<PAGE> 1
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] 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) has 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 May 11, 1999 the latest practical date, 2,135,837 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
HOME LOAN FINANCIAL CORPORATION
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................................................... 7
Notes to Consolidated Financial Statements ............................................. 8
Item 2. Management's Discussion and Analysis............................................... 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 25
Item 2. Changes in Securities and Use of Proceeds.......................................... 25
Item 3. Defaults Upon Senior Securities.................................................... 25
Item 4. Submission of Matters to a Vote of Security Holders................................ 25
Item 5. Other Information.................................................................. 25
Item 6. Exhibits and Reports on Form 8-K................................................... 25
SIGNATURES ........................................................................................... 26
</TABLE>
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2.
<PAGE> 3
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,602,938 $ 1,323,331
Interest-bearing deposits in other banks 327,191 533,817
Overnight deposits -- 1,000,000
Federal funds sold 2,500,000 4,800,000
--------------- ----------------
Total cash and cash equivalents 4,430,129 7,657,148
Interest-bearing time deposits 38,577 2,037,137
Securities available for sale 7,998,316 14,018,560
Mortgage-backed securities available for sale 21,042,986 --
Loans, net 69,255,001 56,824,312
Premises and equipment, net 575,941 471,799
Federal Home Loan Bank stock 1,160,100 393,000
Accrued interest receivable 599,932 475,183
Other assets 207,190 37,850
--------------- ----------------
Total assets $ 105,308,172 $ 81,914,989
=============== ================
LIABILITIES
Deposits $ 53,895,239 $ 48,537,875
Federal Home Loan Bank advances 20,000,000 1,000,000
Accrued interest payable 454,821 480,365
Accrued expenses and other liabilities 163,569 332,115
--------------- ----------------
Total liabilities 74,513,629 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 21,984,401 21,948,437
Retained earnings - substantially restricted 12,003,573 11,285,160
Treasury stock, at cost, 42,070 shares at March 31, 1999 (581,383) --
Unearned employee stock ownership plan shares (1,588,780) (1,678,690)
Unearned recognition and retention plan shares (1,071,669) --
Net unrealized gain on securities available for sale,
net of tax 48,401 9,727
--------------- ----------------
Total shareholders' equity 30,794,543 31,564,634
--------------- ----------------
Total liabilities and shareholders' equity $ 105,308,172 $ 81,914,989
=============== ================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
3.
<PAGE> 4
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 1,376,896 $ 1,183,000 $ 4,067,421 $ 3,499,432
Securities 219,878 65,618 607,067 208,124
Dividends on Federal Home Loan
Bank stock 10,156 6,782 24,397 20,279
Interest-bearing deposits and federal
funds sold 88,080 23,162 277,560 74,279
------------ ------------ ------------ ------------
Total interest income 1,695,010 1,278,562 4,976,445 3,802,114
INTEREST EXPENSE
Deposits 536,618 544,745 1,596,619 1,584,227
Federal Home Loan Bank advances 106,796 9,782 166,828 16,363
------------ ------------ ------------ ------------
Total interest expense 643,414 554,527 1,763,447 1,600,590
------------ ------------ ------------ ------------
NET INTEREST INCOME 1,051,596 724,035 3,212,998 2,201,524
Provision for loan losses 30,000 30,000 90,000 90,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,021,596 694,035 3,122,998 2,111,524
NONINTEREST INCOME
Service charges and other fees 32,136 32,659 103,823 98,488
Other income 11,111 9,837 38,033 30,822
------------ ------------ ------------ ------------
Total noninterest income 43,247 42,496 141,856 129,310
NONINTEREST EXPENSE
Salaries and employee benefits 351,007 270,580 942,264 745,660
Occupancy and equipment 43,954 36,733 115,506 107,013
State franchise taxes 39,950 36,900 116,150 110,700
Computer processing 32,812 28,935 98,263 77,703
SAIF deposit insurance premiums 6,156 7,423 22,981 22,644
Legal, audit and supervisory exam fees 26,570 17,400 71,570 52,876
Director fees 20,800 21,625 63,225 60,625
Other expense 61,090 43,831 184,738 131,179
------------ ------------ ------------ ------------
Total noninterest expense 582,339 463,427 1,614,697 1,308,400
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 482,504 273,104 1,650,157 932,434
Income tax expense 181,300 91,300 600,700 328,800
------------ ------------ ------------ ------------
NET INCOME 301,204 181,804 1,049,457 603,634
Other comprehensive income, net of tax 11,305 (3,794) 38,674 6,171
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME $ 312,509 $ 178,010 $ 1,088,131 $ 609,805
============ ============ ============ ============
BASIC EARNINGS PER COMMON SHARE $ .15 $ -- $ .52 $ --
============ ============ ============ ============
DILUTED EARNINGS PER COMMON SHARE $ .15 $ -- $ .51 $ --
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4.
<PAGE> 5
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Additional Unearned Unearned
Paid-In Retained ESOP RRP
Capital Earnings Shares Shares
------- -------- ------ ------
<S> <C> <C> <C> <C>
Balance at July 1, 1997 $ -- $ 10,366,232 $ -- $ --
Net income for the period -- 603,634 -- --
Sale of 2,248,250 shares of no
par common stock, net of
conversion costs 21,880,273 -- -- --
Purchase of 179,860 shares
under ESOP plan -- -- (1,798,600) --
Commitment to release 742
ESOP shares 4,446 -- 7,420 --
Change in fair value of securities
available for sale -- -- -- --
------------ ------------ ------------ ----------
Balance at March 31, 1998 $ 21,884,719 $ 10,969,866 $ (1,791,180) $ --
============ ============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Unrealized
Gain on
Securities
Treasury Available
Shares for Sale Total
------ -------- -----
<S> <C> <C> <C>
Balance at July 1, 1997 $ -- $ 4,032 $ 10,370,264
Net income for the period -- -- 603,634
Sale of 2,248,250 shares of no
par common stock, net of
conversion costs -- -- 21,880,273
Purchase of 179,860 shares
under ESOP plan -- -- (1,798,600)
Commitment to release 742
ESOP shares -- -- 11,866
Change in fair value of securities
available for sale -- 6,171 6,171
---------- ------------ ------------
Balance at March 31, 1998 $ -- $ 10,203 $ 31,073,608
========== ============ ============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
5.
<PAGE> 6
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
Nine Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Additional Unearned Unearned
Paid-In Retained ESOP RRP
Capital Earnings Shares Shares
------- -------- ------ ------
<S> <C> <C> <C> <C>
Balance at July 1, 1998 $ 21,948,437 $ 11,285,160 $ (1,678,690) $ --
Net income for the period -- 1,049,457 -- --
Cash dividend - $.16 per share -- (331,044) -- --
Commitment to release 8,991
ESOP shares 35,964 -- 89,910 --
Purchase of 89,930 shares for
recognition and retention plan -- -- -- (1,157,069)
Compensation expense with respect to
recognition and retention plan -- -- -- 85,400
Purchase of 42,070 treasury shares -- -- -- --
Change in fair value of securities
available for sale -- -- -- --
------------ ------------ ------------ ------------
Balance at March 31, 1999 $ 21,984,401 $ 12,003,573 $ (1,588,780) $ (1,071,669)
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Unrealized
Gain on
Securities
Treasury Available
Shares for Sale Total
------ -------- -----
<S> <C> <C> <C>
Balance at July 1, 1998 $ -- $ 9,727 $ 31,564,634
Net income for the period -- -- 1,049,457
Cash dividend - $.16 per share -- -- (331,044)
Commitment to release 8,991
ESOP shares -- -- 125,874
Purchase of 89,930 shares for
recognition and retention plan -- -- (1,157,069)
Compensation expense with respect to
recognition and retention plan -- -- 85,400
Purchase of 42,070 treasury shares (581,383) -- (581,383)
Change in fair value of securities
available for sale -- 38,674 38,674
------------ ------------ ------------
Balance at March 31, 1999 $ (581,383) $ 48,401 $ 30,794,543
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6.
<PAGE> 7
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Nine Months Ended
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,049,457 $ 603,634
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 62,826 63,450
Securities amortization and accretion 6,084 (394)
Provision for loan losses 90,000 90,000
FHLB stock dividends (24,200) (20,100)
Gain on sale of securities available for sale -- (121)
Compensation expense for ESOP shares 125,874 11,866
Compensation expense for RRP shares 85,400 --
Net change in accrued interest receivable and other assets (294,089) 65,395
Net change in accrued expenses and other liabilities (214,013) (92,221)
Net change in deferred loan fees 23,184 6,495
--------------- ---------------
Net cash from operating activities 910,523 728,004
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from maturities 6,750,000 750,020
Purchases (748,906) --
Mortgage-backed securities available for sale:
Proceeds from maturities and principal paydowns 192,767 --
Purchases (21,164,090) --
Net change in interest-bearing time deposits 1,998,560 (2,000,000)
Net change in loans (12,543,873) (5,763,597)
Purchase of FHLB stock (742,900) --
Premises and equipment expenditures (166,968) (23,369)
--------------- ---------------
Net cash from investing activities (26,425,410) (7,036,946)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 5,357,364 (1,238,736)
Proceeds from short-term FHLB advances 3,000,000 --
Proceeds from long-term FHLB advances 16,000,000 --
Cash dividends paid (331,044) --
Purchase of stock for RRP (1,157,069) --
Purchase of treasury stock (581,383) --
Proceeds from issuance of common stock,
net of conversion costs -- 21,880,273
Cash provided to ESOP -- (1,798,600)
--------------- ---------------
Net cash from financing activities 22,287,868 18,842,937
--------------- ---------------
Net change in cash and cash equivalents (3,227,019) 12,533,995
Cash and cash equivalents at beginning of period 7,657,148 4,681,049
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,430,129 $ 17,215,044
=============== ===============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,788,991 $ 1,635,409
Income taxes 752,000 402,849
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
7.
<PAGE> 8
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
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 March 31, 1999, 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.
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 is 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.
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.
- --------------------------------------------------------------------------------
(Continued)
8.
<PAGE> 9
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 No. 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 No. 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 No. 134 was effective on January 1, 1999 and did not
have a significant impact on the Corporation's financial statements.
- --------------------------------------------------------------------------------
(Continued)
9.
<PAGE> 10
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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)
10.
<PAGE> 11
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES
Securities at March 31, 1999 and June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
-------------------------March 31, 1999------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury notes $ 749,498 $ 2,922 $ -- $ 752,420
U.S. Government agencies 7,249,002 9,568 (12,674) 7,245,896
-------------- ---------- ----------- ---------------
$ 7,998,500 $ 12,490 $ (12,674) $ 7,998,316
============== ========== =========== ===============
MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE
U.S. Government agencies $ 20,969,467 $ 73,519 $ -- $ 21,042,986
============== ========== =========== ===============
--------------------------June 30, 1998------------------------
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 March 31, 1999, 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 $ 4,249,498 $ 4,252,728
Due after one year through five years 3,749,002 3,745,588
-------------- ---------------
7,998,500 7,998,316
Mortgage-backed securities 20,969,467 21,042,986
-------------- ---------------
$ 28,967,967 $ 29,041,302
============== ===============
</TABLE>
During the nine months ended March 31, 1998, 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 nine months ended March 31, 1999 and 1998.
- --------------------------------------------------------------------------------
(Continued)
11.
<PAGE> 12
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - LOANS
Loans at March 31, 1999 and June 30, 1998 were as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---- ----
<S> <C> <C>
Residential real estate loans:
1 - 4 family $ 47,417,178 $ 39,551,521
Home equity 1,705,758 1,527,535
Nonresidential real estate 5,339,571 4,307,546
Real estate construction 2,320,767 1,368,801
Land 1,158,689 686,453
------------------ ------------------
Total real estate loans 57,941,963 47,441,856
Commercial loans 2,889,298 1,429,324
Consumer loans:
Home improvement 3,946,465 3,993,214
Automobile 3,355,404 2,997,589
Deposit 359,213 421,710
Credit card 450,439 410,624
Other 1,877,773 1,527,817
------------------ ------------------
Total consumer loans 9,989,294 9,350,954
------------------ ------------------
Total loans 70,820,555 58,222,134
Less:
Allowance for loan losses (297,371) (223,237)
Loans in process (1,124,160) (1,053,746)
Net deferred loan fees and costs (144,023) (120,839)
------------------ ------------------
$ 69,255,001 $ 56,824,312
================== ==================
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 276,763 $ 174,593 $ 223,237 $ 119,218
Provision for losses 30,000 30,000 90,000 90,000
Charge-offs (10,722) (6,808) (17,915) (12,350)
Recoveries 1,330 559 2,049 1,476
------------ ------------ ------------ ------------
Balance at end of period $ 297,371 $ 198,344 $ 297,371 $ 198,344
============ ============ ============ ============
</TABLE>
As of March 31, 1999 and June 30, 1998 and for the three and nine months ended
March 31, 1999 and 1998, impaired loans were immaterial. No loans were on
nonaccrual status at March 31, 1999 and June 30, 1998.
- --------------------------------------------------------------------------------
(Continued)
12.
<PAGE> 13
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
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 March 31, 1999 and June 30, 1998 follows:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---- ----
<S> <C> <C>
Lines of credit-variable rate $ 2,029,000 $ 1,728,000
1-4 family residential real estate-variable rate 80,000 782,000
1-4 family residential real estate-fixed rate $ 1,160,000 134,000
Commercial real estate-variable rate -- 225,000
Credit card arrangements-fixed rate $ 988,000 771,000
</TABLE>
The interest rates on fixed-rate commitments ranged from 6.50% to 13.90% at
March 31, 1999 and 7.13% to 13.90% at June 30, 1998. The interest rates on
variable rate commitments ranged from 6.50% to 8.50% at March 31, 1999 and 6.75%
to 7.00% at June 30, 1998.
- --------------------------------------------------------------------------------
(Continued)
13.
<PAGE> 14
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
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 $40,459
and $125,874 for the three and nine months ended March 31, 1999 and $11,866 for
the three and nine months ended March 31, 1998. The ESOP shares at March 31,
1999 and June 30, 1998 were as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---- ----
<S> <C> <C>
Allocated shares 11,157 --
Shares committed to be released for allocation 9,825 11,991
Unreleased shares 158,878 167,869
------------- --------------
Total ESOP shares 179,860 179,860
============= ==============
Fair value of unreleased shares $ 1,985,975 $ 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 the 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)
14.
<PAGE> 15
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
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 $46,800 and $85,400 for the three and
nine months ended March 31, 1999.
NOTE 9 - EARNINGS PER SHARE
The factors used in the earnings per share computation are as follows.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, 1999 March 31, 1999
-------------- --------------
<S> <C> <C>
Basic
Net income $ 301,204 $ 1,049,457
============= =============
Weighted average common shares outstanding 2,214,602 2,235,081
Less: Average unallocated ESOP shares (160,375) (163,373)
Less: Average nonvested RRP shares (84,919) (46,764)
------------- -------------
Average shares 1,969,308 2,024,944
============= =============
Basic earnings per common share $ 0.15 $ 0.52
============= =============
Diluted
Net income $ 301,204 $ 1,049,457
============= =============
Weighted average common shares outstanding
for basic earnings per common share 1,969,308 2,024,944
Add: Dilutive effects of average nonvested RRP shares 39 1,195
Add: Dilutive effects of assumed exercises of stock options 15,599 13,549
------------- -------------
Average shares and dilutive potential
common shares 1,984,946 2,039,688
============= =============
Diluted earnings per common share $ 0.15 $ 0.51
============= =============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
15.
<PAGE> 16
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 9 - EARNINGS PER SHARE (Continued)
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 periods ended March 31,
1998 was computed based on net income of the Corporation since March 25, 1998.
The weighted average number of shares outstanding during the three and nine
months ended March 31, 1998 was 2,068,514. Net income of the Corporation
subsequent to March 25, 1998 was $5,684 which results in earnings per share of
less than $.01.
NOTE 10 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Unrealized holding gains and losses on
available-for-sale securities $ 17,129 $ (5,750) $ 58,597 $ 9,473
Reclassification adjustments for (gains) and
losses later recognized in income -- -- -- (121)
------------- ------------- ------------- --------------
Net unrealized gains and losses 17,129 (5,750) 58,597 9,352
Tax effect (5,824) 1,956 (19,923) (3,181)
------------- ------------- ------------- --------------
Other comprehensive income $ 11,305 $ (3,794) $ 38,674 $ 6,171
============= ============= ============= ==============
</TABLE>
- --------------------------------------------------------------------------------
16.
<PAGE> 17
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
INTRODUCTION
In the following pages, management presents an analysis of the financial
condition of Home Loan Financial Corporation as of March 31, 1999 compared to
June 30, 1998, and results of operations for the three and nine months ended
March 31, 1999 compared with the same periods in 1998. This discussion is
designed to provide a more comprehensive review of the operating results and
financial position than what 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 March 31, 1999 were $105.3 million compared to $81.9 million at
June 30, 1998, an increase of $23.4 million, or 28.6%. The increase in total
assets was primarily in loans and mortgage-backed securities, which were
partially funded by a decline in securities available for sale, cash and cash
equivalents and interest-bearing time deposits. Loan growth, which totaled $12.4
million, consisted primarily of one to four family residential real estate
loans, which increased $7.9 million, and commercial loans, nonresidential real
estate loans, and real estate construction loans, which increased $1.5 million,
$1.0 million and $1.0 million, respectively. 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. The
increase in mortgage-backed securities, which totaled $21.0 million, were
purchased in March 1999, funded primarily with convertible fixed-rate Federal
Home Loan Bank advances. The FHLB advances and subsequent investment in
mortgage-backed securities was done to better leverage the Corporation's
capital.
- --------------------------------------------------------------------------------
(Continued)
17.
<PAGE> 18
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Total deposits increased $5.4 million, from $48.5 million at June 30, 1998, to
$53.9 million at March 31, 1999. The increase in deposits was primarily in money
market accounts, which increased $3.1 million 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 March 31, 1999.
The certificates of deposit portfolio as a percent of total deposits declined
from 53.8% at June 30, 1998 to 51.1% at March 31, 1999. Almost all certificates
of deposit mature in less than three years with the majority maturing in the
next year.
Federal Home Loan Bank advances totaled $20.0 million at March 31, 1999,
compared to $1.0 million at June 30, 1998, an increase of $19.0 million. The
increase in FHLB advances was primarily due to the Corporation using a
leveraging strategy to borrow funds for investment in mortgage-backed securities
as discussed above. Also, in the recent past, the Corporation had not
aggressively marketed or priced fixed-rate mortgages due to the interest-rate
risk exposure. Management intends to be more competitive with this product.
Although the borrowings reprice or mature in a shorter timeframe than what a 30
year fixed-rate mortgage would, if it were to amortize to maturity, the
borrowings still assist the Corporation in managing the interest rate exposure
of originating fixed-rate loans. The majority of the Bank's loan portfolio
continues to be variable rate. At March 31, 1999, FHLB advances consisted of a
$3.0 million short-term borrowing due June 1999 with an interest rate of 5.02%,
a $10.0 million long-term borrowing due March 2004 with a fixed interest rate of
5.37% until March 2001, a $4.0 million long-term borrowing due March 2009 with a
fixed interest rate of 5.66% until March 2004, a $1.0 million long-term
borrowing due June 2008 with a fixed interest rate of 5.66% until June 2003, and
a $2.0 million long-term borrowing due September 2008 with a fixed interest rate
of 5.18% until September 2003. The interest rates on the long-term borrowings
are fixed for a specified number of years, then convertible to variable rates at
the option of the FHLB. Interest is due monthly and principal is due upon
maturity. If the convertible option is exercised, the advance may be prepaid
without penalty. As an additional source of liquidity, the Bank also maintains a
$10 million cash management line of credit with the FHLB. There were no
borrowings outstanding on this line of credit at March 31, 1999 or June 30,
1998.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND MARCH 31, 1998
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 $301,204 for the three months ended March 31, 1999, compared to
$181,804 for the three months ended March 31, 1998. The increase in net income
for the three months ended March 31, 1999 was the result of an increase in net
interest income partially offset by an increase in noninterest expense.
- --------------------------------------------------------------------------------
(Continued)
18.
<PAGE> 19
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Net interest income totaled $1,051,596 for the three months ended March 31,
1999, compared to $724,035 for the three months ended March 31, 1998,
representing an increase of $327,561, or 45.2%. The change in net interest
income is 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 proceeds from the Conversion and overall growth of
the Corporation's interest-bearing assets, partially offset by a decrease in the
interest rate spread.
Interest and fees on loans increased $193,896, or 16.4%, from $1,183,000 for the
three months ended March 31, 1998 to $1,376,896 for the three months ended March
31, 1999. The increase was due to a higher average balance of loans.
Interest earned on securities totaled $219,878 for the three months ended March
31, 1999, compared to $65,618 for the three months ended March 31, 1998. The
increase was a result of a higher average balance of securities partially offset
by a decrease in the yield earned.
Interest on interest-bearing deposits and federal funds sold increased $64,918
from $23,162 for the three months ended March 31, 1998 to $88,080 for the three
months ended March 31, 1999. The increase was the result of a higher average
balance of interest-bearing deposits and overnight funds.
Dividends on FHLB stock increased for the three months ended March 31, 1999,
compared to the three months ended March 31, 1998, primarily due to an increase
in the number of shares of FHLB stock owned.
Interest paid on deposits decreased $8,127 for the three months ended March 31,
1999, compared to the three months ended March 31, 1998. The decrease in
interest expense was the result of a slight decrease in the cost of funds
partially offset by an increase in the average balance of deposits. The decrease
in the cost of funds was primarily due to general market conditions.
Interest on FHLB advances totaled $106,796 for the three months ended March 31,
1999, compared to $9,782 for the three months ended March 31, 1998. The increase
in interest expense was the result of an increase in the average balance of FHLB
advances. The additional borrowings were used to provide funding for fixed-rate
loan demand and as part of the capital leveraging strategy discussed above.
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)
19.
<PAGE> 20
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The provision for loan losses totaled $30,000 for the three months ended March
31, 1999 and 1998. 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 $297,371, or 0.43% 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 March 31, 1999, noninterest income totaled $43,247 compared
to $42,496 for the three months ended March 31, 1998.
Noninterest expense totaled $582,339 for the three months ended March 31, 1999,
compared to $463,427 for the same period in 1998. This increase was due
primarily to increases in salaries and employee benefits, occupancy and
equipment expense, legal, audit and supervisory exam fees, and other expense.
The increase in salaries and employee benefits was the result of normal, annual
merit increases and the establishment of the Corporation's ESOP and RRP. The
occupancy and equipment expense increase was due to increased depreciation on
furniture, fixtures and equipment. The increase in legal, audit and supervisory
exam fees and other expenses was primarily due to the change in the
Corporation's structure as a result of the Conversion.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The effective tax rate was 37.6% for the three
months ended March 31, 1999, compared to 33.4% for the three months ended March
31, 1998. The primary reason for the increase in the effective tax rate relates
to the Corporation's ESOP. The excess of fair value over the cost of the shares
in the plan, which is included in salary and employee benefits expense, is not
deductible for federal income taxes. The ESOP did not begin until late March
1998.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED MARCH 31, 1999 AND MARCH 31, 1998
Net income was $1,049,457 for the nine months ended March 31, 1999, compared to
$603,634 for the nine months ended March 31, 1998. The increase in net income
for the nine months ended March 31, 1999 was the result of an increase in net
interest income partially offset by an increase in noninterest expense.
Net interest income was $3,212,998 for the nine months ended March 31, 1999,
compared to $2,201,524 for the nine months ended March 31, 1998, an increase of
$1,011,474, or 45.9%. The change in net interest income is 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 and overall growth of the Corporation's interest-earning assets,
partially offset by a decrease in the interest rate spread.
Interest and fees on loans increased $567,989, or 16.2%, from $3,499,432 for the
nine months ended March 31, 1998 to $4,067,421 for the nine months ended March
31, 1999. The increase was due to a higher average balance of loans.
- --------------------------------------------------------------------------------
(Continued)
20.
<PAGE> 21
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Interest earned on securities totaled $607,067 for the nine months ended March
31, 1999, compared to $208,124 for the nine months ended March 31, 1998. This
increase was a result of a higher average balance of securities partially offset
by a decrease in the yield earned.
Interest on interest-bearing deposits and federal funds sold increased $203,281
from $74,279 for the nine months ended March 31, 1998 to $277,560 for the nine
months ended March 31, 1999. The increase was the result of a higher average
balance of interest-bearing deposits and overnight funds.
Dividends on FHLB stock increased slightly for the nine months ended March 31,
1999, compared to the nine months ended March 31, 1998, primarily due to an
increase in the number of shares of FHLB stock owned.
Interest paid on deposits increased $12,392 for the nine months ended March 31,
1999, compared to the nine months ended March 31, 1998. The increase in interest
expense was the result of a slight increase in the average balance 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 $166,828 for the nine months ended March 31,
1999, compared to $16,363 for the nine months ended March 31, 1998. The increase
in interest expense was the result of an increase in the average balance of FHLB
advances. The increased borrowings were used to provide funding for fixed-rate
loan demand and to purchase mortgage-backed securities as discussed above.
The provision for loan losses totaled $90,000 for the nine months ended March
31, 1999 and 1998. The Corporation has not experienced significant net
charge-offs in any of the periods presented.
Noninterest income includes service fees and other miscellaneous income. For the
nine months ended March 31, 1999, noninterest income totaled $141,856 compared
to $129,310 for the nine months ended March 31, 1998. The slight increase in
noninterest income was the result of the Corporation experiencing increases in
service charges and fees and miscellaneous operating income during the 1999
period.
Noninterest expense totaled $1,614,697 for the nine months ended March 31, 1999,
compared to $1,308,400 for the same period in 1998. This increase was due
primarily to increases in salaries and employee benefits, computer processing
expense, legal, audit and supervisory exam fees, and other expense. The increase
in salaries and employee benefits was the result of normal, annual merit
increases and the establishment of the Corporation's ESOP and RRP. The increase
in legal, audit and supervisory exam fees and other expense was primarily due to
the change in the Corporation's structure as a result of the Conversion.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The effective tax rate was 36.4% for the nine
months ended March 31, 1999, compared to 35.3% for the nine months ended March
31, 1998. The reason for the increase in the effective tax rate is the same as
the explanation for the fluctuation during the three month periods.
- --------------------------------------------------------------------------------
(Continued)
21.
<PAGE> 22
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
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 nine months ended March 31, 1999 and
1998.
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
---------------
1999 1998
---- ----
(Dollars in thousands)
<S> <C> <C>
Net income $ 1,049 $ 604
Adjustments to reconcile net income to net cash from
operating activities (139) 124
------------ ------------
Net cash from operating activities 910 728
Net cash from investing activities (26,425) (7,037)
Net cash from financing activities 22,288 18,843
------------ ------------
Net change in cash and cash equivalents (3,227) 12,534
Cash and cash equivalents at beginning of period 7,657 4,681
------------ ------------
Cash and cash equivalents at end of period $ 4,430 $ 17,215
============ ============
</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 March 31, 1999, the
Bank's regulatory liquidity was 30.81%. At such date, the Corporation had
commitments to originate variable rate residential real estate mortgage loans
totaling $80,000 and fixed rate residential real estate mortgage loans totaling
$1,160,000. 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)
22.
<PAGE> 23
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Bank is required by regulations to meet certain minimum capital
requirements. 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 March 31, 1999, 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 March 31, 1999 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 March 31, 1999 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>
MARCH 31, 1999
Total capital (to risk-
weighted assets) $ 20,748 38.6% $ 4,302 8.0% $ 5,377 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 20,451 38.0 2,151 4.0 3,226 6.0
Tier 1 (core) capital (to
adjusted total assets) 20,451 19.4 4,209 4.0 5,262 5.0
Tangible capital (to
adjusted total assets) 20,451 19.4 1,579 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)
23.
<PAGE> 24
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
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 March 31, 1999, the Bank had paid costs of $135,998 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 March 31, 1999, 42,070 shares have been purchased under
the 5% repurchase.
On April 7, 1999, the Corporation declared a special cash distribution in the
amount of $4.00 per share to each shareholder of record on April 30, 1999, with
a payable date of May 14, 1999. Management expects that a portion of the
distribution will be a nontaxable return of capital and that the exact amount
that will be considered nontaxable will be announced by the Corporation after
the conclusion of its operating results for its tax year ending December 31,
1999.
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.
The Bank has identified three companies whose services are deemed critical to
the mission of the Bank. All three mission critical systems have been tested for
Year 2000 compliance with no Year 2000 problems being noted. 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 $12,000 of the $15,000 has been
incurred as of March 31, 1999.
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.
- --------------------------------------------------------------------------------
(Continued)
24.
<PAGE> 25
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 March 31, 1999.
- --------------------------------------------------------------------------------
(Continued)
25.
<PAGE> 26
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: May 11, 1999 /s/ Robert C. Hamilton
------------------------ ------------------------------------------
Robert C. Hamilton
President and Chief Executive Officer
Date: May 11, 1999 /s/ Preston W. Bair
------------------------- ------------------------------------------
Preston W. Bair
Secretary, Treasurer and Chief
Financial Officer
- --------------------------------------------------------------------------------
(Continued)
26.
<PAGE> 27
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
27 Financial Data Schedule 28
- --------------------------------------------------------------------------------
27.
<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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,603
<INT-BEARING-DEPOSITS> 366
<FED-FUNDS-SOLD> 2,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,041
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 69,255
<ALLOWANCE> 297
<TOTAL-ASSETS> 105,308
<DEPOSITS> 53,895
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 618
<LONG-TERM> 17,000
0
0
<COMMON> 0
<OTHER-SE> 30,795
<TOTAL-LIABILITIES-AND-EQUITY> 105,308
<INTEREST-LOAN> 4,067
<INTEREST-INVEST> 631
<INTEREST-OTHER> 278
<INTEREST-TOTAL> 4,976
<INTEREST-DEPOSIT> 1,597
<INTEREST-EXPENSE> 1,763
<INTEREST-INCOME-NET> 3,213
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,615
<INCOME-PRETAX> 1,650
<INCOME-PRE-EXTRAORDINARY> 1,049
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,049
<EPS-PRIMARY> .52
<EPS-DILUTED> .51
<YIELD-ACTUAL> 5.10
<LOANS-NON> 0
<LOANS-PAST> 17
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 223
<CHARGE-OFFS> 18
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 297
<ALLOWANCE-DOMESTIC> 297
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 65
</TABLE>
