<PAGE> 1
HOME LOAN FINANCIAL CORPORATION
Coshocton, Ohio
ANNUAL REPORT
June 30, 2000
<PAGE> 2
HOME LOAN FINANCIAL CORPORATION
Coshocton, Ohio
ANNUAL REPORT
June 30, 2000
CONTENTS
<TABLE>
<S> <C>
LETTER TO SHAREHOLDERS...................................................................................2
BUSINESS OF HOME LOAN FINANCIAL CORPORATION..............................................................4
MARKET PRICE OF THE CORPORATION'S COMMON SHARES AND
RELATED SHAREHOLDER MATTERS............................................................................5
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND
OTHER DATA.............................................................................................6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................................................8
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.............................................................26
Notes to Consolidated Financial Statements........................................................27
SHAREHOLDER INFORMATION.................................................................................47
CORPORATE INFORMATION...................................................................................48
</TABLE>
1.
<PAGE> 3
To Our Shareholders:
On behalf of your directors, officers and employees, it is with great
pleasure that I present to you the third Annual Report of Home Loan Financial
Corporation. As the world continues to expand and grow as we enter the new
millennium, we too at Home Loan are expanding and growing our business as well.
An example of this was the completion and opening of our new branch facility
during fiscal 2000 in West Lafayette, Ohio. As we look to the future, we will
continue to search for additional opportunities for growth which are in your
best interests as our shareholders.
During fiscal 2000, we witnessed several increases in interest rates by the
Federal Reserve in its efforts to curb inflation. As a result, the Prime Rate
increased from 7.75% at the onset of the fiscal year to 9.50% at the end of
fiscal 2000. Despite these increases in interest rates, we were still able to
obtain substantial growth in our loan portfolio. At June 30, 2000, net loans
totaled $85.9 million, an increase of $12.8 million, or 17.5%, over the previous
year. We feel that this increase in the loan portfolio in spite of the rising
interest rate environment further shows the strength of our local market area as
well as our personnel. We realize at Home Loan that our success as a community
bank is driven by the personal relationships we maintain with customers, our
dedicated staff of officers and employees, and our commitment to the community.
[GRAPH]
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
NET LOANS
(in millions) $44.3 $49.3 $56.8 $73.1 $85.9
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS
(in millions) $55.4 $60.4 $81.9 $107.9 $113.7
</TABLE>
As a result of the loan growth and new branch facility discussed above,
total assets increased to $113.7 million at June 30, 2000. This increase in
total assets was funded by an increase in our deposit portfolio of $8.5 million,
or 15.0%. In an evermore competitive market for deposits, we feel that this
deposit growth is exceptional. However, we must not be blinded to the fact that
the rising interest rate environment described above helped to make our
traditional deposit products more attractive in the market and, if not managed
properly, could lead to a long-term decrease in our net interest margin. Having
said such, we believe that through our regular monitoring of interest rate risk
and through our maintenance of a high level of investments in short-term assets
we are taking the necessary actions to manage such risk.
2.
<PAGE> 4
BOOK VALUE VS. MARKET VALUE
[GRAPH]
[X] Book Value [ ] Market value
Lastly, financial institution stocks fell out of favor with the investors
during fiscal 2000, resulting in a widespread decrease in stock prices and,
unfortunately, Home Loan was no exception. However, we feel that based on our
performance, book value and dividend yield, our stock has been a value as shown
by our repurchase of over 134,000 shares during fiscal 2000.
[GRAPH]
<TABLE>
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
<S> <C> <C> <C> <C>
DIVIDEND YIELD 2.74% 3.47% 4.88% 4.92%
</TABLE>
Thank you for your continued support and investment in Home Loan Financial
Corporation.
Sincerely,
Robert C. Hamilton
Chairman of the Board and President
3.
<PAGE> 5
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.
The Bank conducts business from its main office in Coshocton, Ohio and
full-service branch offices in Coshocton and West Lafayette, 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.
4.
<PAGE> 6
MARKET PRICE OF THE CORPORATION'S COMMON SHARES AND
RELATED SHAREHOLDER MATTERS
The Corporation had 1,882,093 common shares outstanding on August 28, 2000, held
of record by approximately 694 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
July 1, 1998 to June 30, 2000, as quoted by The Nasdaq Stock Market, Inc., and
cash dividends paid by quarter are shown below.
<TABLE>
<CAPTION>
Quarter Ended
September 30, December 31, March 31, June 30,
1998 1998 1999 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
High $ 15.250 $ 14.750 $ 13.750 $ 16.000
Low 13.000 11.453 12.313 8.500
Cash Dividends 0.050 0.050 0.060 4.060(1)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
September 30, December 31, March 31, June 30,
1999 1999 2000 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
High $ 10.203 $ 9.500 $ 8.438 $ 6.938
Low 8.750 7.438 6.250 6.250
Cash Dividends 0.065 0.065 0.080 0.080
</TABLE>
(1) Cash dividends for the quarter ended June 30, 1999, include a $4.00 per
share return of capital distribution.
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.
A subsidiary of a savings and loan holding company must file a notice or an
application with the OTS before it can declare and pay a dividend. An
application must be submitted and approval from the OTS must be obtained (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.
5.
<PAGE> 7
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
solely for the Bank.
<TABLE>
<CAPTION>
SELECTED FINANCIAL CONDITION AT JUNE 30,
---------------------------- ----------------------------------------------------------------------
AND OTHER DATA: 2000 1999 1998 1997 1996
-------------- ------------ ------------- ----------- ------------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $ 113,731 $ 107,855 $ 81,915 $ 60,401 $ 55,366
Cash and cash equivalents 2,236 8,564 7,657 4,681 5,723
Interest-bearing time deposits -- 35 2,037 39 41
Securities available for sale 3,418 2,970 14,019 5,004 1,743
Mortgage-backed securities
available for sale 18,423 20,248 -- -- --
Securities held to maturity -- -- -- -- 2,252
FHLB stock 1,564 1,431 393 366 341
Loans, net (1) 85,853 73,069 56,824 49,300 44,294
Deposits 64,951 56,495 48,538 49,235 44,884
FHLB advances 28,625 28,200 1,000 -- --
Other borrowings -- 2,350 -- -- --
Shareholders' equity (2) 19,449 19,899 31,565 10,370 9,768
Number of full-service offices 3 2 2 2 2
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------
SELECTED OPERATIONS DATA: 2000 1999 1998 1997 1996
------------------------ ------------ ------------- ----------- ------------ ------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Interest income $ 8,259 $ 6,910 $ 5,372 $ 4,609 $ 4,259
Interest expense 4,084 2,623 2,108 1,931 1,703
------------ ------------- ------------ ------------ ------------
Net interest income 4,175 4,287 3,264 2,678 2,556
Provision for loan losses 120 120 120 6 --
------------ ------------- ------------ ------------ ------------
Net interest income after
provision for loan losses 4,055 4,167 3,144 2,672 2,556
Noninterest income 271 204 176 175 165
Noninterest expense 2,717 2,308 1,929 1,943 1,532
------------ ------------- ------------ ------------ ------------
Income before income taxes 1,609 2,063 1,391 904 1,189
Income tax expense 578 741 472 309 419
------------ ------------- ------------ ------------ ------------
Net income $ 1,031 $ 1,323 $ 919 $ 595 $ 770
============ ============= ============ ============ ============
Basic earnings per share (3) $ .61 $ .67 $ .15
============ ============ ============
Diluted earnings per share (3) $ .60 $ .66 $ .15
============ ============ ============
Dividends per share (3) $ .29 $ 4.22 $ --
============ ============ ============
</TABLE>
6.
<PAGE> 8
<TABLE>
<CAPTION>
SELECTED FINANCIAL RATIOS AND AT OR FOR THE YEAR ENDED JUNE 30,
----------------------------- -----------------------------------------------------------------------
OTHER DATA: 2000 1999 1998 1997 1996
---------- ------------ ------------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on assets (ratio of net
income to average total assets) 0.95% 1.45% 1.37% 1.04% 1.47%
Return on equity (ratio of net
income to average equity) (2) 5.26 4.48 5.40 5.94 8.20
Interest rate spread (4) 3.21 3.50 4.05 4.25 4.45
Net interest margin (5) 3.97 4.85 5.09 4.88 5.10
Noninterest expense to average
assets 2.51 2.54 2.89 3.39 2.93
Efficiency ratio (6) 61.11 51.38 56.09 68.09 56.30
Net interest income to
noninterest expense 153.65 185.77 169.14 137.86 166.82
Average interest-earning assets to
average interest-bearing liabilities 1.19x 1.46x 1.32x 1.18x 1.19x
Capital Ratios:
Average equity to average
assets (2) 18.12% 32.45% 25.51% 17.51% 17.95%
Shareholders' equity to total
assets at end of period (2) 17.10 18.45 38.53 17.17 17.64
Asset Quality Ratios and Other Data:
Nonperforming assets to average
assets (7) 0.09 0.15 0.37 0.06 0.17
Nonperforming assets to total
assets at end of period (7) 0.09 0.12 0.30 0.05 0.16
Nonperforming loans to gross
loans (8) 0.12 0.18 0.43 0.07 0.20
Allowance for loan losses to
gross loans (8) 0.47 0.44 0.39 0.24 0.26
Allowance for loan losses to
nonperforming loans 404.89 242.75 91.23 361.27 133.54
Net charge-offs to average loans 0.05 0.03 0.03 0.01 --
Amount of nonperforming loans $ 100,000 $ 133,000 $ 245,000 $ 33,000 $ 88,000
Amount of nonperforming assets 100,000 133,000 245,000 33,000 88,000
</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, net of loans
in process. (2)
7.
<PAGE> 9
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, 2000, 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 Corporation provides financial services through its main and branch offices
in Coshocton, Ohio and its branch office in West Lafayette, Ohio. Its primary
deposit products are checking, savings and term certificate accounts, and its
primary lending products are residential mortgage, nonresidential real estate
and consumer 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.
8.
<PAGE> 10
FINANCIAL CONDITION
Total assets at June 30, 2000 were $113.7 million, compared to $107.9 million at
June 30, 1999, an increase of $5.8 million, or 5.4%. The increase in total
assets was primarily in loans, which was funded by a decline in cash and cash
equivalents, combined with an increase in deposits.
Cash and cash equivalents declined from $8.6 million at June 30, 1999 to $2.2
million at June 30, 2000. This decrease was the result of cash and cash
equivalents being used to fund loan growth.
Interest-bearing time deposits, securities available for sale, mortgage-backed
securities available for sale and FHLB stock decreased from $24.7 million at
June 30, 1999 to $23.4 million at June 30, 2000. Securities available for sale
increased from $3.0 million at June 30, 1999 to $3.4 million at June 30, 2000.
Mortgage-backed securities, which totaled $18.4 million at June 30, 2000,
declined $1.8 million primarily due to principal repayments. Mortgage-backed
securities, which were purchased in fiscal 1999, were funded primarily by
convertible fixed-rate advances from the FHLB to better leverage the
Corporation's capital. The mortgage-backed securities also provide the
Corporation with a cash flow stream through principal repayments which can be
used to fund loan demand.
Loan growth, which totaled $12.8 million, occurred in several loan categories.
The significant changes were one- to four-family residential real estate loans,
which increased $6.2 million, home equity loans, which increased $1.2 million,
nonresidential real estate loans, which increased $4.4 million and consumer and
other loans, which increased $1.5 million. Automobile loans comprised the
largest portion of the consumer and other loan increase. These increases reflect
a stable local economy, the Corporation being more aggressive in its pricing of
loan products during the period, and growth through the new branch.
Premises and equipment increased $0.4 million from June 30, 2000 due to the
completion of the branch banking facility in West Lafayette, Ohio.
Total deposits increased $8.5 million from $56.5 million at June 30, 1999 to
$65.0 million at June 30, 2000. The Corporation experienced increases in
noninterest-bearing demand deposits of $1.8 million, negotiable order of
withdrawal ("NOW") accounts and money market accounts of $1.3 million and
certificates of deposit of $5.9 million. Savings accounts declined $0.5 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 to leverage its capital position. With the
increase in certificates of deposit, the portfolio as a percent of total
deposits increased from 48.8% at June 30, 1999 to 51.5% at June 30, 2000. Almost
all certificates of deposit issued by the Bank mature in less than three years.
FHLB advances totaled $28.6 million at June 30, 2000, compared to $28.2 million
at June 30, 1999. At June 30, 2000, FHLB advances consisted of $22.0 million of
long-term convertible fixed-rate advances and $6.6 million of variable-rate
advances which mature within ninety days. The convertible long-term advances
have a fixed rate for a specified number of years, then convert to an adjustable
rate at the option of the FHLB. If the convertible option is exercised, the
advance may be prepaid at any time without penalty. Convertible advances
totaling $15.0 million may convert in fiscal 2001. The $6.6 million of
short-term FHLB advances consist of advances made to the Bank under a $10.0
million cash management arrangement with the FHLB that is used as an additional
source of liquidity. Advances can be fixed or variable rate. The variable rate
advances can be prepaid at any time without penalty.
FHLB advances were primarily used to leverage the Corporation's capital. FHLB
advances were also used to fund the special $4.00 per share capital distribution
which totaled $8.5 million.
9.
<PAGE> 11
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 were paid in
full in January 2000 and closed at that time.
Total shareholders' equity decreased from $19.9 million at June 30, 1999 to
$19.4 million at June 30, 2000. The decrease resulted primarily from the
purchase of treasury stock of $1.1 million partially offset by current year
earnings retained and the increase in equity from the allocation of the ESOP
shares and vesting of the RRP shares.
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 YEARS ENDED JUNE 30, 2000 AND
JUNE 30, 1999
NET INCOME. The Corporation's net income for the year ended June 30, 2000 was
$1,031,000, compared to $1,323,000 for the year ended June 30, 1999, a decrease
of $292,000, or 22.1%. The decrease in net income was the result of a decrease
in net interest income and an increase in noninterest expense.
NET INTEREST INCOME. Net interest income totaled $4,175,000 for the year ended
June 30, 2000, compared to $4,287,000 for the year ended June 30, 1999, a
decrease of $112,000, or 2.6%. The change in net interest income is attributable
to a decrease in the ratio of average interest-earning assets to average
interest-bearing liabilities and a decrease in the interest rate spread. The
decrease in the ratio of average interest-earning assets to average
interest-bearing liabilities was primarily due to the special capital
distribution of $4.00 per share, or $8.5 million, paid to shareholders in May
1999.
Interest and fees on loans increased $1,107,000, or 20.0%, from $5,541,000 for
the year ended June 30, 1999 to $6,648,000 for the year ended June 30, 2000. 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 $1,482,000 for the year ended June 30,
2000, compared to $1,007,000 for the year ended June 30, 1999. The increase was
a result of a higher average balance of securities.
Dividends on FHLB stock increased $61,000 over the comparable periods due to an
increase in the number of shares of FHLB stock owned.
10.
<PAGE> 12
Interest on interest-bearing deposits and federal funds sold decreased $294,000
for the year ended June 30, 2000, compared to the year ended June 30, 1999. This
decrease was the result of lower average balances of interest-bearing deposits
and federal funds sold. These assets were utilized to fund loan growth.
Interest paid on deposits increased $299,000 for the year ended June 30, 2000,
compared to the year ended June 30, 1999. The increase in interest expense was
due to an increase in the average balance of deposits while the cost of funds
remained stable. Management expects an increase in the cost of funds in fiscal
2001 due to the general increase in interest rates and competitive pricing to
attract deposits to fund loan growth.
Interest on FHLB advances and other borrowings totaled $1,634,000 for the year
ended June 30, 2000, compared to $473,000 for the year ended June 30, 1999, an
increase of $1,161,000. The increase in interest expense was the result of a
higher average balance of borrowings and an increase in the cost of these funds
due to the rise in interest rates.
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. 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 each of the years ended June 30, 2000 and June
30, 1999 totaled $120,000. The allowance for loan losses totaled $405,000, or
.47% of gross loans, at June 30, 2000, compared to $323,000, or 0.44% of gross
loans, at June 30, 1999. 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, commercial and consumer loan
portfolios.
NONINTEREST INCOME. Noninterest income includes service fees and other
miscellaneous income. For the year ended June 30, 2000, noninterest income
totaled $272,000, compared to $204,000 for the year ended June 30, 1999.
Commissions from the sale of credit life insurance associated with the increased
consumer loan activity accounted for $22,000 of the increase and overdraft fees
accounted for $24,000 of the increase. No other item made up a significant
portion of the change.
NONINTEREST EXPENSE. Noninterest expense increased $410,000, or 17.7%, for the
year ended June 30, 2000, compared to the year ended June 30, 1999. The increase
in noninterest expense was due to an increase in salaries and employee benefits,
occupancy and equipment expense, state franchise tax, legal, audit and
supervisory exam fees and other expense.
11.
<PAGE> 13
Salaries and employee benefits expense increased $230,000, or 16.7%. The
increase was the result of normal annual merit increases, additional expense
recognized for the Corporation's RRP, and additional staffing related to the new
branch which opened in October 1999. RRP expense increased $59,000 for fiscal
2000. Fiscal 1999 only included 8 1/2 months expense for the RRP since the plan
was not implemented until October 1998. Occupancy and equipment expense
increased $31,000, or 19.6%, as a result of increases in depreciation and
maintenance contracts on furniture, fixtures and equipment for the new branch.
State franchise taxes increased due to the Corporation being taxed at higher
capital levels. The Bank pays franchise taxes based upon its net worth at its
tax year end, which was February 28, for the following calendar year. The tax
year ended February 28, 1999 was the first period impacted by the capital from
the conversion. Thus the Bank began paying higher franchise taxes in calendar
year 2000. Legal, audit and supervisory exam fees increased primarily due to the
Corporation's growth. Other expenses increased $77,000, or 29.5%, primarily due
to increases in stationery and supplies, postage, ATM processing and
miscellaneous 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 $579,000 for the year ended June 30, 2000, compared to $741,000 for the
year ended June 30, 1999. The effective tax rate was 36.0% for the year ended
June 30, 2000, compared to 35.9% for the year ended June 30, 1999.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS 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.
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 period 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.
12.
<PAGE> 14
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 used to purchase mortgage-backed securities as discussed above.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the years ended
June 30, 1999 and June 30, 1998 was $120,000. The allowance for loan losses
totaled $323,000, or 0.44% of gross loans at June 30, 1999, compared with
$223,000, or 0.39% of gross loans at June 30, 1998. Management increased the
allowance for loan losses due to growth of the total loan portfolio,
particularly increases in nonresidential real estate and commercial loans.
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.
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. Income tax expense totaled $741,000 for the year ended June
30, 1999, compared to $472,000 for the year ended June 30, 1998, due to the
increase in income before income taxes. 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.
13.
<PAGE> 15
YIELDS EARNED AND RATES PAID
The following table sets forth certain information relating to the Corporation's
average balance sheet 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.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------
2000 1999
---------------------------------------- ---------------------------------------
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/
Balance Paid Rate Balance Paid Rate
---------- ---------- ---- ---------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $ 79,769 $ 6,648 8.33% $ 65,116 $ 5,541 8.51%
Securities available for
sale(2) 3,169 182 5.64 9,644 573 5.95
Mortgage-backed securities
available for sale(2) 19,279 1,300 6.50 7,070 434 6.13
Interest-bearing deposits
and federal funds sold 650 23 3.58 5,876 317 5.40
FHLB stock 1,484 106 7.15 655 45 6.86
---------- ---------- ---------- ----------
Total interest-
earning assets 104,351 8,259 7.86 88,361 6,910 7.82
---------- ----------
Noninterest-earning assets 3,738 2,611
---------- ----------
Total assets $ 108,089 $ 90,972
========== ==========
Interest-bearing liabilities:
Demand deposits(3) $ 17,992 533 2.96 $ 13,816 381 2.76
Savings accounts 11,426 289 2.53 11,106 275 2.48
Certificates of deposit 29,767 1,628 5.47 26,827 1,494 5.57
---------- ---------- ---- ---------- ---------- -------
Total deposits 59,185 2,450 4.14 51,749 2,150 4.15
FHLB advances and
other borrowings 28,637 1,634 5.71 8,922 473 5.30
---------- ---------- ---------- ----------
Total interest-bearing
liabilities 87,822 4,084 4.65 60,671 2,623 4.32
---------- ----------
Noninterest-bearing liabilities 678 784
---------- ----------
Total liabilities 88,500 61,455
Equity 19,589 29,517
---------- ----------
Total liabilities and equity $ 108,089 $ 90,972
========== ==========
Net interest income;
interest-rate spread(4) $ 4,175 3.21% $4,287 3.50%
========== ==== ========== =======
Net earning assets $ 16,529 $ 27,690
========= =========
Net interest margin(5) 3.97% 4.85%
==== ====
Average interest-earning assets
to interest-bearing liabilities 1.19x 1.46x
==== ====
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1998
---------------------------------------
Average Interest
outstanding earned/ Yield/
Balance Paid Rate
--------- ---------- -------
<S> <C> <C> <C>
Interest-earning assets:
Loans (1) $ 53,212 $ 4,745 8.92%
Securities available for
sale(2) 6,612 390 5.92
Mortgage-backed securities
available for sale(2) -- -- --
Interest-bearing deposits
and federal funds sold 3,992 209 5.23
FHLB stock 378 27 7.22
--------- ----------
Total interest-
earning assets 64,194 5,371 8.37
----------
Noninterest-earning assets 2,497
----------
Total assets $ 66,691
==========
Interest-bearing liabilities:
Demand deposits(3) $ 9,437 193 2.05
Savings accounts 11,174 297 2.66
Certificates of deposit 27,878 1,601 5.74
--------- ----------
Total deposits 48,489 2,091 4.31
FHLB advances and
other borrowings 290 16 5.63
--------- ----------
Total interest-bearing
liabilities 48,779 2,107 4.32
----------
Noninterest-bearing liabilities 897
----------
Total liabilities 49,676
Equity 17,015
----------
Total liabilities and equity $ 66,691
==========
Net interest income;
interest-rate spread(4) $ 3,264 4.05%
========== ====
Net earning assets $ 15,415
=========
Net interest margin(5) 5.09%
====
Average interest-earning assets
to interest-bearing liabilities 1.32x
====
</TABLE>
--------------------
(1) Net of net deferred loan fees and costs and loans in process.
Nonaccruing loans have been included in the table as loans carrying a
zero yield.
(2) Average balance includes unrealized gains and losses. Yield is based on
amortized cost.
(3) Includes noninterest-bearing deposits due to management being unable to
accurately separate these accounts for average balance reporting prior
to fiscal 2000.
(4) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
------------------------------------------------------------------------------
14.
<PAGE> 16
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,
-----------------------------------------------------------------
2000 VS. 1999 1999 VS. 1998
------------------------------- -------------------------------
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 $ 1,223 $ (116) $ 1,107 $ 1,021 $ (225) $ 796
Securities available for sale (363) (28) (391) 180 3 183
Mortgage-backed securities
available for sale 838 28 866 434 -- 434
Interest-bearing deposits and
federal funds sold (213) (81) (294) 101 7 108
FHLB stock 59 2 61 19 (1) 18
-------- -------- -------- -------- -------- --------
Total interest-earning assets $ 1,544 $ (195) 1,349 $ 1,755 $ (216) 1,539
======== ======== -------- ======== ======== --------
Interest expense attributable to:
Demand deposits $ 122 $ 30 $ 152 $ 108 $ 80 $ 188
Savings accounts 8 6 14 (2) (20) (22)
Certificates of deposit 161 (27) 134 (59) (48) (107)
FHLB advances and
other borrowings 1,123 38 1,161 458 (1) 457
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities $ 1,414 $ 47 1,461 $ 505 $ 11 516
======== ======== -------- ======== ======== --------
Net interest income $ (112) $ 1,023
======== ========
</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.
15.
<PAGE> 17
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, 2000, 2% of the present value of the Bank's assets was $2,325,000.
Because 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 $2,613,000 at June 30, 2000, the Bank would have been required to
deduct approximately $144,000 (50% of the approximate $288,000 difference) from
its capital in determining whether the Bank met its risk-based capital
requirement. Regardless of such reduction, however, the Bank's risk-based
capital at June 30, 2000, would still have exceeded the regulatory requirement
by approximately $7,102,000.
Presented below, as of June 30, 2000, 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 $10,976 $(4,114) (27.3)% 9.96% (302) bp
200 12,477 (2,613) (17.3) 11.11 (187)
100 13,876 (1,214) (8.0) 12.13 (85)
Static 15,090 -- -- 12.98 --
(100) 15,975 885 5.9 13.55 57
(200) 16,273 1,183 7.8 13.68 70
(300) 16,469 1,379 9.1 13.73 75
</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.
16.
<PAGE> 18
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, 2000, 1999 and
1998.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------
2000 1999 1998
------------- ------------ --------------
<S> <C> <C> <C>
Net income $ 1,031 $ 1,323 $ 919
Adjustments to reconcile net income to net
cash from operating activities 136 540 365
------------- ------------ ------------
Net cash from operating activities 1,167 1,863 1,284
Net cash from investing activities (12,448) (25,456) (18,692)
Net cash from financing activities 4,953 24,500 20,384
------------- ------------ ------------
Net change in cash and cash equivalents (6,328) 907 2,976
Cash and cash equivalents at beginning of period 8,564 7,657 4,681
------------- ------------ ------------
Cash and cash equivalents at end of period $ 2,236 $ 8,564 $ 7,657
============= ============ ============
</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 specified
investments in an amount equal to at least 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, 2000,
the Bank's regulatory liquidity was 9.27%. At such date, the Corporation had
commitments to originate fixed-rate commercial and residential real estate loans
totaling $1,437,000 and variable-rate commercial and residential real estate
mortgage loans totaling $980,000. 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 16 of the Notes to
Consolidated Financial Statements.
The Bank is required by regulations to meet certain minimum capital
requirements. 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).
17.
<PAGE> 19
The following table summarizes regulatory capital requirements and the Bank's
actual capital at June 30, 2000.
<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 $ 12,125 10.6% $ 1,719 1.5% $ 10,406 9.1% $ 114,610
Core Capital 12,125 10.6 4,584 4.0 7,541 6.6 114,610
Total Risk-based
Capital 12,530 19.0 5,284 8.0 7,246 11.0 66,049
</TABLE>
IMPACT OF NEW ACCOUNTING STANDARDS
Beginning July 1, 2000 a new accounting standard will require all derivatives to
be recorded at fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value changes involving
hedges will generally be recorded by offsetting gains and losses on the hedge
and on the hedged item, even if the fair value of the hedged item is not
otherwise recorded. This is not expected to have a material effect on the
financial statements of the Corporation.
YEAR 2000 ISSUE
The Corporation did not experience any Year 2000-related computer system
problems, nor was 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.
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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 2000 in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
July 26, 2000
19.
<PAGE> 21
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and due from financial institutions $ 2,133,172 $ 1,824,130
Interest-bearing deposits in other financial institutions 103,093 39,818
Overnight deposits -- 3,500,000
Federal funds sold -- 3,200,000
-------------- ---------------
Total cash and cash equivalents 2,236,265 8,563,948
Interest-bearing time deposits -- 35,152
Securities available for sale 3,417,675 2,969,723
Mortgage-backed securities available for sale 18,422,861 20,248,220
Federal Home Loan Bank stock 1,564,100 1,430,500
Loans, net 85,852,772 73,068,853
Premises and equipment, net 1,148,897 742,062
Accrued interest receivable 585,128 468,664
Other assets 503,150 328,051
-------------- ---------------
Total assets $ 113,730,848 $ 107,855,173
============== ===============
LIABILITIES
Deposits $ 64,951,022 $ 56,494,543
Federal Home Loan Bank advances 28,625,000 28,200,000
Other borrowings -- 2,350,000
Accrued interest payable 447,463 526,693
Accrued expenses and other liabilities 258,755 384,941
-------------- ---------------
Total liabilities 94,282,240 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 14,083,151 14,060,770
Retained earnings - substantially restricted 12,665,932 12,154,493
Unearned employee stock ownership plan shares (1,873,155) (2,109,864)
Unearned recognition and retention plan shares (832,265) (1,024,269)
Treasury stock, at cost - 353,657 shares in 2000 and
219,205 shares in 1999 (3,989,862) (2,852,948)
Accumulated other comprehensive income (loss) (605,193) (329,186)
-------------- ---------------
Total shareholders' equity 19,448,608 19,898,996
-------------- ---------------
Total liabilities and shareholders' equity $ 113,730,848 $ 107,855,173
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
20.
<PAGE> 22
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans, including fees $ 6,647,727 $ 5,541,172 $ 4,744,992
Securities 1,481,511 1,006,979 390,494
Dividends on Federal Home Loan Bank stock 106,105 44,930 27,258
Interest-bearing deposits and federal funds sold 23,308 317,163 208,804
-------------- ------------- --------------
Total interest income 8,258,651 6,910,244 5,371,548
Interest expense
Deposits 2,449,200 2,149,786 2,091,597
Federal Home Loan Bank advances 1,512,098 461,412 16,363
Other borrowings 122,326 11,890 --
-------------- ------------- --------------
Total interest expense 4,083,624 2,623,088 2,107,960
-------------- ------------- --------------
Net interest income 4,175,027 4,287,156 3,263,588
Provision for loan losses 120,000 120,000 120,000
-------------- ------------- --------------
Net interest income after provision for loan losses 4,055,027 4,167,156 3,143,588
Noninterest income
Service charges and other fees 177,123 141,879 136,424
Other 94,445 62,130 40,113
-------------- ------------- --------------
Total noninterest income 271,568 204,009 176,537
Noninterest expense
Salaries and employee benefits 1,604,771 1,374,711 1,168,707
Occupancy and equipment 192,162 160,736 137,713
State franchise taxes 193,342 162,202 144,966
Computer processing 119,818 126,522 103,236
SAIF deposit insurance premiums 22,230 30,596 30,209
Legal, audit and supervisory exam fees 164,293 107,988 69,595
Director fees 82,700 84,025 86,750
Other 337,984 260,995 188,316
-------------- ------------- --------------
Total noninterest expense 2,717,300 2,307,775 1,929,492
-------------- ------------- --------------
Income before income taxes 1,609,295 2,063,390 1,390,633
Income tax expense 578,700 740,766 471,705
-------------- ------------- --------------
Net income $ 1,030,595 $ 1,322,624 $ 918,928
============== ============= ==============
Basic earnings per common share $ .61 $ .67 $ .15
============= ============= =============
Diluted earnings per common share $ .60 $ .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, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net income $ 1,030,595 $ 1,322,624 $ 918,928
Other comprehensive income (loss)
Unrealized holding gains (losses) on securities
available for sale (418,191) (513,505) 8,751
Less reclassification adjustment for (gains) losses
later recognized in income -- -- (121)
-------------- ------------- --------------
Net unrealized gains and losses (418,191) (513,505) 8,630
Tax effect 142,184 174,592 (2,935)
-------------- ------------- --------------
Total other comprehensive income (loss) (276,007) (338,913) 5,695
-------------- ------------- --------------
Comprehensive income $ 754,588 $ 983,711 $ 924,623
============== ============= ==============
</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, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Additional Unearned Unearned
Paid-In Retained ESOP RRP Treasury
Capital Earnings Shares Shares Shares
------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1997 $ -- $ 10,366,232 $ -- $ -- $ --
Net income -- 918,928 -- -- --
Sale of 2,248,250 shares of no par
common stock, net of
conversion costs 21,880,273 -- -- -- --
Shares purchased under ESOP -- -- (1,798,600) -- --
Commitment to release 11,991 ESOP
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, 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 ESOP -- (1,798,600)
Commitment to release 11,991 ESOP
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, 2000, 1999 and 1998
<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, 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 23,086
ESOP shares (19,131) -- 243,638 -- --
89,930 shares purchased by RRP -- -- -- (1,157,069) --
Compensation expense with respect
to RRP -- -- -- 132,800 --
Purchase of 219,205 treasury shares -- -- -- -- (2,852,948)
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) $ (2,852,948)
=============== ============== ============= ============= =============
<CAPTION>
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- -----
<S> <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 23,086
ESOP shares -- 224,507
89,930 shares purchased by RRP -- (1,157,069)
Compensation expense with respect
to RRP -- 132,800
Purchase of 219,205 treasury shares -- (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 $ (329,186) $ 19,898,996
=========== ===============
</TABLE>
(Continued)
24.
<PAGE> 26
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
Years ended June 30, 2000, 1999 and 1998
<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, 1999 $ 14,060,770 $ 12,154,493 $ (2,109,864) $ (1,024,269) $ (2,852,948)
Net income -- 1,030,595 -- -- --
Cash dividend - $.29 per share -- (512,871) -- -- --
Contribution of accumulated dividends on
unawarded RRP shares 71,414 -- -- -- --
Commitment to release 22,394
ESOP shares (49,033) (6,285) 236,709 -- --
Compensation expense with respect
to RRP -- -- -- 192,004 --
Purchase of 134,452 treasury shares -- -- -- -- (1,136,914)
Change in fair value of securities
available for sale, net of tax effects -- -- -- -- --
--------------- -------------- ------------- ------------- -------------
Balance at June 30, 2000 $ 14,083,151 $ 12,665,932 $ (1,873,155) $ (832,265) $ (3,989,862)
=============== ============== ============= ============= =============
<CAPTION>
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- -----
<S> <C> <C>
Balance at July 1, 1999 $ (329,186) $ 19,898,996
Net income -- 1,030,595
Cash dividend - $.29 per share -- (512,871)
Contribution of accumulated dividends on
unawarded RRP shares -- 71,414
Commitment to release 22,394
ESOP shares -- 181,391
Compensation expense with respect
to RRP -- 192,004
Purchase of 134,452 treasury shares -- (1,136,914)
Change in fair value of securities
available for sale, net of tax effects (276,007) (276,007)
----------- ---------------
Balance at June 30, 2000 $ (605,193) $ 19,448,608
========== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
25.
<PAGE> 27
HOME LOAN FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 1,030,595 $ 1,322,624 $ 918,928
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 94,311 83,526 78,174
Securities amortization and accretion (3,074) 6,482 4,338
Provision for loan losses 120,000 120,000 120,000
FHLB stock dividends (105,900) (44,700) (27,000)
Securities gains -- -- (121)
Compensation expense on ESOP shares 181,391 224,507 188,074
Compensation expense on RRP shares 192,004 132,800 --
Deferred taxes 29,411 (84,939) 40,656
Net change in:
Accrued interest receivable and other assets (178,790) (24,151) (26,514)
Accrued expenses and other liabilities (205,416) 99,154 (26,262)
Deferred loan fees 12,919 27,803 14,040
-------------- ------------- --------------
Net cash from operating activities 1,167,451 1,863,106 1,284,313
CASH FLOWS FROM INVESTING ACTIVITIES Securities available for sale:
Proceeds from maturities 250,000 11,750,000 1,500,020
Purchases (734,946) (748,906) (10,509,871)
Mortgage-backed securities available for sale:
Proceeds from maturities and principal paydowns 1,447,236 443,626 --
Purchases -- (21,164,090) --
Net change in interest-bearing time deposits 35,152 2,001,985 (1,998,341)
Net change in loans (12,916,838) (16,392,344) (7,658,228)
Purchase of FHLB stock (27,700) (992,800) --
Premises and equipment expenditures (501,146) (353,789) (25,912)
-------------- ------------- --------------
Net cash from investing activities (12,448,242) (25,456,318) (18,692,332)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 8,456,479 7,956,668 (697,555)
Net change in FHLB short-term advances 425,000 6,200,000 --
Net change in other short-term borrowings ( 2,350,000) 2,350,000 --
Proceeds from FHLB long-term advances 5,000,000 21,000,000 1,000,000
Repayment of FHLB long-term advances (5,000,000) -- --
Cash dividends paid (512,871) (453,291) --
Contribution of accumulated dividends on
unawarded RRP shares 71,414 -- --
Return of capital distribution -- (8,543,348) --
Purchase of stock for RRP -- (1,157,069) --
Purchase of treasury stock (1,136,914) (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 4,953,108 24,500,012 20,384,118
-------------- ------------- --------------
Net change in cash and cash equivalents (6,327,683) 906,800 2,976,099
Cash and cash equivalents at beginning of year 8,563,948 7,657,148 4,681,049
-------------- ------------- --------------
Cash and cash equivalents at end of year $ 2,236,265 $ 8,563,948 $ 7,657,148
============== ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
26.
<PAGE> 28
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
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 and a branch office in West Lafayette, Ohio. The
Corporation's primary deposit products are checking, savings and term
certificate accounts, and its primary lending products are residential mortgage,
nonresidential real estate and consumer 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. Substantially all revenues are derived
from financial institution products and services in Coshocton County and its
contiguous areas. Management considers the Corporation to operate in one
segment, banking.
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 the 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 include 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 $4,162,854, $2,576,760 and $2,087,624 and
income taxes of $705,000, $787,000 and $402,849 in 2000, 1999 and 1998,
respectively. There were no significant noncash transactions in 2000, 1999 or
1998.
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
(loss). Other securities such as Federal Home Loan Bank stock are carried at
cost.
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 that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of net deferred loan fees and costs, the allowance for
loan losses and loans in process.
(Continued)
27.
<PAGE> 29
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
Maintenance and repairs are charges to expense as incurred.
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 a fair value
method to measure expense 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 Employee Stock
Ownership Plan ("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.
(Continued)
28.
<PAGE> 30
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FINANCIAL INSTRUMENTS: Financial instruments include off-balance sheet 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. Such financial instruments are recorded when they are funded.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains and losses on securities available for sale, which are also
recognized as a separate component of equity.
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. 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. 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.
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 1999 and 1998
consolidated financial statements have been made to conform to the 2000
presentation.
(Continued)
29.
<PAGE> 31
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
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.
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 totaling $10,579,000, which is 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
---- ----- ------ -----
JUNE 30, 2000
-------------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Government agencies $ 3,488,289 $ -- $ (70,614) $ 3,417,675
============== =============== ============== ===============
Mortgage-backed securities
available for sale
U.S. Government agencies $ 19,269,205 $ -- $ (846,344) $ 18,422,861
============== =============== ============== ===============
</TABLE>
(Continued)
30.
<PAGE> 32
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 3 - SECURITIES (Continued)
<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
============== =============== ============== ===============
</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 2000, 1999 or 1998.
Contractual maturities of securities at year-end 2000 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 date, primarily
mortgage-backed securities, are shown separately.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due after one year through five years $ 3,488,289 $ 3,417,675
Mortgage-backed securities 19,269,205 18,422,861
-------------- --------------
$ 22,757,494 $ 21,840,536
=============== ==============
</TABLE>
At June 30, 2000, securities with a carrying value of $960,650 were pledged to
secure public funds. No securities were pledged at June 30, 1999.
(Continued)
31.
<PAGE> 33
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 4 - LOANS
Year-end loans were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Residential real estate loans:
1 - 4 family $ 56,274,675 $ 50,059,806
Home equity 3,051,384 1,812,681
Nonresidential real estate 9,868,272 5,444,843
Real estate construction 2,678,550 2,791,291
Land 620,592 1,148,472
-------------- --------------
Total real estate loans 72,493,473 61,257,093
Commercial 3,368,501 2,876,994
Consumer and other loans
Home improvement 4,718,366 4,477,735
Automobile 4,368,442 3,408,549
Deposit 371,173 412,602
Credit card 488,800 435,749
Other 2,475,381 2,157,295
-------------- --------------
Total consumer and other 12,422,162 10,891,930
-------------- --------------
Total loans 88,284,136 75,026,017
Less:
Allowance for loan losses (404,888) (322,700)
Loans in process (1,864,915) (1,485,822)
Net deferred loan fees and costs (161,561) (148,642)
-------------- --------------
$ 85,852,772 $ 73,068,853
============== ==============
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Beginning balance $ 322,700 $ 223,237 $ 119,218
Provision for losses 120,000 120,000 120,000
Loans charged off (38,651) (22,826) (17,848)
Recoveries of previous charge-offs 839 2,289 1,867
--------------- -------------- --------------
Ending balance $ 404,888 $ 322,700 $ 223,237
=============== ============== ==============
</TABLE>
Nonperforming loans consisted of loans past due over 90 days still accruing
interest totaling approximately $100,000 and $133,000 at June 30, 2000 and 1999.
The Corporation had no nonaccrual loans at June 30, 2000 or 1999. Nonperforming
loans include smaller balance homogeneous loans, such as residential mortgage
and consumer loans, that are collectively evaluated for impairment.
As of and for the years ended June 30, 2000, 1999 and 1998, no loans were
required to be evaluated for impairment on an individual loan basis within the
scope of SFAS No. 114.
(Continued)
32.
<PAGE> 34
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 4 - LOANS (Continued)
Certain directors, executive officers and companies with which they are
affiliated were loan customers during the year ended June 30, 2000. 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, 1999 $ 628,567
New loans --
Repayments (24,894)
--------------
Balance June 30, 2000 $ 603,673
==============
</TABLE>
NOTE 5 - ACCRUED INTEREST RECEIVABLE
Year-end accrued interest receivable was as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Loans $ 431,994 $ 321,963
Securities 153,134 146,701
-------------- --------------
$ 585,128 $ 468,664
============== ==============
</TABLE>
NOTE 6 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Land $ 174,884 $ 170,434
Buildings and improvements 1,144,582 665,343
Furniture and equipment 742,596 509,733
Construction in progress -- 218,391
-------------- --------------
Total cost 2,062,062 1,563,901
Accumulated depreciation (913,165) (821,839)
-------------- --------------
$ 1,148,897 $ 742,062
============== ==============
</TABLE>
(Continued)
33.
<PAGE> 35
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 7 - DEPOSITS
Year-end deposits consisted of the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Noninterest-bearing demand deposits $ 4,871,277 $ 3,114,926
NOW and money market accounts 15,247,933 13,937,021
Savings accounts 11,368,095 11,858,590
Certificates of deposit 33,463,717 27,584,006
-------------- --------------
$ 64,951,022 $ 56,494,543
============== ==============
</TABLE>
The aggregate amount of certificates of deposit accounts with balances of
$100,000 or more at June 30, 2000 and 1999 was $4,836,104 and $2,177,738.
At June 30, 2000, the scheduled maturities of certificates of deposit were as
follows:
<TABLE>
<S> <C> <C>
Year ended June 30, 2001 $ 16,062,070
2002 14,461,544
2003 2,327,893
2004 304,528
2005 307,682
--------------
$ 33,463,717
==============
</TABLE>
NOTE 8 - FHLB ADVANCES
At June 30, 2000, 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 $6,625,000 and
$6,200,000 at June 30, 2000 and 1999. As a member of the FHLB system, the Bank
has the ability to obtain borrowings up to a total of $31,282,000, 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.
(Continued)
34.
<PAGE> 36
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 8 - FHLB ADVANCES (Continued)
At year-end, advances from the Federal Home Loan Bank were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash management line of credit, 6.78% at June 30, 2000
and 5.07% at June 30, 1999 $ 6,625,000 $ 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 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 2,000,000
Convertible, fixed-rate advance until March 2004, 5.66%,
due March 2009 4,000,000 4,000,000
Convertible, fixed-rate advance until March 2001, 6.23%
due March 2010 1,000,000 --
Convertible, fixed-rate advance until March 2001, 6.11%
due March 2010 4,000,000 --
-------------- --------------
$ 28,625,000 $ 28,200,000
============== ==============
</TABLE>
At year-end, the scheduled maturities of advances from the Federal Home Loan
Bank were as follows:
<TABLE>
<S> <C>
Year ended June 30, 2001 $ 6,625,000
2002 --
2003 --
2004 10,000,000
2005 --
thereafter 12,000,000
--------------
$ 28,625,000
==============
</TABLE>
(Continued)
35.
<PAGE> 37
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
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) at June 30, 1999. Both
lines of credit were paid in full in January 2000 and closed at that time.
NOTE 10 - INCOME TAXES
Income tax expense was as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current tax expense $ 549,289 $ 825,705 $ 431,049
Deferred tax expense 29,411 (84,939) 40,656
--------------- -------------- --------------
$ 578,700 $ 740,766 $ 471,705
=============== ============== ==============
</TABLE>
Year-end sources of gross deferred tax assets and gross deferred tax liabilities
were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 137,662 $ 109,718
Deferred loan fees 54,931 50,623
Accrued benefits 52,262 74,052
Unrealized loss on securities available for sale 311,766 169,581
-------------- --------------
Total deferred tax assets 556,621 403,974
-------------- --------------
Deferred tax liabilities:
Depreciation 7,759 578
Federal Home Loan Bank stock 128,975 92,969
Accrual to cash 51,770 55,884
Security discount accretion 1,509 709
-------------- --------------
Total deferred tax liabilities 190,013 150,140
-------------- --------------
Net deferred tax asset $ 366,608 $ 253,834
============== ==============
</TABLE>
(Continued)
36.
<PAGE> 38
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 10 - INCOME TAXES (Continued)
Effective tax rates differ from federal statutory rates applied to financial
statement income due to the following:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Income taxes computed at the statutory
tax rate on pretax income $ 547,160 $ 701,553 $ 472,815
Tax effect of:
ESOP 4,169 17,163 23,179
Nondeductible expenses and other 27,371 22,050 (24,289)
--------------- -------------- --------------
$ 578,700 $ 740,766 $ 471,705
=============== ============== ==============
Effective tax rate 36.0% 35.9% 33.9%
=============== ============== ==============
</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 11 - PENSION PLAN
Substantially all of the Corporation's employees participate in a multi-employer
pension plan 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. Contributions of $17,888 and
$83,483 were made for 2000 and 1998, respectively, while no contributions were
made for the year ended June 30, 1999.
NOTE 12 - 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 $166,621,
$165,477 and $157,911 for the years ended June 30, 2000, 1999 and 1998.
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 for
the year ended June 30, 1998.
(Continued)
37.
<PAGE> 39
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 13 - 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
54,406 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 $181,391, $224,507 and $188,074 for the years
ended June 30, 2000, 1999 and 1998. Year-end ESOP shares were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Allocated shares 35,077 11,157
Shares committed to be released for allocation 22,394 23,920
Unreleased shares 176,795 199,189
-------------- --------------
Total ESOP shares 234,266 234,266
============== ==============
Fair value of unreleased shares at year-end $ 1,149,168 $ 1,867,397
============== ==============
</TABLE>
NOTE 14 - 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 are available for granting stock options
pursuant to the Plan. 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.
Options outstanding at year-end 2000 were as follows.
<TABLE>
<CAPTION>
Weighted Average
Grant Date Exercise Price Number Remaining Life
---------- -------------- ------ --------------
<S> <C> <C> <C>
October 1998 $ 7.69 178,570 8.25 years
January 2000 8.19 10,500 9.50 years
------------
189,070 8.32 years
============
</TABLE>
(Continued)
38.
<PAGE> 40
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 14 - STOCK OPTION AND INCENTIVE PLAN (Continued)
Information about options granted was as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
Weighted- Weighted-
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 180,170 $ 7.69 -- $ --
Granted 10,500 8.19 180,170 7.69
Forfeited (1,600) 7.69 -- --
Exercised -- -- -- --
------------ ------------
Outstanding at end of year 189,070 $ 7.72 180,170 $ 7.69
============ ============
Options exercisable at year-end 35,714 $ 7.69 -- $ --
Remaining shares available for grant 35,755 44,655
</TABLE>
The following table presents the fair value of options granted using an options
pricing model along with the assumption used in the computation.
<TABLE>
<CAPTION>
Fair Value Risk-Free Expected Volatility of Expected
Grant Date of Options Interest Rate Life Stock Price Dividends
---------- ---------- ------------- ---- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
October 1998 $ 4.99 4.73% 10 years 36.58% 1.74%
January 2000 3.08 6.67 10 years 40.22 3.88
</TABLE>
The following pro forma information presents net income and earnings per share
had the fair value method of SFAS No. 123 been used to measure compensation cost
for stock options granted. No compensation expense was recognized for the year
ended June 30, 2000 or 1999.
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net income as reported $ 1,030,595 $ 1,322,624
Pro forma net income 865,805 1,206,066
Basic earnings per share as reported .61 .67
Pro forma basic earnings per share .51 .61
Diluted earnings per share as reported .60 .66
Pro forma diluted earnings per share .51 .60
</TABLE>
(Continued)
39.
<PAGE> 41
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 15 - 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 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. The Board of Directors awarded an additional 4,000 shares in
January 2000. 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, 2000, 14,573 shares have vested. In the event of
the death or disability of a participant, however, the participant's shares will
be deemed earned and nonforfeitable upon such date. At June 30, 2000, there were
13,064 shares reserved for future awards. Compensation expense related to RRP
shares is based on the fair value of the shares at the date of grant. For the
year ended June 30, 2000 and 1999, compensation expense totaled $192,004 and
$132,800.
NOTE 16 - OFF-BALANCE-SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters of
credit and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.
A summary of the notional or contractual amounts of financial instruments with
off-balance sheet risk at year-end follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Lines of credit - variable rate $ 2,526,000 $ 2,268,000
1-4 family residential real estate - variable rate 1,437,000 523,000
1-4 family residential real estate - fixed rate 318,000 545,000
Commercial real estate - variable rate 662,000 735,000
Credit card arrangements - fixed rate 1,282,000 1,119,000
</TABLE>
The interest rates on fixed-rate commitments range from 8.50% to 13.90% at June
30, 2000 and 6.75% to 13.90% at June 30, 1999. The interest rates on variable
rate commitments range from 8.125% to 9.75% at June 30, 2000 and 6.625% to 8.25%
at June 30, 1999.
(Continued)
40.
<PAGE> 42
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 16 - OFF-BALANCE-SHEET ACTIVITIES (Continued)
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.
NOTE 17 - 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. Capital amounts and classifications are also subject to
qualitative judgments by the regulators.
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.
At June 30, 2000 and 1999, 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, 2000 and 1999. Management believes no conditions or
events have occurred subsequent to last notification by regulators that would
cause the Bank's capital category to change.
(Continued)
41.
<PAGE> 43
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 17 - REGULATORY MATTERS (Continued)
At year-end 2000 and 1999, 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, 2000
Total capital (to risk-weighted assets) $ 12,530 19.0% $ 5,284 8.0% $ 6,605 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 12,125 18.4 2,642 4.0 3,963 6.0
Tier 1 (core) capital (to adjusted
total assets) 12,125 10.6 4,584 4.0 5,731 5.0
Tangible capital (to adjusted total assets) 12,125 10.6 1,719 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>
The Qualified Thrift Lender test requires at least 65% of assets be maintained
in housing-related finance and other specified areas. If this test is not met,
limits are placed on growth, branching, new investments, FHLB advances and
dividends, or the Bank must convert to a commercial bank charter. Management
believes that this test is met.
The Bank converted from a mutual to a stock institution, and a "liquidation
account" was established at $10,579,000, which was net worth reported in the
conversion prospectus. Eligible depositors who have maintained their accounts,
less annual reductions to the extent they have reduced their deposits, would
receive a distribution from this account if the Bank liquidated. Dividends may
not reduce shareholders' equity below the required liquidation account balance.
Office of Thrift Supervision ("OTS") regulations limit capital distributions by
savings associations. Generally, capital distributions are limited to the
current year to date undistributed net income and prior two years' undistributed
net income, as long as the institution remains well capitalized after the
proposed distribution. At year-end 2000, no amount is available to pay dividends
to the holding company without prior approval from the OTS.
(Continued)
42.
<PAGE> 44
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments at year-end were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 2,236,265 $ 2,236,000 $ 8,563,948 $ 8,564,000
Interest-bearing time deposits -- -- 35,152 35,000
Securities available for sale 3,417,675 3,418,000 2,969,723 2,970,000
Mortgage-backed securities
available for sale 18,422,861 18,423,000 20,248,220 20,248,000
Loans, net of allowance for
loan losses 85,852,772 84,925,000 73,068,853 72,871,000
Federal Home Loan Bank stock 1,564,100 1,564,000 1,430,500 1,431,000
Accrued interest receivable 585,128 585,000 468,664 469,000
Financial liabilities:
Demand, savings and money
market deposit accounts (31,487,305) (31,487,000) (28,910,537) (28,911,000)
Certificates of deposit (33,463,717) (33,589,000) (27,584,006) (27,729,000)
Federal Home Loan Bank advances (28,625,000) (28,043,000) (28,200,000) (27,664,000)
Other borrowings -- -- (2,350,000) (2,350,000)
Accrued interest payable (447,463) (447,000) (526,693) (527,000)
</TABLE>
The estimated fair value approximates carrying amounts for all items except
those described below. Security fair values are based on market prices or dealer
quotes, and if no such information is available, on the rate and term of the
security and information about the issuer. For fixed rate loans or deposits and
for variable rate loans or deposits with infrequent repricing or repricing
limits, fair value is based on discounted cash flows using current market rates
applied to the estimated life and credit risk. Fair values for impaired loans
are estimated using discounted cash flow analysis or underlying collateral
values. Fair value of debt is based on current rates for similar financing. The
fair value of off-balance-sheet items is based on the current fees or cost that
would be charged to enter into or terminate such arrangements.
(Continued)
43.
<PAGE> 45
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 19 - EARNINGS PER SHARE
The factors used in the earnings per share computation are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
BASIC EARNINGS PER COMMON SHARE
<S> <C> <C> <C>
Net income $ 1,030,595 $ 1,322,624 $ 320,978
============== =============== ==============
Weighted average common
shares outstanding 1,961,382 2,205,058 2,248,250
Less: Average unallocated ESOP shares (187,992) (165,459) (173,864)
Less: Average nonvested RRP shares (72,231) (55,376) --
-------------- --------------- --------------
Average shares 1,701,159 1,984,223 2,074,386
============== =============== ==============
Basic earnings per common share $ .61 $ .67 $ .15
============== ============== ==============
DILUTED EARNINGS PER COMMON SHARE
Net income $ 1,030,595 $ 1,322,624 $ 320,978
============== =============== ==============
Weighted average common
shares outstanding for basic
earnings per common share 1,701,159 1,984,223 2,074,386
Add: Dilutive effects of stock options 8,326 24,792 --
-------------- --------------- --------------
Average shares and dilutive potential
common shares 1,709,485 2,009,015 2,074,386
============== =============== ==============
Diluted earnings per common share $ .60 $ .66 $ .15
============== ============== ==============
</TABLE>
Unearned RRP shares did not have a dilutive effect on EPS for the year ended
June 30, 2000 or 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)
44.
<PAGE> 46
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 20 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Home Loan Financial Corporation as of June
30, 2000 and 1999, and for the years ended June 30, 2000 and 1999 and the period
beginning March 25, 1998, the effective date of the Conversion, is as follows:
CONDENSED BALANCE SHEET
June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 6,515,540 $ 183,113
Investment in subsidiary 11,519,509 20,549,226
Loans receivable 1,352,441 1,499,245
Other assets 61,118 18,643
--------------- --------------
Total assets $ 19,448,608 $ 22,250,227
=============== ==============
LIABILITIES
Other borrowings $ -- $ 2,350,000
Other liabilities -- 1,231
--------------- --------------
Total liabilities -- 2,351,231
SHAREHOLDERS' EQUITY 19,448,608 19,898,996
--------------- --------------
Total liabilities and shareholders' equity $ 19,448,608 $ 22,250,227
=============== ==============
</TABLE>
CONDENSED STATEMENT OF INCOME
Years ended June 30, 2000 and 1999 and March 25, 1998 - June 30, 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Dividends from subsidiary $ 10,300,000 $ -- $ --
Interest on loans 89,149 454,982 151,756
Other income 1,427 -- --
-------------- --------------- --------------
Total interest income 10,390,576 454,982 151,756
Operating expenses 217,711 140,370 18,070
-------------- --------------- --------------
Income before income taxes and equity in
undistributed earnings of subsidiary 10,172,865 314,612 133,686
Income tax expense (benefit) (42,600) 106,562 45,400
-------------- --------------- --------------
Income before equity in undistributed
earnings of subsidiary 10,215,465 208,050 88,286
Equity in undistributed earnings (distributions
in excess of earnings) of subsidiary (9,184,870) 1,114,574 232,692
-------------- --------------- --------------
Net income $ 1,030,595 $ 1,322,624 $ 320,978
============== =============== ==============
</TABLE>
(Continued)
45.
<PAGE> 47
HOME LOAN FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE 21 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENT OF CASH FLOWS
Years ended June 30, 2000 and 1999 and March 25, 1998 - June 30, 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 1,030,595 $ 1,322,624 $ 320,978
Adjustments to reconcile net income
to cash provided by operations:
(Equity in undistributed income) distributions
in excess of earnings of subsidiary 9,184,870 (1,114,574) (232,692)
Net changes in other assets (42,475) (13,163) (5,480)
Net change in other liabilities (1,231) (44,169) 45,400
-------------- --------------- --------------
Net cash from operating activities 10,171,759 150,718 128,206
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 146,804 9,150,891 148,464
-------------- --------------- --------------
Net cash from investing activities 146,804 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) 2,350,000 --
Cash dividends paid (512,871) (453,291) --
Contribution of accumulated dividends on
unawarded RRP shares 71,414 -- --
Return of capital distribution -- (8,543,348) --
Purchase of treasury shares (1,136,914) (2,852,948) --
Dividends on unallocated ESOP shares (57,765) (37,115) --
-------------- --------------- --------------
Net cash from financing activities (3,986,136) (9,536,702) 21,880,273
-------------- --------------- --------------
Net change in cash and cash equivalents 6,332,427 (235,093) 418,206
Cash and cash equivalents at beginning of period 183,113 418,206 --
-------------- --------------- --------------
Cash and cash equivalents at end of year $ 6,515,540 $ 183,113 $ 418,206
============== =============== ==============
</TABLE>
46.
<PAGE> 48
HOME LOAN FINANCIAL CORPORATION
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 4:30p.m., Coshocton, Ohio
time on October 10, 2000 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 high and low daily closing price of the common shares for each quarter from
July 1, 1998 through June 30, 2000 as quoted by The Nasdaq Stock Market, Inc.
was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW DIVIDENDS
<S> <C> <C> <C>
September 30, 1998 15.250 13.000 0.050
December 31, 1998 14.750 11.453 0.050
March 31, 1999 13.750 12.313 0.060
June 30, 1999 16.000 8.500 4.060(1)
September 30, 1999 10.203 8.750 0.065
December 31, 1999 9.500 7.438 0.065
March 31, 2000 8.438 6.250 0.080
June 30, 2000 6.938 6.250 0.080
</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 28, 2000, there were 1,894,593 common shares of Home Loan Financial
Corporation issued and outstanding (including unallocated ESOP shares) and there
were 694 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, 2000, 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.
47.
<PAGE> 49
HOME LOAN FINANCIAL CORPORATION
CORPORATE INFORMATION
CORPORATION AND BANK LOCATIONS
<TABLE>
<S> <C>
CORPORATE AND MAIN OFFICE
401 Main Street Telephone: (740) 622-0444
Coshocton, OH 43812-1523 Fax: (740) 623-6000
BRANCH OFFICES
590 Walnut Street Telephone: (740) 622-9417
Coshocton, OH 43812-1632
503 West Main Street Telephone: (740) 545-0227
West Lafayette, OH 43845-1134
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 practice General Surgeon
accounting firm
Douglas L. Randles
President of L.W. Randles Cheese, Inc.
</TABLE>
OFFICERS OF THE CORPORATION AND THE BANK:
----------------------------------------
Robert C. Hamilton, President and Chief Executive Officer
Preston W. Bair, Vice President, 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
Rebecca R. Porteus, Assistant Vice President of the Bank
Maryann Carpenter, Loan Officer of the Bank
D. Sharlynn Smith, Loan Officer 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
48.
