<PAGE> 1
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the transition period from __________ to ____________.
Commission File Number 000-23927
---------
HOME LOAN FINANCIAL CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-1578552
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
401 Main Street, Coshocton, Ohio 43812
----------------------------------------
(Address of principal executive offices)
(740) 622-0444
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of January 31, 1999 the latest practical date, 2,130,250 of the issuer's
common shares, no par value, were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
- --------------------------------------------------------------------------------
1.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Consolidated Balance Sheets ............................................................ 3
Consolidated Statements of Income and Comprehensive Income.............................. 4
Consolidated Statements of Changes in Shareholders' Equity.............................. 5
Consolidated Statements of Cash Flows .................................................. 6
Notes to Consolidated Financial Statements ............................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................... 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 24
Item 2. Changes in Securities and Use of Proceeds.......................................... 24
Item 3. Defaults Upon Senior Securities.................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders................................ 24
Item 5. Other Information.................................................................. 24
Item 6. Exhibits and Reports on Form 8-K................................................... 24
SIGNATURES ........................................................................................... 25
</TABLE>
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2.
<PAGE> 3
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks ................................... $ 2,614,583 $ 1,323,331
Interest-bearing deposits in other banks .................. 168,324 533,817
Overnight deposits ........................................ 750,000 1,000,000
Federal funds sold ........................................ 2,700,000 4,800,000
------------ ------------
Total cash and cash equivalents ....................... 6,232,907 7,657,148
Interest-bearing time deposits ............................ 2,038,097 2,037,137
Securities available for sale ............................. 10,540,348 14,018,560
Mortgage-backed securities available for sale ............. 1,061,284 --
Loans, net ................................................ 65,124,559 56,824,312
Premises and equipment, net ............................... 461,011 471,799
Federal Home Loan Bank stock .............................. 407,100 393,000
Accrued interest receivable ............................... 483,774 475,183
Other assets .............................................. 100,346 37,850
------------ ------------
Total assets .......................................... $ 86,449,426 $ 81,914,989
============ ============
LIABILITIES
Deposits .................................................. $ 51,877,357 $ 48,537,875
Federal Home Loan Bank advances ........................... 3,000,000 1,000,000
Accrued interest payable .................................. 519,308 480,365
Accrued expenses and other liabilities .................... 282,694 332,115
------------ ------------
Total liabilities ..................................... 55,679,359 50,350,355
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 500,000 shares authorized,
none outstanding ....................................... -- --
Common stock, no par value, 9,500,000 shares authorized,
2,248,250 shares issued ................................. -- --
Additional paid-in capital ................................ 21,973,912 21,948,437
Retained earnings - substantially restricted .............. 11,825,459 11,285,160
Treasury stock, at cost, 23,070 shares at December 31, 1998 (329,181) --
Unearned employee stock ownership plan shares ............. (1,618,750) (1,678,690)
Unearned recognition and retention plan shares ............ (1,118,469) --
Net unrealized gain on securities available for sale,
net of tax .............................................. 37,096 9,727
------------ ------------
Total shareholders' equity ............................ 30,770,067 31,564,634
------------ ------------
Total liabilities and shareholders' equity ............ $ 86,449,426 $ 81,914,989
============ ============
</TABLE>
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See accompanying notes to consolidated financial statements.
3.
<PAGE> 4
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 1,374,021 $ 1,179,244 $ 2,690,525 $ 2,316,432
Securities 178,744 68,016 387,189 142,506
Dividends on FHLB stock 7,059 6,809 14,241 13,497
Interest-bearing deposits and federal
funds sold 97,595 15,533 189,480 51,117
----------- ----------- ----------- -----------
Total interest income 1,657,419 1,269,602 3,281,435 2,523,552
INTEREST EXPENSE
Deposits 534,862 522,563 1,060,001 1,039,482
FHLB advances 40,318 6,581 60,032 6,581
----------- ----------- ----------- -----------
Total interest expense 575,180 529,144 1,120,033 1,046,063
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,082,239 740,458 2,161,402 1,477,489
Provision for loan losses 30,000 30,000 60,000 60,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,052,239 710,458 2,101,402 1,417,489
NONINTEREST INCOME
Service charges and other fees 33,386 31,919 71,687 65,829
Other income 14,566 11,548 26,922 20,985
----------- ----------- ----------- -----------
Total noninterest income 47,952 43,467 98,609 86,814
NONINTEREST EXPENSE
Salaries and employee benefits 317,736 240,421 591,257 475,080
Occupancy and equipment 36,567 35,828 71,552 70,280
State franchise taxes 38,100 36,900 76,200 73,800
Computer processing 34,738 24,888 65,451 48,768
SAIF deposit insurance premiums 8,412 7,753 16,825 15,221
Legal, audit and supervisory exam fees 22,500 17,400 45,000 35,476
Director fees 20,800 19,725 42,425 39,000
Other expense 65,803 46,950 123,648 87,348
----------- ----------- ----------- -----------
Total noninterest expense 544,656 429,865 1,032,358 844,973
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 555,535 324,060 1,167,653 659,330
Income tax expense 199,800 115,400 419,400 237,500
----------- ----------- ----------- -----------
NET INCOME 355,735 208,660 748,253 421,830
Other comprehensive income, net of tax (15,770) 1,258 27,369 9,965
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 339,965 $ 209,918 $ 775,622 $ 431,795
=========== =========== =========== ===========
BASIC EARNINGS PER COMMON SHARE $ .18 N/A $ .36 $ N/A
=========== =========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE $ .17 N/A $ .36 $ N/A
=========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4.
<PAGE> 5
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months Ended December 31, 1998 and 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Unearned Unearned
Paid-In Retained ESOP RRP Treasury
Capital Earnings Shares Shares Shares
------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1997 ............ $ -- $ 10,366,232 $ -- $ -- $ --
Net income for the period .......... -- 421,830 -- -- --
Change in fair value of securities
available for sale ............... -- -- -- -- --
------------ ------------ ------------ ------------ ----------
Balance at December 31, 1997 ....... $ -- $ 10,788,062 $ -- $ -- --
============ ============ ============ ============ ==========
Balance at July 1, 1998 ............ $ 21,948,437 $ 11,285,160 $ (1,678,690) $ -- $ --
Net income for the period .......... -- 748,253 -- -- --
Cash dividend - $.10 per share ..... -- (207,954) -- -- --
Commitment to release 5,994
ESOP shares ...................... 25,475 -- 59,940 -- --
Purchase of 89,930 shares for
recognition and retention plan ... -- -- -- (1,157,069) --
Compensation expense with respect to
recognition and retention plan ... -- -- -- 38,600 --
Purchase of 23,070 treasury shares . -- -- -- -- (329,181)
Change in fair value of securities
available for sale ............... -- -- -- -- --
------------ ------------ ------------ ------------ ----------
Balance at December 31, 1998 ....... $ 21,973,912 $ 11,825,459 $ (1,618,750) $ (1,118,469) $ (329,181)
============ ============ ============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain on
Securities
Available
for Sale Total
-------- -----
<S> <C> <C>
Balance at July 1, 1997 ............ $ 4,032 $ 10,370,264
Net income for the period .......... -- 421,830
Change in fair value of securities
available for sale ............... 9,965 9,965
--------- ------------
Balance at December 31, 1997 ....... $ 13,997 $ 10,802,059
========= ============
Balance at July 1, 1998 ............ $ 9,727 $ 31,564,634
Net income for the period .......... -- 748,253
Cash dividend - $.10 per share ..... -- (207,954)
Commitment to release 5,994
ESOP shares ...................... -- 85,415
Purchase of 89,930 shares for
recognition and retention plan ... -- (1,157,069)
Compensation expense with respect to
recognition and retention plan ... -- 38,600
Purchase of 23,070 treasury shares . -- (329,181)
Change in fair value of securities
available for sale ............... 27,369 27,369
--------- ------------
Balance at December 31, 1998 ....... $ 37,096 $ 30,770,067
========= ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5.
<PAGE> 6
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................................. $ 748,253 $ 421,830
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation ......................................................... 39,000 42,300
Securities amortization and accretion ................................ 6,847 (505)
Provision for loan losses ............................................ 60,000 60,000
FHLB stock dividends ................................................. (14,100) (13,400)
Gain on sale of securities available for sale ........................ -- (121)
Compensation expense for ESOP shares ................................. 85,415 --
Compensation expense for RRP shares .................................. 38,600 --
Net change in accrued interest receivable and other assets ........... (71,087) (47,691)
Net change in accrued expenses and other liabilities ................. (24,577) 140,010
Net change in deferred loan fees ..................................... 18,950 4,389
----------- -----------
Net cash from operating activities ................................ 887,301 606,812
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Purchases ............................................................... (748,906) --
Proceeds from maturities ................................................ 4,250,000 500,020
Mortgage-backed securities available for sale:
Purchases ............................................................ (1,170,340) --
Proceeds from maturities and principal paydowns ...................... 120,795 --
Net change in interest-bearing time deposits ............................ (960) --
Net change in loans ..................................................... (8,379,197) (3,683,736)
Premises and equipment expenditures ..................................... (28,212) (9,099)
----------- -----------
Net cash from investing activities ................................... (5,956,820) (3,192,815)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits .................................................. 3,339,482 (648,879)
Proceeds from long-term FHLB advances ................................... 2,000,000 1,000,000
Cash dividends paid ..................................................... (207,954) --
Purchases of recognition and retention plan shares ...................... (1,157,069) --
Purchases of treasury shares ............................................ (329,181) --
----------- -----------
Net cash from financing activities ................................... 3,645,278 351,121
----------- -----------
Net change in cash and cash equivalents ..................................... (1,424,241) (2,234,882)
Cash and cash equivalents at beginning of period ............................ 7,657,148 4,681,049
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 6,232,907 $ 2,446,167
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest ............................................................. $ 1,081,090 $ 962,040
Income taxes ......................................................... 492,000 387,849
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6.
<PAGE> 7
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements are prepared without audit and
reflect all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of Home Loan Financial Corporation
("Corporation") at December 31, 1998, and its results of operations and cash
flows for the periods presented. All such adjustments are normal and recurring
in nature. The accompanying consolidated financial statements have been prepared
in accordance with the instructions for Form 10-QSB and, therefore, do not
purport to contain all the necessary financial disclosures required by generally
accepted accounting principles that might otherwise be necessary in the
circumstances, and should be read in conjunction with the consolidated financial
statements and notes thereto of the Corporation for the fiscal year ended June
30, 1998. The accounting policies of the Corporation described in the notes to
the consolidated financial statements contained in the Corporation's June 30,
1998, consolidated financial statements, have been consistently followed in
preparing this Form 10-QSB.
The consolidated financial statements include the accounts of Home Loan
Financial Corporation and its wholly owned subsidiary, The Home Loan Savings
Bank ("Bank"). All significant intercompany transactions and balances have been
eliminated.
The Corporation provides financial services through the Bank, which has its main
and branch offices located in Coshocton, Ohio. This community and the contiguous
areas are the source of substantially all the Bank's loan and deposit
activities. Its primary deposit products are checking, savings and term
certificate accounts, and its primary lending products are residential mortgage,
commercial and installment loans. Substantially all loans are secured by
specific items of collateral including real estate, business assets and consumer
assets. Real estate loans are secured by both residential and commercial real
estate. Commercial loans are expected to be repaid from cash flows from the
operations of businesses.
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and disclosures provided, and future results could differ.
The allowance for loan losses, fair values of financial instruments and status
of contingencies are particularly subject to change.
Income tax expense is the sum of current-year income tax due or refundable and
the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities computed
using enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized. Income tax expense is based on the
effective rate expected to be applicable for the entire year.
Basic earnings per common share are net income divided by the weighted average
number of common shares outstanding during the period. Unallocated ESOP shares
are not considered outstanding for this calculation. Recognition and retention
plan ("RRP") shares are considered outstanding as they become vested. Diluted
earnings per common share include the dilutive effect of additional potential
common shares issuable under stock options and nonvested shares issued under the
RRP. As more fully discussed in Note 2, the Bank converted from the mutual to
stock form of ownership with the concurrent formation of a holding company
effective March 25, 1998. Accordingly, earnings per share for the three and six
months ended December 31, 1997 is not applicable.
- --------------------------------------------------------------------------------
(Continued)
7.
<PAGE> 8
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Home Loan Financial Corporation adopted on July 1, 1998, Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available for sale that is also recognized as a separate component of equity.
The accounting standard that requires reporting comprehensive income first
applies for fiscal years beginning after December 15, 1997 with prior
information restated to be comparable.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" changes the way that public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about reportable segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 uses a "management approach" to disclose financial and
descriptive information about an enterprise's reportable operating segments
which is based on reporting information the way that management organizes the
segments within the enterprise for making operating decisions and assessing
performance. For many enterprises, the management approach will likely result in
more segments being reported. In addition, SFAS No. 131 requires significantly
more information to be disclosed for each reportable segment than is presently
being reported in annual financial statements. SFAS No. 131 also requires
selected information to be reported in interim financial statements. SFAS No.
131 is effective for financial statements for periods beginning after December
15, 1997. SFAS No. 131 did not have a significant impact on the Corporation.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" amends the disclosure requirements of previous pension and other
postretirement benefit accounting standards by requiring additional disclosures
about such plans as well as eliminating some disclosures no longer considered
useful. SFAS No. 132 also allows greater aggregation of disclosures for
employers with multiple defined benefit plans. SFAS No. 132 is effective in
fiscal 1999 and is not expected to have a significant impact on the
Corporation's financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. SFAS No. 133 does
not allow hedging of a security which is classified as held to maturity. Upon
adoption of SFAS No. 133, companies may reclassify any security from held to
maturity to available for sale if they wish to be able to hedge the security in
the future. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999 with early adoption encouraged for any fiscal quarter beginning July 1,
1998 or later, with no retroactive application. Management does not expect the
adoption of SFAS No. 133 to have a significant impact on the Corporation's
financial statements.
- --------------------------------------------------------------------------------
(Continued)
8.
<PAGE> 9
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS No. 134, "Accounting for Mortgage-backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," changes the way companies involved in mortgage banking account for
certain securities and other interests they retain after securitizing mortgage
loans that were held for sale. SFAS 134 allows any retained mortgage-backed
securities after a securitization of mortgage loans held for sale to be
classified based on holding intent in accordance with SFAS 115 except in cases
where the retained mortgage-backed security is committed to be sold before or
during the securitization process in which case it must be classified as
trading. Previously, all retained mortgage-backed securities were required to be
classified as trading. SFAS 134 will be effective on January 1, 1999 and is not
expected to have a significant impact on the Corporation's financial statements.
NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN ASSOCIATION
WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY
On November 12, 1997, the Board of Directors of the Bank unanimously adopted a
Plan of Conversion to convert from a state-chartered mutual savings and loan
association to a state-chartered stock savings and loan association with the
concurrent formation of a holding company. The Conversion was consummated on
March 25, 1998, by amending the Bank's Articles of Incorporation and the sale of
the Corporation's common stock in an amount equal to the pro forma market value
of the Bank after giving effect to the Conversion. Common shares of the
Corporation were offered in accordance with the Plan of Conversion. A total of
2,248,250 common shares of the Corporation were sold at $10.00 per share and net
proceeds from the sale were $21,880,273 after deducting the costs of Conversion.
The Corporation retained 50% of the net proceeds from the sale of common shares.
The remainder of the net proceeds was invested in the capital stock issued by
the Bank to the Corporation in connection with the Conversion.
At the time of the Conversion, the Bank established a liquidation account in an
amount equal to its regulatory capital as of September 30, 1997. The liquidation
account will be maintained for the benefit of eligible depositors who continue
to maintain their accounts at the Bank after the Conversion. The liquidation
account will be reduced annually to the extent that eligible depositors have
reduced their qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible depositor will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held. The Bank may not
pay dividends that would reduce shareholders' equity below the required
liquidation account balance.
Under Office of Thrift Supervision ("OTS") regulations, limitations have been
imposed on all "capital distributions" by savings institutions, including cash
dividends. The regulation establishes a three tiered system of restrictions,
with the greatest flexibility afforded to thrifts that are both well capitalized
and given favorable qualitative examination ratings by the OTS.
- --------------------------------------------------------------------------------
(Continued)
9.
<PAGE> 10
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES
The amortized cost and estimated fair values of securities at December 31, 1998
and June 30, 1998 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury notes $ 2,249,106 $ 10,892 $ -- $ 2,259,998
U.S. Government agencies 8,247,952 37,593 (5,195) 8,280,350
-------------- ---------- ----------- ---------------
$ 10,497,058 $ 48,485 $ (5,195) $ 10,540,348
============== ========== =========== ===============
MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE
U.S. Government agencies $ 1,048,368 $ 12,916 $ -- $ 1,061,284
============== ========== =========== ===============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury notes $ 5,504,113 $ 15,154 $ (907) $ 5,518,360
U.S. Government agencies 8,499,709 2,024 (1,533) 8,500,200
-------------- ---------- ----------- ---------------
$ 14,003,822 $ 17,178 $ (2,440) $ 14,018,560
============== ========== =========== ===============
</TABLE>
The amortized cost and estimated fair values of securities at December 31, 1998,
by contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 5,748,722 $ 5,766,398
Due after one year through five years 4,748,336 4,773,950
-------------- ---------------
10,497,058 10,540,348
Mortgage-backed securities 1,048,368 1,061,284
-------------- ---------------
$ 11,545,426 $ 11,601,632
============== ===============
</TABLE>
During the six months ended December 31, 1997, a U.S. Treasury security
classified as available for sale was sold within ninety days of its maturity.
Proceeds from this transaction are reflected as a maturity in the Consolidated
Statement of Cash Flows. The gain on this transaction was $121. No other
securities were sold during the six months ended December 31, 1998 and 1997.
- --------------------------------------------------------------------------------
(Continued)
10.
<PAGE> 11
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - LOANS
Loans at December 31, 1998 and June 30, 1998 are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
<S> <C> <C>
Residential real estate loans:
1 - 4 family $ 44,901,379 $ 39,551,521
Home equity 1,623,171 1,527,535
Nonresidential real estate 5,413,480 4,307,546
Real estate construction 2,240,099 1,368,801
Land 704,423 686,453
------------ ------------
Total real estate loans 54,882,552 47,441,856
Commercial loans 2,144,249 1,429,324
Consumer loans:
Home improvement 3,878,969 3,993,214
Automobile 3,181,564 2,997,589
Deposit 331,276 421,710
Credit card 443,527 410,624
Other 1,818,347 1,527,817
------------ ------------
Total consumer loans 9,673,041 9,350,954
------------ ------------
Total loans 66,699,842 58,222,134
Less:
Allowance for loan losses (276,763) (223,237)
Loans in process (1,158,730) (1,053,746)
Net deferred loan fees and costs (139,789) (120,839)
------------ ------------
$ 65,124,559 $ 56,824,312
============ ============
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance $ 253,606 $ 148,222 $ 223,237 $ 119,218
Provision for losses 30,000 30,000 60,000 60,000
Loans charged off (7,193) (4,101) (7,193) (5,542)
Recoveries 350 472 719 917
--------- --------- --------- ---------
Ending balance $ 276,763 $ 174,593 $ 276,763 $ 174,593
========= ========= ========= =========
</TABLE>
As of December 31, 1998 and June 30, 1998 and for the three and six months ended
December 31, 1998 and 1997, impaired loans were immaterial. No loans were on
nonaccrual status at December 31, 1998 and June 30, 1998.
- --------------------------------------------------------------------------------
(Continued)
11.
<PAGE> 12
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
Various contingent liabilities are not reflected in the consolidated financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on the Corporation's financial condition or results of operations.
Some financial instruments are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. These involve, to varying degrees,
credit and interest-rate risk more than the amounts reported in the financial
statements.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit, standby letters of
credit and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral obtained, if deemed necessary, on extension of credit is based on
management's credit evaluation and generally consists of residential or
commercial real estate.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, the total commitments do not necessarily represent
future cash requirements. Standby letters of credit and financial guarantees
written are conditional commitments to guarantee a customer's performance to a
third party.
A summary of the notional or contractual amounts of financial instruments with
off-balance sheet risk at December 31, 1998 and June 30, 1998 follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
<S> <C> <C>
Lines of credit-variable rate $2,097,000 $1,728,000
1-4 family residential real estate-variable rate 468,000 782,000
1-4 family residential real estate-fixed rate 460,000 134,000
Commercial real estate-variable rate -- 225,000
Credit card arrangements-fixed rate 848,000 771,000
</TABLE>
The interest rates on fixed-rate commitments ranged from 6.78% to 13.90% at
December 31, 1998 and 7.13% to 13.90% at June 30, 1998. The interest rates on
variable rate commitments ranged from 6.00% to 6.50% at December 31, 1998 and
6.75% to 7.00% at June 30, 1998.
- --------------------------------------------------------------------------------
(Continued)
12.
<PAGE> 13
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 6 - EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation offers an employee stock ownership plan ("ESOP") for the benefit
of substantially all employees of the Corporation and the Bank. The
establishment of the ESOP and the purchase by the ESOP of the common shares of
the Corporation are subject to the receipt of a favorable determination letter
on the qualified status of the ESOP under applicable provisions of the Internal
Revenue Code. Although no assurances can be given, the Corporation expects that
the ESOP will receive a favorable determination letter.
The ESOP borrowed funds from the Corporation with which to acquire common shares
of the Corporation. The loan is secured by the shares purchased with the loan
proceeds and will be repaid by the ESOP with funds from the Bank's discretionary
contributions to the ESOP and earnings on ESOP assets. The shares purchased with
the loan proceeds are held in a suspense account for allocation among
participants as the loan is repaid. As payments are made and the shares are
released from the suspense account, such shares will be validly issued, fully
paid and nonassessable.
Shares pledged as collateral are reported as unearned ESOP shares in the
Consolidated Balance Sheet. As shares are released from collateral, the
Corporation reports compensation expense equal to the current market price of
the shares, and the shares become outstanding for earnings per share
computations. Dividends on allocated ESOP shares are recorded as a reduction of
retained earnings while dividends on unallocated ESOP shares are recorded as a
reduction of debt and accrued interest. ESOP compensation expense was $40,460
and $85,415 for the three and six months ended December 31, 1998. The ESOP
shares at December 31, 1998 and June 30, 1998 were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
<S> <C>
Allocated shares 11,157 --
Shares committed to be released for allocation 6,828 11,991
Unreleased shares 161,875 167,869
------------- --------------
Total ESOP shares 179,860 179,860
============= ==============
Fair value of unreleased shares $ 2,185,313 $ 2,476,068
============= ==============
</TABLE>
NOTE 7 - STOCK OPTION AND INCENTIVE PLAN
On October 13, 1998, shareholders approved the Home Loan Financial Corporation
1998 Stock Option and Incentive Plan. The Board of Directors granted options to
purchase 180,170 common shares at an exercise price of $11.69 to certain
officers and directors of the Bank and Corporation. One-fifth of the options
awarded become first exercisable on each of the first five anniversaries of the
date of grant. The option period expires 10 years from the date of grant. 44,655
shares of authorized but unissued common stock are reserved for which no options
have been granted. Employee compensation expense under stock option plans is
reported only if options are granted below market price at the grant date.
- --------------------------------------------------------------------------------
(Continued)
13.
<PAGE> 14
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 - RECOGNITION AND RETENTION PLAN
On October 13, 1998, shareholders approved the Home Loan Financial Corporation
Recognition and Retention Plan and Trust Agreement (RRP). The RRP is used to
provide such individuals ownership interest in the Corporation in a manner
designed to compensate such directors and key employees for services to the
Bank. The Bank contributed sufficient funds to enable the RRP to purchase a
number of common shares in the open market equal to 4% of the common shares sold
in connection with the Conversion.
The Board of Directors awarded 72,866 shares to certain directors and officers
of the Bank and the Corporation. One-fifth of such shares will be earned and
nonforfeitable on each of the first five anniversaries of the date of the
awards. However, in case of the death or disability of a participant, the
participant's shares will be deemed earned and nonforfeitable upon such date.
There were 17,064 shares reserved for future awards. Compensation expense, which
is based upon the cost of the shares, was $38,600 for the three and six months
ended December 31, 1998.
NOTE 9 - EARNINGS PER SHARE
The factors used in the earnings per share computation are as follows.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31, December 31,
1998 1998
---- ----
<S> <C> <C>
Basic
Net income $ 355,735 $ 748,253
=========== ===========
Weighted average common shares outstanding 2,241,946 2,245,098
Less: Average unallocated ESOP shares (163,373) (164,872)
Less: Average nonvested RRP shares (56,203) (28,102)
----------- -----------
Average shares 2,022,370 2,052,124
=========== ===========
Basic earnings per common share $ .18 $ .36
=========== ===========
Diluted
Net income $ 355,735 $ 748,253
=========== ===========
Weighted average common shares outstanding
for basic earnings per common share 2,022,370 2,052,124
Add: Dilutive effects of average nonvested RRP shares 1,711 532
Add: Dilutive effects of assumed exercises of stock options 17,454 10,671
----------- -----------
Average shares and dilutive potential
common shares 2,041,535 2,063,327
=========== ===========
Diluted earnings per common share $ .17 $ .36
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
14.
<PAGE> 15
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 10 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Unrealized holding gains and losses on
available-for-sale securities $ (23,894) $ 1,906 $ 41,468 $ 15,223
Less reclassification adjustments for (gains)
and losses later recognized in income -- -- -- (121)
--------- ------- --------- --------
Net unrealized gains and losses (23,894) 1,906 41,468 15,102
Tax effect 8,124 (648) (14,099) (5,137)
--------- ------- --------- --------
Other comprehensive income $ (15,770) $ 1,258 $ 27,369 $ 9,965
========= ======= ========= ========
</TABLE>
- --------------------------------------------------------------------------------
15.
<PAGE> 16
HOME LOAN FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
INTRODUCTION
In the following pages, management presents an analysis of the financial
condition of Home Loan Financial Corporation as of December 31, 1998 compared to
June 30, 1998, and results of operations for the three and six months ended
December 31, 1998 compared with the same periods in 1997. This discussion is
designed to provide a more comprehensive review of the operating results and
financial position than could be obtained from an examination of the financial
statements alone. This analysis should be read in conjunction with the interim
financial statements and related footnotes included herein.
FORWARD LOOKING STATEMENTS
When used in this discussion or future filings by the Corporation with the
Securities and Exchange Commission, or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Corporation
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities and competitive and regulatory factors, could affect the
Corporation's financial performance and could cause the Corporation's actual
results for future periods to differ materially from those anticipated or
projected.
The Corporation is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on its liquidity,
capital resources or operations except as discussed herein. The Corporation is
not aware of any current recommendations by regulatory authorities that would
have such effect if implemented.
The Corporation does not undertake, and specifically disclaims, any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.
FINANCIAL CONDITION
Total assets at December 31, 1998 were $86.4 million compared to $81.9 million
at June 30, 1998, an increase of $4.5 million, or 5.5%. The increase in total
assets was primarily in loans. Loan growth, which totaled $8.3 million,
consisted primarily of one to four family residential real estate loans, which
increased $5.3 million, and nonresidential real estate loans, which increased
$1.1 million. Consumer loans represented 14.5% and 16.1% of gross loans at
December 31, 1998 and June 30, 1998. These increases reflect a stable local
economy, the current interest rate environment and the Bank being more
aggressive in its pricing of fixed-rate loan products during the period.
Total deposits increased $3.4 million, from $48.5 million at June 30, 1998 to
$51.9 million at December 31, 1998. The increase in deposits was primarily in
money market accounts which increased $2.2 million. The increase was due to the
Bank being more competitive on rates paid on this type of account compared to
the market. Savings accounts had very little change from June 30, 1998 to
December 31, 1998. The
- --------------------------------------------------------------------------------
16.
<PAGE> 17
HOME LOAN FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
certificates of deposit portfolio as a percent of total deposits declined from
53.8% at June 30, 1998 to 51.7% at December 31, 1998. Almost all certificates of
deposit mature in less than three years with the majority maturing in the next
year.
The Bank had a $1.0 million fixed-rate borrowing, with an interest rate of
5.66%, at June 30, 1998, and an additional $2.0 million fixed-rate borrowing,
with an interest rate of 5.18%, resulting in total borrowings of $3.0 million at
December 31, 1998. The interest rates on these borrowing are fixed for five
years, then convertible to variable rates at the option of the FHLB. If the
convertible option is exercised, the advance may be prepaid without penalty. The
original terms of these borrowings are 120 months with interest due monthly and
principal due upon maturity in 2008. In the recent past, the Corporation had not
aggressively marketed or priced fixed-rate mortgages due to the interest-rate
risk exposure. However, to better use the excess capital resulting from the
Conversion, management intends to be more competitive with this product.
Therefore, the Corporation borrowed funds from the FHLB to mitigate the interest
rate exposure of originating fixed-rate loans. As an additional source of
liquidity, the Bank maintains a $5 million cash management line of credit with
the Federal Home Loan Bank of Cincinnati (FHLB). There were no borrowings
outstanding on this line of credit at December 31, 1998 or June 30, 1998.
RESULTS OF OPERATIONS
General economic conditions, the monetary and fiscal policies of federal
agencies and the regulatory policies of agencies that regulate financial
institutions affect the operating results of the Corporation. Interest rates on
competing investments and general market rates of interest influence the
Corporation's cost of funds. Lending activities are influenced by the demand for
real estate loans and other types of loans, which in turn is affected by the
interest rates at which such loans are made, general economic conditions and the
availability of funds for lending activities.
The Corporation's net income primarily depends on its net interest income, which
is the difference between the interest income earned on interest-earning assets,
such as loans and securities, and interest expense incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is dependent on the interest rate environment and the volume and composition of
interest-earning assets and interest-bearing liabilities. Provisions for loan
losses, service charges, gains on the sale of assets, other income, noninterest
expense and income taxes also affect net income.
Net income was $355,735 for the three months ended December 31, 1998, compared
to $208,660 for the three months ended December 31, 1997. Net income was
$748,253 for the six months ended December 31, 1998, compared to $421,830 for
the six months ended December 31, 1997. The increase in net income for the three
and six months ended December 31, 1998 was the result of an increase in net
interest income partially offset by an increase in noninterest expense.
Net interest income totaled $1,082,239 for the three months ended December 31,
1998, compared to $740,458 for the three months ended December 31, 1997,
representing an increase of $341,781, or 46.2%. Net interest income was
$2,161,402 for the six months ended December 31, 1998, compared to $1,477,489
for the six months ended December 31, 1997, representing an increase if
$683,913, or 46.3%. The changes in net interest income are attributable to a
large increase in the ratio of average interest-earning assets to average
interest-bearing liabilities for the comparable periods due to the funds from
the Conversion partially offset by a decrease in the interest rate spread.
- --------------------------------------------------------------------------------
(Continued)
17.
<PAGE> 18
HOME LOAN FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Interest and fees on loans increased $194,777, or 16.5%, from $1,179,244 for the
three months ended December 31, 1997 to $1,374,021 for the three months ended
December 31, 1998. Interest on fees on loans increased $374,093, or 16.1%, from
$2,316,432 for the six months ended December 31, 1997 to $2,690,525 for the six
months ended December 31, 1998. The increases were due to higher average
balances of loans.
Interest earned on securities totaled $178,744 for the three months ended
December 31, 1998, compared to $68,016 for the three months ended December 31,
1997. Interest earned on securities totaled $387,189 for the six months ended
December 31, 1998 compared to $142,506 for the six months ended December 31,
1997. The increases were a result of higher average balances of securities
partially offset by a decrease in the yield earned.
Interest on interest-bearing deposits and federal funds sold increased $82,062
from $15,533 for the three months ended December 31, 1997 to $97,595 for the
three months ended December 31, 1998. Interest on interest-bearing deposits and
federal funds sold increased $138,363 from $51,117 for the six months ended
December 31, 1997 to $189,480 for the six months ended December 31, 1998. The
increases were the result of higher average balances of interest-bearing
deposits and overnight funds.
Dividends on FHLB stock increased slightly for the three and six months ended
December 31, 1998, compared to the three and six months ended December 31, 1997,
primarily due to an increase in the number of shares of FHLB stock owned.
Interest paid on deposits increased $12,299 for the three months ended December
31, 1998, compared to the three months ended December 31, 1997. Interest paid on
deposits increased $20,519 for the six months ended December 31, 1998, compared
to the six months ended December 31, 1997. The increases in interest expense
were the result of a slight increase in the average balances of deposits
partially offset by a slight decrease in the cost of funds. The decrease in the
cost of funds was primarily due to general market conditions.
Interest on FHLB advances totaled $40,318 for the three months ended December
31, 1998, compared to $6,581 for the three months ended December 31, 1997.
Interest on FHLB advances totaled $60,032 for the six months ended December 31,
1998, compared to $6,581 for the six months ended December 31, 1997. The
borrowings were used to provide funding for fixed-rate loan demand.
The Corporation maintains an allowance for loan losses in an amount that, in
management's judgment, is adequate to absorb probable losses in the loan
portfolio. While management utilizes its best judgment and information
available, the ultimate adequacy of the allowance is dependent on a variety of
factors, including the performance of the loan portfolio, the economy, changes
in real estate values and interest rates and the view of the regulatory
authorities toward loan classifications. The provision for loan losses is
determined by management as the amount to be added to the allowance for loan
losses after net charge-offs have been deducted to bring the allowance to a
level which is considered adequate to absorb probable losses inherent in the
loan portfolio. The amount of the provision is based on management's monthly
review of the loan portfolio and consideration of such factors as historical
loss experience, known and inherent risks in the nature and volume of the
portfolio, general prevailing economic conditions, changes in the size and
composition of the loan portfolio and specific borrower considerations,
including the ability of the borrower to repay the loan and the estimated value
of the underlying collateral.
- --------------------------------------------------------------------------------
(Continued)
18.
<PAGE> 19
HOME LOAN FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The provision for loan losses totaled $30,000 for the three months ended
December 31, 1998 and 1997. The provision for loan losses totaled $60,000 for
the six months ended December 31, 1998 and 1997. The Corporation has not
experienced significant net charge-offs in any of the periods presented. The
Corporation's low historical charge-off history is the product of a variety of
factors, including the Corporation's underwriting guidelines, which generally
require a loan-to-value or projected completed value ratio of 80% for the
purchase or construction of one to four-family residential properties and 75%
for commercial real estate and land loans, established income information and
defined ratios of debt to income. The allowance for loan losses totaled
$276,763, or .42% of total loans, net of loans in process and net deferred loan
fees and costs at December 31, 1998, compared with $223,237, or 0.39%, at June
30, 1998. The increase in the allowance as a percentage of loans was primarily
due to growth in the nonresidential real estate and commercial loan portfolios.
Noninterest income includes service fees and other miscellaneous income. For the
three months ending December 31, 1998, noninterest income totaled $47,952
compared to $43,467 for the three months ended December 31, 1997. For the six
months ended December 31, 1998, noninterest income totaled $98,609 compared to
$86,814 for the six months ended December 31, 1997. During the 1998 periods, the
Corporation experienced increases in service charges and fees and miscellaneous
operating income.
Noninterest expense totaled $544,656 for the three months ended December 31,
1998 compared to $429,865 for the same period in 1997. Noninterest expense
totaled $1,032,358 for the six months ended December 31, 1998, compared to
$844,973 for the same period in 1997. This increase was due primarily to
increases in compensation and benefits, computer processing and other expense.
The increase in compensation and benefits was the result of normal, annual merit
increases and the establishment of the Corporation's ESOP and RRP.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The provision for income taxes totaled $199,800
and $419,400 for the three and six months ended December 31, 1998 compared to
$115,400 and $237,500 for the three and six months ended December 31, 1997.
- --------------------------------------------------------------------------------
(Continued)
19.
<PAGE> 20
HOME LOAN FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. These
activities are summarized below for the six months ended December 31, 1998 and
1997.
<TABLE>
<CAPTION>
Six Months
Ended December 31,
------------------
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Net income $ 748 $ 421
Adjustments to reconcile net income to net cash from
operating activities 139 186
------- -------
Net cash from operating activities 887 607
Net cash from investing activities (5,956) (3,193)
Net cash from financing activities 3,645 351
------- -------
Net change in cash and cash equivalents (1,424) (2,235)
Cash and cash equivalents at beginning of period 7,657 4,681
------- -------
Cash and cash equivalents at end of period $ 6,233 $ 2,446
======= =======
</TABLE>
The Corporation's principal sources of funds are deposits, loan repayments,
maturities of securities, and other funds provided by operations. The
Corporation also has the ability to borrow from the FHLB. While scheduled loan
repayments and maturing securities are relatively predictable, deposit flows and
early loan prepayments are influenced by interest rates, general economic
conditions, and competition. The Corporation maintains investments in liquid
assets based on management's assessment of (1) need for funds, (2) expected
deposit flows, (3) yields available on short-term liquid assets and (4)
objectives of the asset/liability management program.
Office of Thrift Supervision ("OTS") regulations presently require the Bank to
maintain an average daily balance of investments in United States Treasury,
federal agency obligations and other investments having maturities of five years
or less in an amount equal to 4% of the sum of the Bank's average daily balance
of net withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds on which the Bank may rely, if necessary, to fund
deposit withdrawals or other short-term funding needs. At December 31, 1998, the
Bank's regulatory liquidity was 35.57%. At such date, the Corporation had
commitments to originate variable rate residential real estate mortgage loans
totaling $468,000 and fixed rate residential real estate mortgage loans totaling
$460,000. Loan commitments are generally for 30 days. The Corporation considers
its liquidity and capital reserves sufficient to meet its outstanding short- and
long-term needs. See Note 5 of the Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
(Continued)
20.
<PAGE> 21
HOME LOAN FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Bank is required by regulations to meet certain minimum capital
requirements, which must be generally as stringent as the requirements
established for commercial banks. Failure to meet minimum capital requirements
can initiate certain mandatory actions that, if undertaken, could have a direct
material affect on the Bank's financial statements. Current capital requirements
call for tangible capital of 1.5% of adjusted total assets, core capital (which,
for the Bank, consists solely of tangible capital) of 3.0% of adjusted total
assets and risk-based capital (which, for the Bank, consists of core capital and
general valuation allowances) of 8.0% of risk-weighted assets (assets are
weighted at percentage levels ranging from 0% to 100% depending on their
relative risk). The following table indicates that the requirement for core
capital is 4.0% because that is the level that the OTS prompt corrective-action
regulations require to be considered adequately capitalized. At December 31,
1998, and June 30, 1998, the Bank complies with all regulatory capital
requirements. Based on the Bank's computed regulatory capital ratios, the Bank
is considered well capitalized under the applicable requirements at December 31,
1998 and June 30, 1998. Management is not aware of any matter after the latest
regulatory exam that would cause the Bank's capital category to change.
At December 31, 1998, and June 30, 1998 the Bank's actual capital levels and
minimum required levels were:
<TABLE>
<CAPTION>
Minimum Minimum
Required To Be Required To Be
Adequately Capitalized Well Capitalized
Under Prompt Corrective Under Prompt Corrective
Actual Action Regulations Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Total capital (to risk-
weighted assets) $ 20,390 42.9% $ 3,238 8.0% $ 4,407 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 20,113 42.3 1,619 4.0 2,428 6.0
Tier 1 (core) capital (to
adjusted total assets) 20,113 23.3 3,278 4.0 4,098 5.0
Tangible capital (to
adjusted total assets) 20,113 23.3 1,299 1.5 N/A
JUNE 30, 1998
Total capital (to risk-
weighted assets) $ 20,749 51.3% $ 3,238 8.0% $ 4,407 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 20,526 50.7 1,619 4.0 2,428 6.0
Tier 1 (core) capital (to
adjusted total assets) 20,526 25.1 3,278 4.0 4,098 5.0
Tangible capital (to
adjusted total assets) 20,526 25.1 1,299 1.5 N/A
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
21.
<PAGE> 22
HOME LOAN FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
In addition to certain federal income tax considerations, OTS regulations impose
limitations on the payment of dividends and other capital distributions by
savings associations. Under OTS regulations applicable to converted savings
associations, the Bank is not permitted to pay a cash dividend on its common
shares if its regulatory capital would, as a result of payment of such
dividends, be reduced below the amount required for the Liquidation Account, or
below applicable regulatory capital requirements prescribed by the OTS.
OTS regulations applicable to all savings and loan associations provide that a
savings association which immediately prior to, and on a pro forma basis after
giving effect to, a proposed capital distribution (including a dividend) has
total capital (as defined by OTS regulations) that is equal to or greater than
the amount of its capital requirements is generally permitted without OTS
approval (but subsequent to 30 days' prior notice to the OTS) to make capital
distributions, including dividends, during a calendar year in an amount not to
exceed the greater of (1) 100% of its net earnings to date during the calendar
year, plus an amount equal to one-half of the amount by which its total capital
to assets ratio exceeded its required capital to assets ratio at the beginning
of the calendar year, or (2) 75% of its net earnings for the most recent four
quarter period. Savings associations that meet the capital requirements but have
been notified by the OTS that they are in need of more than normal supervision
will be subject to restrictions on dividends. A savings association that fails
to meet current minimum capital requirements is prohibited from making any
capital distributions without the prior approval of the OTS.
The Bank currently meets all of its capital requirements and, unless the OTS
determines that the Bank is an institution requiring more than normal
supervision, the Bank may pay dividends in accordance with the foregoing
provisions of OTS regulations.
In October 1998, the Bank agreed to acquire real estate in West Lafayette, Ohio
and announced plans to construct a new, full-service branch banking office. The
total projected cost of the branch banking office is expected to be $782,000. As
of December 31, 1998, the Bank has not paid any costs related to this office.
In October 1998, the Board of Directors of the Corporation authorized the
purchase of up to 5% of the Corporation's outstanding common shares over a six
month period. As of December 31, 1998, 23,070 shares have been purchased under
the 5% repurchase.
YEAR 2000 CONSIDERATIONS
The Bank's lending and deposit activities are almost entirely dependent upon
computer systems which process and record transactions, although the Bank can
effectively operate with manual systems for brief periods when its electronic
systems malfunction or cannot be accessed. The Bank uses the services of a
nationally-recognized data processing service bureau that specializes in data
processing for financial institutions. In addition to its basic operating
activities, the Bank's facilities and infrastructure, such as security systems
and communications equipment, are dependent to varying degrees upon computer
systems.
In 1997, the Bank began the process of identifying any Year 2000 related
problems that may be experienced by its computer operated or dependent systems.
The Bank has contacted the companies that supply or service the Bank's computer
operated or dependent systems to obtain confirmation that each such system that
is material to the operations of the Bank is either currently Year 2000
compliant or is expected to be Year 2000 compliant. With respect to systems that
cannot presently be confirmed as Year 2000 compliant, the Bank will continue to
work with the appropriate supplier or servicer to ensure that all
- --------------------------------------------------------------------------------
(Continued)
22.
<PAGE> 23
HOME LOAN FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
such systems will be rendered compliant in a timely manner, with minimal expense
to the Bank or disruption of the Bank's operations. As of December 31, 1998, the
Bank is not aware of any suppliers or servicers that will be unable to certify
Year 2000 compliance with respect to any systems the failure of which would have
a material adverse effect on the Bank's operations, financial condition or
results. The Bank has also identified three companies whose services are deemed
critical to the mission of the Bank and received assurances that such companies
will be Year 2000 compliant. Two of the three mission critical systems have been
tested for Year 2000 compliance with no Year 2000 problems being noted. The
third mission critical system will be tested in February 1999. As a contingency
plan, however, the Bank has determined that if such service providers were to
have their systems fail, the Bank would implement manual systems until such
systems could be re-established. The Bank does not anticipate that such
short-term manual systems would have a material adverse effect on the Bank's
operations. The expense of such a change in suppliers or servicers is not
expected to be material to the Bank. The Bank has examined its computer hardware
and software and determined that it will cost approximately $15,000 to make such
systems Year 2000 compliant. Approximately $11,000 of the $15,000 has been
incurred as of December 31, 1998. At this time, however, any additional expense
that may be incurred by the Bank in connection with Year 2000 issues cannot be
determined.
In addition to possible expense related to its own systems, the Bank could incur
losses if loan payments are delayed due to Year 2000 problems affecting any of
the Bank's significant borrowers or impairing the payroll systems of large
employers in the Bank's primary market area. Because the Bank's loan portfolio
is highly diversified with regard to individual borrowers and types of
businesses and the Bank's primary market area is not significantly dependent
upon one employer or industry, the Bank does not expect any significant or
prolonged Year 2000 related difficulties that will affect net earnings or cash
flow.
- --------------------------------------------------------------------------------
23.
<PAGE> 24
HOME LOAN FINANCIAL CORPORATION
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
No matters to be reported.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. 27: Financial Data Schedule
(b) No current reports on Form 8-K were filed by the small business
issuer during the quarter ended December 31, 1998.
- --------------------------------------------------------------------------------
24.
<PAGE> 25
HOME LOAN FINANCIAL CORPORATION
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirement of the Securities Exchange Act of 1934, the small
business issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 11, 1999 /s/ Robert C. Hamilton
----------------- -------------------------------------
Robert C. Hamilton
President and Chief Executive Officer
Date: February 11, 1999 /s/ Preston W. Bair
----------------- -------------------------------------
Preston W. Bair
Secretary, Treasurer and Chief
Financial Officer
- --------------------------------------------------------------------------------
25.
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
<S> <C> <C>
27 Financial Data Schedule 27
</TABLE>
- --------------------------------------------------------------------------------
26.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> $2,615
<INT-BEARING-DEPOSITS> 2,206
<FED-FUNDS-SOLD> 3,450
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,602
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 65,125
<ALLOWANCE> 277
<TOTAL-ASSETS> 86,449
<DEPOSITS> 51,877
<SHORT-TERM> 0
<LIABILITIES-OTHER> 802
<LONG-TERM> 3,000
0
0
<COMMON> 0
<OTHER-SE> 30,770
<TOTAL-LIABILITIES-AND-EQUITY> 86,449
<INTEREST-LOAN> 2,691
<INTEREST-INVEST> 401
<INTEREST-OTHER> 189
<INTEREST-TOTAL> 3,281
<INTEREST-DEPOSIT> 1,060
<INTEREST-EXPENSE> 1,120
<INTEREST-INCOME-NET> 2,161
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,032
<INCOME-PRETAX> 1,168
<INCOME-PRE-EXTRAORDINARY> 748
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 748
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
<YIELD-ACTUAL> 4.89
<LOANS-NON> 0
<LOANS-PAST> 94
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 223
<CHARGE-OFFS> 7
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 277
<ALLOWANCE-DOMESTIC> 277
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 48
</TABLE>
