SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant: Yes.
Filed by a Party other than the Registrant: No.
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
HOME FINANCIAL BANCORP
(Name Of Registrant As Specified In Its Charter)
HOME FINANCIAL BANCORP
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing. N/A
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[Home Financial Bancorp Logo]
279 East Morgan Street
Spencer, Indiana 47460
(812) 829-2095
----------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
To Be Held On October 13, 1998
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 13, 1998, at 3:00 p.m., Eastern
Standard Time.
The Annual Meeting will be held for the following purposes:
1. Election of Directors. Election of three directors of the Holding
Company for terms expiring in 2001, and one director for a term
expiring in 2000.
2. Ratification of Auditors. Approval and ratification of the appointment
of Olive LLP as auditors for Home Financial Bancorp for the fiscal
year ending June 30, 1999.
3. 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 24, 1998, 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, 1998, 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 15, 1998
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 13, 1998
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 13, 1998, 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 15, 1998.
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 24, 1998
("Voting Record Date"), will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 903,052 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. As of December
23, 1997, the Holding Company declared a 2-for-1 stock split of shares of Common
Stock. All share figures set forth in this Proxy Statement have been adjusted to
reflect that stock split. 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.
<PAGE>
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of August 24, 1998, 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. 101,184 (1)(2) 11.20%
c/o Goldsher & Goldsher
640 N. LaSalle Street
Suite 300
Chicago, Illinois 60610
William Lannan 64,000 7.09%
R.R. 4, Box 12
Loogootee, Indiana 47533
Frank R. Stewart 100,493 (1) (3) 11.01%
c/o Owen Community Bank, s.b.
279 East Morgan Street
Spencer, Indiana 47460
Community Trust & Investment 80,948 (1)(4) 8.96%
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 51,184 shares held by Chiplease, Inc. and 50,000 held by its
secretary, Leon Greenblatt. Pursuant to the Holding Company's Articles
of Incorporation, the Holding Company will count as shares entitled to
vote only up to ten percent of the issued and outstanding shares of
Common Stock, or 90,305 shares, of the shares held by the shareholder.
The remaining 10,879 shares held by this shareholder will not be
counted as shares eligible to vote on matters submitted to the
shareholders at the Annual Meeting.
(3) Of these shares, 84,000 are owned jointly by Mr. Stewart and his wife,
4,554 are held under the Owen Community Bank, s.b. Recognition and
Retention Plan and Trust (the "RRP"), 10,000 are subject to a stock
option granted under the Home Financial Bancorp Stock Option Plan (the
"Option Plan"), and 801 are held under the Holding Company's Employee
Stock Ownership Plan (the "ESOP").
(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 903,052 shares of Common Stock outstanding which does not
include options for 91,600 shares of Common Stock granted to certain
directors, officers and employees of the Holding Company and the Bank.
<PAGE>
PROPOSAL I -- ELECTION OF DIRECTORS
The Board of Directors consists of nine 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 four nominees for election as a
director this year are Charles W. Chambers, Stephen Parrish, Gary Michael
Monnett, and Kurt D. Rosenberger, each of whom currently serves as a director.
Mr. Rosenberger was added to the Board of Directors on June 23, 1998, and Mr.
Monett was added to the Board of Directors on August 25, 1998, to fill Board
vacancies created when the number of Board members was increased from seven to
nine. Messrs. Chambers, Parrish, and Rosenberger each have been nominated to
serve for a three-year term ending in 2001 and Mr. Monnett has been nominated to
serve for a two-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.
<PAGE>
<TABLE>
<CAPTION>
Director Common Stock
of the Beneficially
Expiration of Director of Holding Owned as of
Term as the Bank Company August 24, Percentage
Name Director Since Since 1998 (1) of Class
- ------------------------------------------------------------------------------------------------------------------
Director Nominees
<S> <C> <C> <C> <C> <C>
Charles W. Chambers 2001 1978 1996 6,024(2) .66%
Gary Michael Monnett 2000 1998 1998 -0- -0-%
Stephen Parrish 2001 1982 1996 13,024(2) 1.44%
Kurt D. Rosenberger 2001 1998 1998 16,302(3) 1.79%
Directors Continuing
in Office
John T. Gillaspy 2000 1986 1996 31,024(2) 3.42%
Kurt J. Meier 1999 1991 1996 18,586(4) 2.04%
Robert W. Raper 2000 1970 1996 15,024(5) 1.66%
Frank R. Stewart 1999 1963 1996 100,493(6) 11.01%
Tad Wilson 1999 1978 1996 30,024(7) 3.31%
All directors and executive 230,501(8) 24.31%
officers as a group (9 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, 1,620 are held under the RRP, 3,000 are subject to a stock
option granted under the Option Plan, and the balance are held jointly by
the director and his wife.
(3) Of these shares, 2,458 are owned jointly by Mr. Rosenberger and his wife,
10,000 are subject to a stock option granted under the Option Plan, 3,036
are held under the RRP, and 808 are held under the Holding Company's ESOP.
(4) Of these shares, 3,138 are owned jointly by Mr. Meier and his wife, 4,554
are held under the RRP, 10,000 are subject to a stock option granted under
the Option Plan, and 894 are held under the ESOP.
(5) Of these shares 10,404 are held jointly by Mr. Raper, his wife and their
grandchildren, 1,620 are held under the RRP, and 3,000 are subject to a
stock option granted under the Option Plan.
(6) Of these shares, 84,000 are owned jointly by Mr. Stewart and his wife,
4,554 are held under the RRP, 10,000 are subject to a stock option granted
under the Option Plan, and 801 are held under the ESOP.
(7) Of these shares, 22,404 are owned jointly by Mr. Wilson and his wife, 1,620
are held under the RRP, and 3,000 are subject to a stock option granted
under the Option Plan.
(8) Of these shares, 20,244 are held under the RRP, and 45,000 are subject to
stock options granted under the Option Plan.
<PAGE>
Presented below is certain information concerning the director nominees of
the Holding Company:
Charles W. Chambers (age 83), has served as a director of the Holding
Company since its formation and of the Bank since 1978. Mr. Chambers has served
as a staff appraiser for the Bank and has served as the Secretary of the Bank
since 1990.
John T. Gillaspy (age 70), 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 48), 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.
Gary Michael Monnett (age 38), was named a director in 1998, and has served
as a self-employed certified public accountant based in Cloverdale, Indiana for
more than the last five years.
Stephen Parrish (age 58), 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 81), 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 40), has served as Vice President and Chief
Financial Officer of the Holding Company since 1996. 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 73), 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 63), 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.
<PAGE>
The Board of Directors and its Committees
During the fiscal year ended June 30, 1998, the Board of Directors of the
Holding Company met or acted by written consent five 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.
The members of that Committee are Messrs. Gillaspy, Parrish and Wilson. It met
three times during fiscal 1998.
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, 1998, 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.
<PAGE>
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, 1998, of the person who served
as chief executive officer of the Holding Company during the fiscal year ended
June 30, 1998 (the "Named Executive Officer"). There were no 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> <C>
Kurt J. Meier 1998 $55,994 (1) $985 --- --- 10,000 $1,561
President, Chief 1997 $51,220 (1) $ --- --- $38,243 --- $1,399
Executive Officer 1996 $51,220 (1) $ --- --- --- --- $1,399
and Treasurer
</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, 1998, the number and aggregate value of restricted stock
holdings by Mr. Meier were 4,554 and $39,563, respectively. Dividends paid
on the restricted shares are payable to the grantee as the shares are
vested and are not included in the table.
(4) Consists of the Bank's contribution on behalf of the Named Executive
Officer to the Thrift Plan.
<PAGE>
Stock Options
The following table sets forth information related to options granted
during fiscal 1998 to the Named Executive Officers.
Option Grants - Last Fiscal Year
Individual Grants
% of Total
Options Granted Exercise or
Options to Employees Base Price Expiration
Name Granted(#)(1) In Fiscal Year ($/Share)(2) Date
---- ------------- -------------- ------------ ----
Kurt J. Meier 10,000 18.2% $8.50 10/13/2007 (3)
(1) Options to acquire shares of the Holding Company's Common Stock.
(2) The option exercise price may be paid in cash or, with the approval of the
Stock Compensation Committee, after June 30, 1999, in shares of Holding
Company Common Stock or a combination thereof. The initial option exercise
price equaled the market value of a share of the Holding Company Common
Stock on the date of grant.
(3) The options became exercisable on April 13, 1998.
The following table includes the number of shares covered by stock options
held by the Named Executive Officers as of June 30, 1998. Also reported are the
values for "in-the-money" options (options whose exercise price is lower than
the market value of the shares at fiscal year end) which represent the spread
between the exercise price of any such existing stock options and the fiscal
year-end market price of the stock. The Named Executive Officers did not
exercise any stock options during the fiscal year.
Outstanding Stock Option Grants and Value Realized As Of 6/30/98
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year End Options at Fiscal Year End (1)
--------------------------------- -----------------------------------
Name Exercisable Unexercisable(2) Exercisable Unexercisable(2)
---- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Kurt J. Meier 10,000 --- $1,875 $ ---
</TABLE>
- --------------
(1) Amounts reflecting gains on outstanding options are based on the average
between the high and low prices for the shares on June 30, 1998, which was
$8.6875 per share.
<PAGE>
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 $161,460 for Mr. Meier and
$149,760 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 $700 per month, and
Mr. Stewart receives $500 per month. All other directors of the Bank receive
$400 per month.
<PAGE>
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 -- RATIFICATION OF AUDITORS
The Board of Directors proposes for the ratification of the shareholders at
the Annual Meeting the appointment of Olive LLP, certified public accountants,
as independent auditors for the fiscal year ended June 30, 1999. Olive LLP has
served as auditors for the Bank since 1989. A representative of Olive LLP is
expected to 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, 1998, 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 and included in the proxy statement and
form of proxy must be received at the main office of the Holding Company for
inclusion in the Holding Company's proxy statement no later than 120 days in
advance of September 15, 1999. Any such proposal should be sent to the attention
of the Secretary of the Holding Company at 279 East Morgan Street, Spencer,
Indiana 47460. A shareholder proposal being submitted outside the processes of
Rule 14a-8 promulgated under the 1934 Act will be considered untimely if it is
received by the Holding Company later than 45 days in advance of September 15,
1999.
<PAGE>
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 15, 1998
<PAGE>
REVOCABLE PROXY HOME FINANCIAL BANCORP
Annual Meeting of Shareholders
October 13, 1998
The undersigned hereby appoints Judith Terrell 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 13, 1998, 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:
Charles W. Chambers Stephen Parrish Kurt D. Rosenberger
(each for a three-year term)
G. Michael Monnett
(for a two-year term)
2. Ratification of the appointment of Olive llp as auditors for the year
ending June 30, 1999.
[ ] 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.
_____________________, 1998
NUMBER OF SHARES
--------------------------- -------------------------
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.
Description of Business....................................................Below
Message to Shareholders.................................................... 1
Selected Consolidated Financial Data....................................... 2
Management's Discussion and Analysis....................................... 3
Independent Auditor's Report............................................... 17
Consolidated Statement of Financial Condition.............................. 18
Consolidated Statement of Income........................................... 19
Consolidated Statement of Changes in
Stockholders' Equity.................................................. 20
Consolidated Statement of Cash Flows....................................... 21
Notes to Consolidated Financial Statements................................. 22
Directors and Officers..................................................... 36
Shareholder Information.................................................... 38
================================================================================
Home Financial Bancorp (the "Holding Company" and together with the
Bank (as defined below), "HFB" or 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) demand deposit accounts; (xii)
passbook savings accounts; and (xiii) 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.
<PAGE>
FELLOW SHAREHOLDERS AND FRIENDS:
Another fiscal year has come to a close and we are pleased to present
to you the 1998 Annual Report of Home Financial Bancorp.
Many positive events occurred over the past year in the life of Home
Financial Bancorp. Please allow me to highlight a few. As reported to you last
year, plans were under way for a new branch in the southern Putnam County
community of Cloverdale. By the time this report reaches you, our first branch
in Cloverdale is expected to be completed and open for business. This is
exciting and we look forward to the opportunity. For several months, we have
been preparing ourselves by hiring and training new staff, overseeing
construction progress, purchasing equipment, and tending to many more necessary
details. Our mission in Cloverdale will be the same as it has been in Spencer:
to offer our many banking services in a courteous and professional manner. Our
focus will continue to be on attracting new lower cost deposits including
checking and savings accounts in addition to offering our full line of loan
products at competitive terms. As a new community bank to Cloverdale, we will do
our best to support the institutions and charities in the community through
outright financial support or through volunteer support by our staff.
We have further demonstrated our support of the Cloverdale area
community by purchasing tax credits this past year to help finance the
construction of a 24 unit senior citizen housing project in Cunot.
Groundbreaking ceremonies were recently held to mark the official start of the
construction process. Upon completion, the tax credits purchased will result in
considerable income tax savings for the Company and at the same time fulfill the
additional housing needs of the community.
During the past year, several new services were introduced including
business checking, Roth and Educational IRA accounts, home equity lines of
credit, personal lines of credit and wire transfers. We installed our first ATM
machine this spring allowing customers access to their accounts through the MAC
and Cirrus network. An ATM machine has also been installed at the Cloverdale
branch.
This past fall, we implemented the use of a loan pricing matrix into
our loan administration process. This tool has allowed the Bank to be more
competitive in offering loans to lower credit risk customers while at the same
time being more appropriately rewarded when offering loans to higher credit risk
customers.
As many of you are aware by now, the Year 2000 Computer problem is a
serious issue that is being addressed by the banking industry as well as every
other industry. Management has made vigorous efforts since last fall to organize
and adhere to recommended regulatory guidelines to deal with this issue and
allow us to provide a high degree of assurance to customers that computer
operations will be uninterrupted when the new millennium arrives. Our staff has
spent countless hours on the subject and considerable dollars have been
allocated towards this project. At this point, we feel confident that
uninterrupted service will be achieved.
Last December, we announced a 2 for 1 stock split which benefited all
shareholders of record when the distribution was completed on January 6, 1998.
This decision allowed us to comply with new NASDAQ Small Cap Market listing
requirements and continue to provide liquidity for our stock. Furthermore, the
resulting number of outstanding shares from the stock split will also allow us
to buy back stock from time to time without falling below NASDAQ's minimum
market float requirements.
As a fellow shareholder and on behalf of everyone at Home Financial
Bancorp and its subsidiary bank, I pledge to continue to strive for increased
earnings, equity, and shareholder value as well as to provide quality financial
services to our community and our customers.
Respectfully submitted,
/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.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
At June 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Summary of Financial Condition:
<S> <C> <C> <C> <C> <C>
Total assets....................................... $42,560 $42,508 $39,426 $30,839 $26,008
Loans receivable, net.............................. 33,959 34,117 27,125 25,547 21,479
Cash and cash equivalents.......................... 3,802 4,184 5,721 1,386 1,237
Securities available for sale...................... 1,918 2,102 4,901 934 ---
Securities held to maturity........................ --- --- --- 1,827 2,414
Deposits........................................... 26,649 26,157 28,726 22,500 21,451
Federal Home Loan Bank advances.................... 8,200 9,000 7,200 5,000 1,500
Stockholders' equity - substantially restricted.... 7,506 7,197 3,410 3,159 2,850
Year Ended June 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Summary of Operating Results:
Interest and dividend income..................... $3,690 $3,397 $2,955 $2,420 $2,023
Interest expense................................. 1,812 1,703 1,593 1,174 949
------ ------- ------- ------- -------
Net interest income........................... 1,878 1,694 1,362 1,246 1,074
Provision for losses on loans.................... 102 85 94 36 14
------ ------- ------- ------- -------
Net interest income after provision for
losses on loans.......................... 1,776 1,609 1,268 1,210 1,060
------ ------- ------- ------- -------
Other income:
Service charges on deposit accounts........... 55 43 37 27 23
Gain on sale of real estate acquired
for development.......................... 7 31 57 78 145
Net realized gain on sales of a
vailable for sale securities ............... 141 37 --- --- ---
Other......................................... 64 53 47 43 33
------ ------- ------- ------- -------
Total other income......................... 267 164 141 148 201
------ ------- ------- ------- -------
Other expense:
Salaries and employee benefits................ 766 563 415 404 344
Net occupancy and equipment expense........... 143 132 123 109 109
Deposit insurance expense..................... 16 165 54 49 48
Other......................................... 519 508 333 304 306
------ ------- ------- ------- -------
Total other expense...................... 1,444 1,368 925 866 807
------ ------- ------- ------- -------
Income before income tax and cumulative
effect of change in accounting principle...... 599 405 484 492 454
Income tax expense............................... 206 153 196 203 169
------ ------- ------- ------- -------
Cumulative effect of change in accounting principle --- --- --- --- (24)
Net income.................................... $ 393 $ 252 $ 288 $ 289 $ 261
====== ======= ======= ======= =======
<PAGE>
Supplemental Data (1):
Basic earnings per share......................... $ .47 $ .27 --- --- ---
Diluted earnings per share....................... .47 .27 --- --- ---
Book value per common share at end of year....... 8.08 7.66 --- --- ---
Dividends per share.............................. .10 .08 --- --- ---
Dividend payout ratio............................ 21.28% 29.63% --- --- ---
Return on assets (2) ............................ .93% .63% .84% 1.00% 1.03%
Return on equity (3)............................. 5.34 3.31 8.71 9.59 9.46
Interest rate spread (4) ........................ 3.88 3.56 3.78 4.19 4.11
Net yield on interest-earning assets (5)......... 4.65 4.41 4.13 4.54 4.42
Other expenses to average assets ................ 3.42 3.40 2.70 2.99 3.17
Net interest income to other expenses............ 1.30x 1.24x 1.47x 1.44x 1.33x
Equity-to-assets (6)............................. 17.66 16.93 8.65 10.24 10.96
Average equity to average total assets........... 17.42 18.90 9.64 10.42 10.85
Average interest-earning assets to average
interest-bearing liabilities.................. 1.17x 1.19x 1.07x 1.08x 1.08x
Non-performing assets to total assets............ 1.17 1.76 1.03 .32 .10
Non-performing loans to total loans.............. .81 1.65 1.32 .39 .13
Loan loss allowance to total loans, net.......... .94 .68 .55 .22 .12
Loan loss allowance to non-performing loans...... 114.70 41.10 41.78 57.00 108.33
Net charge-offs to average loans ................ .04 .01 * .02 *
- -------------
</TABLE>
(1) All per share amounts have been restated to reflect a 2-for-1 stock
split effective January 6, 1998.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated.
(5) Net interest income divided by average interest-earning assets.
(6) 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 Company include deposits, payments on loans, borrowings and income
provided from operations.
STOCKHOLDER MATTERS
The book value of HFB common stock was $8.08 at June 30, 1998. On this
same date, the price of HFB Common Stock was $9.00 per share, representing a
15.2% increase over the June 30, 1997 price of $7.81 per share. For the year
ended June 30, 1998, quarterly dividends totaling $.10 per share were paid to
shareholders.
During the year ended June 30, 1998, the Company declared a 2 for 1
stock split, under which every share of HFB Common Stock outstanding as of
December 23, 1997 was converted into two shares of Common Stock. HFB Common
Stock is traded on the NASDAQ SmallCap Market under the symbol HWEN. As of June
30, 1998, there were approximately 300 shareholders of record, and 220 holders
who held stock in nominee or "street" name through various brokerage firms. At
June 30, 1998, there were 929,052 shares of Common Stock outstanding.
<PAGE>
THE YEAR 2000 ISSUE
Management and the Board of Directors recognize and understand Year
2000 ("Y2K") risk, are active in overseeing corrective efforts, and are ensuring
that all necessary resources are available to address this problem. The
awareness and assessment phases of the Company's year 2000 Project Management
Plan have been completed, and the testing phase is currently under way.
Management believes the key to successfully meeting the Y2K challenge
is prior testing of all affected systems. The majority of mission-critical
systems are provided by On-Line Financial Services, Inc., Oak Brook, Illinois.
Management has subscribed to a series of extensive Y2K tests that will use the
Bank's specific computer applications and customer data. In addition, an
information technology professional has been retained to assist with testing
in-house systems and third party vendor applications. Substantially, all testing
for mission-critical applications is scheduled to be completed prior to December
31, 1998.
During the remainder of 1998 and the first half of calendar 1999,
management intends to modify or replace internal system components based on the
results of testing. At this time, management is aware of the need for some minor
equipment or software changes. Costs related to Y2K issues did not have a
material impact on the Company's fiscal year 1998 financial statements.
The largest component of Y2K costs during fiscal year 1999 is expected
to be related to systems testing. Although the full cost of modifications is not
yet known, management does not anticipate a need to invest heavily in system
improvements to achieve Y2K compliance. At this time, it is estimated that costs
associated with Y2K issues will be less than $50,000 for fiscal year 1999.
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.
<PAGE>
It is estimated that at June 30, 1998, MV would decrease 3.9% and 19.4%
in the event of 200 and 400 basis point increases in market interest rates
respectively, compared to 5.2% and 13.7% for the same increases at June 30,
1997. The Bank's MV at June 30, 1998 would decrease 8.7% and 14.4% in the event
of 200 and 400 basis point decreases in market rates respectively. A year
earlier, 200 and 400 basis point decreases in market rates would have increased
MV 2.3% and 5.4% respectively.
Differences in MV performance resulting from changes in market rates
reflect increases and decreases in cash flow for each asset and liability
category. Changes in asset and liability mix, pricing assumptions, loan
prepayment rates, transaction account decay rates, and other influences account
for modified cash flows from one period to another.
Presented below, as of June 30, 1998 and 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.
JUNE 30, 1998
MARKET VALUE SUMMARY PERFORMANCE
<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* $5,058 $ (1,220) (19.44)% 13.26% (191) bp
+ 200 bp 6,035 (243) (3.87) 15.05 (12) bp
0 bp 6,278 0 0.00 15.17 ---
- 200 bp 5,734 (544) (8.67) 13.68 (149) bp
- 400 bp 5,376 (902) (14.37) 12.59 (258) bp
</TABLE>
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock MV Ratio: MV as % of PV of Assets............ 15.17%
Exposure Measure: Post-Shock MV Ratio.................. 13.68%
Sensitivity Measure: Change in MV Ratio................ 149 bp
Change in MV as % of PV of Assets...................... 8.67%
<PAGE>
JUNE 30, 1997
MARKET VALUE SUMMARY PERFORMANCE
<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%
- --------
* Basis points.
<PAGE>
Average Balances, Interest Rates and Yields
The following table presents for the years ended June 30, 1998, 1997
and 1996, the month-end average balances of each category of the Company'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.
<PAGE>
AVERAGE BALANCE SHEET/YIELD ANALYSIS
<TABLE>
<CAPTION>
Year Ended June 30, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
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.......$ 3,214 $ 177 5.51% $ 2,692 $ 137 5.09% $ 2,782 $ 136 4.89%
Mortgage-backed
securities (1)................ 1,630 115 7.07% 2,523 185 7.33 1,628 90 5.53
Other investment securities (1). 688 52 7.53 2,376 130 5.47 1,291 89 6.89
Loans receivable (2)............ 34,366 3,306 9.62 30,418 2,912 9.57 26,970 2,619 9.71
Stock in FHLB of Indianapolis... 500 40 8.06 433 33 7.63 274 21 7.66
Total interest-earning assets. 40,398 3,690 9.14 38,442 3,397 8.84 32,945 2,955 8.97
Non-interest earning assets, net of
allowance for loan losses
and including unrealized gain
(loss) on securities
available for sale.............. 1,860 1,804 1,367
Total assets..................$42,258 $40,246 $34,312
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts................ $3,399 103 3.03 $ 3,930 114 2.90 $ 4,235 117 2.76
NOW accounts.................... 3,998 124 3.09 2,162 70 3.24 2,320 58 2.50
Certificates of deposit......... 18,482 1,056 5.72 18,465 1,032 5.59 18,672 1,086 5.82
Other borrowings................ --- --- --- --- --- --- 15 1 6.67
FHLB advances................... 8,592 529 6.16 7,725 487 6.30 5,475 331 6.05
Total interest-bearing
liabilities.............. 34,471 1,812 5.26 32,282 1,703 5.28 30,717 1,593 5.19
Other liabilities.................. 426 358 289
Total liabilities............. 34,897 32,640 31,006
Stockholders' equity............... 7,316 7,601 3,305
Net unrealized gain on securities
available for sale.............. 45 5 1
Total stockholders' equity.... 7,361 7,606 3,306
Total liabilities and
stockholders' equity......$42,258 $40,246 $34,312
Net interest-earning assets........$ 5,927 $ 6,160 $ 2,228
Net interest income................ $ 1,878 $ 1,694 $1,362
Interest rate spread............... 3.88% 3.56% 3.78%
Net yield on weighted average
interest-earning assets......... 4.65% 4.41% 4.13%
Average interest-earning assets to
average interest-bearing
liabilities..................... 117.19% 118.99% 107.25%
</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 basis was made since the adjustment was less than
$10,000 in each period presented.
<PAGE>
INTEREST RATE SPREAD
The Company's results of operations have been impacted primarily by net
interest income. 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 Company on its loan, investment portfolios and total
interest-earning assets. The table also includes weighted average effective cost
of the Company's deposits and borrowings, the interest rate spread of the
Company, 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,
1998 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Weighted average interest rate earned on:
<S> <C> <C> <C> <C>
Interest-earning deposits......................... 5.31% 5.51% 5.09% 4.89%
Mortgage-backed securities........................ 7.50 7.07 7.33 5.53
Other investment securities....................... 7.84 7.53 5.47 6.89
Loans receivable.................................. 9.51 9.62 9.57 9.71
Stock in FHLB of Indianapolis..................... 8.00 8.06 7.63 7.66
Total interest-earning assets................... 9.09 9.14 8.84 8.97
Weighted average interest rate cost of:
Savings accounts.................................. 3.03 3.03 2.90 2.76
NOW and money market accounts..................... 2.78 3.09 3.24 2.50
Certificates of deposit........................... 5.78 5.72 5.59 5.82
Other borrowings.................................. --- --- --- 6.67
FHLB advances..................................... 6.01 6.16 6.30 6.05
Total interest-bearing liabilities.............. 5.16 5.26 5.28 5.19
Interest rate spread (1)............................. 3.93% 3.88% 3.56% 3.78%
Net yield on weighted average
interest-earning assets (2)....................... 4.65% 4.41% 4.13%
</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,
1998, because the computation of net yield is applicable only over a period
rather than at a specific date.
<PAGE>
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 Company'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
Increase (Decrease) in Net Interest Income
Total Net Due to Due to
Change Rate Volume
YEAR ENDED JUNE 30, 1998
COMPARED TO YEAR ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
(In thousands)
Interest-earning assets:
Interest-earning deposits ....... $ 40 $ 12 $ 28
Mortgage-backed securities ...... (133) 6 (139)
Other investment securities ..... (15) 32 (47)
Loans receivable ................ 394 14 380
Stock in FHLB of Indianapolis ... 7 2 5
----- ----- -----
Total ......................... 293 66 227
----- ----- -----
Interest-bearing liabilities:
Savings accounts ................ (11) 5 (16)
NOW and money market accounts ... 53 (4) 57
Certificates of deposit ......... 25 24 1
Other borrowings ................ -- -- --
FHLB advances ................... 42 (12) 54
----- ----- -----
Total ......................... 109 13 96
----- ----- -----
Change in net interest income ...... $ 184 $ 53 $ 131
===== ===== =====
YEAR ENDED JUNE 30, 1997
COMPARED TO YEAR ENDED JUNE 30, 1996
Interest-earning assets:
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
===== ===== =====
<PAGE>
CHANGES IN FINANCIAL POSITION AND RESULTS OF OPERATIONS - YEAR ENDED JUNE 30,
1998, COMPARED TO YEAR ENDED JUNE 30, 1997:
General. HFB earned record net income totaling $393,000 for the year
ended June 30, 1998, representing a $141,000 or 55.7% increase from the year
ended June 30, 1997, in which net income of $252,000 was earned. Major
contributions to improved earnings for the year were higher net interest income
and lower deposit insurance expense.
The return on average assets for the year ended June 30, 1998 was .93%,
compared to .63% the prior year June 30, 1997. The return on average equity was
5.34% for the year ended June 30, 1998, compared to 3.31% for the prior year
ended June 30, 1997. Earnings per share was $.47 for the year ended June 30,
1998, compared to $.27 for the year ended June 30, 1997. Without the special
assessment imposed by federal legislation to recapitalize the SAIF, net income
for the prior year ended June 30, 1997 would have been $338,000 for returns on
average assets and average equity of .84% and 4.45% respectively.
Assets. Total assets at June 30, 1998 were $42,560,000, compared to
total assets of $42,508,000 at June 30, 1997. Cash and cash equivalents
decreased $382,000 or 9.1%, to $3,802,000 at June 30, 1998, compared to
$4,184,000 a year earlier. The decrease in cash and cash equivalents combined
with cash inflows from deposits and sales of investment securities were used to
repay borrowings and acquire additional premises and equipment. Investment
securities decreased $184,000 or 8.8% to $1,918,000 at June 30, 1998, compared
to $2,102,000 at June 30, 1997. Total loans at June 30, 1998 were $34,279,000
compared to total loans of $34,349,000 at prior year-end June 30, 1997.
The year-end level of stock in the Federal Home Loan Bank ("FHLB") of
Indianapolis stood at $500,000 for 1998 and 1997. Net premises and equipment
increased $724,000 or 75.1%, to $1,687,000 at June 30, 1998 compared to $964,000
at June 30, 1997. The increase is due to costs for the nearly completed
construction of the Bank's first branch office site in the Putnam County town of
Cloverdale, as well as costs for finishing construction on new facilities
adjacent to the Bank's main office in Spencer. Foreclosed real estate and
repossessed assets increased $33,000 or 17.6% to $220,000 compared to $187,000
at June 30, 1997. The total at June 30, 1998 consists of three residential
single family properties and one mobile home.
Average assets increased $2,012,000 or 5.0%, to $42,258,000 for the
year ended June 30, 1998, compared to $40,246,000 for the prior year-ended June
30, 1997. Average interest-earning assets increased $1,956,000 or 5.1%, to
$40,398,000 for the year ended June 30, 1998 and represented 95.6% of total
average assets. The increase was due to average loans receivable which increased
$3,948,000 or 13.0%, to $34,366,000 for the year ended June 30, 1998, compared
to $30,418,000 for the year ended June 30, 1997. The average level of other
interest-earning assets decreased $1,992,000 or 24.8%, to $6,032,000 for the
year ended June 30, 1998, compared to $8,024,000 the same period a year ago.
Liabilities and Stockholders' Equity. Total deposits were $26,649,000
at June 30, 1998, a $492,000 or 1.9% increase from $26,157,000 at June 30, 1997.
The change is traced to a $1,339,000 or 91.0% increase in transaction deposits
to $2,810,000 at June 30, 1998, compared to $1,471,000 at June 30, 1997.
Passbook and statement savings deposits also increased by $330,000 or 11.2%.
These increases were offset by declines of $705,000 or 31.8%, and $473,000 or
2.4%, in money market deposits and certificates of deposit, respectively. In
addition to deposits, FHLB advances are an important source of both short-term
and long-term funding for the Bank. FHLB advances totaled $8,200,000 at June 30,
1998, compared to $9,000,000 at June 30, 1997.
Average liabilities increased $2,257,000 or 6.9%, to $34,897,000 for
the year ended June 30, 1998, compared to $32,640,000 for the prior year-ended
June 30, 1997. Average interest-bearing liabilities increased $2,189,000 or
6.8%, to $34,471,000 for the year-ended June 30, 1998. The increase was
primarily due to average transaction and money market deposits which together
increased $1,836,000 or 84.9%, to $3,998,000 for the 1998, compared to
$2,162,000 for the prior year.
<PAGE>
HFB's stockholders' equity increased $309,000 or 4.3%, to $7,506,000 at
June 30, 1998, compared to $7,197,000 at June 30, 1997. Contributing to the
increase was net income of $393,000. The increase was partially offset by cash
dividends of $85,000 paid for the year ended June 30, 1998. The ratio of
stockholders' equity to total assets increased to 17.6% at June 30, 1998,
compared to 16.9% at June 30, 1997.
During the year ended June 30, 1998, 10,000 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 929,052 at
June 30, 1998. The $78,000 cost of these repurchased shares represented a
reduction in total stockholders' equity.
Net Interest Income. Net interest income increased by $185,000 or
10.9%, to $1,878,000 for the year ended June 30, 1998, compared to $1,693,000
for the year ended June 30, 1997. Impacting net interest income were interest
rate changes on rate-sensitive assets and liabilities during the current period
and average balance increases or decreases applicable to the rate-sensitive
portion of the balance sheet. As a result of these factors, total interest
income increased by $294,000 or 8.6% while total interest expense increased by
$109,000 or 6.4%, compared to the same period a year earlier.
Interest income on loans totaled $3,306,000 for the year ended June 30,
1998, compared to $2,912,000 for the year ended June 30, 1997; an increase of
$394,000 or 13.5%. The increase can be attributed to a larger average balance of
loans receivable outstanding for the current year and an increase in the average
yield earned, compared to the same period one year ago. At June 30, 1998,
investment securities included $1,320,000 in equity stocks which earned
dividends rather than interest income. Interest and dividend income from total
investments decreased $141,000 or 40.4% to $207,000 for the year ended June 30,
1998 compared to $348,000 for the year ended June 30, 1997. The decline can be
attributed to a decrease in average balance outstanding for the current year,
which was partially offset by an increase in the average yield compared to the
same period a year earlier. Interest income on FHLB stock totaled $40,000 for
the year ended June 30, 1998, compared to $33,000 for the year ended June 30,
1997; an increase of $7,000 or 21.2%. The increase can be attributed to a larger
average balance outstanding and an increase in the average yield earned,
compared to the same period a year earlier. The combined weighted average yield
on the balance of interest-earning assets outstanding for the year ended June
30, 1998 increased to 9.14%, compared to 8.84% for the prior year ended June 30,
1997.
Interest expense on deposits increased $73,000 or 6.0%, to $1,283,000
for the year ended June 30, 1998, compared to $1,210,000 for the year ended June
30, 1997. The change was the result of an increase in the average deposit
balance outstanding of the current year compared to the same period a year
earlier. The average cost of deposits remained unchanged at 5.0%. Interest
expense on borrowings increased by $42,000 or 8.6%, to $529,000 for the year
ended June 30, 1998, compared to $487,000 for the year ended June 30, 1997. The
increase was the result of a larger average balance outstanding for the current
year, which was partially offset by a decline in the average cost of borrowings.
The combined weighted average rate paid on deposits and borrowings was 5.3% for
the year ended June 30, 1998 and the prior year.
<PAGE>
The Company's interest rate spread increased to 3.88% for the year
ended June 30, 1998, compared to 3.56% for the year ended June 30, 1997. The net
interest margin increased to 4.65% for the year ended June 30, 1998, compared to
4.41% for the year ended June 30, 1997. Increases in both interest rate spread
and interest rate margin were the result of larger average balances in loans
receivable, which are the Company's highest yielding assets, and larger average
balances in lower costing liabilities, such as transaction accounts.
Provisions for Loan Losses. For the year ended June 30, 1998, the Bank
provided $102,000 for future loan losses. During the prior year, provisions of
$85,000 were made. The allowance for loan losses totaled $320,000 or .94% of net
loans at June 30, 1998, compared to $231,000 or .68% of net loans at June 30,
1997, an increase of $89,000 or 38.5%. Management considers the Bank's allowance
for loan losses to be adequate based on general economic conditions, historical
net charge-offs and other factors such as the size, condition and
characteristics of the loan portfolio. In assessing loan loss allowance
adequacy, consideration is also given to the volume and composition of loan
portfolio growth as well as the level of allowances maintained by peers.
Noninterest Income. Noninterest income increased by $103,000 or 62.9%
to $267,000 for the year ended June 30, 1998, compared to $164,000 for the prior
year ended June 30, 1997. A major contributor to the increase was a $104,000 or
279.3% increase in gains on the sale of investments to $141,000 for the year
ended June 30, 1998, compared to $37,000 for the year ended June 30, 1997.
Partially offsetting this increase and the increase in service fee income was a
decline of $24,000 in gains on the sale of real estate acquired for development
to $7,000 for the current year, compared to $31,000 for the same period a year
ago.
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. Management has utilized the sale of lots and
residences to provide an additional source of income for the Company. 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 the
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.
Noninterest Expense. Noninterest expense increased by $77,000 or 5.6%,
to $1,444,000 for the year ended June 30, 1998, compared to $1,368,000 for the
year ended June 30, 1997. The increase can be primarily attributed the $203,000
or 36.1% increase in salaries and employee benefits to $766,000 for the year
ended June 30, 1998, compared to $563,000 for the prior year ended June 30,
1997. The increase was the result of new staff members hired for the Bank's
Cloverdale branch and costs associated with employee benefit plans adopted
during fiscal year 1997. Partially offsetting this increase was a drop in
deposit insurance expense of $149,000 or 90.3%, to $16,000 for the year ended
June 30, 1998, compared to $165,000 for the year ended June 30, 1997. Deposit
insurance expense for last year included the one-time special assessment expense
of $142,000 imposed by federal legislation to recapitalize the SAIF. Other
increases related to occupancy, advertising, foreclosed property, and data
processing expenses. These increases were partially offset by a decline in legal
and professional fees of $48,000 or 28.2%, to $123,000 for the year ended June
30, 1998, compared to $172,000 for the year ended June 30, 1997.
<PAGE>
Income Tax Expense. Income tax expense increased $54,000 or 35.3%, to
$206,000 for the year ended June 30, 1998, compared to $152,000 for the prior
year ended June 30, 1997. The increase was due to an increase in income before
taxes of $194,000 or 48.0%, which was partially offset by a decline in the
effective combined federal and state income tax rate to 34.4% for the year ended
June 30, 1998, compared to 37.7% for the same period a year ago.
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 FHLB.
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.
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 30.9% 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.
<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.
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 companyof the Bank. As part of the conversion, the
Company issued 505,926 shares of common stock at $10 per share (before
restatement for the 2-for-1 stock split), of which 40,474 shares (before
restatement for the 2-for-1 stock split) 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
(before restatement for the 2-for-1 stock split) 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 (before restatement
for the 2-for-1 stock split) at June 30, 1997, and the $565,000 cost represented
a reduction in total stockholders' equity.
Net Income. 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 recaptialize the SAIF. The return on average assets for the year
ended June 30, 1997 was .63%, compared to .84% for the prior year ended June 30,
1996. The return on average equity was 3.31% for the year ended June 30, 1997,
as compared to 8.71% for the year ended 1996. Basic and diluted earnings per
share were $.27 for the year ended June 30, 1997.
<PAGE>
For the Year ended June 30, 1997, net income without the special SAIF
assessment would have totaled $338,000 or $.37 per share. Further, the return on
average assets and the return on average equity, without the special assessment,
would have been .84% and 4.44%, respectively.
Net Interest Income. Net Interest income increased $332,000 to $1.7
million for the year ended June 30, 1997, compared to the prior year. Total
interest income was $3.4 million for the year ended June 30, 1997, compared to
$3.0 million for 1996. Average earning assets increased $5.5 million from $32.9
million to $38.4 million from the 1996 period to the 1997 period. The increase
in average earning assets was accompanied by a decrease in average yields from
8.97% during 1996 to 8.84% during 1997. The increase in average loans was the
primary factor contributing to the increase in total interest income.
Total interest expense increased $110,000 during the fiscal year ended
June 30, 1997 compared to 1996. This increase resulted from 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 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 Company continued to utilize borrowings from
the FHLB to fund loans and other asset growth.
Other Income. Service charges on deposit accounts increased $5,000 in
1997 compared to 1996 primarily as a result of an increase in the number of
accounts subject to such charges. Income from the sale of real estate acquired
for development decreased by $26,000 to $31,000 for the year ended June 30,
1997, compared to $57,000 for the year ended June 30, 1996. In connection with
the Bank's conversion to an Indiana mutual savings bank in 1996, the FDIC
required the divestiture of non-conforming real estate holdings within five
years, among other conditions. Consequently, income from the sale of real estate
acquired for development will decrease in future periods.
Other Expenses. Salaries and benefits increased 35.7% to $563,000 for
the fiscal year ended June 30, 1997, compared to 1996. The increase reflects new
employee benefit plans, two additional full-time employees, and normal increases
in compensation and payroll taxes. 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 in January 1997, account for
much of the salaries and benefits increase. The ESOP expense for 1997 was
$66,000 while the RRP cost was $25,000.
Deposit insurance expense was $165,000 during 1997; an increase of
$111,000, or 205.6% from $54,000 for the year ended June 30, 1996. The increase
was attributed to a recapitalization plan for the SAIF 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
Company's special assessment totaled $142,000 before taxes, and was recorded as
deposit insurance expense for the year ended June 30, 1997.
Expenses other than those discussed above increased $174,000, or 52.1%
for the year ended June 30, 1997, compared to the prior year. Legal, accounting
and other professional fees increased $124,000 during the year ended June 30,
1997 , primarily as a result of costs related to the conversion to a stock
company and the implementation of various employee benefit plans. Other
increases occurred as a result of general increases in a variety of expense
categories, including advertising, which increased by $10,000 compared to the
prior year ended June 30, 1996.
<PAGE>
Income Tax Expense. Income tax expense was $152,000 for the year ended
June 30, 1997, compared to $196,000 for 1996. The level of tax expense was
consistent with the amount of taxable income each year. The effective tax rate
was 37.7% for the year ended June 30, 1997, and 40.5% for the year ended June
30, 1996.
LIQUIDITY
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.
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 though 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.
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.
<PAGE>
CURRENT ACCOUNTING ISSUES
Reporting Comprehensive Income. The Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, in
June 1997. This Statement establishes 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.
SFAS No. 130 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. It 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.
Upon implementing this new Statement, an enterprise will classify items of
other comprehensive income by their nature in a financial statement and 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.
Statement 130 is effective for interim and annual periods beginning after
December 15, 1997. The Company will adopt Statement 130 for the quarter end
September 30, 1998.
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for the way that 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.
Upon implementing this Statement, a public business enterprise will be
required to report the following: o Financial and descriptive information
about its reportable operating segments o A measure of segment profit or
loss, certain specific revenue and expense items, and segment assets.
o Information about the revenues derived from the enterprise's products
or services (or groups of similar products and services), about the
countries in which the enterprise earns revenues and holds assets, and
about major customers regardless of whether that information is used in
making operating decisions.
o 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.
<PAGE>
SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997 which is June 30, 1999 for the Company. This Statement
is not anticipated to have any significant applicability to the Company based on
current operations. 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.
Employers' Disclosures about Pensions and Other Postretirement Benefits.
SFAS No. 132, which amends FASB Statements No. 87, 88, and 106, was issued in
February, 1998.
While this Statement does not change the measurement or recognition of
pension or other postretirement benefit plans, it revises employers' disclosures
about pension and other postretirement benefit plans. Some of the provisions of
the Statement include:
o The standardization of the disclosure requirements for pensions and other
postretirement benefits to the extent practicable.
o A requirement for additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate
financial analysis.
o The elimination of certain disclosures that are no longer as useful as
they were when FASB Statements No. 87, Employers' Accounting for
Pensions, No. 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits, and No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, were issued.
o Suggested combined formats for presentation of pension and other
postretirement benefit disclosures.
This Statement is effective for fiscal years beginning after December 15,
1997, which is June 30, 1999 for the Company. Earlier application is encouraged.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily available, in which case the
notes to the financial statements should include all available information and a
description of the information not available.
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
requires companies to record derivatives on the balance sheet at their fair
value. SFAS No. 133 also acknowledges that the method of recording a gain or
loss depends on the use of the derivative. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction.
<PAGE>
o For a derivative designated as hedging the exposure to changes in the
fair value of a recognized asset or liability or a firm commitment
(referred to as a fair value hedge), the gain or loss is recognized in
earnings in the period of change together with the offsetting loss or
gain on the hedged item attributable to the risk being hedged. The
effect of that accounting is to reflect in earnings the extent to
which the hedge is not effective in achieving offsetting changes in
fair value.
o For a derivative designated as hedging the exposure to variable cash
flows of a forecasted transaction (referred to as a cash flow hedge),
the effective portion of the derivative's gain or loss is initially
reported as a component of other comprehensive income (outside
earnings) and subsequently reclassified into earnings when the
forecasted transaction affects earnings. The ineffective portion of
the gain or loss is reported in earnings immediately.
o For a derivative designated as hedging the foreign currency exposure
of a net investment in a foreign operation, the gain or loss is
reported in other comprehensive income (outside earnings) as part of
the cumulative translation adjustment. The accounting for a fair value
hedge described above applies to a derivative designated as a hedge of
the foreign currency exposure of an unrecognized firm commitment or an
available-for-sale security. Similarly, the accounting for a cash flow
hedge described above applies to a derivative designated as a hedge of
the foreign currency exposure of a foreign-currency-denominated
forecasted transaction.
o For a derivative not designated as a hedging instrument, the gain or
loss is recognized in earnings in the period of change.
The new Statement applies to all entities. If hedge accounting is elected
by the entity, the method of assessing the effectiveness of the hedging
derivative and the measurement approach of determining the hedge's
ineffectiveness must be established at the inception of the hedge.
SFAS No. 133 amends SFAS No. 52 and supercedes SFAS Nos. 80, 105, and 119.
SFAS No. 107 is amended to include the disclosure provisions about the
concentrations of credit risk from SFAS No. 105. Several Emerging Issues Task
Force consensuses are also changed or nullified by the provisions of SFAS No.
133.
SFAS No. 133 will be effective for all fiscal years beginning after June
15, 1999, which is June 30, 2000 for the Company. Early application is
encouraged; however, this Statement may not be applied retroactively to
financial statements of prior periods.
<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 and subsidiary as of June 30, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ Olive LLP
Indianapolis, Indiana
July 24, 1998
<PAGE>
HOME FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, 1998 1997
- ---------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash $ 318,043 $ 296,805
Short-term interest-bearing deposits 3,484,060 3,887,498
------------ ------------
Total cash and cash equivalents 3,802,103 4,184,303
Investment securities--available for sale 1,917,734 2,101,734
Loans 34,278,725 34,348,648
Allowance for loan losses (319,595) (231,397)
------------ ------------
Net loans 33,959,130 34,117,251
Real estate acquired for development 20,758 20,758
Premises and equipment 1,687,355 963,657
Federal Home Loan Bank stock 500,000 500,000
Interest receivable 263,859 268,648
Other assets 408,804 351,876
------------ ------------
Total assets $ 42,559,743 $ 42,508,227
============ ============
Liabilities
Deposits
Noninterest bearing $ 510,423 $ 104,357
Interest-bearing deposits 26,138,187 26,052,159
------------ ------------
Total deposits 26,648,610 26,156,516
Federal Home Loan Bank advances 8,200,000 9,000,000
Other liabilities 205,227 154,577
------------ ------------
Total liabilities 35,053,837 35,311,093
------------ ------------
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--929,052 and 939,052 4,372,621 4,389,698
Retained earnings--substantially restricted 3,689,484 3,409,288
Unearned compensation (228,169) (264,781)
Unearned ESOP shares (304,310) (364,264)
Net unrealized gain (loss) on securities available for sale (23,720) 27,193
Total stockholders' equity 7,505,906 7,197,134
------------ ------------
Total liabilities and stockholders' equity $ 42,559,743 $ 42,508,227
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HOME FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
Interest Income
<S> <C> <C> <C>
Loans $3,305,864 $2,912,085 $2,618,394
Deposits with financial institutions 177,192 136,538 135,553
Investment securities
Taxable 67,509 279,869 161,258
Tax exempt 30,073 18,206
Other interest and dividend income 139,771 38,105 21,210
---------- ---------- ----------
Total interest and dividend income 3,690,336 3,396,670 2,954,621
---------- ---------- ----------
Interest Expense
Deposits 1,282,778 1,210,207 1,261,043
Federal Home Loan Bank advances 529,325 487,217 330,458
Other interest expense 5,758 1,282
Total interest expense 1,812,103 1,703,182 1,592,783
---------- ---------- ----------
Net Interest Income 1,878,233 1,693,488 1,361,838
Provision for losses on loans 102,000 85,000 94,000
---------- ---------- ----------
Net Interest Income After Provision for Losses on Loans 1,776,233 1,608,488 1,267,838
---------- ---------- ----------
Other Income
Service charges on deposit accounts 55,182 42,494 37,478
Gain on sale of real estate acquired for development 7,108 31,437 56,944
Net realized gain on sales of available-for-sale securities 140,925 37,155
Other income 63,736 52,750 47,535
---------- ---------- ----------
Total other income 266,951 163,836 141,957
---------- ---------- ----------
Other Expenses
Salaries and employee benefits 766,336 563,142 414,986
Net occupancy expenses 84,653 70,825 67,213
Equipment expenses 57,932 61,044 55,436
Deposit insurance expense 15,881 164,550 53,686
Computer processing fees 79,766 59,152 55,410
Printing and office supplies 40,839 38,274 33,479
Legal and professional fees 123,218 171,674 47,324
Advertising expense 46,931 34,004 24,346
Other expenses 228,584 204,901 173,561
---------- ---------- ----------
Total other expenses 1,444,140 1,367,566 925,441
---------- ---------- ----------
Income Before Income Tax 599,044 404,758 484,354
Income tax expense 206,266 152,441 195,964
---------- ---------- ----------
Net Income $ 392,778 $ 252,317 $ 288,390
========== ========== ==========
Net Income Per Share
Basic $ .47 $ .27
Diluted .47 .27
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HOME FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
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, 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 1,011,852 $4,728,294 4,728,294
Cash dividends
($.075 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 $(290,172) (290,172)
RRP shares earned 25,391 25,391
Purchase of stock (72,800) (364,000) (201,412) (565,412)
-------------------------------------------------------------------------------------------
Balances, June 30, 1997 939,052 4,389,698 3,409,288 (264,781) (364,264) 27,193 7,197,134
Net income for 1998 392,778 392,778
Cash dividends ($.10 per share) (85,082) (85,082)
Net change in unrealized gain
(loss) on securities available
for sale (50,913) (50,913)
ESOP shares earned 32,923 59,954 92,877
RRP shares earned 36,612 36,612
Purchase of stock (10,000) (50,000) (27,500) (77,500)
-------------------------------------------------------------------------------------------
Balances, June 30, 1998 929,052 $4,372,621 $3,689,484 $(228,169) $(304,310) $(23,720) $7,505,906
===========================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HOME FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C>
Net income $ 392,778 $ 252,317 $ 288,390
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 102,000 85,000 94,000
Investment securities amortization, net 981 2,630 464
ESOP shares earned 92,877 65,880
RRP shares earned 36,612 25,391
Depreciation and amortization 87,912 83,193 74,367
Deferred income tax benefit (50,485) (35,294) (41,460)
Gain on sale of real estate acquired for development (7,108) (31,437) (56,944)
Gain on sale of other real estate (35,016) (21,964) (3,250)
Gain on sale of securities available for sale (140,925) (37,155)
Change in
Interest receivable 4,789 (32,970) (49,069)
Other assets 62,331 (74,794) (10,361)
Other adjustments 50,372 64,038 (34,852)
---------- ---------- ----------
Net cash provided by operating activities 597,118 344,835 261,285
---------- ---------- ----------
Investing Activities
Purchases of securities available for sale (1,905,142) (3,261,591) (3,316,533)
Proceeds from sales of securities available for sale 1,895,041 4,824,600
Proceeds from maturities and paydowns of securities
available for sale 250,523 1,342,922 1,002,691
Proceeds from maturities and paydowns of
securities held to maturity 111,071
Net changes in loans (258,317) (7,371,895) (1,761,684)
Improvements to real estate owned (31,552) (12,621)
Proceeds from real estate owned sales 345,119 204,501 44,202
Purchase of premises and equipment (811,610) (569,082) (164,998)
Proceeds from disposal of premises and equipment 35,000 58,000
Purchase of real estate acquired for development (2,911) (38,421)
Proceeds from sale of real estate acquired for development 7,108 185,170 112,170
Purchase of FHLB of Indianapolis stock (140,000) (110,000)
---------- ---------- ----------
Net cash used by investing activities (508,830) (4,765,907) (4,063,502)
---------- ---------- ----------
Financing Activities
Net change in
NOW and savings deposits (467,983) (3,456,237) 4,309,021
Certificates of deposit 960,077 887,053 1,916,677
Advances from Federal Home Loan Bank of Indianapolis 5,000,000 4,300,000 2,200,000
Payments on advances from Federal Home
Loan Bank of Indianapolis (5,800,000) (2,500,000)
Payments on other borrowings (28,773)
Sale of stock 4,578,341
Prepaid stock conversion costs (260,067)
Purchase of stock (77,500) (565,412)
Dividends paid (85,082) (68,818)
Contribution of RRP shares (290,172)
---------- ---------- ----------
Net cash provided (used) by financing activities (470,488) 2,884,755 8,136,858
---------- ---------- ----------
Net Change in Cash and Cash Equivalents (382,200) (1,536,317) 4,334,641
Cash and Cash Equivalents, Beginning of Year 4,184,303 5,720,620 1,385,979
---------- ---------- ----------
Cash and Cash Equivalents, End of Year $3,802,103 $4,184,303 $5,720,620
========== ========== ==========
Additional Cash Flows and Supplementary Information
Interest paid $1,805,250 $1,703,182 $1,592,783
Income tax paid 174,710 178,988 179,305
Transfers from loans to other real estate 314,438 294,368
Stock issuance costs transferred from other
assets to stockholders' equity 254,787
Common stock issued to ESOP leveraged
with an employer loan 404,740
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Note 1-- 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, 1996, the Bank operates under a
state thrift charter, known as a stock savings bank, and provides full banking
services. Prior to July 1, 1996, 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 deed. 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, 1998,
1997 and 1996, included in the Company's consolidated net income, totaled
$21,000, $35,000 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--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.
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.
<PAGE>
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, 1998, 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.
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.
Stock options are granted for a fixed number of shares with an exercise price
equal to the fair value of the shares at the date of grant. The Company accounts
for and will continue to account for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants.
<PAGE>
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 and potential 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 and potential common shares outstanding.
Note 2 -- 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 (before restatement for the 2 for 1 stock split discussed
in Note 10) 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.
Note 3 -- Investment Securities
1998
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
June 30, Cost Gains Losses Value
- --------------------------------------------------------------------------------
Available for sale
Federal agencies $ 100 $ 3 $ 103
Marketable equity
securities 1,320 $ 48 1,272
Mortgage-backed
securities 537 6 543
-----------------------------------------------
Total investment
securities $1,957 $ 9 $ 48 $1,918
===============================================
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
===============================================
<PAGE>
The amortized cost and fair value of securities available for sale at
June 30, 1998, 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.
1998
Amortized Fair
Cost Value
--------------------------
Maturity Distribution
at June 30
- -----------------------------------------------------
One to five years $ 100 $ 103
Marketable equity
securities 1,320 1,272
Mortgage-backed
securities 537 543
------ ------
Totals $1,957 $1,918
====== ======
Securities with a carrying value of $528,000 and $788,000 were pledged at June
30, 1998 and 1997 to secure FHLB advances.
Proceeds from sales of securities available for sale during 1998 and 1997 were
$1,895,000 and $4,825,000. Gross gains of $141,000 and $71,000 in 1998 and 1997
and gross losses of $34,000 in 1997 were realized on the sales. The tax expense
for net gains on security transactions for June 30, 1998 and 1997 was $56,000
and $14,000, respectively.
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.
Note 4 -- Loans and Allowance
June 30 1998 1997
- --------------------------------------------------------------------------------
Real estate mortgage loans
Residential $ 19,563 $ 20,625
Mobile home and land 4,666 4,397
Nonresidential 7,614 6,912
Multi-family 904 980
Mobile home loans 831 1,004
Commercial and industrial 242 247
Consumer loans 655 612
-------- --------
34,475 34,777
-------- --------
Undisbursed portion of loans (198) (430)
Deferred loan costs 2 2
-------- --------
(196) (428)
-------- --------
Total loans $ 34,279 $ 34,349
======== ========
<PAGE>
Year Ended June 30, 1998 1997 1996
- --------------------------------------------------------------------------------
Allowance for loan losses
Balances, July 1 $ 231 $ 150 $ 57
Provision for
loan losses 102 85 94
Loans charged off (13) (4) (1)
----- ----- -----
Balances, June 30 $ 320 $ 231 $ 150
===== ===== =====
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 Bank has not had
any impaired loans since the adoption of Nos. 114 and 118.
At June 30, 1998, 1997 and 1996, the Bank had nonaccrual loans of approximately
$279,000, $562,000 and $359,000, for which impairment
had not been recognized.
The Bank has no commitments to loan additional funds to the borrowers of
nonaccrual loans.
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, 1997 $435
New loans, including renewals 341
Payments, etc. including renewals (376)
Change in composition of related parties 9
----
Balances, June 30, 1998 $409
====
Note 5 -- Premises and Equipment
June 30 1998 1997
- -------------------------------------------------------
Land $ 302 $ 277
Buildings 1,697 991
Equipment 450 381
Total cost 2,449 1,649
Accumulated depreciation (762) (685)
-------- --------
Net $ 1,687 $ 964
======== ========
<PAGE>
Note 6 -- Deposits
June 30 1998 1997
- -------------------------------------------------------
Noninterest bearing demand $ 510 $ 104
Interest-bearing demand 2,298 1,362
Money market deposits 1,512 2,217
Savings 3,271 2,941
Certificates of $100,000 or more 3,319 3,479
Other certificates 15,739 16,054
-------- --------
Total deposits $ 26,649 $ 26,157
======== ========
Certificates maturing in years ending June 30:
1999 $11,614
2000 4,827
2001 844
2002 885
2003 888
-------
$19,058
=======
Note 7 -- Federal Home Loan Bank
Advances
1998
Weighted
Average
June 30 Amount Rate
- -------------------------------------------------------
Maturities in years ending
2000 $5,000 6.03%
2001 2,000 5.90%
2003 1,000 5.97%
2005 200 6.86%
------ ----
$8,200 6.01%
====== ====
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 170 percent of these advances and all stock in the FHLB.
Advances are subject to restrictions or penalties in the event of prepayment.
Note 8 -- Income Tax
Year Ended June 30 1998 1997 1996
- -------------------------------------------------------
Income tax expense
Currently payable
Federal $ 199 $ 141 $ 185
State 57 46 52
Deferred
Federal (39) (25) (32)
State (11) (10) (9)
----- ----- -----
Total income
tax expense $ 206 $ 152 $ 196
===== ===== =====
Year Ended June 30 1998 1997 1996
- -------------------------------------------------------
Reconciliation of
federal statutory to
actual tax expense
Federal statutory
income tax at 34% $ 204 $ 138 $ 165
Effect of state
income taxes 31 24 28
Tax exempt dividends
and interest (24) (9) (5)
Other (5) (1) 8
----- ----- -----
Actual tax expense $ 206 $ 152 $ 196
===== ===== =====
<PAGE>
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
June 30 1998 1997
- ------------------------------------------------------
Assets
Allowance for loan losses $ 98 $61
Deferred compensation 26 9
Securities available for sale 16
Other 1
----- -----
Total assets 141 70
----- -----
Liabilities
Depreciation 6 3
State income tax 10 7
Securities available for sale 18
Loan fees 3 4
----- -----
Total liabilities 19 32
----- -----
$122 $38
===== =====
No valuation allowance was necessary for the years ended June 30, 1998 and 1997.
Retained earnings at June 30, 1998, 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, 1988
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, 1998.
Note 9 -- 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:
1998 1997
- ------------------------------------------------------
Mortgage loan commitments
At variable rates $827 $563
At fixed rates 553 515
Unused lines of credit 510 9
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 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.
<PAGE>
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.
Note 10 -- Stockholders' Equity
On December 9, 1997, the Company approved 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 stockholders on January 6, 1998. As a result of
the stock split, the number of shares outstanding increased from 464,526 to
929,052 shares. Unless otherwise noted, all share and per share data have been
restated for the 2 for 1 stock split.
The Company's board of directors has approved the repurchase of up to
10 percent of the Company's outstanding shares of common stock. Such purchases
will be made subject to market conditions in open market or block transactions.
During the years ended June 30, 1998 and 1997, the Company had repurchased
10,000 and 72,800 of its outstanding shares.
Note 11 -- Dividends and Capital Restrictions
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.
<PAGE>
At June 30, 1998, total stockholder's equity of the Bank was
$6,230,000, of which approximately $780,000 was available for the payment of
dividends.
Note 12 -- Regulatory Capital
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies and are assigned to a capital
category. The assigned capital category is largely determined by three ratios
that are calculated according to the regulations: total risk adjusted capital,
Tier 1 capital, and Tier 1 leverage ratios. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and
off-balance sheet exposures of the entity. The capital category assigned to an
entity can also be affected by qualitative judgments made by regulatory agencies
about the risk inherent in the entity's activities that are not part of the
calculated ratios.
There are five capital categories defined in the regulations, ranging
from well capitalized to critically undercapitalized. Classification of a bank
in any of the undercapitalized categories can result in actions by regulators
that could have a material effect on a bank's operations. At June 30, 1998 and
1997, the Bank is categorized as well capitalized and met all subject capital
adequacy requirements. There are no conditions or events since June 30, 1998
that management believes has changed the Bank's classification.
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.
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------
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>
Total capital 1 (to risk weighted assets) $6,543 26.2% $1,994 8.0% $2,493 10.0%
Tier I capital 1 (to risk weighted assets) 6,223 25.0 997 4.0 1,496 6.0
Tier I capital 1 (to average assets) 6,223 15.1 1,648 4.0 2,060 5.0
</TABLE>
<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>
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
<PAGE>
Note 13 -- Employee Benefit Plans
The Bank is a participant in a pension fund known as the Pentegra
Group. 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, 1998, the date of the latest
actuarial valuation. The plan required contributions in the amount of $2,700,
$13,000 and $15,700 for the years ended June 30, 1998, 1997 and 1996. 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 $12,000,
$10,100 and $9,200 for the years ended June 30, 1998, 1997 and 1996.
As part of the conversion, the Company established an ESOP covering
substantially all employees of the Bank. The ESOP acquired 40,474 (before
restatement for the 2 for 1 stock split discussed in Note 10) 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 $93,000 and $66,000 for the years ended June 30, 1998 and 1997. At June 30,
1998 and 1997, the ESOP had 15,094 and 5,110 allocated shares, 61,096 and 70,314
suspense shares and 4,758 and 5,524 committed-to-be released shares. The fair
value of the unearned ESOP shares at June 30, 1998 was $547,758.
In January 1997, the Company's stockholders approved the Recognition
and Retention Plan and Trust ("RRP"). The RRP may acquire up to 40,474 shares of
the Company's common stock for awards to management. Shares awarded to
management under the RRP vest at a rate of 20 percent at the end of each full 12
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
40,474 shares of the Company's common stock of which 30,356 shares were awarded
to management and recorded as unearned compensation. Expense under the RRP was
$37,000 and $25,000 for the years ended June 30, 1998 and 1997.
Note 14 -- Stock Option Plan
On October 14, 1997, the stockholders approved a stock option plan,
reserving 101,184 shares of Company stock for the granting of options to certain
directors, officers and other key employees of the Company and its subsidiary.
The plan is accounted for in accordance with Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees, and related
interpretations.
<PAGE>
Since the plan's adoption, incentive stock options for 55,000 shares of
common stock have been granted with ten year terms that expire October 13, 2007
and a exercise price of $8.50 per share. These options became exercisable in
full on April 14, 1998. In addition, non-qualified options for 15,000 shares
have been granted with ten year terms that expire October 14, 2007 and a
exercise price of $8.50 per share. These options were exercisable in full on
April 14, 1998. The exercise price of each option was equal to the market price
of the Company's stock on the date of grant; therefore, no compensation expense
was recognized.
Although the Company has elected to follow APB No. 25, SFAS No. 123
requires pro forma disclosures of net income and earnings per share as if the
Company had accounted for its employee stock options under that Statement. The
fair value of each option grant was estimated on the grant date using an
option-pricing model with the following assumptions:
1998
----
Risk-free interest rates 6.12%
Dividend yields 1.17%
Volatility factors of
expected market price
of common stock 16.67%
Weighted-average expected
life of the options 6 years
Under SFAS No. 123, compensation cost is recognized in the amount of
the estimated fair value of the options and amortized to expense over the
options' vesting period. The pro forma effect on net income and earnings per
share of this statement are as follows:
1998
----
Net income As reported $393
Pro forma 238
Basic earnings
per share As reported .47
Pro forma .28
Diluted earnings
per share As reported .47
Pro forma .28
The following is a summary of the status of the Company's stock option plan and
changes in that plan as of and for the year ended June 30, 1998:
Year Ended June 30 1998
Weighted-
Average
Options Shares Exercise Price
- -------------------------------------------------------
Outstanding,
beginning of year
Granted 70,400 $8.50
Forfeited (400) 8.50
------
Outstanding and
exercisable,
end of year 70,000 8.50
======
Weighted-average fair
value of options
granted during the year $2.41
As of June 30, 1998, the options outstanding have exercise prices of
$8.50 and a weighted-average remaining contractual life of approximately 10
years. There were 31,184 shares available for grant at June 30, 1998.
<PAGE>
Note 15 -- Earnings Per Share
Earnings per share were computed as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1998
--------------------------------------------------
Weighted Per-
Net Average Share
Income Shares Amount
--------------------------------------------------
Basic Earnings Per Share
<S> <C> <C> <C>
Income available to common stockholders $393 837,087 $.47
Effect of Dilutive
Securities
Stock options and awards 4,737
---- ------- ----
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $393 841,824 $.47
==== ======= ====
Year Ended June 30, 1997
--------------------------------------------------
Weighted Per-
Net Average Share
Income Shares Amount
--------------------------------------------------
Basic Earnings Per Share
Income available to common stockholders $252 923,972 $.27
Effect of Dilutive
Securities
Stock options and awards 1,864
---- ------- ----
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $252 925,836 $.27
==== ======= ====
</TABLE>
<PAGE>
Note 16 -- 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.
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------
Carrying Fair Carrying Fair
June 30 Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $3,802 $3,802 $ 4,184 $4,184
Securities available for sale 1,918 1,918 2,102 2,102
Loans, net 33,959 34,496 34,117 33,703
Stock in FHLB 500 500 500 500
Interest receivable 264 264 269 269
Liabilities
Deposits 26,649 26,662 26,157 26,281
FHLB advances 8,200 8,215 9,000 9,018
Off-Balance Sheet Assets
Commitments to extend credit
</TABLE>
<PAGE>
Note 17 -- Condensed Financial Information (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 1998 1997
- ------------------------------------------------------------------
Assets
Cash $ 12 $ 25
Securities available for sale 1,213 1,205
Premises and equipment 15 15
Investment in subsidiary 6,230 5,890
Other assets 39 103
------ ------
Total assets $7,509 $7,238
====== ======
Liabilities
Other liabilities $ 3 $ 41
Stockholders' Equity 7,506 7,197
------ ------
Total liabilities and stockholders' equity $7,509 $7,238
====== ======
Condensed Statement of Income
June 30 1998 1997
- -------------------------------------------------
Income
Interest income $ 137 $ 118
Other income 141 36
----- -----
Total income 278 154
----- -----
Expenses
Salaries and
employee benefits 60 31
Legal and professional fees 64 97
Other expenses 56 34
----- -----
Total expenses 180 162
----- -----
Income (loss) before
income tax benefit
and equity in undistributed
income of subsidiary 98 (8)
Income tax benefit (expense) 7 (11)
----- -----
Income before equity in
undistributed income
of subsidiary 91 3
Equity in undistributed
income of subsidiary 302 249
----- -----
Net Income $ 393 $ 252
===== =====
<PAGE>
Condensed Statement of Cash Flows
June 30 1998 1997
- -------------------------------------------------------
Operating Activities
Net income $ 393 $ 252
Adjustments to reconcile net
income to net cash provided
by operating activities (289) (258)
Net cash provided (used)
by operating activities 104 (6)
Investing Activities
Purchases of securities
available for sale (1,848) (2,216)
Proceeds from sales of
securities available for sale 1,895 1,080
Purchases of premises
and equipment (1) (16)
Net cash provided
(used) by investing
activities 46 (1,152)
Financing Activities
Sale of stock 4,578
Dividends (85) (69)
Purchase of stock (78) (565)
Capital contribution to Bank (2,471)
Contribution of RRP shares (290)
Net cash provided (used)
by financing activities (163) 1,183
Net Change in Cash (13) 25
Cash at Beginning of Year 25
Cash at End of Year $ 12 $ 25
Additional Cash Flows and
Supplementary Information
Common stock issued to
ESOP leveraged with an
employer loan $ 404
<PAGE>
Directors and Officers
<TABLE>
<CAPTION>
Board of Directors
<S> <C> <C>
Frank R. Stewart Charles W. Chambers John T. Gillaspy
Chairman of the Board Secretary President and
President, BSF, Inc. Chief Executive Officer,
Spencer Evening World, Inc.
Kurt J. Meier Robert W. Raper Tad Wilson
President Vice Chairman of the Board Co-owner, Metropolitan
Owen Community Bank, s.b. Printing Services, Inc.
Stephen Parrish Kurt D. Rosenberger Gary Michael Monnett
Funeral Director, Vice President Mike Monnett, CPA
West-Parrish-Pedigo Funeral Home Owen Community Bank, s.b.
</TABLE>
================================================================================
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 Charles W. Chambers
Chairman President and Secretary
Chief Executive Officer
Kurt D. Rosenberger Judith A. Terrell Christie Leach
Vice President and Branch Manager and Assistant Branch Manager
Chief Financial Officer Mortgage Loan Officer and Mortgage Loan Officer
Nancy Logan Carole Eder Lisa K. Sherfield
Accounting Manager Teller Supervisor Mortgage Loan Officer
Julie A. Hedden Lisa Wilson
Mortgage Loan Officer Compliance and
Special Projects
<PAGE>
Directors and Officers
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 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 70) 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 48) 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 58) 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.
Gary Michael Monnett, (age 38) was named a director in 1998. He has
been a self-employed certified public accountant since 1993, providing tax and
accounting services to individuals and small business
Robert W. Raper, (age 81) 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 40) is a director and 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 73) 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 63) 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.
<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 24,
1998, there were approximately 540 holders of the Holding Company's Common Stock
including shares held in broker accounts.
Since the Holding Company has limited independent operations and no
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 Company (as calculated for
federal income tax purposes), will be taxable as ordinary income to the
recipient and will not be deductible by the Company. 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, of which there were
none.
The stock information provided below has been adjusted to reflect the
2-for-1 stock split effective January 6 ,1998.
Stock Price Dividends
Quarter Ended High Low Per Share
- -----------------------------------------------------------------
September 30, 1996 $ 6 7/8 $ 4 7/8 .---
December 31, 1996 6 5/8 5 7/8 $.025
March 31, 1997 7 3/4 6 3/8 .025
June 30, 1997 7 7/8 7 1/4 .025
September 30, 1997 8 5/8 7 7/16 .025
December 31, 1997 9 1/4 8 1/8 .025
March 31, 1998 9 3/4 8 3/4 .025
June 30, 1998 9 1/2 8 7/16 .025
================================================================================
<PAGE>
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 Auditor
Olive LLP
201 N. Illinois
Indianapolis, Indiana 46204
Shareholder and General Inquiries
The Company is required to file an Annual Report on Form 10-K for its
fiscal year ended June 30, 1998 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
Home Page and E-mail
www.hfbancorp.com
[email protected]
