UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-22376
HOME BANCORP
(Exact name of registrant as specified in its charter)
Indiana 35-1906765
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
132 East Berry Street, P.O. Box 989, Fort Wayne, Indiana 46801-0989
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 422-3502
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the average of the closing bid and
asked prices of such stock on the Nasdaq National Market as of December 13,
1996, was $59.7 million. (The exclusion from such amount of the market value of
the shares owned by any person shall not be deemed an admission by the
registrant that such person is an affiliate of the registrant.)
<PAGE>
As of December 13, 1996, there were issued and outstanding 3,381,385
shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Portions of the Annual Report to
Stockholders for the fiscal year ended September 30, 1996.
Part III of Form 10-K - Portions of the Proxy Statement for fiscal 1996
Annual Meeting of Stockholders.
<PAGE>
PART I
Item 1. Description of Business
General
Home Bancorp (the "Company") was formed as an Indiana corporation on
December 14, 1993 to act as the holding company for Home Loan Bank fsb (the
"Bank") upon the completion of the Bank's conversion from the mutual to the
stock form (the "Conversion"). The Company received approval from the Office of
Thrift Supervision (the "OTS") to acquire all of the common stock of the Bank to
be outstanding upon completion of the Conversion. The Conversion was completed
on March 29, 1995. All references to the Company, unless otherwise indicated, at
or before March 29, 1995 refer to the Bank. The Company's Common Stock trades on
The Nasdaq Stock Market under the symbol "HBFW".
At September 30, 1996, the Company had $322.7 million of assets and
stockholders' equity of $46.7 million (or 14.5%) of total assets.
The Bank was organized under the name Teutonia Building Loan and
Savings Association on March 22, 1893. In November 1993, the Bank converted from
an Indiana building and loan association to an Indiana chartered mutual savings
bank, and in December 1994 converted to a federally chartered mutual savings
bank. On March 29, 1995, upon completion of the Conversion, the Bank converted
from a federally chartered mutual savings bank to a federally chartered stock
savings bank. The Bank's deposit accounts are insured up to applicable limits by
the Savings Association Insurance Fund (the "SAIF"), which is administered by
the Federal Deposit Insurance Corporation (the "FDIC"). The Bank is a member of
the Federal Home Loan Bank (the "FHLB") System.
The Company's principal business historically has been attracting
deposits from the general public and originating long-term, fixed-rate and
adjustable-rate loans secured primarily by first mortgage liens on one- to
four-family real estate. The Company offers a variety of deposit accounts having
a wide range of interest rates and terms, does not actively solicit or advertise
for deposits outside of northeastern Indiana, particularly Allen and Adams
Counties, and does not accept brokered deposits.
The Company's principal source of revenue is interest income from
lending activities, primarily one- to four-family residential mortgage loans.
The Company's executive office is located at 132 East Berry Street,
P.O. Box 989, Fort Wayne, Indiana 46801-0989, and its telephone number is (219)
422-3502.
When used in this Form 10-K or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases 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 Company 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
<PAGE>
and national economic conditions, changes in the levels of market interest
rates, credit risks of lending activities, and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of revisions which may be made to
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
Market Area
The Company's market area is currently northeastern Indiana, primarily
Allen and Adams Counties. The Company serves its market area through eight bank
offices in Allen County and a single bank office in Adams County.
Fort Wayne, the county seat for Allen County, is located 118 miles
northeast of Indianapolis and is situated in the center of an approximately 156
mile radius hub consisting of Chicago, Grand Rapids, Detroit, Columbus, and
Cincinnati. Allen County has a broad mix of large employers which provides a
relatively stable local business climate during recessionary times. Allen County
has 22 employers with 1,000 or more employees, ranging from communications to
education to medical care to manufacturing. Allen County's largest employer is
Fort Wayne Community Schools with 3,856 employees. Lincoln National Corporation,
the parent company of Lincoln National Life Insurance Company, has approximately
3,480 employees and is headquartered in Fort Wayne. The third largest employer
is Parkview Memorial Hospital. The fourth largest employer is the General Motors
Truck and Bus Group which in 1986 established a state-of-the-art manufacturing
facility in Allen County which produces full-size C/K pick-up trucks. The GM
facility currently employs 2,949 people.
Lending Activities
General. The Company historically has concentrated its lending
activities on the origination of loans secured by first mortgage liens for the
purchase, construction or refinancing of one- to four-family residential real
property. These loans continue to be the major focus of the Company's loan
origination activities, representing 96.6% of the Company's total loan portfolio
at September 30, 1996 (including one- to four-family residential construction
loans). The Company also offers some commercial real estate loans secured by
owner-occupied property, and a limited number of consumer loans, primarily in
the form of home equity loans. These commercial real estate loans and consumer
loans constituted approximately 0.5% and 2.9%, respectively, of the Bank's loan
portfolio at September 30, 1996.
All loans must be approved by three members of the Bank's six-person
loan committee consisting of the President, four other officers and one outside
director. The loan committee and all loan officers meet weekly and each loan
officer presents his or her loans for approval. Occasionally, a unique or high
principal loan will be presented, at the discretion of management, to the Bank's
Board of Directors for review.
<PAGE>
The Bank's regulatory lending limit for loans-to-one-borrower is equal
to the greater of $500,000 or 15% of unimpaired capital and surplus (except for
loans fully secured by certain readily marketable collateral, in which case this
limit is increased to 25% of unimpaired capital and surplus). At September 30,
1996, the Bank's lending limit under this restriction was $7.0 million. The
Bank's largest lending relationship was a construction loan commitment of
$800,000 on a residential property to a single borrower, of which approximately
$615,000 had been disbursed as of September 30, 1996. There were only two other
lending relationships in excess of $500,000 as of September 30, 1996, all of
which consisted of one- to four-family residential loans. All of these loans
were performing in accordance with their repayment terms.
Loan Portfolio Data. The following table sets forth the composition of
the Company's loan portfolio by loan type as of the dates indicated, including a
reconciliation of gross loans receivable after consideration of the allowance
for loan losses and deferred net loan fees.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------------------
1996 1995 1994
------------------------ ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN
Mortgage loans:
One- to four-family residential........... $238,102 91.83% $204,886 92.48% $192,650 92.82%
Commercial real estate.................... 1,357 .52 1,313 .59 1,086 .52
One- to four-family residential -
Construction............................ 12,407 4.79 8,814 3.98 8,156 3.93
Consumer loans:
Loans secured by deposits................. 743 .29 880 .40 680 .33
Home equity loans......................... 5,466 2.11 4,401 1.98 3,431 1.65
Home improvement loans.................... 1,197 .46 1,262 .57 1,544 .75
-------- ------ -------- ------ -------- ------
Total loans receivable(1).............. 259,272 100.00% 221,556 100.00% 207,547 100.00%
====== ====== ======
Less:
Allowance for loan losses................. 1,385 1,372 1,288
Deferred net loan fees.................... 393 454 533
Loans in process.......................... 7,188 5,325 5,048
-------- -------- --------
Net loans receivable(1)................ $250,306 $214,405 $200,678
======== ======== ========
<PAGE>
<CAPTION>
At September 30,
-----------------------------------------------------
1993 1992
----------------------- ---------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
TYPE OF LOAN
Mortgage loans:
One- to four-family residential........... $167,656 95.63% $135,579 93.75%
Commercial real estate.................... 1,107 .63 1,119 .77
One- to four-family residential -
Construction............................ 2,244 1.28 3,813 2.64
Consumer loans:
Loans secured by deposits................. 636 .36 870 .60
Home equity loans......................... 2,290 1.31 1,668 1.15
Home improvement loans.................... 1,382 .79 1,570 1.09
-------- ------ -------- ------
Total loans receivable(1).............. 175,315 100.00% 144,619 100.00%
====== ======
Less:
Allowance for loan losses................. 1,244 844
Deferred net loan fees.................... 606 548
Loans in process.......................... 2,075 1,856
-------- --------
Net loans receivable(1)................ $171,390 $141,371
======== ========
(1) Excludes loans held for sale of: $0 at September 30, 1996, 1995 and 1994;
$139,000 at September 30, 1993; and $55,000 at September 30, 1992.
</TABLE>
<PAGE>
The following table sets forth certain information at September 30,
1996, regarding the dollar amount of loans maturing in the Company's loan
portfolio based on the date that final payment is due under the terms of the
loan. Demand loans having no stated schedule of repayments and no stated
maturity, and overdrafts are reported as due in one year or less. This schedule
does not reflect the effects of possible prepayments or enforcement of
due-on-sale clauses.
<TABLE>
<CAPTION>
Balance
Outstanding Due During Fiscal Years Ended September 30,
at 2000 2002 2007 2012
September 30, to to to and
1996 1997 1998 1999 2001 2006 2011 following
---- ---- ---- ---- ---- ---- ---- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family residential $250,509(1) 53 $ 357 $ 657 $ 2,490 $ 34,172 $127,610 $ 85,170
Commercial real estate ........ 1,357 71 8 -- 119 464 695 --
Consumer loans:
Home improvement .............. 1,197 382 124 139 302 250 -- --
Home equity ................... 5,466 5,466 -- -- -- -- -- --
Loans secured by deposits ..... 743 743 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Loans Receivable .......... $259,272 $ 6,715 $ 489 $ 796 $ 2,911 $ 34,886 $128,305 $ 85,170
======== ======== ======== ======== ======== ======== ======== ========
(1) Includes $5.5 million in one- to four-family residential construction
loans, all of which are scheduled to convert into permanent loans maturing
after the year 2011.
</TABLE>
The following table sets forth, as of September 30, 1996, the dollar
amount of all loans due after one year which have fixed interest rates and
variable interest rates.
<TABLE>
<CAPTION>
Due After September 30, 1997
----------------------------------------------
Fixed Rates Variable Rates Total
----------- -------------- -----
(In Thousands)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family residential........... $212,364 $ 38,092 $250,456
Commercial real estate.................... 176 1,110 1,286
Consumer loans:
Home improvement.......................... 815 --- 815
Home equity............................... --- --- ---
Loans secured by deposits................. --- --- ---
-------- -------- --------
Total Loans Receivable...................... $213,355 $ 39,202 $252,557
======== ======== ========
</TABLE>
<PAGE>
One- to Four-Family Residential Mortgage Loans. The Company's
residential mortgage loans consist primarily of one- to four-family,
owner-occupied mortgage loans. Approximately $250.5 million, or 96.6%, of the
Company's loan portfolio at September 30, 1996 consisted of one- to four-family
residential mortgage loans. A significant portion, approximately 85% at
September 30, 1996, of the Company's one- to four-family residential mortgage
loans provide for fixed rates of interest and for repayment of principal over a
fixed period of 10, 15 and 20 years. The Company does not make fixed rate loans
exceeding 30 years. The Company's one- to four-family residential mortgage loans
have normally remained outstanding for shorter periods than provided for by
their contractual terms. The average life of such loans varies from year to year
with changes in interest rates, but management believes it is generally
significantly less than the full term of the loans. While the Company's
fixed-rate one- to four-family residential mortgage loans are priced at rates
close to its competitors' rates, the Company competes for loan customers
somewhat more on the basis of quality of service and somewhat less on the basis
of pricing.
The Company underwrites all its fixed rate one- to four-family
residential mortgage loans to Federal National Mortgage Association ("FNMA")
standards so that they may be sold in the secondary market. The Company holds
for investment all fixed rate one- to four-family residential mortgage loans
with terms of 20 years or less and, in 1991, began selling all of its 30-year
fixed rate loans in the secondary market. As of September 30, 1996, the Company
had no fixed-rate loans with remaining terms in excess of 20 years. The Company
retains the servicing on all loans it sells. See "-Originations and Sale of
Loans." Management feels that this strategy improves liquidity and enables the
Company to better manage its interest rate risk. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Asset/Liability
Management" contained in the Annual Report to Stockholders attached as Exhibit
13 to this document (the "Annual Report").
The Company also offers adjustable rate loan products that reprice as
frequently as every year or can be fixed for a term of up to seven years and
adjust annually thereafter. Currently originated ARM loans that adjust annually
are indexed to the one-year U.S. Treasury securities yields with a margin of 2
3/4% above such index. In addition, the maximum rate adjustment per year and
over the life of the loan is 2% and 6%, respectively. The Company commenced this
fiscal year to originate loans which are fixed for three, five and seven years,
respectively, which revert to a one year ARM indexed to the one -year U.S.
Treasury thereafter. These products have annual caps of 2% and lifetime caps of
6%. ARMs are underwritten for terms up to 30 years. At September 30, 1996, the
Company's one- to four-family ARM portfolio totaled $38.1 million, or 14.7% of
the Company's gross loan portfolio.
Substantially all of the one- to four-family residential mortgage loans
that the Company originates include "due-on-sale" clauses, which give the
Company the right to declare a loan immediately due and payable in the event
that, among other things, the borrower sells or otherwise disposes of the real
property subject to the mortgage and the loan is not repaid.
<PAGE>
The Company does not currently originate mortgage loans if the ratio of
the loan amount to the value of the property securing the loan (i.e., the
"loan-to-value" ratio) exceeds 95%. In the event that the amount of a mortgage
loan exceeds 80% of the value of the real estate and improvements, the Company
requires that borrowers obtain private mortgage insurance in amounts intended to
reduce the Company's exposure to 80% or less of the appraised value of the real
estate and improvements or the purchase price of the underlying collateral. The
Company's mortgage lending is subject to loan origination procedures prescribed
by its Board of Directors. See "- Origination and Sale of Loans."
The Company makes fixed-rate and adjustable-rate construction loans to
finance the construction of one-to four-family residences. These loans are made
to borrowers working with licensed contractors or builders with an established
credit history confirmed through the National Association of Credit Management
and/or with membership in local home builders associations. The Company also
makes builder "spec" loans to the aforementioned types of contractors and
builders, generally with no one builder having more than three such loans
outstanding at any one time. The money borrowed under the mortgage is disbursed
through four draws. Draws occur after the foundation is laid, after roofing and
flatwork is completed, after dry-walling is completed, and after full completion
of the residence. An occupancy permit is required before the Company releases
the final disbursement. There are also inspections before each disbursement. In
the case of builder "spec" loans, upon completion of the residence, the
mortgagor/owner-occupier assumes a residential mortgage loan with the Company.
The Company requires that all builder "spec" loans have personal guarantees from
the principal and his or her spouse.
Loans to individuals for the construction of their residences are
structured to be permanent loans, with an initial construction phase which
typically runs up to six months. These loans have rates and terms which are
consistent with those of other one- to four-family mortgage loans offered by the
Company, except that during the construction phase, the borrower pays interest
only. Residential construction loans are generally underwritten pursuant to the
same guidelines used for originating permanent residential loans, with the
exception that the maximum loan-to-value ratio of owner occupied single family
construction loans is 90%.
At September 30, 1996, $12.4 million, or 4.8%, of the Company's loan
portfolio consisted of construction loans. Although no construction loans were
classified as non-performing as of September 30, 1996, these loans do involve a
higher level of risk than conventional one- to four-family residential mortgage
loans. For example, if a project is not completed and the borrower defaults, the
Company may have to hire another contractor to complete the project at a higher
cost. Also, a house may be completed but may not be marketable, resulting in the
borrower defaulting and the Company taking title to the house.
Commercial Real Estate Loans. At September 30, 1996, $1.4 million, or
0.5%, of the Company's loan portfolio consisted of commercial real estate loans,
the largest of which was approximately $268,000. All these loans are secured by
owner-occupied, non-residential real estate, such as small office buildings. The
Company underwrites these loans on a case-by-case basis and, in addition to its
normal mortgage underwriting criteria, the Company will evaluate the borrower's
ability to service the debt from the net operating income of the property. As of
September 30, 1996, no commercial real estate loans were included in
non-performing assets or classified as substandard.
<PAGE>
Consumer Loans. The Company originates consumer loans secured by liens
on real estate, including home improvement and home equity line of credit loans,
as well as deposit secured loans. At September 30, 1996, $7.4 million, or 3.0%,
of the Company's loan portfolio consisted of consumer loans. Substantially all
of the Company's consumer loans were secured by real estate at September 30,
1996.
The Company's home equity line of credit loans, the largest component
of the Company's consumer loan portfolio, are transactional accounts with a
maximum line of credit and with a minimum disbursement amount. Equity lines of
credit are not tied to a borrower's regular checking account. They are currently
priced at 1.5% above the prime rate of interest and are adjustable quarterly. In
addition, the equity lines of credit currently have a lifetime cap of 15.9%. The
minimum and maximum amounts that can be borrowed under a home equity line of
credit are $5,000 and $100,000, respectively, provided that maximum
loan-to-value ratios relating to debt secured by the residence are not exceeded.
These maximum loan-to-value ratios are 80% if the Company is the first mortgagee
and 75% if another financial institution is the first mortgagee.
Consumer loans generally involve a higher level of credit risk than
one- to four-family residential mortgage loans because of the type and nature of
the collateral and, in certain cases, the absence of collateral. These risks are
not as prevalent in the case of the Company's consumer loan portfolio, however,
because of the high percentage of home improvement loans and home equity lines
of credit, which are secured by real estate and underwritten in a manner such
that they result in a lending risk which is substantially similar to
single-family residential loans. Furthermore, their relatively higher yields and
shorter terms to maturity are believed to be helpful in reducing the
interest-rate risk of the Company's loan portfolio and in broadening the
Company's lending services. As of September 30, 1996, no consumer loans were
included in non-performing assets.
Origination and Sale of Loans. Loan originations come from a number of
sources. One- to four-family residential mortgage loan originations are
attributable primarily to existing and walk-in customers, print and newspaper
advertisement and to referrals from real estate brokers. Loan applications are
taken by loan officers at all of the Company's branches and its main office.
Consumer and commercial loans are also obtained from the above sources,
especially existing customers and other direct contacts with the Company.
The Company's loan approval process is intended to assess the
borrower's ability to repay the loan. To do this, the Company studies the
borrower's employment and credit history and information on the historical and
projected income and expenses of its potential mortgagors.
The Company's loan approval process assesses both the prospective
borrower's ability to repay and the adequacy of the property as collateral for
the loan requested. All loans must be approved by three members of the Bank's
six-person loan committee consisting of the President, four other officers and
one outside director. The loan committee and all loan officers meet weekly and
each loan officer presents his or her loans for approval. Occasionally, a unique
or high principal loan will be presented to the Bank's Board of Directors for
review at the discretion of management.
<PAGE>
Property appraisals on the real estate and improvements securing the
Company's one- to four-family residential mortgage loans are made by independent
appraisers approved by the Bank's Board of Directors. The appraisers inspect
properties in the process of construction before disbursements of construction
loan proceeds are authorized. The Company obtains either a title insurance
policy or an abstract of title and opinion of counsel on all mortgage real
estate loans, and borrowers also must obtain hazard insurance and, if
applicable, flood insurance prior to closing. The Company generally escrows
hazard insurance premiums, mortgage insurance premiums and real estate taxes.
The borrower is required to make escrow payments on a monthly basis with each
payment of principal and interest.
The Company originates all its fixed rate mortgage loans in conformity
with the standard criteria of the FNMA. In fiscal 1991, the Company began
selling all its fixed rate mortgage loans with terms of 30 years in the
secondary market. It retains servicing, however, on all the loans it sells. The
Company does not package mortgages or participations. As of September 30, 1996,
the Company was servicing $2.9 million of loans sold in the secondary market.
The balance of loans serviced is relatively low because the Company has only
sold longer term loans since 1991 and it does not aggressively market 30-year
fixed rate loan products. Due to the limited amount of longer-term loans
originated by the Company, it does not hedge these loans or have a hedging
policy in place.
Although the Company currently has authority to lend anywhere in the
United States, it has confined its loan origination activities to northeastern
Indiana, primarily Allen and Adams Counties. At September 30, 1996, the
Company's entire loan portfolio was secured by property located within the State
of Indiana.
<PAGE>
The following table shows loan origination, sale and repayment activity
for the Company during the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended September 30,
--------------------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Gross loans receivable
at beginning of periods............................ $221,556 $207,547 $175,315
-------- -------- --------
Originations:
Mortgage loans:
One- to four-family residential.................. 78,011 45,043 65,025
Commercial real estate........................... 200 100 ---
-------- -------- --------
Total mortgage loans originated............... 78,211 45,143 65,025
Consumer loans:
Home improvement/equity loans.................... 5,245 5,348 5,588
Loans secured by deposits........................ 461 1,023 539
-------- -------- --------
Total consumer loans originated............... 5,706 6,371 6,127
-------- -------- --------
Total originations............................ 83,917 51,514 71,152
-------- -------- --------
Sales:
Mortgage loans:
One- to four-family residential.................. 124 143 1,309
-------- -------- --------
Total sales................................... 124 143 1,309
-------- -------- --------
Repayments and other deductions...................... 46,077 37,362 37,611
-------- -------- --------
Gross loans receivable at end of period.............. $259,272 $221,556 $207,547
======== ======== ========
</TABLE>
<PAGE>
Non-Performing and Problem Assets
Savings banks identify problem assets in several categories, including
accruing loans delinquent more than 90 days, non-accruing loans, troubled debt
restructurings, and real estate acquired through foreclosure, also called real
estate owned or "REO." At September 30, 1996, only $231,000 of the Company's
assets were so classified, which represented .07% of the Company's total assets.
Mortgage loans are reviewed by the Company on a regular basis and may
be placed on non-accrual status when they display a higher than acceptable level
of risk. This occurs when a loan is deemed inadequately protected (either by the
underlying collateral or by the paying capacity and/or net worth of the
borrower) to an extent that makes collectability of interest less probable or
the collection of principal in full doubtful. Mortgage loans are put on
non-accrual status when they are 90 days delinquent (60 days for loans less than
one year old), but only if the loan balance equals or exceeds the value of the
property. Generally, when a loan is placed on non-accrual status, unpaid accrued
interest is written off and further income with respect to the loan is only
recognized to the extent cash is received. When principal repayment is deemed
doubtful, the loan is written off.
The following table sets forth the amounts and categories of the
Company's non-performing assets. It is the policy of the Company that earned but
uncollected interest on all loans be reviewed monthly to determine if any
portion thereof should be classified as uncollectible for any loan past due in
excess of 90 days.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ----- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Accruing loans delinquent more than 90 days........... $231 $ 97 $ 90 $254 $274
Non-accruing loans.................................... --- --- --- --- ---
Troubled debt restructurings.......................... --- --- --- --- ---
---- ----- ----- ---- ----
Total non-performing loans........................ 231 97 90 254 274
Real estate owned, net................................ --- --- 34 9 ---
---- ----- ----- ---- ----
Total non-performing assets........................ $231 $ 97 $124 $263 $274
==== ===== ==== ==== ====
Non-performing loans to total loans, net(1)........... 0.09% 0.04% 0.04% 0.15% 0.19%
Non-performing assets to total assets................. 0.07% 0.03% 0.05% 0.11% 0.14%
- -----------------
(1) Total loans less deferred net loan fees and loans in process.
</TABLE>
<PAGE>
Delinquent Loans. The following table sets forth certain information at
September 30, 1996 relating to delinquencies in the Company's portfolio.
<TABLE>
<CAPTION>
Loans Delinquent For: Total Loans Delinquent
------------------------------------------------------------ -------------------------
60-89 Days 90 Days and Over 60 Days or More
------------------------------ ---------------------------- -------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family
residential mortgage
loans ................................ 11 $289 .12% 4 $231 .09% 15 $520 .21%
Commercial real estate
loans ............................... 1 29 2.14% -- -- -- 1 29 2.14%
Consumer loans ......................... 1 7 .09% -- -- -- 1 7 .09%
-- ---- ---- - ---- ---- -- ---- ----
Total loans ....................... 13 $325 .12% 4 $231 .09% 17 $556 .21%
== ==== == ==== == ====
</TABLE>
When a borrower fails to make a required payment after a ten-day grace
period, the Company attempts to cause the borrower to cure the deficiency by
corresponding with the borrower. A late notice is sent to the borrower and a
phone call to the borrower is also made. Deficiencies are cured promptly in most
cases; however, if continued trouble exists, the Company will make house visits
to the borrower. If it is determined after this that the deficiency cannot be
cured, the Company normally gives notice of and then institutes appropriate
legal action, such as foreclosure.
As of September 30, 1996, there were no loans which were not included
in the table above where known information about the possible credit problems of
borrowers caused management to have serious doubts as to the ability of the
borrower to comply with present loan repayment terms and which may result in
disclosure of such loans in the future.
Classified assets. Federal regulations provide for the classification
of loans and other assets, such as debt and equity securities considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
<PAGE>
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS and the FDIC, which may order the
establishment of additional general or specific loss allowances.
In connection with its classification of asset policy, the Company
regularly reviews its loan portfolio to determine whether any loans require
classification. At September 30, 1996, the aggregate amount of the Company's
classified assets, and of the Company's general and specific loss allowances,
were as follows:
<TABLE>
<CAPTION>
At September 30, 1996
---------------------
(In Thousands)
<S> <C>
Substandard assets............................................ $ 231
Doubtful assets............................................... ---
Loss assets................................................... ---
---------
Total classified assets.................................... $ 231
=========
General loss allowances....................................... $ 1,385
Specific loss allowances...................................... ---
---------
Total allowances........................................... $ 1,385
=========
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for
loan losses, which is charged to earnings. The provision is determined in
conjunction with management's review and evaluation of current economic
conditions (including those of the Company's lending area), changes in the
character and size of the loan portfolio, loan delinquencies (current status as
well as past and anticipated trends) and adequacy of collateral securing loan
delinquencies, historical and estimated net charge-offs, and other pertinent
information derived from a review of the loan portfolio. Real estate properties
acquired through foreclosure are recorded at fair value. If fair value at the
date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time of
transfer. Valuations are periodically updated by management and if the value
less estimated disposition costs is less than the carrying value a specific
provision for losses on such property is established by a charge to operations.
<PAGE>
Although management believes that it uses the best information
available to determine the allowance, unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Company's allowance will be the result of
periodic loan, property and collateral reviews and thus cannot be predicted in
advance. See Notes 1 and 3 of the Notes to Consolidated Financial Statements in
the Annual Report. In management's opinion, the Company's allowance for loan
losses is adequate to absorb possible future losses from loans at September 30,
1996.
Summary of Loan Loss Experience. The following table analyzes changes
in the allowance for loan losses during the past five years ended September 30,
1996.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
------ ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at beginning of period $1,372 $ 1,288 $ 1,244 $ 844 $ 324
Add:
Recoveries of loans previously charged off:
One- to four-family residential .......... -- -- -- -- --
------ ------- ------- ------- -------
Less charge-offs:
One- to four-family residential ......... -- (3) (1) (37) --
------ ------- ------- ------- -------
Net charge-offs ........................... -- (3) (1) (37) --
Provisions for loan losses ................ 13 87 45 437 520
------ ------- ------- ------- -------
Balance of allowance at end of period ..... $1,385 $ 1,372 $ 1,288 $ 1,244 $ 844
====== ======= ======= ======= =======
Net charge-offs to total average loans
outstanding for period(1) ................ ---% ---% ---% .02% ---%
====== ======= ======= ======= =======
Allowance to net loans receivable at end of
period ................................... .55% .64% .64% .72% .59%
====== ======= ======= ======= =======
Allowance to total non-performing loans at
end of period ............................ 600% 1,414% 1,431% 490% 308%
====== ======= ======= ======= =======
- -----------------
(1) Total average loans exclude deferred net loan fees and loans in process.
</TABLE>
<PAGE>
Allocation of Allowance for Loan Losses. The following table presents
an analysis of the allocation of the Company's allowance for loan losses at the
dates indicated.
<TABLE>
<CAPTION>
At September 30,
1996 1995 1994 1993 1992
------------------ ------------------ ------------------ ------------------ --------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
One- to four-family
residential.............. $1,058 91.83 $1,050 92.48 $1,005 92.82 $ 944 95.63% $564 93.75%
Commercial real estate..... 35 .52 35 .59 33 .52 33 .63 34 .77
Construction loans......... 112 4.79 102 3.98 95 3.93 67 1.28 114 2.64
Consumer loans............. 40 2.86 40 2.95 33 2.73 33 2.46 33 2.84
Unallocated................ 140 --- 145 --- 122 --- 167 --- 99 ---
------ --- ------ --- ------ ---- ------ ---- ---- ----
Total................. $1,385 100.00 $1,372 100.00 $1,288 100.00 $1,244 100.00% $844 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ==== ======
</TABLE>
Investments
The Bank must maintain minimum levels of investments that qualify as
liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. Historically, the Bank has maintained liquid
assets at levels above the minimum requirements imposed by the OTS regulations
and above levels believed adequate to meet the requirements of normal
operations, including potential deposit outflows. Cash flow projections are
regularly reviewed and updated to assure that adequate liquidity is maintained.
At September 30, 1996, the Bank's liquidity ratio (liquid assets as a percentage
of net withdrawable savings deposits and current borrowings) was 22.9%.
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in investment grade
commercial paper and corporate debt securities and mutual funds whose assets
conform to the investments that a federally chartered savings institution is
otherwise authorized to make directly.
<PAGE>
The Company's investment policy, which was established by the Board of
Directors and is implemented by the President, is designed primarily to provide
and maintain liquidity within federal regulatory guidelines, to maintain a
balance of high quality investments to minimize risk, and to maximize return
without sacrificing liquidity and safety. The Company restricts its investments
to the following six types of investments: (i) U.S. Treasury Bills, (ii) U.S.
Treasury Notes, (iii) U.S. Treasury Bonds, (iv) Federal Funds up to a maximum of
$2 million per commercial bank, (v) FHLB of Indianapolis time deposits, and (vi)
certificates of deposit of $1 million per commercial bank. At September 30,
1996, the Company had an outstanding balance of $52.8 million in investment
securities (excluding FHLB stock) with a weighted average yield of 6.37%.
The following table sets forth the carrying value and market value of
the Company's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
-------- -------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bonds, held to
maturity........................ $48,819 $49,273 $69,949 $70,622 $48,170 $47,529
U.S. Treasury Bonds, available
for sale . . . . . . . . . . . . . . 3,969 3,969 --- --- --- ---
FHLB stock.......................... 2,054 2,054 1,968 1,968 1,825 1,825
------- ------- ------- ------- ------- -------
Total investments................... $54,842 $55,296 $71,917 $72,590 $49,995 $49,354
======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth the amount of investment securities,
excluding FHLB stock which mature during each of the periods indicated and the
weighted average yields for each range of maturities at September 30, 1996.
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------------------------------
Over 1 Over 5
1 Year Through Through Over
or Less 5 Years 10 Years 10 Years Total Investment Securities
------- ------- -------- -------- ---------------------------
Carrying Carrying Carrying Carrying Carrying Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bonds ............ $30,056 $22,732 $ --- $ --- $52,788 $53,242
======= ======= ========= ========= ======= =======
Weighted average yield.......... 5.75% 7.22% ---% ---% 6.37%
</TABLE>
<PAGE>
At September 30, 1996, the Company's investment securities portfolio
contained neither tax-exempt securities nor securities of any issuer with an
aggregate book value in excess of 10% of the Company's stockholders' equity,
excluding those issued by the United States Government or its agencies.
Sources Of Funds
General. Deposits have traditionally been the Company's primary source
of funds for use in lending and investment activities. In addition to deposits,
the Company derives funds from loan amortization, prepayments, retained earnings
and income on earning assets. While loan amortization and income on earning
assets are relatively stable sources of funds, deposit inflows and outflows can
vary widely and are influenced by prevailing interest rates, market conditions
and levels of competition. Borrowings from the FHLB of Indianapolis may be used
in the short-term to compensate for reductions in deposits or deposit inflows at
less than projected levels. The Company has rarely borrowed on a long term
basis.
Deposits. Deposits are attracted, principally from within northeastern
Indiana, particularly Allen and Adams Counties, through the offering of a broad
selection of deposit instruments including NOW and other transaction accounts,
fixed-rate certificates of deposit, individual retirement accounts, and savings
accounts. The Company does not actively solicit or advertise for deposits
outside of northeastern Indiana, particularly Allen and Adams Counties, and it
does not accept brokered deposits. Substantially all of the Company's depositors
are residents of northeastern Indiana, particularly Allen and Adams Counties.
Deposit account terms vary, with the principal differences being the minimum
balance required, the amount of time the funds remain on deposit and the
interest rate.
The Company has maintained its deposit base, estimated as of September
30, 1996, at approximately 5.0% and 8.0% of the market among each of Allen
County's and Adams County's banks, savings associations, and credit unions,
respectively, despite a more competitive environment for deposits.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Company on a periodic basis. Determination of
rates and terms are predicated on funds, acquisition and liquidity requirements,
rates paid by competitors, growth goals and federal regulations. The Company
relies, in part, on customer service and long-standing relationships with
customers to attract and retain its deposits, but also competitively prices its
deposits in relation to rates offered by its competitors. For information
relating to the average balance of and rates paid on the Company's deposits by
category, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Average Balances, Interest Rates and Yields" in the
Annual Report.
<PAGE>
An analysis of the Company's deposit accounts by type, maturity and
rate at September 30, 1996, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening September 30, % of Average
Type of Account Balance 1996 Deposits Rate
- --------------- ------- ---- -------- ----
(Dollars in Thousands except minimum balance)
<S> <C> <C> <C> <C>
Withdrawable:
Passbook savings accounts...................... $ 200 $ 16,523 6.09% 2.76%
Money market accounts.......................... 2,500 6,532 2.41 3.14
NOW and other transactions accounts 100 14,356 5.30 .98
-------- ------
Total withdrawable........................... 37,411 13.80
-------- ------
Certificates and IRA's (original terms):(1)
90 days and less............................... 1,000 42,844 15.80 4.81
91 days........................................ 1,000 2,032 .75 4.88
182 days....................................... 1,000 35,639 13.14 5.39
12 months...................................... 1,000 21,624 7.97 5.27
18 months...................................... 1,000 28,139 10.38 5.50
24 months...................................... 1,000 7,997 2.95 5.85
30 months...................................... 1,000 27,475 10.13 5.88
36 months...................................... 1,000 5,875 2.17 5.93
48 months...................................... 1,000 932 .34 5.42
60 months...................................... 1,000 19,430 7.16 6.19
72 months...................................... 1,000 19 .01 7.50
84 months and over............................. 5,000 41,768 15.40 7.03
------- ------
Total certificates and IRA's................ 233,774 86.20
-------- ------
Total deposits.............................. $271,185 100.00%
======== ======
- -----------
(1)Total IRA account balances are $22.5 million. The IRA accounts are included
in the various CD terms with corresponding minimums.
</TABLE>
The following table sets forth the scheduled maturities of certificates
of deposit for the years ended September 30:
<TABLE>
<CAPTION>
Maturity Period (In Thousands)
--------------- --------------
<S> <C>
1997 . . . . . . . . . . . . $132,505
1998 . . . . . . . . . . . . 40,018
1999 . . . . . . . . . . . . 11,481
2000 . . . . . . . . . . . . 8,886
2001 . . . . . . . . . . . . 5,210
Thereafter . . . . . . . . . 35,674
--------
$233,774
========
</TABLE>
<PAGE>
The following table indicates the amount of Company certificates of
deposit of $100,000 or more by time remaining until maturity as of September 30,
1996.
<TABLE>
<CAPTION>
Maturity Period (In Thousands)
--------------- --------------
<S> <C>
Three months or less...................................... $14,765
Greater than three months through six months.............. 7,551
Greater than six months through twelve months............. 6,595
Over twelve months........................................ 15,336
-------
Total................................................ $44,247
=======
</TABLE>
Borrowings. The Company focuses on generating high quality loans and
then seeks the best source of funding from deposits, investments or borrowings.
In the past, the Company has occasionally obtained short-term borrowings from
the FHLB of Indianapolis. There are regulatory restrictions on advances from the
FHLBs. See "Regulation - Federal Home Loan Bank System." These limitations are
not expected to have any impact on the Company's ability to borrow from the FHLB
of Indianapolis. At September 30, 1996, the Company had no borrowings
outstanding and it has not had borrowings outstanding since 1984. The Company
does not anticipate any difficulty in obtaining advances appropriate to meet its
requirements in the future.
Regulation
General. The Bank is a federally chartered savings bank, the deposits
of which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, the Bank is subject to broad federal
regulation and oversight extending to all its operations. The Company is a
member of the FHLB of Indianapolis and is subject to certain limited regulation
by the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"). As the savings and loan holding company of the Bank, the Company also
is subject to federal regulation and oversight. The purpose of the regulation of
the Company and other holding companies is to protect subsidiary savings
associations. The Bank is a member of the Savings Association Insurance Fund
("SAIF"), which together with the Bank Insurance Fund (the "BIF") are the two
deposit insurance funds administered by the FDIC, and the deposits of the Bank
are insured by the FDIC. As a result, the FDIC has certain regulatory and
examination authority over the Bank. Certain of these regulatory requirements
and restrictions are discussed below or elsewhere in this document.
Federal Regulation of Savings Associations. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, the Bank is required to file periodic reports with the OTS and is
subject to periodic examinations by the OTS and the FDIC. The last regular OTS
examination of the Bank was as of September 30, 1995. When these examinations
are conducted by the OTS, the examiners may require the Company to provide for
higher general or specific loan loss reserves. All savings associations are
subject to a semi-annual assessment, based upon the savings association's total
assets, to fund the operations of the OTS. The Bank's OTS assessment for the
fiscal year ended September 30, 1996, was approximately $78,000.
<PAGE>
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank and the Company.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the
Bank is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to establish branch offices nationwide. The Bank is in compliance with the noted
restrictions.
The Bank's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
September 30, 1996, the Company's lending limit under this restriction was $7.0
million. The Bank is in compliance with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action.
Insurance of Accounts and Regulation by the FDIC. The Bank is a member
of the SAIF, which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith and
credit of the United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the SAIF or the BIF. The FDIC also has the
authority to initiate enforcement actions against savings associations, after
giving the OTS an opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged in unsafe or unsound
practices or is in an unsafe or unsound condition.
<PAGE>
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy,
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC semi-annually.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF insured deposits. As a result of the BIF
reaching its statutory reserve ratio the FDIC revised the premium schedule for
BIF insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1996, to provide a range of 0% to
.27%. The SAIF rates, however, were not adjusted. At the time the FDIC revised
the BIF premium schedule, it noted that, absent legislative action (as discussed
below), the SAIF would not attain its designated reserve ratio until the year
2002. As a result, SAIF insured members would continue to be generally subject
to higher deposit insurance premiums than BIF insured institutions until, all
things being equal, the SAIF attained its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate has been
established at .657% of deposits by the FDIC and the resulting assessment of
$1.65 million was paid in November 1996. This special assessment significantly
increased noninterest expense and adversely affected the Company's results of
operations for the year ended September 30, 1996. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - General" and "-
Noninterest Expense" in the Annual Report. As a result of the special
assessment, the Bank's annual deposit insurance premiums will be reduced to
approximately $285,000 based upon its current risk classification and the new
assessment schedule for SAIF insured institutions. These premiums are subject to
change in future periods.
<PAGE>
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing obligation. Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
effective January 1, 1997, that assessment will be limited to 20% of the rate
imposed on SAIF assessable deposits until the earlier of December 31, 1999 or
when no savings association continues to exist, thereby imposing a greater
burden on SAIF member institutions such as the Bank. Thereafter, however,
assessments on BIF-member institutions will be made on the same basis as
SAIF-member institutions. The rates to be established by the FDIC to implement
this requirement for all FDIC-insured institutions is uncertain at this time,
but are anticipated to be about a 6.5 basis points assessment on SAIF deposits
and 1.5 basis points on BIF deposits until BIF insured institutions participate
fully in the assessment.
Regulatory Capital Requirements. Federally insured savings
associations, such as the Bank, are required to maintain a minimum level of
regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At September 30, 1996, the Bank did not have any intangible
assets.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. At September 30,
1996, the Bank did not have any subsidiaries.
At September 30, 1996, the Bank had tangible capital of $38.5 million,
or 12.13% of adjusted total assets, which is approximately $33.7 million above
the minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At September 30, 1996, the
Bank had no intangibles which were subject to these tests.
<PAGE>
At September 30, 1996, the Bank had core capital equal to $38.5
million, or 12.13% of adjusted total assets, which is $28.9 million above the
minimum leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At September 30, 1996, the Bank had
no capital instruments that qualify as supplementary capital and $1.4 million of
general loss reserves, which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. The Bank had no such
exclusions from capital and assets at September 30, 1996.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that every savings association with more
than normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings association, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may be
completed. Any savings association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement unless the
OTS determines otherwise.
On September 30, 1996, the Bank had total capital of $39.8 million
(including $38.5 million in core capital) and risk-weighted assets of $146.8
million (with $4.2 million of converted off-balance sheet assets); or total
capital of 27.12% of risk-weighted assets. This amount was $28.1 million above
the 8% requirement in effect on that date.
<PAGE>
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver. The OTS is also generally
authorized to reclassify an association into a lower capital category and impose
the restrictions applicable to such category if the institution is engaged in
unsafe or unsound practices or is in an unsafe or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the
Company or the Bank may have a substantial adverse effect on the Company's
operations and profitability. Company shareholders do not have preemptive
rights, and therefore, if the Company is directed by the OTS or the FDIC to
issue additional shares of Common Stock, such issuance may result in the
dilution in the percentage of ownership of the Company.
Limitations on Dividends and Other Capital Distributions. OTS
regulations impose various restrictions on savings associations with respect to
their ability to make distributions of capital, which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged to
the capital account. OTS regulations also prohibit a savings association from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result, the regulatory capital of the association would be reduced below the
amount required to be maintained for the liquidation account established in
connection with its mutual to stock conversion.
<PAGE>
Generally, savings associations, such as the Bank, that before and
after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of their net income for the most recent four quarter
period. However, an association deemed to be in need of more than normal
supervision by the OTS may have its dividend authority restricted by the OTS.
The Bank may pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity. All savings associations, including the Bank, are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. For a discussion of what
the Bank includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At September 30, 1996, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 22.9% and a short-term
liquid assets ratio of 14.2%.
<PAGE>
Accounting. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement, management must support its classification of
and accounting for loans and securities (i.e., whether held to maturity,
available for sale, or trading) with appropriate documentation. The Bank is in
compliance with these amended rules.
OTS accounting regulations, which may be made more stringent than GAAP
by the OTS, require that transactions be reported in a manner that best reflects
their underlying economic substance and inherent risk and that financial reports
must incorporate any other accounting regulations or orders prescribed by the
OTS.
Qualified Thrift Lender Test. All savings associations, including the
Bank, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative, the savings association
may maintain 60% of its assets in those assets specified in Section 7701(a)(19)
of the Internal Revenue Code. Under either test, such assets primarily consist
of residential housing related loans and investments. At September 30, 1996, the
Bank met the test and has always met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every FDIC insured institution has a continuing and affirmative
obligation consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with the examination of the Bank, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications, such as a
merger or the establishment of a branch, by the Bank. An unsatisfactory rating
may be used as the basis for the denial of an application by the OTS.
<PAGE>
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Bank may be required to devote additional funds for
investment and lending in its local community. The Bank was last examined for
CRA compliance in January 1996 and received a rating of "satisfactory."
Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions, such as loans to an affiliate, are
restricted to a percentage of the association's capital. Affiliates of the Bank
include the Company and any company which is under common control with the Bank.
In addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates. The Bank's subsidiaries are not deemed affiliates; however,
the OTS has the discretion to treat subsidiaries of savings associations as
affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals. The Bank is in compliance with this requirement.
Holding Company Regulation. The Company is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the Company
is required to register and file reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Company and its non-savings association subsidiaries which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to such restrictions unless such other associations each
qualify as a QTL and were acquired in a supervisory acquisition.
If the Bank fails the QTL test, the Company must obtain the approval of
the OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company. See "-
Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
<PAGE>
Federal Securities Law. The stock of the Company is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain noninterest-bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At September 30, 1996, the Bank was in compliance with these
reserve requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Indianapolis, which is one of 12 regional FHLBs, that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the board of directors of the FHLB, which
are subject to the oversight of the Federal Housing Finance Board. All advances
from the FHLB are required to be fully secured by sufficient collateral as
determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Indianapolis. At September 30, 1996, the Company had approximately $2.1
million in FHLB stock, which was in compliance with this requirement. In past
years, the Bank has received substantial dividends on its FHLB stock. Over the
past five calendar years such dividends have averaged 9.17% and were 7.86% for
fiscal 1996.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
<PAGE>
Federal Taxation. Savings associations such as the Bank that meet
certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (the
"Code"), had been permitted to establish reserves for bad debts and to make
annual additions thereto which may, within specified formula limits, be taken as
a deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction for "non-qualifying loans" is computed
under the experience method. The amount of the bad debt reserve deduction for
"qualifying real property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or the percentage of
taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
The percentage of specially computed taxable income that was used to
compute a savings association's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") was 8%. The
percentage bad debt deduction thus computed was reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permitted qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
Under the percentage of taxable income method, the percentage bad debt
deduction could not exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (I) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equalled the amount
by which 12% of the amount comprising savings accounts at year-end exceeded the
sum of surplus, undivided profits and reserves at the beginning of the year.
In August 1996, legislation was enacted that repeals the
above-described reserve method of accounting (including the percentage of
taxable income method) used by many thrift institutions to calculate their bad
debt reserve for federal income tax purposes. Thrift institutions with $500
million or less in assets may, however, continue to use the experience method.
As a result, the Bank must recapture that portion of the reserve that exceeds
the amount that could have been taken under the experience method for post-1987
tax years. The recapture will occur over a six-year period, the commencement of
which will be delayed until the first taxable year beginning after December 31,
1997, provided the institution meets certain residential lending requirements.
The legislation also requires thrift institutions to account for bad debts for
federal income tax purposes on the same basis as commercial banks for tax years
beginning after December 31, 1995.
<PAGE>
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
the Bank, are also subject to an environmental tax equal to .12% of the excess
of alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax) over
$2 million. The environmental tax expires as of January 1, 1997.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of September 30, 1996, the Bank's Excess for tax purposes for which
no deferred tax liability has been established totaled approximately $7.6
million.
The Bank files federal income tax returns on a fiscal year basis using
the accrual method of accounting. The Company intends to file consolidated
federal income tax returns with the Bank. Savings associations, such as the
Bank, that file federal income tax returns as part of a consolidated group are
required by applicable Treasury regulations to reduce their taxable income for
purposes of computing the percentage bad debt deduction for losses attributable
to activities of the non-savings association members of the consolidated group
that are functionally related to the activities of the savings association
member.
State Taxation. For its taxable period beginning January 1, 1990, the
Bank became subject to Indiana's new Financial Institutions Tax ("FIT"), which
is imposed at a flat rate of 8.5% on "adjusted gross income." The Bank is also
subject to FIT. "Adjusted gross income," for purposes of FIT, begins with
taxable income as defined by Section 63 of the Code and, thus, incorporates
federal tax law to the extent that it affects the computation of taxable income.
Federal taxable income is then adjusted by several Indiana modifications, the
most notable of which is the required add back of interest that is tax-free for
federal income tax purposes. Other applicable state taxes include generally
applicable sales and use taxes plus real and personal property taxes. The Bank's
state income tax returns have not been audited in recent years.
<PAGE>
Competition
The Company originates most of its loans to, and accepts most of its
deposits from, residents of northeastern Indiana, primarily Allen and Adams
Counties. The Company is subject to competition from various financial
institutions, including state and national banks, state and federal savings
associations, credit unions, certain non-banking consumer lenders, and other
companies or firms, including brokerage houses and mortgage brokers, that
provide similar services in northeastern Indiana, particularly Allen and Adams
Counties, with significantly larger resources than the Company. In total, there
are 36 financial institutions located in Allen County, Indiana, including the
Bank. These financial institutions consist of eight banks, two savings
associations (or thrifts) and 26 credit unions. The Company must also compete
with banks, thrifts, and credit unions throughout northeastern Indiana since
media advertising from across this region reaches the Fort Wayne community. The
Company also competes with money market funds and with insurance companies with
respect to its individual retirement accounts and savings investments.
Competition has increased in recent years due to changes in Indiana law
permitting (i) state wide branching by national and state banks and savings
associations and (ii) nationwide acquisitions on a reciprocal basis of and by
Indiana banks and bank holding companies. Indiana law permits acquisitions of
Indiana banks and bank holding companies by certain non-Indiana federal and
state FDIC-insured institutions and their holding companies if the laws of their
home state permit Indiana bank holding companies to acquire banks and bank
holding companies of that state.
The primary factors influencing competition for deposits are interest
rates, service, and convenience of office locations. The Company competes for
loan originations primarily through the efficiency and quality of services it
provides borrowers, builders and Realtors and through interest rates and loan
fees it charges. Competition is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels, and other factors that are not readily predictable. The
Company attempts to differentiate itself from other providers of financial
services by emphasizing the local and personalized nature of its service as well
as its strong capital base. In September 1996, the Company originated
approximately 8.0% and 6.0% of the mortgages recorded in Allen and Adams
Counties, respectively. As of September 30, 1996, the Company had approximately
5.0% and 8.0% of all financial institution deposits in each of Allen and Adams
Counties, respectively.
Employees
As of September 30, 1996, the Company employed 76 persons on a
full-time basis and five persons on a part-time basis. None of the Company's
employees are represented by a collective bargaining group. Management considers
its employee relations to be good.
Executive Officers of the Company and the Bank Who Are Not Directors
The following information as to the business experience during the past
five years is supplied with respect to the executive officers of the Company and
the Bank who do not serve on the Company's or the Bank's Board of Directors.
There are no arrangements or understandings between such persons named and any
persons pursuant to which such officers were selected.
<PAGE>
John E. Fitzgerald (age 47) has served as Vice President of the Bank
since 1993. He also currently serves as the Community Reinvestment Act
Compliance Officer of the Bank. Prior to that, he was an Assistant Vice
President, Assistant Secretary, Loan Officer and Loan Representative of the
Bank. He has worked for the Bank since 1976.
Gary L. Hemrick (age 51) has served as Vice President and Secretary of
the Company since its incorporation, Vice President of the Bank since 1983 and
has been Vice President in charge of branch operations at the Bank since 1987.
Mr. Hemrick has been employed by the Bank since 1976.
Donald E. Thornton (age 55) has been Vice President in charge of
lending since 1988. He was elected Secretary in 1977. Mr. Thornton, as Branch
Manager, opened the Decatur Branch in October, 1973. He has worked for the Bank
since 1972.
<PAGE>
Item 2. Description of Property
At September 30, 1996, the Company conducted its business from its main
office at 132 East Berry Street, P.O. Box 989, Fort Wayne, Indiana 46801-0989
and seven branch offices. An eighth branch office opened in November 1996. All
nine offices are full-service offices. Management believes that the Company's
facilities are adequate to meet the present and foreseeable needs of the Company
and the Bank.
The following table provides certain information with respect to the
Company's offices as of September 30, 1996:
<TABLE>
<CAPTION>
Lease Net Book Value of
Owned or Year Expiration Total Deposits at Property, Furniture Approximate
Leased Opened Date September 30, 1996 and Fixtures Square Footage
------ ------ ---- ------------------ ------------ --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Main Office Owned 1916 --- $57,751 $1,077 10,500
132 E. Berry Street
Fort Wayne, IN 46802
Southtown Mall Leasehold 1971 4/30/01 44,594 15 2,278
1110 E. Tillman Road
Fort Wayne, IN 46816
Decatur Leased 1973 6/26/00 36,284 --- 2,000
101 N. Second Street
Decatur, IN 46733
Canterbury Leased 1975 10/1/99 36,384 4 1,800
5611 St. Joe Road
Fort Wayne, IN 46835
Covington/Times Corner Owned 1977 --- 32,678 132 2,064
6128 Covington Road
Fort Wayne, IN 46804
West State Owned 1987 --- 23,355 234 2,048
926 W. State Boulevard
Fort Wayne, IN 46808
New Haven Owned 1987 --- 14,949 279 2,221
1230 Lincoln Highway E.
New Haven, IN 46774
Georgetown Owned 1992 --- 25,190 449 2,563
6411 State Boulevard
Fort Wayne, IN 46815
Dupont Crossing Owned 1996(1) --- ---(1) 405(1) 2,800
720 E. Dupont Road
Fort Wayne, IN 46825
--------------------
(1) The Dupont Crossing office opened in November 1996. The net book value
reflects the capital expenditure on the project as of September 30, 1996.
</TABLE>
<PAGE>
The Company owns computer and data processing equipment which is used
for transaction processing and accounting. The net book value of electronic data
processing equipment owned by the Company was approximately $40,000 at September
30, 1996. The Company also has contracted for the data processing and reporting
services of NCR Corporation. The cost of these data processing services is
approximately $12,000 per month.
Item 3. Legal Proceedings
From time to time the Company is involved as plaintiff or defendant in
various legal actions arising in the normal course of business. Presently, the
Company is not a party to any material pending legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Page 37 of the attached 1996 Annual Report to Stockholders is herein
incorporated by reference.
Item 6. Selected Financial Data
Pages 2 and 3 of the attached 1996 Annual Report to Stockholders is
herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Pages 3 through 12 of the attached 1996 Annual Report to Stockholders
are herein incorporated by reference.
Item 8. Financial Statements and Supplementary Data
Pages 13 through 35 of the attached 1996 Annual Report to Stockholders
are herein incorporated by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning Directors of the Registrant is incorporated
herein by reference from the Corporation's definitive Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held on January 28, 1997, except
for information contained under the heading "Compensation Committee Report on
Executive Compensation" and "Shareholder Return Performance Presentation", a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on January 28, 1997, except for
information contained under the heading "Compensation Committee Report on
Executive Compensation" and "Shareholder Return Performance Presentation", a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Corporation's
definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to
be held on January 28, 1997, except for information contained under the heading
"Compensation Committee Report on Executive Compensation" and "Shareholder
Return Performance Presentation", a copy of which will be filed not later than
120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
No information was required to be reported by the Company under Item
404 of Regulation S-K for the fiscal year ended September 30, 1996.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements:
The following information appearing in the Registrant's Annual Report
to Shareholders for the year ended September 30, 1996, is incorporated by
reference in this Form 10-K Annual Report as Exhibit 13.
Annual Report Section
---------------------
Report of Independent Auditors
Consolidated Statements of Balance Sheets at September 30, 1996 and 1995
Consolidated Statements of Income for the years ended September 30, 1996, 1995
and 1994
Consolidated Statement of Changes in Shareholders' Equity for the years ended
September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended September 30, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information
is not required under the related instructions or is inapplicable.
<PAGE>
(a) (3) Exhibits:
<TABLE>
<CAPTION>
Reference to
Regulation Prior Filing or
S-K Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
<S> <C> <C>
2 Plan of acquisition, reorganization, arrangement, None
liquidation or succession
3 Certificate of Incorporation and Bylaws *
4 Instruments defining the rights of security *
holders, including indentures
9 Voting trust agreement None
10.1 Employment Agreements of W. Paul Wolf, *
Matthew P. Forrester, Gary L. Hemrick, Donald
E. Thornton and John E. Fitzgerald
10.2 Employee Stock Ownership Plan *
10.3 1995 Stock Option and Incentive Plan **
10.4 Recognition and Retention Plan **
11 Statement re: computation of per share earnings Not required
12 Statement re: computation or ratios Not required
13 Annual Report to Security Holders 13
16 Letter re: change in certifying accountants None
18 Letter re: change in accounting principles None
21 Subsidiaries of Registrant 21
22 Published report regarding matters submitted to None
vote of security holders
23 Consent of experts and counsel 23
24 Power of Attorney Not required
27 Financial Data Schedule 27
28 Information from reports furnished to State None
insurance regulatory authorities
99 Additional exhibits None
-------------------
*Filed on December 23, 1995, as exhibits to the Registrant's Form SB-2
registration statement (Registration No. 33-87906), pursuant to the Securities
Act of 1933. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-K.
**Filed as Exhibits 10.3 and 10.4 to the Company's Annual Report on Form
10-K (File No. 0-22376) for the fiscal year ended September 30, 1995 and
incorporated herein by reference in accordance with Item 601 of regulation S-K.
</TABLE>
(b) Reports on Form 8-K:
The following report on Form 8-K was filed by the Company during the
last quarter of the period covered by this report.
<TABLE>
<CAPTION>
Date of Report Subject
-------------- -------
<S> <C>
10-28-96 Press Release with regard to fiscal 1996 earnings
10-07-96 Press Release relative to Home Bancorp on Special SAIF
Assessment
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOME BANCORP
Date: By: /s/W. Paul Wolf
---------------
W. Paul Wolf
Chairman of the Board, President
and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/W. Paul Wolf s/sMatthew P. Forrester
- --------------- -----------------------
W. Paul Wolf, Chairman of the Board Matthew P. Forrester, Director, Vice
President and Chief Executive Officer President and Treasurer (Chief
(Principal Executive Officer) Accounting Officer and Principal
Financial Officer)
Date: Date:
/s/Philip Andorfer Walter A. McComb, Jr.
- ------------------ ---------------------
C. Philip Andorfer, Director Walter A. McComb, Jr., Director
Date: Date:
/s/Daniel F. Fulkerson Richard P. Hormann
- ---------------------- ------------------
Daniel F. Fulkerson, Director Richard P. Hormann, Director
Date: Date:
/s/Rod M. Howard Luben Lazoff
- ---------------- ------------
Rod M. Howard, Director Luben Lazoff, Director
Date: Date:
<PAGE>
Index to Exhibits
Exhibit
Number
------
13 Annual Report to Security Holders
21 Subsidiaries of the Registrant
23 Consent of Experts and Counsel
27 Financial Data Schedule
Exhibit 13
Annual Report to Security Holders
<PAGE>
1996 ANNUAL REPORT
[LOGO]
HOME BANCORP
Fort Wayne, Indiana
<PAGE>
CORPORATE PROFILE
Home Bancorp, Fort Wayne, Indiana, an Indiana Corporation,
established March 29, 1995 as a savings bank holding company for
its principal subsidiary, Home Loan Bank fsb. Based on total
assets at September 30, 1996 of $322.7 million, Home Bancorp is
the largest savings bank holding company headquartered in Fort
Wayne, the second largest city in Indiana.
Originally founded on March 22, 1893 by a group of fellow
German immigrants representing local business people, Home Loan
Bank is a community oriented financial institution offering
traditional deposit and mortgage and consumer loan products. The
Bank maintains a nine full-service office network in Fort Wayne,
Decatur and New Haven.
As a guide for our forthcoming 104th consecutive year, our
challenge is to offer superior service and competitive prices
through increased efficiency and close operating expense
controls. Home Loan Bank is an equal opportunity employer and an
equal housing lender.
The common stock of Home Bancorp trades under the symbol
HBFW on The Nasdaq National Market.
<PAGE>
TABLE OF CONTENTS
Corporate Profile
President's Message to Shareholders
Selected Consolidated Financial Information
Management's Discussion & Analysis of Financial Condition &
Results of Operation
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Corporate & Shareholder Information
Home Loan Bank Office Locations
Mission Statement
Market Makers
Directors & Officers
<PAGE>
Fort Wayme...The Midwest Hub!
PRESIDENT'S MESSAGE TO OUR SHAREHOLDERS:
Fiscal year ended September 30, 1996 completed our first full year as a public
company, as result of the March 29, 1995 conversion, with positive results for
shareholders. We have reported successively higher outstanding loan balances in
all six quarters of Home Bancorp's existence. Equally important, after an
eighteen-month battle, legislation was passed on September 30, 1996 to
recapitalize the Savings Association Insurance Fund (SAIF).
The price Home Loan Bank must pay for the resolution of the SAIF issue is a
special assessment of 65.7 basis points (0.657%) on the insured deposits held as
of March 31, 1995. This one-time after tax charge on September 30, 1996 of $1.0
million, or $0.35 per share, will somewhat distort the 1996 fiscal year earnings
as of September 30, 1996. We now have a more competitive parity with commercial
banks in terms of deposit insurance premiums and the interest rates which we can
pay to our depositors. With the reduced deposit insurance premiums, we will
realize an after tax savings of approximately $220,000, or $0.08 per share, in
fiscal year 1997.
Fiscal year 1996 earnings, excluding the one-time SAIF $1.0 million special
deposit premium assessment, would have increased by 7% over the prior year
earnings. As a result of SAIF's $1.0 million charge, the actual 1996 yearly net
income was $1,636,000, as compared to $2,461,000 for the prior year ended
September 30, 1995.
Total deposits grew by $15.1 million or 5.9% to $271.2 million in fiscal 1996
from $256.1 million in fiscal year 1995. The assets at September 30, 1996
increased to $322.7 million from $313.2 million at fiscal 1995 year end.
During fiscal 1996, mortgage originations increased from prior year levels due
to stable interest rates and a strong housing market; the majority of loans were
of residential construction and purchase classifications. The Bank originated
historical high annual loan volume of $83.5 million, a 17.3% increase over the
previous record year of $71.2 million loans in 1994. Total loans net of unearned
income at September 30, 1996 were $250.3 million, compared with $214.4 million a
year ago, an increase of 16.7%.
Asset quality continues to be excellent. As of September 30, 1996,
non-performing loans 90 days or more delinquent totaled $231,000 or 0.09% of
total loans, compared to $97,000 or 0.05% of total loans on September 30, 1995.
Non- performing assets, consisting solely of loans 90 days or more delinquent,
totaled $231,000 or 0.07% of total assets at September 30, 1996, compared to
$97,000 or 0.03% of assets on September 30, 1995.
The Company's loan to deposit ratio, following the stock conversion, stood at
81.5% on March 31, 1995 has reflected an 18-month increase to 92.3% at September
30, 1996. This loan growth consisted mainly of local 1-4 family dwelling loan
originations.
<PAGE>
"Quality" and "Efficiency" continue as corporate guidelines for our Company. The
1996 fiscal year operating (general and administrative) expenses (excluding SAIF
one-time charge) to average assets was 1.52% compared to 1.53% for fiscal 1995.
The efficiency ratio [non-interest operating expenses to net interest income
plus non-interest income (excluding SAIF one-time charge)] for the year ended
September 30, 1996 was 51.1% compared to 52.4% for the fiscal year ended
September 30, 1995. Historically, the Company's operating costs and ratios have
ranked among the most efficient in the thrift industry. These controls will
continue to have high priority going forward in the ever-increasing competitive
banking environment.
We have completed construction of our eighth branch office at the Dupont
Crossing (neighborhood) Shopping Center, eight miles north of our corporate
downtown office. The Dupont Banking Office centrally located within numerous
residential subdivisions, ideal for retail deposits and residential lending,
opened officially November 1996.
The initial quarterly dividend of $0.05 per share on common stock declared by
the Board of Directors was paid June 20, 1996 to shareholders of record May 31,
1996. The third quarterly dividend of $0.05 per share was declared on the
Company's common stock, payable December 19, 1996 to shareholders of record
November 29, 1996.
To our shareholders, we extend our sincere thanks for your financial confidence.
The directors, officers and talented staff take seriously our fiduciary
responsibility to optimize shareholder value.
Cordially,
W. Paul Wolf
Chairman, President
Chief Executive Officer
<PAGE>
SELECTED FINANCIAL DATA
Set forth below are selected financial and other data of the Company. This
financial data is derived in part from the financial statements and related
notes of the Company which are presented elsewhere in this Annual Report.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Summary of Financial Condition:
Total assets.................................... $322,702 $313,185 $275,210 $238,632 $199,299
Loans receivable, net(1)........................ 250,306 214,405 200,678 171,529 141,426
Cash and cash equivalents....................... 11,923 21,390 19,695 36,255 27,269
Investment securities and FHLB Stock............ 54,842 71,917 49,995 26,862 24,306
Deposits........................................ 271,185 256,108 251,340 217,310 179,865
Shareholders' equity - substantially restricted. 46,713 54,060 21,370 19,020 17,405
</TABLE>
(1)Includes loans held for sale of: $0 at September 30, 1996, 1995, and 1994;
$139,000 at September 30, 1993; and $55,000 at September 30, 1992.
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Summary of Operating Results:
Interest income................................ $ 22,913 $ 21,120 $17,625 $15,824 $15,598
Interest expense............................... 13,787 12,730 10,247 9,241 9,907
-------- -------- ------- ------- -------
Net interest income.......................... 9,126 8,390 7,378 6,583 5,691
Provision for loan losses...................... 13 87 45 437 520
-------- -------- ------- ------- -------
Net interest income after provision for
loan losses................................. 9,113 8,303 7,333 6,146 5,171
Noninterest income:
Gains on sales of interest-earning assets,
net........................................ 3 1 14 32 19
Other........................................ 227 220 250 198 184
-------- -------- ------- ------- -------
Total noninterest income................... 230 221 264 230 203
Noninterest expense:
Compensation and benefits.................... 2,512 2,088 1,806 1,540 1,293
Occupancy and equipment...................... 528 584 559 498 340
SAIF deposit insurance premium....... 2,235 582 517 376 361
Conversion costs............................. --- --- 486 --- ---
Other........................................ 1,151 1,274 970 1,098 757
-------- -------- ------- ------- -------
Total noninterest expense.................. 6,426 4,528 4,338 3,512 2,751
-------- -------- ------- ------- -------
Income before income taxes and cumulative
effect of change in accounting principle...... 2,917 3,996 3,259 2,864 2,623
Income tax expense............................. 1,281 1,535 1,233 1,249 1,184
-------- -------- ------- ------- -------
Income before cumulative effect of change
in accounting principle....................... 1,636 2,461 2,026 1,615 1,439
Cumulative effect of change in accounting
for income taxes.............................. --- --- 324 --- ---
-------- -------- ------- ------- -------
Net income..................................... $ 1,636 $ 2,461 $ 2,350 $ 1,615 $ 1,439
======== ======== ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets(1)....................... .52% .83% .88% .74% .77%
Return on average shareholders' equity(2)......... 3.21 6.50 11.47 8.79 8.55
Interest rate spread(3)........................... 2.13 2.26 2.56 2.74 2.63
Net yield on interest-earning assets(4)........... 2.96 2.88 2.84 3.07 3.10
Operating expenses to average assets(5)(6)........ 1.52 1.53 1.63 1.64 1.50
Net interest income to operating expenses(6)...... 190.80 185.61 170.06 187.50 206.87
Average interest-earning assets to average
interest-bearing liabilities.................... 118.63 114.73 106.99 107.80 108.76
Capital Ratios:
Shareholders' equity to assets(7)................. 14.48 17.26 7.76 7.97 8.73
Average shareholders' equity to average assets.... 16.21 12.79 7.70 8.37 8.96
Asset Quality Ratios:
Non-performing assets to total assets............. .07 .03 .05 .11 .14
Non-performing loans to total loans............... .09 .05 .04 .15 .19
Allowance for loan losses to net loans............ .55 .64 .64 .72 .59
Allowance for loan losses to non-
performing loans................................ 599.57 1,410.71 1,431.11 489.76 308.03
Net charge-offs to average loans.................. --- --- --- .02 ---
Number of full-service offices.................... 8 8 8 8 7
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average total shareholders' equity.
(3) Interest rate spread is determined by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated.
(4) Net interest income divided by average interest-earning assets.
(5) Other expense divided by average total assets.
(6) The ratios for 1996 excludes $1.65 million pre-tax on non-recurring
SAIF special assessment. Including the said exclusion, operating
expenses to average assets would be 2.04%; net interest income to
operating expenses would be 141.81%.
(7) Total shareholders' equity divided by total assets.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The financial performance of Home Bancorp (the "Company") was impacted
by a special assessment on all thrift institutions, including Home Loan Bank fsb
(the "Bank"), at September 30, 1996 by the Federal Deposit Insurance Corporation
("FDIC") to capitalize the Savings Association Insurance Fund ("SAIF") at a
congressionally mandated level of 1.25 percent of insured deposits. This
one-time assessment of 65.7 basis points, based upon the insured deposit base of
the Bank as of March 31, 1995, resulted in a $1.65 million expense before tax in
the current fiscal year. The after tax cost of this assessment amounted to $1.0
million. The actual assessment will be remitted in the first quarter of fiscal
1997.
Fiscal 1996 was the first full year of operation of the Company since
the conversion of the Bank on March 29, 1995 from the mutual to stock form of
ownership (the "Conversion"). On that date, the Company issued 3,303,178 shares
of common stock at $10.00 per share, raising $30.1 million, net of funds used by
the newly formed Employee Stock Ownership Plan (the "ESOP") to purchase shares
in the Conversion and net of the costs of the Conversion. Concurrently with the
issuance of the shares, the Bank converted from a mutual savings bank to a stock
savings bank, and the Company acquired 100% of the stock of the Bank. All
references to the Company prior to March 29, 1995, except where otherwise
indicated, are to the Bank.
Financial Condition
September 30, 1996 compared to September 30, 1995. The Company's total
assets increased from $313.2 million as of September 30, 1995 to $322.7 as of
September 30, 1996, an increase of $9.5 million or 3.0%. Shareholders' equity
decreased from $54.1 as of September 30, 1995 to $46.7 million as of September
30, 1996, a decrease of $7.4 million or 13.7%. The decrease in shareholders'
equity was primarily the net result of earnings for the year less the repurchase
of 619,155 shares of common stock for $9.3 million, dividends paid on common
stock and payments on benefit plans.
Total cash and cash equivalents decreased from $21.4 million as of
September 30, 1995 to $11.9 million as of September 30, 1996, a decrease of $9.5
million. Investment securities, including those held to maturity and available
for sale, decreased from $69.9 million as of September 30, 1995 to $52.8 million
as of September 30, 1996. The decreases in cash, cash equivalents, and
investment securities were used primarily to fund growth in the loan portfolio
and the repurchase of common stock.
Net loans receivable increased $35.9 million or 16.7%, from $214.4
million as of September 30, 1995 to $250.3 million as of September 30, 1996.
This increase was primarily the result of continued growth in one- to four-
family residential loan originations in the Company's primary lending area.
Mortgage loan originations increased as a result of demand attributable to a
stable interest rate environment and employment base.
<PAGE>
Total deposits increased $15.1 million or 5.9%, from $256.1 million as
of September 30, 1995 to $271.2 as of September 30, 1996. The increase in
deposits was the result of an increase of $16.1 million in certificates of
deposit, less a decrease of $1.0 million in transaction and passbook accounts.
Management attributes growth in certificates of deposit to customer preferences
for higher yielding instruments of deposit as opposed to the liquidity afforded
lower yielding transactional accounts. The Company's pricing of certificates of
deposit are consistent with that of its competitors. At September 30, 1996 the
Company had $132.5 million in certificates of deposit with terms of one year or
less as compared to $127.7 million for the same period ended September 30, 1995.
September 30, 1995 compared to September 30, 1994. The Company's total
assets increased from $275.2 million as of September 30, 1994 to $313.2 million
as of September 30, 1995, an increase of $38.0 million or 13.8%. Shareholders'
equity increased from $21.4 million as of September 30, 1994 to $54.1 million as
of September 30, 1995, an increase of $32.7 million. These increases were
primarily the result of the proceeds received in the stock conversion.
Total cash and cash equivalents increased from $19.7 million as of
September 30, 1994 to $21.4 million as of September 30, 1995, an increase of
$1.7 million or 8.6%. Investment securities increased $21.8 million, or 45.3%,
from $48.1 million as of September 30, 1994 to $69.9 million as of September 30,
1995 as a result of the deployment of funds received from the stock conversion.
The Company's purchase of investment securities consisted primarily of
short-term laddered U.S. Treasury Obligations and investments in overnight
accounts which afforded management the opportunity to enhance yields while
maintaining a high liquidity level.
Loans receivable increased $13.7 million from $200.7 million at
September 30, 1994 to $214.4 million at September 30, 1995, primarily due to an
increase in one- to four-family residential mortgage loan originations as a
result of the falling long-term interest rate environment prevalent during
fiscal 1995. The increase in loan originations was funded primarily with
conversion proceeds and increased deposits.
Total deposits increased $4.8 million or 1.9%, from $251.3 million as
of September 30, 1994 to $256.1 million as of September 30, 1995. Deposits
increased despite the approximately $9.9 million of funds withdrawn by customers
to purchase the Company's stock in the Conversion. The increase in deposits was
the result of an $8.1 million increase in certificates of deposit, while
transaction and passbook accounts decreased $3.4 million. Management attributes
the increase in certificates of deposit to customer preferences for the higher
rates paid on such deposits relative to the liquidity advantage of transaction
accounts. Furthermore, as rates have fallen on certificates of deposit during
fiscal 1995, customers have invested in longer term certificates of deposits to
preserve the higher yields. At September 30, 1995, the Company had $127.7
million in certificates of deposit with terms of one year or less as compared to
$131.7 million at September 30, 1994, while certificates of deposit with terms
greater than three years have increased from $42.5 million as of September 30,
1994 to $52.7 million.
<PAGE>
Results of Operations
Comparison of the Fiscal Years Ended September 30, 1996 and 1995
General. Net income for the year ended September 30, 1996 was $1.6
million, a decrease of $825,000 compared to net income of $2.4 million for the
year ended September 30, 1995. Net income for fiscal 1996 was impacted by a $1.0
million after tax special assessment by the FDIC to capitalize the SAIF to its
statutory reserve level of at least 1.25%. The assessment on September 30, 1996,
was 0.657% of Home Loan Bank's insured deposits as of March 31, 1995. Beginning
January 1, 1997, the legislation provides that the Bank's annual deposit
insurance premium will be reduced from .23% to .064% of insured deposits.
Interest Income. Interest income increased $1.8 million or 8.5%, from
$21.1 million for the year ended September 30, 1995 to $22.9 million for the
year ended September 30, 1996. Interest income on mortgage loans increased $2.0
million while interest income on investments and other interest-earning assets
decreased $171,000 during fiscal 1996 as compared to fiscal 1995. The increase
in interest income for fiscal 1996 was primarily the result of an increase in
the average balance of interest-earning assets and a modest improvement in the
yield of those balances. See "Average Balances, Interest Rates and Yields" and
"Rate/Volume Analysis."
Interest Expense. Interest expense increased $1.1 million or 8.7%, from
$12.7 million for the year ended September 30, 1995 to $13.8 million for the
year ended September 30, 1996. The increase in interest expense was the result
of the higher rate paid on and an increase in the average balance of
certificates of deposit during fiscal 1996. The weighted average rate paid on
deposits for fiscal 1996 increased 31 basis points to 5.30% from 4.99% for
fiscal 1995. See "Average Balances, Interest Rates and Yields" and "Rate/Volume
Analysis."
Net Interest Income. Net interest income increased $735,000 or 8.8%,
from $8.4 million for the year ended September 30, 1995 to $9.1 million for the
year ended September 30, 1996. This increase was attributable to the increase in
interest income which more than offset the increase in interest expense as
previously discussed. The Company's interest rate spread decreased from 2.26%
during fiscal 1995 to 2.13% during fiscal 1996 and was 2.14% at September 30,
1996. The narrowing of the interest rate spread during the fiscal year reflected
the customer's preference for term deposits in a period when market interest
rates stabilized.
Provision for Loan Losses. The provision for loan losses for the year
ended September 30, 1996 was $13,200 compared to $87,000 in the prior year, a
decrease of $73,800. The decrease in the provision for loan losses for fiscal
1996 was based on, among other things, the continued low levels of credit risk
inherent in the Company's loan portfolio and the current balance of the
allowance for loan losses. At September 30, 1996 the Company's allowance for
loan losses totaled $1.4 million or .55% of net loans receivable and 599.57% of
total non-performing loans. In management's assessment, growth in the Company's
residential loan portfolio has not significantly raised anticipated risk
exposures nor impaired the Company's ability to absorb future loan losses.
<PAGE>
In establishing its allowance, the Company also considers the level of
its classified and non-performing assets and their estimated value, the national
economic outlook which may tend to inhibit economic activity and depress real
estate and other values in the Company's primary market area, the regulators'
view of adequate reserve levels for the thrift industry, and the Company's
historically low loan losses and the levels of the allowance for loan losses
established by the Company's peers in assessing the adequacy of the loan loss
allowance. Accordingly, the calculation of the adequacy of the allowance for
loan losses is not based directly on the level of non-performing loans. The
Company had no loan losses in fiscal 1996.
The Company will continue to monitor its allowance for loan losses and
make future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Company maintains its allowance for
loan losses at a level which it considers to be adequate to provide for
potential losses, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods. In addition, the Company's determination as to the
amount of its allowance for loan losses is subject to review by the OTS as part
of their examination process, which may result in the establishment of
additional allowances based upon their judgment of the information available to
them at the time of their examination.
Noninterest Income. Noninterest income increased from $221,000 in
fiscal 1995 to $231,000 in fiscal 1996. The increase was primarily the result of
increases in service charges and fees, and a modest increase in gains from the
sale of loans in the secondary market.
Noninterest Expense. Noninterest expense increased $1.9 million or
42.2%, from $4.5 million in fiscal 1995 to $6.4 million in fiscal 1996. Of the
increase, $1.65 million was attributable to the special SAIF assessment by the
FDIC. Noninterest expense without the foregoing non-recurring item would have
increased approximately $250,000 or 5.5%, from fiscal 1995 to fiscal 1996. The
increase in noninterest expense was primarily the result of increases in
compensation and employee benefit expenses, while other general and
administrative expenses decreased during the comparable period.
Increased compensation and benefit expenses of $423,000 from fiscal
1995 to 1996 were primarily due to a full year's expense for costs associated
with the ESOP, the shareholder approved Recognition and Retention Plan ("RRP"),
and general cost of living increases. Fiscal year 1995 included only six months
of expense associated with the ESOP. The RRP program was not ratified until the
1996 fiscal year. Net occupancy and equipment expense decreased $56,000 in
fiscal 1996 primarily due to decreases in depreciation expenses and
non-recurring expenses incurred in fiscal 1995. Other general and administrative
expenses decreased by $123,000 in the current fiscal year primarily from cost
containment and efficiency initiatives.
Income Tax Expense. Income tax expense decreased from $1.5 million in
fiscal 1995 to $1.3 million in fiscal 1996, as a result of lower pretax earnings
for the period. Included in the tax expense for fiscal 1996 is the tax benefit
associated with the special SAIF assessment, which effectively lowered the
Company's tax liability by $650,000.
<PAGE>
Comparison of the Fiscal Years Ended September 30, 1995 and 1994
General. Net income for the year ended September 30, 1995 was $2.4
million, an increase of $111,000 compared to net income for the year ended
September 30, 1994. Net income for fiscal 1994 included $324,000 resulting from
the cumulative effect of a change in the method of accounting for income taxes,
as required by Statement of Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." Net income before the cumulative effect of the change in
accounting principle increased $435,000 or 21.4% from fiscal 1994 to fiscal
1995. The increase in net income for the year ended September 30, 1995 was
primarily the result of a $1.0 million increase in net interest income,
partially offset by a decrease in noninterest income and increases in
noninterest expenses and income taxes as more fully described below.
Interest Income. Interest income increased $3.5 million or 19.9%, from
$17.6 million to $21.1 million for the year ended September 30, 1995. Interest
income on mortgage loans increased $1.5 million and interest income on
investment securities and other interest-earning assets increased $1.8 million
during fiscal 1995 as compared to fiscal 1994. The increase in interest income
was the result of an increase in both the average balance of interest- earning
assets from the investment of the conversion proceeds and higher yields earned
on those balances. See "Average Balances, Interest Rates and Yields" and
"Rate/Volume Analysis."
Interest Expense. Interest expense increased $2.5 million or 24.5%,
from $10.2 million to $12.7 million for the year ended September 30, 1995. The
increase in interest expense was the result of the higher rate paid on and an
increase in the average balance of certificates of deposit during fiscal 1995.
The weighted average rate paid on deposits for fiscal 1995 increased 77 basis
points to 4.99% from 4.22% for fiscal 1994, a result of an increase in market
interest rates generally. See "Average Balances, Interest Rates and Yields" and
"Rate/Volume Analysis."
Net Interest Income. Net interest income increased $1.0 million or
13.7%, from $7.3 million to $8.3 million for the year ended September 30, 1995.
This increase was attributable to the increase in interest income which more
than offset the increase in interest expense as discussed above. The Company's
interest rate spread decreased from 2.56% during fiscal 1994 to 2.26% during
fiscal 1995 and was 1.89% at September 30, 1995. The narrowing of the interest
rate spread occurred due to increasing short-term rates of interest, while
long-term rates remained flat or decreased, resulting in the Company's
interest-bearing liabilities repricing upward faster than its interest-earning
assets.
Provision for Loan Losses. The provision for loan losses for the year
ended September 30, 1995 was $87,000 compared to $45,000 in the prior year, an
increase of $42,000. The increase in the provision for loan losses for fiscal
1995 was based on, among other things, the increased growth in the Company's
residential loan portfolio. At September 30, 1995 the Company's allowance for
loan losses totaled $1.4 million or .64% of net loans receivable and 1410.71% of
total non-performing loans. The allowance for loan losses increased by the
amount of the provision less approximately $2,600 of charge-offs for the year
ended September 30, 1995.
<PAGE>
Noninterest Income. Noninterest income decreased from $264,000 in
fiscal 1994 to $221,000 in fiscal 1995. The decrease was primarily the result of
a decline in prepayment penalties on loans and a decline in gains from the sales
of loans in the secondary market, partially offset by increases in service
charges and fees. The decline in income derived from prepayment penalties was a
result of the Company's decision to phase-out prepayment penalties on
residential mortgage loans consistent with the practice of other financial
institutions in its market place. Gains on the sale of 30 year loans in the
secondary market declined due to a decline in volume.
Noninterest Expense. Noninterest expense increased $190,000 or 4.4%,
from $4.3 million in fiscal 1994 to $4.5 million in fiscal 1995. Noninterest
expense for fiscal 1994 included $486,000 resulting from the Bank's unsuccessful
attempt to convert from a state chartered mutual savings bank to a state
chartered stock savings bank. See Note 16 of the Notes to Consolidated Financial
Statements. Noninterest expense without the foregoing non- recurring item would
have increased $676,000 or 15.7% from fiscal 1994 to fiscal 1995. The increase
in noninterest expense was primarily the result of a $304,000 or 31.3% increase
in other noninterest expenses, a $282,000 or 15.6% increase in compensation and
benefits and a $65,000 or 12.5% increase in federal deposit insurance premiums
as a result of a larger deposit base.
Increased compensation and benefit expenses were primarily due to a
$174,000 expense associated with the ESOP as well as general cost of living
increases. Increases in other noninterest expenses consisted primarily of the
following: an $82,000 increase in professional fees, primarily supervisory and
regulatory fees related to the Bank's change from a state-chartered to a
federally-chartered institution during fiscal 1995 and a $62,000 increase in
advertising and promotional expenses as the Company responded to competition in
the market area.
Income Tax Expense. Income tax expense increased from $1.2 million in
fiscal 1994 to $1.5 million in fiscal 1995, as a result of higher pretax
earnings for the period.
<PAGE>
<TABLE>
<CAPTION>
Average Balances, Interest Rates and Yields
At
September 30, For the Year Ended September 30,
------------------- -----------------------------------------------------------------
1996 1996 1995
------------------- --------------------------------- -----------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Interest-earning deposits..................$ 10,716 5.22% $ 17,927 $ 1,009 5.63% $ 17,361 $ 968 5.58%
Investment securities...................... 52,788 6.37 57,479 3,627 6.31 65,034 3,852 5.92
Loans...................................... 250,306 7.69 231,047 18,119 7.84 206,913 16,156 7.81
FHLB stock................................. 2,054 7.85 2,008 158 7.87 1,896 145 7.65
-------- -------- ------- -------- -------
Total interest-earning assets............ 315,864 7.38 308,461 22,913 7.43 291,204 21,121 7.25
======= =======
Noninterest-earning assets.................. 6,838 6,184 5,017
-------- -------- --------
Total assets............................. 322,702 314,645 296,221
======== ======== ========
Interest-Bearing Liabilities:
Savings accounts........................... 16,523 2.76 16,981 482 2.84 19,832 586 2.95
NOW and money market accounts.............. 20,888 1.64 20,819 382 1.83 21,631 409 1.89
Certificates of deposits................... 233,774 5.74 222,219 12,923 5.82 213,663 11,735 5.49
-------- -------- ------- -------- -------
Total interest-bearing liabilities....... 271,185 5.24 260,019 13,787 5.30 255,126 12,730 4.99
------- -------
Noninterest-bearing liabilities............ 4,804 3,606 3,208
-------- --------- ---------
Total liabilities........................ 275,989 263,625 258,334
Shareholders' equity....................... 46,713 51,020 37,887
-------- --------- ---------
Total liabilities and retained earnings 322,702 314,645 296,221
-------- --------- ---------
Net interest-earning assets.................$ 44,679 $ 48,442 $ 36,078
======== ========= =========
Net interest income......................... $ 9,126 $ 8,391
------- --------
Interest rate spread(1)..................... 2.14% 2.13% 2.26%
Net yield on weighted average interest-
earning assets(2).......................... 2.96% 2.88%
Average interest-earning assets to
average interest-bearing liabilities....... 118.63% 114.14%
________________
<PAGE>
<CAPTION>
For the Year Ended September 30,
-----------------------------------
1994
-----------------------------------
<S> <C> <C> <C>
Interest-Earning Assets:
Interest-earning deposits.................. $ 32,141 $ 1,146 3.57%
Investment securities...................... 36,134 1,930 5.34
Loans...................................... 190,094 14,465 7.61
FHLB stock................................. 1,606 84 5.23
--------- --------
Total interest-earning assets............ 259,975 17,625 6.78
--------
Noninterest-earning assets.................. 6,140
---------
Total assets............................. 266,115
---------
Interest-Bearing Liabilities:
Savings accounts........................... 24,443 694 2.84
NOW and money market accounts.............. 22,330 437 1.96
Certificates of deposits................... 196,197 9,116 4.65
--------- --------
Total interest-bearing liabilities....... 242,970 10,247 4.22
--------
Noninterest-bearing liabilities............ 2,657
---------
Total liabilities........................ 245,627
Shareholders' equity....................... 20,488
---------
Total liabilities and retained earnings 266,115
---------
Net interest-earning assets................. $ 17,005
---------
Net interest income......................... $ 7,378
--------
Interest rate spread(1)..................... 2.56%
Net yield on weighted average interest-
earning assets(2).......................... 2.84%
Average interest-earning assets to
average interest-bearing liabilities....... 107.00%
________________
</TABLE>
(1) Net interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate earned
for the period indicated. Net interest rate spread must be considered in light
of the relationship between the amounts of interest-earning assets and
interest-bearing liabilities. Since the Company's interest-earning assets
exceeded its interest-bearing liabilities for each of the three years shown
above, a positive interest rate spread resulted in net interest income.
(2) The net yield on average interest-earning assets is calculated by dividing
net interest income by total interest-earning assets for the period indicated.
No net yield figure is presented at September 30, 1996, because the computation
of net yield is applicable only over a period rather than at a specific date.
<PAGE>
Rate/Volume Analysis
The following table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected the
Company's interest income and expense during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (changes
in rate multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume that
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
----------------------------------- -------------------------------
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits ... $ 32 $ 9 $ 41 $ (661) $ 483 $ (178)
Investment securities ....... (466) 241 (225) 1,692 230 1,922
Loans ....................... 1,892 71 1,963 1,306 385 1,691
FHLB stock .................. 9 4 13 17 44 61
------- ------- ------- ------- ------- -------
Total ..................... $ 1,467 $ 325 1,792 $ 2,354 $ 1,142 3,496
======= ======= ------- ======= ======= -------
Interest-bearing liabilities:
Savings accounts ............ $ (82) $ (22) (104) $ (135) $ 27 (108)
NOW and money market accounts (15) (12) (27) (13) (15) (28)
Certificates of deposit ..... 481 707 1,188 860 1,759 2,619
------- ------- ------- ------- ------- -------
Total ..................... $ 384 $ 673 1,057 $ 712 $ 1,771 2,483
======= ======= ------- ======= ======= -------
Change in net interest income $ 735 $ 1,013
======= =======
</TABLE>
Asset/Liability Management
The Bank, like other financial institutions, is subject to interest
rate risk to the extent that its interest-bearing liabilities with short- and
intermediate-term maturities reprice more rapidly, or on a different basis, than
its interest-earning assets. Management of the Bank believes it is important to
manage the relationship between interest rates and the effect on the Bank's net
portfolio value ("NPV"). This approach calculates the difference between the
present value of expected cash flows from assets and the present value of
expected cash flows from liabilities, as well as cash flows from off-balance
sheet contracts. Management of the Bank's assets and liabilities is done within
the context of the market place, but also within limits established by the Board
of Directors on the amount of change in NPV which is acceptable given certain
interest rate changes.
<PAGE>
OTS regulations provide a NPV approach to the quantification of
interest rate risk. Under OTS regulations, an institution's "normal" level of
interest rate risk, in the event of an assumed change in interest rate, is a
decrease in the institution's NPV in an amount not exceeding two percent of the
present value of its assets. Thrift institutions with greater than normal
interest rate exposure, as defined above, must take a deduction from their total
capital available to meet their risk based capital requirement. The amount of
that deduction is one-half of the difference between (a) the institution's
actual calculated exposure to the 200 basis point interest rate increase or
decrease (whichever results in the greater pro-forma decrease in NPV) and (b)
its normal level of exposure which is two percent of the present value of its
assets. The regulation, however, will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may be
completed.
At September 30, 1996, a change in the interest rate of positive 200
basis points would have resulted in a 2.53% decrease in the NPV as a percent of
the present value of the Bank's assets, while a change in the interest rate of
negative 200 basis points would have resulted in a 0.66% increase in the NPV as
a percent of the present value of the Bank's assets. Accordingly, a deduction to
risk-based capital would have been required as of September 30, 1996 if the
regulation were in effect. The Bank, however, would still have been considered
"well capitalized" under current regulatory guidelines.
Presented below, as of September 30, 1996, is an analysis of the Bank's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in the yield curve in 100 basis point increments up and down 400
basis points and compared to Board policy limits. As illustrated in the table,
NPV is more sensitive to rising rates than declining rates. This occurs
principally because, as rates rise, the market value of fixed-rate loans
declines due to both the rate increase and slowing prepayments. When rates
decline, the Bank does not experience a significant rise in market value for
these loans because borrowers prepay at relatively high rates. OTS assumptions
are used in calculating the amounts in this table.
<TABLE>
<CAPTION>
Change in At September 30, 1996
Interest Rate Board Limit Estimated Amount Percent
(Basis Points) Percent Change NPV Change Change
-------------- -------------- --- ------ ------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
+400 bp -34% $25,606 $-21,015 -45%
+300 bp -27 30,993 -15,627 -34
+200 bp -20 36,462 -10,158 -22
+100 bp -12 41,820 -4,800 -10
0 bp --- 46,620 --- ---
-100 bp - 9 50,076 3,456 7
-200 bp -12 50,485 3,865 8
-300 bp -19 48,030 1,410 3
-400 bp -23 45,786 -835 -2
</TABLE>
<PAGE>
As indicated in the table above, the Bank has structured its assets and
liabilities in an attempt to maintain interest rate risk at a level deemed
acceptable by the Board. The percentage change of NPV in rising interest rates
of +200 bp and above exceeds approved Board limits due to upward pressure on
interest rates during the period. The Board reviews the OTS measurements on a
quarterly basis and has chosen to monitor and adjust exposures rather than
limits. In addition to monitoring selected measures on NPV, management also
monitors effects on net interest income resulting from increases or decreases in
rates. This measure is used in conjunction with NPV measures to identify
excessive interest rate risk. A primary objective of asset/liability management
is to manage interest rate risk. The Company monitors its asset/liability mix on
an ongoing basis and manages interest rate risk by applying the following
policies:
Promoting adjustable rate mortgages. Adjustable rate mortgages ("ARMs")
are viewed by management as the most viable option for managing interest rate
exposure. The Company focuses lending efforts toward offering competitively
priced adjustable rate loan products as an alternative to more traditional fixed
rate mortgage loans. The Company offers adjustable rate loan products that
reprice as frequently as every year or can be fixed for a term of up to seven
years and adjust yearly thereafter.
Originating 10, 15 and 20 year fixed rate mortgages. By retaining these
mortgages in the loan portfolio, and selling mortgages with terms of 30 years,
management can reduce its interest rate exposure. Loans with maturities of 30
years are currently classified as held for sale by the Company at origination.
There were no loans held for sale at September 30, 1996. The Company retains the
servicing on loans sold in the secondary market.
Emphasizing long-term deposits. The Company's cost of funds responds to
changes in interest rates due to the relatively short-term nature of its deposit
portfolio. Consequently, the results of operations are influenced by the levels
of short-term interest rates. The Company offers a range of maturities on its
deposit products at competitive rates and concentrates a portion of its
advertising and promotional campaigns on attracting longer-term deposit
products. It also monitors the maturities on an ongoing basis.
Actively managing liquidity position. Management actively manages the
Company's liquidity position in anticipation of changing interest rate exposure.
The primary objective of the Company's investment strategy is to provide
liquidity necessary to meet funding needs as well as address daily, cyclical and
long-term changes in the asset/liability mix while contributing to profitability
by providing a stable flow of dependable earnings. Generally, the Company
invests funds based on its liquidity needs and to achieve the proper balance
between the desire to minimize risk and maximize yield to fulfill its
asset/liability management policies.
Actively marketing short-term home equity loans. Short-term home equity
lines of credit and home improvement loans offer higher yields while lowering
interest rate exposure through their relatively short-term maturities.
<PAGE>
In evaluating the Bank's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities for periods of re-pricing, 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. Furthermore, in the event of a change in interest rates,
prepayments and early withdrawal level would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their debts may decrease in the event of an interest rate increase.
As a result, the actual effect of changing interest rates may differ from that
presented in the foregoing table.
Liquidity And Capital Resources
The Bank's primary sources of funds are deposits, principal and
interest payments on loans and maturities of investment securities. While
maturities of securities and scheduled amortizations of loans are a predictable
source of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition.
Federal regulations require the Bank to maintain minimum levels of
liquid assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 5% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. Liquid assets for purposes of this ratio include
cash, certain time deposits, U.S. Government, government agency and other
securities and obligations generally having remaining maturities of less than
five years. The Bank has maintained its liquidity ratio at levels in excess of
those required. At September 30, 1996, the Bank's liquidity ratio was 22.9%.
Management structures the liquid asset portfolio of the Bank to meet
the cash flow needs of operating, investing and financing activities. Cash flows
provided by operating activities, consisting primarily of interest received on
loans and investments less interest paid on deposits, were $4.3 million, $2.5
million and $2.5 million for the years ended September 30, 1996, 1995 and 1994,
respectively. Net cash flows used for investing activities, consisting primarily
of disbursements for loan originations and investments purchased offset by
principal collections on loans and proceeds from the maturity of investments,
were $19.4 million, $35.8 million and $53.1 million for the years ended
September 30, 1996, 1995 and 1994, respectively. Net cash provided by financing
activities, consisting primarily of net deposit activity and cash provided by
the Conversion, was $5.6 million, $35.0 million and $34.0 million for the years
ended September 30, 1996, 1995 and 1994, respectively. If the Bank requires
additional funds beyond its ability to acquire them locally, it has borrowing
capability through the FHLB of Indianapolis. At September 30, 1996, the Bank had
no advances from the FHLB of Indianapolis or other borrowings outstanding and
has not had any such advances or other borrowings outstanding since 1983.
The Bank uses its liquidity resources principally to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals
and to meet operating expenses. The Bank anticipates that it will have
sufficient funds available to meet current loan commitments. At September 30,
1996, the Bank had outstanding commitments to extend credit which amounted to
$14.2 million (including $8.4 million in unused lines of credit). Management
believes that loan repayments and other sources of funds will be adequate to
meet the Bank's foreseeable liquidity needs.
<PAGE>
At September 30, 1996, the Bank had tangible and core capital of $38.5
million, or 12.13% of adjusted total assets, which was approximately $33.7
million and $28.9 million above the minimum requirements of 1.5% and 3.0%,
respectively, of the adjusted total assets in effect on that date. The Bank had
risk-based capital at September 30, 1996 of $39.8 million (including $38.5
million in core capital), or 27.12% of risk-weighted assets of $146.8 million.
This amount was $28.1 million above the 8.0% requirement in effect on that date.
The Company also has a need for, and sources of, liquidity. Liquidity
is required to fund operating expenses, stock repurchase programs, as well as
the payments of any dividends to shareholders. The primary source of liquidity
for the Company on an ongoing basis is dividends from the Bank. During 1996, the
Bank paid dividends in the amount of $907,000 to the Company. In addition, the
Company has access to public debt and equity markets. The Company currently has
no significant liquidity commitments as its operating costs are modest and
dividends on common stock are discretionary.
Uses and Sources of Funds
During the year ended September 30, 1996, there was a net decrease of
$9.5 million in cash and cash equivalents, as uses offset sources of funds.
Primary uses of cash during the fiscal year 1996 included funding an increase of
$35.9 million in the loan portfolio, the repurchase of $9.3 million in treasury
shares, and the purchase of $6.1 million in securities. The major source of
funds included $23.0 million from the maturity and sales of securities and a
$15.0 million increase in deposits. The Company paid a total of $0.10 per share
on common stock, or a total of $264,000 to its shareholders during fiscal 1996.
During the year ended September 30, 1995, there was a net increase of
$1.7 million in cash and cash equivalents, as major sources of funds offset the
uses of cash. Major uses of cash during the fiscal year 1995 included funding an
increase of $13.9 million in the loan portfolio and the purchase of $41.8
million in investment securities. A major source of cash during the year
included the proceeds from the stock issuance, net of conversion costs and stock
acquired by the ESOP, of $30.1 million. Other sources of funds included a $4.8
million increase in deposits and proceeds from the maturity of $20.0 million in
investment securities.
During the year ended September 30, 1994, there was a net decrease of
$16.6 million in cash and cash equivalents. Major uses of cash during fiscal
1994 included funding an increase of $29.3 million in the loan portfolio,
purchasing $44.3 million in investment securities and originating $1.2 million
of loans to be sold in the secondary market. Major sources of cash during the
year, which partially offset the uses of cash, included a $34.0 million increase
in deposits, proceeds from maturities of investment securities of $21.0 million
and proceeds from the sale of loans of $1.3 million.
<PAGE>
Impact Of Inflation
The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Nearly
all the assets and liabilities of the Company are financial, unlike most
industrial companies. As a result, the Company's performance is directly
impacted by changes in interest rates, which are indirectly influenced by
inflationary expectations. The Company's ability to match the interest
sensitivity of its financial assets to the interest sensitivity of its financial
liabilities in its asset/liability management may tend to minimize the effect of
changes in interest rates on the Company's performance. Changes in interest
rates do not necessarily move to the same extent as do changes in the prices of
goods and services.
<PAGE>
HOME BANCORP
Fort Wayne, Indiana
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
REPORT OF INDEPENDENT AUDITORS
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995
CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED SEPTEMBER 30, 1996,
1995 AND 1994
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS
ENDED SEPTEMBER 30, 1996, 1995 AND 1994
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30,
1996, 1995 AND 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
of Home Bancorp:
We have audited the accompanying consolidated balance sheets of Home Bancorp as
of September 30, 1996 and 1995 and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the years ended
September 30, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company'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 Bancorp as of
September 30, 1996 and 1995 and the results of its operations and its cash flows
for the years ended September 30, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for securities effective October 1, 1994 and
its method of accounting for income taxes effective October 1, 1993 to conform
to new accounting guidance.
Crowe, Chizek and Company LLP
South Bend, Indiana
October 23, 1996
<PAGE>
HOME BANCORP
FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
<PAGE>
HOME BANCORP
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash on hand and in other banks ................................ $ 1,206,753 $ 1,029,598
Federal funds sold ............................................. 6,100,000 17,000,000
Interest-earning deposits in other banks ....................... 4,615,815 3,360,129
------------- -------------
Total cash and cash equivalents ........................... 11,922,568 21,389,727
Securities available for sale .................................. 3,969,375 --
Securities held to maturity (fair value: 1996 - $49,273,000
and 1995 - $70,622,000) ...................................... 48,818,448 69,949,107
Loans receivable, net of allowance for loan losses
of $1,385,589 in 1996 and $1,372,357 in 1995 ................. 250,305,646 214,404,753
Federal Home Loan Bank stock, at cost .......................... 2,054,200 1,967,500
Accrued interest receivable .................................... 2,260,499 2,681,613
Premises and equipment, net .................................... 2,594,917 2,331,986
Other assets ................................................... 776,261 460,197
------------- -------------
Total assets .............................................. $ 322,701,914 $ 313,184,883
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Non-interest-bearing demand deposits ...................... $ 5,032,975 $ 4,647,886
Savings, NOW and MMDA deposits ............................ 32,378,241 33,831,941
Certificates of deposit ................................... 233,774,251 217,628,228
------------- -------------
Total deposits ........................................ 271,185,467 256,108,055
Advances from borrowers for taxes and insurance ........... 1,886,859 1,798,345
Accrued expenses and other liabilities .................... 2,916,373 1,218,031
------------- -------------
Total liabilities ..................................... 275,988,699 259,124,431
------------- -------------
<PAGE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
(continued)
1996 1995
---- ----
<S> <C> <C>
Shareholders' equity
Preferred stock, no par value; 5,000,000 shares
authorized; none issued ................................. -- --
Common stock, no par value; 10,000,000 shares
authorized; 3,381,505 shares issued and 2,762,350 shares
outstanding at September 30, 1996; 3,303,178 shares
issued and outstanding at September 30, 1995 ............ 33,758,217 32,445,205
Retained earnings, substantially restricted ............... 25,203,053 23,831,000
Net unrealized appreciation on securities
available for sale, net of tax of $1,608 ................ 3,124 --
Unearned Employee Stock Ownership Plan shares ............. (2,001,177) (2,215,753)
Unearned Recognition and Retention Plan shares ............ (955,589) --
Treasury stock at cost, 619,155 common shares ............. (9,294,413) --
------------- -------------
Total shareholders' equity ............................ 46,713,215 54,060,452
------------- -------------
Total liabilities and shareholders' equity ............ $ 322,701,914 $ 313,184,883
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years ended September 30, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans receivable, including fees
Mortgage loans ....................... $17,463,746 $15,585,034 $14,085,182
Consumer and other loans ............. 655,700 570,534 379,591
Securities ............................... 3,626,283 3,852,449 2,290,033
Other interest and dividend income ....... 1,167,304 1,112,607 870,324
----------- ----------- -----------
22,913,033 21,120,624 17,625,130
Interest expense
Deposits ................................. 13,787,143 12,730,160 10,246,628
----------- ----------- -----------
Net interest income ........................... 9,125,890 8,390,464 7,378,502
Provision for loan losses ..................... 13,200 87,000 44,914
----------- ----------- -----------
Net interest income after provision
for loan losses ............................. 9,112,690 8,303,464 7,333,588
Noninterest income
Gains on sales of interest-earning
assets, net ............................ 3,550 1,310 14,475
Net gain on sale of foreclosed real estate -- -- 2,898
Other .................................... 227,024 219,352 246,722
----------- ----------- -----------
230,574 220,662 264,095
Noninterest expenses
Compensation and employee benefits ....... 2,511,718 2,088,256 1,806,542
Occupancy and equipment .................. 528,360 584,010 558,751
Federal deposit insurance premium ........ 2,235,132 582,117 517,122
Conversion costs ......................... -- -- 486,388
Other .................................... 1,150,883 1,273,814 969,958
----------- ----------- -----------
6,426,093 4,528,197 4,338,761
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years ended September 30, 1996, 1995 and 1994
(continued)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income before income taxes and cumulative
effect of change in accounting principle .... 2,917,171 3,995,929 3,258,922
Income tax expense ............................ 1,281,171 1,534,929 1,232,922
----------- ----------- -----------
Income before cumulative effect of change in
accounting principle ........................ 1,636,000 2,461,000 2,026,000
Cumulative effect of change in accounting for
income taxes ................................ -- -- 324,000
----------- ----------- -----------
Net income .................................... $ 1,636,000 $ 2,461,000 $ 2,350,000
=========== =========== ===========
Earnings per common share subsequent
to conversion ............................... $ .57 $ .44 N/A
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HOME BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended September 30, 1996, 1995 and 1994
Net Unrealized
Appreciation Unearned
on Securities Employee Stock
Common Retained Available For Sale Ownership
Stock Earnings Net of Tax Plan Shares
----- -------- ---------- -----------
<S> <C> <C> <C> <C>
Balances at October 1, 1993 ......................... $ 19,020,000
Net income for the year ended September 30, 1994 .... 2,350,000
------------
Balances at September 30, 1994 ...................... 21,370,000
Proceeds from the sale of 3,303,178 shares of
common stock, net of conversion costs ............. $ 32,400,000 -- $ (2,312,090)
12,350 shares committed to be released under the
Employee Stock Ownership Plan (ESOP) .............. 45,205 -- 96,337
Net income for the year ended September 30, 1995 .... -- 2,461,000 --
------------ ------------ ------------
Balances at September 30, 1995 ...................... 32,445,205 23,831,000 (2,215,753)
Cash dividends declared on common stock -
$.10 per share .................................... -- (263,947) --
23,237 shares committed to be released under the
Employee Stock Ownership Plan (ESOP) .............. 118,525 -- 214,576
78,327 shares issued under the RRP .................. 1,194,487 -- --
Amortization of RRP contribution .................... -- -- --
Purchase 619,155 shares of treasury stock ........... -- -- -- --
Net change in unrealized appreciation on
securities available for sale, net of tax of $1,608 -- -- $ 3,124 --
Net income for the year ended September 30, 1996 .... -- 1,636,000 -- --
------------ ------------ ------------ ------------
Balances at September 30, 1996 ...................... $ 33,758,217 $ 25,203,053 $ 3,124 $ (2,001,177)
============ ============ ============ ============
<PAGE>
<CAPTION>
HOME BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended September 30, 1996, 1995 and 1994
(continued)
Unearned
Recognition Total
and Retention Treasury Shareholders'
Plan Shares Stock Equity
----------- ----- ------
<S> <C> <C> <C>
Balances at October 1, 1993.......................... $ 19,020,000
Net income for the year ended September 30, 1994..... 2,350,000
------------
Balances at September 30, 1994....................... 21,370,000
Proceeds from the sale of 3,303,178 shares of
common stock, net of conversion costs.............. 30,087,910
12,350 shares committed to be released under the
Employee Stock Ownership Plan (ESOP)............... 141,542
Net income for the year ended September 30, 1995..... 2,461,000
------------
Balances at September 30, 1995....................... 54,060,452
Cash dividends declared on common stock -
$.10 per share..................................... (263,947)
23,237 shares committed to be released under the
Employee Stock Ownership Plan (ESOP)............... 333,101
78,327 shares issued under the RRP .................. $ (1,194,487)
Amortization of RRP contribution .................... 238,898 238,898
Purchase 619,155 shares of treasury stock............ -- $ (9,294,413) (9,294,413)
Net change in unrealized appreciation on
securities available for sale, net of tax of $1,608 -- -- 3,124
Net income for the year ended September 30, 1996..... -- -- 1,636,000
------------ ------------ ------------
Balances at September 30, 1996....................... $ (955,589) $ (9,294,413) $ 46,713,215
============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HOME BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income ......................................... $ 1,636,000 $ 2,461,000 $ 2,350,000
Adjustments to reconcile net income to net cash
from operating activities
Cumulative effect of change in accounting
principle .................................... -- -- (324,000)
Depreciation ................................... 181,463 230,196 239,737
Provision for loan losses ...................... 13,200 87,000 44,914
Gain on sale of securities ..................... (1,438) -- --
Gain on sale of loans .......................... (2,112) (1,310) (14,475)
Gain on sale of foreclosed real estate ......... -- -- (2,898)
Loans originated for sale ...................... (123,500) (142,500) (1,155,697)
Proceeds from loan sales ....................... 125,612 143,810 1,308,876
ESOP expense ................................... 333,101 141,542 --
Amortization of RRP contribution ............... 238,898 -- --
Loss on disposal of premises and equipment ..... -- -- 1,121
Amortization of premiums and accretion of
discounts, net ............................... 127,892 (96,539) 162,232
Change in
Accrued interest receivable ............... 421,114 (897,037) (255,876)
Other liabilities ......................... 1,698,342 333,386 240,287
Other assets .............................. (317,673) 206,274 (96,605)
------------ ------------ ------------
Net cash from operating activities .... 4,330,899 2,465,822 2,497,616
Cash flows from investing activities
Proceeds from maturities of securities held-to-
maturity ......................................... 21,000,000 20,000,000 --
Proceeds from investment securities ................ -- -- 21,000,000
Proceeds from sales of securities available for sale 2,032,376 -- --
Purchase of securities available for sale .......... (5,992,813) -- --
Purchase of securities held to maturity ............ -- (41,682,500) --
Purchase of investment securities .................. -- -- (43,855,820)
Purchase of Federal Home Loan Bank stock ........... (86,700) (142,100) (439,500)
Net change in loans ................................ (35,914,093) (13,859,388) (29,281,798)
Purchase of premises and equipment ................. (444,394) (126,554) (523,223)
------------ ------------ ------------
Net cash from investing activities ............. (19,405,624) (35,810,542) (53,100,341)
<PAGE>
<CAPTION>
HOME BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1996, 1995 and 1994
(continued)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities
Net change in deposits ........................... 15,077,412 4,767,771 34,030,677
Increase in advance payments by
borrowers for taxes and insurance .............. 88,514 183,423 12,022
Purchase of treasury stock ....................... (9,294,413) -- --
Cash dividends paid .............................. (263,947) -- --
Proceeds from stock issue, net of conversion costs
and stock acquired by ESOP ..................... -- 30,087,910 --
------------ ------------ ------------
Net cash from financing activities ........... 5,607,566 35,039,104 34,042,699
------------ ------------ ------------
Net change in cash and cash equivalents ............... (9,467,159) 1,694,384 (16,560,026)
Cash and cash equivalents at beginning of year ........ 21,389,727 19,695,343 36,255,369
------------ ------------ ------------
Cash and cash equivalents at end of year .............. $ 11,922,568 $ 21,389,727 $ 19,695,343
============ ============ ============
Supplemental disclosures of cash flow information
Cash paid for
Interest on deposits ......................... $ 13,763,931 $ 12,449,902 $ 9,975,229
Income taxes ................................. 1,586,000 1,130,500 1,251,000
Noncash investing activities
Transfer from investment securities to securities
held to maturity ............................... $ -- $ 48,170,068 $ --
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial statements
include Home Bancorp (the Company), and its wholly-owned subsidiary, Home Loan
Bank (the Bank). All significant intercompany transactions and balances are
eliminated in consolidation.
Nature of Business and Concentrations of Credit Risk: The primary source of
income for the Company is residential real estate loans in Fort Wayne, Indiana
and the surrounding areas. Loans secured by real estate mortgages comprise
approximately 99% of the loan portfolio at September 30, 1996.
Use of Estimates In Preparing Financial Statements: Preparing financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period, as well as the disclosures provided. Areas
involving the use of estimates and assumptions include the allowance for loan
losses, fair values of securities and other financial instruments, determination
and carrying value of impaired loans, the realization of deferred tax assets,
and the determination of depreciation of premises and equipment. Actual results
could differ from those estimates. Estimates associated with the allowance for
loan losses and the fair values of securities and other financial instruments
are particularly susceptible to material change in the near term.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash
equivalents is defined to include the Company's cash on hand and in other banks,
federal funds sold, and interest-earning deposits in other financial
institutions with maturities of 90 days or less. The Company reports net cash
flows for customer loan transactions, deposit transactions and advance payments
by borrowers for taxes and insurance.
Securities: On October 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company now classifies
securities into held-to-maturity, available-for-sale and trading categories.
Held-to-maturity securities are those which the Company has the positive intent
and ability to hold to maturity, and are reported at amortized cost.
Available-for-sale securities are those the Company may decide to sell if needed
for liquidity, asset-liability management or other reasons. Available-for-sale
securities are reported at fair value, with unrealized gains and losses included
as a separate component of shareholders' equity, net of tax. Trading securities
are bought principally for sale in the near term, and are reported at fair value
with unrealized gains and losses included in earnings. Adoption of SFAS No. 115
on October 1, 1994 had no effect on shareholders' equity.
Gains and losses on the sale of securities are determined using the specific
identification method based on amortized cost and are reflected in results of
operations at the time of sale. Interest and dividend income, adjusted by
amortization of purchase premium or discount over the estimated life of the
security using the level yield method, is included in earnings.
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Held for Sale: Mortgage loans intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized in a valuation allowance by charges to income.
Loans: Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal balances adjusted for charge-offs, the allowance for loan
losses, deferred fees or costs on originated loans, and unamortized premiums or
discounts on purchased loans.
Premiums or discounts on mortgage loans are amortized to income on the level
yield method over the remaining period to contractual maturity, adjusted for
anticipated prepayments.
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income using the interest
method.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. The allowance for loan losses is
increased by a provision for loan losses charged to expense and decreased by
charge-offs (net of recoveries). Estimating the risk of loss and the amount of
loss on any loan is necessarily subjective. Accordingly, the allowance is
maintained by management at a level considered adequate to cover losses that are
currently anticipated. Management's periodic evaluation of the adequacy of the
allowance is based on past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral, and current economic
conditions. While management may periodically allocate portions of the allowance
for specific problem loan situations, the whole allowance is available for any
loan charge-offs that occur.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended,
was adopted effective October 1, 1995 and requires recognition of loan
impairment. Loans are considered impaired if full principal or interest payments
are not anticipated in accordance with the contractual loan terms. Impaired
loans are carried at the present value of expected future cash flows discounted
at the loan's effective interest rate or at the fair value of the collateral if
the loan is collateral dependent. A portion of the allowance for loan losses is
allocated to impaired loans if the value of such loans is less than the unpaid
balance. If these allocations cause the allowance for loan losses to require
increase, such increase is reported in the provision for loan losses. The effect
of adopting these standards was not material to the consolidated financial
statements.
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one-to-four family
residences, residential construction loans, automobile, manufactured homes, home
equity and second mortgage loans. Commercial loans and mortgage loans secured by
other properties are evaluated individually for impairment. When analysis of
borrower operating results and financial condition indicates that underlying
cash flows of the borrower's business are not adequate to meet debt service
requirements, the loan is evaluated for impairment. Often this is associated
with a delay or shortfall in payments of 30 days or more. Nonaccrual loans are
often also considered impaired. Impaired loans, or portions thereof, are charged
off when deemed uncollectible. The nature of disclosures for impaired loans is
considered generally comparable to prior nonaccrual and renegotiated loans and
non-performing and past due asset disclosures.
Foreclosed Real Estate: Real estate properties acquired through, or in lieu of,
loan foreclosure are initially recorded at fair value at the date of
acquisition, establishing a new cost basis. Any reduction to fair value from the
carrying value of the related loan at the time of acquisition is accounted for
as a loan loss and charged against the allowance for loan losses. After
acquisition, a valuation allowance is recorded through a charge to income for
the amount of selling costs. Valuations are periodically performed by management
and valuation allowances are adjusted through a charge to income for changes in
fair value or estimated selling costs.
Income Taxes: Effective October 1, 1993, the Company adopted SFAS No. 109,
Accounting for Income Taxes. The Company records income tax expense based on the
amount of taxes due on its tax return plus deferred taxes computed based on the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax rates.
Previously, the Company computed deferred taxes for the tax effects of timing
differences between financial reporting and tax return income. The effect of the
adoption of SFAS No. 109 as of October 1, 1993, which was $324,000, is shown as
the cumulative effect of an accounting change in the September 30, 1994
statement of income.
Premises and Equipment: Land and land improvements are carried at cost.
Buildings, leasehold improvements, and furniture, fixtures, and equipment are
carried at cost, less accumulated depreciation and amortization. Buildings and
furniture, fixtures, and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets. The cost of leasehold
improvements is being amortized using the straight-line method over the terms of
the related leases.
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Employee Stock Ownership Plan: The Company accounts for its employee stock
ownership plan (ESOP) in accordance with AICPA Statement of Position (SOP) 93-6.
Under SOP 93-6, the cost of shares issued to the ESOP, but not yet allocated to
participants, is presented in the consolidated statements of financial condition
as a reduction of shareholders' equity. Compensation expense is recorded based
on the market price of the shares as they are committed to be released for
allocation to participant accounts. The difference between the market price and
the cost of shares committed to be released is recorded as an adjustment to
common stock. Dividends on allocated ESOP shares reduce retained earnings;
dividends on unearned ESOP shares reduce debt and accrued interest.
ESOP shares are considered outstanding for earnings per share calculations as
they are committed to be released; unearned shares are not considered
outstanding.
Financial Instruments with Off-Balance-Sheet Risk: The Company, in the normal
course of business, makes commitments to make loans which are not reflected in
the financial statements. A summary of these commitments is disclosed in Note
12.
Earnings Per Share: Earnings per common share were computed by dividing net
income by the weighted average number of common shares outstanding and common
share equivalents which would arise from considering dilutive stock options,
less ESOP shares not committed to be released. The weighted average number of
shares outstanding for the calculation of earnings per common share for the year
ended September 30, 1996 was 2,858,551. Earnings per common share for the year
ended September 30, 1995 was computed by dividing net income subsequent to the
Bank's conversion from mutual to stock form (the "conversion") by the weighted
average number of shares outstanding less ESOP shares not committed to be
released. Net income subsequent to the conversion was $1,366,000 and the
weighted average number of shares outstanding was 3,084,319 for the period ended
September 30, 1995.
Reclassifications: Certain amounts in the 1995 and 1994 financial statements
have been reclassified to conform with the 1996 presentation.
NOTE 2 - SECURITIES
Information for securities available for sale is as follows:
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities
U.S. Government $ 3,964,641 $ 4,734 $ - $ 3,969,375
=========== ======= =========== ===========
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 2 - SECURITIES (Continued)
Information for securities held to maturity is as follows:
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities
U.S. Government $ 48,818,448 $ 473,354 $ (18,802) $49,273,000
============= ========= ========= ===========
<CAPTION>
September 30, 1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities
U.S. Government $ 69,949,107 $ 837,211 $ (164,318) $70,622,000
============= ========== ========== ===========
</TABLE>
The amortized cost and fair value of debt securities by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
September 30, 1996
---------------------------
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less ............. $30,056,103 $30,099,375
Due after one year through five years. 22,820,986 23,143,000
----------- -----------
$52,783,089 $53,242,375
=========== ===========
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 2 - SECURITIES (Continued)
Proceeds from securities available for sale during the year ended September 30,
1996 were $2,032,376. Gross gains of $1,438 were realized on these sales. There
were no sales of securities available for sale during the years ended September
30, 1995 and 1994. No securities classified as held to maturity were sold or
transferred to available-for-sale during the years ended September 30, 1996 or
1995.
There were no sales of investment securities during the year ended September 30,
1994.
NOTE 3 - LOANS RECEIVABLE
Loans receivable at September 30, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mortgage loans
Principal balances
Secured by one to our family residences . $238,102,033 $204,885,871
Secured by other properties ............. 1,357,340 1,312,827
Construction loans ...................... 12,406,540 8,814,615
------------ ------------
251,865,913 215,013,313
Less
Undisbursed portion of construction loans 6,878,538 5,105,521
Net deferred loan origination fees ...... 392,800 453,787
------------ ------------
Total first mortgage loans .......... 244,594,575 209,454,005
Consumer and other loans
Principal balances
Home equity and second mortgage ......... 6,338,940 5,662,878
Other ................................... 1,067,032 879,994
------------ ------------
Total consumer and other loans ...... 7,405,972 6,542,872
Less
Allowance for loan losses .................... 1,385,589 1,372,357
Loans in process ............................. 309,312 219,767
------------ ------------
$250,305,646 $214,404,753
============ ============
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 3 - LOANS RECEIVABLE (Continued)
Activity in the allowance for loan losses for the years ended September 30 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 1,372,357 $ 1,287,969 $ 1,243,745
Provision charged to income .. 13,200 87,000 44,914
Net recoveries (charge-offs) . 32 (2,612) (690)
----------- ----------- -----------
Balance at end of period ..... $ 1,385,589 $ 1,372,357 $ 1,287,969
=========== =========== ===========
</TABLE>
At September 30, 1996, no portion of the allowance for loan losses was allocated
to impaired loan balances as the Company had no loans it considered to be
impaired loans as of or for the year ended September 30, 1996.
NOTE 4 - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying balance
sheets. The unpaid principal balances at September 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mortgage loans serviced for FNMA $ 2,860,554 $ 3,036,794
=========== ============
</TABLE>
Custodial escrow balances maintained for this loan servicing were approximately
$30,000 and $29,000 at September 30, 1996 and 1995, respectively.
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at September 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and land improvements ................... $ 643,350 $ 643,350
Buildings .................................... 2,355,480 2,039,996
Furniture, fixtures and equipment ............ 1,245,455 1,116,545
Leasehold improvements ....................... 291,005 291,005
----------- -----------
4,535,290 4,090,896
Less accumulated depreciation and amortization (1,940,373) (1,758,910)
----------- -----------
$ 2,594,917 $ 2,331,986
=========== ===========
</TABLE>
NOTE 6 - DEPOSITS
The aggregate amount of deposits with a minimum denomination of $100,000 or more
was approximately $47,590,000 and $37,775,000 at September 30, 1996 and 1995,
respectively. Depositors have their accounts insured up to applicable limits
($100,000 per depositor, as defined) by the Federal Deposit Insurance
Corporation.
At September 30, 1996, the scheduled maturities of certificates of deposit are
as follows for the years ended September 30:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 132,505,081
1998 40,018,440
1999 11,480,549
2000 8,885,580
2001 5,210,211
Thereafter 35,674,390
--------------
$ 233,774,251
==============
</TABLE>
NOTE 7 - EMPLOYEE BENEFITS
Employee Pension Plan: The pension plan is part of a noncontributory
multi-employer defined-benefit pension plan covering substantially all
employees. The plan, Financial Institutions Retirement Fund, is a multi-employer
plan and there is no separate valuation of plan benefits nor segregation of plan
assets specifically for the Company. Expense under this plan was approximately
$49,000, $67,000 and $73,000 for the years ended September 30, 1996, 1995 and
1994, respectively.
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 7 - EMPLOYEE BENEFITS (Continued)
401(k) Plan: The Company maintains a 401(k) salary reduction plan which covers
substantially all employees. Participants made deferrals from 1% to 15% of
compensation and the Company matched 50% of elective deferrals on the first 6%
of the participants' compensation through March 31, 1995. Between March 31, 1995
and November 30, 1995, participants made deferrals on the first 2% of
compensation, however, the Company did not provide any match of such elective
deferrals. After November 30, 1995, participants may make deferrals from 1% to
15% of compensation, however, the Company does not provide any match of such
elective deferrals. The Company provided discretionary contributions of 1% of
compensation for the year ended September 30, 1995. Contributions and related
expense attributable to the plan were approximately $4,000, $30,000 and $49,000
for the years ended September 30, 1996, 1995 and 1994, respectively.
Recognition and Retention Plans ("RRP"): In October, 1995, the Company
established the RRP as a method of providing directors, officers and other key
employees of the Company with a proprietary interest in the Company in a manner
designed to encourage such persons to remain with the Company. The terms of each
grant of stock pursuant to the RRP are identical; only the participants and the
number of shares awarded to each participant vary. The Bank contributed funds to
the RRP for the purchase of 78,327 shares of Company common stock at an average
price of $15.25 per share. On October 10, 1995, awards of grants for these
shares were issued to various directors, officers and other key employees of the
Company. These awards generally are to vest and be earned by the recipient at
the rate of 20% per year, commencing October 10, 1996. The unearned portion of
these stock awards is presented as a reduction of shareholders' equity. An
expense of approximately $239,000 was recorded for these Plans for the year
ended September 30, 1996.
Employee Stock Ownership Plan (ESOP): In conjunction with the stock conversion,
the Company established an ESOP for eligible employees. Employees with 1,000
hours of employment with the Bank and who have attained age 21 are eligible to
participate. The ESOP borrowed $2,312,090 from the Company to purchase 231,209
shares of the common stock issued in the conversion at $10 per share. Collateral
for the loan is the unearned shares of common stock purchased with the loan
proceeds by the ESOP. The loan will be repaid principally from the Bank's
discretionary contributions to the ESOP over a period of twelve years. The
interest rate for the loan is a variable monthly rate equal at all times to the
Applicable Federal Rate. Shares purchased by the ESOP are held in a suspense
account for allocation among participants as the loan is repaid. Expense of
approximately $352,000, $169,000 and $0 was recorded relative to the ESOP for
the years ended September 30, 1996, 1995 and 1994, respectively. Contributions
of $310,000, $167,000 and $0 were made to the ESOP during the years ended
September 30, 1996, 1995 and 1994, respectively. Dividends on unearned shares
are used to reduce the accrued interest and principal amount of the ESOPs loan
payable to the Company.
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 7 - EMPLOYEE BENEFITS (Continued)
Contributions to the ESOP and shares released from the suspense account in an
amount proportional to the repayment of the ESOP loan are allocated among ESOP
participants on the basis of compensation in the year of allocation. Benefits
generally become 100% vested after five years of credited service. Credit for
vesting purposes is given for years of service prior to the effective date of
the ESOP. Prior to the completion of five years of credited service, a
participant who terminates employment for reasons other than death, normal
retirement, or disability does not receive any benefit under the ESOP.
Forfeitures are reallocated among remaining participating employees, in the same
proportion as contributions. Benefits are payable in the form of stock or cash
upon termination of employment. The Company's contributions to the ESOP are not
fixed, so benefits payable under the ESOP cannot be estimated.
ESOP participants are entitled to receive distributions from their ESOP accounts
only upon termination of service. A participant entitled to a distribution may
require the Company to repurchase the stock in the event that the stock is not
readily tradable on an established market (referred to as the put option). In
general, participants are entitled to exercise the put option for a period of
not more than 60 days following the date of distribution of the stock. As the
Company's common stock is traded on the NASDAQ Small-Cap market under the symbol
"HBFW", the provisions of the put option currently have no effect.
For the years ended September 30, 1996 and 1995, 23,237 shares with an average
fair value of $15.07 and 12,350 shares with an average fair value of $13.66 per
share, respectively, were committed to be released.
The ESOP shares as of September 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Allocated shares ................................. 35,587 12,350
Unearned shares .................................. 195,622 218,859
---------- ----------
Total ESOP shares ................................ 231,209 231,209
========== ==========
Fair value of unearned shares at September 30 .... $3,105,499 $3,447,029
========== ==========
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 7 - EMPLOYEE BENEFITS (Continued)
Stock Option Plan: The Board of Directors of the Company adopted the Home
Bancorp 1995 Stock Option and Incentive Plan (the "Plan") in conjunction with
the stock conversion. The number of options authorized under the Plan is 10% or
330,317 shares of common stock issued in the conversion. Officers, directors and
key employees of the Company and its subsidiaries are eligible to participate in
the Plan. The option exercise price must be at least 100% of the market value
(as defined in the Plan) of the common stock on the date of the grant, and the
option term cannot exceed 10 years. Eligible officers and directors of the
Company are able to exercise options awarded to them at a rate of 20% per year,
October 10, 1996 being the first possible exercise date.
A summary of plan transactions is:
<TABLE>
<CAPTION>
Effective Price
Per Share
Available Options at Date
For Grant Outstanding Granted
--------- ----------- -------
<S> <C> <C> <C>
Balance at October 10, 1995 ........... 330,317 --
Granted (expire October 10, 2005) ..... 228,504 228,504 $ 15.25
------- -------
Balance at September 30, 1996 ......... 101,813 228,504
======= =======
</TABLE>
NOTE 8 - INCOME TAXES
Income tax expense for the years ended September 30 is:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal
Current ............ $ 1,410,864 $ 1,119,220 $ 887,738
Deferred ........... (390,632) 61,709 58,184
----------- ----------- -----------
1,020,232 1,180,929 945,922
State
Current ............ 422,380 335,613 275,762
Deferred ........... (161,441) 18,387 11,238
----------- ----------- -----------
260,939 354,000 287,000
----------- ----------- -----------
Income tax expense ...... $ 1,281,171 $ 1,534,929 $ 1,232,922
=========== =========== ===========
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 8 - INCOME TAXES (Continued)
The differences between the provision for income taxes shown on the statements
of income and amounts computed by applying the statutory federal income tax rate
of 34% to income before income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory rate ................ $ 991,838 $ 1,358,616 $ 1,108,033
Increase (decrease) in taxes resulting from:
Other ..................................... 117,113 (57,327) (64,531)
State tax, net of federal income tax effect 172,220 233,640 189,420
----------- ----------- -----------
Income tax expense ........................ $ 1,281,171 $ 1,534,929 $ 1,232,922
=========== =========== ===========
Effective tax rate ........................ 43.9% 38.4% 37.8%
=========== =========== ===========
</TABLE>
Components of the net deferred tax asset as of
September 30 are:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
SAIF assessment ........................... $ 652,686 $ --
Bad debts ................................. -- 60,995
Deferred loan fees ........................ 155,588 179,700
Other ..................................... 125,953 88,458
----------- -----------
Total deferred tax assets ............ 934,227 329,153
Deferred tax liabilities:
Bad debts ................................. (41,936) --
Discount accretion ........................ (111,323) (100,258)
Net unrealized appreciation on securities
available for sale ...................... (1,608) --
----------- -----------
Total deferred tax liabilities ....... (154,867) (100,258)
Valuation allowance ........................... -- --
----------- -----------
Net deferred tax asset ........................ $ 779,360 $ 228,895
=========== ===========
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 8 - INCOME TAXES (Continued)
Retained earnings at September 30, 1996 includes approximately $7,600,000 for
which no deferred federal income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses
would create income for tax purposes only, which would be subject to the
then-current corporate income tax rate. The unrecorded deferred income tax
liability on the above amount was approximately $2,584,000 at September 30,
1996.
NOTE 9 - CAPITAL STANDARDS
The Bank is subject to various regulatory capital requirements. Failure to meet
minimum capital requirements can initiate certain mandatory or discretionary
actions by regulators that could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines using the Bank's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Bank's
requirements are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
The Bank's actual capital and required capital amounts and ratios are presented
below:
<TABLE>
<CAPTION>
Requirement
To Be Well
Requirement Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1996
Tangible Capital ..... $38,450 12.13% $ 4,754 1.50% $ 9,508 3.00%
Core Capital ......... 38,450 12.13% 9,508 3.00% 19,016 6.00%
Risk-Based Capital ... 39,833 27.12% 11,743 8.00% 14,680 10.00%
As of September 30, 1995
Tangible Capital ..... $37,570 12.56% $ 4,487 1.50% $ 8,975 3.00%
Core Capital ......... 37,570 12.56% 8,975 3.00% 17,950 6.00%
Risk-Based Capital ... 38,942 31.24% 9,974 8.00% 12,465 10.00%
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 9 - CAPITAL STANDARDS (Continued)
Regulations of the Office of Thrift Supervision limit the amount of dividends
and other capital distributions that may be paid by a savings institution
without prior approval of the Office of Thrift Supervision. The regulatory
restriction is based on a three-tiered system with the greatest flexibility
being afforded to well-capitalized (Tier 1) institutions. The Bank is currently
a Tier 1 institution. Accordingly, the Bank can make, without prior regulatory
approval, distributions during a calendar year up to 100% of its net income to
date during the calendar year plus an amount that would reduce by one-half its
"surplus capital ratio" (the excess over its capital requirements) at the
beginning of the calendar year. Accordingly, at September 30, 1996 approximately
$14,498,000 of the Bank's retained earnings is potentially available for
distribution to the Company.
In addition to the restriction described above, the Bank may not declare or pay
cash dividends or repurchase any if its shares of common stock if the effect
thereof would reduce the Bank's capital level below the aggregate balance
required for the liquidation account (as described in Note 16.)
NOTE 10 - FEDERAL DEPOSIT INSURANCE PREMIUM
The deposits of savings associations such as the Bank are insured by the Savings
Association Insurance Fund ("SAIF"). A recapitalization plan signed into law on
September 30, 1996 provide for a one-time assessment of 65.7 basis points
applied to all SAIF deposits as of March 31, 1995. Based on the Bank's deposits
as of this date, a one-time assessment of approximately $1,648,000 was recorded
as a noninterest expense for the year ended September 30, 1996.
NOTE 11 - OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expenses for the years ended September 30 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Other noninterest income
Service charges and fees ...... $ 129,656 $ 125,405 $ 113,358
Late charges .................. 42,270 48,776 42,458
Other ......................... 55,098 45,171 90,906
---------- ---------- ----------
$ 227,024 $ 219,352 $ 246,722
========== ========== ==========
Other noninterest expenses
Advertising and promotion ..... $ 187,176 $ 244,498 $ 182,649
Data processing ............... 250,114 263,583 237,061
Professional fees ............. 164,765 161,572 79,358
Telephone, postage and supplies 172,657 188,456 199,131
Other ......................... 376,171 415,705 271,759
---------- ---------- ----------
$1,150,883 $1,273,814 $ 969,958
========== ========== ==========
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 12 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. The principal commitments,
excluding loans in process, of the Company are as follows at September 30, 1996:
<TABLE>
<CAPTION>
Fixed Variable
Rate Rate Total
---------- ---------- ----------
<S> <C> <C> <C>
Mortgage loans ................. $3,308,775 $2,327,200 $5,635,975
Consumer and other loans ....... 20,000 274,500 294,500
---------- ---------- ----------
$3,328,775 $2,601,700 $5,930,475
========== ========== ==========
</TABLE>
The principal commitments, excluding loans in process, of the Company are as
follows at September 30, 1995:
<TABLE>
<CAPTION>
Fixed Variable
Rate Rate Total
---------- ---------- ----------
<S> <C> <C> <C>
Mortgage loans ................. $5,795,200 $ 719,200 $6,514,400
Consumer and other loans ....... 57,000 110,200 167,200
---------- ---------- ----------
$5,852,200 $ 829,400 $6,681,600
========== ========== ==========
</TABLE>
The majority of loan commitments have commitment periods up to six months, loan
terms ranging from 10 years to 30 years and contractual interest rates ranging
from 7.50% to 10.875%.
The Company has commitments for unused lines of credit aggregating $8,385,000 at
September 30, 1996.
Since certain commitments to make loans and to fund lines of credit and loans in
process expire without being used, the amount does not necessarily represent
future cash commitments. In addition, commitments used to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. The Company's exposure to credit loss in
the event of nonperformance by the other party to these financial instruments is
represented by the contractual amount of these instruments. The Company follows
the same credit policy to make such commitments as is followed for those loans
recorded on the consolidated balance sheet.
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
At September 30, 1996, the Company has an approved line of credit of $10,000,000
with the Federal Home Loan Bank of Indianapolis. In the event the Company were
to draw on the line, the Company would pledge specific mortgage loans as
collateral.
The Company has long-term leases for premises which expire at various dates
through 2001. The Company pays taxes, insurance and maintenance costs on such
premises. Total lease expense related to these premises was approximately
$80,000 for each of the years ended September 30, 1996, 1995 and 1994.
The Company and the Bank are subject to certain claims and legal actions arising
in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material adverse effect on the consolidated financial
position of the Company.
NOTE 13 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Company grants real estate and consumer loans including home improvement and
other consumer loans primarily in Allen and Adams counties. Loans secured by
residential real estate mortgages comprise approximately 99% of the loan
portfolio. The Company is also involved in the sale of mortgage loans and
servicing of these loans for secondary market agencies. The Company's policy for
collateral on mortgage loans allows borrowings up to 95% of the appraised value
of the property as established by appraisers approved by the Company's Board of
Directors, provided that private mortgage insurance is obtained in an amount
sufficient to reduce the Company's exposure to or below the 80% loan-to-value
level. The percentage and documentation guidelines are designed to protect the
Company's interest in the collateral as well as to comply with guidelines for
sale in the secondary market.
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are condensed financial statements for the parent company, Home
Bancorp:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
September 30, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................... $ 2,213,886 $ 6,186,815
Investment in subsidiary bank .................. 38,449,564 37,570,452
Securities held to maturity .................... 3,974,088 7,957,514
Loan receivable from ESOP ...................... 2,001,177 2,215,753
Other assets ................................... 94,467 150,748
----------- -----------
Total assets .............................. $46,733,182 $54,081,282
=========== ===========
LIABILITIES
Accrued expenses ............................... $ 19,967 $ 20,830
SHAREHOLDERS' EQUITY ........................... 46,713,215 54,060,452
----------- -----------
Total liabilities and shareholders' equity $46,733,182 $54,081,282
=========== ===========
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
For the period
For the March 29, 1995
year ended through
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Interest income ...................................... $ 727,979 $ 505,842
Dividends from subsidiary bank ....................... 907,000 --
Net realized gains on sales of securities
available for sale ................................. 1,438 --
---------- ----------
1,636,417 505,842
Operating expenses ................................... 384,354 25,012
---------- ----------
Income before income taxes and equity in undistributed
earnings of subsidiary bank ........................ 1,252,063 480,830
Equity in undistributed earnings of subsidiary bank .. 521,000 1,076,000
---------- ----------
Income before income taxes ........................... 1,773,063 1,556,830
Income tax expense ................................... 137,063 190,830
---------- ----------
Net income ........................................... $1,636,000 $1,366,000
========== ==========
</TABLE>
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
For the March 29, 1995
year ended through
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income ............................................ $ 1,636,000 $ 1,366,000
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed income of subsidiary bank . (521,000) (1,076,000)
Amortization, net of accretion .................... 200,417 --
Accretion, net of amortization .................... -- (14,001)
Net realized gains on sales of securities
available for sale .............................. (1,438) --
Net change in other assets ........................ 56,281 (150,748)
Net change in accrued expenses .................... (863) 20,830
------------ ------------
Net cash provided by operating activities .... 1,369,397 146,081
Cash flows from investing activities
Proceeds from sales of securities available for sale .. 2,032,376 --
Proceeds from maturities of securities held to maturity 4,000,000 --
Purchase of securities available for sale ............. (2,030,938) --
Purchase of securities held to maturity ............... -- (7,943,513)
Origination of loan receivable from ESOP .............. -- (2,312,090)
Repayments on loan receivable from ESOP ............... 214,576 96,337
Purchase of stock in subsidiary bank .................. -- (16,200,000)
------------ ------------
Net cash provided by (used in) investing activities 4,216,014 (26,359,266)
Cash flows from financing activities
Proceeds from issuance of common stock, net of
conversion costs .................................... -- 32,406,000
Purchase of treasury stock ............................ (9,294,413) --
Cash dividends paid ................................... (263,947) --
------------ ------------
Net cash provided by (used in) financing activities (9,558,360) 32,400,000
Net change in cash and cash equivalents .................... (3,972,949) 6,186,815
Cash and cash equivalents at beginning of period ........... 6,186,815 --
------------ ------------
Cash and cash equivalents at end of period ................. $ 2,213,866 $ 6,186,815
============ ============
</TABLE>
The extent to which the Company may pay cash dividends to shareholders will
depend on the cash currently available at the Company, as well as the Bank's
ability to pay dividends to the Company (see Note 9).
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value and the related carrying
amounts of the Company's financial instruments at September 30, 1996 and 1995.
Items which are not financial instruments are not included.
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents ... $ 11,922,568 $ 11,923,000 $ 21,389,727 $ 21,390,000
Securities available for sale 3,969,375 3,969,000 -- --
Securities held to maturity . 48,818,448 49,273,000 69,949,107 70,622,000
Loans receivable, net ....... 250,305,646 245,046,000 214,404,753 213,272,000
Federal Home Loan Bank
stock ..................... 2,054,200 2,054,000 1,967,500 1,968,000
Demand and savings deposits . (37,411,216) (37,411,000) (38,479,827) (38,480,000)
Certificates of deposit ..... (233,774,251) (233,575,000) (217,628,228) (219,083,000)
Advances from borrowers for
taxes and insurance ....... (1,886,859) (1,887,000) (1,798,345) (1,798,000)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used as of September 30, 1996 and 1995. The estimated fair
value for cash and cash equivalents, Federal Home Loan Bank stock, demand and
savings deposits and advances from borrowers for taxes and insurance is
considered to approximate cost. The estimated fair value for securities is based
on quoted market values for the individual securities or equivalent securities.
The estimated fair value for loans is based on estimates of the rate the Bank
would charge for similar such loans at September 30, 1996 and 1995, applied for
the time period until the loans are assumed to reprice or be paid. The estimated
fair value for certificates of deposit is based on estimates of the rate the
Bank would pay on such deposits at September 30, 1996 and 1995, applied for the
time period until maturity. The estimated fair value of other financial
instruments and off-balance sheet loan commitments approximate cost and are not
considered significant for this presentation.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at September 30, 1996 and 1995, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. The estimated fair values at
September 30, 1996 and 1995 should not necessarily be considered to apply at
subsequent dates.
In addition, other assets and liabilities of the Company that are not defined as
financial instruments are not included in the above disclosures, such as
premises and equipment. Also, non-financial instruments typically not recognized
in financial statements nevertheless may have value but are not included in the
above disclosures. These included, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing rights,
the trained work force, customer goodwill and similar items.
<PAGE>
HOME BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 16 - CHANGE IN CHARTER AND CONVERSION TO STOCK FORM OF OWNERSHIP
The Indiana Department of Financial Institutions ("DFI") and the Federal Deposit
Insurance Corporation ("FDIC") approved the Bank's application for a change in
charter, effective December 23, 1994, from an Indiana mutual savings bank,
supervised by the DFI and FDIC, to a federally chartered mutual savings bank,
supervised by the Office of Thrift Supervision ("OTS").
On December 13, 1994, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, adopted a Plan of Conversion
to convert from a federally chartered mutual savings bank to a federally
chartered stock savings bank with the concurrent formation of the Company as the
Bank's holding company. The conversion was consummated on March 29, 1995 by
amending the Bank's federal charter and the sale of the Company's common stock
in an amount equal to the proforma market value of the Company after giving
effect to the conversion. A subscription offering of the shares of the Company's
common stock was offered initially to the Bank's depositors and tax-qualified
employee plans of the Bank and the Company, then to other members and Directors,
officers and employees of the Bank, then to the general public, with a
preference to people residing in Allen County, Indiana. Proceeds of $32,400,000
were received from the sale of 3,303,178 common shares, after deduction of
conversion costs of $631,780. With the conversion, the Company issued 231,209
shares for the ESOP in exchange for a note receivable from the ESOP. Upon the
closing of the stock offering, the Company used 50% of the net proceeds of the
conversion to purchase 100% of the common shares of the Bank. The Bank is now a
wholly-owned subsidiary of the Company. The conversion was an internal
reorganization with historical balances carried forward without adjustment.
At the time of the conversion, the Company established a liquidation account in
an amount equal to its total net worth as of the date of the latest balance
sheet appearing in the final prospectus ($21,370,000 at September 30, 1994). 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 the accounts then held. The
liquidation account balance is not available for payment of dividends. This is
less restrictive than the divided limitation discussed in Note 9.
In December 1993, the Board of Directors of the Bank adopted an initial Plan of
Conversion to convert from a state chartered mutual savings bank to a state
chartered stock savings bank. The initial Plan of Conversion was not approved by
the FDIC and, therefore, the costs of conversion were charged to expense during
the year ended September 30, 1994.
<PAGE>
CORPORATE AND SHAREHOLDER INFORMATION
Company and Bank Address
132 East Berry Street
P. O. Box 989
Fort Wayne, Indiana 46801-0989
Telephone: (219) 422-3502
Facsimile: 219.426.7027
Stock Price Information
The Company's stock is traded on The Nasdaq National Market under the symbol
"HBFW." The table below shows the range of high and low bid prices of the
Company's Common Stock for fiscal year 1996. The information set forth in the
table below was provided by The Nasdaq Stock Market. Such information reflects
interdealer prices, without retail mark-up, mark-down or commission, and may not
represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year 1995 1996
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter .............. $ 16.00 $ 14.50
Second Quarter(1) .......... $ 13.00 $ 10.00 $ 15.25 $ 13.75
Third Quarter .............. $ 14.50 $ 12.50 $ 15.25 $ 14.25
Fourth Quarter ............. $ 15.75 $ 12.50 $ 16.50 $ 14.75
</TABLE>
(1) Reflects the period from March 29, 1995 through March 31, 1995.
- ------------------------
The third quarterly $0.05 per share dividend was declared on the Company's
common stock, payable December 19, 1996 to shareholders of record November 29,
1996. For information regarding restrictions on dividends, see Note 9 to the
Consolidated Financial Statements.
As of November 25, 1996, the Company had approximately 1,672 shareholders of
record and 2,762,350 outstanding shares of Common Stock. There were an estimated
973 beneficial owners of shares held by brokers and fiduciaries.
Investor Relations
Stockholders, investors and analysts interested in additional
information may contact:
W. Paul Wolf, CEO
Home Bancorp
132 East Berry Street
P. O. Box 989
Fort Wayne, IN 46801-0989
(219) 422-3502
Annual Report on Form 10-K
Copies of Home Bancorp's Annual Report for year ended September 30, 1996 on Form
10-K filed with the Securities and Exchange Commission are available without
charge to shareholders upon written request to:
Investor Relations
Home Bancorp
P. O. Box 989
Fort Wayne, IN 46801-0989
<PAGE>
Annual Meeting
The annual meeting of shareholders of Home Bancorp will be held at 2:00 p.m.,
local time, on Tuesday, January 28, 1997, at the Holiday Inn Downtown, located
at 300 East Washington Boulevard, Fort Wayne, Indiana.
Stock Transfer Agent and Registrar
Home Bancorp's transfer agent, Registrar and Transfer Company, maintains all
shareholder records and can assist with stock transfer and registration address
changes, changes or corrections in social security or tax identification numbers
and 1099 tax reporting questions. If you have questions, please contact the
stock transfer agent at the address below:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Toll Free (800) 368-5948
Stock Listing
Home Bancorp stock is traded on The Nasdaq National Market under the symbol
HBFW. The following newspaper stock tables list the Company as:
<TABLE>
<CAPTION>
<S> <C>
The Journal Gazette.......................................HmeBc
The News-Sentinel.........................................HmeBc
Indianapolis Star.........................................HmeBc
New York Times............................................HmeBc
USA Today.................................................HmeBc
Chicago Tribune...........................................HomeBnc
Wall Street Journal.......................................HomeBcp
</TABLE>
<PAGE>
Home Loan Bank - Banking Offices
Corporate 132 E. Berry St. (46802)
(219) 422-3502
Southtown 1110 E. Tillman Rd. (46816)
(219) 447-3531
Marketplace of Canterbury 5611 Saint Joe Rd. (46835)
(219) 485-1619
Georgetown North 6411 E. State Blvd. (46815)
(219) 486-0646
Covington/Time Corners 6128 Covington Rd. (46804)
(219) 432-0606
Northwest 926 W. State Blvd. (46808)
(219) 482-6391
Decatur 101 N. Second St.
Decatur, Indiana (46733)
(219) 728-2155
New Haven 1230 E. Lincoln Hwy.
New Haven, Indiana (46774)
(219) 749-1780
Dupont Crossing 720 E. Dupont Rd. (46825)
(219) 490-4663
<PAGE>
Mission Statement
The mission statement of Home Loan Bank, subsidiary of Home Bancorp,
reflects a chartered course for meeting the financial needs of our customers
with an encouragement of investments and the promotion of home ownership.
We are committed to providing the highest quality financial services
for all customers in our operating areas, while maintaining a conservative,
well capitalized, liquid and profitable financial institution.
Further, we shall perform our obligations in an ethical manner in the
community as a responsible corporate citizen, and will strive to provide
our employees with a pleasant and challenging environment in which they
are motivated to achieve outstanding performance as individuals and as
a team, and to obtain a sense of personal growth and achievement.
<PAGE>
MARKET MAKERS AS OF SEPTEMBER 30, 1996
Capital Resources, Inc.
The Chicago Corporation
Everen Securities, Inc.
Friedman, Billings, Ramsey & Co., Inc.
Herzog, Heine, Geduld, Inc.
Howe Barnes Investments, Inc.
J.J.B. Hilliard, W.L. Lyons
Keefe, Bruyette & Woods, Inc.
McDonald & Company Securities, Inc.
Ryan, Beck & Co.
Sandler O'Neill & Partners, L.P.
Stifel, Nicolaus & Company, Inc.
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Board of Directors (Year appointed
(Home Bancorp and Home Loan Bank) to Bank Board)
- --------------------------------- --------------
<S> <C> <C>
W. Paul Wolf Chairman of the Board and President 1961
Rod M. Howard Retired, Howard's Graphic Supply 1969
Walter A. McComb, Jr. McComb Funeral Homes 1982
Richard P. Hormann Hoffman & Co., Inc. 1987
C. Philip Andorfer CPA 1988
Luben Lazoff Lazoff & Associates 1991
Daniel F. Fulkerson McMahon Paper Company 1993
Matthew P. Forrester Vice President and Treasurer 1994
- --------------------
</TABLE>
Officers of
Home Bancorp
W. Paul Wolf
Chairman, President and
Chief Executive Officer
Matthew P. Forrester
Vice President/Treasurer
Gary L. Hemrick
Vice President/Secretary
Luben Lazoff
Assistant Secretary
- --------------------------------------------------------------------------------
Home Bancorp
Home Bancorp
132 East Berry St. - P.O. Box 989
Fort Wayne, Indiana 46801-0989
Telephone (219) 422-3502
Facsimile 219-426-7027
<PAGE>
Officers of
Home Loan Bank fsb
W. Paul Wolf Robert V. Earl
Chairman, President and CEO Assistant Vice President
Donald E. Thornton Stanley J. Amstutz
Vice President of Lending/Secretary Assistant Vice President
Gary L. Hemrick Shirley A. Brincefield
Vice President of Operations Assistant Vice President
Matthew P. Forrester Helen E. Roscoe
Vice President/Treasurer/CFO Assistant Vice President
Donald P. Tuszynski Linda M. DeGroff
Vice President/Decatur Lending Assistant Vice President
John E. Fitzgerald Timothy A. Sheppard
Vice President/CRA Officer Assistant Treasurer
Barbara J. Boyd Luben Lazoff
Vice President of Retail Banking Assistant Secretary
Paul N. Lewark Jerry W. Gump
Assistant Vice President Internal Auditor/Compliance Officer
James M. Turner Lupka Baloski
Assistant Vice President Personnel Director
Robert P. Norton Sue A. Rossi
Assistant Vice President Branch Manager
Betty A. Schlensker Ruth A. Marburger
Assistant Vice President Branch Manager
Irene A. Thain Jody J. Morrissey
Assistant Vice President Processing Manager
Gladys A. Thomas Mark R. Freudenberg
Assistant Vice President Branch Manager
Exhibit 21
Subsidiaries of the Registrant
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary
Percent State of
of Incorporation
Parent Subsidiary Ownership or Organization
- ------ ---------- --------- ---------------
Home Bancorp Home Loan Bank fsb 100% Federal
Exhibit 23
Consents of Experts and Counsel
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
333-4138 and 333-4140 of Home Bancorp on Form S-8, of our report dated October
23, 1996 contained in the Annual Report to Shareholders under Exhibit 13 to Home
Bancorp's Annual Report on Form 10-K for the fiscal year ended September 30,
1996.
/s/Crowe, Chizek and Company LLP
--------------------------------
Crowe, Chizek and Company LLP
South Bend, Indiana
December 16, 1996
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,207
<INT-BEARING-DEPOSITS> 4,616
<FED-FUNDS-SOLD> 6,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,969
<INVESTMENTS-CARRYING> 48,818
<INVESTMENTS-MARKET> 49,273
<LOANS> 250,306
<ALLOWANCE> 1,385
<TOTAL-ASSETS> 322,702
<DEPOSITS> 271,185
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,804
<LONG-TERM> 0
0
0
<COMMON> 33,758
<OTHER-SE> 12,955
<TOTAL-LIABILITIES-AND-EQUITY> 322,702
<INTEREST-LOAN> 18,119
<INTEREST-INVEST> 4,794
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 22,913
<INTEREST-DEPOSIT> 13,787
<INTEREST-EXPENSE> 13,787
<INTEREST-INCOME-NET> 9,126
<LOAN-LOSSES> 13
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 6,426
<INCOME-PRETAX> 2,917
<INCOME-PRE-EXTRAORDINARY> 2,917
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,636
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 7.38
<LOANS-NON> 0
<LOANS-PAST> 231
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,372
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,385
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,385
</TABLE>
