<PAGE> 1
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the transition period from __________ to ____________.
Commission File Number: 000-23927
---------
HOME LOAN FINANCIAL CORPORATION
-------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-1578552
---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
401 Main Street, Coshocton, Ohio 43812
---------------------------------------
(Address of principal executive offices)
(740) 622-0444
--------------
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No
As of February 10, 2000 the latest practical date, 1,939,245 of the issuer's
common shares, no par value, were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
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1.
<PAGE> 2
HOME LOAN FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I -FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Consolidated Balance Sheets............................................................. 3
Consolidated Statements of Income and Comprehensive Income.............................. 4
Consolidated Statements of Changes in Shareholders' Equity.............................. 5
Consolidated Statements of Cash Flows................................................... 7
Notes to Consolidated Financial Statements ............................................. 8
Item 2. Management's Discussion and Analysis............................................... 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 24
Item 2. Changes in Securities and Use of Proceeds.......................................... 24
Item 3. Defaults Upon Senior Securities.................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders................................ 24
Item 5. Other Information.................................................................. 24
Item 6. Exhibits and Reports on Form 8-K................................................... 24
SIGNATURES ........................................................................................... 25
</TABLE>
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2.
<PAGE> 3
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,570,132 $ 1,824,130
Interest-bearing deposits in other banks 32,600 39,818
Overnight deposits -- 3,500,000
Federal funds sold -- 3,200,000
------------- -------------
Total cash and cash equivalents 3,602,732 8,563,948
Interest-bearing time deposits 36,112 35,152
Securities available for sale 3,170,950 2,969,723
Mortgage-backed securities available for sale 19,072,465 20,248,220
Federal Home Loan Bank stock 1,482,300 1,430,500
Loans, net 79,533,960 73,068,853
Premises and equipment, net 1,156,326 742,062
Accrued interest receivable 504,877 468,664
Other assets 607,606 328,051
------------- -------------
Total assets $ 109,167,328 $ 107,855,173
============= =============
LIABILITIES
Deposits $ 57,724,806 $ 56,494,543
Federal Home Loan Bank advances 28,300,000 28,200,000
Other borrowings 2,875,000 2,350,000
Accrued interest payable 475,150 526,693
Accrued expenses and other liabilities 346,715 384,941
------------- -------------
Total liabilities 89,721,671 87,956,177
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 14,125,553 14,060,770
Retained earnings - substantially restricted 12,442,757 12,154,493
Unearned employee stock ownership plan shares (2,025,818) (2,109,864)
Unearned recognition and retention plan shares (929,469) (1,024,269)
Treasury stock, at cost - 287,005 shares at December 31, 1999
and 219,205 shares at June 30, 1999 (3,498,173) (2,852,948)
Accumulated other comprehensive income (649,193) (329,186)
------------- -------------
Total shareholders' equity 19,445,657 19,898,996
------------- -------------
Total liabilities and shareholders' equity $ 109,167,328 $ 107,855,173
============= =============
</TABLE>
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See accompanying notes to consolidated financial statements.
3.
<PAGE> 4
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 1,614,367 $ 1,374,021 3,176,110 $ 2,690,525
Securities 373,389 178,744 765,714 387,189
Dividends on FHLB stock 37,700 7,059 63,841 14,241
Interest-bearing deposits and federal
funds sold 2,071 97,595 21,912 189,480
----------- ----------- ----------- -----------
Total interest income 2,027,527 1,657,419 4,027,577 3,281,435
INTEREST EXPENSE
Deposits 590,600 534,862 1,169,375 1,060,001
FHLB advances 359,060 40,318 678,577 60,032
Other borrowings 54,231 -- 103,038 --
----------- ----------- ----------- -----------
Total interest expense 1,003,891 575,180 1,950,990 1,120,033
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,023,636 1,082,239 2,076,587 2,161,402
Provision for loan losses 30,000 30,000 60,000 60,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 993,636 1,052,239 2,016,587 2,101,402
NONINTEREST INCOME
Service charges and other fees 43,113 33,386 83,468 71,687
Other income 29,657 14,566 46,687 26,922
----------- ----------- ----------- -----------
Total noninterest income 72,770 47,952 130,155 98,609
NONINTEREST EXPENSE
Salaries and employee benefits 383,291 317,736 753,834 591,257
Occupancy and equipment 53,700 36,567 95,383 71,552
State franchise taxes 58,500 38,100 135,000 76,200
Computer processing 27,767 34,738 56,052 65,451
SAIF deposit insurance premiums 8,374 8,412 16,690 16,825
Legal, audit and supervisory exam fees 35,484 22,500 74,729 45,000
Director fees 20,800 20,800 41,600 42,425
Other expense 88,887 65,803 161,619 123,648
----------- ----------- ----------- -----------
Total noninterest expense 676,803 544,656 1,334,907 1,032,358
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 389,603 555,535 811,835 1,167,653
Income tax expense 140,500 199,800 306,800 419,400
----------- ----------- ----------- -----------
NET INCOME 249,103 355,735 505,035 748,253
Other comprehensive income, net of tax (291,932) (15,770) (320,007) 27,369
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ (42,829) $ 339,965 $ 185,028 $ 775,622
=========== =========== =========== ===========
BASIC EARNINGS PER COMMON SHARE $ .15 $ .18 $ .29 $ .36
=========== =========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE $ .14 $ .17 $ .29 $ .36
=========== =========== =========== ===========
</TABLE>
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See accompanying notes to consolidated financial statements.
4.
<PAGE> 5
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Additional Unearned Unearned
Paid-In Retained ESOP RRP
Capital Earnings Shares Shares
------- -------- ------ ------
<S> <C> <C> <C> <C>
Balance at July 1, 1998 $ 21,948,437 $ 11,285,160 $ (1,678,690) $ --
Net income for the period -- 748,253 -- --
Cash dividend - $.10 per share -- (207,954) -- --
Commitment to release 5,994
ESOP shares 25,475 -- 59,940 --
Purchase of 89,930 shares for
recognition and retention plan -- -- -- (1,157,069)
Compensation expense with respect to
recognition and retention plan -- -- -- 38,600
Purchase of 23,070 treasury shares -- -- -- --
Change in fair value of securities
available for sale -- -- -- --
------------ ------------ ------------ ------------
Balance at December 31, 1998 $ 21,973,912 $ 11,825,459 $ (1,618,750) $ (1,118,469)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Unrealized
Gain on
Securities
Treasury Available
Shares for Sale Total
------ -------- -----
<S> <C> <C> <C>
Balance at July 1, 1998 $ -- $ 9,727 $ 31,564,634
Net income for the period -- -- 748,253
Cash dividend - $.10 per share -- -- (207,954)
Commitment to release 5,994
ESOP shares -- -- 85,415
Purchase of 89,930 shares for
recognition and retention plan -- -- (1,157,069)
Compensation expense with respect to
recognition and retention plan -- -- 38,600
Purchase of 23,070 treasury shares (329,181) -- (329,181)
Change in fair value of securities
available for sale -- 27,369 27,369
------------ ------------ ------------
Balance at December 31, 1998 $ (329,181) $ 37,096 $ 30,770,067
============ ============ ============
</TABLE>
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(Continued)
5.
<PAGE> 6
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
Six Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Additional Unearned Unearned
Paid-In Retained ESOP RRP
Capital Earnings Shares Shares
------- -------- ------ ------
<S> <C> <C> <C> <C>
Balance at July 1, 1999 $ 14,060,770 $ 12,154,493 $ (2,109,864) $ (1,024,269)
Net income for the period -- 505,035 -- --
Cash dividend - $.13 per share -- (236,771) -- --
Contribution of accumulated
dividends on unawarded recognition
and retention plan shares 72,840 -- -- --
Commitment to release 7,950
ESOP shares (8,057) -- 84,046 --
Compensation expense with respect to
recognition and retention plan -- -- -- 94,800
Purchase of 67,800 treasury shares -- -- -- --
Change in fair value of securities
available for sale -- -- -- --
------------ ------------ ------------ ------------
Balance at December 31, 1999 $ 14,125,553 $ 12,422,757 $ (2,025,818) $ (929,469)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Unrealized
Loss on
Securities
Treasury Available
Shares for Sale Total
------ -------- -----
<S> <C> <C> <C>
Balance at July 1, 1999 $ (2,852,948) $ (329,186) $ 19,898,996
Net income for the period -- -- 505,035
Cash dividend - $.13 per share -- -- (236,771)
Contribution of accumulated
dividends on unawarded recognition
and retention plan shares -- -- 72,840
Commitment to release 7,950
ESOP shares -- -- 75,989
Compensation expense with respect to
recognition and retention plan -- -- 94,800
Purchase of 67,800 treasury shares (645,225) -- (645,225)
Change in fair value of securities
available for sale -- (320,007) (320,007)
------------ ------------ ------------
Balance at December 31, 1999 $ (3,498,173) $ (649,193) $ 19,445,657
============ ============ ============
</TABLE>
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See accompanying notes to consolidated financial statements.
6.
<PAGE> 7
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 505,035 $ 748,253
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 47,400 39,000
Securities amortization and accretion 53 6,847
Provision for loan losses 60,000 60,000
FHLB stock dividends (51,800) (14,100)
Compensation expense for ESOP shares 75,989 85,415
Compensation expense for RRP shares 94,800 38,600
Net change in accrued interest receivable and other assets (150,916) (71,087)
Net change in accrued expenses and other liabilities (89,769) (24,577)
Net change in deferred loan fees 6,689 18,950
----------- -----------
Net cash from operating activities 497,481 887,301
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Purchases (484,946) (748,906)
Proceeds from maturities 250,000 4,250,000
Mortgage-backed securities available for sale:
Purchases -- (1,170,340)
Proceeds from maturities and principal paydowns 724,562 120,795
Net change in interest-bearing time deposits (960) (960)
Net change in loans (6,531,796) (8,379,197)
Premises and equipment expenditures (461,664) (28,212)
----------- -----------
Net cash from investing activities (6,504,804) (5,956,820)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 1,230,263 3,339,482
Net change in short-term FHLB advances 100,000 --
Net change in other short-term borrowings 525,000 --
Proceeds from long-term FHLB advances -- 2,000,000
Cash dividends paid (236,771) (207,954)
Contribution of accumulated dividends on unawarded
recognition and retention plan shares 72,840 --
Purchases of recognition and retention plan shares -- (1,157,069)
Purchases of treasury shares (645,225) (329,181)
----------- -----------
Net cash from financing activities 1,046,107 3,645,278
----------- -----------
Net change in cash and cash equivalents (4,961,216) (1,424,241)
Cash and cash equivalents at beginning of period 8,563,948 7,657,148
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,602,732 $ 6,232,907
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 2,002,533 $ 1,081,090
Income taxes 475,000 492,000
</TABLE>
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See accompanying notes to consolidated financial statements.
7.
<PAGE> 8
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements are prepared without audit and
reflect all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of Home Loan Financial Corporation at
December 31, 1999, and its results of operations and cash flows for the periods
presented. All such adjustments are normal and recurring in nature. The
accompanying consolidated financial statements have been prepared in accordance
with the instructions for Form 10-QSB and, therefore, do not purport to contain
all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances,
and should be read in conjunction with the consolidated financial statements and
notes thereto of the Home Loan Financial Corporation for the fiscal year ended
June 30, 1999. The accounting policies of the Home Loan Financial Corporation
described in the notes to the consolidated financial statements contained in the
Home Loan Financial Corporation's June 30, 1999, annual report, have been
consistently followed in preparing this Form 10-QSB.
The consolidated financial statements include the accounts of Home Loan
Financial Corporation ("HLFC") and its wholly owned subsidiary, The Home Loan
Savings Bank ("Bank"), together referred to as the Corporation. All significant
intercompany transactions and balances have been eliminated.
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and disclosures provided, and future results could differ.
The allowance for loan losses, fair values of financial instruments and status
of contingencies are particularly subject to change.
Income tax expense is the 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 consequences 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. Income tax
expense is based on the effective rate expected to be applicable for the entire
year.
Basic earnings per common share is net income divided by the weighted average
number of common shares outstanding during the period. Employee Stock Ownership
Plan ("ESOP") shares are considered outstanding for this calculation unless
unearned. Recognition and Retention Plan ("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.
- --------------------------------------------------------------------------------
(Continued)
8.
<PAGE> 9
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is that
the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. SFAS No. 133 does not allow hedging of a
security which is classified as held to maturity. Upon adoption of SFAS No. 133,
companies may reclassify any security from held to maturity to available for
sale if they wish to be able to hedge the security in the future. SFAS No. 133,
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.
NOTE 2 - SECURITIES
Securities at December 31, 1999 and June 30, 1999 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Securities available for sale
U.S. Government agencies $ 3,234,700 $ -- $ (63,750) $ 3,170,950
============== ========== =========== ===============
Mortgage-backed securities
available for sale
U.S. Government agencies $ 19,992,341 $ -- $ (919,876) $ 19,072,465
============== ========== =========== ===============
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
============== ========== =========== ===============
</TABLE>
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(Continued)
9.
<PAGE> 10
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
Contractual maturities of securities were as follows. 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, primarily mortgage-backed securities, are shown
separately.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due after one year through five years $ 3,234,700 $ 3,170,950
Mortgage-backed securities 19,992,341 19,072,465
-------------- ---------------
$ 23,227,041 $ 22,413,415
============== ===============
</TABLE>
No securities were sold during the three or six months ended December 31, 1999
or 1998.
NOTE 3 - LOANS
Loans at December 31, 1999 and June 30, 1999 were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
<S> <C> <C>
Residential real estate loans:
1 - 4 family $ 52,575,436 $ 50,059,806
Home equity 2,524,519 1,812,681
Nonresidential real estate 9,053,406 5,444,843
Real estate construction 2,031,367 2,791,291
Land 635,262 1,148,472
------------ ------------
Total real estate loans 66,819,990 61,257,093
Commercial loans 3,053,268 2,876,994
Consumer loans:
Home improvement 4,430,559 4,477,735
Automobile 3,721,990 3,408,549
Deposit 474,842 412,602
Credit card 513,523 435,749
Other 1,787,983 2,157,295
------------ ------------
Total consumer loans 10,928,897 10,891,930
------------ ------------
Total loans 80,802,155 75,026,017
Less:
Allowance for loan losses (383,085) (322,700)
Loans in process (729,779) (1,485,822)
Net deferred loan fees and costs (155,331) (148,642)
------------ ------------
$ 79,533,960 $ 73,068,853
============ ============
</TABLE>
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(Continued)
10.
<PAGE> 11
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS (Continued)
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance $ 352,940 $ 253,606 $ 322,700 $ 223,237
Provision for losses 30,000 30,000 60,000 60,000
Loans charged-off -- (7,193) -- (7,193)
Recoveries 145 350 385 719
--------- --------- --------- ---------
Ending balance $ 383,085 $ 276,763 $ 383,085 $ 276,763
========= ========= ========= =========
</TABLE>
As of December 31, 1999 and June 30, 1999 and for the three and six months ended
December 31, 1999 and 1998, impaired loans were immaterial. No loans were on
nonaccrual status at December 31, 1999 and June 30, 1999.
NOTE 4 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
Various contingent liabilities are not reflected in the consolidated financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of such legal actions is not expected to have a
material effect on the Corporation's financial condition or results of
operations.
Some financial instruments are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. These involve, to varying degrees,
credit and interest-rate risk more than the amounts reported in the financial
statements.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit, standby letters of
credit and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral obtained, if deemed necessary, on extension of credit is based on
management's credit evaluation and generally consists of residential or
commercial real estate.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, the total commitments do not necessarily represent
future cash requirements. Standby letters of credit and financial guarantees
written are conditional commitments to guarantee a customer's performance to a
third party.
- --------------------------------------------------------------------------------
(Continued)
11.
<PAGE> 12
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (Continued)
A summary of the notional or contractual amounts of financial instruments with
off-balance sheet risk at December 31, 1999 and June 30, 1999 follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
<S> <C> <C>
Lines of credit--variable rate $2,715,000 $2,268,000
1-4 family residential real estate--variable rate 280,000 523,000
1-4 family residential real estate--fixed rate 211,000 545,000
Commercial real estate--variable rate 369,000 735,000
Credit card arrangements--fixed rate 1,123,000 1,119,000
</TABLE>
The interest rates on fixed-rate commitments ranged from 8.375% to 13.90% at
December 31, 1999 and 6.75% to 13.90% at June 30, 1999. The interest rates on
variable rate commitments ranged from 7.25% to 9.50% at December 31, 1999 and
6.625% to 8.25% at June 30, 1999.
NOTE 5 - 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.
- --------------------------------------------------------------------------------
(Continued)
12.
<PAGE> 13
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
ESOP compensation expense was $35,529 and $75,989 for the three and six months
ended December 31, 1999 and $40,460 and $85,415 for the three and six months
ended December 31, 1998. The ESOP shares at December 31, 1999 and June 30, 1999
were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
<S> <C> <C>
Allocated shares 35,041 11,157
Shares committed to be released for allocation 7,950 23,884
Unreleased shares 191,626 199,576
---------- ----------
Total ESOP shares 234,617 234,617
========== ==========
Fair value of unreleased shares $1,437,195 $1,871,025
========== ==========
</TABLE>
NOTE 6 - STOCK OPTION AND INCENTIVE PLAN
The Home Loan Financial Corporation 1998 Stock Option and Incentive Plan
("Plan") was approved by shareholders on October 13, 1998. A total of 224,825
common shares are available for granting stock options pursuant to the Plan. In
October 1998, the Board of Directors granted options to purchase 180,170 common
shares at an exercise price of $7.69, after adjustment for the return of capital
distribution, to certain 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. 36,034 options are vested at December 31, 1999. 480 options were
forfeited during the three and six months ended December 31, 1999 and no options
were exercised leaving 179,690 options outstanding at December 31, 1999. There
are 44,655 shares of authorized but unissued common stock reserved for which no
options have been granted. Employee compensation expense under stock option
plans is reported only if options are granted below market price at the grant
date.
NOTE 7 - RECOGNITION AND RETENTION 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 mutual to stock conversion. The RRP will be used to provide
such individuals ownership interest in the Corporation in a manner designed to
compensate such directors and key employees for services to the Corporation.
In conjunction with the adoption of the RRP on October 13, 1998, the Board of
Directors awarded 72,866 shares to certain directors and officers of the
Corporation. One-fifth of such shares will be earned and nonforfeitable on each
of the first five anniversaries of the date of the awards. However, in case of
the death or disability of a participant, the participant's shares will be
deemed earned and nonforfeitable upon such date. At December 31, 1999, 14,573
shares have vested. 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. Compensation expense was
$47,400 and $94,800 for the three and six months ended December 31, 1999 and
$38,600 for the three and six months ended December 31, 1998.
- --------------------------------------------------------------------------------
(Continued)
13.
<PAGE> 14
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 - EARNINGS PER SHARE
The factors used in the earnings per share computation are as follows.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic
Net income $ 249,103 $ 355,735 $ 505,035 $ 748,253
============ ============ ============ ============
Weighted average common
shares outstanding 1,978,270 2,241,946 1,997,333 2,245,098
Less: Average unallocated ESOP shares (193,613) (163,373) (195,601) (164,872)
Less: Average nonvested RRP shares (74,142) (56,203) (75,964) (28,102)
------------ ------------ ------------ ------------
Average shares 1,710,515 2,022,370 1,725,768 2,052,124
============ ============ ============ ============
Basic earnings per common share $ .15 $ .18 $ .29 $ .36
============ ============ ============ ============
Diluted
Net income $ 249,103 $ 355,735 $ 505,035 $ 748,253
============ ============ ============ ============
Weighted average common
shares outstanding for basic
earnings per common share 1,710,515 2,022,370 1,725,768 2,052,124
Add: Dilutive effects of average
nonvested RRP shares -- 1,711 -- 532
Add: Dilutive effects of assumed
exercises of stock options 21,244 17,454 27,035 10,671
------------ ------------ ------------ ------------
Average shares and dilutive potential
common shares 1,731,759 2,041,535 1,752,803 2,063,327
============ ============ ============ ============
Diluted earnings per common share $ .14 $ .17 $ .29 $ .36
============ =========== ============ ===========
</TABLE>
Unearned RRP shares did not have a dilutive effect on earnings per share for the
three and six months ended December 31, 1999, as the fair value of the RRP
shares on the date of grant was greater than the average market price for the
periods.
- --------------------------------------------------------------------------------
(Continued)
14.
<PAGE> 15
HOME LOAN FINANCIAL CORPORATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 9 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Unrealized holding gains and losses on
available-for-sale securities $(442,233) $ (23,894) $(484,769) $ 41,468
Tax effect 150,301 8,124 164,762 (14,099)
--------- --------- --------- ---------
Other comprehensive income $(291,932) $ (15,770) $(320,007) $ 27,369
========= ========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
15.
<PAGE> 16
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
INTRODUCTION
In the following pages, management presents an analysis of the consolidated
financial condition of the Corporation as of December 31, 1999 compared to June
30, 1999, and the consolidated results of operations for the three and six
months ended December 31, 1999 compared with the same periods in 1998. This
discussion is designed to provide a more comprehensive review of the operating
results and financial position than what could be obtained from an examination
of the consolidated financial statements alone. This analysis should be read in
conjunction with the interim consolidated financial statements and related
footnotes included herein.
FORWARD LOOKING STATEMENTS
When used in this discussion or future filings by the Corporation with the
Securities and Exchange Commission, or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Corporation
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities and competitive and regulatory factors, could affect the
Corporation's financial performance and could cause the Corporation's actual
results for future periods to differ materially from those anticipated or
projected.
The Corporation is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on its liquidity,
capital resources or operations except as discussed herein. The Corporation is
not aware of any current recommendations by regulatory authorities that would
have such effect if implemented.
The Corporation does not undertake, and specifically disclaims, any obligation
to publicly release any revisions that may be made to any forward-looking
statements to reflect occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
FINANCIAL CONDITION
Total assets at December 31, 1999 were $109.2 million compared to $107.9 million
at June 30, 1999, an increase of $1.3 million, or 1.2%. The increase in total
assets was primarily in loans, which increased $6.5 million partially offset by
a decrease in cash and cash equivalents of $5.0 million. Loan growth, which was
predominantly funded by the use of cash and cash equivalents, consisted
primarily of nonresidential real estate loans, which increased $3.6 million and
1-4 family residential real estate loans which increased $2.5 million. The
growth in residential and nonresidential real estate loans was due to
competitive pricing. Changes in other loan and asset categories were not
considered significant.
Total deposits increased $1.2 million, from $56.5 million at June 30, 1999, to
$57.7 million at December 31, 1999. The increase in deposits was primarily in
certificate of deposits, which increased $1.9 million due to the Bank being more
competitive on rates paid compared to the market in order to attract funds for
loan growth. This increase was partially offset by decreases in NOW and money
market accounts and savings accounts. The certificates of deposit portfolio as a
percent of total deposits increased from 48.8% at June 30,
- --------------------------------------------------------------------------------
(Continued)
16.
<PAGE> 17
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
1999 to 51.1% at December 31, 1999. Almost all certificates of deposit mature in
less than three years with the majority maturing in the next year.
Federal Home Loan Bank ("FHLB") advances totaled $28.3 million at December 31,
1999, compared to $28.2 million at June 30, 1999, an increase of $100,000 in the
cash-management line of credit. The Corporation had no changes in its long-term
advances from the FHLB. The interest rates on the long-term borrowings are fixed
for a specified number of years, then convertible to variable rates at the
option of the FHLB. Interest is due monthly and principal is due upon maturity.
If the convertible option is exercised, the advance may be prepaid without
penalty. The Corporation also increased its borrowings under the lines of credit
with another financial institution to provide added liquidity for the Year 2000.
COMPARISON OF RESULTS OF OPERATIONS FOR THREE MONTHS
ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
General economic conditions, the monetary and fiscal policies of federal
agencies and the regulatory policies of agencies that regulate financial
institutions affect the operating results of the Corporation. Interest rates on
competing investments and general market rates of interest influence the
Corporation's cost of funds. The demand for real estate loans and other types of
loans influence lending activities, which in turn is affected by the interest
rates at which such loans are made, general economic conditions and the
availability of funds for lending activities.
The Corporation's net income primarily depends on its net interest income, which
is the difference between the interest income earned on interest-earning assets,
such as loans and securities, and interest expense incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is dependent on the interest rate environment and the volume and composition of
interest-earning assets and interest-bearing liabilities. Provisions for loan
losses, service charges, gains on the sale of assets, other income, noninterest
expense and income taxes also affect net income.
Net income was $249,103 for the three months ended December 31, 1999, compared
to $355,735 for the three months ended December 31, 1998. The decrease in net
income for the three months ended December 31, 1999 was the result of an
increase in noninterest expense and a slight decrease in net interest income.
Net interest income totaled $1,023,636 for the three months ended December 31,
1999, compared to $1,082,239 for the three months ended December 31, 1998,
representing a decrease of $58,603, or 5.4%. The change in net interest income
is attributable to a larger increase in interest-bearing liabilities compared to
interest-earning assets due to a special capital distribution of $4.00 per
share, or $8.5 million, paid to shareholders in May 1999, which was funded with
borrowings.
Interest and fees on loans increased $240,346, or 17.5%, from $1,374,021 for the
three months ended December 31, 1998 to $1,614,367 for the three months ended
December 31, 1999. The increase was due to higher average balances of loans.
Interest earned on securities totaled $373,389 for the three months ended
December 31, 1999, compared to $178,744 for the three months ended December 31,
1998. The increase was a result of a higher average balance of securities
partially offset by a decrease in the yield earned. The higher average balance
of securities was due to the purchase of $20.0 million of mortgage-backed
securities in March 1999 as part of the Corporation's capital leveraging
strategy.
- --------------------------------------------------------------------------------
(Continued)
17.
<PAGE> 18
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Interest on interest-bearing deposits and federal funds sold decreased $95,524
from $97,595 for the three months ended December 31, 1998, to $2,071 for the
three months ended December 31, 1999. The decrease was the result of lower
average balances of interest bearing deposits and federal funds sold primarily
due to using these funds for loan growth.
Dividends on FHLB stock increased for the three months ended December 31, 1999,
compared to the three months ended December 31, 1998, primarily due to a
substantial increase in the number of shares of FHLB stock owned. The increase
in FHLB stock was required to obtain the current level of advances.
Interest paid on deposits increased $55,738 from $534,862 for the three months
ended December 31, 1998, to $590,600 for the three months ended December 31,
1999. The increase in interest expense was the result of an increase in the cost
of funds and an increase in the average balance of deposits. The increase in the
cost of funds was primarily due to general market conditions and aggressively
pricing deposit products to attract funds for loan growth.
Interest on FHLB advances and other borrowings totaled $413,291 for the three
months ended December 31, 1999, compared to $40,318 for the three months ended
December 31, 1998. The increase in interest expense was the result of an
increase in the average balance of borrowed funds. The additional borrowings
were used to provide funding for fixed-rate loan demand and investment in
mortgage-backed securities to better leverage the Corporation's capital
position.
The Corporation maintains an allowance for loan losses in an amount that, in
management's judgment, is adequate to absorb probable losses in the loan
portfolio. While management utilizes its best judgment and information
available, the ultimate adequacy of the allowance is dependent on a variety of
factors, including the performance of the loan portfolio, the economy, changes
in real estate values and interest rates and the view of the regulatory
authorities toward loan classifications. The provision for loan losses is
determined by management as the amount to be added to the allowance for loan
losses after net charge-offs have been deducted to bring the allowance to a
level which is considered adequate to absorb probable losses inherent in the
loan portfolio. The amount of the provision is based on management's monthly
review of the loan portfolio and consideration of such factors as historical
loss experience, known and inherent risks in the nature and volume of the
portfolio, general prevailing economic conditions, changes in the size and
composition of the loan portfolio and specific borrower considerations,
including the ability of the borrower to repay the loan and the estimated value
of the underlying collateral.
The provision for loan losses totaled $30,000 for the three months ended
December 31, 1999 and 1998. The Corporation has not experienced significant net
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 the purchase or construction of one- to
four-family residential properties and 75% for commercial real estate and land
loans, established income information and defined ratios of debt to income. The
allowance for loan losses totaled $383,000, or 0.48% of total loans, net of
loans in process and net deferred loan fees and costs at December 31, 1999,
compared with $323,000, or 0.44%, at June 30, 1999.
Noninterest income includes service fees and other miscellaneous income. For the
three months ended December 31, 1999, noninterest income totaled $72,770
compared to $47,952 for the three months ended December 31, 1998. During the
1999 period, the Corporation experienced an increase in service charges and fees
and miscellaneous operating income.
Noninterest expense totaled $676,803 for the three months ended December 31,
1999, compared to $544,656 for the same period in 1998. This increase was due
primarily to increase in salaries and employee benefits;
- --------------------------------------------------------------------------------
(Continued)
18.
<PAGE> 19
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
occupancy and equipment expense; state franchise taxes; legal, audit and
supervisory exam fees; and, other expense. The increase in salaries and employee
benefits was the result of normal, annual merit increases, additional staffing
hired for the new branch in West Lafayette, Ohio, which opened in October 1999,
and the RRP which was implemented in October 1998 following its approval by
shareholders. The occupancy and equipment expense increase was due to increased
depreciation on furniture, fixtures and equipment and other costs related to the
new branch. The increase in state franchise taxes was due to higher capital
levels from the stock conversion. Legal, audit and supervisory exam fees and
other expense increases were primarily due to the change in the Corporation's
structure as a result of the stock conversion.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The provision for income taxes totaled $140,500,
for a 36.1% effective tax rate for the three months ended December 31, 1999
compared to $199,800, for a 36.0% effective tax rate for the three months ended
December 31, 1998.
COMPARISON OF RESULTS OF OPERATIONS FOR SIX MONTHS
ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Net income was $505,035 for the six months ended December 31, 1999, compared to
$748,253 for the six months ended December 31, 1998. The decrease in net income
for the six months ended December 31, 1999 was the result of an increase in
noninterest expense and a slight decrease in net interest income.
Net interest income was $2,076,587 for the six months ended December 31, 1999,
compared to $2,161,402 for the six months ended December 31, 1998, representing
a decrease of $84,815, or 3.9%. The change in net interest income is
attributable to a larger increase in interest-bearing liabilities compared to
interest-earning assets due to a special capital distribution of $4.00 per
share, or $8.5 million, paid to shareholders in May 1999, which was funded with
borrowings.
Interest and fees on loans increased $485,585, or 18.0%, from $2,690,525 for the
six months ended December 31, 1998 to $3,176,110 for the six months ended
December 31, 1999. The increase was due to higher average balances of loans.
Interest earned on securities totaled $765,714 for the six months ended December
31, 1999, compared to $387,189 for the six months ended December 31, 1998. The
increase was a result of a higher average balance of securities partially offset
by a decrease in the yield earned. The higher average balance of securities was
due to the purchase of $20.0 million of mortgage-backed securities in March 1999
as part of the Corporation's capital leveraging strategy.
Interest on interest-bearing deposits and federal funds sold decreased $167,568
from $189,480 for the six months ended December 31, 1998, to $21,912 for the six
months ended December 31, 1999. The decrease was the result of lower average
balances of interest-bearing deposits and federal funds sold primarily due to
using those funds for loan growth.
Dividends on FHLB stock increased for the six months ended December 31, 1999,
compared to the six months ended December 31, 1998, primarily due to an increase
in the number of shares of FHLB stock owned. The increase in FHLB stock was
required to obtain the volume of advances.
Interest paid on deposits increased $109,374 from $1,060,001 for the six months
ended December 31, 1998, to $1,169,375 for the six months ended December 31,
1999. The increase in interest expense was the result of an increase in the cost
of funds and an increase in the average balance of deposits. The increase in the
- --------------------------------------------------------------------------------
(Continued)
19.
<PAGE> 20
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
cost of funds was primarily due to general market conditions and aggressively
pricing deposit products to attract funds for loan growth.
Interest on FHLB advances and other borrowings totaled $781,615 for the six
months ended December 31, 1999, compared to $60,032 for the six months ended
December 31, 1998. The increase in interest expense was the result of an
increase in the average balance of borrowed funds. The additional borrowings
were used to provide funding for fixed-rate loan demand and investment in
mortgage-backed securities to better leverage the Corporation's capital
position.
The provision for loan losses totaled $60,000 for the six months ended December
31, 1999 and 1998.
For the six months ended December 31, 1999, noninterest income totaled $130,155
compared to $98,609 for the six months ended December 31, 1998. During the 1999
period, the Corporation experienced an increase in service charges and fees and
miscellaneous operating income.
Noninterest expense totaled $1,334,907 for the six months ended December 31,
1999, compared to $1,032,358 for the same period in 1998. This increase was due
primarily to increase in salaries and employee benefits; occupancy and equipment
expense; state franchise taxes; legal, audit and supervisory exam fees; and,
other expense. The increase in salaries and employee benefits was the result of
normal, annual merit increases, additional staffing hired for the new branch in
West Lafayette, Ohio, which opened in October 1999, and the RRP which began
October 1998 following its approval by shareholders. The occupancy and equipment
expense increase was due to increased depreciation on furniture, fixtures and
equipment and other costs related to the new branch. The increase in state
franchise taxes was due to higher capital levels from the stock conversion.
Legal, audit and supervisory exam fees and other expense increases were
primarily due to the change in the Corporation's structure as a result of the
stock conversion.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The provision for income taxes totaled $306,800
for the six months ended December 31, 1999 compared to $419,400 for the six
months ended December 31, 1998.
- --------------------------------------------------------------------------------
(Continued)
20.
<PAGE> 21
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. These
activities are summarized below for the six months ended December 31, 1999 and
1998.
<TABLE>
<CAPTION>
Six Months
Ended December 31,
1999 1998
---- ----
(Dollars in thousands)
<S> <C> <C>
Net income $ 505 $ 748
Adjustments to reconcile net income to net cash from
operating activities (7) 139
------- -------
Net cash from operating activities 498 887
Net cash from investing activities (6,505) (5,956)
Net cash from financing activities 1,046 3,645
------- -------
Net change in cash and cash equivalents (4,961) (1,424)
Cash and cash equivalents at beginning of period 8,564 7,657
------- -------
Cash and cash equivalents at end of period $ 3,603 $ 6,233
======= =======
</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 and other sources.
While scheduled loan repayments and maturing securities are relatively
predictable, interest rates, general economic conditions, and competition
influence early loan prepayments, mortgage-backed security prepayments and
deposit flows. The Corporation maintains investments in liquid assets based on
management's assessment of (1) need for funds, (2) expected deposit flows, (3)
yields available on short-term liquid assets and (4) objectives of the
asset/liability management program.
Office of Thrift Supervision ("OTS") regulations presently require the Bank to
maintain an average daily balance of investments in United States Treasury,
federal agency obligations and other investments having maturities of five years
or less in an amount equal to 4% of the sum of the Bank's average daily balance
of net withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds on which the Bank may rely, if necessary, to fund
deposit withdrawals or other short-term funding needs. At December 31, 1999, the
Bank's regulatory liquidity was 8.59%. At such date, the Corporation had
commitments to originate variable rate residential and commercial real estate
mortgage loans totaling $649,000 and fixed rate residential real estate mortgage
loans totaling $211,000. 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 4 of the Notes to Consolidated
Financial Statements.
The Bank is required by regulations to meet certain minimum capital
requirements. Failure to meet minimum capital requirements can initiate certain
mandatory actions that, if undertaken, could have a direct material affect on
the Bank's financial statements. Current capital requirements call for tangible
capital of 1.5% of adjusted total assets, core capital (which, for the Bank,
consists solely of tangible capital) of 4.0% of adjusted total assets, except
for institutions with the highest examination rating and acceptable levels of
risk, 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). At December 31, 1999, and June 30, 1999, the Bank complies with
all regulatory capital requirements. Based on the Bank's computed regulatory
capital ratios, the Bank is
- --------------------------------------------------------------------------------
(Continued)
21.
<PAGE> 22
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
considered well capitalized under the applicable requirements at December 31,
1999 and June 30, 1999. Management is not aware of any matter after the latest
regulatory exam that would cause the Bank's capital category to change.
At December 31, 1999 and June 30, 1999, the Bank's actual capital levels and
minimum required levels were as follows:
<TABLE>
<CAPTION>
Minimum Minimum
Required To Be Required To Be
Adequately Capitalized Well Capitalized
Under Prompt Corrective Under Prompt Corrective
Actual Action Regulations Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
DECEMBER 31, 1999
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-
weighted assets) $ 21,738 35.7% $ 4,878 8.0% $ 6,097 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 21,355 35.0 2,439 4.0 3,658 6.0
Tier 1 (core) capital (to
adjusted total assets) 21,355 19.4 4,404 4.0 5,505 5.0
Tangible capital (to
adjusted total assets) 21,355 19.4 1,651 1.5 N/A
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
</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
established in connection with the Conversion, or below applicable regulatory
capital requirements prescribed by the OTS.
- --------------------------------------------------------------------------------
(Continued)
22.
<PAGE> 23
HOME LOAN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
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 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 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. As of December 31, 1999, 67,800 shares had been purchased under
the 5% repurchase.
YEAR 2000
The Corporation did not experience any Year 2000 related computer system
problems, nor is the Corporation aware of any Year 2000 related problems with
any of its loan customers which would impact their ability to meet their debt
service requirements. The Corporation did not experience any significant unusual
deposit activity from its customers.
- --------------------------------------------------------------------------------
(Continued)
23.
<PAGE> 24
HOME LOAN FINANCIAL CORPORATION
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. 27: Financial Data Schedule
(b) No current reports on Form 8-K were filed by the small
business issuer during the quarter ended December 31, 1999.
- --------------------------------------------------------------------------------
24.
<PAGE> 25
HOME LOAN FINANCIAL CORPORATION
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirement of the Securities Exchange Act of 1934, the small
business issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 10, 2000 /s/ Robert C. Hamilton
- ----------------------- ----------------------
Robert C. Hamilton
President and Chief Executive Officer
Date: February 10, 2000 /s/ Preston W. Bair
- ----------------------- -------------------
Preston W. Bair
Secretary, Treasurer and Chief
Financial Officer
- --------------------------------------------------------------------------------
25.
<PAGE> 26
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
27 Financial Data Schedule 27
- --------------------------------------------------------------------------------
26.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,570
<INT-BEARING-DEPOSITS> 69
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,725
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 79,534
<ALLOWANCE> 383
<TOTAL-ASSETS> 109,167
<DEPOSITS> 57,725
<SHORT-TERM> 9,175
<LIABILITIES-OTHER> 822
<LONG-TERM> 22,000
0
0
<COMMON> 0
<OTHER-SE> 19,446
<TOTAL-LIABILITIES-AND-EQUITY> 109,167
<INTEREST-LOAN> 3,176
<INTEREST-INVEST> 830
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 4,028
<INTEREST-DEPOSIT> 1,169
<INTEREST-EXPENSE> 1,951
<INTEREST-INCOME-NET> 2,077
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,335
<INCOME-PRETAX> 812
<INCOME-PRE-EXTRAORDINARY> 505
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 505
<EPS-BASIC> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 4.05
<LOANS-NON> 0
<LOANS-PAST> 77
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 323
<CHARGE-OFFS> 60
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 383
<ALLOWANCE-DOMESTIC> 383
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 104
</TABLE>
