SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
--------------------------
Commission file number: 0-28510
HOME FINANCIAL BANCORP
(Exact name of registrant specified in its charter)
Indiana 35-1975585
- ---------------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
279 East Morgan Street
Spencer, Indiana 47460
(Address of principle executive offices,
including Zip Code)
(812) 829-2095
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's common stock, without par value,
outstanding as of February 1, 1998 was 929,052.
<PAGE>
Home Financial Bancorp
Form 10-Q
Index
Page No.
Forward Looking Statements 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement of Financial
Condition as of December 31, 1997 and June 30, 1997
(Unaudited) 4
Consolidated Condensed Statement of Income for the three
months ended December 31, 1997 and 1996
(Unaudited) 5
Consolidated Condensed Statement of Income for the six
months ended December 31, 1997 and 1996
(Unaudited) 6
Consolidated Condensed Statement of Changes in
Shareholders' Equity for the six months ended December
31, 1997 and 1996 (Unaudited) 7
Consolidated Condensed Statement of Cash Flows for the
six months ended December 31, 1997 and 1996
(Unaudited) 8
Notes to Consolidated Condensed Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-Q are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-Q
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
savings and financial institutions; substantial changes in financial markets;
changes in real estate values and the real estate market; regulatory changes; or
unanticipated results in pending legal proceedings.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 160,309 $ 296,805
Short-term interest-bearing deposits 4,240,093 3,887,498
------------ ------------
Total cash and cash equivalents 4,400,402 4,184,303
Investment securities available for sale 2,115,505 2,101,734
Loans 34,942,483 34,348,648
Allowance for loan losses (275,397) (231,397)
------------ ------------
Net loans 34,667,086 34,117,251
Real estate acquired for development 20,758 20,758
Premises and equipment 1,107,412 963,657
Federal Home Loan Bank Stock 500,000 500,000
Other assets 692,409 620,524
============ ============
Total assets $ 43,503,572 $ 42,508,227
============ ============
LIABILITIES
Deposits $ 25,908,445 $ 26,156,516
Federal Home Loan Bank advances 10,000,000 9,000,000
Other liabilities 204,977 154,577
------------ ------------
Total liabilities 36,113,422 35,311,093
------------ ------------
SHAREHOLDERS' EQUITY Preferred stock, without par value:
Authorized and unissued - 4,000,000 shares -- --
Common stock, without par value:
Authorized - 10,000,000 shares
Issued - 929,052 shares and 939,052 shares 4,371,290 4,389,698
Retained earnings 3,495,434 3,409,288
Unearned RRP Compensation (246,641) (264,781)
Unearned ESOP shares (344,028) (364,264)
Unrealized gain on securities available for sale 114,095 27,193
------------ ------------
Total shareholders' equity 7,390,150 7,197,134
============ ============
Total liabilities and shareholders' equity $ 43,503,572 $ 42,508,227
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------
1997 1996
--------- ---------
(Unaudited)
Interest income
<S> <C> <C>
Loans $ 828,830 $ 699,011
Interest-bearing deposits 48,073 21,333
Investment securities 21,078 104,597
Other interest and dividend income 10,082 8,090
--------- ---------
Total interest income 908,063 833,031
Interest expense
Deposits 317,359 299,429
Advances from Federal Home Loan Bank and
other borrowings 144,664 104,470
--------- ---------
Total interest expense 462,023 403,899
--------- ---------
Net interest income 446,040 429,132
Provision for losses on loans 25,500 25,500
--------- ---------
Net interest income after provision for losses on loans 420,540 403,632
--------- ---------
Other income
Service charges on deposit accounts 14,043 9,847
Gain (loss) on sale of real estate acquired for
development (540)
7,945
Gain (loss) on sales of securities available for sale (14,907)
51,433
Other income 21,620 11,959
--------- ---------
Total other income 95,041 6,359
--------- ---------
Other expenses
Salaries and employee benefits 181,163 126,961
Net occupancy expenses 20,093 17,654
Equipment expenses 14,842 12,590
Deposit insurance expense 4,095 - - - -
Computer processing fees 19,883 15,807
Legal and accounting fees 48,255 30,057
Other expenses 96,634 56,236
--------- ---------
Total noninterest expenses 384,965 259,305
--------- ---------
Income before income taxes 130,616 150,686
Income tax expense 51,303 62,395
========= =========
Net income $ 79,313 $ 88,291
========= =========
Basic and diluted net income per share $ .10 $ .09
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------------
1997 1996
----------- -----------
(Unaudited)
Interest income
<S> <C> <C>
Loans $ 1,648,517 $ 1,369,403
Interest-bearing deposits 83,618 63,014
Investment securities 47,355 198,482
Other interest and dividend income 20,479 16,009
----------- -----------
Total interest income 1,799,969 1,646,908
Interest expense
Deposits 640,183 609,501
Advances from Federal Home Loan Bank and
other borrowings 272,729 212,520
----------- -----------
Total interest expense 912,913 822,021
----------- -----------
Net interest income 887,056 824,887
Provision for losses on loans 51,000 42,500
----------- -----------
Net interest income after provision for losses on loans 836,056 782,387
----------- -----------
Other income
Service charges on deposit accounts 26,668 19,738
Gain (loss) on sale of real estate acquired for
development 4,259
7,667
Gain (loss) on sales of securities available for sale 84,058 (14,907)
Other income 35,151 26,080
----------- -----------
Total other income 153,544 35,170
----------- -----------
Other expenses
Salaries and employee benefits 361,659 241,045
Net occupancy expenses 41,998 35,220
Equipment expenses 32,080 25,501
Deposit insurance expense 7,847 156,940
Computer processing fees 39,342 31,654
Legal and accounting fees 72,503 74,862
Other expenses 169,222 123,056
----------- -----------
Total noninterest expenses 724,651 688,278
----------- -----------
Income before income taxes 264,950 129,279
Income tax expense 105,373 53,266
=========== ===========
Net income $ 159,577 $ 76,013
=========== ===========
Basic and diluted net income per share $ .19 $ .08
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
Form 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Balance, July 1 $ 7,197,134 $ 3,410,072
Net income 159,577 76,013
Common stock issued in conversion, net of costs -- 4,728,294
----------- -----------
Common stock repurchased and retired --
(73,454) --
Fair value adjustment of ESOP shares 28,338 --
----------- -----------
Contribution for unearned ESOP shares -- (404,740)
----------- -----------
ESOP shares earned 20,236 24,996
RRP shares earned 18,140 --
----------- -----------
Cash dividends (23,272)
(46,723)
Net change in unrealized gain on securities
available for sale 86,902 47,616
----------- -----------
Balance, December 31 $ 7,390,150 $ 7,858,979
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------
1997 1996
----------- -----------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 159,577 $ 76,013
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 42,500
51,000
Depreciation and amortization 37,614
42,257
Investment securities (gains) losses 14,907
(84,058)
Change in interest receivable (30,698)
13,112
Fair value adjustment of ESOP shares - - - -
28,338
Amortization of unearned ESOP shares - - - -
20,236
Amortization of unearned RRP shares - - - -
18,140
Other adjustments 115,521
4,783
----------- -----------
Net cash provided by operating activities 253,385 255,857
----------- -----------
INVESTING ACTIVITIES
Purchases of securities available for sale (1,326,242) (2,960,056)
Proceeds from sales of securities available for sale 1,060,414
1,103,937
Proceeds from maturities and repayments of investment
securities available for sale 1,072,886
434,741
Net changes in loans (841,774) (2,572,299)
Purchase of Federal Home Loan Bank of Indianapolis stock
-- (50,000)
----------- -----------
Proceeds from sale of premises and equipment -- 35,000
----------- -----------
Purchases of premises and equipment (318,004)
(185,316)
Proceeds from real estate owned sales - - - -
145,616
Proceeds from sale of real estate acquired for
development -- 129,387
----------- -----------
Net cash used by investing activities (669,038) (3,602,672)
----------- -----------
FINANCING ACTIVITIES Net change in:
NOW and savings accounts 323,057 (4,094,147)
Certificates of deposit (244,162)
(571,128)
Proceeds from Federal Home Loan Bank advances 2,000,000 1,000,000
Repayment of Federal Home Loan Bank advances (1,000,000) (1,500,000)
Sale of common stock, net of costs - - - - 4,587,470
Common stock repurchased and retired - - - -
(73,454)
Cash dividends (23,272)
(46,723)
----------- -----------
Net cash used by financing activities (274,111)
631,752
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
NET CHANGE IN CASH AND CASH EQUIVALENTS 216,099 938,512
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,184,303 1,385,979
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $4,400,402 $2,324,491
========== ==========
ADDITIONAL CASH FLOWS AND SUPPLEMENTARY INFORMATION
Interest paid $ 460,912 $ 797,146
Income tax paid 112,110 129,000
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A: Basis of Presentation
The unaudited interim consolidated condensed financial statements include the
accounts of Home Financial Bancorp ("Company") and its subsidiary, Owen
Community Bank, s.b. ("Bank").
The unaudited interim consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and disclosures required by generally accepted
accounting principles for complete financial statements. The significant
accounting policies followed by the Company and Bank for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting. All adjustments, consisting of normal recurring
adjustments, which in the opinion of management are necessary for a fair
presentation of the results for the periods reported, have been included in the
accompanying consolidated financial statements. Financial and other data
contained herein prior to July 1, 1996 relates solely to the Bank (See Note B).
The results of operations for the three months and six months ended December 31,
1997 are not necessarily indicative of those expected for the remainder of the
year.
NOTE B: Conversion to State Stock Savings Bank
In October, 1995, the Board of Directors adopted a Plan of Conversion ("Plan")
to convert the Bank from a state-chartered mutual savings bank to a
state-chartered stock savings bank through amendment of its charter and the sale
of common stock to a holding company formed in connection with the conversion.
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 $4,728,000 of
which $2,472,548 were 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.
At the date of conversion, the Bank established a liquidation account of
$3,293,000 which equaled the Bank's retained earnings as of the most recent
financial statements, December 31, 1995, contained in the final conversion
prospectus. The liquidation account was established to provide a limited
priority claim to the assets of the Bank to qualifying depositors who continue
to maintain deposits in the Bank after conversion. In the unlikely event of a
complete liquidation of the Bank, and only in such event, qualifying depositors
would receive a liquidation distribution based on their proportionate share of
the then total remaining qualifying deposits.
<PAGE>
The Company, subject to certain supervisory policies of the Board of Governors
of the Federal Reserve System and the Federal Deposit Insurance Corporation, may
pay dividends to its shareholders if its assets exceed its liabilities and it is
able to pay its debts as they come due. Current regulations allow the Bank to
pay dividends on its stock after the conversion if its regulatory capital would
not be reduced below the amount then required for the liquidation account, and
if those dividends do not exceed net profits of the Bank for the current year
plus those for the previous two years.
NOTE C: Special Savings Association Insurance Fund Assessment
The deposits of the Bank are presently insured by the Savings Association
Insurance Fund ("SAIF"). A recapitalization plan for the SAIF was enacted in
late September 1996 which provided for a special assessment on substantially all
SAIF-insured institutions to enable the SAIF to achieve its required level of
reserves. The proposed assessment of .657% was effected based on deposits as of
March 31, 1995 and the Bank's special assessment was $142,457 before taxes.
Accordingly, this special assessment, which was payable on November 27, 1996,
significantly increased other expenses and adversely affected results of
operations for the six month period ended December 31, 1996.
NOTE D: Stock Option Plan
On July 23, 1997, the Board of Directors approved a Stock Option Plan. The Plan
was approved by stockholders on October 14, 1997. 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.
NOTE E: Earnings Per Share
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
December 31, 1997 1996
---------------------------------------- ----------------------------------------
Weighted Per Weighted Per
Net Average Share Net Average Share
Income Shares Amount Income Shares Amount
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Income Available to
Common Stockholders $ 79,313 831,938 $ 0.10 $ 88,291 930,904 0.09
======== ====
Effect of Dilutive Securities 0 1,704 0 0
--------------------- ---------------------
Diluted Earnings Per Share:
Income Available to
Common Stockholders 79,313 $833,642 $ 0.10 $ 88,291 930,904 $ 0.09
================================ ==================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended
December 31, 1997 1996
---------------------------------------- ----------------------------------------
Weighted Per Weighted Per
Net Average Share Net Average Share
Income Shares Amount Income Shares Amount
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Income Available to
Common Stockholders $159,577 831,036 $ 0.19 $ 76,013 930,904 0.08
======== ====
Effect of Dilutive Securities 0 2,517 0 0
-------------------- ------------------------
Diluted Earnings Per Share:
Income Available to
Common Stockholders $159,577 833,553 $ 0.19 $ 76,013 930,904 0.08
================================== ====================================
</TABLE>
NOTE F: 2 for 1 Stock Split
On December 9, 1997, the Company announced a 2 for 1 stock split, under which
every share of its Common Stock outstanding at the close of business on December
23, 1997 was converted into two shares of Common Stock. The additional
certificates were distributed to shareholders on January 6, 1998. As a result of
the stock split, the number of shares outstanding increased from 464,526 to
929,052 shares. For presentation in this report, all share and per share data
have been restated for the 2 for 1 stock split.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
Home Financial Bancorp ("Company") is an Indiana corporation which was organized
in February 1996 to become a bank holding company upon its acquisition of all
the capital stock of Owen Community Bank, s.b. ("Bank") in connection with the
Bank's conversion from mutual to stock form. The Company became the Bank's
holding company at July 1, 1996. At December 31, 1997, the principal asset of
the Company consisted of 100% of the issued and outstanding shares of common
stock of the Bank. At that date, the Company had no material liabilities, and
aside from purchases and sales of investment securities, the Company had not
conducted any material operations. As a result, the consolidated condensed
financial statements appearing herein and the following discussion of results of
operations relate primarily to the Bank.
The Bank has been, and continues to be, a community-oriented financial
institution offering selected financial services to meet the needs of the
communities it serves. The Bank attracts deposits from the general public and
historically has used such deposits, together with other funds, primarily to
originate one-to-four-family residential loans. The Bank also originates
commercial mortgage, consumer and, to a lesser extent, construction loans.
Through its only office located in Spencer, Indiana, the Bank serves communities
in Owen and surrounding counties.
<PAGE>
BSF, Inc. ("BSF") is the wholly owned subsidiary of the Bank which 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. In connection with the Bank's
conversion to an Indiana stock savings bank, the FDIC required the Bank to cease
BSF's land acquisitions, divest BSF's non-conforming 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.
The Company's subsidiary Bank recently entered into a Partnership Agreement
("Agreement") with Area Ten Development, Inc. (the "General Partner"), a wholly
owned subsidiary of Area 10 Council on Aging of Monroe and Owen Counties, Inc.
to finance construction and development of a low income housing project. The
project will result in a 24 unit apartment complex for senior living. The total
cost of the project will be approximately $1.4 million. The Bank purchased a 99%
limited partnership interest for $732,000. Funds are to be dispersed by
installments during project construction, which is expected to start in the
Spring of 1998. The Bank's investment in the project is eligible for income tax
credits over the fifteen year life of the Agreement.
Management estimates that the Bank will be able to utilize approximately
$107,000 in low income tax credits annually. However, in order to maximize the
benefit of the tax credits the project must maintain an acceptable occupancy
rate and prove that it qualifies for the tax credits on an annual basis.
Additionally, there are no assurances that changes in tax laws will not affect
the availability of low income tax credits in future years.
The Company's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
its interest-earning assets such as loans and investments, and the costs of the
Company's interest-bearing liabilities, primarily deposits and borrowings.
Results of operations are also dependent upon the level of the Company's
non-interest income, including fee income and service charges, and affected by
the level of its non-interest expenses, including its general and administrative
expenses.
Financial Condition
Total assets increased $1.0 million or 2.3%, to $43.5 million at December 31,
1997 compared to $42.5 million at June 30, 1997. Cash and short-term interest
bearing deposits totaled $4.4 million; an increase of $216,000. A portion of
cash and short-term deposits will be used to repay borrowings maturing in the
third fiscal quarter of 1998. Investment securities totaled $2.1 million at each
of the quarters-ended December 31, 1997 and June 30, 1997. Total loans increased
by $594,000, or 1.7%, during the past six months, to $34.9 million.
During the six months since June 30, 1997, premises and equipment increased
$144,000 to $1.1 million. This increase was due to costs for initial
construction on the future Bank branch site in the southern Putnam County town
of Cloverdale, as well as costs for finishing construction on new facilities
adjacent to the Bank's existing main office in Spencer. The cost of
construction, furniture and equipment for the new branch is estimated at
$750,000.
Deposits decreased $248,000 from levels reported six months earlier; totaling
$25.9 million at December 31, 1997 compared to $26.2 at June 30, 1997.
Borrowings at the Federal Home Loan Bank ("FHLB") increased $1.0 million to
$10.0 million as of December 31, 1997.
<PAGE>
No common stock repurchases where made by the Company in the second fiscal
quarter of 1998. However, during the first fiscal quarter ended September 30,
1997, the Company repurchased and retired 10,000 shares of common stock pursuant
to a 10% stock repurchase plan announced on March 10, 1997. The Company has
repurchased and retired a total of 82,800 shares of common stock (as adjusted
for the 2 for 1 stock split). Stock repurchases reduced the number of shares
outstanding and reduced the overall increase in total shareholders' equity that
otherwise would have resulted from fiscal year-to-date net income. Shareholders'
equity was $7.4 million, or 17.0% of total assets as of December 31, 1997
compared to $7.2 million or 16.9% of total assets as of June 30 1997. Book value
at December 31, 1997 was $7.95 per share based on 929,052 shares outstanding.
Comparison of Operating Results for the Three-Month Periods Ended December 31,
1997 and 1996
Net income for the second quarter ended December 31, 1997 was $79,000, or $.10
per share based on an average of 833,436 diluted shares outstanding. Net income
for the same period last year was $88,000, or $.09 per share based on an average
of 930,904 diluted shares outstanding. Net income declined primarily because
non-interest expenses for the quarter increased compared to a year earlier.
Net interest income before the provision for loan losses increased $17,000, or
3.9%, to $446,000 for the 1997 period, from $429,000 for the 1996 period. The
increase was primarily attributed to an increase in loan interest income,
resulting from an increase in total loans.
Management has established valuation allowances sufficient to absorb estimated
losses or exposure inherent in the Bank's asset structure. Adjustments to these
allowances reflect management's assessment of various risk factors which
include, but are not limited to changes in the type and volume of the lending
portfolio, level and trend of loan delinquencies, size of individual credit
exposure, and effectiveness of collection efforts. The provision for loan losses
was $26,000, in both quarters ended December 31, 1997 and 1996. At December 31,
1997, the allowance for loan losses was .79% of total loans compared to .67% at
June 30, 1997.
Total non-interest income totaled $95,000 for the quarter ended December 31,
1997 compared to $6,000 for the same period in 1996. The increase primarily
resulted from a $51,000 net gain on investment securities sold by the Company
during the second quarter this year compared to a $15,000 net loss on securities
sold for the same period a year earlier. Gains on the sale of real estate
acquired for development totaled $8,000 for the quarter. However, management
anticipates that gains on the sale of real estate acquired for development, a
reliable source of income in the past, will decrease in the future and
consequently contribute less to non-interest income. In connection with the
Bank's conversion to an Indiana stock savings bank, the FDIC required the Bank
to terminate this business activity by November, 2000.
Total non-interest expenses increased $126,000 to $385,000 for the 1997 December
quarter compared to $259,000 for the 1996 December quarter. Salaries and
employee benefits totaled $181,000 for the three months ended December 31, 1997,
compared to $127,000 for the same period last year. Expenses associated with
employee benefit plans adopted during fiscal year 1997, an increase in the
number of employees, and a general increase in operating expenses contributed to
the increase in overall non-interest expenses.
Income tax expense for the second fiscal quarter of 1998 was $51,000, compared
to $62,000 for the second fiscal quarter of 1997.
<PAGE>
Comparison of Operating Results for the Six-Month Periods Ended December 31,
1997 and 1996
Fiscal year-to-date net income totaled $160,000 or $.19 per share based on an
average of 833,553 diluted shares outstanding, compared to $76,000 or $.08 per
share based on an average of 930,904 diluted shares outstanding for the same
period of fiscal 1997. Deposit insurance expense decreased by $149,000 compared
to last year mainly due to the one time FDIC special assessment paid in
September 1996 to recapitalize the Savings Association Insurance Fund ("SAIF").
For the six months ended December 31, 1997, net interest income before
provisions for loan losses totaled $887,000 compared to $825,000 for the six
months ended December 31, 1996; a 7.5% increase. Loan growth of 17.1% over the
twelve months ended December 31, 1997 lead to a 20.4% increase in loan interest
income for the first six months of fiscal 1998, compared to the same period a
year earlier.
Provisions for loan losses totaled $51,000, during the six months ended December
31, 1997, compared to approximately $43,000 during the same period last year. At
December 31, 1997, the allowance for loan losses was .79% of total loans
compared to .67% at June 30, 1997, and .64% at December 31, 1996.
Total non-interest income totaled $154,000 for the six months ended December 31,
1997 compared to $35,000 for the same period in 1996. The increase primarily
resulted from gains on investment securities sold during the period. For the
first two quarters of fiscal 1998, the net gain on securities sold totaled
$84,000, compared to a $15,000 net loss on securities sold during the same
period a year earlier. New deposit products and services have generated
additional service charges associated with deposit accounts. Fiscal year-to-date
1998 service charges on deposit accounts amounted to $27,000, compared to
$20,000 for the first six months of fiscal 1997; an increase of 35.1%.
Total non-interest expenses increased $36,000 to $725,000 for the six months
ended December 31, 1997, compared to $688,000 for the six months ended December
31, 1996. The drop in deposit insurance expense from $157,000 for first half of
fiscal 1997 to $8,000 for the first half of fiscal 1998 was more than offset by
increases in other non-interest expenses. Salaries and employee benefits totaled
$362,000 for the six months ended December 31, 1997, compared to $241,000 for
the same period last year. Expenses associated with employee benefit plans
adopted during fiscal year 1997, an increase in the number of employees,
computer processing fees, equipment expenses and a general increase in operating
expenses contributed to the increase in overall non-interest expenses.
Year-to-date income tax expense at the end of the second fiscal quarter of 1998
was $105,000, compared to $53,000 for the same period in fiscal year 1997. The
increased income tax was a consequence of increased earnings this year versus
the comparable period last year.
Asset Quality
The allowance for loan losses was $275,000 at December 31, 1997 compared to
$231,000 at June 30, 1997. Management considered the allowance for loan losses
at December 31, 1997, to be adequate to cover estimated losses inherent in the
loan portfolio at that date, including probable losses that could be reasonably
estimated. Such belief is based upon an analysis of loans currently outstanding,
past loss experience, current economic conditions and other factors and
estimates which are subject to change and re-evaluation over time.
<PAGE>
The following table sets forth the changes affecting the allowance for loan
losses for the six months ended December 31, 1997.
Balance, July 1, 1997 $231,397
Provision for loan losses 51,000
Recoveries --
Loans charged off 7,000
----------
Balance, December 31, 1997 $275,397
==========
Total non-performing loans fell to $429,000 or 1.2% of total loans at December
31, 1997 compared to $561,000 or 1.6% of total loans at June 30, 1997. Real
estate acquired through foreclosure totaled $254,000 at December 31, 1997,
compared to $177,000 at June 30, 1997. Other repossessed assets amounted to
$27,000 and $10,000 at December 31, 1997 and June 30, 1997, respectively. Total
non-performing assets were $710,000 or 1.6% of assets at December 31, 1997.
Liquidity and Capital Resources
The Company's most liquid assets are cash and interest bearing deposits. The
levels of these assets are dependent on the Company's operating, financing and
investing activities. At December 31, 1997 and June 30, 1997, cash and
interest-bearing deposits totaled $4.4 million and $4.2 million, respectively. A
portion of liquid assets accumulated as of December 31, 1997 will be used to
retire certain borrowings maturing in the third fiscal quarter of 1998.
The Company's primary sources of funds include principal and interest payments
on loans, loan maturities, and repayments on investment securities. While
scheduled loan repayments and proceeds from investment securities are relatively
predictable, deposit flows and early repayments are more influenced by interest
rates, general economic conditions and competition. The Company attempts to
price its deposits to meet asset-liability objectives and local market
conditions.
If the Company requires funds beyond its ability to generate them internally, it
has the ability to borrow funds from the FHLB of Indianapolis. Federal law
limits an institution's borrowings from the FHLB to 20 times the amount paid for
capital stock in the FHLB, subject to regulatory capital requirements. As a
policy matter, however, the FHLB of Indianapolis typically limits the amount of
borrowings from the FHLB to 50% of adjusted assets (total assets less
borrowings). At December 31, 1997, the Company had approximately $4.5 million of
unused credit available to it under such guidelines. At December 31, 1997,
borrowing from the FHLB totaled $10.0 million.
Shareholders' equity was $7.4 million at September 30, 1997 or 17.0% of total
assets. Book value at December 31, 1997 was $7.95 per share based on 929,052
outstanding shares. All fully phased-in regulatory capital requirements for the
Bank are currently met. In connection with the Bank's conversion to a state
savings bank, the FDIC imposed heightened capital requirements on the Bank
because of the impermissible real estate development activities of the Bank's
subsidiary. The FDIC currently requires that the Bank maintain capital (after
deduction of its investment in its subsidiary) at levels sufficient for the Bank
to be classified as a well-capitalized institution.
<PAGE>
The Bank's actual and required capital amounts (in thousands) and ratios were as
follows as of December 31, 1997.
<TABLE>
<CAPTION>
Required For Required To Be Well
Actual Adequate Capital* Capitalized*
----------- ----------- ----------- ---------- ----------- -----------
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total capital *(to risk weighted assets) $6,332 25.5% $1,984 8.0% $2,480 10.0%
Tier 1 capital *(to risk weighted assets) 6,057 24.4% 992 4.0% 1,488 6.0%
Tier 1 capital *(to total assets) 6,057 14.4% 1,688 4.0% 2,110 5.0%
*As defined by the regulatory agencies
</TABLE>
Effect of Inflation and Changing Prices
The Company's asset and liability structure is substantially different from that
of an industrial company in that most of its assets and liabilities are monetary
in nature. Management believes the impact of inflation on financial results
depends upon the Company's ability to react to changes in interest rates and, by
such reaction, reduce the inflationary impact on performance. Interest rates do
not necessarily move in the same direction at the same time, or at the same
magnitude, as the prices of other goods and services. Management relies on its
ability to manage the relationship between interest-sensitive assets and
liabilities to protect against wide interest rate fluctuations, including those
resulting from inflation.
The Year 2000 Issue
Management recognizes the need to minimize risk to operations due to Year 2000
("Y2K") hardware, software and database failures. Such failures due to
processing errors potentially arising from calculations using the Y2K date are a
known risk. Management has established a plan for evaluating and managing the
risks and costs associated with this problem. The Company is currently in the
process of evaluating its computer hardware, software and databases to determine
whether or not modifications will be required to prevent problems related to
Y2K.
As of December 31, 1997, management had identified some computer systems that
are not Y2K compliant. It is not expected that modifying or replacing these
systems will have a material effect on the Company's fiscal year 1998 financial
statements taken as a whole. Although management does not anticipate material
operating expenses or the need to invest heavily in computer system improvements
to be Y2K compliant, at this time, the full cost of modifications that may
ultimately be required to correct all Y2K problems has yet to be determined.
Management plans to make modifications or replacements to at risk internal
systems during 1998, and test these changes during 1998 and 1999. Management is
working with its data service providers and software vendors to assure that the
Company and its subsidiary Bank are prepared for Y2K. The Company has, and will
continue to make investments in its systems and applications to ensure, to the
degree possible, Y2K compliance.
<PAGE>
Accounting Matters
Accounting for Stock-Based Compensation. SFAS No. 123, Accounting for
Stock-Based Compensation, 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 receives
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 Opinion No. 25, Accounting for Stock Issued to
Employees. If a company elects that option, proforma disclosures of net income
(and earnings per share, 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.
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. Proforma 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 the 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 shall include
a statement to that effect.
Management does not believe the impact of SFAS No. 123 on either the Company's
financial position or results of operations will be material.
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.
<PAGE>
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.
The Company has reported its EPS in accordance with the provisions of SFAS 128
beginning with the periods reported in this Form 10-Q.
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.
Item 3: Quantitative and Qualitative Disclosures About Market Risk.
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. Specific strategies have included
shortening the amortized maturity of fixed-rate loans and increasing the volume
of adjustable rate loans to reduce the average maturity of the Bank's
interest-earning assets. FHLB advances are used in an effort to match the
effective maturity of interest-bearing liabilities to its interest-earning
assets.
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 economic
value of equity ("EVE") methodology to gauge interest rate risk exposure. EVE is
defined as the net present value of the balance sheet's cash flow. EVE is
considered synonymous with other terms common to asset/liability analysis, such
as market value of portfolio equity ("MVPE"), net economic value ("NEC"), and
net portfolio value ("NPV"). EVE is analogous to the book value of equity,
except it is valued using discounted rates that would be applicable if all
balance sheet items were priced under prevailing market conditions. The EVE
methodology is an attempt to estimate market value of equity by measuring
economic value through the use of known market-derived factors.
The application of the methodology attempts to quantify interest rate risk as
the change in the EVE 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.
<PAGE>
At September 30, 1997, the most recent available analysis of the subsidiary
Bank's interest rate risk position, it was estimated that the Bank's EVE would
decrease 6.7% and 24.8% in the event of 200 and 400 basis point increases in
market interest rates respectively. The Bank's EVE at the same date would
decrease 6.1% and 8.6% in the event of 200 and 400 basis point decreases in
market ratio, respectively.
Presented below, as of September 30, 1997, is an analysis of the Bank's interest
rate risk as measured by changes in EVE for instantaneous and sustained parallel
shifts of 200 and 400 basis point increments in market rates.
Economic Value Summary Performance
EV as % of
Present Value (PV)
Change Economic Value of Assets
In Rates $ Amount $ Change % Change EV Ratio Change
(Dollars in thousands)
+400 bp* $4,291 $(1,416) (24.81)% 11.66% (261) bp
+200 bp 5,323 (383) (6.72) 13.76 (51) bp
0 bp 5,707 0 0.00 14.27 ----
- -200 bp 5,361 (346) (6.06) 13.20 (107) bp
- -400 bp 5,217 (489) (8.57) 12.59 (168) bp
*Basis Points.
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock EV Ratio: EV as % of PV of Assets 14.27%
Exposure Measure: Post-Shock EV Ratio 13.20%
Sensitivity Measure: Change in EV Ratio 107 bp
Management believes that the EVE methodology overcomes three shortcomings of the
typical maturity gap methodology. First, it does not use arbitrary repricing
intervals and accounts for all expected future cash flows; weighing each by its
appropriate discount factor. Second, because the EVE method projects cash flows
of each financial instrument under different interest-rate environments, it can
incorporate the effect of embedded options on an institution's interest rate
risk exposure. Third, it allows interest rates on different instruments to
change by varying amounts in response to a change in market interest rates,
resulting in more accurate estimates of cash flows.
However, as with any method of gauging interest rate risk, there are certain
shortcomings inherent to the EVE methodology. The model assumes interest rate
changes are instantaneous parallel shifts in the yield curve. In reality, rate
changes are rarely instantaneous. The use of the simplifying assumption that
short-term and long-term rates change by the same degree may also misstate
historic rate patterns, which rarely show parallel yield curve shifts. Further,
the model assumes that certain assets and liabilities of similar maturity or
period to repricing will react the same to changes in rates. In reality, certain
types of financial instruments may react in advance of changes in market rates.
Additionally, the EVE methodology may not reflect the full impact of annual and
life-time restrictions on changes in rates for certain assets, such as
adjustable-rate mortgage loans. When interest rates change, actual loan
repayments and actual early withdrawals from certificates may deviate
significantly from assumptions used in the model. Finally, this methodology does
not measure or reflect the impact that higher rates may have on adjustable-rate
customers' ability to service their debt. All of these factors are considered in
monitoring the Bank's exposure to interest rate risk.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to Vote of Security Holders.
On October 14, 1997, the Company held its second annual meeting of shareholders
at which time matters submitted to a vote of stockholders included an election
of two Company directors, approval and ratification of the Home Financial
Bancorp Stock Option Plan, and approval and ratification of the appointment of
Geo. S. Olive & Co., LLC as auditors for the fiscal year ending June 30, 1998.
Both director nominees were elected, the Stock Option Plan and appointment of
auditors were also approved and ratified by a majority of 469,526 issued and
outstanding share votes, prior to the recent stock split. A tabulation of votes
cast as to each matter submitted to stockholders is presented below:
Director Nominees For Against Abstain Non-Vote
----------------- --- ------- ------- --------
John T. Gillaspy - 3 years 360,350 9,781 99,395
-
Robert W. Raper - 3 years 360,150 9,981 99,395
-
Other Matters
Stock Option Plan 261,689 20,085 740 187,012
Auditors 363,405 6,176 550 99,395
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3(1). The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3(1) to the
Registration Statement on Form S-1 (Registration No.
333-1746).
3(2). By-Laws of the Registrant are incorporated by
reference to Exhibit 3(2) to the Report on Form 10-Q
for the period ended March 31, 1997.
10(6). Home Financial Bancorp Stock Option Plan is
incorporated by reference to Exhibit 10(6) to the
Report on Form 10-Q for the period ended September
30, 1997.
27. Financial Data Schedule (filed electronically).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period
ended December 31, 1997.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOME FINANCIAL BANCORP
Date: February 12, 1998 By:/s/ Frank R. Stewart
------------------------
Frank R. Stewart
Chairman of the Board
Date: February 12, 1998 By:/s/ Kurt D. Rosenberger
------------------------
Kurt D. Rosenberger
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001009242
<NAME> Home Financial Bancorp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 160
<INT-BEARING-DEPOSITS> 4,240
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,116
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 34,942
<ALLOWANCE> 275
<TOTAL-ASSETS> 43,504
<DEPOSITS> 25,908
<SHORT-TERM> 4,300
<LIABILITIES-OTHER> 205
<LONG-TERM> 5,700
<COMMON> 4,314
0
0
<OTHER-SE> 3,076
<TOTAL-LIABILITIES-AND-EQUITY> 43,504
<INTEREST-LOAN> 1,649
<INTEREST-INVEST> 67
<INTEREST-OTHER> 84
<INTEREST-TOTAL> 1,800
<INTEREST-DEPOSIT> 640
<INTEREST-EXPENSE> 913
<INTEREST-INCOME-NET> 887
<LOAN-LOSSES> 51
<SECURITIES-GAINS> 84
<EXPENSE-OTHER> 725
<INCOME-PRETAX> 265
<INCOME-PRE-EXTRAORDINARY> 265
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
<YIELD-ACTUAL> 9.10
<LOANS-NON> 429
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 231
<CHARGE-OFFS> 7
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 275
<ALLOWANCE-DOMESTIC> 275
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
