July 1, 1997, the Bank operated as an Indiana mutual
savings bank. As a state-chartered thrift, the Bank is subject to regulation by
the Department of Financial Institutions, State of Indiana and the Federal
Deposit Insurance Corporation ("FDIC").
The Bank generates mortgage and consumer loans and receives deposits
from customers located primarily in Owen and surrounding counties. The Bank's
loans are generally secured by specific items of collateral including real
property and consumer assets.
BSF engages in purchasing and developing large tracts of real estate.
After land is purchased, BSF subdivides the real estate into lots, makes
improvements such as streets, and sells individual lots, usually on contract for
debt. In connection with the Bank's conversion to an Indiana mutual savings bank
in 1995, the FDIC required the Bank to cease BSF's land acquisitions, divest of
BSF's nonconforming real estate holdings by November 16, 2000 and maintain the
Bank's capital at levels sufficient to classify the Bank as a well-capitalized
institution. BSF has ceased land acquisitions and is in process of divesting of
its real estate holdings. BSF's net income for the years ended June 30, 1997,
1996 and 1995, included in the Company's consolidated net income, totaled
$35,000, $59,000, and $59,000.
Consolidation--The consolidated financial statements include the
accounts of the Company and subsidiary after elimination of all material
intercompany transactions and accounts.
Investment Securities--The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities, on July 1, 1994.
Debt securities are classified as held to maturity when the Company has
the positive intent and ability to hold the securities to maturity. Securities
held to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as
available for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately, net of tax, in stockholders'
equity.
<PAGE>
Home Financial Bancorp and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Amortization of premiums and accretion of discounts are recorded using
the interest method as interest income from securities. Realized gains and
losses are recorded as net security gains (losses). Gains and losses on sales of
securities are determined on the specific-identification method.
Loans are carried at the principal amount outstanding. A loan is
impaired when, based on current information or events, it is probable that the
Bank will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. Payments with
insignificant delays not exceeding 90 days outstanding are not considered
impaired. The Bank considers its investment in one-to-four family residential
loans and consumer loans to be homogeneous and therefore excluded from separate
identification for evaluation of impairment. Interest income is accrued on the
principal balances of loans. The accrual of interest on impaired and nonaccrual
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans over the contractual lives of the loans. When a
loan is paid off or sold, any unamortized loan origination fee balance is
credited to income.
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is
based on estimates that are particularly susceptible to significant changes in
the economic environment and market conditions. Management believes that as of
June 30, 1997, the allowance for loan losses is adequate based on information
currently available. A worsening or protracted economic decline in the area
within which the Bank operates would increase the likelihood of additional
losses due to credit and market risks and could create the need for additional
loss reserves.
Real estate acquired for development is carried at the lower of cost or
fair value. Costs relating to development and improvements of property are
allocated to individual lots and capitalized, whereas costs relating to holding
the property are expensed. Gains on sales of lots are determined on the
specific-identification method.
Premises and equipment are carried at cost net of accumulated
depreciation. Depreciation is computed using the accelerated and straight-line
methods based principally on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized. Gains and losses on dispositions are included in
current operations.
Federal Home Loan Bank ("FHLB") stock is a required investment for
institutions that are members of the Federal Home Loan Bank system. The required
investment in the common stock is based on a predetermined formula.
<PAGE>
Home Financial Bancorp and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Pension plan costs are based on actuarial computations and charged to
current operations. The funding policy is to pay at least the minimum amounts
required by ERISA.
Income tax in the consolidated statement of income includes deferred
income tax provisions or benefits for all significant temporary differences in
recognizing income and expenses for financial reporting and income tax purposes.
The Company and Bank file consolidated tax returns.
Earnings per share have been computed based upon the weighted average
common shares outstanding during the period subsequent to the Bank's conversion
to a stock savings bank on July 1, 1996. Unearned employee stock ownership plan
("ESOP") shares have been excluded from the computation of average common shares
outstanding.
- -- CONVERSION TO STATE STOCK SAVINGS BANK
On July 1, 1996, the Bank completed the conversion from a state
chartered mutual savings bank to a state chartered stock savings bank and the
formation of the Company as the holding company of the Bank. As part of the
conversion, the Company issued 505,926 shares of common stock at $10 per share.
Net proceeds of the Company's stock issuance, after costs and excluding the
shares issued for the ESOP, were approximately $4,320,000, of which $2,472,548
was used to acquire 100% of the stock and ownership of the Bank. Costs
associated with the conversion were deducted from the proceeds of stock sold by
the Company. The transaction was accounted for in a manner similar to a pooling
of interests.
- -- INVESTMENT SECURITIES
1997
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
June 30, Cost Gains Losses Value
- ------------------------------------------------------------------
Available for sale
U.S. Treasury $ 825 $ 2 $ 827
Federal agencies 100 4 104
Marketable
equity securities 344 34 378
Mortgage-backed
securities 788 5 793
--------------------------------------------
Total investment
securities $2,057 $45 $2,102
============================================
1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
June 30, Cost Gains Losses Value
- ------------------------------------------------------------------
Available for sale
Federal agencies $1,100 $ 5 $1,105
State and
municipal 678 4 $ 5 677
Mortgage-backed
securities 3,151 23 55 3,119
----------------------------------------------
Total investment
securities $4,929 $32 $60 $4,901
==============================================
<PAGE>
Home Financial Bancorp and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The amortized cost and fair value of securities available for sale at
June 30, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
1997
-------------------------
Available for Sale
-------------------------
Amortized Fair
Cost Value
-------------------------
Maturity Distribution
at June 30
- ----------------------------------------------------
Within one year $ 475 $ 475
One to five years 450 456
925 931
Marketable equity
securities 344 378
Mortgage-backed
securities 788 793
------ ------
Totals $2,057 $2,102
====== ======
Securities with a carrying value of $788,000 and $3,119,000 were
pledged at June 30, 1997 and 1996 to secure FHLB advances.
Proceeds from sales of securities available for sale during 1997 were
$4,825,000. Gross gains of $71,000 and gross losses of $34,000 were realized on
those sales.
On December 26, 1995, the Bank transferred certain securities from held
to maturity to available for sale in accordance with a transition
reclassification allowed by the Financial Accounting Standards Board. Such
securities had a carrying value of $1,716,000 and a fair value of $1,707,000.
Other than the initial adoption of SFAS No. 115 and the preceding, there were no
transfers or sales of investment securities during the periods presented.
- -- LOANS AND ALLOWANCE
June 30 1997 1996
- ---------------------------------------------------
Real estate mortgage loans
Residential $ 19,898 $ 18,240
Mobile home and land 4,396 3,513
Nonresidential 6,896 2,544
Multi-family 980 604
Mobile home loans1,361
1,241
Commercial and industrial 634 350
Consumer loans 612 1,094
------ ------
34,777 27,586
------ ------
Undisbursed portion of loans (430) (319)
Deferred loan costs 2 8
------ ------
(428) (311)
------ ------
Total loans $34,349 $27,275
======= =======
Year Ended June 30 1997 1996 1995
- ----------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
Balances, July 1 $ 150 $ 57 $ 26
Provision for loan losses 85 94 36
Recoveries on loans 1
Loans charged off (4) (1) (6)
----- ----- -----
Balances,
June 30 $ 231 $ 150 $ 57
===== ===== =====
The Bank adopted SFAS No. 114 and No. 118, Accounting by Creditors For
Impairment of a Loan and Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures, on July 1, 1995. The adoption of SFAS
Nos. 114 and 118 did not have a material impact on the Bank's financial position
or results of operations.
At June 30, 1997 and 1996, the Bank had nonaccrual loans of
approximately $562,000 and $359,000, for which impairment had not been
recognized. If interest on these loans had been recognized at the original
interest rates, interest income would have increased approximately $21,000 and
$19,000.
The Bank has no commitments to loan additional funds to the borrowers
of nonaccrual loans.
Nonaccruing loans totaled approximately $71,000 at June 30, 1995.
Additional interest income that would have been recorded had income on
nonaccruing loans been considered collectible and
<PAGE>
Home Financial Bancorp and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
accounted for in accordance with their original terms was immaterial.
The Bank has entered into transactions with certain directors and
officers. Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans, as defined, to such related parties were as follows:
Balances, June 30, 1996 $ 508
New loans, including renewals 14
Payments, etc. including renewals (39)
Change in composition (48)
-----
Balances, June 30, 1997 $ 435
=====
- -- PREMISES AND EQUIPMENT
June 30 1997 1996
- -----------------------------------------------------
Land $277 $188
Building 991 606
Equipment 381 321
--- ---
Total cost 1,649 1,115
Accumulated depreciation (685) (602)
---- ----
Net $964 $513
==== ====
- -- DEPOSITS
June 30 1997 1996
- --------------------------------------------
Interest-bearing demand $ 3,682 $ 2,396
Savings 2,942 7,684
Certificates of $100,000
or more 3,479 2,655
Other certificates 16,054 15,991
------- -------
Total deposits $26,157 $28,726
======= =======
Certificates maturing in years ending June 30:
1998 $11,168
1999 3,629
2000 3,512
2001 470
2002 754
-------
$19,533
=======
- -- FEDERAL HOME LOAN BANK ADVANCES
1997
-----------------------
Weighted
Average
June 30 Amount Rate
- ------------------------------------------------------
Maturities in years ending
1998 $3,800 6.19%
1999 1,500 6.25%
2000 3,500 6.24%
2006 200 6.87%
------
$9,000 6.29%
======
The terms of the security agreement with the FHLB require the Bank to
pledge as collateral for advances qualifying first mortgage loans in an amount
equal to at least 160 percent of these advances and all stock in the FHLB.
Advances are subject to restrictions or penalties in the event of prepayment.
- -- INCOME TAX
Year Ended June 30 1997 1996 1995
- ------------------------------------------------------
Income tax expense
Currently payable
Federal $141 $185 $153
State 46 52 50
Deferred
Federal (25) (32)
State (10) (9)
---- ---- ----
Total income
tax expense $152 $196 $203
==== ==== ====
<PAGE>
Home Financial Bancorp and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Year Ended June 30 1997 1996 1995
- --------------------------------------------------
Reconciliation of
federal statutory to
actual tax expense
Federal statutory
income tax at 34% $ 138 $ 165 $ 167
Effect of state
income taxes 24 28 33
Tax exempt interest (9) (5) (5)
Other (1) 8 8
----- ----- -----
Actual tax expense $ 152 $ 196 $ 203
===== ===== =====
A cumulative net deferred tax asset is included in other assets at June 30, 1997
and 1996. The components of the asset are as follows:
June 30 1997 1996
- -------------------------------------------------------
Differences in
depreciation methods $ (3) $ (7)
Differences in accounting
for loan fees (4) (6)
Differences in accounting
for loan losses 61 36
Differences in
compensation plans 9
State income tax (7) (3)
Differences in
accounting for securities
available for sale (18) 12
--- --
$38 $32
=== ===
Assets $70 $48
Liabilities (32) (16)
--- ---
$38 $32
=== ===
No valuation allowance was necessary for the years ended June 30, 1997
and 1996.
Retained earnings at June 30, 1997, include approximately $700,000 for
which no deferred federal income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions as of June 30, 1997
for tax purposes only. Reduction of amounts so allocated for purposes other than
tax bad debt losses including redemption of bank stock or excess dividends, or
loss of "bank status" would create income for tax purposes only, which income
would be subject to the then-current corporate income tax rate. The unrecorded
deferred federal income tax liability on the above amounts was approximately
$280,000 at June 30, 1997.
- -- COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, which are not
included in the accompanying financial statements. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit is represented by the contractual
or notional amount of those instruments. The Bank uses the same credit policies
in making such commitments as it does for instruments that are included in the
consolidated statement of financial condition. Financial instruments whose
contract amount represents credit risk as of June 30 were as follows:
1997 1996
- ----------------------------------------
Mortgage loan commitments
At variable rates $563 $989
At fixed rates 515 752
Unused lines of credit 9 205
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral
<PAGE>
Home Financial Bancorp and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation. Collateral held varies, but may include
residential real estate, or other assets of the borrower.
The Bank has entered into agreements with three officers which provide
for salary continuation for a three-year period under certain circumstances,
primarily related to change of control of the Bank, as defined. Under the terms
of the agreements, these payments could occur if, following a change of control,
such officers are terminated other than for cause or unreasonable changes are
made in their employment relationships. These agreements extend automatically
for one year on each anniversary date unless certain conditions are met. One of
the agreements was effective January 1, 1996 and the other two agreements were
effective July 1, 1996.
The Company and Bank are also subject to claims and lawsuits which
arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate determination of such possible
claims or lawsuits will not have a material adverse effect on the consolidated
financial position of the Company.
- -- RESTRICTION ON DIVIDENDS
The Company is not subject to any regulatory restriction on the payment
of dividends to its stockholders.
Without prior approval, current regulations allow the Bank to pay
dividends to the Company not exceeding net profits (as defined) for the current
year plus those for the previous two years. The Bank normally restricts
dividends to a lesser amount because of the need to maintain an adequate capital
structure.
At the time of conversion, a liquidation account was established in an
amount equal to the Bank's net worth as reflected in the latest statement of
condition used in its final conversion offering circular. The liquidation
account is maintained for the benefit of eligible deposit account holders who
maintain their deposit account in the Bank after conversion. In the event of a
complete liquidation (and only in such event), each eligible deposit account
holder will be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance for deposit accounts then held, before any liquidation distribution may
be made to stockholders. Except for the repurchase of stock and payment of
dividends, the existence of the liquidation account will not restrict the use or
application of net worth. The initial balance of the liquidation account was
$3,295,000.
At June 30, 1997, total stockholder's equity of the Bank was
$5,890,000, of which approximately $538,000 was available for the payment of
dividends.
- -- REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate actions by the regulatory agencies that, if
undertaken, could have a material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
At June 30, 1997, the Bank believes that it meets all capital adequacy
requirements to which it is subject and the most recent notification from the
regulatory agency categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action.
<PAGE>
Home Financial Bancorp and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
In connection with the Bank's conversion to a state-chartered savings
bank, the FDIC imposed heightened capital requirements on the Bank because of
the impermissible real estate development activities of BSF. The FDIC currently
requires that the Bank maintain capital (after deduction of its investment in
BSF) at levels sufficient for the Bank to be classified as a well-capitalized
institution.
The Bank's actual and required capital amounts and ratios are as
follows:
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------
Required Required
for Adequate To Be Well
Actual Capital 1 Capitalized 1
-------------------------------------------------------------------------
June 30 Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total capital 1 (to risk weighted assets) $6,109 25.0% $1,952 8.0% $2,440 10.0%
Tier I capital 1 (to risk weighted assets) 5,879 24.1 976 4.0 1,464 6.0
Tier I capital 1 (to average assets) 5,879 14.2 1,662 4.0 2,077 5.0
</TABLE>
1 As defined by the regulatory agencies
- -- EMPLOYEE BENEFIT PLANS
The Bank is a participant in a pension fund known as the Pentegra Group
(formerly Financial Institutions Retirement Fund). This plan is a multi-employer
plan; separate actuarial valuations are not made with respect to each
participating employer. According to the plan administrators, the market value
of the fund's assets exceeded the value of vested benefits in the aggregate as
of June 30, 1996, the date of the latest actuarial valuation. The plan required
contributions in the amount of $13,000, $15,700 and $17,900 for the years ended
June 30, 1997, 1996 and 1995. The plan provides pension benefits for
substantially all of the Bank's employees.
The Bank has a retirement savings Section 401(k) plan in which
substantially all employees may participate. The Bank matches employees'
contributions at the rate of 50 percent of the first 6 percent of base salary
contributed by participants. The Bank's expense for the plan was $10,100,
$9,200, and $8,550 for the years ended June 30, 1997, 1996 and 1995.
As part of the conversion, the Company established an ESOP covering
substantially all employees of the Bank. The ESOP acquired 40,474 shares of the
Company common stock at $10 per share in the conversion with funds provided by a
loan from the Company. Accordingly, the $404,740 of common stock acquired by the
ESOP is shown as a reduction of stockholders' equity. Shares are released to
participants proportionately as the loan is repaid. Dividends on allocated
shares are recorded as dividends and charged to retained earnings. Dividends on
unallocated shares, which will be distributed to participants, are treated as
compensation expense. Compensation expense is recorded equal to the fair market
value of the stock when contributions, which are determined annually by the
Board of Directors of the Bank, are made to the ESOP. The expense under the ESOP
was $65,900 for the year ended June 30, 1997. At June 30, 1997, the ESOP had
2,555 allocated shares, 35,157 suspense shares and 2,762 committed-to-be
released shares.
On July 23, 1997, the board of Directors approved a Stock Option Plan.
The plan is subject to stockholders' approval. Under the Stock Option Plan,
stock options representing an aggregate of up to 10% of Common Stock sold in the
conversion may be granted to directors, officers and other key employees of the
Company or its subsidiary.
<PAGE>
In January, 1997, the Company's stockholders approved the Recognition
and Retention Plan and Trust ("RRP"). The RRP may acquire up to 20,237 shares of
the Company's common stock for awards to management. Shares awarded to
management under the RRP vest at a rate of 20% at the end of each full twelve
months of service with the Bank after the date of grant. During the year ended
June 30, 1997, the Bank contributed $290,172 to the RRP for the purchase of
20,237 shares of the Company's common stock of which 15,178 shares were awarded
to management and recorded as unearned compensation. Expense under the RRP was
$25,391 for the year ended June 30, 1997.
- -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Securities Available for Sale--Fair values are based on quoted market
prices.
Loans--For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are based
on carrying values. The fair value for other loans, are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
FHLB Stock--Fair value of FHLB stock is based on the price at which it
may be resold to the FHLB.
Interest Receivable--The fair values of interest receivable approximate
carrying values.
Deposits--The fair values of interest-bearing demand, NOW, money market
deposit and savings accounts are equal to the amount payable on demand at the
balance sheet date. The carrying amounts for variable rate, fixed-term
certificates of deposit approximate their fair values at the balance sheet date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on such time deposits.
FHLB Advances--The fair value of these borrowings are estimated using a
discounted cash flow calculation, based on current rates for similar debt. Fair
value approximates carrying value.
Off-Balance Sheet Commitments--Commitments include commitments to
originate mortgage loans, and extend lines of credit and are generally of a
short-term nature. The fair value of such commitments are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing.
<PAGE>
Home Financial Bancorp and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------
Carrying Fair Carrying Fair
June 30 Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,184 $4,184 $5,721 $5,721
Securities available for sale 2,102 2,102 4,901 4,901
Loans, net 34,117 33,703 27,125 27,183
Stock in FHLB 500 500 360 360
Interest receivable 269 269 236 236
LIABILITIES
Deposits 26,157 26,281 28,726 28,856
FHLB advances 9,000 9,018 7,200 7,236
OFF-BALANCE SHEET ASSETS
Commitments to extend credit
</TABLE>
(PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
CONDENSED BALANCE SHEET
June 30 1997
- -------------------------------------------------------
ASSETS
Cash $ 25
Securities available for sale 1,205
Premises and equipment 15
Investment in subsidiary 5,890
Other assets 103
------
Total assets $7,238
======
LIABILITIES
Other liabilities $ 41
STOCKHOLDERS' EQUITY 7,197
------
Total liabilities and
stockholders' equity $7,238
======
CONDENSED STATEMENT OF INCOME
Year Ended June 30 1997
- ----------------------------------------------------
Income
Interest income $ 118
Other income 36
-----
Total income 154
-----
Expenses
Salaries and employee benefits 31
Legal and professional fees 97
Other expenses 34
-----
Total expenses 162
-----
Loss before income tax benefit and
equity in undistributed income
of subsidiary (8)
Income tax benefit (11)
-----
Income before equity in
undistributed income of subsidiary 3
Equity in undistributed income of subsidiary 249
-----
NET INCOME $ 252
=====
<PAGE>
Home Financial Bancorp and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
CONDENSED STATEMENT OF CASH FLOWS
Year Ended June 30 1997
- ------------------------------------------------
OPERATING ACTIVITIES
Net income $ 252
Adjustments to reconcile net income
to net cash provided by
operating activities (258)
-------
Net cash used by operating activities (6)
-------
INVESTING ACTIVITIES
Purchases of securities
available for sale (2,216)
Proceeds from sales of securities
available for sale 1,080
Purchases of premises
and equipment (16)
------
Net cash used by investing activities (1,152)
------
FINANCING ACTIVITIES
Sale of stock 4,578
Dividends (69)
Purchase of stock (565)
Capital contribution to Bank (2,471)
Contribution of RRP shares (290)
------
Net cash provided by
financing activities 1,183
------
NET CHANGE IN CASH 25
CASH AT BEGINNING OF YEAR 0
------
CASH AT END OF YEAR $ 25
======
ADDITIONAL CASH FLOWS
AND SUPPLEMENTARY INFORMATION
Common stock issued to ESOP
leveraged with an employer loan $ 404
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Frank R. Stewart Charles W. Chambers John T. Gillaspy
Chairman of the Board Secretary and President and
President, BSF, Inc. Staff Appraiser Chief Executive Officer,
Spencer Evening World, Inc.
Kurt J. Meier Robert W. Raper Tad Wilson
President Vice Chairman Co-owner, Metropolitan
Owen Community Bank, s.b. of the Board Printing Services, Inc.
Stephen Parrish
Funeral Director,
West-Parrish-Pedigo
Funeral Home
OFFICERS OF HOME FINANCIAL BANCORP
Frank R. Stewart Kurt J. Meier
Chairman President, Chief Executive Officer
and Treasurer
Kurt D. Rosenberger Charles W. Chambers
Vice President and Secretary
Chief Financial Officer
OFFICERS OF OWEN COMMUNITY BANK, s.b.
Frank R. Stewart Kurt J. Meier
Chairman President and
Chief Executive Officer
Kurt D. Rosenberger Charles W. Chambers
Vice President and Secretary
Chief Financial Officer
Judith A. Terrell Julie A. Hedden
Mortgage Loan Officer Mortgage Loan Officer
Lisa K. Sherfield
Mortgage Loan Officer
<PAGE>
DIRECTORS AND OFFICERS
Charles W. Chambers, (age 81) has served as a director of the Holding
Company since its formation and of the Bank since 1978. Mr. Chambers has also
served as a staff appraiser for the Bank since 1991 and as Secretary of the Bank
since 1990. Mr. Chambers is Secretary of the Holding Company and the Bank.
John T. Gillaspy, (age 69) has served as a director of the Holding
Company since its formation and of the Bank since 1986. Mr. Gillaspy has also
served as President and Chief Executive Officer of the Spencer Evening World,
Inc., a newspaper based in Spencer, Indiana for more than the past five years.
Kurt J. Meier, (age 47) has served as President and a director of the
Holding Company since its formation and as a director of the Bank since 1991.
Mr. Meier has also served as President of the Bank since 1994. From 1990 to
1994, Mr. Meier served as Managing Officer of the Bank.
Steven Parrish, (age 57) has served as a director of the Holding
Company since its formation and of the Bank since 1982. Mr. Parrish has also
served as a funeral director for the West-Parrish-Pedigo Funeral Home in
Spencer, Indiana, for more than five years.
Robert W. Raper, (age 80) has served as a director of the Holding
Company since its formation and of the Bank since 1970, with which he has served
as Vice Chairman since 1994. Prior to 1994, Mr. Raper served as Vice President
of the Bank.
Kurt D. Rosenberger (age 39) is Vice President and Chief Financial
Officer of the Holding Company. Mr. Rosenberger has also served as Vice
President of the Bank since 1994. Theretofore, he served as Senior Financial
Analyst for the Office of Thrift Supervision in Indianapolis, Indiana, from 1990
to 1994.
Frank R. Stewart, (age 72) has served as a director of the Holding
Company since its formation and of the Bank since 1963. Mr. Stewart served as
President of the Bank from 1982 until 1994. Mr. Stewart has also served as
President of BSF, Inc. since its formation in 1989. Mr. Stewart has extensive
experience in real estate development and sales.
Tad Wilson,(age 62) has served as a director of the Holding Company
since its formation and of the Bank since 1978. Mr. Wilson is also the co-owner
of Metropolitan Printing Services, Inc., a printing company based in
Bloomington, Indiana, and is the owner of a retail book store and various rental
properties located in Bloomington, Indiana.
There are no arrangements or understandings between the Holding Company
and any person pursuant to which that person has been selected a director of the
Holding Company.
<PAGE>
SHAREHOLDER INFORMATION
MARKET INFORMATION
The Bank converted from an Indiana mutual savings bank to an Indiana
stock savings bank effective July 1, 1996, and simultaneously formed a bank
holding company, the Holding Company. The Holding Company's Common Stock, is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), Small Cap Market, under the symbol "HWEN." As of August 29,
1997, there were approximately 571 record holders of the Holding Company's
Common Stock including shares held in broker accounts.
Since the Holding Company has no independent operations or other
subsidiaries to generate income, its ability to accumulate earnings for the
payment of cash dividends to its shareholders is directly dependant upon the
earnings on its investment securities and the ability of the Bank to pay
dividends to the Holding Company.
Under current federal income tax law, dividend distributions with
respect to the Common Stock, to the extent that such dividends paid are from the
current or accumulated earnings and profits of the Bank (as calculated for
federal income tax purposes), will be taxable as ordinary income to the
recipient and will not be deductible by the Bank. Any dividend distributions in
excess of current or accumulated earnings and profits will be treated for
federal income tax purposes as a distribution from the Bank's accumulated bad
debt reserves, which could result in increased federal income tax liability for
the Company. Moreover, the Bank may not pay dividends to the Holding Company if
such dividends would result in the impairment of the liquidation account
established in connection with the Conversion.
The Holding Company's ability to pay dividends on the Common Stock is
subject to certain regulatory restrictions. In addition, Indiana law would
prohibit the Holding Company from paying a dividend, if after giving effect to
the payment of that dividend, the Holding Company would not be able to pay its
debts as they become due in the ordinary course of business or if the Holding
Company's total assets would be less than the sum of its total liabilities plus
preferential rights of holders of preferred stock, if any.
Stock Price Dividends
Quarter Ended High Low Per Share
September 30, 1996 13 3/4 9 3/4 $---
December 31, 1996 13 1/4 11 3/4 $.05
March 31, 1997 15 1/2 12 3/4 $.05
June 30, 1997 15 3/4 14 1/2 $.05
TRANSFER AGENT AND REGISTRAR
Fifth Third Bank
Corporate Trust Operations
38 Fountain Square Plaza, MD - 1090F5
Cincinnati, Ohio 45202
(513) 579-5320 or (800) 837-2755
GENERAL COUNSEL
Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204
INDEPENDENT AUDITORS
Geo. S. Olive & Co. LLC
201 N. Illinois
Indianapolis, Indiana 46204
SHAREHOLDERS AND GENERAL INQUIRIES
The Company is required to file an Annual Report on Form 10-K for its
fiscal year ended June 30, 1997 with the Securities and Exchange Commission.
Copies of this annual report may be obtained without charge upon written request
to:
Kurt D. Rosenberger
Vice President and Chief Financial Officer
Home Financial Bancorp
279 East Morgan Street
Spencer, Indiana 47460
