SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD ____________ FROM TO
_________________
Commission file number: 0-28510
HOME FINANCIAL BANCORP
(Exact name of registrant specified in its charter)
Indiana 35-1975585
- -------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
279 East Morgan Street
Spencer, Indiana 47460
(Address of principle executive offices,
including Zip Code)
(812) 829-2095
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's common stock, without par value,
outstanding as of February 1, 1999 was 890,982.
<PAGE>
Home Financial Bancorp
Form 10-Q
Index
Page No.
Forward Looking Statements 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement of
Financial Condition as of December 31,
1998 and June 30, 1998 (Unaudited) 4
Consolidated Condensed Statement of
Income for the three months ended December 31,
1998 and 1997 (Unaudited) 5
Consolidated Condensed Statement of
Income for the six months ended December 31,
1998 and 1997 (Unaudited) 6
Consolidated Condensed Statement of Changes in
Shareholders' Equity for the six months
ended December 31, 1998 and 1997 (Unaudited) 7
Consolidated Condensed Statement of
Cash Flows for the six months ended December
31, 1998 and 1997 (Unaudited) 8
Notes to Consolidated Condensed Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-Q are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-Q
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
savings and financial institutions; substantial changes in financial markets;
changes in real estate values and the real estate market; regulatory changes; or
unanticipated results in pending legal proceedings.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 401,730 $ 345,041
Short-term interest-bearing deposits 4,785,301 3,457,062
------------ ------------
Total cash and cash equivalents 5,187,031 3,802,103
Investment securities available for sale 8,745,277 1,917,735
Loans 33,925,462 34,278,725
Allowance for loan losses (316,235) (319,595)
------------ ------------
Net loans 33,609,227 33,959,130
Real estate acquired for development 12,721 20,758
Premises and equipment 2,048,122 1,687,355
Federal Home Loan Bank Stock 610,000 500,000
Other assets 1,348,220 672,662
------------ ------------
Total assets $ 51,560,598 $ 42,559,743
============ ============
LIABILITIES
Deposits $ 32,139,266 $ 26,648,610
Federal Home Loan Bank advances 12,200,000 8,200,000
Other liabilities 29,262 205,227
------------ ------------
Total liabilities 44,368,528 35,053,837
------------ ------------
SHAREHOLDERS' EQUITY Preferred stock, without par value:
Authorized and unissued - 2,000,000 shares - - - - - - - -
Common stock, without par value:
Authorized - 5,000,000 shares
Issued - 890,982 shares and 929,052 4,246,811 4,372,621
Retained earnings 3,548,617 3,689,484
Unearned Compensation RRP (206,067) (228,169)
Unearned ESOP shares (284,073) (304,310)
Accumulated other comprehensive income (loss) (113,218) (23,720)
------------ ------------
Total shareholders' equity 7,192,070 7,505,906
------------ ------------
Total liabilities and shareholders' equity $ 51,560,598 $ 42,559,743
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------
1998 1997
-------- --------
(Unaudited)
Interest income
<S> <C> <C>
Loans $834,475 $828,830
Interest-bearing deposits 44,945 48,073
Investment securities 60,436 21,078
Other interest and dividend income 15,360 10,082
-------- --------
Total interest income 955,216 908,063
Interest expense
Deposits 363,769 317,359
Advances from Federal Home Loan Bank and
other borrowings 115,111 144,664
-------- --------
Total interest expense 478,880 462,023
-------- --------
Net interest income 476,336 446,040
Provision for losses on loans 12,000 25,500
-------- --------
Net interest income after provision for losses on loans 464,336 420,540
-------- --------
Other income
Service charges on deposit accounts 18,762 14,043
Loss on sale of real estate acquired for
development 7,945
6,661
Gain on sales of securities available for sale 51,433
3,138
Other income 15,138 21,620
-------- --------
Total other income 43,699 95,041
-------- --------
Other expenses
Salaries and employee benefits 217,972 181,163
Net occupancy expenses 29,053 20,093
Equipment expenses 26,552 14,842
Deposit insurance expense 3,831 4,095
Computer processing fees 25,823 19,883
Legal and accounting fees 31,120 48,255
Other expenses 125,720 96,634
-------- --------
Total noninterest expenses 460,071 384,965
-------- --------
Income before income taxes 47,964 130,616
Income tax expense 20,546 51,303
-------- --------
Net income $ 27,418 $ 79,313
======== ========
Basic and diluted net income per share $ .03 $ .10
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------
1998 1997
-------- --------
(Unaudited)
Interest income
<S> <C> <C>
Loans $1,651,416 $1,648,517
Interest-bearing deposits 88,909 83,618
Investment securities 77,412 47,355
Other interest and dividend income 31,615 20,479
---------- ----------
Total interest income 1,849,352 1,799,969
Interest expense
Deposits 693,669 640,183
Advances from Federal Home Loan Bank and
other borrowings 240,735 272,729
---------- ----------
Total interest expense 934,404 912,913
---------- ----------
Net interest income 914,948 887,056
Provision for losses on loans 24,000 51,000
---------- ----------
Net interest income after provision for losses on loans 890,948 836,056
---------- ----------
Other income
Service charges on deposit accounts 35,788 26,668
Gain (loss) on sale of real estate acquired for
development 7,667
6,148
Gain (loss) on sales of securities available for sale 84,058
3,326
Other income 21,190 35,151
---------- ----------
Total other income 66,452 153,544
---------- ----------
Other expenses
Salaries and employee benefits 429,364 361,659
Net occupancy expenses 52,483 41,998
Equipment expenses 39,257 32,080
Deposit insurance expense 7,769 7,847
Computer processing fees 49,087 39,342
Legal and accounting fees 51,418 72,503
Other expenses 209,355 169,222
---------- ----------
Total noninterest expenses 838,733 724,651
---------- ----------
Income before income taxes 118,667 264,950
Income tax expense 49,990 105,373
---------- ----------
Net income $ 68,677 $ 159,577
========== ==========
Basic and diluted net income per share $ .08 $ .19
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
Form 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Balance, July 1 $ 7,505,906 $ 7,197,134
Comprehensive income
Net income 68,677 159,577
Other comprehensive income, net of tax
Unrealized gain (loss) on securities, net of
reclassification adjustments 86,902
(89,498)
----------- -----------
Other comprehensive income (loss) 246,479
(20,821)
Common stock repurchased (304,029) (73,454)
Fair value adjustment of ESOP shares 28,338
(488)
ESOP shares earned 39,718 20,236
RRP shares earned 22,102 18,140
Cash dividends (46,723)
(50,318)
----------- -----------
Balance, December 31 $ 7,192,070 $ 7,390,150
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------------
1998 1997
----------- -----------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 68,677 $ 159,577
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for loan losses 24,000 51,000
Depreciation 65,070 42,257
Investment securities gains (84,058)
(3,326)
Change in interest receivable (19,392) (13,112)
Fair value adjustment of ESOP shares 28,338
488
Amortization of unearned ESOP shares 20,237 20,236
Amortization of unearned RRP shares 22,102 18,140
Other adjustments
(142,720) 4,783
----------- -----------
Net cash provided by operating activities 35,136 253,385
----------- -----------
INVESTING ACTIVITIES
Purchases of securities available for sale (7,689,758) (1,326,242)
Proceeds from sales of securities available for sale 565,389 1,103,937
Proceeds from maturities and repayments of investment
securities available for sale 148,241 434,741
Net changes in loans 118,503 (841,774)
Purchases of Federal Home Loan Bank of Indianapolis
Stock (110,000) --
----------- -----------
Purchases of premises and equipment (425,837) (185,316)
Proceeds from real estate owned sales 207,400 145,616
Proceeds from sale of real estate acquired for
Development 8,037 --
Disbursements for low-income housing investment (608,492) --
----------- -----------
Net cash used by investing activities (7,786,517) (669,038)
----------- -----------
FINANCING ACTIVITIES Net change in:
NOW and savings accounts 1,668,489 323,057
Certificates of deposit 3,822,167 (571,128)
Proceeds from Federal Home Loan Bank advances 6,000,000
2,000,000
Repayment of Federal Home Loan Bank advances (2,000,000) (1,000,000)
Purchase of stock (304,029) (73,454)
Cash dividends (50,318) (46,723)
----------- -----------
Net cash provided by financing activities 9,136,309 631,752
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------
1998 1997
---------- ----------
(Unaudited)
NET CHANGE IN CASH AND CASH EQUIVALENTS
<S> <C> <C>
1,384,928 938,512
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
3,802,103 1,385,979
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD
$5,187,031 $2,324,491
========== ==========
ADDITIONAL CASH FLOWS AND SUPPLEMENTARY INFORMATION
Interest paid $ 934,404 $ 797,146
Income tax paid
170,000 129,000
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A: Basis of Presentation
The unaudited interim consolidated condensed financial statements include the
accounts of Home Financial Bancorp ("Company") and its subsidiary, Owen
Community Bank, s.b. ("Bank").
The unaudited interim consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and disclosures required by generally accepted
accounting principles for complete financial statements. The significant
accounting policies followed by the Company and Bank for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting. All adjustments, consisting of normal recurring
adjustments, which in the opinion of management are necessary for a fair
presentation of the results for the periods reported, have been included in the
accompanying consolidated financial statements. The results of operations for
the six months ended December 31, 1998 are not necessarily indicative of those
expected for the remainder of the year.
NOTE B: Stock Option Plan
On July 23, 1997, the Board of Directors approved a Stock Option Plan.
Stockholders approved the Plan on October 14, 1997. Under the Stock Option Plan,
stock options representing an aggregate of up to 10% of common stock sold in the
conversion may be granted to directors, officers and other key employees of the
Company or its subsidiary. Under the Stock Option Plan 71,600 incentive stock
options have been granted to directors, executive officers, and other employees.
NOTE C: Earnings Per Share
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
December 31, 1998 1997
----------------------------------------- ----------------------------------------
Weighted Per Weighted Per
Net Average Share Net Average Share
Income Shares Amount Income Shares Amount
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Income Available to
Common Stockholders $ 27,418 808,443 $0.03 $ 79,313 831,938 $0.10
============= ========
Effect of Dilutive Securities 0 30 0 1,704
---------------------------- ---------------------------
Diluted Earnings Per Share:
Income Available to
Common Stockholders $ 27,418 808,473 $0.03 $ 79,313 833,642 $0.10
========================================= ========================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended
December 31, 1998 1997
---------------------------------------- ----------------------------------------
Weighted Per Weighted Per
Net Average Share Net Average Share
Income Shares Amount Income Shares Amount
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Income Available to
Common Stockholders $ 68,677 822,383 $ 0.08 $ 159,577 831,036 $ 0.19
============= =============
Effect of Dilutive Securities 0 606 0 2,517
--------------------------- ---------------------------
Diluted Earnings Per Share:
Income Available to
Common Stockholders $ 68,677 822,989 $ 0.08 $ 159,577 833,553 $ 0.19
======================================== ========================================
</TABLE>
NOTE D: 2 for 1 Stock Split
On December 9, 1997, the Company announced a 2 for 1 stock split, under which
every share of its Common Stock outstanding at the close of business on December
23, 1997 was converted into two shares of Common Stock. The additional
certificates were distributed to shareholders on January 6, 1998. As a result of
the stock split, the number of shares outstanding increased from 464,526 to
929,052 shares. For presentation in this report, all share and per share data
have been restated for the 2 for 1 stock split.
NOTE E: Other Comprehensive Income
<TABLE>
<CAPTION>
1998
Tax
For the Six Months Ended Before-Tax (Expense) Net-of-Tax
December 31 Amount Benefit Amount
Unrealized gains (losses) on securities:
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during the year $ (144,874) $ 57,385 $ (87,489)
Less: reclassification adjustment for gains (losses) realized in
net income
3,326 (1,317) 2,009
------------ ------------- -------------
Other comprehensive income (loss) $ (148,200) $ 58,702 $ (89,498)
=============================================
1997
Tax
For the Six Months Ended Before-Tax (Expense) Net-of-Tax
December 31 Amount Benefit Amount
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year $ 227,959 $ (90,294) $ 137,665
Less: reclassification adjustment for gains (losses) realized in
net income
84,058 (33,295) 50,763
------- -------- ------
Other comprehensive income (loss) $ 143,901 $ (56,999) $ 86,902
================================================
</TABLE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
Home Financial Bancorp ("Company") is an Indiana corporation which was organized
in February 1996 to become a bank holding company upon its acquisition of all
the capital stock of Owen Community Bank, s.b. ("Bank") in connection with the
Bank's conversion from mutual to stock form. The Company became the Bank's
holding company at July 1, 1996.
The Bank has been, and continues to be, a community-oriented financial
institution offering selected financial services to meet the needs of the
communities it serves. The Bank attracts deposits from the general public and
historically has used such deposits, together with other funds, primarily to
originate one-to-four-family residential loans. The Bank also originates
commercial mortgage, consumer and, to a lesser extent, construction loans. The
Bank opened its first branch office in the Putman County Town of Coverdale,
Indiana on October 2, 1998. The Bank serves communities in Owen, Putnam and
surrounding counties through its main office located in Spencer, Indiana, and
its branch in Cloverdale, Indiana.
BSF, Inc. ("BSF") is the wholly owned subsidiary of the Bank which engages in
purchasing and developing large tracts of real estate. After land is purchased,
BSF subdivides the real estate into lots, makes improvements such as streets and
sells individual lots, usually on contract. In connection with the Bank's
conversion to an Indiana stock savings bank, the FDIC required the Bank to cease
BSF's land acquisitions, divest BSF's non-conforming real estate holdings by
November 16, 2000, and maintain the Bank's capital at levels sufficient to
classify the Bank as a well-capitalized institution. BSF has ceased land
acquisitions and is in process of divesting of its real estate holdings.
On February 2, 1999, the Company and its subsidiary Bank filed applications with
the Office of Thrift Supervision ("OTS") to convert the holding company from a
bank holding company into a savings and loan holding company and convert the
Bank from a State-Chartered Stock Association into a Federal Stock Savings Bank.
Management has applied for the "Charter Flip" in order to permit the Company to
continue its profitable real estate development activities through the Bank's
subsidiary, BSF, Inc. Although management expects to receive approval, there are
no assurances that the OTS will in fact approve these applications. If approved,
the Charter Flip will not involve any changes in ownership or management and
will not require a name change for the Company or the Bank.
The Company's subsidiary Bank entered into a Partnership Agreement ("Agreement")
with Area Ten Development, Inc. (the "General Partner"), a wholly owned
subsidiary of Area 10 Council on Aging of Monroe and Owen Counties, Inc. to
finance construction and development of a low income housing project. The
project will result in a 24-unit apartment complex for senior living. The total
cost of the project will be approximately $1.4 million. The Bank purchased a 99%
limited partnership interest for $732,000. Funds are to be dispersed by
installments during project construction, which was approximately 90% completed
as of December 31, 1998. The General Partner anticipates leasing apartment units
as early as April 1999. The Bank's investment in the project is eligible for
income tax credits over the fifteen-year life of the Agreement.
<PAGE>
Management estimates that the Bank will be able to utilize approximately
$107,000 in low income tax credits annually. However, in order to maximize the
benefit of the tax credits the project must maintain an acceptable occupancy
rate and prove that it qualifies for the tax credits on an annual basis.
Additionally, there are no assurances that changes in tax laws will not affect
the availability of low income tax credits in future years.
The Company's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
its interest-earning assets such as loans and investments, and the costs of the
Company's interest-bearing liabilities, primarily deposits and borrowings.
Results of operations are also dependent upon the level of the Company's
non-interest income, including fee income and service charges, and affected by
the level of its non-interest expenses, including its general and administrative
expenses.
Financial Condition
Total assets increased $9.0 million or 21.1%, to $51.6 million at December 31,
1998 compared to $42.6 million at June 30, 1998. Cash and short-term interest
bearing deposits totaled $4.8 million; an increase of $1.3 million. Investment
securities totaled $8.7 million at December 31, 1998. This is an increase of
$6.8 million compared to June 30, 1998. Total loans decreased $353,000, or 1.0%,
during the past six months, to $33.9 million.
During the six months since June 30, 1998, premises and equipment increased
$361,000 to $2.0 million. This increase was due to costs to complete
construction and equip the Bank's first-ever branch office facility. The branch,
which is located in the southern Putnam County town of Cloverdale, officially
opened for business on October 2, 1998.
Management is pleased with the initial results from branch activities. Despite
only operating for three months, new deposit accounts from the branch have
contributed to a significant overall increase in deposits. At December 31, 1998,
total deposits were $32.1 million. Compared to June 30, 1998, deposits posted an
increase of $5.5 million or 20.6%. Borrowings at the Federal Home Loan Bank
("FHLB") increased $4.0 million to $12.2 million as of December 31, 1998.
Shareholders' equity was $7.2 million, or 13.9% of total assets at December 31,
1998, compared to $7.5 million or 17.6% of total assets as of June 30 1998.
During the six months ended December 31, 1998, shareholders' equity was reduced
by quarterly dividends, common stock repurchases, and changes in the market
value of securities available for sale. During the second quarter, the Company
purchased 12,070 shares of common stock pursuant to a 5% stock repurchase plan
announced on September 8, 1998. On August 21, 1998, the Company repurchased
26,000 shares of its common stock on the open market, completing a 10% common
stock repurchase plan that was originally announced on March 10, 1997. The
Company's net book value at December 31, 1998 was $8.07 per share based on
890,982 shares outstanding. This compares to book values per share of $8.02 and
$8.08 at September 30, 1998 and June 30, 1998, respectively.
<PAGE>
Comparison of Operating Results for the Three-Month Periods Ended December 31,
1998 and 1997
Net income for the second fiscal quarter ended December 31, 1998 was $27,000, or
$.03 diluted earnings per common share. Net income for the same period last year
was $79,000, or $.10 diluted earnings per common share. Net interest income
before the provision for loan losses was $476,000 for the three months ended
December 31, 1998, compared to $446,000 for the three months ended December 31,
1997.
Total non-interest income totaled $44,000 for the quarter ended December 31,
1998, compared to $95,000 for the same period in 1997; a 54.0% decrease. Most of
this decrease can be traced to decreased gains on the sale of investment
securities. For the three months ended December 31, 1998, income from the sale
of securities was $3,000, compared to $51,000 for the same period in 1997.
Earnings from the Bank's subsidiary, BSF, Inc., through the sale of real estate
acquired for development totaled $7,000 for the quarter. In connection with the
Bank's conversion to an Indiana stock savings bank, the FDIC required the Bank
to terminate this business activity by November 2000. However, in order to
continue this activity, which has proven to be a reliable source of income in
the past, on February 2, 1999, management applied to the OTS for conversion to a
Federal Stock Savings Bank charter which permits such activities.
Total non-interest expense was $460,000 for the quarter ended December 31, 1998,
compared to $385,000 for the same period last year. Additional employees to
staff the new branch office contributed to the overall increase in non-interest
expense. Salaries and employee benefits totaled $218,000 for the second quarter
of fiscal 1999, compared to $181,000 for the same period a year earlier; a 20.3%
increase. Additional increases in non-interest expense can primarily be
attributed to the new branch. Compared to a year earlier, equipment expense
increased $12,000 or 78.9%, net occupancy expenses (including depreciation
expense) increased $9,000 or 44.6%, and computer processing fees increased
$6,000 or 29.9%.
Income tax expense for the second fiscal quarter of 1999 was $21,000, compared
to $51,000 for the second fiscal quarter of 1998. The increase was due to the
decrease in pre-tax income.
Comparison of Operating Results for the Six-Month Periods Ended December 31,
1998 and 1997
Fiscal year-to-date net income totaled $69,000 or $.08 diluted earnings per
common share, compared to $160,000 or $.19 diluted earnings per common share for
the same period of fiscal 1997. Lower year-to-date earnings are attributed to a
drop in investment securities income and higher expenses associated with opening
the Bank's first branch. For the six months ended December 31, 1998, net
interest income before provisions for loan losses totaled $915,000 compared to
$887,000 for the six months ended December 31, 1997; a 3.1% increase.
While the Bank has experienced significant loan pay-offs and loan refinancing
activity by borrowers seeking lower, primarily fixed rate loans, interest income
from loans has not decreased. For the six-month period ended December 31, 1998,
loan interest income increased $3,000 to $1.7 million, compared to the same
period a year earlier.
Provisions for loan losses totaled $24,000 during the six months ended December
31, 1998, compared to $51,000 during the same period last year. At December 31,
1998 and June 30, 1998, the allowance for loan losses was .93% of total loans,
compared to .79% at December 31, 1997.
<PAGE>
Non-interest income totaled $66,000 for the first two quarters of fiscal 1999
compared to $154,000 for the same period in 1997; a 56.7% decrease. The largest
portion of this decrease is attributed to a sharp decline in realized gains on
the sale of investment securities. For the six months ended December 31, 1998,
income from the sale of securities totaled $3,000, compared to $84,000 for the
same period last year. New deposit products and services coupled with an
increase in new accounts increased deposit related service charge income. Fiscal
year-to-date 1999 service charges on deposit accounts amounted to $36,000,
compared to $27,000 for the first six months of fiscal 1998; an increase of
34.2%.
Total non-interest expense increased $114,000 or 15.7% to $839,000 for the six
months ended December 31, 1998, compared to $725,000 for the six months ended
December 31, 1997. For the first half of fiscal 1999, salaries and employee
benefits increased 18.7% to $429,000, compared to $362,000 the same period last
year. Like employee expenses, several other non-interest expense categories
increased primarily due to activities related to the new branch operations. For
the six months ended December 31, 1998, net occupancy expenses increased by
$10,000 or 25.0%, equipment expense increased by $7,000 or 22.4%, and computer
processing expense increased by $10,000 or 24.8%, compared to the same period a
year earlier. In contrast, legal and professional fees decreased $21,000 or
29.1% for the current six-month period compared to last year. This decrease is
attributed to experience gained by Company employees regarding certain reporting
requirements previously performed with heavy reliance on outside professionals.
Year-to-date income tax expense at the end of the second fiscal quarter of 1999
was $50,000, compared to $105,000 for the same period in fiscal year 1998. The
decreased income tax was a consequence of decreased earnings this year versus
the comparable period last year.
Asset Quality
Management has established valuation allowances sufficient to absorb estimated
losses or exposure inherent in the Bank's asset structure. Adjustments to these
allowances reflect management's assessment of various risk factors which
include, but are not limited to changes in the type and volume of the lending
portfolio, level and trend of loan delinquencies, size of individual credit
exposure, and effectiveness of collection efforts. Loan loss provisions were
$12,000 and $26,000 for the quarters ended December 31, 1998 and 1997
respectively. For the six-month periods ended December 31, 1998 and 1997, loan
loss provisions were $24,000 and $51,000, respectively. At December 31, 1998,
after net losses and recoveries, the allowance for loan losses was $316,000 or
0.93% of total loans, compared to $320,000 or 0.93% at June 30, 1998.
Management considered the allowance for loan losses at December 31, 1998, to be
adequate to cover estimated losses inherent in the loan portfolio at that date,
including probable losses that could be reasonably estimated. Such belief is
based upon an analysis of loans currently outstanding, past loss experience,
current economic conditions and other factors and estimates that are subject to
change and re-evaluation over time.
<PAGE>
The following table compares activity in the allowance for loan losses for the
six months ended December 31, 1998 and 1997.
1998 1997
-------- --------
Balance, July 1, 1998 $319,595 $231,397
Provision for loan losses 24,000 51,000
Recoveries -- --
Loans charged off 27,360 7,000
-------- --------
Balance, December 31 $316,235 $275,397
======== ========
Total non-performing loans decreased to $210,000 or 0.6% of total loans at
December 31, 1998 compared to $286,000 or 0.8% of total loans at June 30, 1998.
Real estate acquired through foreclosure totaled $221,000 at December 31, 1998,
compared to $213,000 at June 30, 1998. No other repossessed assets existed at
December 31, 1998, compared to $8,000 at June 30, 1998. Total non-performing
assets were $431,000 or 0.8% of assets at December 31, 1998.
Liquidity and Capital Resources
The Company's most liquid assets are cash and interest bearing deposits. The
levels of these assets are dependent on the Company's operating, financing and
investing activities. At December 31, 1998 and June 30, 1998, cash and
interest-bearing deposits totaled $5.2 million and $3.8 million, respectively.
The Company's primary sources of funds include principal and interest payments
on loans, loan maturities, and repayments on investment securities. While
scheduled loan repayments and proceeds from investment securities are relatively
predictable, deposit flows and early repayments are more influenced by interest
rates, general economic conditions and competition. The Company attempts to
price its deposits to meet asset-liability objectives and local market
conditions.
If the Company requires funds beyond its ability to generate them internally, it
has the ability to borrow funds from the FHLB of Indianapolis. Federal law
limits an institution's borrowings from the FHLB to 20 times the amount paid for
capital stock in the FHLB, subject to regulatory capital requirements. As a
policy matter, however, the FHLB of Indianapolis typically limits the amount of
borrowings from the FHLB to 50% of adjusted assets (total assets less
borrowings). Based on the percentage of Company assets classified as "qualified
investments" excess borrowing capacity was approximately $6.5 million at the end
of the second quarter. However, under limits adopted by Board resolution of the
subsidiary Bank, the Company had $3.8 million of unused credit available from
the FHLB. At December 31, 1998, borrowing from the FHLB totaled $12.2 million, a
$4.0 million increase from six months earlier.
Shareholders' equity was $7.2 million or 13.9% of total assets at December 31,
1998, compared to $7.5 million or 17.7% of total assets at June 30, 1998. Book
value at December 31, 1998 was $8.07 per share based on 890,982 outstanding
shares. Book value per common share at September 30, 1998 and June 30, 1998 was
$8.02 and $8.08, respectively. All fully phased-in regulatory capital
requirements for the Bank are currently met. In connection with the Bank's
conversion to a state savings bank, the FDIC imposed heightened capital
requirements on the Bank because of the impermissible real estate development
activities of the Bank's subsidiary. The FDIC currently requires that the Bank
maintain capital (after deduction of its investment in its subsidiary) at levels
sufficient for the Bank to be classified as a well-capitalized institution.
<PAGE>
The Bank's actual and required capital amounts (in thousands) and ratios were as
follows as of December 31, 1998.
<TABLE>
<CAPTION>
Required For Required To Be Well
Actual Adequate Capital* Capitalized*
----------- ----------- ----------- ---------- ----------- -----------
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total capital *(to risk weighted assets) $6,609 24.1% $2,190 8.0% $2,738 10.0%
Tier 1 capital *(to risk weighted assets) 6,293 23.0% 1,095 4.0% 1,643 6.0%
Tier 1 capital *(to total assets) 6,293 12.4% 2,028 4.0% 2,535 5.0%
</TABLE>
*As defined by the regulatory agencies
Effect of Inflation and Changing Prices
The Company's asset and liability structure is substantially different from that
of an industrial company in that most of its assets and liabilities are monetary
in nature. Management believes the impact of inflation on financial results
depends upon the Company's ability to react to changes in interest rates and, by
such reaction, reduce the inflationary impact on performance. Interest rates do
not necessarily move in the same direction at the same time, or at the same
magnitude, as the prices of other goods and services. Management relies on its
ability to manage the relationship between interest-sensitive assets and
liabilities to protect against wide interest rate fluctuations, including those
resulting from inflation.
The Year 2000 Issue
Management and the Board of Directors recognize and understand Year 2000 ("Y2K")
risk, are active in overseeing corrective efforts, and have ensured 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. A significant portion of the testing phase has been completed.
Remaining tests are scheduled to be completed by March 31, 1999.
Management believes that 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. The
Company participated in a series of extensive Y2K tests that use the Company's
specific computer applications and customer data. In addition, an information
technology professional is assisting with testing in-house systems and third
party vendor applications. Substantially all testing for mission-critical
applications was completed as of December 31, 1998.
During the first half of calendar 1999, management will modify or replace
internal system components based on the results of testing. In addition, over
the next few months management will refine and expand detailed contingency
plans. The Company has made, and will continue to make, investments in its
systems and applications to ensure, to the degree possible, Y2K compliance. At
this time, management is aware of the need for some minor equipment or software
changes.
<PAGE>
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. For the six months ended December 31,
1998, direct costs incurred related to addressing Y2K compliance were
approximately $29,500. The estimated direct costs for replacing non-compliant
hardware, participating in testing services offered by On-Line Financial
Services, and contracting for in-house testing assistance with Y2K issues will
be less than $50,000 for fiscal year 1999. This estimate does not include the
cost of salaries for existing staff members involved in planning, testing and
reporting on Y2K issues.
Although management believes it is taking the necessary steps to address the Y2K
compliance issue, no assurances can be given that some problems will not occur
or that the Company will not incur significant additional expenses in future
periods. In the event that the Company is ultimately required to purchase
replacement computer systems, programs and equipment, or to incur substantial
expenses to make its current systems, programs and equipment Y2K compliant, its
financial position and results of operations could be adversely impacted.
Amounts expensed in fiscal 1997 and 1998 were immaterial.
Item 3: Quantitative and Qualitative Disclosures About Market Risk.
Asset/Liability Management
The Bank's profitability is dependent to a large extent upon its net interest
income, which is the difference between its interest income on interest-earning
assets, such as loans and securities, and its interest expense on
interest-bearing liabilities, such as deposits and borrowings. The Bank, like
other financial institutions, is subject to interest rate risk to the degree
that its interest-earning assets reprice differently than its interest-bearing
liabilities. The Bank manages its mix of assets and liabilities with the goals
of limiting its exposure to interest rate risk, ensuring adequate liquidity, and
coordinating its sources and uses of funds.
Management seeks to control the Bank's 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. Management has adopted formal policies and
practices to monitor and manage interest rate risk exposure. As part of this
effort, management uses the market value ("MV") methodology to gauge interest
rate risk exposure.
Management believes that the MV methodology overcomes three shortcomings of the
typical maturity gap methodology. First, it does not use arbitrary repricing
intervals and accounts for all expected future cash flows; weighing each by its
appropriate discount factor. Second, because the MV method projects cash flows
of each financial instrument under different interest-rate environments, it can
incorporate the effect of embedded options on an institution's interest rate
risk exposure. Third, it allows interest rates on different instruments to
change by varying amounts in response to a change in market interest rates,
resulting in more accurate estimates of cash flows.
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 this
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>
At September 30, 1998, the most recent available analysis of the subsidiary
Bank's interest rate risk position, it was estimated that the Bank's MV would
decrease 4.4% and 15.6% in the event of 200 and 400 basis point increases in
market interest rates respectively, compared to 6.7% and 24.8% for the same
increases at September 30, 1997. The Bank's MV at September 30, 1998 would
decrease 9.3% and 13.8% 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 decreased MV 6.1% and 8.6% respectively.
Presented below, as of September 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 rates.
September 30, 1998
Market Value Summary Performance
MV as % of
Present Value (PV)
Change Market Value of Assets
In Rates $ Amount $ Change % Change MV Ratio Change
- -------- -------- -------- -------- -------- ------
(Dollars in thousands)
+400 bp* $5,209 $(960) (15.56)% 13.39% (133)bp
+200 bp 5,901 (268) (4.35) 14.54 (18)bp
0 bp 6,169 0 0.00 14.72 ----
- -200 bp 5,598 (571) (9.26) 13.19 (153)bp
- -400 bp 5,319 (850) (13.78) 12.32 (240)bp
*Basis Points.
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock MV Ratio: MV as % of PV of Assets 14.72%
Exposure Measure: Post-Shock MV Ratio 13.19%
Sensitivity Measure: Change in MV Ratio 153 bp
September 30, 1997
Market Value Summary Performance
MV as % of
Present Value (PV)
Change Market Value of Assets
In Rates $ Amount $ Change % Change MV Ratio Change
- -------- -------- -------- -------- -------- ------
(Dollars in thousands)
+400 bp* $4,291 $(1,416) (24.81)% 11.66% (261)bp
+200 bp 5,323 (383) (6.72) 13.76 (51)bp
0 bp 5,707 0 0.00 14.27 ----
- -200 bp 5,361 (346) (6.06) 13.20 (107)bp
- -400 bp 5,217 (489) (8.57) 12.59 (168) bp
*Basis Points.
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock MV Ratio: MV as % of PV of Assets 14.27%
Exposure Measure: Post-Shock MV Ratio 13.20%
Sensitivity Measure: Change in MV Ratio 107 bp
<PAGE>
Since September 30, 1998, the Bank has experienced several balance sheet
changes. The full impact of these changes on the Bank's interest rate risk
position as compared to the analysis presented above is uncertain. However,
management does not believe these changes will result in an unacceptable overall
interest rate risk position for the Bank.
During the three months ended December 31, 1998, the Bank experienced increases
in deposits, borrowings, and mortgage-backed securities that will alter the
Bank's MV analysis as compared to September 30, 1998. Short-term deposits
increased by $5.2 million, short-term borrowings decreased by $1.0 and were
replaced by $5.0 million in three-year borrowings, and mortgage-backed
securities increased by $6.9 million. The estimated weighted average life of the
new mortgage-backed securities as a group is less than five years.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to Vote of Security Holders.
On October 13, 1998, the Company held its third annual meeting of shareholders
at which time matters submitted to a vote of stockholders included an election
of four Company directors, and ratification of the appointment of Olive LLP as
auditors for the fiscal year ending June 30, 1999.
All four director nominees were elected, and the appointment of auditors was
also approved and ratified by a majority of 903,052 issued and outstanding share
votes. A tabulation of votes cast as to each matter submitted to stockholders is
presented below:
Director Nominees For Against Abstain Non-Vote
----------------- --- ------- ------- --------
Charles W. Chambers - 3 years 767,557 12,050 - 123,445
Gary Michael Monnett - 2 years 751,357 28,250 - 123,445
Stephen Parrish - 3 years 767,507 12,100 - 123,445
Kurt D. Rosenberger - 3 years 767,557 12,050 - 123,445
Other Matters
-------------
Auditors 775,077 3,200 1,330 123,445
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3(1). The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3(1) to the
Registration Statement on Form S-1 (Registration No.
333-1746).
3(2). By-Laws of the Registrant are incorporated by
reference to Exhibit 3(2) to the Report on Form 10-Q
for the period ended March 31, 1997.
27. Financial Data Schedule (filed electronically).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period
ended December 31, 1998.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOME FINANCIAL BANCORP
Date: February 12, 1999 By:/s/ Kurt J. Meier
Kurt J. Meier
President and
Chief Executive Officer
Date: February 12, 1999 By:/s/ Kurt D. Rosenberger
Kurt D. Rosenberger
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001009242
<NAME> Home Financial Bancorp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 402
<INT-BEARING-DEPOSITS> 4,785
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,745
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 33,925
<ALLOWANCE> 316
<TOTAL-ASSETS> 51,561
<DEPOSITS> 32,139
<SHORT-TERM> 0
<LIABILITIES-OTHER> 29
<LONG-TERM> 12,200
<COMMON> 4,247
0
0
<OTHER-SE> 2,945
<TOTAL-LIABILITIES-AND-EQUITY> 51,561
<INTEREST-LOAN> 1,651
<INTEREST-INVEST> 109
<INTEREST-OTHER> 89
<INTEREST-TOTAL> 1,849
<INTEREST-DEPOSIT> 694
<INTEREST-EXPENSE> 934
<INTEREST-INCOME-NET> 915
<LOAN-LOSSES> 24
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 839
<INCOME-PRETAX> 119
<INCOME-PRE-EXTRAORDINARY> 119
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
<YIELD-ACTUAL> 9.10
<LOANS-NON> 210
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 320
<CHARGE-OFFS> 27
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 316
<ALLOWANCE-DOMESTIC> 316
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
