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, 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
incorporation or organization) Identification 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, 2000 was 866,400.
<PAGE>
Home Financial Bancorp
Form 10-Q
Index
Page No.
Forward Looking Statements 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement of Financial
Condition as of December 31, 1999 and June 30, 1999
(Unaudited) 3
Consolidated Condensed Statement of Income for the three
months ended December 31, 1999 and 1998
(Unaudited) 4
Consolidated Condensed Statement of Income for the six
months ended December 31, 1999 and 1998
(Unaudited) 5
Consolidated Condensed Statement of Changes in
Shareholders' Equity for the six months ended December
31, 1999 and 1998 (Unaudited) 6
Consolidated Condensed Statement of Cash Flows for the
six months ended December 31, 1999 and 1998
(Unaudited) 7
Notes to Consolidated Condensed Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
<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,
1999 1999
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 746,844 $ 296,490
Short-term interest-bearing deposits 1,527,380 2,178,313
------------ ------------
Total cash and cash equivalents 2,274,224 2,474,803
Investment securities available for sale 8,082,054 8,288,028
Loans 42,501,262 38,573,918
Allowance for loan losses (344,293) (336,235)
------------ ------------
Net loans 42,156,969 38,237,683
Real estate acquired for development 397,831 20,433
Premises and equipment 1,880,824 1,984,842
Federal Home Loan Bank Stock 760,000 660,000
Interest receivable 304,727 318,421
Investment in limited partnership 674,167 695,780
Other assets 423,211 456,640
------------ ------------
Total assets $ 56,954,007 $ 53,136,450
============ ============
LIABILITIES
Deposits
Noninterest-bearing deposits $ 649,687 $ 578,267
Interest-bearing deposits 33,598,609 32,079,166
------------ ------------
Total deposits 34,248,296 32,657,433
Advances from Federal Home Loan Bank and
other borrowings 15,480,000 13,200,000
Other liabilities 166,589 155,794
------------ ------------
Total liabilities 49,894,885 46,013,227
------------ ------------
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 - 876,400 shares and 886,200 4,251,210 4,188,701
Retained earnings 3,574,683 3,613,425
Unearned Compensation RRP (159,103) (181,456)
Unearned ESOP shares (237,671) (257,908)
Accumulated other comprehensive loss (369,997) (239,539)
------------ ------------
Total shareholders' equity 7,059,122 7,123,223
------------ ------------
Total liabilities and shareholders' equity $ 56,954,007 $ 53,136,450
============ ============
</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,
-----------------------------
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Interest income
Loans $ 994,801 $ 834,475
Deposits with financial institutions 32,592 44,945
Investment securities 137,267 60,436
Federal Home Loan Bank stock 14,958 15,360
----------- -----------
Total interest income 1,179,618 955,216
----------- -----------
Interest expense
Deposits 408,223 363,769
Advances from Federal Home Loan Bank and
other borrowings 197,866 115,111
----------- -----------
Total interest expense 606,089 478,880
----------- -----------
Net interest income 573,529 476,336
Provision for losses on loans 12,000 12,000
----------- -----------
Net interest income after provision for losses on loans 561,529 464,336
----------- -----------
Other income
Service charges on deposit accounts 33,845 18,762
Gain (loss) on sale of real estate acquired for
development (541) 6,661
Net realized gain on sales of available for sale
securities -- 3,138
Equity in loss of limited partnership (21,613) --
Other income 21,007 15,138
----------- -----------
Total other income 32,698 43,699
----------- -----------
Other expenses
Salaries and employee benefits 217,684 203,722
Net occupancy expenses 37,890 29,053
Equipment expenses 43,776 26,552
Deposit insurance expense 4,801 3,831
Computer processing fees 43,895 25,823
Legal and accounting fees 43,013 31,120
Printing and supplies 12,544 31,111
Director and committee fees 14,250 14,250
Advertising expense 8,785 24,967
Other expenses 66,392 69,642
----------- -----------
Total noninterest expenses 493,030 460,071
----------- -----------
Income before income taxes 101,197 47,964
Income tax expense 27,406 20,546
----------- -----------
Net income $ 73,791 $ 27,418
=========== ===========
Basic and diluted net income per share $ .09 $ .03
</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,
-----------------------------
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Interest income
Loans $ 1,929,620 $ 1,651,416
Interest-bearing deposits 83,327 88,909
Investment securities 258,409 77,412
Other interest and dividend income 29,680 31,615
----------- -----------
Total interest income 2,301,036 1,849,352
----------- -----------
Interest expense
Deposits 805,999 693,669
Advances from Federal Home Loan Bank and
other borrowings 404,249 240,735
----------- -----------
Total interest expense 1,210,248 934,404
----------- -----------
Net interest income 1,090,788 914,948
Provision for losses on loans 24,000 24,000
----------- -----------
Net interest income after provision for losses on loans 1,066,788 890,948
----------- -----------
Other income
Service charges on deposit accounts 69,752 35,788
Gain on sale of real estate acquired for
development 5,744 6,148
Net realized gain on sales of securities
available for sale securities -- 3,326
Equity in loss of limited partnership (21,613) --
Other income 27,572 21,190
----------- -----------
Total other income 81,455 66,452
----------- -----------
Other expenses
Salaries and employee benefits 443,384 401,414
Net occupancy expenses 71,215 52,483
Equipment expenses 88,803 39,257
Deposit insurance expense 9,287 7,769
Computer processing fees 87,919 49,087
Legal and accounting fees 61,385 51,418
Printing and supplies 24,026 43,586
Director and committee fees 28,500 27,950
Advertising expenses 16,606 38,242
Other expenses 120,917 127,527
----------- -----------
Total noninterest expenses 952,042 838,733
----------- -----------
Income before income taxes 196,201 118,667
Income tax expense 64,789 49,990
----------- -----------
Net income $ 131,412 $ 68,677
=========== ===========
Basic and diluted net income per share $ .16 $ .08
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
HOME FINANCIAL BANCORP
AND WHOLLY-OWNED SUBSIDIARY
OWEN COMMUNITY BANK, S.B.
Form 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Balance, July 1 $ 7,123,223 $ 7,505,906
Net income 131,412 68,677
Common stock repurchased (71,351) (304,029)
Fair value adjustment of ESOP shares 16,710 (488)
ESOP shares earned 20,237 39,718
RRP shares earned 22,353 22,102
Net change in unrealized loss on securities (130,458) (89,498)
Cash dividends (53,004) (50,318)
----------- -----------
Balance, December 31 $ 7,059,122 $ 7,192,070
=========== ===========
</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,
-----------------------------
1999 1998
----------- -----------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 131,412 $ 68,677
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for loan losses 24,000 24,000
Depreciation 116,525 65,070
Investment securities gains -- (3,326)
Gain on sale of real estate for development (5,744) --
Loss from operations of limited partnership 21,613 --
Change in interest receivable 13,514 (19,392)
Fair value adjustment of ESOP shares 16,710 488
Amortization of unearned ESOP shares 20,237 20,237
Amortization of unearned RRP shares 22,353 22,102
Other adjustments 267,503 (142,720)
----------- -----------
Net cash provided by operating activities 628,093 35,136
----------- -----------
INVESTING ACTIVITIES
Purchases of securities available for sale (950,847) (7,689,758)
Proceeds from sales of securities available for sale -- 565,389
Proceeds from maturities and repayments of investment
securities available for sale 803,114 148,241
Net changes in loans (3,943,286) 118,503
Purchases of Federal Home Loan Bank
of Indianapolis stock (100,000) (110,000)
Purchases of premises and equipment (12,507) (425,837)
Proceeds from real estate owned sales -- 207,400
Purchases of real estate for development (383,654) --
Proceeds from sale of real estate acquired for
development 12,000 8,037
Disbursements for low-income housing investment -- (608,492)
----------- -----------
Net cash used by investing activities (4,575,180) (7,786,517)
----------- -----------
FINANCING ACTIVITIES
Net change in:
NOW and savings accounts (1,083,817) 1,668,489
Certificates of deposit 2,674,680 3,822,167
Proceeds from Federal Home Loan Bank advances 5,000,000 6,000,000
Repayment of Federal Home Loan Bank advances (3,000,000) (2,000,000)
Proceeds from other borrowings 280,000 --
Purchase of stock (71,351) (304,029)
Cash dividends (53,004) (50,318)
----------- -----------
Net cash provided by financing activities 3,746,508 9,136,309
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-----------------------------
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
NET CHANGE IN CASH AND CASH EQUIVALENTS (200,579) 1,384,928
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,474,803 3,802,103
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,274,224 $ 5,187,031
=========== ===========
ADDITIONAL CASH FLOWS AND SUPPLEMENTARY INFORMATION
Interest paid $ 1,210,248 $ 934,404
Income tax paid 55,610 170,000
</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, 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
December 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 $73,791 808,862 $ 0.09 $ 27,418 808,443 $ 0.03
============= =============
Effect of Dilutive Securities 0 0 0 30
--------------------------- --------------------------
Diluted Earnings Per Share:
Income Available to
Common Stockholders $ 73,791 808,862 $ 0.09 $ 27,418 808,473 $ 0.03
======================================== =======================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended
December 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 $ 131,412 809,955 $ 0.16 $68,677 822,383 $ 0.08
============= =============
Effect of Dilutive Securities 0 145 0 606
-------------------------- --------------------------
Diluted Earnings Per Share:
Income Available to
Common Stockholders $ 131,412 810,100 $ 0.16 $68,677 822,989 $ 0.08
======================================= =======================================
</TABLE>
NOTE C: Other Comprehensive Income
<TABLE>
<CAPTION>
1999
Tax
For the Six Months Ended Before-Tax (Expense) Net-of-Tax
December 31 Amount Benefit Amount
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses arising during the year $ (216,026) $ 85,568 $ (130,458)
Less: reclassification adjustment for gains (losses) realized in
net income -- -- --
---------- --------- -----------
Other comprehensive loss $ (216,026) $ 85,568 $ (130,458)
===============================================
1998
Tax
For the Six Months Ended Before-Tax (Expense) Net-of-Tax
December 31 Amount Benefit Amount
Unrealized losses on securities:
Unrealized holding losses arising during the year $ (144,874) $ 57,385 $ (87,489)
Less: reclassification adjustment for gains realized in
net income 3,326 (1,317) 2,009
---------- --------- ----------
Other comprehensive loss $ (148,200) $ 58,702 $ (89,498)
========================================
</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.
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.
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.
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 Cunot
Apartments project is a 24-unit apartment complex for senior living. The total
cost of the project was approximately $1.4 million. The Bank purchased a 99%
limited partnership interest for $732,000. During the quarter ended December 31,
1999, the project achieved full occupancy and satisfied requirements for income
tax credits. Beginning in November, income tax benefits for the quarter and six
months ended December 31, 1999 totaled $14,000.
The Bank's investment in the project is eligible for income tax credits over the
fifteen-year life of the Agreement. Management has been advised that the Bank
will be able to utilize approximately $62,000 in low income tax credits during
fiscal year 2000, and between $82,000 and $93,000 annually thereafter. 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. In addition, there are no assurances that changes in tax laws will
not affect the availability of low income tax credits in future years.
<PAGE>
Financial Condition
Total assets increased $3.9 million or 7.3%, to $57.0 million at December 31,
1999 compared to $53.1 million at June 30, 1999. Cash and short-term interest
bearing deposits totaled $2.3 million, an 8.1% decrease. Investment securities
totaled $8.1 million at December 31, 1999. This is a decrease of $206,000
compared to June 30, 1999. Total loans increased $3.9 million, or 10.2%, during
the past six months, to $42.5 million. Loan growth was funded primarily with
deposit increases and additional borrowings.
Recent efforts to originate traditional 1-4 residential mortgage loans have been
supplemented with the pursuit of quality non-residential mortgage loan
opportunities. First-hand experience in land development projects prepared
management to be lead lender on three subdivision development projects in
high-demand communities outside the Indianapolis metropolitan area. The net
amount of each loan originated was less than $1.0 million and contributed
substantially to year-to-date loan growth.
Real estate acquired for development increased from $20,000 to $398,000 during
the six months ended December 31, 1999. This increase reflects the purchase of
land for use by the Bank's subsidiary service corporation, BSF, Inc., in its
recently reactivated real estate development activities.
At December 31, 1999, total deposits were $34.2 million, an increase of $1.6
million compared to levels reported six months earlier. Total borrowings
increased 17.3% to $15.5 million as of December 31, 1999.
Shareholders' equity was $7.1 million, or 12.4% of total assets at December 31,
1999, compared to 13.4% of total assets as of June 30, 1999. The Company's book
value per share was $8.05 at December 31, 1999, based on 876,400 shares
outstanding. Factors impacting shareholders' equity during the quarter included
net income, a cash dividend, common stock repurchases, and a decrease in the
market value of securities available for sale. During the first quarter of
fiscal year 2000, the Company purchased 6,600 shares of its common stock.
Additional 3,200 shares of common stock were purchased and retired during the
second quarter. These stock purchases were made pursuant to a stock repurchase
plan announced on September 8, 1998.
<PAGE>
Comparison of Operating Results for the Three-Month Periods Ended December 31,
1999 and 1998
Net income for the second fiscal quarter ended December 31, 1999 was $74,000, or
$.09 diluted earnings per common share. Net income for the same period last year
was $27,000, or $.03 diluted earnings per common share. Second quarter net
income was higher primarily due to an increase in net interest income. Net
interest income before the provision for loan losses was $574,000 for the three
months ended December 31, 1999, compared to $476,000 for the three months ended
December 31, 1998.
Income tax credits related to the Bank's investment in a local low-income
housing development contributed $14,000 to the increase in net income for the
quarter. These tax credits resulted in a decline in the effective combined
federal and state income tax rate to approximately 27% for the three months
ended December 31, 1999, compared to approximately 43% for the same period a
year earlier.
Total noninterest income totaled $33,000, compared to $44,000 for the second
quarter last year, a 25.0% decrease. Most of this decrease can be traced to a
$22,000 net operating loss reported for the lease-up phase of Cunot Apartments,
L.P., a low-income senior housing development. The overall decrease in
noninterest income was partially offset by an 80.4% increase in income from
service charges on deposit accounts. For the three months ended December 31,
1999, income from service charges on deposit accounts totaled $34,000.
The Bank's BSF subsidiary generated a net loss of less than $1,000 for the
quarter ended December 31, 1999, compared to net earnings of $7,000 through the
sale of real estate acquired for development during the same period a year
earlier. BSF is in the process of completing a 27-lot subdivision designed for
modular and mobile homes. Management expects the Bank to profit from lot sales
as well as home financing opportunities the development will offer.
Total noninterest expense was $493,000 for the quarter ended December 31, 1999,
compared to $460,000 for the same period last year. Continued overall Bank
growth lead to computer processing and equipment expense increases of 70.0% and
64.9% respectively for the second quarter of fiscal year 2000 compared to the
same period a year earlier. These increases were partially offset by decreases
in advertising and printing and supplies expense.
Comparison of Operating Results for the Six-Month Periods Ended December 31,
1999 and 1998
Fiscal year-to-date net income grew 89.9% to $131,000 or $.16 diluted earnings
per common share, compared to $69,000 or $.08 diluted earnings per common share
for the same period a year earlier. Net interest income before the provision for
loan losses was $1.1 million, compared to $915,000 for the six-month period
ended December 31, 1998. The increase in net interest income can be traced to a
higher average balance of mortgage-backed securities held during the more recent
six-month period, and a larger loan portfolio compared to the same period in
fiscal year 1999.
Interest income from loans increased $278,000 or 16.8% to $1.9 million. This
increase is attributed to a higher volume of loans outstanding as well as upward
rate adjustments on a significant portion of the portfolio. At December 31,
1999, loans with an adjustable rate feature comprised approximately 64% of total
loans. Fiscal year-to-date interest income from investment securities increased
to $258,000 compared to $77,000 for the six months ended December 31, 1998.
<PAGE>
Noninterest income totaled $81,000 for the first two quarters of fiscal 2000
compared to $66,000 for the same period a year earlier, a 22.7% increase. The
$22,000 loss related to the low-income housing investment was more than offset
by the increase in fee income from deposit accounts. Compared to a year earlier,
service charges on deposit accounts for the six months ended December 31, 1999
nearly doubled from $36,000 to $70,000. This increase primarily resulted from an
increase in the number of service fee producing deposit accounts.
Noninterest expense was $952,000 for the six months ended December 31, 1999,
compared to $839,000 for the same period ended December 31, 1998. For the first
half of fiscal 2000, equipment more than doubled from $39,000 to $89,000
compared to the same period a year earlier. Computer processing expenses
increased 79.1% to $88,000 for the most recent two-quarter period. These
increases are partially attributable to Year 2000 compliance efforts. Salaries
and employee benefits increased 10.5% to $443,000. Overall, increases in several
noninterest expense categories are related to broad Company growth generally,
and rapid growth at the Cloverdale branch in particular.
Year-to-date income tax expense at the end of the second fiscal quarter of 2000
was $65,000, compared to $50,000 for the same period in fiscal year 1999. The
effective combined federal and state income tax rate for the first half of the
year was approximately 33%, compared to approximately 42% for the same period a
year earlier. The increased income tax was a consequence of increased earnings
this year versus the comparable period last year. The increase in income tax for
the current period was partially offset by income tax credits recognized in
November and December 1999 totaling $14,000.
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 for each of the quarters ended December 31, 1999 and 1998, respectively.
For the six-month periods ended December 31, 1999 and 1998, loan loss provisions
were $24,000 each. At December 31, 1999, after net losses and recoveries, the
allowance for loan losses was $344,000 or 0.81% of total loans, compared to
$336,000 or 0.87% at June 30, 1999.
Management considered the allowance for loan losses at December 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
six months ended December 31, 1999 and 1998.
Balance, July 1, 1999 $336,235 Balance, July 1, 1998 $319,595
Provision for loan losses 24,000 Provision for loan losses 24,000
Recoveries -- Recoveries --
Loans charged off 15,942 Loans charged off 27,360
-------- --------
Balance, December 31, 1999 $344,293 Balance, December 31, 1998 $316,235
======== ========
<PAGE>
Total non-performing loans were $149,000 or .35% of total loans at December 31,
1999 compared to $79,000 or 0.2% of total loans at June 30, 1999. Real estate
acquired through foreclosure totaled $6,000 at December 31, 1999 and at June 30,
1999. No other repossessed assets existed at December 31, 1999 or at June 30,
1999. Total non-performing assets were $155,000 or .27% of assets at December
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 December 31, 1999 and June 30, 1999, cash and
interest-bearing deposits totaled $2.3 million and $2.5 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 $4.8 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, 1999, borrowing from the FHLB totaled $15.2 million, a
$2.0 million increase from six months earlier.
At December 31, 1999, borrowings other than FHLB advances totaled $280,000. The
Bank's service corporation, BSF, Inc., borrowed these funds for purposes of
purchasing a large tract of land for use in its recently reactivated real estate
development operations.
Shareholders' equity was $7.1 million or 12.4% of total assets at December 31,
1999, compared to $7.1 million and 13.4% of total assets at June 30, 1999. Book
value at December 31, 1999 was $8.05 per share based on 876,400 outstanding
shares. Book value per common share at June 30, 1999 was $8.04. All regulatory
capital requirements for the Bank are currently met. Although the real estate
development operations of the Bank's subsidiary are permissible activities under
the Bank's federal thrift charter, the OTS requires that the Bank deduct its
investment in the subsidiary from its capital for purposes of calculating
regulatory capital amounts and ratios.
<PAGE>
The Bank's actual and required capital amounts (in thousands) and ratios were as
follows as of December 31, 1999.
<TABLE>
<CAPTION>
Required For Adequate Required To Be Well
Actual Capital* Capitalized*
---------------------- ----------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total capital *(to risk weighted assets) $6,532 19.3% $2,704 8.0% $3,380 10.0%
Tier 1 capital *(to risk weighted assets) 6,188 18.3% 1,352 4.0% 2,028 6.0%
Tier 1 capital *(to total assets) 6,188 11.0% 2,243 4.0% 2,803 5.0%
</TABLE>
*As defined by the regulatory agencies
The Year 2000 Issue
Management and the Board of Directors recognize and understand Year 2000 ("Y2K")
risk and have ensured that all necessary resources are available to address this
problem. As of December 31, 1999, management was not aware of any material
problems experienced by the Company that may have been associated with the Y2K
issue.
As of December 31, 1999, all phases of the Company's Year 2000 Project
Management Plan had been completed. As part of this process, extensive system
tests were conducted immediately subsequent to the century date change. No
significant weaknesses or problems were disclosed in processing and operating
beyond December 31, 1999.
The Company has made 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. Management does not
anticipate additional Y2K equipment and software changes.
For the six months ended December 31, 1999, Y2K related expense totaled about
$9,000. This amount includes expenses for fixing or replacing non-compliant
in-house hardware and software, performing multiple systems tests, and
contracting the assistance of information technology professionals. This figure
does not include the cost of compensation for existing staff members involved in
planning, testing and reporting on Y2K issues. During fiscal year 1999, direct
costs for Y2K compliance activity totaled approximately $62,000. Amounts
expensed in fiscal 1997 and 1998 for Y2K readiness were immaterial.
Although management believes it has taken the necessary steps to address the Y2K
compliance issue and is not aware of any significant problems experienced as of
December 31, 1999, no assurances can be given that some problems will not occur
or that the Company will not incur significant additional expenses in future
periods. The Company could be affected by Y2K problems experienced by its
critical business partners, hardware and software vendors, or depositors and
borrowers. However, as of December 31, 1999, management is not aware of any
significant weakness or problems experienced by such parties which have
materially affected or which could materially affect the Company.
<PAGE>
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.
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.
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 September 30, 1999, the most recent available analysis of the subsidiary
Bank's interest rate risk position, it was estimated that the Bank's MV would
decrease 19.0% and 42.7% in the event of 200 and 400 basis point increases in
market interest rates respectively, compared to 4.4% and 15.6% for the same
increases at September 30, 1998. The Bank's MV at September 30, 1999 would
decrease 1.0% and 4.5% 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 9.3% and 13.8% respectively.
<PAGE>
Presented below, as of September 30, 1999 and 1998, 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, 1999
Market Value Summary Performance
<TABLE>
<CAPTION>
MV as % of
Present Value (PV)
Change Market Value of Assets
In Rates $ Amount $ Change % Change MV Ratio Change
-------- -------- -------- -------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 bp* $3,879 $(2,890) (42.70)% 7.48% (444) bp
+200 bp 5,484 (1,285) (18.98) 10.07 (185) bp
0 bp 6,769 0 0.00 11.92 ----
-200 bp 6,703 (66) (0.97) 11.59 (33) bp
-400 bp 6,464 (305) (4.51) 11.04 (88) bp
*Basis Points.
</TABLE>
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock MV Ratio: MV as % of PV of Assets 11.92%
Exposure Measure: Post-Shock MV Ratio 10.07%
Sensitivity Measure: Change in MV Ratio 185 bp
September 30, 1998
Market Value Summary Performance
<TABLE>
<CAPTION>
MV as % of
Present Value (PV)
Change Market Value of Assets
In Rates $ Amount $ Change % Change MV Ratio Change
-------- -------- -------- -------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 bp* $5,209 $(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
</TABLE>
*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
Since September 30, 1999, 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.
<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 12, 1999, the Company held its fourth 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, 2000.
All three director nominees were elected, and the appointment of auditors was
also approved and ratified by a majority of 885,200 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
----------------- --- ------- ------- --------
Kurt J. Meier - 3 years 662,510 25,960 - 196,730
Frank R. Stewart - 3 years 659,540 28,930 - 196,730
Tad Wilson - 3 years 662,510 25,960 - 196,730
Other Matters
-------------
Auditors 675,370 10,600 2,500 196,730
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, 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: February 11, 2000 By:/s/ Kurt J. Meier
------------------------------
Kurt J. Meier
President and
Chief Executive Officer
Date: February 11, 2000 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 747
<INT-BEARING-DEPOSITS> 1,527
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,082
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 42,501
<ALLOWANCE> 344
<TOTAL-ASSETS> 56,954
<DEPOSITS> 34,248
<SHORT-TERM> 6,000
<LIABILITIES-OTHER> 167
<LONG-TERM> 12,200
0
0
<COMMON> 4,251
<OTHER-SE> 2,808
<TOTAL-LIABILITIES-AND-EQUITY> 56,954
<INTEREST-LOAN> 1,930
<INTEREST-INVEST> 288
<INTEREST-OTHER> 83
<INTEREST-TOTAL> 2,301
<INTEREST-DEPOSIT> 806
<INTEREST-EXPENSE> 1,210
<INTEREST-INCOME-NET> 1,091
<LOAN-LOSSES> 24
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 952
<INCOME-PRETAX> 196
<INCOME-PRE-EXTRAORDINARY> 196
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
<YIELD-ACTUAL> 9.0
<LOANS-NON> 144
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 336
<CHARGE-OFFS> 16
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 344
<ALLOWANCE-DOMESTIC> 344
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
