<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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)
Securities registered pursuant to Section 12(g) of the Act:
Common shares, no par value per share
-------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[X]
The Issuer's revenues for the fiscal year ended June 30, 1999, were $7,114,253.
Based upon the closing price quoted by the Nasdaq National Market, the aggregate
market value of the voting stock held by nonaffiliates of the Registrant on
September 20, 1999, was $14.1 million. (The exclusion from such amount of the
market value of the shares owned by any person shall not be deemed an admission
by the Registrant that such person is an affiliate of the Registrant).
As of September 20, 1999, there were 1,991,145 of the Registrant's common shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Portions of 1999 Annual Report to
Shareholders Part III of Form 10-KSB - Portions of Proxy Statement for
the 1999 Annual Meeting of Shareholders
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
<PAGE> 2
PART I
ITEM 1. - DESCRIPTION OF BUSINESS
GENERAL
Home Loan Financial Corporation ("HLFC") was incorporated under Ohio law in
December 1997 for the purpose of purchasing all of the capital stock of The Home
Loan Savings Bank (the "Bank") issued in connection with the conversion of the
Bank from mutual to stock form (the "Conversion") together referred to as the
Corporation. On March 25, 1998, the effective date of the Conversion, HLFC
acquired 100 common shares of the Bank. The principal business of HLFC since the
effective date of the Conversion has been holding all of the issued and
outstanding shares of the Bank.
The Bank was organized as a mutual savings and loan association under Ohio law
in 1882 as "The Home Building Loan and Savings Company." In 1937, the name of
the Bank was changed to "The Home Loan & Savings Company," and in 1996, the Bank
adopted its present name. The Bank converted to the stock form of ownership on
March 25, 1998. As an Ohio savings and loan association, the Bank is subject to
supervision and regulation by the Office of Thrift Supervision (the "OTS"), the
Ohio Department of Commerce, Division of Financial Institutions (the "Division")
and the Federal Deposit Insurance Corporation (the "FDIC"). The Bank is a member
of the Federal Home Loan Bank (the "FHLB") of Cincinnati, and the deposits of
the Bank are insured up to applicable limits by the FDIC in the Savings
Association Insurance Fund (the "SAIF").
The Bank conducts business from its main office and one full-service branch,
both located in Coshocton, Ohio. The principal business of the Bank is the
origination of permanent mortgage loans on one- to four-family residential real
estate located in the Bank's primary market area, which consists of Coshocton
County, Ohio. The Bank also originates a limited number of loans for the
construction of one- to four-family residences and permanent mortgage loans
secured by nonresidential real estate in its primary market area. In addition to
real estate lending, the Bank originates commercial loans and various types of
consumer credits, including home improvement loans, education loans, loans
secured by savings accounts, motor vehicle loans, unsecured loans, credit cards
and loans for commercial business purposes. For liquidity and interest rate risk
management purposes, the Bank invests in interest-bearing deposits in other
financial institutions and U.S. Treasury and agency securities and
mortgage-backed and related securities. Funds for lending and other investment
activities are obtained primarily from savings deposits, which are insured up to
applicable limits by the FDIC in the SAIF, principal repayments of loans,
maturities of securities and borrowings from the FHLB.
Interest on loans and other investments is the Bank's primary source of income.
The Bank's principal expense is interest paid on deposit accounts and
borrowings. Operating results are dependent to a significant degree on the net
interest income of the Bank, which is the difference between interest earned on
loans and other investments and interest paid on deposits and borrowings. Like
most thrift institutions, the Bank's interest income and interest expense are
significantly affected by general economic conditions and by the policies of
various regulatory authorities.
PRIMARY MARKET AREA
The Bank's primary market area for lending and deposits is Coshocton County,
Ohio. The City of Coshocton, in which the Bank's two offices are located, is the
county seat of Coshocton County. Coshocton is approximately 35 miles north of
Zanesville, Ohio, and approximately 75 miles east of Columbus, Ohio.
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1.
<PAGE> 3
LENDING ACTIVITIES
GENERAL. The Bank's principal lending activity is the origination of
conventional real estate loans secured by one- to four-family residences located
in the Bank's primary market area. The Bank also originates a limited number of
loans for the construction of one- to four-family residences and permanent
mortgage loans secured by nonresidential real estate in its primary market area.
In addition to real estate lending, the Bank originates various types of
consumer credits, including home improvement loans, education loans, loans
secured by savings accounts, motor vehicle loans, unsecured loans, credit cards
and loans for commercial business purposes.
LOAN PORTFOLIO COMPOSITION. The following table presents certain information
regarding the composition of the Bank's loan portfolio at the dates indicated:
At June 30,
----------------------------------------
1999 1998
----------------------------------------
Percent of Percent of
Amount total loans Amount total loans
-------- ----------- ------ -----------
(Dollars in thousands)
Real estate loans:
One- to four-family $ 50,060 66.72% $ 39,552 67.93%
Home equity 1,812 2.42 1,528 2.62
Nonresidential 5,445 7.26 4,307 7.40
Construction and land 3,940 5.25 2,055 3.53
---------- ------- ---------- --------
Total real estate loans 61,257 81.65 47,442 81.48
Commercial loans 2,877 3.83 1,429 2.46
Consumer loans:
Home improvement 4,478 5.97 3,993 6.86
Automobile loans 3,408 4.54 2,997 5.15
Loans on deposits 413 0.55 422 0.72
Credit card 436 0.58 411 0.71
Other consumer loans 2,157 2.88 1,528 2.62
---------- ------- ---------- --------
Total consumer loans 10,892 14.52 9,351 16.06
---------- ------- ---------- --------
Total loans 75,026 100.00% 58,222 100.00%
======= ========
Less:
Net deferred loan fees and (148) (121)
costs Loans in process (1,486) (1,054)
Allowance for loan losses (323) (223)
---------- ----------
Net loans $ 73,069 $ 56,824
========== ==========
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2.
<PAGE> 4
LOAN MATURITY. The following table sets forth certain information as of June 30,
1999, regarding the dollar amount of loans maturing in the Bank's portfolio
based on their contractual terms to maturity. Demand loans and other loans
having no stated schedule of repayments or no stated maturity are reported as
due in one year or less. Mortgage loans originated by the Bank generally include
due-on-sale clauses that provide the Bank with the contractual right to deem the
loan immediately due and payable in the event the borrower transfers the
ownership of the property without the Bank's consent. The table does not include
the effects of possible prepayments or scheduled repayments.
Due during Due between
the year 7/1/00 Due after
ending 6/30/00 and 6/30/04 6/30/04 Total
-------------- ----------- --------- -------
(In thousands)
Real estate loans:
One- to four-family $ 114 $ 633 $ 49,313 $ 50,060
Home equity 262 112 1,438 1,812
Nonresidential -- 60 5,385 5,445
Construction and land 2,791 4 1,145 3,940
Commercial loans 559 1,843 475 2,877
Consumer loans 2,868 5,196 2,828 10,892
--------- --------- -------- ----------
Total $ 6,594 $ 7,848 $ 60,584 $ 75,026
========= ========= ======== ==========
The next table sets forth the dollar amount of all loans due after June 30,
2000, which have fixed interest rates and have adjustable interest rates:
Due after June 30, 2000
-----------------------
(In thousands)
Fixed rate of interest $ 24,197
Adjustable rate of interest 44,235
----------
$ 68,432
==========
LOANS SECURED BY ONE- TO FOUR-FAMILY REAL ESTATE. The principal lending activity
of the Bank is the origination of conventional loans secured by first mortgages
on one- to four-family residences, primarily single-family residences, located
within the Bank's primary market area. At June 30, 1999, the Bank's one- to
four-family residential real estate loans totaled approximately $50.1 million,
or 66.72% of total loans.
OTS regulations and Ohio law limit the amount which the Bank may lend in
relationship to the appraised value of the real estate and improvements which
will secure the loan at the time of loan origination. In accordance with such
regulations, the Bank makes loans on one- to four-family residences of up to 80%
of the value of the real estate and improvements thereon (the "LTV") or up to
95% for borrowers who obtain private mortgage insurance.
The Bank currently offers fixed-rate mortgage loans and adjustable-rate mortgage
("ARM") loans for terms of up to 30 years. The interest-rate adjustment periods
on ARMs are typically one or three years, although most adjustable-rate loans
originated by the Bank are one-year ARMs. The maximum interest-rate adjustment
on most ARMs is 2% on any adjustment date and a total of 6% over the life of the
loan. The interest-rate adjustments on one-year and three-year ARMs presently
offered by the Bank are indexed to the weekly average rate on one-year and
three-year U.S. Treasury securities, respectively. Rate adjustments are computed
by adding a stated margin, typically 2.75%, to the index.
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3.
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HOME EQUITY LOANS. The Bank makes closed-end home equity loans in amounts which,
when added to the prior indebtedness secured by the real estate, do not exceed
80% of the estimated value of the real estate. The Bank also offers home equity
loans with a line of credit feature. Home equity loans are made with adjustable
rates of interest. Effective January 1998, rate adjustments on home equity loans
were at the National City Bank prime rate with closing fees waived if the
initial borrowing was $5,000 or more. Prior to January 1998, rate adjustments on
home equity loans were determined by adding 1% for loans under $20,000 or .75%
for loans over $20,000 to the National City Bank prime rate. At June 30, 1999,
approximately $1.8 million, or 2.42%, of the Bank's portfolio consisted of home
equity loans.
NONRESIDENTIAL REAL ESTATE. The Bank originates loans for the purchase of
nonresidential real estate. The Bank's nonresidential real estate loans have
fixed or adjustable rates, terms of up to 15 years and LTVs of up to 75%. Rate
adjustments on ARMs secured by nonresidential real estate are determined by
adding 3.75% to the current U.S. Treasury index. Rates are determined for
fixed-rate loans by adding 2% to the rate at which fixed-rate residential loans
are then being offered. Among the properties securing the Bank's nonresidential
real estate loans are farms, an office building and a gas station, all located
in the Bank's primary market area.
Nonresidential real estate lending is generally considered to involve a higher
degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. The Bank has endeavored to reduce such
risk by evaluating the credit history of the borrower, the location of the real
estate, the financial condition of the borrower, the quality and characteristics
of the income stream generated by the property and the appraisals supporting the
property's valuation. At June 30, 1999, the Bank's largest loan secured by
nonresidential real estate was approximately $785,000 and such loan was
performing according to its terms.
At June 30, 1999, approximately $5.4 million, or 7.26%, of the Bank's total
loans were secured by mortgages on nonresidential real estate.
CONSTRUCTION AND LAND LOANS. The Bank originates a limited number of loans for
the construction of single-family residential real estate and commercial real
estate. Due to a lack of residential development in the Bank's primary market
area, no construction loans have been made to builders or developers. During the
first six months, while the residence or commercial building is being
constructed, the borrower is required to pay interest only. Single-family
residential construction loans are structured as permanent loans with adjustable
rates of interest and terms of up to 30 years. Permanent financing on commercial
real estate loans is generally tied to the National City Bank prime rate.
Construction loans have LTVs of up to 80%, with the value of the land counting
as part of the owner's equity. At June 30, 1999, the Bank had approximately $2.8
million, or 3.72% of its total loans, invested in construction loans.
Construction loans generally involve greater underwriting and default risks than
do loans secured by mortgages on existing properties because construction loans
are more difficult to evaluate and monitor. Loan funds are advanced upon the
security of the project under construction, which is more difficult to value
before the completion of construction. Moreover, because of the uncertainties
inherent in estimating construction costs, it is relatively difficult to
evaluate accurately the LTVs and the total loan funds required to complete a
project. In the event a default on a construction loan occurs and foreclosure
follows, the Bank must take control of the project and attempt either to arrange
for completion of construction or dispose of the unfinished project.
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4.
<PAGE> 6
The Bank also originates a limited number of loans secured by land, some of
which is purchased for the construction of single-family houses. The Bank's land
loans are generally adjustable-rate loans for terms up to 15 years and require
an LTV of 75% or less. At June 30, 1999, approximately $1.1 million, or 1.53%,
of the Bank's total loans were secured by land loans made to individuals
intending to construct and occupy single-family residences on the properties.
COMMERCIAL LOANS. The Bank makes commercial loans to businesses in its primary
market area. Most commercial loans are made with LTVs of 70-75% and adjustable
interest rates. Adjustments on commercial loans are usually indexed to the prime
rate.
At June 30, 1999, the Bank had approximately $2.9 million, or 3.83% of total
loans, invested in commercial loans. All of the loans were made to local
businesses and are secured by property such as trucks and equipment.
The Bank intends to increase its commercial lending activity.
Commercial loans are generally deemed to entail significantly greater risk than
real estate lending. The repayment of commercial loans is typically dependent on
the income stream and successful operation of a business, which can be affected
by economic conditions.
CONSUMER LOANS. The Bank originates various types of consumer credit loans,
including home improvement loans, education loans, loans secured by savings
accounts, motor vehicle loans, unsecured loans and credit cards. Consumer loans
are made at fixed rates of interest for terms of up to ten years. The Bank
requires a 20% down payment on loans secured by automobiles.
Since June 1993, the Bank has offered Mastercard(R) cards to qualified
customers. The Bank's credit cards are processed by an unaffiliated third party
that receives a fee for such service.
Consumer loans may entail greater credit risk than do residential mortgage
loans. The risk of default on consumer loans increases during periods of
recession, high unemployment, and other adverse economic conditions. Although
the Bank has not had significant delinquencies on consumer loans, no assurance
can be provided that delinquencies will not increase.
At June 30, 1999, the Bank had approximately $10.9 million, or 14.52% of its
total loans, invested in consumer loans.
LOAN SOLICITATION AND PROCESSING. Loan originations are generally obtained from
existing customers and members of the local community and from referrals from
real estate brokers, lawyers, accountants, and current and former customers. The
Bank also advertises in the local print media and radio.
In underwriting real estate loans, the Bank typically obtains a credit report,
verification of employment and other documentation concerning the
creditworthiness of the borrower. An appraisal of the fair market value of the
real estate that will be given as security for the loan is prepared by a
certified fee appraiser approved by the Board of Directors. Upon the completion
of the appraisal and the receipt of information on the credit history of the
borrower, the application for a loan is submitted for review in accordance with
the Bank's underwriting guidelines, which are established annually by the Board
of Directors. The Bank's loan officers have authority to approve loans up to
$100,000. The President of the Bank has authority to approve all loans up to
$500,000. The Executive Committee of the Board of Directors may approve loans up
to $1,000,000, and loans over $1,000,000 must be approved by the full Board of
Directors.
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5.
<PAGE> 7
Borrowers are required to carry satisfactory fire and casualty insurance and
flood insurance, if applicable, and to name the Bank as an insured mortgagee.
The Bank generally obtains an attorney's opinion of title and may purchase title
insurance on large commercial loans.
The procedure for approval of construction loans is the same as for permanent
real estate loans, except that an appraiser evaluates the building plans,
construction specifications, and estimates of construction costs. The Bank also
evaluates the feasibility of the proposed construction project and the
experience and record of the builder. Once approved, the construction loan is
disbursed in installments based upon periodic inspections of construction
progress.
Consumer loans are underwritten on the basis of the borrower's credit history
and an analysis of the borrower's income and expenses, ability to repay the
loan, and the value of the collateral, if any. The President of the Bank has
authority to approve consumer loans of up to $500,000. The Bank's loan officers
have the authority to approve secured consumer loans up to $100,000, and
unsecured consumer loans up to $10,000. The Executive Committee has authority to
approve consumer loans up to $1,000,000. Consumer loans over $1,000,000 must be
approved by the full Board of Directors.
LOAN ORIGINATIONS, PURCHASES AND SALES. Currently, the Bank does not originate
loans in conformity with secondary market standards and has sold no loans in
recent years. The Bank has, however, established relationships with entities
which purchase loans in the secondary market and the Bank may, in the future,
originate loans in conformity with the standards of the Federal Home Loan
Mortgage Corporation (the "FHLMC") and may sell some of such loans. The Bank has
not purchased any loans in recent years. However, the Bank has purchased
participation interests in loans periodically.
The following table presents the Bank's total loan origination and repayment
activity for the periods indicated:
Year ended June 30,
1999 1998
(In thousands)
Loans originated:
One- to four-family $ 20,525 $ 11,884
Home equity 1,222 990
Nonresidential 3,171 1,222
Construction and land 2,765 1,582
Commercial 2,461 875
Consumer 6,210 4,805
---------- ----------
Total loans originated 36,354 21,358
Loans purchased -- --
Loans sold -- --
Principal repayments (19,550) (12,907)
(Increase) decrease in other items, net(1) (559) (927)
---------- ----------
Net increase $ 16,245 $ 7,524
========== ==========
(1) Consists of net deferred loan fees and costs, loans in process and
allowance for loan losses.
At June 30, 1999, the Bank had $1.8 million of outstanding commitments to
originate loans, $2.3 million available to borrowers under lines of credit and
$1.1 million available to customers under credit card arrangements. At June 30,
1999, the Bank had $1.5 million in undisbursed funds related to construction
loans.
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6.
<PAGE> 8
LOANS TO ONE BORROWER LIMITS. OTS regulations generally limit the aggregate
amount that a savings association may lend to any one borrower to an amount
equal to 15% of the Bank's unimpaired capital and unimpaired surplus (the
"Lending Limit Capital"). A savings association may lend to one borrower an
additional amount not to exceed 10% of the association's Lending Limit Capital
if the additional amount is fully secured by certain forms of "readily
marketable collateral." Real estate is not considered "readily marketable
collateral." In applying this limit, the regulations require that loans to
certain related or affiliated borrowers be aggregated. An exception to this
limit permits loans of any type to one borrower of up to $500,000.
Based on such limits, the Bank was able to lend approximately $3.1 million to
one borrower at June 30, 1999. The largest amount the Bank had outstanding to
any group of affiliated borrowers at June 30, 1999, was $1,849,000, which
consisted of six loans, secured by commercial property, equipment, accounts
receivable and the borrower's residence. At June 30, 1999, such loans were
performing in accordance with their terms.
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. The Bank attempts
to maintain a high level of asset quality through sound underwriting policies
and aggressive collection practices.
To discourage late payments, the Bank charges a late fee of 5% of the payment
amount after a payment is 10 days late and the borrower is sent a delinquency
notice. The Bank also utilizes personalized letters and telephone calls from
Bank personnel to collect payments in a timely manner. When a loan becomes 90
days delinquent, the loan is generally referred to an attorney for foreclosure,
unless the Bank has reason to believe that repayment will be made in a
reasonable period of time.
The following table reflects the amount of loans in a delinquent status at the
dates indicated:
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------
1999 1998
---------------------------------- --------------------------------
Percent of Percent of
total total
Number Amount loans Number Amount loans
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Loans delinquent for:
30-59 days 13 $ 150 0.20% 14 $ 164 0.28%
60-89 days 8 90 0.12 16 240 0.41
90 days or over 3 133 0.18 9 245 0.42
-------- --------- ------- --------- --------- --------
Total delinquent loans 24 $ 373 0.50% 39 $ 649 1.11%
======== ========= ======= ========= ========= ========
</TABLE>
Nonperforming assets include nonaccruing loans, accruing loans that are
delinquent 90 days or more, real estate acquired by foreclosure or by
deed-in-lieu thereof, in-substance foreclosures and repossessed assets.
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7.
<PAGE> 9
Loans are reviewed on a monthly basis and are placed on nonaccrual status when
collection in full is considered doubtful by management. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent cash payments are generally applied to interest
income unless, in the opinion of management, the collection of principal and
interest is doubtful. In those cases, subsequent cash payments would be applied
to principal. The following table sets forth information with respect to the
accrual and nonaccrual status of the Bank's loans and other nonperforming assets
at the dates indicated:
At June 30,
--------------------------
1999 1998
---- ----
(Dollars in thousands)
Total nonaccrual loans $ -- $ --
Accruing loans delinquent 90 days or more 133 245
---------- -----------
Total nonperforming loans 133 245
Real estate owned -- --
---------- -----------
Total nonperforming assets $ 133 $ 245
========== ===========
Allowance for loan losses $ 323 $ 223
Nonperforming assets as a percent of total assets 0.12% 0.30%
Nonperforming loans as a percent of gross loans(1) 0.18% 0.43%
Allowance for loan losses as a percent of nonper- 242.75% 91.23%
forming loans
(1) Gross loans are stated at unpaid principal balances.
Real estate acquired in settlement of loans is classified separately on the
balance sheet at fair value as of the date of acquisition. Prior to foreclosure,
the loan is written down to the value of the underlying collateral by a charge
to the allowance for loan losses, if necessary. After acquisition, a valuation
allowance reduces the reported amount to the lower of the initial amount or fair
value less costs to sell. Operating expenses of such properties, net of related
income or loss on disposition, are included in other expenses. At June 30, 1999,
the Bank had no real estate acquired in settlement of loans.
The Bank classifies its assets on a regular basis in accordance with federal
regulations. Problem assets are classified as "substandard," "doubtful" or
"loss." "Substandard" assets have one or more defined weaknesses and are
characterized by the distinct possibility that the Bank will sustain some loss
if the deficiencies are not corrected. "Doubtful" assets have the same
weaknesses as "substandard" assets, with the additional characteristics that (i)
the weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, questionable and (ii) there is a high
possibility of loss. An asset classified "loss" is considered uncollectible and
of such little value that its continuance as an asset of the Bank is not
warranted. In addition, federal regulations also contain a "special mention"
category, consisting of assets which do not currently expose an institution to a
different degree of risk to warrant classification but which possess credit
deficiencies or potential weaknesses deserving management's close attention.
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8.
<PAGE> 10
The aggregate amounts of the Bank's classified assets at the dates indicated
were as follows:
At June 30,
-----------
1999 1998
---- ----
(In thousands)
Classified assets:
Substandard $ 133 $ 245
Doubtful -- --
Loss -- --
------- -------
Total classified assets $ 133 $ 245
======= =======
The Bank analyzes each classified asset on a quarterly basis to determine
whether changes in its classification are appropriate under the circumstances.
Such analysis focuses on a variety of factors, including the amount of any
delinquency and the reasons for the delinquency, if any, the use of the real
estate securing the loan, the status of the borrower, and the appraised value of
the real estate. As such factors change, the classification of the asset will
change accordingly.
The Bank establishes a general allowance for loan losses for any loan classified
as substandard or doubtful. If an asset, or portion thereof, is classified as
loss, the Bank establishes a specific allowance for loan losses for 100% of the
portion of the asset classified loss or charges-off the portion of any real
estate loan deemed to be uncollectible.
ALLOWANCE FOR LOAN LOSSES. Management reviews on a quarterly basis the allowance
for loan losses as it relates to a number of relevant factors, including, but
not limited to, growth and changes in the composition of the loan portfolio,
trends in the level of delinquent and problem loans, current and anticipated
economic conditions in the primary lending area, past loss experience, and
probable losses arising from specific problem assets. While management believes
that it uses the best information available to determine the allowance for loan
losses, unforeseen market conditions could result in adjustments and net income
could be significantly affected if circumstances differ substantially from the
assumptions used in making the final determination. In addition, the Bank's
determination as to the amount of its allowance for loan losses is subject to
review by the OTS, as part of its examination process, which could result in the
establishment of an additional allowance based upon the judgment of the OTS.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated:
Year ended June 30,
----------------------
1999 1998
---- ----
(Dollars in thousands)
Balance at beginning of period $ 223 $ 119
Charge-offs (23) (18)
Recoveries 3 2
------- -------
Net (charge-offs) recoveries (20) (16)
Provision for loan losses 120 120
------- -------
Balance at end of period $ 323 $ 223
======= =======
Ratio of net charge-offs to average gross loans
outstanding during the period, net of loans
in process and deferred loan fees and costs 0.03% 0.03%
Ratio of allowance for loan losses to loans, net
of loans in process 0.44% 0.39%
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9.
<PAGE> 11
The following table sets forth the allocation of the allowance for loan losses
by category. The allocations are based on management's assessment of the risk
characteristics of each of the components of the total loan portfolio and are
subject to changes as and when the risk factors of each such component changes.
The allocation is not indicative of either the specific amounts or the loan
categories in which future charge-offs may be taken, nor should it be taken as
an indicator of future loss trends. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------
1999 1998
-------- --------
Percent of Percent of
loans in each loans in each
category to category to
Amount total loans Amount total loans
--------- ----------- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans $ 169 81.65% $ 145 81.48%
Commercial loans 29 3.83 14 2.46
Consumer loans 65 14.52 58 16.06
Unallocated 60 -- 6 --
--------- --------- --------- ----------
Total $ 323 100.00% $ 223 100.00%
========= ========= ========= ==========
</TABLE>
INVESTMENT ACTIVITIES
GENERAL. Federal regulations and Ohio law permit the Bank to invest in various
types of securities, including interest-bearing deposits in other financial
institutions, U.S. Treasury and agency obligations, mortgage-backed securities,
and certain other specified investments. The Board of Directors of the Bank has
adopted an investment policy that authorizes management to make investments in
U.S. Treasury obligations, U.S. agency and federally-sponsored corporation
obligations, municipal obligations, mortgage-backed and related securities,
bankers' acceptances, mutual funds, federal funds and term deposits. The Bank's
investment policy is designed primarily to provide and maintain liquidity within
regulatory guidelines, to maintain a balance of high quality investments to
minimize risk, and to maximize return without sacrificing liquidity and safety.
As of June 30, 1999, the Bank's securities portfolio was comprised of FHLB
stock, U.S. Treasury and agency securities, and mortgage-backed and related
securities with an aggregate market value of $24.6 million. The Bank's
securities at June 30, 1999, did not include securities of any issuer with an
aggregate book value in excess of 10% of the Bank's equity, excluding those
issued by the U.S. Government.
- --------------------------------------------------------------------------------
10.
<PAGE> 12
The following table sets forth the composition of the Bank's interest-bearing
deposits and securities portfolio, including those designated as available for
sale, at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------------------------
1999 1998
----------------------------------------------- -----------------------------------------
Carrying % of Fair % of Carrying % of Fair % of
value total value total value total value total
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Interest-bearing demand deposits $ 40 0.13% $ 40 0.13% $ 534 2.34% $ 534 2.34%
Interest-bearing deposits in other
financial institutions 35 0.11 35 0.11 2,037 8.94 2,037 8.94
Overnight deposits 3,500 11.14 3,500 11.14 1,000 4.39 1,000 4.39
Federal funds 3,200 10.18 3,200 10.18 4,800 21.07 4,800 21.07
--------- -------- --------- --------- --------- -------- -------- --------
Total interest-bearing deposits 6,775 21.56 6,775 21.56 8,371 36.74 8,371 36.74
Securities available for sale:
U.S. Treasury securities 251 0.80 251 0.80 5,519 24.22 5,519 24.22
U.S. Government agency securities 2,719 8.65 2,719 8.65 8,500 37.31 8,500 37.31
FLHB stock 1,431 4.55 1,431 4.55 393 1.73 393 1.73
--------- -------- --------- --------- --------- -------- -------- --------
Total securities 4,401 14.00 4,401 14.00 14,412 63.26 14,412 63.26
--------- -------- --------- --------- --------- -------- -------- --------
Mortgage-backed securities:
GNMA 341 1.09 341 1.09 -- -- -- --
FNMA 544 1.73 544 1.73 -- -- -- --
FHLMC 19,363 61.62 19,363 61.62 -- -- -- --
--------- -------- --------- --------- --------- -------- -------- --------
Total mortgage-backed securities 20,248 64.44 20,248 64.44 -- -- -- --
--------- -------- --------- --------- --------- -------- -------- --------
Total securities available for sale 24,649 78.44 24,649 78.44 14,412 63.26 14,412 63.26
--------- -------- --------- --------- --------- -------- -------- --------
Total $ 31,424 100.00% $ 31,424 100.00% $ 22,783 100.00% $ 22,783 100.00%
========= ======== ========= ========= ========= ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
11.
<PAGE> 13
The maturities of the Bank's interest-bearing deposits and securities at June
30, 1999 are indicated in the following table:
<TABLE>
<CAPTION>
At June 30, 1999
-------------------------------------------------------------------------------------------
After one through Not due at a
One year or less five years single maturity Total
------------------ ------------------ ------------------ -----------------------------
Carrying Average Carrying Average Carrying Average Carrying Fair Weighted
value yield value yield value yield value value average yield
-------- -------- --------- -------- -------- ------- -------- ------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Interest-bearing demand deposits $ 40 4.38% $ -- --% $ -- --% $ 40 $ 40 4.38%
Interest-bearing deposits in other
financial institutions 35 4.60 -- -- -- -- 35 35 4.60
Overnight deposits 3,500 5.06 -- -- -- -- 3,500 3,500 5.06
Federal funds 3,200 5.06 -- -- -- -- 3,200 3,200 5.06
--------- ------- ------- ------ -------- ------- -------- -------- -------
Total interest-bearing deposits 6,775 5.06 -- -- -- -- 6,775 6,775 5.06
Securities available for sale:
U.S. Treasury securities 251 6.27 -- -- -- -- 251 251 6.27
U.S. Government agency securities -- -- 2,719 5.82 -- -- 2,719 2,719 5.82
FHLB stock -- -- -- -- 1,431 7.00 1,431 1,431 7.00
--------- -------- ------- ------ -------- ------- -------- -------- -------
Total securities 251 6.27 2,719 5.82 1,431 7.00 4,401 4,401 6.23
Mortgage-backed securities:
GNMA -- -- -- -- 341 6.00 341 341 6.00
FNMA -- -- -- -- 544 6.50 544 544 6.50
FHLMC -- -- -- -- 19,363 6.50 19,363 19,363 6.50
--------- ------- ------- ------ -------- ------- -------- -------- -------
Total mortgage-backed securities -- -- -- -- 20,248 6.49 20,248 20,248 6.49
Total securities available for sale 251 6.27 2,719 5.82 21,679 6.53 24,649 24,649 6.44
--------- ------- ------- ------ -------- ------- -------- -------- -------
Total interest-bearing deposits and $ 7,026 5.10% $ 2,719 5.82% $ 21,679 6.53% $ 31,424 $ 31,424 6.15%
securities ========= ======= ======= ====== ======== ======= ======== ======== =======
</TABLE>
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12.
<PAGE> 14
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of the Bank's funds
for use in lending and other investment activities. In addition to deposits, the
Bank derives funds from interest payments and principal repayments on loans and
income on earning assets. Loan payments are a relatively stable source of funds,
while deposit inflows and outflows fluctuate in response to general interest
rates and money market conditions. The Bank also borrows from the FHLB as a
source of funds.
DEPOSITS. Deposits are attracted principally from within the Bank's primary
market area through the offering of a selection of deposit instruments,
including regular passbook savings accounts, demand deposits, NOW accounts,
money market accounts, and certificates of deposit. Interest rates paid,
maturity terms, service fees, and withdrawal penalties for the various types of
accounts are monitored weekly by the Bank's President. The Bank does not use
brokers to attract deposits, and the amount of deposits from outside the Bank's
primary market area is not significant.
The following table sets forth the dollar amount of deposits in the various
types of accounts offered by the Bank at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------
1999 1998
---------------------- ----------------------------
Percent Percent
of total of total
Amount deposits Amount deposits
------- -------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Transaction accounts:
Noninterest-bearding demand
deposit accounts $ 3,115 5.51% $ 3,141 6.47%
NOW accounts(1) 4,396 7.78 3,892 8.02
Savings accounts (2) 11,859 20.99 11,034 22.73
Money market accounts(3) 9,541 16.89 4,361 8.99
-------- --------- --------- ----------
Total transactions accounts 28,911 51.17 22,428 46.21
Certificates of deposit:
4.00% or less 55 0.10 37 0.07
4.01% - 6.00% 23,923 42.35 20,045 41.30
6.01% - 8.00% 3,306 5.85 5,728 11.80
Over 8.00% 300 0.53 300 0.62
-------- --------- --------- ----------
Total certificates of deposit(4) 27,584 48.83 26,110 53.79
-------- --------- --------- ----------
Total deposits $ 56,495 100.00% $ 48,538 100.00%
======== ========= ========= ==========
</TABLE>
(1) The weighted average rate on NOW accounts was 2.02% and 2.04% at June 30,
1999 and 1998.
(2) The weighted average rate on savings accounts was 2.50% and 2.50% at June
30, 1999 and 1998.
(3) The weighted average rate on money market accounts was 4.59% and 4.91% at
June 30, 1999 and 1998.
(4) The weighted average rate on all certificates of deposit was 5.50% and
5.93% at June 30, 1999 and 1998.
- --------------------------------------------------------------------------------
13.
<PAGE> 15
The following table shows rate and maturity information for the Bank's
certificates of deposit at June 30, 1999:
At June 30, 1999
--------------------------------------------
Over
Up to 1 year to Over
Rate one year 2 years 2 years Total
---- -------- ------- ------- -----
(In thousands)
4.00% or less $ 55 $ -- $ -- $ 55
4.01% to 6.00% 14,414 7,992 1,517 23,923
6.01% to 8.00% 2,918 388 -- 3,306
Over 8.00% 300 -- -- 300
---------- --------- --------- ----------
Total certificates of deposit $ 17,687 $ 8,380 $ 1,517 $ 27,584
========== ========= ========= ==========
At June 30, 1999, approximately $17.7 million of the Bank's certificates of
deposit were scheduled to mature within one year. Based on past experience and
the Bank's prevailing pricing strategies, management believes that a substantial
percentage of such certificates will be renewed with the Bank at maturity.
The following table presents the amount of the Bank's certificates of deposit of
$100,000 or more by the time remaining until maturity at June 30, 1999:
Maturity Amount
-------- --------------
(In thousands)
Three months or less $ 329
Over 3 months to 6 months 100
Over 6 months to 12 months 718
Over 12 months 1,031
----------
Total $ 2,178
==========
Management believes that a substantial percentage of the above certificates will
be renewed with the Bank at maturity.
The following table sets forth the Bank's deposit account balance activity for
the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------
1999 1998
---- -----
(Dollars in thousands)
<S> <C> <C>
Beginning balance $ 48,538 $ 49,235
Increase (decrease) before interest credited 6,860 (1,946)
----------- -----------
Net deposits before interest credited 55,398 47,289
Interest credited 1,097 1,249
----------- -----------
Ending balance $ 56,495 $ 48,538
=========== ===========
Net increase (decrease) $ 7,957 $ (697)
=========== ===========
Percent increase (decrease) 16.39% (1.42)%
=========== ===========
</TABLE>
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14.
<PAGE> 16
BORROWINGS. The FHLB system functions as a central reserve bank providing credit
for its member institutions and certain other financial institutions. As a
member in good standing of the FHLB of Cincinnati, the Bank is authorized to
apply for advances from the FHLB of Cincinnati, provided certain standards of
creditworthiness have been met. Under current regulations, an association must
meet certain qualifications to be eligible for FHLB advances. The extent to
which an association is eligible for such advances will depend upon whether it
meets the Qualified Thrift Lender (the "QTL") test. If an association meets the
QTL test, the association will be eligible for 100% of the advances it would
otherwise be eligible to receive. If an association does not meet the QTL test,
the association will be eligible for such advances only to the extent it holds
specified QTL test assets. At June 30, 1999, the Bank complied with the QTL test
and had $28.2 million outstanding in advances from the FHLB.
At June 30, 1999, HLFC had two $2,000,000 lines of credit with another financial
institution. Borrowings outstanding on these lines of credit totaled $2,000,000
(unsecured) and $350,000 (secured). Both lines of credit expire one year from
the original date of the agreement, which is May 10, 2000 and May 28, 2000.
Interest on the lines of credit adjusts daily at the prime rate as published in
The Wall Street Journal. Interest payments are due monthly and any outstanding
principal is due at expiration.
The following table sets forth the maximum month-end and average balance of
borrowings for the periods indicated:
Year ended June 30,
-------------------
1999 1998
---- ----
(Dollars in thousands)
Balance at period end:
FHLB advances $ 28,200 $ 1,000
Other borrowings 2,350 --
Maximum balance at any month end during
the period:
FHLB advances $ 28,200 $ 1,000
Other borrowings 2,350 --
Average balance for the period:
FHLB advances and other borrowings $ 8,922 $ 290
Weighted average rate 5.30% 5.63%
COMPETITION
The Bank faces competition for deposits and loans from other savings and loan
associations and banks in the Bank's primary market area. The primary factors in
competition for deposits are customer service, convenience of office location
and interest rates. The Bank competes for loan originations primarily through
the interest rates and loan fees it charges and through the efficiency and
quality of services it provides to borrowers. Competition is affected by, among
other things, the general availability of lendable funds, general and local
economic conditions, current interest rate levels and other factors that are not
readily predictable. The Bank does not offer all of the products and services
offered by some of its competitors, particularly commercial banks.
EMPLOYEES
At June 30, 1999, the Bank had 25 full-time equivalent employees and three
part-time employees.
- --------------------------------------------------------------------------------
15.
<PAGE> 17
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 by the same or different providers. The Bank
does not anticipate that short-term manual systems resulting from a change in
suppliers or servicers would have a material adverse effect on the Bank's
operations, although it cannot guarantee that it will not. The Bank has incurred
approximately $15,000 to make such systems Year 2000 compliant. The Bank does
not anticipate any additional material costs necessary to make such systems Year
2000 compliant.
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, although no guarantee can be provided in that regard.
REGULATION
GENERAL
As a savings and loan association incorporated under the laws of Ohio, the Bank
is subject to regulation, examination and oversight by the OTS and the Division.
Because the Bank's deposits are insured by the FDIC, the Bank also is subject to
general oversight by the FDIC. The Bank must file periodic reports with the OTS,
the Division and the FDIC concerning its activities and financial condition.
Examinations are conducted periodically by federal and state regulators to
determine whether the Bank complies with various regulatory requirements and is
operating in a safe and sound manner. The Bank is a member of the FHLB of
Cincinnati.
HLFC is a savings and loan holding company within the meaning of the Home Owners
Loan Act, as amended (the "HOLA"). Consequently, HLFC is subject to regulation,
examination, and oversight by the OTS and is required to submit periodic reports
to the OTS. Because HLFC and the Bank are corporations organized under Ohio law,
they are also subject to the provisions of the Ohio Revised Code applicable to
corporations generally.
- --------------------------------------------------------------------------------
16.
<PAGE> 18
OHIO SAVINGS AND LOAN LAW
The Division is responsible for the regulation and supervision of Ohio savings
and loan associations in accordance with the laws of the State of Ohio. Ohio law
prescribes the permissible investments and activities of Ohio savings and loan
associations, including the types of lending that such associations may engage
in and the investments in real estate, subsidiaries, and corporate or government
securities that such associations may make. The ability of Ohio associations to
engage in these state-authorized investments and activities is subject to
oversight and approval by the FDIC, if such investments or activities are not
permissible for a federally chartered savings and loan association.
The Division also has approval authority over any mergers involving or
acquisitions of control of Ohio savings and loan associations. The Division may
initiate certain supervisory measures or formal enforcement actions against Ohio
associations. Ultimately, if the grounds provided by law exist, the Division may
place an Ohio association in conservatorship or receivership.
The Division conducts regular examinations of the Bank approximately once every
18 months. Such examinations are usually conducted jointly with one or both
federal regulators. The Division imposes assessments on Ohio associations based
on their asset size to cover the cost of supervision and examination.
OFFICE OF THRIFT SUPERVISION
GENERAL. The OTS is an office in the Department of the Treasury and is
responsible for the regulation and supervision of all federally-chartered
savings and loan associations and all other savings and loan associations the
deposits of which are insured by the FDIC. The OTS issues regulations governing
the operation of savings and loan associations, regularly examines such
associations and imposes assessments on savings associations based on their
asset size to cover the costs of this supervision and examination. The OTS also
may initiate enforcement actions against savings and loan associations and
certain persons affiliated with them for violations of laws or regulations or
for engaging in unsafe or unsound practices. If the grounds provided by law
exist, the OTS may appoint a conservator or receiver for a savings and loan
association.
Savings associations are subject to regulatory oversight under various consumer
protection and fair lending laws. These laws govern, among other things,
truth-in-lending disclosures, equal credit opportunity, fair credit reporting
and community reinvestment. Failure to abide by federal laws and regulations
governing community reinvestment could limit the ability of an association to
open a new branch or engage in a merger. Community reinvestment regulations
evaluate how well and to what extent an institution lends and invests in its
designated service area, with particular emphasis on low- to moderate-income
communities and borrowers in that area. The Bank has received a "satisfactory"
examination rating under those regulations.
REGULATORY CAPITAL REQUIREMENTS. The Bank is required by OTS regulations to meet
certain minimum capital requirements. Current capital requirements call for
tangible capital of 1.5% 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, including certain off-balance sheet items, are
weighted at percentage levels ranging from 0% to 100% depending on the relative
risk).
The Bank is also required to meet minimum core capital requirements. Effective
April 1, 1999, savings associations with the highest examination rating must
maintain core capital (which for the Bank consists solely of tangible capital)
of at least 3% of their adjusted total assets. Those associations that do not
have the highest examination rating and exceed an acceptable level of risk will
be required to maintain core
- --------------------------------------------------------------------------------
17.
<PAGE> 19
capital of at least 4%. Depending on the association's examination rating and
overall risk, the OTS may require a higher core capital ratio.
The OTS has adopted regulations governing prompt corrective action to resolve
the problems of capital deficient and otherwise troubled savings and loan
associations. At each successively lower defined capital category, an
association is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
generally can downgrade an association's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the association is
deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. An undercapitalized association must submit a
capital restoration plan to the OTS within 45 days after it becomes
undercapitalized. Undercapitalized associations will be subject to increased
monitoring and asset growth restrictions and will be required to obtain prior
approval for acquisitions, branching and engaging in new lines of business.
Critically undercapitalized institutions must be placed in conservatorship or
receivership within 90 days of reaching that capitalization level, except under
limited circumstances. The Bank's capital at June 30, 1999, met the standards
for a well-capitalized institution.
Federal law prohibits a savings and loan association from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized.
LIQUIDITY. OTS regulations require that savings associations maintain an average
daily balance of liquid assets (cash, certain time deposits, association's
acceptances, and specified United States Government, state or federal agency
obligations) equal to a monthly average of not less than 4% of its net
withdrawable savings deposits plus borrowings payable in one year or less.
Monetary penalties may be imposed upon member institutions failing to meet
liquidity requirements. The eligible liquidity of the Bank at June 30, 1999, was
17.48%, which exceeded the then applicable 4% liquidity requirement.
QUALIFIED THRIFT LENDER TEST. Savings associations must meet one of two possible
tests in order to be a qualified thrift lender ("QTL"). The first test requires
a savings association to maintain a specified level of investments in assets
that are designated as qualifying thrift investments ("QTI"), which are
generally related to domestic residential real estate and manufactured housing
and include credit card, student, and small business loans and stock issued by
any FHLB, the FHLMC or the FNMA. Under this test 65% of an institution's
"portfolio assets" (total assets less goodwill and other intangibles, property
used to conduct business, and 20% of liquid assets) must consist of QTI on a
monthly average basis in nine out of every 12 months. The second test permits a
savings association to qualify as a QTL by meeting the definition of "domestic
building and loan association" under the Internal Revenue Code of 1986, as
amended (the "Code"). In order for an institution to meet the definition of a
"domestic building and loan association" under the Code, at least 60% of such
institution's assets must consist of specified types of property, including
cash, loans secured by residential real estate or deposits, educational loans
and certain governmental obligations. The OTS may grant exceptions to the QTL
test under certain circumstances. If a savings association fails to meet the QTL
test, the association and its holding company become subject to certain
operating and regulatory restrictions. A savings association that fails to meet
one of the QTL test will not be eligible for new FHLB advances. At June 30,
1999, the Bank met the QTL test.
- --------------------------------------------------------------------------------
18.
<PAGE> 20
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors, and principal shareholders and their related interests must conform
to the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders, and their related
interests cannot exceed the Bank's Lending Limit Capital (or 200% of Lending
Limit Capital for qualifying institutions with less than $100 million in
assets). Most loans to directors, executive officers, and principal shareholders
must be approved in advance by a majority of the "disinterested" members of the
board of directors of the Bank with any "interested" director not participating.
All loans to directors, executive officers, and principal shareholders must be
made on terms substantially the same as offered in comparable transactions with
the general public or as offered to all employees in a company-wide benefit
program, and loans to executive officers are subject to additional limitations.
The Bank complied with such restrictions at June 30, 1999.
All transactions between a savings association and its affiliates must comply
with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An affiliate
of a savings association is any company or entity that controls, is controlled
by or is under common control with, the savings association. HLFC is an
affiliate of the Bank. Generally, Sections 23A and 23B of the FRA (i) limit the
extent to which a savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee, and
other similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a bank holding company and may not purchase or invest in
securities of any affiliate except shares of a subsidiary. The Bank complied
with these requirements and restrictions at June 30, 1999.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various restrictions or
requirements on the ability of associations to make capital distributions,
according to ratings of associations based on their capital level and
supervisory condition. Capital distributions, for purposes of such regulation,
include, without limitation, payments of cash dividends, repurchases, and
certain other acquisitions by an association of its shares and payments to
stockholders of another association in an acquisition of such other association.
An application must be submitted and approval from the OTS must be obtained by a
subsidiary of a savings and loan holding company (1) if the proposed
distribution would cause total distributions for that year to exceed net income
for that calendar year to date plus the savings association's retained net
income for the preceding two years; (2) if the savings association will not be
at least adequately capitalized following the capital distribution; (3) if the
proposed distribution would violate a prohibition contained in any applicable
statute, regulation or agreement between the savings association and the OTS (or
the FDIC), or a condition imposed on the savings association in an OTS-approved
application or notice; or, (4) if the savings association has not received
certain favorable examination ratings from the OTS. If a savings association
subsidiary of a holding company is not required to file an application, it must
file a notice with the OTS.
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.
- --------------------------------------------------------------------------------
19.
<PAGE> 21
HOLDING COMPANY REGULATION. HLFC is a savings and loan holding company within
the meaning of the HOLA. As such, HLFC is registered with the OTS and subject to
OTS regulations, examination, supervision, and reporting requirements.
The HOLA generally prohibits a savings and loan holding company from controlling
any other savings and loan association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings and loan association or holding company
thereof which is not a subsidiary. Under certain circumstances, a savings and
loan holding company is permitted to acquire, with the approval of the OTS, up
to 15% of the previously unissued voting shares of an undercapitalized savings
and loan association for cash without being deemed to control the association.
Except with the prior approval of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy or otherwise
more than 25% of such company's stock may also acquire control of any savings
institution, other than a subsidiary institution, or any other savings and loan
holding company.
HLFC is a unitary savings and loan holding company. Under current law, there are
generally no restrictions on the activities of unitary savings and loan holding
companies and such companies are the only financial institution holding
companies which may engage in commercial, securities, and insurance activities
without limitation. The broad latitude under current law can be restricted if
the OTS determines that there is reasonable cause to believe that the
continuation by a savings and loan holding company of an activity constitutes a
serious risk to the financial safety, soundness, or stability of its subsidiary
savings and loan association. The OTS may impose such restrictions as deemed
necessary to address such risk, including limiting (i) payment of dividends by
the savings and loan association; (ii) transactions between the savings and loan
association and its affiliates; and (iii) any activities of the savings and loan
association that might create a serious risk that the liabilities of HLFC and
its affiliates may be imposed on the savings and loan association. However, if
the savings and loan association subsidiary of a unitary holding company fails
to meet the QTL, then the holding company would become subject to the activities
restrictions applicable to multiple holding companies. At June 30, 1999, the
Bank met the QTL test. See "Qualified Thrift Lender Test."
Congress is considering legislation which may limit HLFC's ability to engage in
activities not related to banking. HLFC cannot predict if and in what form these
proposals might become law. HLFC does not currently conduct any activities that
are not related to banking.
If HLFC were to acquire control of another savings institution, other than
through a merger or other business combination with the Bank, HLFC would become
a multiple savings and loan holding company and would generally be subject to
activity restrictions.
The OTS may approve an acquisition resulting in the formation of a multiple
savings and loan holding company that controls savings and loan associations in
more than one state only if the multiple savings and loan holding company
involved controls a savings and loan association that operated a home or branch
office in the state of the bank to be acquired as of March 5, 1987, or if the
laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by state-chartered institutions
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). As under prior law, the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings and
loan associations in more than one state in the case of certain emergency thrift
acquisitions.
- --------------------------------------------------------------------------------
20.
<PAGE> 22
FDIC REGULATIONS
The FDIC is an independent federal agency that insures the deposits, up to
prescribed statutory limits, of federally-insured banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the Bank Insurance Fund (the
"BIF") for commercial banks and state savings banks and the SAIF for savings
associations. The FDIC is required to maintain designated levels of reserves in
each fund. The Bank's deposit accounts are insured by the FDIC in the SAIF up to
the prescribed limits. The FDIC has examination authority over all insured
depository institutions, including the Bank, and has authority to initiate
enforcement actions against federally-insured savings associations if the FDIC
does not believe the OTS has taken appropriate action to safeguard safety and
soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in each fund. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to its target level within a
reasonable time and may decrease such rates if such target level has been met.
The FDIC has established a risk-based assessment system for both SAIF and BIF
members. Under this system, assessments vary based on the risk the institution
poses to its deposit insurance fund. The risk level is determined based on the
institution's capital level and the FDIC's level of supervisory concern about
the institution. SAIF assessments for healthy institutions are $.064 per $100 in
deposits.
FRB REGULATIONS
FRB regulations currently require savings associations to maintain reserves of
3% of net transaction accounts (primarily NOW accounts) up to $46.5 million
(subject to an exemption of up to $4.9 million), and of 10% of net transaction
accounts over $46.5 million. At June 30, 1999, the Bank complied with this
reserve requirement.
FEDERAL HOME LOAN BANKS
The FHLBs provide credit to their members in the form of advances. See "
Deposits and Borrowings." The Bank is a member of the FHLB of Cincinnati and
must maintain an investment in the capital stock of the FHLB of Cincinnati in an
amount equal to the greater of 1% of the aggregate outstanding principal amount
of the Bank's residential mortgage loans, home purchase contracts, and similar
obligations at the beginning of each year, and 5% of its advances from the FHLB.
The Bank complies with this requirement with an investment in stock of the FHLB
of Cincinnati of $1,430,500 at June 30, 1999.
Upon the origination or renewal of a loan or advance, the FHLB of Cincinnati is
required by law to obtain and maintain a security interest in collateral in one
or more of the following categories: fully disbursed, whole first mortgage loans
on improved residential property or securities representing a whole interest in
such loans; securities issued, insured or guaranteed by the U.S. Government or
an agency thereof; deposits in any FHLB; or other real estate related collateral
(up to 30% of the member association's capital) acceptable to the applicable
FHLB, if such collateral has a readily ascertainable value and the FHLB can
perfect its security interest in the collateral.
Each FHLB is required to establish standards of community investment or service
that its members must maintain for continued access to long-term advances from
the FHLBs. The standards take into account a member's performance under the
Community Reinvestment Act and its record of lending to first-time home buyers.
All long-term advances by each FHLB must be made only to provide funds for
residential housing finance.
- --------------------------------------------------------------------------------
21.
<PAGE> 23
TAXATION
FEDERAL TAXATION
HLFC and the Bank are each subject to the federal tax laws and regulations that
apply to corporations generally. In addition to the regular income tax, HLFC and
the Bank may be subject to an alternative minimum tax imposed at a minimum tax
rate of 20% on "alternative minimum taxable income" (which is the sum of a
corporation's regular taxable income, with certain adjustments, and tax
preference items), less any available exemption. Such tax preference items
include interest on certain tax-exempt bonds issued after August 7, 1986. In
addition, 75% of the amount by which a corporation's "adjusted current earnings"
exceeds its alternative minimum taxable income computed without regard to this
preference item and prior to reduction by net operating losses, is included in
alternative minimum taxable income. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax. Payments
of alternative minimum tax may be used as credits against regular tax
liabilities in future years. The Taxpayer Relief Act of 1997 repealed the
alternative minimum tax for certain "small corporations" for tax years beginning
after December 31, 1997. A corporation initially qualifies as a small
corporation if it had average gross receipts of $5 million or less for the three
tax years ending with its first tax year beginning after December 31, 1996. Once
a corporation is recognized as a small corporation, it will continue to be
exempt from the alternative minimum tax for as long as its average gross
receipts for the prior three-year period do not exceed $7.5 million. In
determining if a corporation meets this requirement, the first year that it
achieved small corporation status is not taken into consideration. Based on the
Bank's average gross receipts of $4.89 million for the three tax years ending on
February 28, 1998, the Bank would qualify as a small corporation exempt from the
alternative minimum tax.
Prior to the enactment of the Small Business Jobs Protection Act (the "Small
Business Act"), which was signed into law on August 21, 1996, certain thrift
institutions, were allowed deductions for bad debts under methods more favorable
than those granted to other taxpayers. Qualified thrift institutions could
compute deductions for bad debts using either the specific charge off method of
Section 166 of the Code, or one of the two reserve methods of Section 593 of the
Code. The reserve methods under Section 593 of the Code permitted a thrift
institution annually to elect to deduct bad debts under either (i) the
"percentage of taxable income" method applicable only to thrift institutions, or
(ii) the "experience" method that also was available to small banks. Under the
"percentage of taxable income" method, a thrift institution generally was
allowed a deduction for an addition to its bad debt reserve equal to 8% of its
taxable income (determined without regard to this deduction and with additional
adjustments). Under the experience method, a thrift institution was generally
allowed a deduction for an addition to its bad debt reserve equal to the greater
of (i) an amount based on its actual average experience for losses in the
current and five preceding taxable years, or (ii) an amount necessary to restore
the reserve to its balance as of the close of the base year. A thrift
institution could elect annually to compute its allowable addition to bad debt
reserves for qualifying loans under either the experience method or the
percentage of taxable income method.
The Small Business Act eliminated the percentage of taxable-income reserve
method of accounting for bad debts by thrift institutions, effective for taxable
years beginning after 1995. Thrift institutions that would be treated as small
banks are allowed to use the experience method applicable to such institutions,
while thrift institutions that are treated as large banks are required to use
only the specific charge off method.
- --------------------------------------------------------------------------------
22.
<PAGE> 24
A thrift institution required to change its method of computing reserves for bad
debts will treat such change as a change in the method of accounting, initiated
by the taxpayer, and having been made with the consent of the Secretary of the
Treasury. Section 481(a) of the Code requires certain amounts to be recaptured
with respect to such change. Generally, the amounts to be recaptured will be
determined solely with respect to the "applicable excess reserves" of the
taxpayer. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, beginning with the first taxable
year beginning after 1995, subject to the residential loan requirement described
below. In the case of a thrift institution that becomes a large bank, the amount
of the institution's applicable excess reserves generally is the excess of (i)
the balances of its reserve for losses on qualifying real property loans
(generally loans secured by improved real estate) and its reserve for losses on
nonqualifying loans (all other types of loans) as of the close of its last
taxable year beginning before January 1, 1996, over (ii) the balances of such
reserves as of the close of its last taxable year beginning before January 1,
1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that
becomes a small bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans and its reserve for losses on nonqualifying loans
as of the close of its last taxable year beginning before January 1, 1996, over
(ii) the greater of the balance of (a) its pre-1988 reserves or (b) what the
thrift's reserves would have been at the close of its last year beginning before
January 1, 1996, had the thrift always used the experience method.
For taxable years that began on or after January 1, 1996, and before January 1,
1998, if a thrift meets the residential loan requirement for a tax year, the
recapture of the applicable excess reserves otherwise required to be taken into
account as a Code Section 481(a) adjustment for the year will be suspended. A
thrift meets the residential loan requirement if, for the tax year, the
principal amount of residential loans made by the thrift during the year is not
less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential real and church property and certain mobile homes), but only to the
extent that the loan is made to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of Section
593(e) as modified by the Small Business Act, which require recapture in the
case of certain excessive distributions to shareholders. The pre-1988 reserves
may not be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by the Bank to HLFC is deemed paid out of its
pre-1988 reserves under these rules, the pre-1988 reserves would be reduced and
the Bank's gross income for tax purposes would be increased by the amount which,
when reduced by the income tax, if any, attributable to the inclusion of such
amount in its gross income, equals the amount deemed paid out of the pre-1988
reserves. As of June 30, 1999, the Bank's pre-1988 reserves for tax purposes
totaled approximately $1.5 million. The Bank believes it had approximately $9.1
million of accumulated earnings and profits for tax purposes as of June 30,
1999, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. No representation
can be made as to whether the Bank will have current or accumulated earnings and
profits in subsequent years.
The tax returns of the Bank have been audited or closed without audit through
fiscal year 1995. In the opinion of management, any examination of open returns
would not result in a deficiency that could have a material adverse effect on
the financial condition of the Bank.
- --------------------------------------------------------------------------------
23.
<PAGE> 25
OHIO TAXATION
HLFC is subject to the Ohio corporation franchise tax, which, as applied to
HLFC, is a tax measured by both net earnings and net worth. The rate of tax is
the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and
8.5% of computed Ohio taxable income in excess of $50,000 and (ii) 0.4% times
taxable net worth. Under these alternative measures of computing tax liability,
the states to which a taxpayer's adjusted total net income and adjusted total
net worth are apportioned or allocated are determined by complex formulas. The
minimum tax is $50 per year.
A special litter tax is also applicable to all corporations, including HLFC,
subject to the Ohio Corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times
taxable-net-worth.
Certain holding companies, such as HLFC, will qualify for complete exemption
from the net worth tax if certain conditions are met. HLFC will most likely meet
these conditions, and thus, calculate its Ohio franchise tax on the net income
basis.
The Bank is a "financial institution" for State of Ohio tax purposes. As such,
it is subject to the Ohio corporate franchise tax on "financial institutions,"
which is imposed annually at a rate of 1.4% for 1999 and 1.3% for 2000 and
thereafter of the Bank's apportioned book net worth, determined in accordance
with Generally Accepted Accounting Principles, less any statutory deduction. As
a "financial institution," the Bank is not subject to any tax based upon net
income or net profits imposed by the State of Ohio.
ITEM 2. - DESCRIPTION OF PROPERTY
The following table sets forth certain information at June 30, 1999, regarding
the properties on which the main office and the branch office of the Bank are
located:
Owned or Date Net book
Location leased acquired value Deposits
-------- -------- -------- -------- ----------
(In thousands)
401 Main Street Owned 1924 $ 231,000 $ 46,165
Coshocton, Ohio 43812-1580
590 Walnut Street Owned 1985 $ 203,000 $ 10,330
Coshocton, Ohio 43812-1632
In addition, the Bank purchased land and construction is in progress for a new
branch facility in West Lafayette, Ohio. The branch should be open in the fall
of 1999. Total land and construction costs as of June 30, 1999 were $308,000
ITEM 3. - LEGAL PROCEEDINGS
HLFC and the Bank are not presently involved in any material legal proceedings.
From time to time, the Bank is a party to legal proceedings incidental to its
business to enforce its security interest in collateral pledged to secure loans
made by the Bank.
- --------------------------------------------------------------------------------
24.
<PAGE> 26
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information contained in the Home Loan Financial Corporation Annual Report
to Shareholders for the fiscal year ended June 30, 1999 (the "Annual Report")
under the caption "Market Price of the Corporation's Common Shares and Related
Shareholder Matters" is incorporated herein by reference.
ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in the Annual Report under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" is
incorporated herein by reference.
ITEM 7. - FINANCIAL STATEMENTS
The Consolidated Financial Statements appearing in the Annual Report and the
report of Crowe, Chizek and Company LLP dated July 22, 1999, are incorporated
herein by reference.
ITEM 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information contained in the definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders of HLFC (the "Proxy Statement"), under the caption
"Board of Directors" is incorporated herein by reference.
ITEM 10. - EXECUTIVE COMPENSATION
The information contained in the Proxy Statement under the caption "Compensation
of Executive Officers and Directors" is incorporated herein by reference.
ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement under the caption "Voting
Securities and Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
- --------------------------------------------------------------------------------
25.
<PAGE> 27
ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
ITEM 13. - EXHIBITS AND REPORTS ON FROM 8-K
(a) EXHIBITS
3 Articles of Incorporation and Code of Regulations
13 1999 Annual Report to Shareholders (the following parts of
which are incorporated herein by reference; "Market Price
of FFD's Common Shares and Related Shareholders' Matters,"
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Consolidated
Financial Statements).
10 Employment Contract for Robert C. Hamilton
20 Proxy Statement for 1999 Annual Meeting of Shareholders
21 Subsidiaries of Home Loan Financial Corporation
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed by HLFC during the quarter ended
June 30, 1999.
- --------------------------------------------------------------------------------
26.
<PAGE> 28
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOME LOAN FINANCIAL CORPORATION
By:/s/ Robert C. Hamilton
------------------------
Robert C. Hamilton, President
(Principal Executive Officer)
Date: September 14, 1999
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Robert C. Hamilton /s/ Preston W. Bair
- -------------------------- ----------------------------
Robert C. Hamilton, Preston W. Bair,
President and Director Treasurer
(Principal Financial Officer)
Date: September 14, 1999 Date: September 14, 1999
/s/ Neal J. Caldwell /s/ Charles H. Durmis
- -------------------------- ----------------------------
Neal J. Caldwell Charles H. Durmis
Director Director
Date: September 14, 1999 Date: September 14, 1999
/s/ Robert D. Mauch /s/ Douglas L. Randles
- -------------------------- ----------------------------
Robert D. Mauch Douglas L. Randles
Director Director
Date: September 14, 1999 Date: September 14, 1999
- --------------------------------------------------------------------------------
27.
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- -----------
<S> <C>
3.1 Articles of Incorporation of Incorporated by reference to the Registration Statement on
HomeLoan Financial Corporation Form S-1 filed by HLFC on December 16, 1997 (the "S-1")
with the Securities and Exchange Commission (the "SEC"),
Exhibit 3.1.
3.2 Certificate of Amendment to Incorporated by reference to Pre-Effective Amendment No. 1
Articles of Incorporation of to the S-1 filed with the SEC on February 3, 1998
Home Loan Financial Corporation ("Pre-Effective Amendment No. 1"), Exhibit 3.2.
3.4 Code of Regulations of Home Loan Incorporated by reference to the S-1, Exhibit 3.3.
Financial Corporation
10 Employment Contract for Robert C. Incorporated by reference to the Form 10-KSB filed by HLFC
Hamilton on September 28, 1998 (the "10-KSB") with the SEC, Exhibit
10.
13 Home Loan Financial Corporation
1999 Annual Report to Shareholders
20 Proxy Statement for 1999 Annual
Meeting of Shareholders
21 Subsidiaries of Home Loan Incorporated by reference to the 10-KSB filed with the SEC
Financial Corporation on September 28, 1998, Exhibit 21.
27 Financial Data Schedule
</TABLE>
- -------------------------------------------------------------------------------
28.
<PAGE> 1
Exhibit 13
HOME LOAN FINANCIAL CORPORATION
Coshocton, Ohio
ANNUAL REPORT
June 30, 1999
<PAGE> 2
HOME LOAN FINANCIAL CORPORATION
Coshocton, Ohio
ANNUAL REPORT
June 30, 1999
CONTENTS
LETTER TO SHAREHOLDERS.........................................................2
BUSINESS OF HOME LOAN FINANCIAL CORPORATION....................................3
MARKET PRICE OF THE CORPORATION'S COMMON SHARES AND
RELATED SHAREHOLDER MATTERS..................................................3
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND
OTHER DATA...................................................................4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................................7
REPORT OF INDEPENDENT AUDITORS ...............................................19
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets.............................................20
Consolidated Statements of Income.......................................21
Consolidated Statements of Comprehensive Income.........................22
Consolidated Statements of Changes in Shareholders' Equity..............23
Consolidated Statements of Cash Flows...................................25
Notes to Consolidated Financial Statements..............................26
SHAREHOLDER INFORMATION.......................................................44
CORPORATE INFORMATION.........................................................45
- --------------------------------------------------------------------------------
1.
<PAGE> 3
Dear Shareholder:
On behalf of your directors, officers and employees, it is indeed a pleasure to
present the second Annual Report of Home Loan Financial Corporation (the
"Company"). You will find a detailed description of the 1999 fiscal year
financial results of your Company contained in the audited consolidated
Financial Statements and the accompanying Management's Discussion and Analysis
of Financial Condition and Results of Operations.
The growth trends continued this past year as the Company passed $100 million in
total assets. It was a very good year for your Company. Net income was
$1,322,624 for fiscal 1999, an increase of $404,046 over fiscal 1998. We ended
the 1999 fiscal year with total assets of $107.9 million, compared to $81.9
million for fiscal year-end 1998.
In late 1998, we announced plans to construct our second branch office, in West
Lafayette, Ohio. As you review this letter, this office should be open or will
be very shortly. We look forward to serving the West Lafayette residents and
business community by building upon our current relationships and expanding our
products and services.
Since the conversion of The Home Loan Savings Bank to a stock company, your
directors and management team have been evaluating the "new" capital infusion as
a result of the overwhelming response to our public offering. The Board is
committed to analyze all possibilities to keep the Company's capital manageable,
and, over a period of time, strive to reach reasonable returns on capital. We
hope to accomplish this as the Company continues to grow and we examine other
means to add value for our shareholders. This year, the Board of Directors
declared a special cash distribution of $4.00 per share and also completed two
stock repurchases.
The "Year 2000" issue is certain to remain an important issue this year, but let
me assure you that we have prepared and tested the Company's systems
appropriately. We are confident that we are more than adequately prepared to
meet the challenges of the "Year 2000." We highly recommend you read the
references to this problem and our preparations for it in this report.
In conclusion, we recognize that the key to the Bank's success as a community
bank is the personal relationship that we maintain with our customers. Our
success is driven by a dedicated staff of officers and employees, as well as our
commitment to participate in and support numerous community events.
Thank you for your continued support and your investment in Home Loan Financial
Corporation.
Sincerely,
Robert C. Hamilton
Chairman of the Board and President
- --------------------------------------------------------------------------------
2.
<PAGE> 4
BUSINESS OF HOME LOAN FINANCIAL CORPORATION
Home Loan Financial Corporation ("HLFC"), a unitary thrift holding company
incorporated under the laws of the State of Ohio, owns all of the issued and
outstanding common shares of The Home Loan Savings Bank ("Bank"), a savings and
loan association incorporated under the laws of the State of Ohio, together
referred to as the Corporation. On March 25, 1998, HLFC acquired all of the
common shares issued by the Bank upon its conversion from a mutual savings and
loan association to a stock savings and loan association ("Conversion"). HLFC's
activities have been limited primarily to holding the common shares of the Bank.
Serving the Coshocton, Ohio area since 1882, the Bank conducts business from its
main office at 401 Main Street and a full-service branch office at 590 Walnut
Street. Both banking facilities are located in Coshocton, Ohio. The principal
business of the Bank is the origination of permanent mortgage loans secured by
first mortgages on one- to four-family residential real estate located in
Coshocton County, Ohio, the Bank's primary market area. The Bank also originates
a limited number of loans for the construction of one- to four-family residences
and permanent mortgage loans secured by multifamily and nonresidential real
estate in its primary market area. In addition to real estate lending, the Bank
originates commercial loans and various types of consumer credits, including
home improvement loans, education loans, loans secured by savings accounts,
motor vehicle loans, unsecured loans and credit cards. For liquidity and
interest rate risk management purposes, the Bank invests in interest-bearing
deposits in other financial institutions, U.S. Treasury securities,
mortgage-backed securities and other investments permitted by applicable law.
Funds for lending and other investment activities are obtained primarily from
savings deposits, which are insured up to applicable limits by the Federal
Deposit Insurance Corporation ("FDIC") in the Savings Association Insurance Fund
("SAIF"), principal repayments on loans, maturities of securities and borrowings
from the Federal Home Loan Bank ("FHLB").
As a savings and loan holding company, HLFC is subject to regulation,
examination and oversight by the Office of Thrift Supervision of the United
States Department of the Treasury ("OTS"). As a savings and loan association
incorporated under the laws of the State of Ohio, the Bank is subject to
regulation, examination and oversight by the OTS and the State of Ohio Division
of Financial Institutions. The Bank is also subject to general oversight by the
FDIC. Because HLFC and the Bank are corporations organized under Ohio law, they
are also subject to the provisions of the Ohio Revised Code generally applicable
to corporations. The Bank is also a member of the FHLB of Cincinnati.
MARKET PRICE OF THE CORPORATION'S COMMON SHARES AND
RELATED SHAREHOLDER MATTERS
The Corporation had 2,014,045 common shares outstanding on August 30, 1999, held
of record by approximately 709 shareholders. Price information with respect to
the Corporation's common shares is quoted on The Nasdaq National Market. The
high and low daily closing prices for the common shares of the Corporation from
March 25, 1998 to June 30, 1999, as quoted by The Nasdaq Stock Market, Inc., and
cash dividends paid by quarter are shown below.
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
High $ 15.750 $ 16.750 $ 15.250 14.750 13.750 16.000
Low 15.375 14.000 13.000 11.453 12.313 8.500
Cash Dividends -- -- 0.050 0.050 0.060 4.060(1)
</TABLE>
(1) Cash dividends for the quarter ended June 30, 1999, include a $4.00 per
share return of capital distribution.
- --------------------------------------------------------------------------------
3.
<PAGE> 5
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 dividend,
be reduced below the amount required for the Liquidation Account (the account
established for the purpose of granting a limited priority claim on the assets
of the Bank in the event of complete liquidation to those members of the Bank
before the Conversion who maintain a savings account at the Bank after the
Conversion), or applicable regulatory capital requirements prescribed by the
OTS.
An application must be submitted and approval from the OTS must be obtained by a
subsidiary of a savings and loan holding company (1) if the proposed
distribution would cause total distributions for that calendar year to exceed
net income for that year to date plus the savings association's retained net
income for the preceding two years; (2) if the savings association will not be
at least adequately capitalized following the capital distribution; (3) if the
proposed distribution would violate a prohibition contained in any applicable
statute, regulation or agreement between the savings association and the OTS (or
the FDIC), or a condition imposed on the savings association in an OTS-approved
application or notice; or, (4) if the savings association has not received
certain favorable examination ratings from the OTS. If a savings association
subsidiary of a holding company is not required to file an application, it must
file a notice with the OTS.
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following tables set forth certain information concerning the consolidated
financial condition, earnings and other data regarding the Corporation at the
dates and for the periods indicated. Because the conversion was completed on
March 25, 1998, information for the years prior to the 1998 fiscal year end is
for the Bank.
<TABLE>
<CAPTION>
Selected Financial Condition At June 30,
- ---------------------------- -------------------------------------------------
and Other Data: 1999 1998 1997 1996 1995
-------------- -------- -------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $107,855 $ 81,915 $ 60,401 $ 55,366 $ 49,102
Cash and cash equivalents 8,564 7,657 4,681 5,723 2,559
Interest-bearing time deposits 35 2,037 39 41 --
Securities available for sale 2,970 14,019 5,004 1,743 753
Mortgage-backed securities
available for sale 20,248 -- -- -- --
Securities held to maturity -- -- -- 2,252 5,498
FHLB stock 1,431 393 366 341 318
Loans, net (1) 73,069 56,824 49,300 44,294 39,156
Deposits 56,495 48,538 49,235 44,884 39,543
Federal Home Loan Bank
advances 28,200 1,000 -- -- --
Other borrowings 2,350 -- -- -- --
Shareholders' equity (2) 19,899 31,565 10,370 9,768 9,005
Number of full-service offices 2 2 2 2 2
</TABLE>
- --------------------------------------------------------------------------------
4.
<PAGE> 6
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------
SELECTED OPERATIONS DATA: 1999 1998 1997 1996 1995
- ------------------------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest income $6,910 $5,372 $4,609 $4,259 $3,696
Interest expense 2,623 2,108 1,931 1,703 1,331
------ ------ ------ ------ ------
Net interest income 4,287 3,264 2,678 2,556 2,365
Provision for loan losses 120 120 6 -- 2
------ ------ ------ ------ ------
Net interest income after
provision for loan losses 4,167 3,144 2,672 2,556 2,363
Noninterest income 204 176 175 165 149
Noninterest expense 2,308 1,929 1,943 1,532 1,418
------ ------ ------ ------ ------
Income before income taxes 2,063 1,391 904 1,189 1,094
Income tax expense 741 472 309 419 378
------ ------ ------ ------ ------
Net income $1,323 $ 919 $ 595 $ 770 $ 716
====== ====== ====== ====== ======
Basic earnings per share (3) $ .67 $ .15
====== ======
Diluted earnings per share (3) $ .66 $ .15
====== ======
Dividends per share (3) $ 4.22 $ --
====== ======
</TABLE>
<TABLE>
<CAPTION>
At or for the Year ended June 30,
------------------------------------------
Selected Financial Ratios and 1999 1998 1997 1996 1995
- ----------------------------- ------- ------- ------- ------- -------
Other Data:
----------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on assets (ratio of net
income to average total assets) 1.45% 1.37% 1.04% 1.47% 1.47%
Return on equity (ratio of net
income to average equity) (2) 4.48 5.40 5.94 8.20 8.32
Interest rate spread (4) 3.50 4.05 4.25 4.45 4.52
Net interest margin (5) 4.85 5.09 4.88 5.10 5.04
Noninterest expense to average
assets 2.54 2.89 3.39 2.93 2.91
Efficiency ratio (6) 51.38 56.09 68.09 56.30 56.41
Net interest income to
noninterest expense 185.77 169.14 137.86 166.82 166.78
Average interest-earning assets
to average interest-bearing
liabilities 1.46x 1.32x 1.18x 1.19x 1.18x
Capital Ratios:
Average equity to average
assets (2) 32.45% 25.51% 17.51% 17.95% 17.67%
Shareholders' equity to total
assets at end of period (2) 18.45 38.53 17.17 17.64 18.34
</TABLE>
- --------------------------------------------------------------------------------
5.
<PAGE> 7
<TABLE>
<CAPTION>
At or for the year ended June 30,
Selected Financial Ratios and 1999 1998 1997 1996 1995
- ----------------------------- ----------- ----------- ----------- ---------- ---------
Other Data:
----------
<S> <C> <C> <C> <C> <C>
Asset Quality Ratios and Other Data:
Nonperforming assets to average
assets (7) 0.15 0.37 0.06 0.17 0.03
Nonperforming assets to total
assets at end of period (7) 0.12 0.30 0.05 0.16 0.03
Nonperforming loans to gross
loans (8) 0.18 0.43 0.07 0.20 0.04
Allowance for loan losses to
gross loans (8) 0.44 0.39 0.24 0.26 0.30
Allowance for loan losses to
nonperforming loans 242.75 91.23 361.27 133.54 734.46
Net charge-offs to
average loans 0.03 0.03 0.01 -- 0.02
Amount of nonperforming loans $ 133,000 $ 245,000 $ 33,000 $ 88,000 $ 16,000
Amount of nonperforming assets 133,000 245,000 33,000 88,000 16,000
</TABLE>
- -------------------------------
(1) Loans are shown net of loans in process, net deferred loan fees and costs
and the allowance for loan losses.
(2) Consists solely of retained earnings, unrealized gain (loss) on securities
available for sale and excess of additional pension liability over
unrecognized prior service cost before June 30, 1998.
(3) Earnings and dividends per share are not applicable for any of the periods
presented before June 30, 1998. Earnings per share for 1998 was computed
based on net income of the Corporation since its stock issuance on March
25, 1998. The dividends for 1999 include a $4.00 return of capital
distribution.
(4) The interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(6) The efficiency ratio represents noninterest expense divided by the sum of
net interest income and noninterest income. The efficiency ratio was 58.95%
in 1997 without the one-time assessment to recapitalize the Savings
Association Insurance Fund.
(7) Nonperforming assets consist of nonperforming loans and foreclosed assets.
Nonperforming loans consist of all accruing loans 90 days or more past due
and all nonaccrual loans.
(8) Gross loans are stated at the unpaid principal balances.
- --------------------------------------------------------------------------------
6.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following is management's analysis of the Corporation's consolidated
financial condition and consolidated results of operations as of and for the
year ended June 30, 1999, compared to prior years. 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 consolidated
financial statements alone. This analysis should be read in conjunction with the
consolidated financial statements and related footnotes and the selected
financial data included elsewhere in this report.
The Conversion was consummated on March 25, 1998. A total of 2,248,250 common
shares of HLFC were sold at $10.00 per share and net proceeds from the sale were
$21,880,273 after deducting the costs of the Conversion. HLFC 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 HLFC in
connection with the Conversion.
The Corporation provides financial services through its main and branch offices
in Coshocton, Ohio. 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 business assets, consumer assets and real
estate. Commercial loans are expected to be repaid from cash flow from
operations of businesses. Real estate loans are secured by both residential and
commercial real estate.
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.
- --------------------------------------------------------------------------------
7.
<PAGE> 9
FINANCIAL CONDITION
Total assets at June 30, 1999 were $107.9 million, compared to $81.9 million at
June 30, 1998, an increase of $26.0 million, or 31.7%. 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 and
interest-bearing time deposits, combined with an increase in deposits and
borrowings.
Interest-bearing time deposits, securities available for sale, mortgage-backed
securities available for sale and FHLB stock increased from $16.4 million at
June 30, 1998 to $24.7 million at June 30, 1999. Interest-bearing time deposits
decreased $2.0 million from June 30, 1998 to June 30, 1999, primarily to fund
loan growth. Securities available for sale decreased from $14.0 million at June
30, 1998 to $3.0 million at June 30, 1999. A large portion of the proceeds from
the Conversion, which closed on March 25, 1998, were initially invested in U.S.
Treasury and U.S. Government agency securities with relatively short-term
maturities. Management's initial strategy emphasized investment in securities
guaranteed by the U.S. Government and its agencies to mitigate credit risk,
while providing a cash flow stream to fund future loan demand. As these
securities matured or were called, proceeds were used to fund loan growth.
Mortgage-backed securities, which totaled $20.2 million at June 30, 1999, were
funded primarily by convertible fixed-rate advances from the FHLB. The FHLB
advances and subsequent investment in mortgage-backed securities was done to
better leverage the Corporation's capital. The mortgage-backed securities also
provide the Corporation with a cash flow stream through principal repayments to
fund future loan demand, for operations or for reinvestment. FHLB stock
increased over $1.0 million from June 30, 1998 and June 30, 1999 in order to
increase the amount of borrowings that could be obtained.
Loan growth, which totaled $16.2 million, was experienced in all loan
categories. The significant changes were one- to four-family residential real
estate loans, which increased $10.5 million, real estate construction loans,
which increased $1.4 million, nonresidential real estate loans, which increased
$1.1 million, commercial loans, which increased $1.4 million, and consumer and
other loans, which increased $1.5 million. These increases reflect a stable
local economy, the current interest-rate environment and the Corporation being
more aggressive in its pricing of fixed-rate loan products during the period.
Premises and equipment increased from $472,000 at June 30, 1998 to $742,000 at
June 30, 1999. The primary reason for the increase relates to the purchase of
land and construction in progress for a new branch facility in West Lafayette,
Ohio. The branch should be open in the fall of 1999.
Total deposits increased $8.0 million from $48.5 million at June 30, 1998 to
$56.5 million at June 30, 1999. The Corporation experienced increases in
negotiable order of withdrawal ("NOW") accounts and money market accounts of
$5.7 million and certificates of deposit of $1.5 million. The increase in NOW
and money market accounts resulted from the Corporation being more interest-rate
competitive for money market accounts compared to the local market. Generating
deposit growth was a priority for the Corporation to help fund the strong loan
demand and grow the Corporation's balance sheet to leverage its capital
position. Despite the increase in certificates of deposit, the portfolio as a
percent of total deposits decreased from 53.8% at June 30, 1998 to 48.8% at June
30, 1999. Almost all certificates of deposit held by the Bank mature in less
than three years with the majority maturing in the next year.
FHLB advances totaled $28.2 million at June 30, 1999, compared to $1.0 million
at June 30, 1998. As discussed previously, the increase in FHLB advances was
primarily to leverage the Corporation's capital. Also, in the recent past, the
Corporation had not aggressively marketed or priced fixed-rate mortgages due to
the interest-rate risk exposure. Management has been more competitive with this
product. Although the advances 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. However, the majority of the Bank's loan
portfolio continues to be variable rate. At June 30, 1999, FHLB advances
consisted of $17.0 million of long-term convertible fixed-rate advances and
$11.2 million of fixed-rate advances which mature within one year. The
convertible long-term advances have a fixed rate for a specified number of
years, then convert to an
- --------------------------------------------------------------------------------
8.
<PAGE> 10
adjustable rate at the option of the FHLB. If the convertible option is
exercised, the advance may be prepaid at any time without penalty.
The Bank maintains a $10 million cash management arrangement with the FHLB as an
additional source of liquidity. Advances can be fixed or variable rate. Variable
rate advances can be prepaid at any time without penalty. Of the advances
included above, $6.2 million were outstanding at June 30, 1999 under this line
of credit. No advances were outstanding at June 30, 1998 under this line of
credit. Additional advances may be obtained from the FHLB to fund future loan
growth and leverage excess capital as needed.
At June 30, 1999, the Corporation had two lines of credit totaling $4,000,000
with another financial institution. Borrowings outstanding on these lines of
credit totaled $2,350,000 at June 30, 1999. Both lines of credit expire one year
from the original date of the agreement. The original $2,000,000 line of credit
is unsecured while the second $2,000,000 line of credit is secured. Interest on
the lines of credit adjusts daily at the prime rate as published in The Wall
Street Journal. Interest payments are due monthly and any outstanding principal
is due at expiration.
Total shareholders' equity decreased from $31.6 million at June 30, 1998 to
$19.9 million at June 30, 1999. The decrease results from the $4.00 per share
return of capital distribution, which reduced shareholders' equity by $8.5
million, the purchase of 4% of the total shares sold in the Conversion by the
Home Loan Financial Corporation Recognition and Retention Plan ("RRP"), which
was approved by the shareholders at the October 13, 1998 Annual Meeting and two
separate 5% stock repurchases. The decrease in capital is part of management's
capital planning strategy to utilize or distribute its excess capital.
RESULTS OF OPERATIONS
The operating results of the Corporation are affected by general economic
conditions, the monetary and fiscal policies of federal agencies and the
regulatory policies of agencies that regulate financial institutions. The
Corporation's cost of funds is influenced by interest rates on competing
investments and general market rates of interest. 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 upon 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 upon the interest rate environment and the volume
and composition of interest-earning assets and interest-bearing liabilities. Net
income is also affected by provisions for loan losses, service charges, gains on
the sale of assets, other income, noninterest expense and income taxes.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1999 AND JUNE
30, 1998
NET INCOME. The Corporation's net income for the year ended June 30, 1999 was
$1,323,000, compared to $919,000 for the year ended June 30, 1998, an increase
of $404,000, or 43.9%. The increase in net income was the result of an increase
in net interest income partially offset by an increase in noninterest expense.
NET INTEREST INCOME. Net interest income totaled $4,287,000 for the year ended
June 30, 1999, compared to $3,264,000 for the year ended June 30, 1998, an
increase of $1,023,000, or 31.3%. The change in net interest income is
attributable to an increase in the ratio of average interest-earning assets to
average interest-bearing liabilities partially offset by a decrease in the
interest rate spread.
- --------------------------------------------------------------------------------
9.
<PAGE> 11
Interest and fees on loans increased $796,000, or 16.8%, from $4,745,000 for the
year ended June 30, 1998 to $5,541,000 for the year ended June 30, 1999. The
increase in interest income was due to a higher average balance of loans,
partially offset by a decrease in the average yield earned on loans.
Interest earned on securities totaled $1,007,000 for the year ended June 30,
1999, compared to $390,000 for the year ended June 30, 1998. The increase was a
result of higher average balances of securities and an increase in the average
yield earned.
Dividends on FHLB stock increased $18,000 over the comparable periods due to an
increase in the number of shares of FHLB stock owned.
Interest on interest-bearing deposits and federal funds sold increased $108,000
for the year ended June 30, 1999, compared to the year ended June 30, 1998. This
increase was the result of higher average balances of interest-bearing deposits
and federal funds sold and an increase in the average yield earned.
Interest paid on deposits increased $58,000 for the year ended June 30, 1999,
compared to the year ended June 30, 1998. The increase in interest expense was
due to an increase in the average balance of deposits, partially offset by a
decrease in the cost of funds.
Interest on FHLB advances totaled $461,000 for the year ended June 30, 1999,
compared to $16,000 for the year ended June 30, 1998, an increase of $445,000.
The increase in interest expense was the result of a higher average balance of
FHLB advances due to the Corporation better leveraging its capital and borrowing
funds for investment in mortgage-backed securities as discussed above.
PROVISION FOR LOAN LOSSES. 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 upon a variety of factors, including the performance of the
Corporation's 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 in the loan portfolio. The amount of the
provision is based on management's quarterly review of the loan portfolio and
consideration of such factors as historical loss experience, 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.
The provision for loan losses for the years ended June 30, 1999 and June 30,
1998 totaled $120,000. The allowance for loan losses totaled $323,000, or 0.44%
of gross loans, at June 30, 1999, compared to $223,000, or 0.39% of gross loans,
at June 30, 1998. The Corporation has not experienced significant charge-offs in
any of the periods presented. The Corporation's low 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 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 increase in the allowance
as a percentage of gross loans was primarily due to growth in the nonresidential
real estate and commercial loan portfolios.
NONINTEREST INCOME. Noninterest income includes service fees and other
miscellaneous income. For the year ended June 30, 1999, noninterest income
totaled $204,000, compared to $177,000 for the year ended June 30, 1998.
Commissions from the sale of credit life insurance associated with the increased
consumer loan activity accounted for $11,000 of the increase. No other item made
up a significant portion of the change.
- --------------------------------------------------------------------------------
10.
<PAGE> 12
NONINTEREST EXPENSE. Noninterest expense increased $378,000, or 19.6%, for the
year ended June 30, 1999, compared to the year ended June 30, 1998. The increase
in noninterest expense was due to an increase in salaries and employee benefits,
occupancy and equipment expense, professional fees and other expense.
Salaries and employee benefits expense increased $206,000, or 17.6%. The
increase is the result of normal annual-merit increases, additional expense
recognized for the Corporation's ESOP and the establishment of the RRP. The
Corporation elected to have the ESOP make additional principal repayments on the
loan, which released more shares out of the suspense account and resulted in
more compensation expense. RRP expense was $132,800 for fiscal 1999, the first
year of the Plan's existence. Occupancy and equipment expense increased $23,000,
or 16.7%, as the result of increases in depreciation and maintenance contracts
on furniture, fixtures and equipment. Professional fees increased $38,000, or
55.2%, primarily due to the change in the Corporation's structure as a result of
the Conversion. Other expenses increased $73,000, or 38.6%, primarily due to
increases in stationery and supplies expense and education expense.
INCOME TAX EXPENSE. The volatility of income tax expense is primarily
attributable to the change in income before income taxes. Income tax expense
totaled $741,000 for the year ended June 30, 1999, compared to $472,000 for the
year ended June 30, 1998. The effective tax rate was 35.9% for the year ended
June 30, 1999, compared to 33.9% for the year ended June 30, 1998.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 AND JUNE
30, 1997
NET INCOME. The Corporation's net income for the year ended June 30, 1998 was
$919,000, compared to $595,000 for the year ended June 30, 1997, an increase of
$324,000, or 54.5%. The increase in net income was the result of an increase in
net interest income and a reduction in SAIF deposit insurance premiums partially
offset by increases in the provision for loan losses and salaries and employee
benefits.
NET INTEREST INCOME. Net interest income totaled $3,264,000 for the year ended
June 30, 1998, compared to $2,678,000 for the year ended June 30, 1997, an
increase of $586,000, or 21.9%. The change in net interest income is
attributable to an increase in the ratio of average interest-earning assets to
average interest-bearing liabilities partially offset by a decrease in the
interest rate spread.
Interest and fees on loans increased $582,000, or 14.0%, from $4,163,000 for the
year ended June 30, 1997 to $4,745,000 for the year ended June 30, 1998. The
increase in interest income was due to a combination of a higher average balance
of loans and an increase in the average yield earned on loans.
Interest earned on securities totaled $390,000 for the year ended June 30, 1998,
compared to $265,000 for the year ended June 30, 1997. The increase was a result
of higher average balances of securities partially offset by a decrease in the
average yield earned.
Dividends on FHLB stock increased slightly over the comparable periods due to an
increase in the number of shares of FHLB stock owned combined with an increase
in the dividend rate paid by the FHLB.
Interest on interest-bearing deposits and federal funds sold increased $52,000
for the year ended June 30, 1998, compared to the year ended June 30, 1997. This
increase was the result of higher average balances of interest-bearing deposits
and federal funds sold partially offset by a decrease in the average yield
earned.
Interest paid on deposits increased $161,000 for the year ended June 30, 1998,
compared to the year ended June 30, 1997. The increase in interest expense was
due to an increase in the cost of funds combined with an increase in the average
balance of deposits.
- --------------------------------------------------------------------------------
11.
<PAGE> 13
Interest on FHLB advances totaled $16,000 for the year ended June 30, 1998. The
Corporation borrowed funds from the FHLB for the first time during fiscal 1998.
These borrowings were used as a source of short-term liquidity to provide
funding for loan demand before the consummation of the Conversion. The
Corporation also borrowed $1.0 million on a ten-year advance at the end of
fiscal 1998 to reduce the interest rate risk of originating fixed rate loans.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year ended June
30, 1998 was $120,000, compared to $6,000 for the year ended June 30, 1997, an
increase of $114,000. The allowance for loan losses totaled $223,000, or 0.39%
of gross loans and 91.23% of total nonperforming loans, at June 30, 1998,
compared with $119,000, or 0.24% of gross loans and 361.27% of total
nonperforming loans, at June 30, 1997. Management increased the allowance for
loan losses due to growth of the total loan portfolio, an increase in
nonresidential real estate and consumer loans and management's decision to raise
the nonspecific percentage allocation for nonresidential real estate loans.
Previously, the same percentage allocation was used for nonspecific reserves on
nonresidential and residential real estate loans.
NONINTEREST INCOME. Noninterest income includes service fees and other
miscellaneous income. For the year ended June 30, 1998, noninterest income
totaled $177,000, compared to $175,000 for the year ended June 30, 1997.
NONINTEREST EXPENSE. Noninterest expense decreased $14,000, or 0.7%, for the
year ended June 30, 1998, compared to the year ended June 30, 1997. The decrease
in noninterest expense was due to a decrease in federal deposit-insurance
premiums, which was almost entirely offset by an increase in salaries and
employee benefits.
Federal deposit insurance was $30,000 for the year ended June 30, 1998, compared
to $321,000 for the year ended June 30, 1997. Included in the year ended June
30, 1997 was a special deposit-insurance assessment of $261,000 resulting from
legislation that was enacted into law on September 30, 1996 to recapitalize the
SAIF. The legislation called for a one-time assessment of $.657 for each $100 in
deposits held as of March 31, 1995. As a result of the recapitalization of the
SAIF, the disparity between Bank and thrift insurance assessments was reduced.
Thrifts had been paying assessments of $.23 per $100 of deposits, which, for
most thrifts, was reduced to $.064 per $100 in deposits in January 1997 and will
be reduced to $.024 per $100 in deposits no later than January 2000.
Salaries and employee benefits expense increased $279,000, or 31.4%. The
increase is the result of normal annual-merit increases, the addition of new
employees and the added expense of the ESOP, which totaled $188,000.
INCOME TAX EXPENSE. Income tax expense totaled $472,000 for the year ended June
30, 1998, compared to $309,000 for the year ended June 30, 1997, an increase of
$163,000, or 52.8%. The effective tax rate was 33.9% for the year ended June 30,
1998, compared to 34.2% for the year ended June 30, 1997.
- --------------------------------------------------------------------------------
12.
<PAGE> 14
YIELDS EARNED AND RATES PAID
The following table sets forth certain information relating to the Corporation's
average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the periods indicated. Such yields and costs are derived by dividing income or
expense by the average balances of interest-earning assets or interest-bearing
liabilities for the periods presented. Average balances are derived from
month-end balances. Nonaccruing loans have been included in the table as loans
carrying a zero yield.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
----------- -------- ------- ----------- -------- ------ ----------- -------- ------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1) $ 65,116 $ 5,541 8.51% $ 53,212 $ 4,745 8.92% $ 47,225 $ 4,163 8.81%
Securities available
for sale(2) 9,644 573 5.95 6,612 390 5.92 3,521 212 6.02
Mortgage-backed securities
available for sale(2) 7,070 434 6.13 -- -- -- -- -- --
Securities held to maturity -- -- -- -- -- -- 845 53 6.29
Interest-bearing deposits
and federal funds sold 5,876 317 5.40 3,992 209 5.23 2,937 156 5.33
FHLB stock 655 45 6.86 378 27 7.22 352 25 7.03
--------- ------- --------- ------ --------- -------
Total interest-earning
assets 88,361 6,910 7.82 64,194 5,371 8.37 54,880 4,609 8.40
Noninterest-earning assets 2,611 2,497 2,355
--------- --------- ---------
Total assets $ 90,972 $ 66,691 $ 57,235
========= ========= =========
Interest-bearing liabilities:
Demand deposits $ 13,816 381 2.76 $ 9,437 193 2.05 $ 8,275 154 1.85
Savings accounts 11,106 275 2.48 11,174 297 2.66 11,840 295 2.49
Certificates of deposit 26,827 1,494 5.57 27,878 1,601 5.74 26,383 1,482 5.62
--------- ------- --------- ------ --------- -------
Total deposits 51,749 2,150 4.15 48,489 2,091 4.31 46,498 1,931 4.15
FHLB advances and
other borrowings 8,922 473 5.30 290 16 5.63 -- -- --
--------- ------- --------- ------ --------- -------
Total interest-bearing
liabilities 60,671 2,623 4.32 48,779 2,107 4.32 46,498 1,931 4.15
------- ------ -------
Noninterest-bearing liabilities 784 897 716
--------- --------- ---------
Total liabilities 61,455 49,676 47,214
Equity 29,517 17,015 10,021
--------- --------- ---------
Total liabilities and
equity $ 90,972 $ 66,691 $ 57,235
========= ========= =========
Net interest income;
interest-rate spread(3) $ 4,287 3.50% $3,264 4.05% $ 2,678 4.25%
======= ==== ====== ==== ======= ====
Net earning assets $ 27,690 $ 15,415 $ 8,382
========= ========= =========
Net interest margin(4) 4.85% 5.09% 4.88%
==== ==== ====
Average interest-earning
assets to interest-bearing
liabilities 1.46x 1.32x 1.18x
==== ==== ====
</TABLE>
- ---------------------------
(1) Net of net deferred loan fees and costs and loans in process and includes
nonperforming loans.
(2) Average balance includes unrealized gains and losses. Yield is based on
amortized cost.
(3) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
- --------------------------------------------------------------------------------
13.
<PAGE> 15
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Corporation's interest income and expense during the years
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
volume (multiplied by prior year rate), (2) changes in rate (multiplied by prior
year volume) and (3) total changes in rate and volume. The combined effects of
changes in both volume and rate, that are not separately identified, have been
allocated proportionately to the change due to volume and the change due to
rate:
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------------------------
1999 VS. 1998 1998 VS. 1997
------------------------------- --------------------------
Increase Increase
(decrease) (decrease)
DUE TO DUE TO
------------------------------- --------------------------
Volume Rate Total Volume Rate Total
-------- -------- ---------- ------ ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans $ 1,021 $ (225) $ 796 $ 534 $ 48 $ 582
Securities available for sale 180 3 183 181 (3) 178
Mortgage-backed securities
available for sale 434 -- 434 -- -- --
Securities held to maturity -- -- -- (53) -- (53)
Interest-bearing deposits and
federal funds sold 101 7 108 56 (3) 53
FHLB stock 19 (1) 18 1 1 2
------- ------- ------- ------ ------- -------
Total interest-earning assets $ 1,755 $ (216) 1,539 $ 719 $ 43 762
======= ======= ======= ====== ======= =======
Interest expense attributable to:
Demand deposits $ 108 $ 80 $ 188 $ 22 $ 17 $ 39
Savings accounts (2) (20) (22) (17) 19 2
Certificates of deposit (59) (48) (107) 86 33 119
FHLB advances and
other borrowings 458 (1) 457 16 -- 16
------- ------- ------- ----- ------- -------
Total interest-bearing liabilities $ 505 $ 11 516 $ 107 $ 69 176
======= ======= ======= ===== ======= =======
Net interest income $ 1,023 $ 586
======= =======
</TABLE>
ASSET AND LIABILITY MANAGEMENT
The Bank, like other financial institutions, is subject to interest rate risk to
the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. One of the Bank's principal financial objectives
is to achieve long-term profitability while reducing its exposure to
fluctuations in interest rates. The Bank has sought to reduce exposure of its
earnings to changes in market interest rates by managing asset and liability
maturities and interest rates primarily through the maintenance of a high level
of investments in short-term assets in the portfolio, including one- and
three-year adjustable-rate mortgage loans ("ARMs").
As part of its effort to monitor and manage interest rate risk, the Bank uses
the "net portfolio value" ("NPV") methodology adopted by the OTS as part of its
capital regulations. Although the Bank is not currently subject to NPV
regulation because such regulation does not apply to institutions with less than
$300 million in assets and risk-based capital in excess of 12%, application of
NPV methodology may illustrate the Bank's interest rate risk.
- --------------------------------------------------------------------------------
14.
<PAGE> 16
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV that would
result from a theoretical basis point (1 basis point equals 0.01%) change in
market interest rates. The OTS considers an institution to be subject to
interest-rate risk if the NPV would decrease by more than 2% of the present
value of the institution's assets with either a 200 basis point increase or
decrease in market rates.
At June 30, 1999, 2% of the present value of the Bank's assets was $2,192,000.
The interest rate risk of a 200 basis point increase in market interest rates
(which was greater than the interest rate risk of a 200 basis point decrease)
was $1,362,000 at June 30, 1999, which was less than 2% of the present value of
the Bank's assets.
Presented below, as of June 30, 1999, is an analysis of the Bank's interest rate
risk as measured by changes in NPV for instantaneous and sustained parallel
shifts of 100 basis points in market interest rates. As illustrated in the
table, the Bank's NPV is more sensitive to an increasing interest rate
environment. The result principally occurs because, as rates rise, borrowers do
not prepay adjustable-rate loans which reprice less frequently than on an annual
basis, adjustable-rate loans with interest rate adjustment caps and fixed-rate
loans as quickly as they do when interest rates are declining. Thus, in a rising
interest-rate environment, the amount of interest the Bank would receive on its
loans would increase relatively slowly as loans are repaid and new loans are
made at higher rates. However, the interest the Bank would pay on its deposit
products would increase more rapidly because the deposit portfolio generally has
shorter periods to repricing.
<TABLE>
<CAPTION>
NPV as % of
Portfolio Value
Net Portfolio Value Of Assets
---------------------------------------------------- -----------------------------
Change Basis Point
IN RATES $ Amount $ Change % Change NPV Ratio Change
- -------- -------- -------- -------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
300 $21,071 $(2,403) (10.2)% 20.28% (114)bp
200 22,112 (1,362) (5.8) 20.87 (55)
100 22,947 (527) (2.2) 21.27 (15)
Static 23,474 -- -- 21.42 --
(100) 23,561 87 0.4 21.25 (17)
(200) 23,345 (129) (0.5) 20.85 (57)
(300) 23,126 (348) (1.5) 20.44 (98)
</TABLE>
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-back securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making risk calculations.
- --------------------------------------------------------------------------------
15.
<PAGE> 17
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 years ended June 30, 1999, 1998 and
1997.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income $ 1,323 $ 919 $ 595
Adjustments to reconcile net income to net
cash from operating activities 540 365 104
-------- -------- --------
Net cash from operating activities 1,863 1,284 699
Net cash from investing activities (25,456) (18,692) (6,093)
Net cash from financing activities 24,500 20,384 4,352
-------- -------- --------
Net change in cash and cash equivalents 907 2,976 (1,042)
Cash and cash equivalents at beginning of period 7,657 4,681 5,723
-------- -------- --------
Cash and cash equivalents at end of period $ 8,564 $ 7,657 $ 4,681
======== ======== ========
</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
and mortgage-backed securities prepayments are more influenced by interest
rates, general economic conditions and competition. The Corporation maintains
investments in liquid assets based upon 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.
OTS regulations presently require the Bank to maintain an average daily balance
of investments in U.S. Treasury, federal agency obligations and other
investments 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 June 30, 1999, the
Bank's regulatory liquidity was 17.48%. At such date, the Corporation had
commitments to originate fixed-rate commercial and residential real estate loans
totaling $545,000, and variable-rate commercial and residential real estate
mortgage loans totaling $1,258,000. 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 17 of the Notes to
Consolidated Financial Statements.
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. 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% to 4.0% of adjusted total assets
(depending on the Bank's examination rating) 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).
- --------------------------------------------------------------------------------
16.
<PAGE> 18
The following table summarizes regulatory capital requirements and the Bank's
actual capital at June 30, 1999.
<TABLE>
<CAPTION>
Excess of Actual
Capital Over Current
Actual Capital Current Requirement Requirement
------------------- ------------------- --------------------- Applicable
Amount Percent Amount Percent Amount Percent Asset Total
------ ------- ------ ------- --------- ------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible Capital $ 20,878 19.3% $ 1,625 1.5% $ 19,253 17.8% $ 108,354
Core Capital 20,878 19.3 4,334 4.0 16,544 17.8 108,354
Total Risk-based
Capital 21,000 37.5 4,520 8.0 16,680 29.5 56,494
</TABLE>
In August 1999, the Board of Directors of the Corporation authorized the
purchase of up to 5% of the Corporation's outstanding common shares over a one
year period.
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 June 30, 1999, the Bank had paid costs of $308,000 related to this office.
IMPACT OF NEW ACCOUNTING STANDARDS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" - SFAS No. 133 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, as amended by SFAS No. 137, is effective for fiscal
years beginning after June 15, 2000 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"
- - SFAS No. 134 changes the way companies involved in mortgage banking activities
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
as of July 1, 1999, and did not have a significant impact on the Corporation's
financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes included herein have been
prepared in accordance with generally accepted accounting principles ("GAAP").
GAAP requires the Corporation to measure financial position and operating
results primarily in terms of historic dollars. Changes in the relative value of
money due to inflation or recession are generally not considered.
- --------------------------------------------------------------------------------
17.
<PAGE> 19
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as on changes in monetary and fiscal
policies.
YEAR 2000 ("Y2K") 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 by the same or different providers. The Bank
does not anticipate that short-term manual systems resulting from a change in
suppliers or servicers would have a material adverse effect on the Bank's
operations, although it cannot guarantee that it will not. The Bank has incurred
approximately $15,000 to make such systems Year 2000 compliant. The Bank does
not anticipate any additional material costs necessary to make such systems Year
2000 compliant.
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, although no guarantee can be provided in that regard.
- --------------------------------------------------------------------------------
18.
<PAGE> 20
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Home Loan Financial Corporation
Coshocton, Ohio
We have audited the accompanying consolidated balance sheets of Home Loan
Financial Corporation as of June 30, 1999 and 1998, and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity and
cash flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Home Loan Financial
Corporation as of June 30, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 1999 in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
July 22, 1999
- --------------------------------------------------------------------------------
19.
<PAGE> 21
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,824,130 $ 1,323,331
Interest-bearing deposits in other banks 39,818 533,817
Overnight deposits 3,500,000 1,000,000
Federal funds sold 3,200,000 4,800,000
------------- -------------
Total cash and cash equivalents 8,563,948 7,657,148
Interest-bearing time deposits 35,152 2,037,137
Securities available for sale 2,969,723 14,018,560
Mortgage-backed securities available for sale 20,248,220 --
Federal Home Loan Bank stock 1,430,500 393,000
Loans, net 73,068,853 56,824,312
Premises and equipment, net 742,062 471,799
Accrued interest receivable 468,664 475,183
Other assets 328,051 37,850
------------- -------------
Total assets $ 107,855,173 $ 81,914,989
============= =============
LIABILITIES
Deposits $ 56,494,543 $ 48,537,875
Federal Home Loan Bank advances 28,200,000 1,000,000
Other borrowings 2,350,000 --
Accrued interest payable 526,693 480,365
Accrued expenses and other liabilities 384,941 332,115
------------- -------------
Total liabilities 87,956,177 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 14,060,770 21,948,437
Retained earnings - substantially restricted 12,154,493 11,285,160
Unearned employee stock ownership plan shares (2,109,864) (1,678,690)
Unearned recognition and retention plan shares (1,024,269) --
Treasury stock, at cost - 219,205 shares in 1999 (2,852,948) --
Accumulated other comprehensive income (329,186) 9,727
------------- -------------
Total shareholders' equity 19,898,996 31,564,634
------------- -------------
Total liabilities and shareholders' equity $ 107,855,173 $ 81,914,989
============= =============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
20
<PAGE> 22
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30, 1999, 1998 and 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $5,541,172 $4,744,992 $4,162,822
Securities 1,006,979 390,494 265,148
Dividends on Federal Home Loan Bank stock 44,930 27,258 24,721
Interest-bearing deposits and federal funds sold 317,163 208,804 156,639
---------- ---------- ----------
Total interest income 6,910,244 5,371,548 4,609,330
INTEREST EXPENSE
Deposits 2,149,786 2,091,597 1,930,924
Federal Home Loan Bank advances 461,412 16,363 --
Other borrowings 11,890 -- --
---------- ---------- ----------
Total interest expense 2,623,088 2,107,960 1,930,924
---------- ---------- ----------
NET INTEREST INCOME 4,287,156 3,263,588 2,678,406
Provision for loan losses 120,000 120,000 6,000
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,167,156 3,143,588 2,672,406
NONINTEREST INCOME
Service charges and other fees 141,879 136,424 139,297
Other income 62,130 40,113 35,491
---------- ---------- ----------
Total noninterest income 204,009 176,537 174,788
NONINTEREST EXPENSE
Salaries and employee benefits 1,374,711 1,168,707 889,697
Occupancy and equipment 160,736 137,713 140,893
State franchise taxes 162,202 144,966 138,490
Computer processing 126,522 103,236 94,951
SAIF deposit insurance premiums 30,596 30,209 320,920
Legal, audit and supervisory exam fees 107,988 69,595 75,817
Director fees 84,025 86,750 78,160
Other expense 260,995 188,316 203,866
---------- ---------- ----------
Total noninterest expense 2,307,775 1,929,492 1,942,794
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 2,063,390 1,390,633 904,400
Income tax expense 740,766 471,705 309,152
---------- ---------- ----------
NET INCOME $1,322,624 $ 918,928 $ 595,248
========== ========== ==========
BASIC EARNINGS PER COMMON SHARE $ .67 $ .15
========== ==========
DILUTED EARNINGS PER COMMON SHARE $ .66 $ .15
========== ==========
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
21.
<PAGE> 23
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET INCOME $ 1,322,624 $ 918,928 $ 595,248
OTHER COMPREHENSIVE INCOME
Unrealized holding gains (losses) on securities
available for sale (513,505) 8,751 10,453
Less reclassification adjustment for (gains) losses
later recognized in income -- (121) --
-------------- ------------- --------------
Net unrealized gains and losses (513,505) 8,630 10,453
Tax effect 174,592 (2,935) (3,533)
-------------- ------------- --------------
Total other comprehensive income (338,913) 5,695 6,920
-------------- ------------- --------------
COMPREHENSIVE INCOME $ 983,711 $ 924,623 $ 602,168
============== ============= ==============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22.
<PAGE> 24
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended June 30, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
<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, 1996 $ -- $ 9,770,984 $ -- $ -- $ --
Net income -- 595,248 -- -- --
Change in fair value of securities
available for sale, net of tax effects -- -- -- -- --
Balance at June 30, 1997 -- 10,366,232 -- -- --
Net income -- 918,928 -- -- --
Sale of 2,248,250 shares of no par
common stock, net of
conversion costs 21,880,273 -- -- -- --
Shares purchased under employee
stock ownership plan -- -- (1,798,600) -- --
Commitment to release 11,991 employee
stock ownership plan shares 68,164 -- 119,910 -- --
Change in fair value of securities
available for sale, net of tax effects -- -- -- -- --
------------ ------------ ------------ ------ ----------
Balance at June 30, 1998 $ 21,948,437 $ 11,285,160 $ (1,678,690) $ -- $ --
============ ============ ============ ======= ===========
<CAPTION>
Accumulated
Other
Comprehensive
Income Total
------ -----
<S> <C> <C>
Balance at July 1, 1996 $ (2,888) $ 9,768,096
Net income -- 595,248
Change in fair value of securities
available for sale, net of tax effects 6,920 6,920
Balance at June 30, 1997 4,032 10,370,264
Net income -- 918,928
Sale of 2,248,250 shares of no par
common stock, net of
conversion costs -- 21,880,273
Shares purchased under employee
stock ownership plan -- (1,798,600)
Commitment to release 11,991 employee
stock ownership plan shares -- 188,074
Change in fair value of securities
available for sale, net of tax effects 5,695 5,695
------------ ------------
Balance at June 30, 1998 $ 9,727 $ 31,564,634
============ ============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
23.
<PAGE> 25
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
Years ended June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Unearned Unearned
Paid-In Retained ESOP RRP
Capital Earnings Shares Shares
------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1998 $ 21,948,437 $ 11,285,160 $ (1,678,690) $ --
Net income -- 1,322,624 -- --
Cash dividend - $.22 per share -- (453,291) -- --
Return of capital - $4.00 per share (7,868,536) -- (674,812) --
Commitment to release 23,050
ESOP shares (19,131) -- 243,638 --
89,930 shares purchased by RRP -- -- -- (1,157,069)
Compensation expense with respect
to recognition and retention plan -- -- -- 132,800
Purchase of 219,205 treasury shares -- -- -- --
Change in fair value of securities
available for sale, net of tax effects -- -- -- --
--------------- -------------- ------------- -----------
Balance at June 30, 1999 $ 14,060,770 $ 12,154,493 $ (2,109,864) $ (1,024,269)
=============== ============== ============= =============
<CAPTION>
Accumulated
Other
Treasury Comprehensive
Shares Income Total
------ ------ -----
<S> <C> <C> <C>
Balance at July 1, 1998 $ -- $ 9,727 $ 31,564,634
Net income -- -- 1,322,624
Cash dividend - $.22 per share -- -- (453,291)
Return of capital - $4.00 per share -- -- (8,543,348)
Commitment to release 23,050
ESOP shares -- -- 224,507
89,930 shares purchased by RRP -- -- (1,157,069)
Compensation expense with respect
to recognition and retention plan -- -- 132,800
Purchase of 219,205 treasury shares (2,852,948) -- (2,852,948)
Change in fair value of securities
available for sale, net of tax effects -- (338,913) (338,913)
------------- ----------- ---------------
Balance at June 30, 1999 $ (2,852,948) $ (329,186) $ 19,898,996
============= =========== ===============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
24.
<PAGE> 26
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,322,624 $ 918,928 $ 595,248
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 83,526 78,174 79,329
Securities amortization and accretion 6,482 4,338 2,908
Provision for loan losses 120,000 120,000 6,000
FHLB stock dividends (44,700) (27,000) (24,600)
Securities gains -- (121) --
Compensation expense on ESOP shares 224,507 188,074 --
Compensation expense on RRP shares 132,800 -- --
Deferred taxes (84,939) 40,656 11,334
Net change in:
Accrued interest receivable and other assets (24,151) (26,514) (55,519)
Accrued expenses and other liabilities 99,154 (26,262) 80,748
Deferred loan fees 27,803 14,040 3,283
-------------- ------------- --------------
Net cash from operating activities 1,863,106 1,284,313 698,731
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from maturities 11,750,000 1,500,020 500,000
Purchases (748,906) (10,509,871) (3,751,484)
Mortgage-backed securities available for sale:
Proceeds from maturities and principal paydowns 443,626 -- --
Purchases (21,164,090) -- --
Proceeds from maturities of securities held to maturity -- -- 2,250,000
Net change in interest-bearing time deposits 2,001,985 (1,998,341) 1,873
Net change in loans (16,392,344) (7,658,228) (5,015,491)
Purchase of FHLB stock (992,800) -- --
Premises and equipment expenditures (353,789) (25,912) (77,592)
-------------- ------------- --------------
Net cash from investing activities (25,456,318) (18,692,332) (6,092,694)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 7,956,668 (697,555) 4,351,573
Net change in FHLB short-term advances 6,200,000 -- --
Net change in other short-term borrowings 2,350,000 -- --
Proceeds from FHLB long-term advances 21,000,000 1,000,000 --
Cash dividends paid (453,291) -- --
Return of capital distribution (8,543,348) -- --
Purchase of stock for RRP (1,157,069) -- --
Purchase of treasury stock (2,852,948) -- --
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 24,500,012 20,384,118 4,351,573
-------------- ------------- --------------
Net change in cash and cash equivalents 906,800 2,976,099 (1,042,390)
Cash and cash equivalents at beginning of year 7,657,148 4,681,049 5,723,439
-------------- ------------- --------------
Cash and cash equivalents at end of year $ 8,563,948 $ 7,657,148 $ 4,681,049
============== ============= ==============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements
25.
<PAGE> 27
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of Home Loan Financial Corporation ("HLFC") and
its wholly-owned subsidiary, The Home Loan Savings Bank ("Bank"), a state
chartered stock savings and loan association, together referred to as the
Corporation. Intercompany accounts and transactions have been eliminated in
consolidation.
The Corporation provides financial services through its main and branch offices
in Coshocton, Ohio. 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 business assets, consumer assets and real
estate. Commercial loans are expected to be repaid from cash flow from
operations of businesses. Real estate loans are secured by both residential and
commercial real estate. The Corporation is primarily organized to operate in the
financial institution industry. Substantially all revenues are derived from
financial institution products and services in Coshocton, Ohio, and contiguous
areas.
USE OF ESTIMATES: 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 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.
CASH FLOWS: Cash and cash equivalents includes cash, due from banks, overnight
deposits and federal funds sold. Net cash flows are reported for customer loan
and deposit transactions, interest-bearing deposits with other banks and
short-term borrowings with original maturities of 90 days or less.
The Corporation paid interest of $2,576,760, $2,087,624 and $1,895,362 and
income taxes of $787,000, $402,849 and $244,818 in 1999, 1998 and 1997,
respectively. There were no significant noncash transactions in 1999, 1998, or
1997.
SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive income.
Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.
LOANS: Loans are reported at the principal balance outstanding, net of net
deferred loan fees and costs, the allowance for loan losses and loans in
process.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days. Payments received on such loans
are reported as principal reductions.
- -------------------------------------------------------------------------------
26.
<PAGE> 28
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the allowance
balance required using past loan loss experience, known and inherent risks in
the nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other
factors. Allocations of the allowance may be made for specific loans, but the
entire allowance is available for any loan that, in management's judgment,
should be charged-off.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
FORECLOSED ASSETS: Assets acquired through or instead of loan foreclosure are
initially recorded at fair value when acquired, establishing a new cost basis.
Any reduction to fair value from the carrying value of the related loan at the
time the property is acquired is accounted for as a loan charge-off. After
acquisition, if fair value declines, a valuation allowance is recorded through
expense. Costs after acquisition are expensed.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the estimated useful
lives using primarily the straight-line method. These assets are reviewed for
impairment when events indicate the carrying amount may not be recoverable.
STOCK COMPENSATION: Employee compensation expense under stock option plans is
reported if options are granted below market price at grant date. Pro forma
disclosures of net income and earnings per share are shown using the fair value
method of SFAS No. 123 to measure expense for options granted after 1994, using
an option pricing model to estimate fair value.
INCOME TAXES: Income tax expense is the total 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 amounts for the 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.
EMPLOYEE STOCK OWNERSHIP PLAN: The cost of shares issued to the ESOP, but not
yet allocated to participants, is shown as a reduction of shareholders' equity.
Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce retained earnings; dividends on unearned ESOP shares reduce debt
and accrued interest, or are used to purchase additional shares.
FINANCIAL INSTRUMENTS: Financial instruments include credit instruments, such as
commitments to make loans and standby letters of credit, issued to meet
customer-financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay.
- -------------------------------------------------------------------------------
(Continued)
27.
<PAGE> 29
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, which are also recognized as separate
components of equity. The accounting standard that requires reporting
comprehensive income first applies for fiscal 1999, with prior information
restated to be comparable.
EARNINGS PER COMMON SHARE: Basic earnings per common share are net income
divided by the weighted average number of common shares outstanding during the
period. ESOP shares are considered outstanding for this calculation unless
unearned. RRP shares are considered outstanding as they become vested. Diluted
earnings per common share include the dilutive effect of RRP shares and the
additional potential common shares issuable under stock options. 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 1998 was computed based on net income
of the Corporation from March 25, 1998 through June 30, 1998, which totaled
$320,978. No earnings per common share are shown for the year ended June 30,
1997, as prior to March 25, 1998, the Bank was a mutual company. The financial
information for the year ended June 30, 1997 reflects the Bank before the
conversion.
LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
DIVIDEND RESTRICTION: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the Bank to HLFC or by HLFC to
shareholders.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
RECLASSIFICATIONS: Reclassifications of certain amounts in the 1998 and 1997
consolidated financial statements have been made to conform to the 1999
presentation.
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
HLFC'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 HLFC were offered in
accordance with the Plan of Conversion. A total of 2,248,250 common shares of
HLFC were sold at $10.00 per share and net proceeds from the sale were
$21,880,273 after deducting the costs of conversion.
- ------------------------------------------------------------------------------
(Continued)
28.
<PAGE> 30
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 2 -CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN
ASSOCIATION WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY
(Continued)
HLFC 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 HLFC 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.
NOTE 3 - SECURITIES
Securities at year-end are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
JUNE 30, 1999
Securities available for sale
U.S. Treasury notes $ 249,703 $ 1,195 $ -- $ 250,898
U.S. Government agencies 2,749,060 -- (30,235) 2,718,825
-------------- ---------- ----------- ---------------
$ 2,998,763 $ 1,195 $ (30,235) $ 2,969,723
============== ========== =========== ===============
Mortgage-backed securities
available for sale
U.S. Government agencies $ 20,717,947 $ 1,617 $ (471,344) $ 20,248,220
============== ========== =========== ===============
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>
During 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 1999, 1998 or 1997.
- ------------------------------------------------------------------------------
(Continued)
29.
<PAGE> 31
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
The amortized cost and estimated fair values of securities at June 30, 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. Securities not due at
a single maturity date, primarily mortgage-backed securities, are shown
separately.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 249,703 $ 250,898
Due after one year through five years 2,749,060 2,718,825
-------------- ---------------
2,998,763 2,969,723
Mortgage-backed securities 20,717,947 20,248,220
-------------- ---------------
$ 23,716,710 $ 23,217,943
============== ===============
</TABLE>
No securities were pledged at June 30, 1999 and 1998.
NOTE 4 - LOANS
Year-end loans were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Residential real estate loans:
1 - 4 family $ 50,059,806 $ 39,551,521
Home equity 1,812,681 1,527,535
Nonresidential real estate 5,444,843 4,307,546
Real estate construction 2,791,291 1,368,801
Land 1,148,472 686,453
-------------- ---------------
Total real estate loans 61,257,093 47,441,856
Commercial 2,876,994 1,429,324
Consumer and other loans
Home improvement 4,477,735 3,993,214
Automobile 3,408,549 2,997,589
Deposit 412,602 421,710
Credit card 435,749 410,624
Other 2,157,295 1,527,817
-------------- ---------------
Total consumer and other 10,891,930 9,350,954
-------------- ---------------
Total loans 75,026,017 58,222,134
Less:
Allowance for loan losses (322,700) (223,237)
Loans in process (1,485,822) (1,053,746)
Net deferred loan fees and costs (148,642) (120,839)
-------------- ---------------
$ 73,068,853 $ 56,824,312
============== ===============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
30.
<PAGE> 32
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 4 - LOANS (Continued)
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Beginning balance $ 223,237 $ 119,218 $ 117,513
Provision for losses 120,000 120,000 6,000
Loans charged off (22,826) (17,848) (4,500)
Recoveries of previous charge-offs 2,289 1,867 205
------------ ----------- -----------
Ending balance $ 322,700 $ 223,237 $ 119,218
============ =========== ===========
</TABLE>
No loans were on nonaccrual status at June 30, 1999 or 1998. Impaired loans at
June 30, 1999 and 1998, and for the three years in the period ended June 30,
1999, were not material.
Certain directors, executive officers and companies with which they are
affiliated were loan customers during the year ended June 30, 1999. The
following is an analysis of such loans, excluding credit card loans. Credit
limits may not exceed $5,000 on credit card loans to directors and officers.
<TABLE>
<S> <C>
Balance July 1, 1998 $ 482,319
New loans 167,750
Repayments (21,502)
-----------
Balance June 30, 1999 $ 628,567
===========
</TABLE>
NOTE 5 - ACCRUED INTEREST RECEIVABLE
Year-end accrued interest receivable was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Loans $ 321,963 $ 263,981
Securities 146,701 182,325
Interest-bearing time deposits -- 28,877
----------- -----------
$ 468,664 $ 475,183
=========== ===========
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
31.
<PAGE> 33
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 6 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 170,434 $ 80,434
Buildings and improvements 665,343 665,343
Furniture and equipment 509,733 464,335
Construction in progress 218,391 --
----------- ----------
Total cost 1,563,901 1,210,112
Accumulated depreciation (821,839) (738,313)
----------- ----------
$ 742,062 $ 471,799
=========== ===========
</TABLE>
NOTE 7 - DEPOSITS
Year-end deposits consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Noninterest-bearing demand deposits $ 3,114,926 $ 3,141,029
NOW and money market accounts 13,937,021 8,253,047
Savings accounts 11,858,590 11,033,878
Certificates of deposit 27,584,006 26,109,921
-------------- --------------
$ 56,494,543 $ 48,537,875
============== ==============
</TABLE>
The aggregate amount of certificates of deposit accounts with balances of
$100,000 or more at June 30, 1999 and 1998 was $2,177,738 and $1,656,673.
At June 30, 1999, the scheduled maturities of certificates of deposit were as
follows:
<TABLE>
<S> <C> <C>
Year ended June 30, 2000 $ 17,687,128
2001 8,379,466
2002 1,428,965
2003 35,962
2004 52,485
--------------
$ 27,584,006
==============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
32.
<PAGE> 34
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 8 - FHLB ADVANCES
At June 30, 1999, the Bank had a cash management line of credit enabling it to
borrow up to $10,000,000 from the Federal Home Loan Bank of Cincinnati ("FHLB").
The line of credit must be renewed on an annual basis. Borrowings outstanding on
this line of credit included in the table below totaled $6,200,000 at June 30,
1999. There were no borrowings outstanding on this line of credit at June 30,
1998. As a member of the FHLB system, the Bank has the ability to obtain
borrowings up to a total of $28,610,000, including the line of credit. Advances
under the borrowing agreements are collateralized by a blanket pledge of the
Bank's residential mortgage loan portfolio and its FHLB stock. The interest
rates on the convertible fixed-rate advances are fixed for a specified number of
years, then convertible at the option of the FHLB. If the convertible option is
exercised, the advance may be prepaid without penalty.
At year-end, advances from the Federal Home Loan Bank were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Fixed-rate advance, 5.07%, due July 1999 $ 6,200,000 $ --
Fixed-rate advance, 5.62%, due March 2000 5,000,000 --
Convertible, fixed-rate advance until March 2001, 5.37%,
due March 2004 10,000,000 --
Convertible, fixed-rate advance until June 2003, 5.66%,
due June 2008 1,000,000 1,000,000
Convertible, fixed-rate advance until September 2003, 5.18%,
due September 2008 2,000,000 --
Convertible, fixed-rate advance until March 2004, 5.66%,
due March 2009 4,000,000 --
-------------- --------------
$ 28,200,000 $ 1,000,000
============== ==============
</TABLE>
At year-end, the scheduled maturities of advances from the Federal Home Loan
Bank were as follows:
<TABLE>
<S> <C> <C>
Year ended June 30, 2000 $ 11,200,000
2001 --
2002 --
2003 --
2004 10,000,000
thereafter 7,000,000
--------------
$ 28,200,000
==============
</TABLE>
NOTE 9 - OTHER BORROWINGS
At June 30, 1999, the Corporation had two $2,000,000 lines of credit with
another financial institution. Borrowings outstanding on these lines of credit
totaled $2,000,000 (unsecured) and $350,000 (secured). Both lines of credit
expire one year from the original date of the agreement, which is May 10, 2000
and May 28, 2000. Interest on the lines of credit adjusts daily at the prime
rate as published in The Wall Street Journal. Interest payments are due monthly
and any outstanding principal is due at expiration.
- ------------------------------------------------------------------------------
(Continued)
33.
<PAGE> 35
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 10 - SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION
Included in SAIF deposit insurance premium expense in the Consolidated
Statements of Income for the year ended June 30, 1997 is $260,917 for a special
assessment resulting from legislation passed and enacted into law on September
30, 1996 to recapitalize the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation. Thrifts such as the Bank paid a one-time
assessment in November 1996 of $0.657 for each $100 in deposits as of March 31,
1995. Because of the recapitalization, the Bank began paying lower deposit
insurance premiums in January 1997.
NOTE 11 - INCOME TAXES
Income tax expense was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current tax expense $ 825,705 $ 431,049 $ 297,818
Deferred tax expense (84,939) 40,656 11,334
----------- ----------- -----------
$ 740,766 $ 471,705 $ 309,152
=========== =========== ===========
</TABLE>
Year-end sources of gross deferred tax assets and gross deferred tax liabilities
were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses $ 109,718 $ 75,901
Deferred loan fees 50,623 41,085
Accrued benefits 74,052 27,540
Unrealized loss on securities available for sale 169,581 --
Other -- 2,639
----------- -----------
Total deferred tax assets 403,974 147,165
----------- -----------
Deferred tax liabilities:
Depreciation 578 8,015
Federal Home Loan Bank stock 92,969 77,771
Accrual to cash 55,884 60,130
Security discount accretion 709 1,935
Unrealized gain on securities available for sale -- 5,011
----------- -----------
Total deferred tax liabilities 150,140 152,862
----------- -----------
Net deferred tax asset (liability) $ 253,834 $ (5,697)
=========== ===========
</TABLE>
- ------------------------------------------------------------------------------
(Continued)
34.
<PAGE> 36
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (Continued)
Effective tax rates differ from the statutory federal income tax rate of 34% to
the financial statement income due to the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Income taxes computed at the statutory
<S> <C> <C> <C>
tax rate on pretax income $ 701,553 $ 472,815 $ 307,496
Tax effect of:
ESOP 17,163 23,179 --
Nondeductible expenses and other 22,050 (24,289) 1,656
----------- ----------- -----------
$ 740,766 $ 471,705 $ 309,152
=========== =========== ===========
Effective tax rate 35.9% 33.9% 34.2%
=========== =========== ===========
</TABLE>
The Corporation, in accordance with SFAS No. 109, has not recorded a deferred
tax liability of approximately $526,000 related to approximately $1,548,000 of
cumulative special bad debt deductions, included in retained earnings, arising
prior to June 30, 1988, the end of the Bank's base year for purposes of
calculating bad debt deduction for tax purposes. If this portion of retained
earnings is used in the future for any purposes other than to absorb bad debts,
it will be added to future taxable income.
NOTE 12 - PENSION PLAN
Effective July 1, 1995, the Corporation amended its defined benefit pension plan
and transferred plan assets into a multi-employer trust. The plan is
administered by trustees of the Financial Institutions Retirement Fund. The cost
of the plan is set annually as an established percentage of wages. Effective
February 1, 1999, the plan was amended to prospectively reduce the percentage
benefit earned annually from 3% to 1% while not reducing the total benefit
earned as of February 1, 1999. The Corporation recognizes pension expense equal
to contributions made to the plan. No contributions were made for 1999, while
contributions of $83,483 and $84,552 were made for the years ended June 30,
1998, and 1997.
NOTE 13 - BENEFIT PLANS
The Corporation has a profit-sharing plan covering officers of the Bank. Up to
10% of pretax income, excluding nonrecurring items and extraordinary gains or
losses not related to operations, and before deductions of awards under this
plan and the deferred compensation agreement, is contributed. The total
contribution is allocated to the officers based upon fixed percentages
established by the Board of Directors. No incentive awards are payable unless a
minimum return on assets is exceeded. The plan's expense amounted to $165,477,
$157,911, and $128,037 for the years ended June 30, 1999, 1998 and 1997.
In 1994, the Corporation entered a deferred compensation agreement with an
officer of the Bank. The agreement entitled the officer to 5% of the annual
increase in equity, not including extraordinary items, for a five-year period
ending June 30, 1998. During 1998, under terms of the plan, the officer received
a payment of $182,014. Expense recognized under this agreement was $36,014 and
$38,000 for the years ended June 30, 1998 and 1997.
- -------------------------------------------------------------------------------
(Continued)
35.
<PAGE> 37
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 14 - EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation offers an employee stock ownership plan ("ESOP") for the benefit
of substantially all employees of the Corporation. The ESOP borrowed funds from
HLFC in order to acquire 179,860 common shares of HLFC at $10.00 per share. 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. When loan payments are made, ESOP shares are allocated to participants
based on relative compensation.
In May 1999, the Corporation declared and paid a $4.00 per share return of
capital distribution. The ESOP received $674,812 from the return of capital
distribution on 168,703 unallocated shares. The ESOP purchased an additional
54,757 shares with the proceeds from the return of capital distribution. The
additional shares purchased will be held in suspense and allocated to
participants in a manner similar to the original ESOP shares.
ESOP compensation expense was $224,507 and $188,074 for the years ended June 30,
1999 and 1998. Year-end ESOP shares were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Allocated shares 11,157 --
Shares committed to be released for allocation 23,884 11,991
Unreleased shares 199,576 167,869
Total ESOP shares 234,617 179,860
------------- --------------
Fair value of unreleased shares at year-end $ 1,871,025 $ 2,476,068
============= ==============
</TABLE>
NOTE 15 - STOCK OPTION AND INCENTIVE PLAN
The Home Loan Financial Corporation 1998 Stock Option and Incentive Plan
("Plan") was approved by the shareholders of the Corporation on October 13,
1998. A total of 224,825 common shares is available for granting stock options
pursuant to the Plan. In October 1998, the Board of Directors granted options to
purchase shares of common stock at an exercise price of $7.69, after adjustment
for the return of capital distribution, to certain employees, officers and
directors of 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.
A summary of the activity in the plan was as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at beginning of year -- $ --
Granted 180,170 7.69
Exercised -- --
Forfeited -- --
-------- -------
Outstanding at end of year 180,170 $ 7.69
======== =======
Options exercisable at year-end -- --
Remaining shares available for grant 44,655
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
36.
<PAGE> 38
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 15 - STOCK OPTION AND INCENTIVE PLAN (Continued)
The fair value of options granted in 1998 was estimated using the Black-Scholes
options pricing model with the following weighted-average information: risk-free
interest rate of 4.73%, expected life of 10 years, expected volatility of stock
price of 36.58% and expected dividend rate of 1.74%. Based on these assumptions,
the estimated fair value per share of options granted in 1998 was $4.99.
The following pro forma information presents net income and earnings per share
for 1999 using the fair value method of SFAS No. 123 to measure compensation
cost for stock option plans. No compensation expense was recognized for the year
ended June 30, 1999.
<TABLE>
<CAPTION>
1999
----
<S> <C>
Net income as reported $ 1,322,624
Pro forma net income 1,206,066
Basic earnings per share as reported .67
Pro forma basic earnings per share .61
Diluted earnings per share as reported .66
Pro forma diluted earnings per share .60
</TABLE>
NOTE 16 - MANAGEMENT RECOGNITION PLAN
A Recognition and Retention Plan ("RRP") was adopted by the Board of Directors
and approved by the shareholders of the Corporation on October 13, 1998 to
purchase 89,930 common shares, which is equal to 4% of the common shares sold in
connection with the Conversion. The RRP will be used as a means of providing
directors and certain key employees of the Corporation with an ownership
interest in the Corporation in a manner designed to compensate such directors
and key employees for services to the Corporation.
In conjunction with the adoption of the RRP on October 13, 1998, the Board of
Directors awarded 72,866 shares to certain directors, officers and employees of
the Corporation. No shares had been previously awarded. One-fifth of such shares
will be earned and nonforfeitable on each of the first five anniversaries of the
date of the award. At June 30, 1999, no shares have vested. In the event of the
death or disability of a participant or a change in control of the Corporation,
however, the participant's shares will be deemed earned and nonforfeitable upon
such date. At June 30, 1999, there were 17,064 shares reserved for future
awards. Compensation expense related to RRP shares is based upon the cost of the
shares, which approximates fair value at the date of grant. For the year ended
June 30, 1999, compensation expense totaled $132,800.
NOTE 17 - OFF-BALANCE-SHEET ACTIVITIES
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.
- -------------------------------------------------------------------------------
(Continued)
37.
<PAGE> 39
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 17 - OFF-BALANCE-SHEET ACTIVITIES (Continued)
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 upon
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 year-end follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Lines of credit - variable rate $ 2,268,000 $ 1,728,000
1-4 family residential real estate - variable rate 523,000 782,000
1-4 family residential real estate - fixed rate 545,000 134,000
Commercial real estate - variable rate 735,000 225,000
Credit card arrangements - fixed rate 1,119,000 771,000
</TABLE>
The interest rates on fixed-rate commitments range from 6.75% to 13.90% at June
30, 1999 and 7.13% to 13.90% at June 30, 1998. The interest rates on variable
rate commitments range from 6.625% to 8.25% at June 30, 1999 and 6.75% to 7.00%
at June 30, 1998.
The Bank entered an employment agreement with an officer of HLFC and the Bank.
The agreement provides for a term of three years and a salary and performance
review by the Board of Directors not less often than annually, as well as
inclusion of the employee in any formally established employee benefit, bonus,
pension and profit-sharing plans for which senior management personnel are
eligible. The agreement provides for extensions for a period of one year on each
anniversary date, subject to review and approval of the extension by
disinterested members of the Board of Directors of the Bank. The employment
agreement also provides for vacation and sick leave in accordance with the
Bank's prevailing policies.
- -------------------------------------------------------------------------------
(Continued)
38.
<PAGE> 40
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 18 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal regulatory agencies. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about the Bank's components,
risk weightings and other factors. 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. At June 30, 1999 and 1998,
management believes the Bank complies with all regulatory capital requirements.
Based on the computed regulatory capital ratios, the Bank is considered well
capitalized under the Federal Deposit Insurance Act at June 30, 1999 and 1998.
Management believes no conditions or events have occurred subsequent to last
notification by regulators that would cause the Bank's capital category to
change.
At year-end 1999 and 1998, the Bank's actual capital levels and minimum required
levels were:
<TABLE>
<CAPTION>
Minimum
Required To Be Minimum
Adequately Capitalized Required To Be
Under Prompt Well Capitalized
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>
JUNE 30, 1999
Total capital (to risk-weighted assets) $ 21,200 37.5% $ 4,520 8.0% $ 5,649 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 20,878 37.0 2,260 4.0 3,390 6.0
Tier 1 (core) capital (to adjusted
total assets) 20,878 19.3 4,334 4.0 5,418 5.0
Tangible capital (to adjusted total assets) 20,878 19.3 1,625 1.5 N/A
JUNE 30, 1998
Total capital (to risk-weighted assets) $ 20,749 51.3% $ 3,238 8.0% $ 4,047 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>
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.
- -------------------------------------------------------------------------------
(Continued)
39.
<PAGE> 41
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 18 - REGULATORY MATTERS (Continued)
An application must be submitted and approval from the OTS must be obtained by a
subsidiary of a savings and loan holding company (1) if the proposed
distribution would cause total distributions for that year to exceed net income
for that calendar year to date plus the savings association's retained net
income for the preceding two years; (2) if the savings association will not be
at least adequately capitalized following the capital distribution; (3) if the
proposed distribution would violate a prohibition contained in any applicable
statute, regulation or agreement between the savings association and the OTS (or
the FDIC), or a condition imposed on the savings association in an OTS-approved
application or notice; or, (4) if the savings association has not received
certain favorable examination ratings from the OTS. If a savings association
subsidiary of a holding company is not required to file an application, it must
file a notice with the OTS.
NOTE 19 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments at year-end were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 8,563,948 $ 8,564,000 $ 7,657,148 $ 7,657,000
Interest-bearing time deposits 35,152 35,000 2,037,137 2,037,000
Securities available for sale 2,969,723 2,970,000 14,018,560 14,019,000
Mortgage-backed securities
available for sale 20,248,220 20,248,000 -- --
Loans, net of allowance for
loan losses 73,068,853 72,871,000 56,824,312 57,047,000
Federal Home Loan Bank stock 1,430,500 1,431,000 393,000 393,000
Accrued interest receivable 468,664 469,000 475,183 475,000
Financial liabilities:
Demand, savings and money
market deposit accounts (28,910,537) (28,911,000) (22,427,954) (22,428,000)
Certificates of deposit (27,584,006) (27,729,000) (26,109,921) (26,256,000)
Federal Home Loan Bank advances (28,200,000) (27,664,000) (1,000,000) (1,000,000)
Other borrowings (2,350,000) (2,350,000) -- --
Accrued interest payable (526,693) (527,000) (480,365) (480,000)
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
40.
<PAGE> 42
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 19 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair value approximates carrying amount for all items except those
described below. Estimated fair value for securities available for sale and
mortgage-backed securities available for sale is based on quoted market values
for the individual securities or for equivalent securities. Estimated fair value
for loans is based on the rates charged at year-end for new loans with similar
maturities, applied until the loan is assumed to reprice or be paid. Estimated
fair values for time deposits and long-term borrowings are based on the rates
paid at year-end for similar new deposits and long-term borrowings, applied
until maturity. Estimated fair value for other financial instruments and
off-balance sheet loan commitments is considered nominal.
NOTE 20 - EARNINGS PER SHARE
The factors used in the earnings per share computation are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Net Income $ 1,322,624 $ 320,978
=============== ==============
Weighted average common shares outstanding 2,205,058 2,248,250
Less: Average unallocated ESOP shares (165,459) (173,864)
Less: Average nonvested RRP shares (55,376) --
--------------- --------------
Average shares 1,984,223 2,074,386
=============== ==============
Basic earnings per common share $ .67 $ .15
=============== ==============
DILUTED EARNINGS PER COMMON SHARE
Net income $ 1,322,624 $ 320,978
=============== ==============
Weighted average common shares outstanding
for basic earnings per common share 1,984,223 2,074,386
Add: Dilutive effects of stock options 24,792 --
--------------- --------------
Average shares and dilutive potential common shares 2,009,015 2,074,386
=============== ===============
Diluted earnings per common share $ .66 $ .15
=============== ==============
</TABLE>
Unearned RRP shares did not have a dilutive effect on EPS for the year ended
June 30, 1999, as the fair value of the RRP shares on the date of grant was
greater than the average market price for the period. No RRP shares or stock
options had been awarded as of June 30, 1998.
- ------------------------------------------------------------------------------
(Continued)
41.
<PAGE> 43
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 21 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Home Loan Financial Corporation as of June
30, 1999 and 1998, and for the year ended June 30, 1999 and the period beginning
March 25, 1998, the effective date of the conversion, through June 30, 1998 is
as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
June 30, 1999 and 1998
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 183,113 $ 418,206
Investment in subsidiary 20,549,226 20,536,212
Loans receivable 1,499,245 10,650,136
Other assets 18,643 5,480
--------------- --------------
Total assets $ 22,250,227 $ 31,610,034
=============== ==============
LIABILITIES
Other borrowings $ 2,350,000 $ --
Other liabilities 1,231 45,400
--------------- --------------
Total liabilities 2,351,231 45,400
SHAREHOLDERS' EQUITY 19,898,996 31,564,634
--------------- --------------
Total liabilities and shareholders' equity $ 22,250,227 $ 31,610,034
=============== ==============
CONDENSED STATEMENT OF INCOME
Year ended June 30, 1999 and
March 25, 1998 - June 30, 1998
1999 1998
Interest on loans $ 454,982 $ 151,756
Operating expenses 140,370 18,070
--------------- --------------
Income before income taxes and equity in
undistributed earnings of subsidiary 314,612 133,686
Income tax expense 106,562 45,400
--------------- --------------
Income before equity in undistributed
earnings of subsidiary 208,050 88,286
Equity in undistributed earnings of subsidiary 1,114,574 232,692
--------------- --------------
NET INCOME $ 1,322,624 $ 320,978
=============== ==============
</TABLE>
- ------------------------------------------------------------------------------
(Continued)
42.
<PAGE> 44
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
- -------------------------------------------------------------------------------
NOTE 21 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENT OF CASH FLOWS
Year ended June 30, 1999 and March 25, 1998 - June 30, 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,322,624 $ 320,978
Adjustments to reconcile net income
to cash provided by operations:
Equity in undistributed income of subsidiary (1,114,574) (232,692)
Net changes in other assets (13,163) (5,480)
Net change in other liabilities (44,169) 45,400
--------------- --------------
Net cash from operating activities 150,718 128,206
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of stock in The Home Loan Savings Bank -- (10,940,137)
Loan to ESOP -- (1,798,600)
Loan to subsidiary -- (9,000,000)
Proceeds from loan principal repayments 9,150,891 148,464
--------------- --------------
Net cash from investing activities 9,150,891 (21,590,273)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares,
net of conversion costs -- 21,880,273
Net change in other short-term borrowings 2,350,000 --
Cash dividends paid (453,291) --
Return of capital distribution (8,543,348) --
Purchase of treasury shares (2,852,948) --
Dividends on unallocated ESOP shares (37,115) --
--------------- --------------
Net cash from financing activities (9,536,702) 21,880,273
--------------- --------------
Net change in cash and cash equivalents (235,093) 418,206
Cash and cash equivalents at beginning of period 418,206 --
--------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 183,113 $ 418,206
=============== ==============
</TABLE>
<PAGE> 45
HOME LOAN FINANCIAL CORPORATION
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 4:30 p.m., Coshocton, Ohio
time on October 12, 1999 at the main office of the Bank at 401 Main Street,
Coshocton, Ohio.
STOCK LISTING
Home Loan Financial Corporation common stock is traded on the Nasdaq National
Market under the symbol "HLFC".
PRICE RANGE OF COMMON STOCK
The per share price range of the common shares for each quarter since the common
shares began trading on March 25, 1998 through June 30, 1999 was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW DIVIDENDS
<S> <C> <C> <C>
March 31, 1998 (1) $ 15.750 $ 15.375 $ --
June 30, 1998 16.750 14.000 --
September 30, 1998 15.250 13.000 .05
December 31, 1998 14.750 11.453 .05
March 31, 1999 13.750 12.313 .06
June 30, 1999 16.000 8.500 4.06(1)
</TABLE>
(1) Cash dividends for the quarter ended June 30, 1999 include a $4.00 per
share return of capital distribution.
The stock price information set forth in the table above was provided by The
Nasdaq Stock Market, Inc.
At August 30, 1999, there were 2,014,045 common shares of Home Loan Financial
Corporation issued and outstanding (including unallocated ESOP shares) and there
were 709 holders of record.
SHAREHOLDER AND GENERAL INQUIRIES TRANSFER AGENT
Preston W. Bair, Chief Financial Officer Registrar and Transfer Co.
Home Loan Financial Corporation 10 Commerce Drive
401 Main Street Cranford, NJ 07016
Coshocton, OH 43812-1580
(740) 622-0444
ANNUAL REPORT ON FORM 10-KSB
A copy of Home Loan Financial Corporation's Annual Report on Form 10-KSB for the
year ended June 30, 1999, as filed with the Securities and Exchange Commission,
may be obtained without charge by submitting a written request to Preston W.
Bair, Chief Financial Officer, Home Loan Financial Corporation, 401 Main Street
Coshocton, Ohio 43812-1580.
44.
<PAGE> 46
HOME LOAN FINANCIAL CORPORATION
CORPORATE INFORMATION
CORPORATION AND BANK ADDRESS
401 Main Street Telephone: (740) 622-0444
Coshocton, OH 43812-1580 Fax: (740) 623-6000
DIRECTORS OF THE CORPORATION AND THE BANK
Robert C. Hamilton (Chairman of the Board) Neal J. Caldwell
President and Chief Executive Officer of Veterinarian
The Home Loan Savings Bank
Robert D. Mauch Charles H. Durmis
Owner of Robert D. Mauch CPA, a private General Surgeon
practice accounting firm
Douglas L. Randles
President of L.W. Randles Cheese, Inc.
Officers of the Corporation and the Bank:
- -----------------------------------------
Robert C. Hamilton, President and Chief Executive Officer
Preston W. Bair, Secretary, Treasurer and Chief Financial Officer
David L. Smailes, Vice President of the Bank
Kyle R. Hamilton, Vice President of the Bank
Paula K. Carpenter, Assistant Vice President of the Bank
Jennifer S. Lahna, Assistant Vice President of the Bank
Debra K. McFarland, Assistant Vice President of the Bank
Special Counsel Independent Auditors
- --------------- --------------------
Vorys, Sater, Seymour and Pease LLP Crowe, Chizek and Company LLP
221 East Fourth Street One Columbus
Cincinnati, OH 45201 10 West Broad Street
Columbus, OH 43215
45.
<PAGE> 1
Exhibit 20
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant[ X ]
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11(c) or section
240.14a-12
HOME LOAN FINANCIAL CORPORATION
--------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
5) Total fee paid:
---------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------
3) Filing Party:
---------------------------------------------
4) Date Filed:
<PAGE> 2
HOME LOAN FINANCIAL CORPORATION
401 MAIN STREET
COSHOCTON, OHIO 43812-1580
(740) 622-0444
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the 1999 Annual Meeting of Shareholders of
Home Loan Financial Corporation (the "Company") will be held at the offices of
the Company at 401 Main Street, Coshocton, Ohio, on October 12, 1999, at 4:30
p.m., local time (the "Annual Meeting"), for the following purposes, all of
which are more completely set forth in the accompanying Proxy Statement:
1. To elect five directors of the Company for terms expiring in
2000;
2. To ratify the selection of Crowe, Chizek and Company LLP as the
auditors of the Company for the current fiscal year; and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Only shareholders of the Company of record at the close of business on
August 30, 1999, will be entitled to receive notice of and to vote at the Annual
Meeting and at any adjournments thereof. Whether or not you expect to attend the
Annual Meeting, we urge you to consider the accompanying Proxy Statement
carefully and to SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR
SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF A QUORUM
MAY BE ASSURED. The giving of a proxy does not affect your right to vote in
person in the event you attend the Annual Meeting.
By Order of the Board of Directors
Coshocton, Ohio Robert C. Hamilton
September 7, 1999 President
<PAGE> 3
HOME LOAN FINANCIAL CORPORATION
401 MAIN STREET
COSHOCTON, OHIO 43812-1580
(740) 622-0444
PROXY STATEMENT
PROXIES
The enclosed proxy (the "Proxy") is being solicited by the Board of
Directors of Home Loan Financial Corporation (the "Company") for use at the 1999
Annual Meeting of Shareholders of the Company to be held at the offices of the
Company at 401 Main Street, Coshocton, Ohio, on October 12, 1999, at 4:30 p.m.,
local time, and at any adjournments thereof (the "Annual Meeting"). Without
affecting any vote previously taken, the Proxy may be revoked by executing a
later dated proxy which is received by the Company before the Proxy is exercised
or by giving notice of revocation to the Company in writing or in open meeting
before the Proxy is exercised. Attendance at the Annual Meeting will not, of
itself, revoke the Proxy.
Each properly executed Proxy received prior to the Annual Meeting and
not revoked will be voted as specified thereon or, in the absence of specific
instructions to the contrary, will be voted:
FOR the reelection of Neal J. Caldwell, Charles H. Durmis, Robert C.
Hamilton, Robert D. Mauch and Douglas L. Randles as directors of the Company for
terms expiring in 2000; and
FOR the ratification of the selection of Crowe, Chizek and Company LLP
("Crowe, Chizek") as the auditors of the Company for the current fiscal year.
Proxies may be solicited by the directors, officers and other employees
of the Company and The Home Loan Savings Bank (the "Bank"), in person or by
telephone, telegraph or mail only for use at the Annual Meeting. The Proxy will
not be used for any other meeting. The cost of soliciting Proxies will be borne
by the Company.
Only shareholders of record as of the close of business on August 30,
1999 (the "Voting Record Date"), are entitled to vote at the Annual Meeting.
Each such shareholder will be entitled to cast one vote for each share owned.
The Company's records disclose that, as of the Voting Record Date, there were
2,014,045 votes entitled to be cast at the Annual Meeting.
This Proxy Statement is first being mailed to shareholders of the
Company on or about September 15, 1999.
VOTE REQUIRED
Under Ohio law and the Company's Code of Regulations (the
"Regulations"), the five nominees receiving the greatest number of votes will be
elected as directors. Each shareholder will be entitled to cast one vote for
each share owned. Shares held by a nominee for a beneficial owner that are
represented in person or by proxy but not voted and shares as to which the
authority to vote is withheld ("non-votes") are not counted toward the election
of directors or toward the election of the individual nominees specified on the
Proxy. If the Proxy is signed and dated by the shareholder but no vote or
<PAGE> 4
instruction to abstain is specified thereon, however, the shares held by such
shareholder will be voted FOR the nominees specified on the Proxy.
The affirmative vote of the holders of a majority of the common shares
of the Company represented in person or by proxy at the Annual Meeting is
necessary to ratify the selection of Crowe, Chizek as the auditors of the
Company for the current fiscal year. The effect of an abstention or a non-vote
is the same as a vote against the ratification of the selection of Crowe, Chizek
as the auditors of the Company for the current fiscal year. If the Proxy is
signed and dated by the shareholder but no vote or instruction to abstain is
specified thereon, however, the shares held by such shareholder will be voted
FOR the ratification of the selection of Crowe, Chizek as the auditors of the
Company for the current fiscal year.
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
only persons, other than directors and executive officers of the Company, known
to the Company to own beneficially more than five percent of the outstanding
common shares of the Company as of August 27, 1999:
Amount and Nature of Percent of
Name and Address Beneficial Ownership Shares Outstanding
- ---------------- -------------------- ------------------
Home Loan Financial Corporation
Employee Stock Ownership Plan
1201 Broadway 239,314 (1) 11.88%
Quincy, Illinois 62301
Wellington Management Company, LLP
75 State Street 131,000 (2) 6.50%
Boston, Massachusetts 02109
and
Julian H. Robertson, Jr.
Tiger Management L.L.C.
Tiger Performance L.L.C.
101 Park Ave.
New York, New York 10175
- ---------------------------
(1) Consists of the shares held by First Bankers Trust Company, N.A., as
the Trustee for the Home Loan Financial Corporation Employee Stock
Ownership Plan (the "ESOP"). The Trustee has voting power over shares
that have not been allocated to an ESOP participant and shares that
have been allocated to an ESOP participant but as to which no voting
instructions are given by the participant. The Trustee has limited
investment power over all ESOP shares. As of August 27, 1999, 35,041
shares had been allocated to the accounts of ESOP participants.
(2) Consists of shares for which voting and dispositive power is shared by
Wellington Management Company LLP ("WMC"), Tiger Management L.L.C.
("TMLLC") and Tiger Performance L.L.C. ("TPLLC"). The shares are owned
of record by clients of WMC. Mr. Robertson is the controlling person
of TMLCC and TPLCC.
-2-
<PAGE> 5
The following table sets forth certain information with respect to the
number of common shares of the Company beneficially owned by each director and
by all directors and executive officers of the Company as a group as of August
27, 1999:
Amount and Nature of Percent of
Name and Address (1) Beneficial Ownership (2) Shares Outstanding
- -------------------- ------------------------ ------------------
Neal J. Caldwell 36,147(3) 1.79%
Charles H. Durmis 33,147(4) 1.64
Robert C. Hamilton 58,404(5) 2.88
Robert D. Mauch 107,728(6) 5.34
Douglas L. Randles 37,751(7) 1.87
All directors and executive officers
of the Company as a group (6 people) 304,182(8) 14.93
- ----------------------------
(1) Each of the persons listed in this table may be contacted at the address of
the Company.
(2) All shares are owned directly with sole voting and investment power unless
otherwise indicated by footnote.
(3) Includes 5,000 shares as to which Mr. Caldwell shares voting and investment
power, 899 shares held in the Home Loan Financial Corporation Recognition
and Retention Plan (the "RRP") to be distributed to Mr. Caldwell on October
13, 1999, and 2,248 shares that may be acquired upon the exercise of
options.
(4) Includes 15,000 shares as to which Mr. Durmis shares voting and investment
power, 899 shares held in the RRP, to be distributed to Mr. Durmis on
October 13, 1999, and 2,248 shares that may be acquired upon the exercise
of options.
(5) Includes 18,300 shares as to which Mr. Hamilton shares voting and
investment power, 9,367 shares allocated to Mr. Hamilton's ESOP account,
with respect to which Mr. Hamilton has voting but not investment power,
4,496 shares held in the RRP to be distributed to Mr. Hamilton on October
13, 1999, and 11,241 shares that may be acquired upon the exercise of
options.
(6) Includes 550 shares as to which Mr. Mauch shares voting and investment
power, 899 shares held in the RRP to be distributed to Mr. Mauch on October
13, 1999, 2,248 shares that may be acquired upon the exercise of options,
and 89,930 shares held as Trustee of the RRP. The 89,930 shares held as RRP
Trustee includes the shares to be distributed to directors and executive
officers on October 13, 1999.
(7) Includes 16,079 shares as to which Mr. Randles shares voting and investment
power, 899 shares held in the RRP to be distributed to Mr. Randles on
October 13, 1999, and 2,248 shares that may be acquired upon the exercise
of options.
(8) Includes 15,000 shares as to which an executive officer shares voting and
investment power, 4,998 shares allocated to such executive officer's ESOP
account, with respect to which such executive officer has voting but not
investment power, 1,420 shares held in the RRP to be distributed to such
executive officer on October 13, 1999, and 3,200 shares that may be
acquired upon the exercise of options. Although all of the shares held in
the RRP are deemed to be held by Mr. Mauch as Trustee of the RRP, all of
the shares held in the RRP are counted only once in determining the total
number of shares owned by all directors and executive officers as a group.
PROPOSAL ONE - ELECTION OF DIRECTORS
ELECTION OF DIRECTORS
The Regulations provide for a Board of Directors consisting of five
persons. In accordance with Section 2.03 of the Regulations, nominees for
election as directors may be proposed only by the directors or by a shareholder
entitled to vote for directors. A nomination by a shareholder with respect to
the election of directors at an annual meeting of shareholders must be submitted
in writing to the
-3-
<PAGE> 6
Secretary of the Company and received by the Secretary not later than the
sixtieth day before the first anniversary of the most recent annual meeting of
shareholders held for the election of directors. A nomination by a shareholder
with respect to the election of directors at a special meeting of shareholders
must be submitted in writing and received by the Secretary of the Company not
later than the close of business on the seventh day following the day on which
notice of such special meeting was mailed to shareholders. Each written
nomination must state the name, age, business or residence address of the
nominee, the principal occupation or employment of the nominee, the number of
common shares of the Company owned either beneficially or of record by each such
nominee and the length of time such shares have been so owned. No nominations
have been submitted by shareholders for the Annual Meeting.
The Board of Directors proposes the reelection at the Annual Meeting of
the following persons to terms which will expire in 2000:
Director of Director of
the Company the Bank
Name Age (1) Position(s) held Since (2) Since
- ---- ------- ---------------- ----------- -----------
Neal J. Caldwell 55 Director 1997 1989
Charles H. Durmis 36 Director 1997 1996
Robert C. Hamilton 56 Director, President and Chairman 1997 1982
Robert D. Mauch 48 Director 1997 1989
Douglas L. Randles 54 Director 1997 1992
- -----------------------------
(1) As of September 1, 1999.
(2) Each director became a director of the Company in connection with the
conversion of the Bank from mutual to stock form and the formation of the
Company as the holding company for the Bank.
If any nominee is unable to stand for election, any Proxies granting
authority to vote for such nominee will be voted for such substitute as the
Board of Directors recommends.
Neal J. Caldwell. Mr. Caldwell has practiced veterinary medicine in
Coshocton, Ohio, since 1972 and is an owner and operator of Coshocton Veterinary
Clinic.
Charles H. Durmis. Since 1994, Dr. Durmis has practiced general surgery and
has maintained an office in Coshocton, Ohio. From 1990 to 1994, Dr. Durmis was a
resident in general surgery at Brentwood Hospital in Warrensville Heights, Ohio.
Robert C. Hamilton. Mr. Hamilton was employed by the Bank in 1981 as the
Secretary, the Treasurer and the managing officer and has served as the
President of the Bank since 1983. Mr. Hamilton has worked in banking for the
past 39 years.
Robert D. Mauch. Mr. Mauch, a Certified Public Accountant, has provided
accounting, payroll and tax counseling services through Robert D. Mauch, CPA,
Inc., located in Coshocton, Ohio, since 1988.
Douglas L. Randles. Mr. Randles is the President of L.W. Randles Cheese,
Inc., located in Warsaw, Ohio. Mr. Randles has been employed by L.W. Randles
Cheese, Inc., since 1969.
-4-
<PAGE> 7
MEETINGS OF DIRECTORS
The Board of Directors of the Company met seven times for regularly
scheduled and special meetings during the fiscal year ended June 30, 1999. The
Board of Directors of the Bank met twelve times for regularly scheduled and
special meetings during the fiscal year ended June 30, 1999.
COMMITTEES OF DIRECTORS
The Board of Directors of the Company has an Audit Committee. The Company
has no Compensation Committee and the entire Board of Directors serves as a
nominating committee.
The Audit Committee is comprised of Mr. Caldwell, Mr. Mauch and Mr.
Randles. The Audit Committee reviews audit reports and related matters to ensure
effective compliance with regulatory and internal policies and procedures. The
Audit Committee met once during the year ended June 30, 1999.
The Board of Directors of the Bank has Executive, Executive Compensation,
Compensation and Audit Committees. The entire Board of Directors serves as a
nominating committee.
The Executive Committee is comprised of Mr. Hamilton, Mr. Caldwell and Mr.
Mauch. The Executive Committee has all of the authority of the Board of
Directors, except with respect to certain matters that by statute may not be
delegated by the Board of Directors. The Executive Committee acts only in the
intervals between meetings of the full Board of Directors. It acts usually in
those cases where it is not feasible to convene a special meeting of the full
Board of Directors. The Executive Committee met once during the year ended June
30, 1999.
The Executive Compensation Committee is comprised of Mr. Caldwell, Mr.
Mauch and Mr. Randles. The Executive Compensation Committee determines the
compensation of Mr. Hamilton. The Executive Compensation Committee met once
during the year ended June 30, 1999.
The Compensation Committee is comprised of Mr. Hamilton, Mr. Caldwell and
Mr. Mauch. The function of the Compensation Committee is to determine
compensation for the Bank's employees, other than Mr. Hamilton, and to make
decisions regarding employee benefits and related matters. The Compensation
Committee met once during the year ended June 30, 1999.
The Audit Committee is comprised of Mr. Caldwell, Mr. Mauch and Mr.
Randles. The Audit Committee reviews audit reports and related matters to ensure
effective compliance with regulatory and internal policies and procedures. The
Audit Committee met once during the year ended June 30, 1999.
EXECUTIVE OFFICERS
Mr. Hamilton is the President and Chief Executive Officer of the Company.
Preston W. Bair serves as the Secretary, the Treasurer and the Chief Financial
Officer of the Company. Mr. Bair has served as Secretary and Treasurer of the
Bank since 1994. Prior to 1994, Mr. Bair, a Certified Public Accountant, was a
shareholder of Brott Mardis & Co., located in Akron, Ohio.
-5-
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Bank to
Robert C. Hamilton, the President of the Company and the Bank, for the fiscal
years ended June 30, 1999, 1998 and 1997. No other executive officer of the
Company earned salary and bonus in excess of $100,000 during fiscal 1999.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation (1) Long-Term Compensation
----------------------------- -----------------------------------------------
Awards Payouts
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Name and principal Year Salary ($) Bonus ($) Restricted Stock Securities LTIP All Other
position Awards Underlying payoffs Compensation
($) Options/SARS ($) ($)
(#)
- ----------------------------------------------------------------------------------------------------------------------------------
Robert C. Hamilton 1999 $167,000 (2) $ 82,500 (3) $262,815 (4) 56,206 - $49,879(5)
President 1998 158,000 72,159 (6) - - $182,014 37,613(7)
1997 145,500 65,612 (8) - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include amounts attributable to miscellaneous benefits. The cost
to the Bank of providing such miscellaneous benefits was less than 10% of
Mr. Hamilton's total salary and bonus.
(2) Includes directors' fees of $2,000.
(3) Consists of payments pursuant to the Profit Sharing Plan (hereinafter
defined).
(4) On October 13, 1998, Mr. Hamilton was awarded 22,482 common shares pursuant
to the RRP. Mr. Hamilton paid no consideration for such shares. The award
will be earned and non-forfeitable at the rate of one-fifth per year on the
anniversary of the date of the award, beginning October 13, 1999, assuming
continued employment with, or service on the Board of Directors of, the
Company or the Bank. On October 13, 1998, the market price of the shares
awarded to Mr. Hamilton, determined by reference to the last trade price
for the company's shares on the Nasdaq SmallCap Market ("Nasdaq") on such
date, was $11.69 per share, and the aggregate market value of such shares
was $262,815. At June 30, 1999, the market price reported by Nasdaq and the
aggregate market value of the shares awarded to Mr. Hamilton, as adjusted
to reflect a return of capital paid in May 1999, was $210,769. In addition,
dividends, the return of capital and other distributions on such shares and
earnings thereon will be distributed to Mr. Hamilton according to the
vesting schedule.
(5) Consists of the contribution to Mr. Hamilton's ESOP account.
(6) Consists of payments pursuant to the Profit Sharing Plan.
(7) Consists of the contribution to Mr. Hamilton's ESOP account.
(8) Consists of payments pursuant to the Profit Sharing Plan.
EMPLOYMENT AGREEMENT
The Bank has entered into an employment agreement with Robert C. Hamilton
(the "Employment Agreement"), extended effective January 1, 1999. The Employment
Agreement provides for a term of three years and a salary of not less than
$165,000 and performance reviews by the Board of
-6-
<PAGE> 9
Directors not less often than annually, at which time the Employment Agreement
may be extended for a period of one year. The Employment Agreement also provides
for the inclusion of Mr. Hamilton in any formally established employee benefit,
bonus, pension, and profit-sharing plans for which senior management personnel
are eligible and for vacation and sick leave in accordance with the Bank's
prevailing policies.
The Employment Agreement is terminable by the Bank at any time. In the
event of termination by the Bank for "just cause," as defined in the Employment
Agreement, Mr. Hamilton will have no right to receive any compensation or other
benefits pursuant to the Employment Agreement for any period after such
termination. In the event of termination by the Bank other than for just cause
or in connection with a "change of control," as defined in the Employment
Agreement, Mr. Hamilton will be entitled to a continuation of salary payments
for a period of time equal to the remaining term of the Employment Agreement and
a continuation of benefits substantially equal to those being provided at the
date of termination of employment until the earliest to occur of the end of the
term of the Employment Agreement or the date on which Mr. Hamilton becomes
employed full-time by another employer.
The Employment Agreement also contains provisions with respect to the
occurrence within one year of a "change of control" of (1) the termination of
Mr. Hamilton's employment for any reason other than just cause, retirement, or
termination at the end of the term of the Employment Agreement, or (2) a
constructive termination resulting from change in the capacity or circumstances
in which Mr. Hamilton is employed or a material reduction in his
responsibilities, authority, compensation, or other benefits provided under the
Employment Agreement without Mr. Hamilton's written consent. In the event of any
such occurrence, Mr. Hamilton will be entitled to payment of an amount equal to
three times Mr. Hamilton's annual compensation immediately preceding the
termination of his employment. In addition, Mr. Hamilton will be entitled to
continued coverage under the Bank's benefit plans until the earliest of the end
of the term of the Employment Agreement or the date on which he is included in
another employer's benefit plans as a full-time employee. The maximum that Mr.
Hamilton may receive, however, is limited to an amount that will not result in
the imposition of a penalty tax pursuant to Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended. "Control," as defined in the Employment
Agreement, generally refers to the acquisition by any person or entity of the
ownership or power to vote 10% or more of the voting stock of the Bank or the
Company, the control of the election of a majority of the directors of the Bank
or the Company, or the exercise of a controlling influence over the management
or policies of the Bank or the Company.
PENSION PLAN
The Bank maintains a defined benefit pension plan administered by the
Financial Institutions Retirement Fund (the "Pension Plan"). Employees become
eligible to participate in the Pension Plan following one year of service and
attainment of age 21. Participants must accrue 1,000 hours of service in each
calendar year in order to accrue benefits for that year. Participants become
100% vested upon completion of five years of service or upon reaching age 65.
Upon retirement, vested participants are entitled to annual benefits equal to 1%
multiplied by the number of years for which the employee was a participant in
the Pension Plan, not to exceed 25 years, multiplied by the average of the
highest five consecutive years of the participant's annual salary.
The Bank's cost related to the Pension Plan is determined annually
according to actuarial computations. The Bank recognizes pension expense equal
to contributions made to the Pension Plan. Contributions of $83,483 and $84,552
were made for the years ended June 30, 1998 and 1997. No contribution was
required in the year ended June 30, 1999.
-7-
<PAGE> 10
PROFIT SHARING PLAN
The Bank has a non-qualified profit sharing plan covering officers of
the Bank (the "Profit Sharing Plan"). Prior to July 1, 1996, the Bank's
contribution to the Profit Sharing Plan was based on the Bank's return on
average assets for the year then ended. Effective July 1, 1996, up to 10% of
pretax income, excluding nonrecurring items and extraordinary gains or losses
not related to operations and before deductions of awards under the Profit
Sharing Plan, will be contributed by the Bank annually. The total contribution
is allocated to the Bank's officers based upon percentages established by the
Board of Directors. No incentive awards are payable unless a minimum return on
assets is exceeded.
EQUITY APPRECIATION AGREEMENT
In 1994, the Bank entered into an agreement with Mr. Hamilton (the
"Equity Appreciation Agreement") which provides for the payment to Mr. Hamilton
of an amount equal to 5% of the Bank's increase in equity over a five-year
period ending June 30, 1998. Expense recorded relating to the Equity
Appreciation Agreement was $36,014 and $38,000 for the years ended June 30, 1998
and 1997, respectively. The Equity Appreciation Agreement was terminated
effective February 28, 1998, resulting in a payment of $182,014 to Mr. Hamilton.
STOCK OPTION PLAN
At the 1998 Annual Meeting of the Shareholders of the Company, the
shareholders approved the Stock Option Plan. The Board of Directors of the
Company reserved 224,850 common shares for issuance by the Company upon the
exercise of options to be granted to certain directors, officers and employees
of the Company and the Bank from time to time under the Stock Option Plan.
Options to purchase 180,170 common shares of the Company have been awarded
pursuant to the Stock Option Plan.
The Stock Option Committee may grant options under the Stock Option
Plan at such times as they deem most beneficial to the Bank and the Company on
the basis of the individual participant's position and duties and the value of
the individual's services and responsibilities to the Bank and the Company.
Grants must be made in accordance with OTS regulations which provide that no
individual may receive options to purchase more than 25% of the shares that are
reserved for issuance under the Stock Option Plan and that directors who are not
employees of the Company or the Bank may not receive options to purchase more
than 5% of such shares individually or 30% in the aggregate.
-8-
<PAGE> 11
The following table sets forth information regarding all grants of
options to purchase common shares of the Company made to Mr. Hamilton during the
fiscal year ended June 30, 1999:
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year Individual Grants
------------------------------------------------------------------------------------------
% of Total Options/
Number of Securities SARs Granted to
Underlying Options/ Employees in Fiscal Exercise or Base
Name SARs Granted (#) Year Ended 06/30/99 Price ($/Share) Expiration Date
- ---- --------------------- ------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Robert C. Hamilton 56,206 41.6% $7.69 (1) October 13, 2008
- ------------------
</TABLE>
(1) As adjusted to reflect a $4.00 per share return of capital paid to
shareholders in May 1999.
The following table sets forth information regarding the number and value
of unexercised options held by Mr. Hamilton at June 30, 1999:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Values
------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Shares Acquired Unexercised Options/SARs at In-the-Money Options/SARs
on Value 6/30/99 at 6/30/99 ($)(1)
Name Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert C. Hamilton -0- N/A -0-/56,206 $94,707
- ------------------
</TABLE>
(1) For purposes of this table, the value of the option was determined by
multiplying the number of shares subject to unexercised options by the
difference between the $7.69 exercise price and the fair market value
of the Company's common shares, which was $9.375 on June 30, 1999,
based on the last trade price reported by the Nasdaq Stock Market.
RECOGNITION AND RETENTION PLAN AND TRUST
At the 1998 Annual Meeting of the Shareholders of the Company, the
shareholders of the Company approved the RRP. With funds contributed by the
Bank, the RRP has purchased 89,930 shares of the Company. Awards entitling
recipients to 72,866 shares were awarded to directors, executive officers and
employees of the Company and the Bank during fiscal year 1999.
The RRP is administered by the RRP Committee. The RRP Committee may
make awards under the RRP to the officers and employees of the Company and the
Bank at such times as they deem most beneficial to the Company on the basis of
the individual participant's responsibility, tenure and future potential. Grants
must be made in accordance with OTS regulations, which provide that no
individual may be awarded more than 25% of the shares which are reserved for
issuance under the RRP and that directors who are not employees of the Company
or the Bank may not receive more than 5% of such shares individually or 30% in
the aggregate.
Unless the RRP Committee specifies a longer period of time, one-fifth
of the number of shares awarded to an individual becomes earned and
non-forfeitable on each of the first five anniversaries of the date of such
award. Compensation expense in the amount of the fair market value of the RRP
shares is recognized as the shares are earned. Until shares awarded are earned
by the participant, such shares
-9-
<PAGE> 12
will be forfeited in the event that the participant ceases to be either a
director or an employee of the Company or the Bank, except that in the event of
the death or disability of a participant, the participant's shares will be
deemed to be earned and non-forfeitable.
The shares, together with any cash dividends or distributions paid
thereon, will be distributed as soon as practicable after they are earned.
Shares that have been awarded but not yet earned are voted in the discretion of
the RRP Trustee appointed by the RRP Committee.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company established the ESOP for the benefit of employees of the
Company and its subsidiaries, including the Bank, who are age 21 or older and
who have completed at least one year of service with the Company and its
subsidiaries. The ESOP purchased 179,860 common shares of the Company in
connection with mutual to stock conversion of the Bank. The purchase price was
financed with a loan from the Company to the ESOP. As the loan is repaid, shares
are allocated to the accounts of participating employees pro rata on the basis
of compensation. As of August 27, 1999, 35,041 of the common shares held in the
ESOP Trust had been allocated to the accounts of participants.
A committee appointed by the Board of Directors of the Company
administers the ESOP (the "ESOP Committee"). The common shares and other ESOP
assets are held by the Trustee. The ESOP Committee may instruct the ESOP Trustee
regarding investments of funds contributed to the ESOP. The ESOP Trustee must
vote all common shares of the Company held in the ESOP that are allocated to the
accounts of ESOP participants in accordance with the instructions of such
participants. Common shares held by the ESOP that are not allocated to
participants' accounts and allocated shares for which voting instructions are
not received will be voted by the ESOP Trustee in its sole discretion.
DIRECTOR COMPENSATION
Each director of the Company receives $2,000 per year. Each director of
the Bank, except Mr. Hamilton, currently receives a retainer of $10,800 per year
and $500 per full Board of Directors meeting attended. Members of the Bank's
Executive Committee receive $250 per Executive Committee meeting attended.
CERTAIN TRANSACTIONS WITH THE BANK
The Bank makes loans to executive officers and directors of the Bank in
the ordinary course of business and on the same terms and conditions, including
interest rates and collateral, as those generally available to the Bank's
customers. All outstanding loans to executive officers and directors comply with
such policy, do not involve more than the normal risk of collectibility or
present other unfavorable features and are current in their payments.
-10-
<PAGE> 13
PROPOSAL TWO - RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected Crowe, Chizek as the auditors of
the Company for the current fiscal year and recommends that the shareholders
ratify the selection. Management expects that a representative of Crowe, Chizek
will be present at the Annual Meeting, will have the opportunity to make a
statement if he or she so desires and will be available to respond to
appropriate questions.
PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS
Any qualified shareholder of the Company who intends to submit a
proposal to the Company at the 2000 Annual Meeting of Shareholders (the "2000
Annual Meeting") must submit such proposal to the Company not later than May 18,
2000, to be considered for inclusion in the Company's Proxy Statement and form
of Proxy (the "Proxy Materials") relating to that meeting. If a shareholder
intends to present a proposal at the 2000 Annual Meeting of Shareholders but has
not sought the inclusion of such proposal in the Company's Proxy Materials, and
if such proposal is not received by the Company prior to August 1, 2000, the
Company's management proxies for the 2000 Annual Meeting will be entitled to use
their discretionary voting authority should such proposal then be raised,
without any discussion of the matter in the Company's Proxy Materials.
Management knows of no other business which may be brought before the
Annual Meeting. It is the intention of the persons named in the enclosed Proxy
to vote such Proxy in accordance with their best judgment on any other matters
which may be brought before the Annual Meeting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND
RETURN THE PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
By Order of the Board of Directors
Coshocton, Ohio Robert C. Hamilton,
September 7, 1999 President
-11-
<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 ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,824
<INT-BEARING-DEPOSITS> 75
<FED-FUNDS-SOLD> 6,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,649
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 73,069
<ALLOWANCE> 323
<TOTAL-ASSETS> 107,855
<DEPOSITS> 56,495
<SHORT-TERM> 13,550
<LIABILITIES-OTHER> 912
<LONG-TERM> 17,000
0
0
<COMMON> 0
<OTHER-SE> 19,899
<TOTAL-LIABILITIES-AND-EQUITY> 107,855
<INTEREST-LOAN> 5,541
<INTEREST-INVEST> 1,052
<INTEREST-OTHER> 317
<INTEREST-TOTAL> 6,910
<INTEREST-DEPOSIT> 2,150
<INTEREST-EXPENSE> 2,623
<INTEREST-INCOME-NET> 4,287
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,308
<INCOME-PRETAX> 2,063
<INCOME-PRE-EXTRAORDINARY> 1,323
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,323
<EPS-BASIC> .67
<EPS-DILUTED> .66
<YIELD-ACTUAL> 4.85
<LOANS-NON> 0
<LOANS-PAST> 133
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 223
<CHARGE-OFFS> 23
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 323
<ALLOWANCE-DOMESTIC> 323
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 60
</TABLE>
