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 MARCH 31, 1999 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 May 1, 1999 was 888,300.
<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 March 31, 1999 and June 30, 1998
(Unaudited) 4
Consolidated Condensed Statement of
Income for the three
months ended March 31, 1999 and 1998
(Unaudited) 5
Consolidated Condensed Statement
of Income for the nine
months ended March 31, 1999 and 1998
(Unaudited) 6
Consolidated Condensed Statement of Changes in
Shareholders' Equity for the nine months ended March
31, 1999 and 1998 (Unaudited) 7
Consolidated Condensed Statement of Cash Flows for the
nine months ended March 31, 1999 and 1998
(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 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
<PAGE>
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-Q are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-Q
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
savings and financial institutions; substantial changes in financial markets;
changes in real estate values and the real estate market; regulatory changes; or
unanticipated results in pending legal proceedings.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, s.b.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
------------------------- --------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 457,016 $ 345,041
Short-term interest-bearing deposits 2,268,242 3,457,062
------------------------- --------------------------
Total cash and cash equivalents 2,725,258 3,802,103
Investment securities available for sale 9,135,890 1,917,735
Loans 35,215,686 34,278,725
Allowance for loan losses (324,235) (319,595)
------------------------- --------------------------
Net loans 34,891,451 33,959,130
Real estate acquired for development 12,721 20,758
Premises and equipment 2,019,512 1,687,355
Federal Home Loan Bank Stock 610,000 500,000
Investment in limited partnership 695,780 10,000
Other assets 570,717 662,662
========================= ==========================
Total assets $50,661,329 $42,559,743
========================= ==========================
LIABILITIES
Deposits $31,268,093 $26,648,610
Federal Home Loan Bank advances 12,200,000 8,200,000
Other liabilities 33,564 205,227
------------------------- --------------------------
Total liabilities 43,501,657 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 - 888,300 shares and 929,052 4,240,813 4,372,621
Retained earnings 3,545,150 3,689,484
Unearned Compensation RRP (192,686) (228,169)
Unearned ESOP shares (273,954) (304,310)
Accumulated other comprehensive income (loss) (159,651) (23,720)
------------------------- --------------------------
Total shareholders' equity 7,159,672 7,505,906
========================= ==========================
Total liabilities and shareholders' equity $50,661,329 $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
March 31,
----------------------------------------------------
1999 1998
------------------------- --------------------------
(Unaudited)
Interest income
<S> <C> <C>
Loans $ 823,635 $ 821,297
Interest-bearing deposits 34,984 42,163
Investment securities 128,050 14,648
Other interest and dividend income 16,928 94,661
------------------------- --------------------------
Total interest income 1,003,597 972,769
Interest expense
Deposits 369,520 316,670
Advances from Federal Home Loan Bank and
other borrowings 176,226 128,982
------------------------- --------------------------
Total interest expense 545,746 445,652
------------------------- --------------------------
Net interest income 457,851 527,117
Provision for losses on loans 7,916 25,500
------------------------- --------------------------
Net interest income after provision for losses on loans 449,935 501,617
------------------------- --------------------------
Other income
Service charges on deposit accounts 21,237 14,361
Loss on sale of real estate acquired for
development ---- (356)
Gain on sales of securities available for sale ---- 4,242
Other income 7,792 15,484
------------------------- --------------------------
Total other income 29,029 33,731
------------------------- --------------------------
Other expenses
Salaries and employee benefits 223,929 195,668
Net occupancy expenses 30,636 20,979
Equipment expenses 27,968 13,728
Deposit insurance expense 4,064 4,027
Computer processing fees 28,649 19,976
Legal and accounting fees 31,945 24,723
Other expenses 84,560 56,157
------------------------- --------------------------
Total noninterest expenses 431,751 335,258
------------------------- --------------------------
Income before income taxes 47,213 200,090
Income tax expense 19,901 66,800
------------------------- --------------------------
Net income $ 27,312 $ 133,290
========================= ==========================
Basic and diluted net income per share $ .03 $ .16
</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>
Nine Months Ended
March 31,
----------------------------------------------------
1999 1998
------------------------- --------------------------
(Unaudited)
Interest income
<S> <C> <C>
Loans $ 2,475,051 $ 2,469,814
Interest-bearing deposits 123,893 125,781
Investment securities 205,462 62,003
Other interest and dividend income 48,543 115,140
------------------------- --------------------------
Total interest income 2,852,949 2,772,738
Interest expense
Deposits 1,063,189 956,853
Advances from Federal Home Loan Bank and
other borrowings 416,961 401,711
------------------------- --------------------------
Total interest expense 1,480,150 1,358,564
------------------------- --------------------------
Net interest income 1,372,799 1,414,174
Provision for losses on loans 31,916 76,500
------------------------- --------------------------
Net interest income after provision for losses on loans 1,340,883 1,337,674
------------------------- --------------------------
Other income
Service charges on deposit accounts 57,025 41,029
Gain on sale of real estate acquired for
Development 6,148 7,311
Gain on sales of securities available for sale 3,326 88,300
Other income 28,982 50,635
------------------------- --------------------------
Total other income 95,481 187,275
------------------------- --------------------------
Other expenses
Salaries and employee benefits 653,293 557,327
Net occupancy expenses 83,119 62,977
Equipment expenses 67,225 45,808
Deposit insurance expense 11,833 11,874
Computer processing fees 77,736 59,318
Legal and accounting fees 83,363 97,226
Other expenses 293,915 225,379
------------------------- --------------------------
Total noninterest expenses 1,270,484 1,059,909
------------------------- --------------------------
Income before income taxes 165,880 465,040
Income tax expense 69,891 172,173
------------------------- --------------------------
Net income $ 95,989 $292,867
========================= ==========================
Basic and diluted net income per share $ .12 $ .35
</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 SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Balance, July 1 $ 7,505,906 $ 7,197,134
Comprehensive income
Net income 95,989 292,867
Other comprehensive income, net of tax
Unrealized gain (loss) on securities, net of
reclassification adjustments (135,931) 13,475
----------- -----------
Other comprehensive income (loss) (39,942) 306,342
Common stock repurchased (323,917) (73,454)
Fair value adjustment of ESOP shares 5,607 18,857
ESOP shares earned 30,356 30,355
RRP shares earned 35,483 29,022
Cash dividends (53,821) (46,723)
----------- -----------
Balance, March 31 $ 7,159,672 $ 7,461,533
=========== ===========
</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>
Nine Months Ended
March 31,
-----------------------------
1999 1998
----------- -----------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 95,989 $ 292,867
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for loan losses 31,916 76,500
Depreciation 107,680 63,839
Investment securities gains (3,326) (88,300)
Change in interest receivable (32,535) 18,486
Fair value adjustment of ESOP shares 5,607 18,857
Amortization of unearned ESOP shares 30,356 30,355
Amortization of unearned RRP shares 35,483 29,022
Other adjustments
118,187 61,775
----------- -----------
Net cash provided by operating activities 389,357 503,401
----------- -----------
INVESTING ACTIVITIES
Purchases of securities available for sale (8,763,423) (1,473,367)
Proceeds from sales of securities available for sale 565,389 1,183,812
Proceeds from maturities and repayments of investment
securities available for sale 640,032 468,069
Net changes in loans (1,143,594) 51,477
Purchases of Federal Home Loan Bank of Indianapolis
Stock (110,000) --
Purchases of premises and equipment (439,837) (428,417)
Proceeds from real estate owned sales 221,229 210,007
Proceeds from sale of real estate acquired for
Development 8,037 --
Disbursements for low-income housing investment (685,780) --
----------- -----------
Net cash provided (used) by investing activities (9,707,947) 11,581
----------- -----------
FINANCING ACTIVITIES
Net change in:
NOW and savings accounts 339,318 618,762
Certificates of deposit 4,280,165 (669,570)
Proceeds from Federal Home Loan Bank advances 6,000,000 2,000,000
Repayment of Federal Home Loan Bank advances (2,000,000) (3,300,000)
Purchase of stock (323,917) (73,454)
Cash dividends (53,821) (46,723)
----------- -----------
Net cash provided by financing activities 8,241,745 (1,470,985)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------------------
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,076,845) (956,003)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,802,103 4,184,303
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,725,258 $ 3,228,300
=========== ===========
ADDITIONAL CASH FLOWS AND SUPPLEMENTARY INFORMATION
Interest paid $ 1,480,150 $ 1,358,566
Income tax paid 195,500 161,910
</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 nine months ended March 31, 1999 are not necessarily indicative of those
expected for the remainder of the year.
NOTE B: Earnings Per Share
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1999 1998
----------------------------------------- ----------------------------------------
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 $ 27,312 812,771 $0.03 $ 133,290 832,665 $ 0.16
====== =======
Effect of Dilutive Securities 0 491 0 7,545
---------------------------- ---------------------------
Diluted Earnings Per Share:
Income Available to
Common Stockholders $ 27,312 813,262 $0.03 $ 133,290 840,210 $ 0.16
====================================== =====================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Nine months Ended
March 31, 1999 1998
---------------------------------------- ----------------------------------------
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 $ 95,989 819,350 $0.12 $ 292,867 831,580 $ 0.35
===== ======
Effect of Dilutive Securities 0 567 0 4,193
--------------------------- ---------------------------
Diluted Earnings Per Share:
Income Available to
Common Stockholders $ 95,989 819,917 $0.12 $ 292,867 835,773 $ .35
==================================== =====================================
</TABLE>
NOTE C: Other Comprehensive Income
<TABLE>
<CAPTION>
1999
Tax
For the Nine Months Ended Before-Tax (Expense) Net-of-Tax
March 31 Amount Benefit Amount
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year $(221,763) $ 87,841 $(133,922)
Less: reclassification adjustment for gains (losses) realized in
net income
3,326 (1,317) 2,009
------ ------- -----
Other comprehensive income (loss) $(225,089) $ 89,158 $(135,931)
=============================================
</TABLE>
<TABLE>
<CAPTION>
1998
Tax
For the Nine Months Ended Before-Tax (Expense) Net-of-Tax
March 31 Amount Benefit Amount
Unrealized gains (losses) on securities:
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during the year $114,560 $(45,377) $69,183
Less: reclassification adjustment for gains (losses) realized in
net income 88,300 (32,592) 55,708
------- -------- ------
Other comprehensive income (loss) $ 26,260 $(12,785) $13,475
===========================================
</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.
On April 30, 1999, the Company and its subsidiary Bank received approval from
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 an Indiana stock savings bank into a federal stock savings bank.
Management pursued these charter changes in order to permit the Company to
continue its profitable real estate development activities through the Bank's
subsidiary, BSF, Inc. The charter changes do not involve any changes in
ownership or management and do 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. Project construction was
substantially completed as of March 31, 1999. However, the project encountered
some delays due to the need for new state health department approval for a
redesigned septic system. The General Partner expects occupancy of the apartment
units to begin on May 15, 1999.
The Bank's investment in the project is eligible for income tax credits over the
fifteen-year life of the Agreement. Management estimates that the Bank will be
able to utilize approximately $107,000 in low income tax credits annually.
However, in order to maximize the benefit of the tax credits the project must
maintain an acceptable occupancy rate and prove that it qualifies for the tax
credits on an annual basis. Although management anticipates an acceptable
occupancy rate will be achieved soon after leasing begins, the Company will
receive no tax-benefit from the project during fiscal year 1999. Additionally,
there are no assurances that changes in tax laws will not affect the
availability of low income tax credits in future years.
<PAGE>
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 $8.1 million or 19.0%, to $50.7 million at March 31, 1999
compared to $42.6 million at June 30, 1998. Cash and short-term interest bearing
deposits totaled $2.7 million; a decrease of $1.1 million. Investment securities
totaled $9.1 million at March 31, 1999. This is an increase of $7.2 million
compared to June 30, 1998. Total loans increased $937,000, or 2.7%, during the
past nine months, to $35.2 million.
During the nine months since June 30, 1998, premises and equipment increased
$332,000 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 early results of branch operations. New deposit
accounts from the branch have contributed to a significant overall increase in
deposits. At March 31, 1999, total deposits were $31.3 million. Compared to June
30, 1998, deposits posted an increase of $4.6 million or 17.3%. Borrowings at
the Federal Home Loan Bank ("FHLB") increased $4.0 million to $12.2 million as
of March 31, 1999.
Shareholders' equity was $7.2 million, or 14.1% of total assets at March 31,
1999, compared to $7.5 million or 17.6% of total assets as of June 30 1998.
During the nine months ended March 31, 1999, shareholders' equity was reduced by
quarterly dividends, common stock repurchases, and changes in the market value
of securities available for sale. During the second and third quarter, the
Company purchased 14,752 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 March 31, 1999 was $8.06 per share based
on 888,300 shares outstanding. This compares to book values per share of $8.07
and $8.08 at December 31, 1998 and June 30, 1998, respectively.
Comparison of Operating Results for the Three-Month Periods Ended March 31, 1999
and 1998
Net income for the third fiscal quarter ended March 31, 1999 was $27,000, or
$.03 diluted earnings per common share. Net income for the same period last year
was $133,000, or $.16 diluted earnings per common share. Income for the third
quarter 1998 included a special dividend on certain equity securities in the
amount of $80,000. Interest expense on higher levels of deposits and borrowing
during the quarter ended March 31, 1999 offset an increase in interest income
from investment securities compared to the third quarter last year. Lower
current net income can also be traced to higher overhead costs associated with
operating the new Cloverdale branch office.
Net interest income before the provision for loan losses was $458,000 for the
three months ended March 31, 1999, compared to $527,000 for the three months
ended March 31, 1998; a decrease of 13%. While interest and dividend income for
the quarter increased $31,000 compared to last year, interest expense increased
$100,000 or 23%.
<PAGE>
Non-interest income totaled $29,000 for the quarter ended March 31, 1999,
compared to $34,000 for the same period in 1998. Most of this decrease can be
traced to decreased gains on the sale of investment securities. Non-interest
expense was $432,000 for the quarter ended March 31, 1999, compared to $335,000
for the same period last year; a 29% increase. Additional staff and equipment
for the new branch office contributed to the overall increase in non-interest
expense. Salaries and employee benefits totaled $224,000 for the third quarter
of fiscal 1999, compared to $196,000 for the same period a year earlier;
representing a 14% increase. Compared to last year, equipment expense increased
$14,000, or 104%. In addition, net occupancy expense (including depreciation)
increased by 46% and computer processing fees increased by 43%.
Income tax expense for the second fiscal quarter of 1999 was $20,000, compared
to $67,000 for the third fiscal quarter of 1998. The decrease was due to lower
pre-tax income.
Comparison of Operating Results for the Nine-Month Periods Ended March 31, 1999
and 1998
Fiscal year-to-date net income totaled $96,000 or $.12 diluted earnings per
common share, compared to $293,000 or $.35 diluted earnings per common share for
the same period of fiscal 1998. Lower year-to-date earnings are attributed to a
drop in investment securities income, an increase in interest expenses, and
higher expenses associated with opening the Bank's first branch.
For the nine months ended March 31, 1999, net interest income before provisions
for loan losses totaled $1,373,000 compared to $1,414,000 for the nine months
ended March 31, 1998; a 2.9% decrease. Fiscal year-to-date interest income
increased $80,000 or 2.9% over the comparable period last year. However,
interest expense increased $121,000 or 8.9% for the nine months ended March 31,
1999 compared to the same period in 1998.
Provisions for loan losses totaled $32,000 during the nine months ended March
31, 1999, compared to $77,000 during the same period last year. At March 31,
1999, the allowance for loan losses was .92% of total loans, compared to .93%
and .86% at June 30, 1998 and March 31, 1998, respectively.
Non-interest income totaled $95,000 for the first nine months of fiscal 1999
compared to $187,000 for the same period in 1998; a 49.0% decrease. The largest
portion of this decrease was due to a decline in gains on the sale of investment
securities. For the nine months ended March 31, 1999, income from the sale of
securities totaled $3,000, compared to $88,000 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 $57,000, compared to $41,000 for
the first nine months of fiscal 1998; an increase of 39.0%.
Non-interest expense increased $210,000 or 19.9% to $1,270,000 for the nine
months ended March 31, 1999, compared to the nine months ended March 31, 1998.
Salaries and employee benefits increased 17.2% to $653,000, compared to $557,000
for the nine months ended March 31, 1998. Operating the new branch also lead to
equipment expense, net occupancy expense, and computer processing fee increases
of 47%, 32%, and 31%, respectively. In contrast, legal and professional fees
decreased $14,000 or 14.3% for the current nine-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 March 31, 1999 was $70,000, compared to
$172,000 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.
<PAGE>
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
$8,000 and $26,000 for the quarters ended March 31, 1999 and 1998 respectively.
For the nine-month periods ended March 31, 1999 and 1998, loan loss provisions
were $32,000 and $77,000, respectively. At March 31, 1999, after net losses and
recoveries, the allowance for loan losses was $324,000 or 0.92% of total loans,
compared to $320,000 or 0.93% at June 30, 1998.
Management considered the allowance for loan losses at March 31, 1999, 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.
The following table compares activity in the allowance for loan losses for the
nine months ended March 31, 1999 and 1998.
Balance, July 1, 1998 $319,595 Balance, July 1, 1997 $231,397
Provision for loan losses 31,916 Provision for loan losse 76,500
Recoveries 84 Recoveries --
Loans charged off 27,360 Loans charged off 13,802
--------- --------
Balance, March 31, 1999 $324,235 Balance, March 31, 1998 $294,095
======== ========
Total non-performing loans decreased to $15,000 or 0.04% of total loans at March
31, 1999 compared to $286,000 or 0.8% of total loans at June 30, 1998. Real
estate acquired through foreclosure totaled $42,000 at March 31, 1999, compared
to $213,000 at June 30, 1998. No other repossessed assets existed at March 31,
1999, compared to $8,000 at June 30, 1998. Total non-performing assets were
$57,000 or 0.2% of assets at March 31, 1999.
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 March 31, 1999 and June 30, 1998, cash and
interest-bearing deposits totaled $2.7 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.
<PAGE>
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 qualified collateral, excess borrowing capacity was
approximately $6.5 million at the end of the third 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 March 31, 1999, borrowing
from the FHLB totaled $12.2 million, a $4.0 million increase from nine months
earlier.
Shareholders' equity was $7.2 million or 14.1% of total assets at March 31,
1999, compared to $7.5 million or 17.6% of total assets at June 30, 1998. Book
value at March 31, 1999 was $8.06 per share based on 888,300 outstanding shares.
Book value per common share at December 31, 1998 and June 30, 1998 was $8.07 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 required 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.
The Bank's actual and required capital amounts (in thousands) and ratios were as
follows as of March 31, 1999.
<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) $6,667 23.7% $2,251 8.0% $2,813 10.0%
Tier 1 capital *(to risk weighted assets) 6,343 22.6% 1,125 4.0% 1,688 6.0%
Tier 1 capital *(to total assets) 6,343 12.7% 2,026 4.0% 2,533 5.0%
*As defined by the regulatory agencies
</TABLE>
Effect of Inflation and Changing Prices
The Company's asset and liability structure is substantially different from that
of an industrial company in that most of its assets and liabilities are monetary
in nature. Management believes the impact of inflation on financial results
depends upon the Company's ability to react to changes in interest rates and, by
such reaction, reduce the inflationary impact on performance. Interest rates do
not necessarily move in the same direction at the same time, or at the same
magnitude, as the prices of other goods and services. Management relies on its
ability to manage the relationship between interest-sensitive assets and
liabilities to protect against wide interest rate fluctuations, including those
resulting from inflation.
<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 have ensured that all
necessary resources are available to address this problem. Management is working
aggressively to make sure the Company's systems are ready long before January 1,
2000. The project management team is working closely with outside companies that
support operations to conduct tests and otherwise make sure their systems will
be ready for the Year 2000 date change.
Management believes that the key to successfully meeting the Y2K challenge is
prior testing of all affected systems. The testing phase of the Company's Year
2000 Project Management Plan is nearly completed. In fact, computer systems have
already run with the clock rolled past the Year 2000. As part of extensive
critical date tests, system dates were advanced to the Year 2000 and beyond. No
problems were encountered during this testing process. The Company is on
schedule for completion of all phases of the Y2K compliance program by June 30,
1999.
As part of the Y2K planning process, contingency plans have been established
for mission-critical systems. These plans will provide for alternative methods
of doing business, if needed. The contingency plans will continue to be reviewed
and refined as Year 2000 approaches.
The Company has made, and will continue to make, investments in its systems and
applications to ensure, to the degree possible, Y2K compliance. Certain minor
equipment and software changes have been made in preparation for Year 2000.
Based on testing results to-date, management anticipates little or no additional
Y2K equipment and software changes.
Systems testing will likely be the largest component of Y2K costs during fiscal
year 1999. 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 nine months ended March 31, 1999, direct costs incurred
to address Y2K compliance totaled approximately $45,000. 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 are projected to total 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 for Y2K readiness were immaterial.
<PAGE>
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.
At December 31, 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 6.1% and 22.3% in the event of 200 and 400 basis point increases in
market interest rates respectively, compared to 8.5% and 26.4% for the same
increases at December 31, 1997. The Bank's MV at December 31, 1998 would
decrease 10.3% and 17.0% 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 3.9% and 8.1% respectively.
Presented below, as of December 31, 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.
<PAGE>
December 31, 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* $ 5,014 $(1,442) (22.33)% 10.57% (201) bp
+200 bp 6,065 (391) (6.06) 12.21 (37) bp
0 bp 6,456 0 0.00 12.58 --
- -200 bp 5,794 (662) (10.26) 11.15 (143) bp
- -400 bp 5,361 (1,094) (16.95) 10.16 (242) bp
*Basis Points.
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock MV Ratio: MV as % of PV of Assets 12.58%
Exposure Measure: Post-Shock MV Ratio 11.15%
Sensitivity Measure: Change in MV Ratio 143 bp
December 31, 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* $ 4,357 $(1,562) (26.39)% 11.24% (280) bp
+200 bp 5,323 (501) (8.47) 13.30 (74) bp
0 bp 5,919 0 0.00 14.04 --
- -200 bp 5,686 (233) (3.94) 13.25 (79) bp
- -400 bp 5,441 (478) (8.07) 12.45 (159) bp
*Basis Points.
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock MV Ratio: MV as % of PV of Assets 14.04%
Exposure Measure: Post-Shock MV Ratio 13.25%
Sensitivity Measure: Change in MV Ratio 79 bp
Since December 31, 1998, the Bank has experienced certain balance sheet changes.
The full impact of these changes on the Bank's interest rate risk position as
compared to the analysis presented as of December 31, 1998 is uncertain.
However, management does not believe these changes will result in an
unacceptable overall interest rate risk position for the Bank.
<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. None.
Item 5. Other Information. None.
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 March 31, 1999.
<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: May 13, 1999 By:/s/ Kurt J. Meier
-----------------------------------
Kurt J. Meier
President and
Chief Executive Officer
Date: May 13, 1999 By:/s/ Kurt D. Rosenberger
-----------------------------------
Kurt D. Rosenberger
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001009242
<NAME> Home Financial Bancorp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 457
<INT-BEARING-DEPOSITS> 2,268
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,136
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 35,216
<ALLOWANCE> 324
<TOTAL-ASSETS> 50,661
<DEPOSITS> 31,268
<SHORT-TERM> 0
<LIABILITIES-OTHER> 34
<LONG-TERM> 12,200
<COMMON> 4,241
0
0
<OTHER-SE> 2,918
<TOTAL-LIABILITIES-AND-EQUITY> 50,661
<INTEREST-LOAN> 2,475
<INTEREST-INVEST> 254
<INTEREST-OTHER> 124
<INTEREST-TOTAL> 2,853
<INTEREST-DEPOSIT> 1,063
<INTEREST-EXPENSE> 1,480
<INTEREST-INCOME-NET> 1,373
<LOAN-LOSSES> 32
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 1,270
<INCOME-PRETAX> 166
<INCOME-PRE-EXTRAORDINARY> 166
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
<YIELD-ACTUAL> 9.10
<LOANS-NON> 29
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 320
<CHARGE-OFFS> 28
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 324
<ALLOWANCE-DOMESTIC> 324
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
