UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-24896
HOME BUILDING BANCORP, INC.
(Name of small business issuer in its charter)
Indiana 35-1935840
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
200 East Van Trees Street, Washington, Indiana 47501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (812) 254-2641
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past
90 days. YES X . NO ___.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X ]
State the issuer's revenues for its most recent fiscal year: $3.5 million.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average of the closing price of such
stock on the Nasdaq System as of December 27, 1999, was $4.2 million.
(The exclusion from such amount of the market value of the shares owned by
any person shall not be deemed an admission by the registrant that such
person is an affiliate of the registrant.)
As of December 27, 1999, there were issued and outstanding 331,660 shares of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Portions of the Annual Report to Stockholders for the
fiscal year ended September 30, 1999.
Part III of Form 10-KSB - Portions of the Proxy Statement for the Annual
Meeting of Stockholders held in January 2000.
Transitional Small Business Disclosure Format (check one): Yes ; No X .
<PAGE>
Forward-Looking Statements
When used in this Annual Report on Form 10-KSB 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 and national economic conditions, changes in
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 any revisions that may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
Impact of the Year 2000
The Company has conducted a comprehensive review of its computer
systems to identify applications that could be affected by the "Year 2000"
issue, and has developed implementation plans to address the issue. The
Company's basic data processing is performed by a data service bureau. The
Company also relies on various vendors to provide data related services,
including ATM/debit card processing, and check processing. The Company
has contacted each vendor and monitored each one to determine their progress
toward Y2K compliance. The Company has been informed by its primary
service providers that all reprogramming efforts have been completed and
tested. The Company, as a part of its plan, participated in these tests as
well as communications testing. Under its plan, management identified
certain hardware and software equipment that was not Year 2000 compliant.
These items have been replaced and tested. These capital expenditures, along
with the costs associated with testing, totaled approximately $40,000.
Although, the Company believes it has taken all reasonable steps to assure
Y2K compliance, it cannot guarantee its operations will not be affected.
However, based on its progress to date and the remaining steps to be
completed before December 31, 1999, the Company does not anticipate any
material operational problem or expense to occur due to the Y2K issue.
<PAGE>
PART I
Item 1. Description of Business
General
Home Building Bancorp, Inc. (the "Company"), an Indiana corporation,
was formed in September 1994 to act as the holding company for Home
Building Savings Bank, FSB (the "Bank") upon the completion of the Bank's
conversion from the mutual to the stock form (the "Conversion"). The
Conversion was completed on February 7, 1995. All references to the Company,
unless otherwise indicated, at or before February 7, 1995 refer to the Bank.
The Company's common stock trades on The NASDAQ Stock Market Bulletin
Board under the symbol "HBBI."
At September 30, 1999, the Company had $48.9 million of assets and
stockholders' equity of $6.2 million (or 12.68% of total assets).
The Bank is a federally chartered stock savings bank headquartered in
Washington, Indiana. The Bank is a member of the Savings Association
Insurance Fund (the "SAIF"), which is administered by the Federal Deposit
Insurance Corporation (the "FDIC"). Its deposits are insured up to applicable
limits by the FDIC, which is backed by the full faith and credit of the United
States Government.
The principal business of the Company consists of attracting retail
deposits from the general public and investing those funds, together with
borrowings and other funds, to originate primarily loans secured by first
mortgages on owner-occupied one- to four-family residences. The Company also
originates consumer loans, and to a significantly lesser extent, loans secured
by commercial and multi-family real estate and commercial business loans. The
Company also invests in U.S. Government securities and other investment
securities.
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms. The Company only solicits deposits in its primary
market area and does not accept brokered deposits.
The Company's revenues are derived principally from interest on mortgage,
consumer and commercial loans, interest on investment and mortgage-backed
securities, interest on time deposits at other banks, and service fee income.
The executive office of the Company is located at 200 East Van Trees Street,
Washington, Indiana 47501. Its telephone number at that address is (812)
254-2641.
<PAGE>
Market Area
The Company primarily serves Daviess and Pike Counties, Indiana, through the
Bank's main office located in Washington, Indiana and a branch office located
in Petersburg, Indiana. Washington, Indiana is the county seat of
Daviess County, and is approximately 100 miles southwest of Indianapolis and
approximately 50 miles northeast of Evansville, Indiana. Petersburg is the
county seat of Pike County, which is immediately south of Daviess County.
Lending Activities
General. Historically, the Company originated primarily fixed-rate one- to
four-family mortgage loans. In the early 1980's, the Company introduced the
origination of ARM loans and short-term loans for retention in its portfolio,
in order to increase the percentage of loans in its portfolio with more
frequent repricing or shorter maturities than traditional long-term, fixed-rate
mortgage loans. Nevertheless, the Company has continued to originate fixed-
rate mortgage loans in response to customer demand, generally for terms of up to
15 years. See "- Originations, Purchases and Sales of Loans and Mortgage-
Backed Securities" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management" contained in
the Annual Report to Stockholders attached hereto as Exhibit 13 (the "Annual
Report").
The Company primarily focuses its lending activities on the origination
of loans secured by first mortgages on owner-occupied one- to four-family
residences, consumer loans (including automobile loans), and to a significantly
lesser extent, commercial business, construction, multi-family and commercial
real estate loans. Substantially all of the Company's loans are originated in
its primary market area. In April 1999 the Company recruited an experienced
commercial loan officer, who will expand the services and products offered to
self-employed and small business owners in the Company's lending area. At
September 30, 1999, the Company's net loans receivable totaled $36.8 million.
The Executive Committee of the Bank is responsible for review of all
mortgage loan applications. The Executive Committee currently consists of
three board members: President Bruce A. Beesley and Directors James E. Scheid
and Gregory Haag. The Executive Committee generally meets monthly to
review loan applications. Individual loan officers and the Executive Committee
each have authority, up to individually authorized lending limits, to approve
loans.
The Bank's loans-to-one-borrower limit is generally limited to the greater of
15% of unimpaired capital and surplus or $500,000. See "Regulation - Federal
Regulation of Savings Banks." At September 30, 1999, the maximum amount
which the Bank could have lent to any one borrower and the borrower's related
entities was $720,000. At September 30, 1999, the Bank had no loans with
aggregate outstanding balances in excess of this amount. The Company's
largest lending relationship at that date consisted of six loans to a single
borrower totaling $ 396,000 secured by a first mortgage on the borrower's
residence and commercial inventory, equipment and account receivables. The
Company had only five other loans or lending relationships in excess of
$150,000 at September 30, 1999. All of these loans are currently performing in
accordance with their repayment terms. Management reserves the right to
change the amount or type of lending in which it engages to adjust to market or
other factors.
<PAGE>
Loan Portfolio Composition. The following table presents the composition of
the Company's loan portfolio in dollar amounts and in percentages (before
deductions for loans in process, deferred fees and discounts and allowances
for losses) as of the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1999 1998
Amount Percent Amount Percent
(Dollars in Thousands)
Real Estate Loans:
<S> <C> <C> <C> <C>
One- to four-family $28,900 77.7% $26,869 81.6%
Residential construction 469 1.3 111 .3
Multi-family and commercial 1,540 4.2 328 1.0
Total real estate loans 30,909 83.2 27,308 82.9
Other Loans:
Consumer Loans:
Automobile 1,904 5.1 1,751 5.3
Home equity/home improvement/2nd
mortgages..... 2,701 7.3 2,669 8.1
Unsecured 244 0.6 346 1.1
Deposit account 614 1.6 570 1.7
Total consumer loans 5,463 14.6 5,336 16.2
Commercial business loans 813 2.2 301 0.9
Total other loans 6,276 16.8 5,637 17.1
Total loans receivable, gross 37,185 100.0% 32,945 100.0 %
Less:
Loans in process 192 127
Deferred fees and discounts 64 67
Allowance for losses 86 92
Total loans receivable, net $ 36,843 $32,659
</TABLE>
During the 1999 fiscal year, the Company's percentage of fixed-rate
loans increased from the prior fiscal year. The following table presents the
composition of the Company's loan portfolio by fixed- and adjustable-rate at
the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1999 1998
Amount Percent Amount Percent
(Dollars in Thousands)
Fixed-Rate Loans:
<S> <C> <C> <C> <C>
Real estate:
One- to four-family $ 23,102 62.1 % $ 19,306 58.6 %
Residential construction 469 1.3 111 .3
Multi-family and commercial 1,540 4.2 328 1.0
Total real estate loans 25,111 67.6 19,745 59.9
Consumer 5,463 14.6 5,336 16.2
Commercial business 813 2.2 301 0.9
Total fixed-rate loans 31,387 84.4 25,382 77.0
Adjustable-Rate Loans:
Real estate:
One- to four-family 5,798 15.6 7,563 23.0
Total adjustable-rate loans 5,798 15.6 7,563 23.0
Total loans receivable, gross 37,185 100.0 % 32,945 100.0 %
Less:
Loans in process 192 127
Deferred fees and discounts 64 67
Allowance for loan losses 86 92
Total loans receivable, net $ 36,843 $32,659
</TABLE>
The following table presents the contractual maturities of the Company's loan
portfolio at September 30, 1999. Loans that have adjustable or renegotiable
interest rates are shown as maturing in the period during which the contract is
due. The table does not reflect the effects of possible prepayments or due-on-
sale clauses.
<TABLE>
<CAPTION>
Real Estate
______________________________________________
Multi-family
One- to and Residential Commercial
Four-Family Commercial Construction Consumer Business Total
(In Thousands)
Due During
Periods Ending
September 30,
<S> <C> <C> <C> <C> <C> <C>
2000............. $ 30 $ 0 $ 469 $ 1,529 $ 584 $ 2,612
2001 through 2004 1,330 87 0 2,064 217 3,698
2005 and following 27,540 1,453 0 1,870 12 30,875
Total ......... $ 28,900 $1,540 $ 469 $ 5,463 $ 813 $ 37,185
<FN>
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
</TABLE>
<PAGE>
The total amount of loans due after September 30, 2000 which have fixed
interest rates is $29.4 million, while the total amount of loans due after
such date which have floating or adjustable interest rates is $5.3 million.
One- to Four-Family Residential Mortgage Lending. Residential loan
originations are generated by the Company's marketing efforts (which include
radio, newspaper and direct mail), its present customers, walk-in customers and
referrals from real estate brokers. The Company has focused its lending
efforts primarily on the origination of loans secured by first mortgages on
owner-occupied, single-family residences in its market area. At September 30,
1999, such loans constituted 78.5% of the Company's gross loans receivable,
down from 81.6% at September 30, 1998.
The Company currently offers fixed-rate and ARM loans. For the year ended
September 30, 1999, the Company originated $229,000 of adjustable-rate real
estate loans secured by one- to four-family residential real estate. During
the same period, the Company originated $8.71million of fixed-rate one- to four-
family real estate loans. The Company's one- to four-family residential
mortgage originations are secured by properties located in its primary market
area.
The Company currently originates ARM loans generally with a term of
15 to 20 years, however, the Company does offer ARM loans with up to a
maximum term of 30 years. The Company currently offers one, three and five
year ARM loans with a stated interest rate margin over the Constant Maturity
Treasury Index. The one and three year ARMs generally provide for a 2.0%
annual cap and a lifetime cap of 6.0% over the initial rate. The five-year
ARMs generally provide for a 3.0% annual cap and a lifetime cap of 6.0% over
the initial rate. Currently, all ARM loans originated provide for a "floor,"
equal to the interest rate of the loan on the date of its origination, below
which the rate charged may not fall, although in previous years loans originated
by the Company did not have such a feature.
As a consequence of using caps, the interest rates on these loans may not
be as rate sensitive as is the Company's cost of funds. The Company originates
ARMs that may have an initial interest rate that is lower than the sum of the
specified index plus the margin. Borrowers with ARM loans are qualified at
the fully indexed rate.
Adjustable-rate loans decrease the risk associated with changes in interest
rates but involve other risks, primarily because as interest rates rise, the
payment by the borrower may rise to the extent permitted by the terms of the
loan, thereby increasing the potential for default. At the same time, the
market value of the underlying property may be adversely affected by higher
interest rates.
The Company currently offers fixed-rate mortgage loans to owner occupants
with terms up to 15 years and may, from time to time, offer fixed rate loans
with terms up to 20 years depending on the Bank's then interest rate risk
position and asset/liability objectives. Interest rates charged on these fixed-
rate loans are priced on a regular basis according to market conditions. See
"- Originations, Purchases and Sales of Loans and Mortgage-Backed Securities."
<PAGE>
Currently, the Company will loan up to 97% of the lesser of the sales price
or appraised value of the security property on owner occupied one- to four-
family loans, provided that private mortgage insurance is obtained in an amount
sufficient to reduce the Company's exposure to not more than 80% of the
appraised value or sales price, as applicable. The loan-to-value ratio on non-
owner occupied one-to four-family loans is generally 70% of the lesser of the
sales price or appraised value of the security property. Residential loans do
not include prepayment penalties, are non-assumable, and do not produce
negative amortization. Real estate loans originated by the Company contain a
"due on sale" clause allowing the Company to declare the unpaid principal
balance due and payable upon the sale of the security property.
In underwriting one- to four-family residential real estate loans, the
Company evaluates both the borrower's ability to make monthly payments and
the value of the property securing the loan. Properties securing real estate
loans made by the Company are generally appraised by local appraisers. The
Company requires borrowers to obtain an attorney's opinion or certificate of
title, casualty insurance and flood insurance (if appropriate) in an amount not
less than the amount of the loan.
Residential Construction Lending. The Company makes construction loans to
individuals for the construction of their residences and, from time to time,
to established builders for the construction of residential homes without an
underlying sales contract. At September 30, 1999, all of the Company's
construction loans were secured by property located within the Company's
market area.
Construction loans to individuals for their residences are structured to be
converted to permanent loans at the end of the construction phase, which
typically runs up to six months. These construction loans have rates and terms
which match any one- to four-family loans then offered by the Company, except
that during the construction phase, the borrower pays interest only. The
maximum loan-to-value ratio of owner occupied single family construction
loans is generally 80%. Residential construction loans are generally under-
written pursuant to the same guidelines used for originating permanent
residential loans.
Construction loans are obtained primarily from existing customers. The
application process includes a submission to the Company of plans and costs of
the project to be constructed. These items are used as a basis to determine
the appraised value of the subject property. Loans are based on the lesser of
current appraised value and/or the cost of construction (land plus building).
<PAGE>
Construction lending is generally considered to involve a greater degree of
risk than permanent one- to four-family residential lending, due to the
concentration of principal in a limited number of loans and borrowers and/or
the effects of general economic conditions on development projects, real
estate developments, managers or homebuilders. In addition, the nature of
these loans is such that they are more difficult to evaluate and monitor.
The Company's risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value upon completion of the
project and the estimated cost (including interest) of the project. If the
estimate of value proves to be inaccurate, the Company may be confronted, at
or prior to the maturity of the loan, with a project having a value that is
insufficient to assure full repayment. When loan payments become due, borrowers
may experience cash flow from the property that is not adequate to service
the total debt. In such cases, the Company may be required to modify the terms
of the loan.
Consumer Lending. Management considers consumer lending to be an
important component of its asset/liability management strategy. Specifically,
consumer loans generally have shorter terms to maturity and/or adjustable
rates, thus helping to reduce the Company's exposure to changes in interest
rates, and carry higher rates than do residential mortgage loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -Asset/Liability Management" in the Annual Report. In addition,
management believes that offering consumer loan products helps expand and
create stronger ties to its existing customer base. Currently consumer loans
comprise the second largest component of the Company's loan portfolio,
accounting for, at September 30, 1999, 14.6% of the Company's gross loans
receivable, down from 16.2% at September 30, 1998.
The Company offers a variety of secured consumer loans, including
automobile loans (on both new and used automobiles), home improvement and
home equity loans and loans secured by savings deposits. The Company also
offers unsecured consumer loans. The Company currently originates
substantially all of its consumer loans in its primary market area.
The Company originates consumer loans solely on a direct basis. Direct
loans are made when the Company extends credit directly to the borrower, in
contrast to indirect loans, which are obtained when loan contracts are
purchased by a bank or other institution from retailers who have extended
credit to their customers for goods or services.
The underwriting standards employed by the Company for consumer loans
include a determination of the applicant's payment history on other debts
and an assessment of the ability to meet existing obligations and payments on
the proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
<PAGE>
Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured, or are
secured by rapidly depreciable assets, such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of the
greater likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability and
thus are more likely to be affected by adverse bankruptcy and insolvency laws,
may limit the amount which can be recovered on such loans. Although the level
of delinquencies in the Company's consumer loan portfolio has generally been
low ($34,418, or approximately 0.63% of the Company's consumer loan
portfolio at September 30, 1999), there can be no assurance that delinquencies
will not increase in the future. See "Asset Quality - Non-Performing Assets."
Commercial Business Lending. The Company originates commercial business
loans to service existing customers, to consolidate its banking relationships
with these customers, and to further its asset/liability management goals.
Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment from his or her employment and
other income, and which are secured by real property whose value tends to be
more easily ascertainable, commercial business loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment
from the cash flow of the borrower's business. As a result, the availability
of funds for the repayment of commercial business loans may be dependent upon
the success of the business itself. The Company's commercial business loans
almost always include personal guarantees and are usually, but not always,
secured by business assets. However, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in value
based on the success of the business.
The Company recognizes the generally increased credit risks associated with
commercial business lending. The Company's commercial business lending
practice emphasizes credit file documentation and analysis of the borrower's
character, management capabilities, capacity to repay the loan, the adequacy
of the borrower's capital and collateral. Analysis of the borrower's past,
present and future cash flows is also an important aspect of the Company's
credit analysis. In April, 1999 the Bank hired an experienced commercial loan
officer to increase the volume of its commercial loan portfolio and help assure
appropriate documentation.
Multi-Family and Commercial Real Estate Lending. The Company originates a
limited amount of real estate loans secured by multi-family and non-
residential properties. The Company's Board of Directors currently evaluates
applications for loans secured by multi-family or commercial income-producing
property on a case by case basis.
Commercial real estate loans typically involve large loan balances to single
borrowers or groups of related borrowers. The payment experience on such
loans is typically dependent on the successful operation of the real estate
project and as such may be subject to a greater extent than residential loans
to adverse conditions in the economy generally. In dealing with these risk
factors, the Company generally limits itself to a real estate market and/or
borrowers with which it has knowledge and experience.
<PAGE>
Appraisals on properties securing multi-family and commercial real estate
property loans originated by the Company generally are performed by either
an in-house appraiser or an outside fee appraiser at the time the loan is
made. Appraisals on multi-family and commercial real estate loans are
generally reviewed by the Company's Executive Committee. In addition, the
Company's underwriting procedures generally require verification of the
borrower's credit history, income and guarantees are generally required for the
Company's multi-family and commercial real estate loans.Loans secured by
commercial real estate and multi-family properties are generally larger and
involve a greater degree of credit risk than one- to four-family residential
mortgage loans. Because payments on loans secured by commercial real estate
properties are often dependent on the successful operation or management of
the properties, repayment of such loans may be subject to adverse conditions
in the real estate market or the economy. If the cash flow from the project
is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired.
Originations, Purchases and Sales of Loans and Mortgage-Backed
Securities
The Company originates real estate loans through marketing efforts, the
Company's customer base, walk-in customers and referrals from real estate
brokers. The Company originates both adjustable-rate and fixed-rate loans.
Its ability to originate loans is dependent upon the relative demand for fixed-
rate or ARM loans in the origination market, which is affected by the term
structure (short-term compared to long-term) of interest rates, as well as the
current and expected future level of interest rates and competition.
At September 30, 1999, the Company had outstanding commitments for mortgage
loans, home equity lines of credit and commercial business loans of
approximately $1.4 million. The Company invests its excess funds in mortgage-
backed securities and bonds issued by U.S. government agencies, other
securities, and deposits with other banks. See Note 2 of the Notes to
Consolidated Financial Statement. See "Debt and Equity Securities."
The Company does not currently service loans for other entities.
The following table presents the loan origination and repayment activities of
the Company and the purchase, sale and repayment activities of the
Company's mortgage-backed securities for the periods indicated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report.
<PAGE>
<TABLE>
Year Ended September 30,
1999 1998
(In Thousands)
Originations by type:
<S> <C> <C>
Adjustable rate:
Real estate - one- to four-family $ 229 $ 302
Fixed rate:
Real estate
- one- to four-family 8,713 7,793
- multi-family and commercial 848 326
- residential and other construction 357 332
Non-real estate - consumer 4,120 3,356
Total fixed-rate 14,038 11,807
Total loans originated 14,267 12,109
Purchases:
Total mortgage-backed securities purchased 0 0
Sales and Repayments:
Total mortgage-backed securities sold 0 (259)
Total sales 0 (259)
Principal repayments (10,594) (7,962)
Total reductions (10,594) (8,221)
Increase (decrease) in other items, net (730) (724)
Net increase $ 2,943 $ 3,164
</TABLE>
Asset Quality
General. When a borrower fails to make a required payment on a loan, the
Company attempts to cause the delinquency to be cured by contacting the
borrower. In the case of loans secured by real estate, a late notice is sent
to the borrower on all loans over 30 days delinquent. If the loan becomes 60
days delinquent and the borrower has not attempted to contact the Company to
arrange an acceptable plan to bring the loan current, a letter is sent to the
borrower by requesting that the loan be brought current within 30 days;
otherwise, the loan will be referred to the Company's attorneys for collection.
If the borrower contacts the Company with a reasonable explanation for the
delinquency, the Company generally will attempt to reach workable
accommodations with the borrower to bring the loan current. All proposed
workout arrangements are evaluated on a case by case basis, based on the best
judgement of the Company's Chief Executive Officer (or the Executive
Committee if the matter is referred to it by the Chief Executive Officer),
considering, among other things, the borrower's past credit history, current
financial status, cooperativeness, future prospects and the reason for the
delinquency. In all cases, if the Company believes that its collateral is at
risk and added delay would place the collectibility of the balance of the loan
in further question, management may refer loans for collection even sooner than
the 90 days described above.
When a loan becomes delinquent 90 days or more, the Company will place the
loan on non-accrual status and, as a result, previously accrued interest
income on the loan is taken out of current income. The loan will remain on a
non-accrual status as long as the loan is 90 days delinquent.
<PAGE>
Delinquent consumer loans are handled in a similar manner as to those
described above; however, shorter time frames for each step apply due to the
type of collateral generally associated with such types of loans. See
"Business of the Company - Lending Activities -- Consumer Lending." The
Company's procedures for repossession and sale of consumer collateral are
subject to various requirements under Indiana consumer protection laws.
The amounts presented in the table below represent the total remaining
principal balances of the loans, rather than the actual payment amounts that
are overdue.
<TABLE>
<CAPTION>
Loans Delinquent For:
60-89 Days 90 Days and Over Total Delinquent Loans
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 3 $ 113 0.39% 3 $ 111 0.38% 6 $ 224 0.77%
Consumer 5 19 0.35 1 18 0.33 6 37 0.68
Total 8 $ 132 0.38% 4 $ 129 0.37% 12 $ 261 0.75%
</TABLE>
Non-Performing Assets. The following table sets forth the amounts and
categories of non-performing assets in the Company's loan portfolio. All
loans delinquent 90 days and over are placed on non-accrual status. Loans are
also placed on non-accrual status when the collection of principal and/or
interest become doubtful. Foreclosed assets include assets acquired in
settlement of loans. There were no loans deemed in-substance foreclosed at
September 30, 1999.
At September 30,
1999 1998
(Dollars in Thousands)
Non-accruing loans:
One- to four-family $ 111 $ 48
Consumer 18 98
Total 129 146
Total non-performing assets $ 129 $ 146
Non-performing assets as a
percentage of total assets .26% .32%
<PAGE>
For the year ended September 30, 1999, gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms was $13,773, none of which was included in interest income.
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.
Assets which do not currently expose the insured institution to sufficient
risk to warrant classification in one of the aforementioned categories but
possess weaknesses are designated by management as "special mention."
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
that 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 that portion 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 regulatory authorities, who may order the
establishment of additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Company regularly
reviews problem loans and real estate acquired through foreclosure to determine
whether such assets require classification in accordance with applicable
regulations. On the basis of management's review of its assets, at September
30, 1999, the Company had classified a total of $129,530 of its assets as
substandard, none as doubtful, none as loss and the Company had designated
$55,993 as special mention. At September 30, 1999, total classified assets
comprised $129,530, (without special mention) or 2.10% of the Company's
capital, or 0.26% of the Company's total assets.
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of September 30, 1999, there was also an aggregate
of $5,025 in net book value of loans secured by four single family residences
with respect to which known information about the possible credit problems of
the borrowers have caused management to have doubts as to the ability of the
borrowers to comply with present loan repayment terms and which may result
in the future inclusion of such items in the non-performing asset categories.
Management considered these loans in establishing the Company's allowance
for loan losses.
<PAGE>
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity, including those loans which are being specifically
monitored by management. Such evaluation, which includes a review of loans for
which full collectibility may not be reasonably assured, considers among other
matters, the loan classifications discussed above, the estimated fair value of
the underlying collateral, economic conditions, historical loan loss experience,
and other factors that warrant recognition in providing for an adequate loan
loss allowance.
Real estate properties acquired through foreclosure are recorded at the lower
of cost or fair value less estimated selling expenses, which then becomes the
new basis of the foreclosed property. 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 declines, a
specific provision for losses on such property is established by a charge to
operations.
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 for loan losses will
be the result of periodic loan, property and collateral reviews and thus cannot
be predicted in advance. In addition, federal regulatory agencies, as an
integral part of the examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance level based upon their judgment of the information
available to them at the time of their examination. At September 30, 1999, the
Company had a total allowance for loan losses of $86,288 representing 66.6% of
total non-performing loans and 0.23% of the Company's net loans receivable.
See Note 3 of the Notes to Consolidated Financial Statements.
The following table sets forth an analysis of the Company's allowance
for loan losses.
Year Ended September 30,
1999 1998
(Dollars in Thousands)
Balance at beginning of period $ 92 $ 81
Charge-offs:
One- to four-family 4 0
Consumer 20 17
Total charge-offs 24 17
Recoveries:
Consumer 3 1
Total recoveries 3 1
Net charge-offs 26 16
Additions charged to operations 15 27
Balance at end of period $ 86 $ 92
Ratio of net charge-offs
during the period to average
loans outstanding during the
period .07 % .045%
<PAGE>
The distribution of the Company's allowance for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
At September 30,
1999 1998
Percent Percent
of Loans of Loans
in Each in Each
Amount of Category Amount of Category
Loan Loss to Total Loan Loss to Total
Allowance Loans Allowance Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C>
One- to four-family $ 78 90.7% $ 71 77.1%
Multi-family and commercial 2 2.3 2 2.2
Consumer 6 7.0 18 19.6
Unallocated 0 0.0 1 1.1
Total $ 86 100.0% $ 92 100.0%
</TABLE>
Investment Activities
General. The Company 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 Company has
maintained liquid assets at levels above the minimum requirements imposed by
the OTS regulations and at levels believed adequate to meet the requirements of
normal operations, including repayments of maturing debt and potential deposit
outflows. Cash flow projections are regularly reviewed and updated to assure
that adequate liquidity is maintained. At September 30, 1999, the Company's
liquidity ratio (liquid assets as a percentage of net withdrawable savings
deposits and current borrowings) was 21.78%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" in the Annual Report and "Regulation - Liquidity."
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
commercial paper, investment grade corporate debt securities and mutual funds
whose assets conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
Generally, the investment policy of the Company as established by the Board
of Directors is to invest funds among various categories of investments
and maturities based upon the Company's liquidity needs, asset/liability
management policies, investment quality, marketability and performance
objectives. Subject to the Board's direction, the President (and such other
officers as the President may from time to time authorize with the Board's
permission) manages and oversees the Company's investments and objectives
for its investment portfolio. Currently, President Beesley and Vice Presidents
Shields and Kim Murray are authorized to act in such capacity. All securities
<PAGE>
transactions are disclosed to the Board of Directors at their next regular
meeting or to the Executive Committee of the Company, which usually meets
monthly. All securities transactions are reported to the entire Board of
Directors.
Investment Securities. It is the Company's general policy to purchase
investment securities that are U.S. Government securities or federal agency
obligations or other issues that are rated investment grade. At September 30,
1999, all of the Company's investment securities were classified as available
for sale. At such date, the weighted average term to maturity or repricing of
the investment securities portfolio was 3.7 years (excluding FHLB Stock and
equity securities).
The following table sets forth the composition and carrying value of the
Company's investment security portfolio at the dates indicated.
At September 30,
1999 1998
Book % of Book % of
Value Total Value Total
(Dollars in Thousands)
Investment securities:
Federal agency obligations $ 1,291 63.32% $ 1,281 77.08%
Municipal bonds 0 0 0 0.00
Subtotal 1,291 63.32 1,281 77.08
Other debt securities 407 19.96 46 2.77
Equity securities at lower
of cost or market 0 0 0 0.00
FHLB stock 341 16.72 335 20.15
Total investment securities
And FHLB stock $ 2,039 100.00% $ 1,662 100.00%
Average remaining life of
investment securities 3.7 yrs. 3.8 yrs.
Other interest-earning assets:
Total interest-bearing
deposits with banks $ 4,760 100.00% $4,239 100.00%
Average remaining life or
term to repricing of
investment securities and
other interest-earning assets,
excluding FHLB stock and
equity securities 1.8 yrs. 3.2 yrs.
The composition and maturities of the investment securities portfolio,
excluding FHLB stock, are indicated in the following table.
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999
Due After Due After
Due-in 1 Year 5 Year
1 Year Through Through Due After Total
or Less 5 Years 10 Years 10 Years Investment Securities
Carrying Carrying Carrying Carrying Amortized Fair
Value Value Value Value Cost Value
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations $ 0 $ 1,291 $ 0 $ 0 $ 1,317 $ 1,291
Other investment securities 115 0 0 292 415 407
Equity securities 0 0 0 0 0 0
Total investment securities $ 115 $ 1,291 $ 0 $ 292 $ 1,732 $ 1,698
Weighted average yield 5.90% 6.06% 0.00% 6.55% 6.01% 6.13%
</TABLE>
The Company's investment securities portfolio at September 30, 1999, contained
neither tax-exempt securities nor securities of any issuer with an aggregate
book value in excess of 10.0% of the Company's retained earnings, excluding
those issued by the United States Government or its agencies. For additional
information regarding the Company's investment securities portfolio, see Note
2 of the Notes to Consolidated Financial Statements.
Mortgage-Backed Securities. The Company's mortgage-backed securities
portfolio consists primarily of securities issued under government-sponsored
agency programs, including those of the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"). The GNMA, FNMA and FHLMC
certificates are modified pass-through mortgage-backed securities that
represent undivided interests in underlying pools of fixed-rate, or certain
types of adjustable-rate, predominantly single-family and, to a lesser
extent, multi-family residential mortgages issued by these government-
sponsored entities. FNMA and FHLMC generally provide the certificate holder
a guarantee of timely payments of interest, whether or not collected. GNMA's
guarantee to the holder is timely payments of principal and interest, backed by
the full faith and credit of the U.S. Government.
Mortgage-backed securities generally increase the quality of the
Company's assets by virtue of the insurance or guarantees that back them, are
more liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of the Company. The Bank has a blanket
pledge with the Federal Home Loan Bank of Indianapolis that obligates 100%
of its mortgage loans and mortgage-backed securities. No specific mortgage-
backed securities or loans were pledged to secure the Bank's obligations at
September 30, 1999.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate
of such mortgage loans and so affect both the prepayment speed, and value, of
such securities.
<PAGE>
Historically, most of the Company's mortgage-backed securities were long-
term, fixed-rate securities. In more recent years, the Company has begun
to purchase other types of mortgage-backed securities consistent with its
asset/liability management objectives. In this regard, the Company emphasizes
the purchase of adjustable-rate, mortgage-backed securities for asset/liability
management purposes and in order to supplement the Company's origination of
ARM loans. At September 30, 1999, $1.60 million, or 58.2%, of the Company's
mortgage-backed securities carried adjustable rates of interest.
The following table sets forth the composition and carrying value of the
Company's mortgage-backed securities at the dates indicated. For additional
information regarding the fair market values of the Company's mortgage-backed
securities portfolio, see Note 2 of the Notes to Consolidated Financial
Statements.
At September 30,
1999 1998
Carrying %of Carrying % of
Value Total Value Total
(Dollars in Thousands)
Mortgage-backed securities:
FHLMC $ 1,145 42.03% $ 1,706 42.54%
FNMA 1,553 57.01 2,265 56.48
GNMA 6 .22 10 .25
Subtotal 2,704 99.26 3,981 99.27
Unamortized premium(discounts), net 20 .74 29 .73
Total mortgage-backed securities $ 2,724 100.00% $ 4,010 100.00%
The following table sets forth the contractual maturities of the
Company's mortgage-backed securities at September 30, 1999; however, the
expected average life to maturity of this portfolio is generally 5 to 6 years.
Not considered in the preparation of the table below is the effect of
prepayments, periodic principal repayments and the adjustable-rate nature of
these instruments.
<TABLE>
<CAPTION>
September 30, 1999
Due After Due After
Due-in 1 Year 5 Year
1 Year Through Through Due After Total
or Less 5 Years 10 Years 10 Years Investment Securities
Carrying Carrying Carrying Carrying Amortized Fair
Value Value Value Value Cost Value
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FHLMC $ 0 $ 153 $ 127 $ 877 $ 1,163 $ 1,157
FNMA 0 285 0 1,276 1,579 1,561
GNMA 0 6 0 0 6 6
Total mortgage-backed
Securities $ 0 $ 444 $ 127 $ 2,153 $ 2,748 $ 2,724
Weighted average yield 0.00% 6.83% 8.20% 6.68% 6.72% 6.78%
<PAGE>
Sources of Funds
General. The Company's primary sources of funds are deposits, payment of
principal and interest on loans (including mortgage-backed securities),
interest earned on investment securities, time deposits with other banks,
FHLB advances, and funds provided from operations. Borrowings, principally
FHLB advances, are used to support lending activities and to assist in the
Company's asset/liability management strategy.
Deposits. The Company offers a variety of deposit accounts having a wide
range of interest rates and terms. The Company's deposits consist of pass-
book, savings, NOW and SuperNOW checking, money market deposit and certi-
ficate accounts. The certificate accounts currently range in terms from 91
days to five years. In the event a customer desires a certificate of deposit
account with a maturity date other than those typically offered with these
accounts, the Company will allow its customer to set its own maturity date with
the interest rate being the rate being offered on its certificates of deposit
most resembling the customers desired maturity date. In 1996, the Company
added ATM/debit cards to its deposit services available to customers. These
cards have been well received by a growing number of our customers, who gain
access to their accounts any time via ATM's nationwide.
The Company relies primarily on advertising (including radio, newspaper and
direct mail), competitive pricing policies and customer service to attract
and retain these deposits. The Company solicits deposits from its market
area only, does not use brokers to obtain deposits and currently, does not
engage in any type of premium, gift or promotional programs beyond the
advertising vehicles mentioned above. The flow of deposits is influenced
significantly by general economic conditions, changes in money market and
prevailing interest rates and competition.
The Company also serves as a depository for public funds for various Indiana
entities. At September 30, 1999, the amount of public funds on deposit
with the Company was $4.0 million. These accounts are subject to volatility
depending on governmental funding needs and the Company's desire to attract
such funds.
The deposit accounts marketed by the Company have allowed it to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Company has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. The Company endeavors to manage the pricing of its deposits in
keeping with its asset/liability management and profitability objectives. The
ability of the Company to attract and maintain savings accounts and
certificates of deposit, and the rates paid on these deposits, has been and
will continue to be significantly affected by market conditions.
<PAGE>
The following table presents the savings flows at the Company during
the periods indicated.
September 30,
1999 1998
Opening balance $ 32,167 $ 31,518
Deposits 75,503 69,331
Withdrawals (72,170) (69,729)
Interest credited 89 1,047
Ending balance $ 35,589 $ 32,167
Net increase (decrease) $ 3,422 $ 649
Percent increase (decreas 10.64% 2.06%
The following table sets forth the dollar amount of deposits in the
various types of deposit programs offered by the Company for the periods
indicated.
</TABLE>
<TABLE>
<CAPTION>
At September 30,
1999 1998
Percent Percent
Amount of Total Amount of Total
(Dollars in Thousands)
Transactions and Savings Deposits:
<S> <C> <C> <C> <C>
Passbook Accounts $ 5,219 14.65% $ 5,150 15.99%
NOW and SuperNOW Accounts 5,056 14.19 4,517 14.03
Money Market Accounts 915 2.57 1,047 3.25
Total Non-Certificates 11,190 31.41 10,714 33.27
Certificates:
2.50 - 4.50% 4,290 12.04 3,215 9.98
4.51 - 5.50% 12,528 35.16 9,919 30.80
5.51 - 6.50% 4,086 11.47 4,532 14.07
6.51 - 7.50% 2,987 8.38 2,961 9.21
7.51 - 8.50% 508 1.43 826 2.56
8.51% and over 0 0.00 0 0.00
Total Certificates 24,399 68.48 21,453 66.62
Accrued Interest 39 0.11 37 0.11
Total Deposits $ 35,628 100.00% $32,204 100.00%
</TABLE>
<PAGE>
The following table shows rate and maturity information for the Company's
certificates of deposit as of September 30, 1999.
<TABLE>
<CAPTION>
0.00- 3.00- 4.00- 6.00- 8.00- 10.00% Percent
2.99% 3.99% 5.99% 7.99% 9.99% or greater Total of Total
(Dollars in Thousands)
Certificate accounts
maturing in quarter
ending:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999 $--- $ 130 $ 6,581 $ 443 $ 54 $ --- $ 7,208 29.54%
March 31, 1999 --- --- 3,082 1,667 --- --- 4,749 19.47
June 30, 1999 --- --- 2,200 1,682 134 --- 4,016 16.46
September 30, 1999 --- --- 1,027 440 --- --- 1,467 6.01
December 31, 1999 --- --- 858 390 --- --- 1,248 5.11
March 31, 2000 --- --- 990 10 --- --- 1,000 4.10
June 30, 2000 --- --- 441 82 --- --- 523 2.14
September 30, 2000 --- --- 342 412 --- --- 754 3.09
December 31, 2000 --- --- 73 399 --- --- 472 1.94
March 31, 2001 --- --- 87 339 --- --- 426 1.75
June 30, 2001 --- --- 98 102 --- --- 200 0.82
September 30, 2001 --- --- 236 123 --- --- 359 1.47
Thereafter --- --- 1,798 179 --- --- 1,977 8.10
Total $--- $ 130 $ 17,813 $ 6,268 $ 188 $ --- $ 24,399 100.00%
Percent of total ---% .53% 73.01% 25.69% 0.77% ---% 100.00%
</TABLE>
The following table indicates the amount of the Company's certificates
of deposit and other deposits by time remaining until maturity as of September
30, 1999.
<TABLE>
<CAPTION>
Maturity
Over 3 Over 6
3 Months Through Through Over
or Less 6 Months 12 Months 12 Months Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit
of less than $100,000 $ 3,614 $ 3,991 $ 3,896 $ 5,949 $ 17,450
Certificates of deposit
of $100,000 or more 3,594 758 1,588 1,009 6,949
Total certificates of deposit $ 7,208 $ 4,749 $ 5,484 $ 6,958 $ 24,399(1)
____________________
<FN>
(1) Includes $4.0 million of deposits from governmental and other public entities.
</TABLE>
Borrowings. Although deposits are the Company's primary source of funds, the
Company's policy has been to utilize borrowings to support lending activities
and to assist the Company's asset/liability management strategy when they are
a less costly source of funds, can be invested at a positive interest rate
spread or when the Company desires additional capacity to fund loan demand.
<PAGE>
The Company's borrowings historically have consisted of advances from
the FHLB of Indianapolis and to a lesser extent reverse repurchase agreements.
Such advances may be made pursuant to several different credit programs, each
of which has its own interest rate and range of maturities. At September 30,
1999 the Company had $6.7 million in advances from the FHLB of Indianapolis
and the capacity to borrow up to $15.1 million. See Note 6 of the Notes to
Consolidated Financial Statements.
The following table sets forth the maximum month-end balance and average
balance of FHLB advances and other borrowings for the periods indicated.
At September 30,
1999 1998
(Dollars in Thousands)
Maximum Balance:
FHLB advances $ 6,678 $ 6,327
Repurchase agreements 0 0
Average Balance:
FHLB advances $ 6,412 $ 5,252
Repurchase agreements 0 0
The following table sets forth certain information as to the Company's
FHLB advances and other borrowings at the dates indicated.
At September 30,
1999 1998
(Dollars in Thousands)
FHLB advances $ 6,678 $ 6,327
Repurchase agreements 0 0
Total $ 6,678 $ 6,327
Weighted average interest rate
of FHLB advances 5.47% 5.47%
Weighted average interest rate
of repurchase agreements N/A N/A
Service Corporation Activities
As a federally chartered savings bank, the Bank is permitted by Office
of Thrift Supervision regulations to invest up to 2.0% of its assets, or
approximately $979,000 at September 30, 1999, in the stock of, or loans to,
service corporation subsidiaries. As of such date, the net book value of the
Bank's investment in its service corporation was approximately $97,500. The
Bank may invest an additional 1% of its assets in service corporations where
such additional funds are used for inner-city or community development
purposes and up to 50% of its total capital in conforming loans to service
corporations in which it owns more than 10% of the capital stock. In addition
to investments in service corporations, federal associations are permitted to
invest an unlimited amount in operating subsidiaries engaged solely in
activities in which a federal association may engage.
<PAGE>
The Bank has one service corporation, White River Service Corporation
("WRSC"), an Indiana corporation, located in Washington, Indiana. WRSC was
organized by the Bank in 1985. WRSC, through a contractual agreement with
a third party, offers retail brokerage and annuity products to the Bank's
customers and the general public. In addition, WRSC provides real estate
appraisal comparison services for the local realtors on a subscription basis.
For the fiscal year ended September 30, 1999, WRSC had net income of
approximately $14,000.
Competition
The Company faces strong competition, both in originating real estate loans
and in attracting deposits. Competition in originating real estate loans
comes primarily from commercial and savings banks, and to a lesser extent,
credit unions located in the Bank's market area and various secondary market
originators and mortgage loan brokers. Commercial banks, savings banks, credit
unions and finance companies provide vigorous competition in consumer
lending. The Company competes for real estate and other loans principally on
the basis of the quality of services it provides to borrowers, the interest
rates and loan fees it charges, and the types of loans it originates.
The Company attracts all of its deposits through its retail banking offices,
primarily from the communities in which those retail-banking offices are
located. Therefore, competition for those deposits is principally from
commercial banks, savings banks, brokerage firms and credit unions located in
these communities. The Company competes for these deposits by offering a
variety of account alternatives at competitive rates and by providing
convenient business hours, branch locations and interbranch deposit and with-
drawal privileges.
The Company primarily serves Daviess and Pike Counties, Indiana. There are
five commercial banks, one savings bank other than the Bank, and two credit
unions that compete for deposits and loans in the Company's primary market
area. In addition, several lending institutions not headquartered in the
area make loans in the Company's market area. The Company estimates its
share of the mortgage lending market and the savings market to be
approximately 9.0% and 8.0%, respectively, in Daviess County, Indiana and
6.0% and 5.0%, respectively, in Pike County, Indiana. These percentages
represent management's best estimate of the Company's market share taking into
consideration the banking institutions headquartered in the Company's market
area.
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 Bank 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.
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 and
FDIC examinations of the Bank were as of April 26,1999 and June 7, 1991,
<PAGE>
respectively. When these examinations are conducted by the OTS and the FDIC,
the examiners may require the Bank 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, 1999 was $16,000.
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.
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, 1999, the Bank's lending limit under this restriction was
$720,000. The Bank is in compliance with the loans-to-one-borrower limitation.
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 Bank Income Fund.
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.
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 for each semi-
annual assessment period. At September 30, 1999, the Bank was classified as
a 1-A institution.
Effective January 1, 1997, the premium schedule for BIF and SAIF insured
institutions ranged from 0 to 27 basis points. However, SAIF-insured
institutions are required to pay a Financing Corporation (FICO) assessment,
in order to fund the interest on bonds issued to resolve thrift failures in the
1980s, equal to about six basis points for each $100 in domestic deposits,
while BIF-insured institutions pay an assessment equal to about 1.50 basis
points for each $100 in domestic deposits. The assessment is expected to be
reduced to 2.43 basis points no later than
<PAGE>
January 1, 2000, when BIF insured institutions fully participate in the
assessment. These assessments, which may be revised based upon the level
of BIF and SAIF deposits will continue until the bonds mature in the year
2015.
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. The
capital regulations require tangible capital of at least 1.5% of adjusted total
assets (as defined by regulation).
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.
For excludable subsidiaries the debt and equity investments in such
subsidiaries are deducted from assets and capital. All of the Subsidiaries
of the Bank are includable subsidiaries.
At September 30, 1999, the Bank had tangible capital of $4.9 million, or
10.04% of adjusted total assets, which is approximately $2.9 million above the
minimum requirement of 4.0% of adjusted total assets in effect on that date. At
September 30, 1999, the Bank did not have any intangible assets.
The capital standards also require core capital equal to at least 4% of
adjusted total assets. Core capital generally consists of tangible capital
plus certain intangible assets, including a limited amount of purchased credit
card relationships. At September 30, 1999, the Bank had core capital equal
to $4.9 million, or 10.04% of adjusted total assets, which is $3.4 million
above the minimum leverage ratio requirement of 3.0% 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, 1999, the
Bank had $86,000 of general loss reserves, which was less than 3.29% of risk-
weighted assets.
In determining the amount of risk-weighted assets, all assets, including cer-
tain 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 Fannie Mae or Freddie Mac.
<PAGE>
On September 30, 1999, the Bank had total capital of $4.9 million (including
approximately $4.9 million in core capital and $0 in qualifying supplementary
capital) and risk-weighted assets of $26.2 million (with no converted off-
balance sheet assets); or total capital of 18.55% of risk-weighted assets.
This amount was $2.8 million above the 8.0% requirement in effect on
that date.
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.
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 Bank of
the Company 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. The OTS imposes
various restrictions on savings associations with respect to their ability
to make distributions of capital, which include dividends, stock redemptions or
purchases, cash-out mergers and other transactions charged to the capital
account. The OTS also prohibits a savings association from declaring or paying
any dividends or from repurchasing any of its stock if, as a result of such
action, the regulatory capital of the association would be reduced below the
amount required to be maintained for the liquidation account established in
connection with the association's mutual to stock conversion.
The Bank may make a capital distribution without the approval of the OTS
provided we notify the OTS, 30 days before we declare the capital distri-
bution and we meet the following requirements: (i) the Bank has a regulatory
rating in one of the two top examination categories, (ii) the Bank is not of
supervisory concern, and will remain adequately- or well-capitalized, as
defined in the OTS prompt corrective action regulations, following the proposed
distribution, and (iii) the distribution does not exceed the Bank's net income
for the calendar year-to-date plus retained net income for the previous two
calendar years (less any dividends previously paid). If we do not meet the
above stated requirements, we must obtain the prior approval of the OTS
before declaring any proposed distribution.
<PAGE>
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 of 1986, as amended (the "Code"). Under either
test, such assets primarily consist of residential housing related loans and
investments. At September 30, 1999, 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 neighbor-
hoods. 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. The Bank was
examined for CRA compliance in September 1997 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 that 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 OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case by case basis.
<PAGE>
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 generally be made on terms substantially the same as for loans to
unaffiliated individuals.
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.
Federal Securities Law. The stock of the Company is registered with the SEC
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 non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At September 30, 1999, 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 and
Capital Reserve" in the Annual Report attached as Exhibit 13.
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, which 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
<PAGE>
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, 1999, the Bank had $341,000 in FHLB
stock, which was in compliance with this requirement. In past years, the Bank
has received dividends on its FHLB stock. Over the past five fiscal years such
dividends have averaged 8.48% and were 8.00% for fiscal 1999.
Federal Taxation. Savings associations such as the Bank that meet
certain conditions prescribed by 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
is computed under the experience method. Under the experience method, the
bad debt reserve is an amount determined under a formula based generally upon
the bad debts actually sustained by the savings association over a period of
years.
In August 1996, legislation was enacted that repealed the percentage of
taxable income method used by many thrifts to calculate their bad debt reserve
for federal income tax purposes. 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 tax years beginning after December 31, 1987.
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. The alternative minimum tax
has been repealed for small corporations meeting the gross receipts test. The
Company currently meets the gross receipts test and thus is currently exempt
from the alternative minimum tax.
A portion of the Bank's 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, 1999, the
Bank's Excess for tax purposes totaled approximately $ 85,000.
The Company, the Bank and the Bank's subsidiary file consolidated federal
income tax returns on a fiscal year basis using the accrual method of
accounting. Savings associations 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.
<PAGE>
The Company and its subsidiary have not been audited by the IRS with respect
to their federal income tax returns. In the opinion of management, any
examination of still open returns (including returns of subsidiaries and
predecessors of, or entities merged into, the Bank) would not result in a
deficiency which could have a material adverse effect on the financial
condition of the Bank and its consolidated subsidiary.
Indiana Taxation. The State of Indiana imposes an 8.5% franchise tax on the
net income of financial (including thrift) institutions, exempting them from
the current gross income, supplemental net income and intangible taxes. Net
income for franchise tax purposes will constitute federal taxable income be-
fore net operating loss deductions and special deductions, adjusted for certain
items, including Indiana income taxes, tax exempt interest and bad debts.
Other applicable Indiana taxes include sales, use and property taxes.
Employees
At September 30, 1999, the Bank had a total of 17 full-time and no part-time
employees. The Company's employees are not represented by any 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 executive officer of the Company and the
Bank who does not serve on the Company's Board of Directors. There are no
arrangements or understandings between the persons named and any other
person pursuant to which such officers were selected.
Debra K. Shields - Ms. Shields, age 45, is the Vice President and Corporate
Secretary of the Bank. Ms. Shields joined the Bank in 1974 as a teller, was
appointed head teller in 1975, Corporate Secretary in 1980 and Vice President
in 1990. She is responsible for the supervision of the accounting and
reporting functions of the Company and is manager of the Bank's loan
department. Ms. Shields is also the secretary to the Executive Committee of
the Bank.
Item 2. Description of Property
The Company conducts its business through two offices, its main office
located in Washington, Indiana and its branch office located in Petersburg,
Indiana; both locations are owned by the Company. The following table sets
forth information relating to each of the Company's offices as of September 30,
1999. The total net book value of the Company's premises and equipment
(including land, buildings and leasehold improvements and furniture, fixtures
and equipment) at September 30, 1999 was approximately $745,000.
<PAGE>
Total Net Book
Approximate Value at
Location Date Square September 30,
Acquired Footage 1999
Main Office:
200 East Van Trees Street
Washington, Indiana 47501 1980 8,900 $ 611,000
Branch Offices:
501 Main Street
Petersburg, Indiana 47567(1) 1979 2,760 $ 134,000
___________________
(1) The Company currently occupies 1,500 square feet of this Building. An
adjacent 1,260 square feet storefront owned by the Company is leased to an
unaffiliated third party.
The Company believes that its current facilities are adequate to meet the
present and foreseeable needs of the Company and the Bank.
The Company maintains an on-line database with a service bureau servicing
financial institutions. The net book value of the data processing and
computer equipment utilized by the Company at September 30, 1999 was
approximately $40,000.
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.
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, 1999.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Page 33 of the attached Annual Report to Stockholders for fiscal 1999
is incorporated herein by reference.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Pages 3 through 11 of the attached Annual Report to Stockholders for
fiscal 1999 are incorporated herein by reference.
Item 7. Financial Statements
The following information appearing in the Company's Annual Report
to Stockholders for the year ended September 30, 1999 attached hereto as
Exhibit 13, is incorporated herein by reference in this Annual Report on Form
10-KSB.
Annual Report Section
Pages in Annual
Report
Independent Auditors' Report 15
Consolidated Statements of Financial Condition
as of September 30, 1999 and 1998 16
Consolidated Statements of Income for the Years
Ended September 30, 1999 and 1998 17
Consolidated Statements of Comprehensive Income
For the Years Ended September 30, 1999 and 1998 18
Consolidated Statements of Shareholders' Equity for
Years Ended September 30, 1999 and 1998 19
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1999 and 1998 20
Notes to Consolidated Financial Statements 21-33
Item 8. 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 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Directors
Information concerning Directors of the Company is incorporated herein
by reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on January 17, 2000, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
Executive Officers
Information concerning Executive Officers of the Company is contained under
the caption "Executive Officers of the Company and the Bank Who Are Not
Directors" in Part I of this Form 10-KSB, and is incorporated herein by this
reference.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on January 17, 2000, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
Item 11. 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 definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on January 17,
2000, a copy of which will be filed not later than 120 days after the close of
the fiscal year.
<PAGE>
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on January 17, 2000, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits
(b) Reports on Form 8-K
A Form 8-K was filed on July 20, 1999.
<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 BUILDING BANCORP, INC.
Date: 12/27/99 By: /s/Bruce A. Beesley
Bruce A. Beesley, President,
Chief Executive Officer, and
Director (Duly Authorized
Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ Bruce A. Beesley /s/ James E. Scheid
Bruce A. Beesley, President, Chief James E. Scheid, Director
Executive Officer and Director
(Principal Executive and Operating Officer)
Date: 12/27/99 Date: 12/27/99
/s/ C. Darrell Deem /s/ Blake L. Chambers
C. Darrell Deem, Director Blake L. Chambers, Director
Date: 12/27/99 Date: 12/27/99
/s/ Larry G. Wilson /s/ Gregory L. Haag
Larry G. Wilson, Director Gregory L. Haag, Director
Date: 12/27/99 Date: 12/27/99
/s/ Debra K. Schields
Debra K. Shields, Vice President, Chief
Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
Date: 12/27/99
<PAGE>
Index to Exhibits
Exhibit
Number Document
3(i) Registrant's Articles of Incorporation as currently in effect, filed
on September 23, 1995 as an exhibit to Registrant's Registration
Statement on Form S-1 (File No. 33-84332), is incorporated herein by
reference.
3(ii) Registrant's Bylaws as currently in effect, filed as Exhibit 3(ii)
to Registrant's Report on Form 10-KSB for the fiscal year ended
September 30, 1995 (File No. 0-24896), is incorporated herein
by reference.
4 Registrant's Specimen Stock Certificate, filed on September 23,
1995 as an exhibit to Registrant's Registration Statement on
Form S-1 (File No. 33-84332), is incorporated herein by reference.
10.1 Employment Agreement between the Bank and Bruce A. Beesley, filed
on September 23, 1995 as an exhibit to Registrant's Registration
Statement on Form S-1 (File No. 33-84332), is incorporated herein
by reference.
10.2 Registrant's Employee Stock Ownership Plan, filed on September
23, 1995 as an exhibit to Registrant's Registration Statement on
Form S-1 (File No. 33-84332), is incorporated herein by reference.
10.3 Registrant's 1995 Stock Option and Incentive Plan, filed on
December 19, 1995 as Exhibit A to Registrant's proxy statement
dated December 18, 1995, is incorporated herein by reference.
10.4 Registrant's Recognition and Retention Plan, filed on December
19, 1995 as Exhibit B to Registrant's proxy statement dated
December 18, 1995, is incorporated herein by reference.
11 Statement re: computation of per share earnings (included under
Note 1 of Notes to Consolidated Financial Statements in the
Annual Report to Shareholders' attached hereto as Exhibit 13)
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Accountants
27 Financial Data Schedule (electronic filing only)
<PAGE>
Exhibit 13
<PAGE>
ANNUAL REPORT TO SECURITY HOLDERS
<PAGE>
1999 ANNUAL REPORT
HOME BUILDING BANCORP, INC.
Washington, Indiana
<PAGE>
TABLE OF CONTENTS
Page No.
President's Message 1
Selected Consolidated Financial Information 2
Management's Discussion and Analysis of Financial
Condition and Results of Operation 3
Consolidated Financial Statements 13
Shareholder Information 34
Corporate Information 36
<PAGE>
[HOME BUILDING BANCORP, INC. LETTERHEAD]
December 6, 1999
Dear Fellow Shareholders:
Our Annual Report for fiscal year 1999, our fourth as a public company, shows
increased profitability and growth.
The Corporation posted net income of $326,500, up from $262,000 the previous
year. Diluted earnings were $1.16 per share for this fiscal year compared to
$0.89 last year. This profit increase of over 30% resulted from increased net
interest income and continued control of operating expenses. We were also
excited to add Mr. Tom Miles to our staff this year. He adds experience,
service and new products to benefit our commercial loan customers.
As a unitary thrift holding company we continue to enjoy a structure that
encourages customer service and offers us opportunities for the future.
Certainly we feel our combination of products, services, and individual
attention is unique. Our small size is itself an asset in providing personal
service for customers. It was also beneficial as we prepared for "Y2K".
The year 2000 is seen as a milestone, and we can look back with pride on 92
years of success and service. But mostly we plan ahead, anticipating ways to
serve our customers today and in the future. On behalf of everyone at Home
Building Bancorp, Inc., thank you for your business, your support, and your
investment in our company.
Sincerely,
Bruce A. Beesley
President and Chief Executive Officer
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At September 30,
1999 1998 1997 1996 1995
(In Thousands)
Selected Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets $48,887 $45,103 $41,750 $42,561 $41,670
Loans receivable, net 36,843 32,659 28,583 28,108 28,882
Cash and cash equivalents 6,008 5,606 4,016 5,222 3,339
Mortgage-backed securities 2,724 4,010 4,922 5,771 4,031
Investment securities 2,039 1,662 2,905 2,235 2,503
Deposits 35,598 32,167 31,518 32,628 31,269
Total borrowings 6,679 6,327 4,000 3,974 4,068
Shareholders' equity 6,161 6,172 5,893 5,499 6,076
</TABLE>
<TABLE>
<CAPTION>
At and For Year Ended September 30,
1999 1998 1997 1996 1995
(In Thousands, Except Per Share Data)
Selected Operations Data:
<S> <C> <C> <C> <C> <C>
Total interest income $ 3,355 $ 3,282 $ 3,306 $ 3,214 $ 3,159
Total interest expense 1,837 1,833 1,831 1,756 1,611
Net interest income 1,518 1,449 1,475 1,458 1,548
Provision for loan losses 15 27 5 409 ---
Net interest income after
provision for loan losses 1,503 1,422 1,470 1,049 1,548
Gain (loss) on sales of mortgage-
backed securities, investment
securities, and other assets (34) 17 13 --- ---
Other noninterest income 173 177 113 141 127
Total noninterest income 139 194 126 141 127
Total noninterest expense(1) 1,135 1,185 1,058 1,298 959
Income before taxes 507 431 538 (108) 716
Income tax expense 181 169 210 29 267
Net income (loss) $ 326 $ 262 $ 328 $ (137) $ 449
Basic earnings (loss) per share $ 1.16 $ .90 $ 1.15 $ (.46) $ 1.07
Dividends per share $ .30 $ .30 $ .30 $ .30 $ .075
<FN>
(1) 1996 includes the nonrecurring Savings Association Insurance Fund
("SAIF") special assessment of $224,000, or $135,000 net of taxes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
1999 1998 1997 1996 1995
Selected Financial Ratios and
Other Data:
Performance Ratios:
<S> <C> <C> <C> <C> <C>
Return on average assets(1) .69% .60% .78% (.33)% 1.08
Return on average shareholders'
equity(1) 5.29 4.34 5.75 (.02) 10.38
Interest rate spread information:
Average during period 2.73 2.88 2.97 2.98 3.37
End of period 2.51 2.75 3.06 3.38 3.18
Net interest margin(2) 3.34 3.25 3.33 3.53 3.82
Ratio of operating expense to
average total assets 2.62 2.78 2.51 3.08 2.32
Ratio of average interest-
earning assets to average
interest-bearing liabilities 108.73 110.12 108.18 112.99 112.10
Quality Ratios:
Non-performing assets to total
assets at end of period(3) .26 .32 .60 .35 .37
Allowance for loan losses to
non-performing loans 66.67 63.21 32.67 51.68 49.36
Allowance for loan losses to
loans receivable, net .23 .28 .29 .27 .27
Capital Ratios:
Shareholders' equity to total
assets at end of period 12.60 13.68 14.11 12.92 14.57
Average shareholders' equity
to average assets 13.12 13.89 13.51 13.74 10.98
Dividend payout ratio(4) 25.86 35.72 26.09 >100.00 7.00
Other Data:
Number of full-service offices 2 2 2 2 2
<FN>
(1) The fiscal 1996 numbers includes the nonrecurring SAIF special assessment.
(2) Net interest income divided by average interest-earning assets.
(3) Non-performing assets consist of nonaccruing loans, loans past due 90 or
more days and real estate owned.
(4) Dividends declared per share divided by earnings per common stock and
common share equivalent.
(5) Not applicable.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Home Building Bancorp, Inc. ("Home Building" and with its subsidiaries, the
"Corporation") is an Indiana corporation that was organized in September 1994
to act as the holding company for Home Building Savings Bank, FSB (the
"Bank") upon the completion of the Bank's conversion from the mutual to the
stock form (the "Conversion"). The Conversion was completed on February 7,
1995. On that same date, Home Building issued 322,000 shares of common stock
at $10.00 per share (raising $2.6 million, net of shares acquired by the
newly formed Employee Stock Ownership Plan (the "ESOP") and net of the costs
of the Conversion) and
<PAGE>
acquired 100% of the stock of the Bank. Home Building has no significant
operations outside those of the Bank and the Bank's wholly owned
subsidiary, White River Service Corporation. All references to the
Corporation prior to February 7, 1995, except where otherwise indicated, are
to the Bank.
The Corporation is headquartered in Washington, Indiana, and is primarily
engaged in attracting deposits from the general public and making loans
secured by residential real estate, and to a lesser extent, commercial and
multi-family, consumer and commercial business properties. The operations
of the Corporation are significantly affected by prevailing economic
conditions, primarily interest rates and regulations relating to monetary and
fiscal affairs and financial institutions.
The Corporation's results of operations are heavily dependent on the
difference or spread between the average yield on loans, mortgage-backed
securities and investment securities, and the average rate paid on deposits and
borrowings. The interest rate spread is affected by regulatory, economic, and
competitive factors that influence interest rates, loan demand and deposit
flows. The Corporation, like other financial institutions, is subject to
interest rate risk to the degree that its interest-earning assets mature or
reprice at different times, or on a different basis, than its interest-bearing
liabilities.
The Corporation's net income is also affected, to a much lesser extent,
by fee income received for loan originations, demand deposit accounts, and
commissions received from the Bank's subsidiary for insurance and mutual
fund products. In addition to interest expense, the Corporation's operating
expenses principally consist of employee compensation and benefits,
occupancy expenses, data processing expense, federal deposit insurance
premiums, and other general and administrative expenses.
Financial Condition
Total assets of the Corporation increased $3.8 million, or 8.39% to $48.9
million at September 30, 1999 from $45.1 million at September 30, 1998.
Assets increased primarily due to loans receivable, which increased $4.2
million, or 12.81%, to $36.8 million at September 30, 1999. The Bank
continues to compete successfully in its own marketplace for quality mortgage
loans, as well as installment, auto, and commercial loans. Interest-bearing
deposits with banks increased $521,000, to $4.8 million at September 30,
1999. Securities available for sale decreased $800,000 to $4.6 million, as
securities continue to pay down and cash flows were invested in new loans.
Total deposits increased $3.4 million, or 10.64%, to $35.6 million at
September 30, 1999. The increase was approximately $2.9 million in time
deposits and $500,000 in savings and NOW deposits. The Bank has been able to
maintain a relatively stable cost of savings, although much of the increase
has come from public funds deposits. The Bank is able to compete
aggressively for retail deposits should loan volume or other investment
opportunities warrant. Advances from the FHLB of Indianapolis increased
$351,000, to $6.7 million at year-end.
<PAGE>
Shareholders' equity increased $11,000, to $6.2 million, at September 30,
1999. The Corporation repurchased 15,000 shares of its stock during the fiscal
year at a cost of $260,000, and paid dividends to shareholders equal to $0.30
per share during the fiscal year. At September 30, 1999 shareholders' equity
was $21.79 per share based on 282,793 shares, compared to $21.05 per share
on September 30, 1998, based on 293,160 shares.
Results of Operations
Comparison of the Fiscal Years Ended September 30, 1999 and 1998.
General. The Corporation had net income of $326,000 for the year ended
September 30, 1999 compared to net income of $261,700 for the same period
last year. Net interest income increased $80,000, while noninterest income
decreased $55,000 that includes a $35,000 loss on the default of a security.
Noninterest expense decreased $51,000, including personnel expense for an
additional employee. Service fee and professional fee expenses decreased
$52,000 compared to the previous year.
Interest Income. Total interest income increased $73,000, or 2.23%, to
$3.4 million for the year ended September 30, 1999 compared to the previous
year. The slight increase was due to interest earned from higher loan volumes
and interest earned on higher volumes of deposits with other banks. See
"Average Balances, Interest Rates and Yields" and Rate/Volume Analysis of
Net Interest Income".
Interest Expense. Total interest expense increased $4,000, or 0.19%, to $1.8
million for the year ended September 30, 1999 compared to the previous year.
Slightly lower interest expense on deposits was offset by higher interest
expense on borrowed funds. See "Average Balances, Interest Rates and
Yields" and " Rate/Volume Analysis of Net Interest Income".
Net Interest Income. Net interest income increased $80,000, or 5.73%,
to $1.5 million for the year ended September 30, 1999 compared to the
previous year. The Bank has been successful at maintaining and even
increasing its deposits while controlling its cost savings. The Bank has also
used the advantageous rates on FHLB advances in managing its liability
structure. While interest income from the securities and mortgage-backed
security portfolios decreased as these assets repaid, the Bank has realized
improved interest income from its increased lending activities. The
Corporation's percentage of average interest-earning assets to average
interest-bearing liabilities decreased to 108.7% during fiscal year 1999 from
110.12% during fiscal 1998.
Provision for Loan Losses. The provision for loan losses is a result of
management's periodic analysis of the adequacy of the allowance for loan
losses. The provision for loan losses during the year ended September 30,
1999 was $15,000. Net losses after recoveries were $21,000 for the year. The
$86,000 at September 30, 1999 represents 0.23% of net loans receivable and
66.6% of total non-performing loans as of September 30, 1999.
Management establishes an allowance for loan losses based on an analysis
of risk factors in the loan portfolio. This analysis includes the level of its
classified and nonperforming assets and their estimated value, the national
economic outlook which may tend to inhibit economic activity and depress real
estate values in the Corporation's primary market area, the regulators' view
of adequate reserve levels for the thrift industry, and the levels of the
allowance for loan losses established by the Corporation's peers. Accordingly,
the calculation of the adequacy of the
<PAGE>
allowance for loan losses is not based directly on the level of
nonperforming assets.
Management will continue to monitor the allowance for loan losses and
make future additions to the allowance through the provision for loan losses
as economic conditions and loan portfolio quality dictate. Although the
Corporation maintains its allowance for loan losses at a level which it
considers to be adequate to provide for 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
determination as to the amount if its allowance for loan losses is subject to
review by the Office of Thrift Supervision (the "OTS")and the Federal Deposit
Insurance Corporation (the "FDIC"), as part of their examination process,
which may result in the establishment of an additional allowance based upon
their judgment of the information available to them at the time of their
examination.
Noninterest Income. Total noninterest income decreased $55,000, or 28.4%, to
$139,000 for the period ended September 30, 1999 from $194,000 for the
previous year. The change resulted from a reduction of $4,000 in the
profitability of the bank's brokerage operation subsidiary, a reduction of
$16,000 in gains from sale of assets, as well as a $35,000 loss recorded as
the result of the default of an investment security.
Noninterest Expense. Noninterest expense decreased $51,000, or 4.26%, to
$1,135,000 for the period ended September 30, 1999 from $1,186,000 for the
previous year. Salaries and employee benefits, the largest component of
noninterest expense, increased $2,000, or 0.37% from the previous year, as
lower benefit expense was offset by the addition of a full-time commercial
loan officer. Occupancy, equipment expense, deposit insurance premiums and
advertising remained little changed. Computer expense, including the costs of
the Company's Y2K preparations, increased $5,000. Service fees, professional
fees, and other expenses decreased $56,000, as last year's non-recurring
professional fees and insurance deductibles were not repeated.
Income Tax Expense. Income tax expense increased to $181,000 for the
fiscal year ended September 30, 1999 from $169,000 in fiscal year 1998, as
a result of higher net taxable income.
<PAGE>
Average Balances, Interest Rates and Yields
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and
the resultant yields, as well as the total dollar amount of interest expense
from average interest-bearing liabilities and the resultant rates. No tax
equivalent adjustments were made. All average balances are monthly
average balances. Non-accruing loans have been included in the table as
loans carrying a zero yield.
<TABLE>
<CAPTION>
At
September 30, September 30,
1999 1999 1998
Average Interest Average Interest
Yield/ Outstanding Earned/ Yield/ Outstanding Earned Yield/
Rate Balance Paid Rate Balance Paid Rate
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans receivable(1) 7.25% $34,998 $2,713 7.75% $31,057 $2,547 8.20%
Mortgage-backed securities 6.63 3,261 208 6.38 4,491 299 6.66
Investment securities 5.53 1,213 107 8.82 2,046 154 7.53
Interest-earning deposits
at banks 4.56 5,947 300 5.04 4,373 225 5.83
FHLB stock 8.01 337 27 8.01 335 27 8.06
Total interest-
earning assets(1) 6.83 45,756 3,355 7.33 42,302 3,282 7.82
Interest-Bearing Liabilities:
Savings deposits 2.09 6,340 144 2.28 6,354 191 3.01
Demand and NOW deposits 1.15 6,228 88 1.41 6,078 146 2.41
Certificate accounts 5.34 22,793 1,253 5.49 21,011 1,191 5.67
Borrowings 5.61 6,412 352 5.49 5,252 305 5.81
Total interest-bearing
liabilities 4.32 41,773 1,837 4.40 38,695 1,833 4.74
Net interest income $1,518 $1,449
Net interest rate spread(1)(2) 2.51% 2.93% 3.08%
Net interest-earning assets(1) $3,983 $3,607
Net yield on average interest-
earning assets(3) 2.90% 3.32% 3.43%
Average interest-earning assets
to average interest-bearing
liabilities 109.53% 109.32%
<FN>
(1) Calculated net of deferred loan fees, loan discounts, loans in process and loss reserves.
(2) Net interest rate spread represents the difference between the average yield on interest-
earning assets and the average rate of interest-bearing liabilities.
(3) Net yield on average interest-earning assets represents net interest income before
provision for loan losses divided by average interest-earning assets.
</TABLE>
<PAGE>
Rate/Volume Analysis of Net Interest Income
The following table presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and that due to the changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume which cannot be segregated have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Year Ended September 30,
1999 vs. 1998 1998 vs. 1997
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable $321 $ (155) $ 166 $ 217 $ (78) $ 139
Mortgage-backed securities (74) (7) (81) (74) (14) (88)
Investment securities (57) 1 (56) (50) 3 (47)
Interest-earning deposits
at banks 69 (24) 45 (73) (15) (88)
FHLB Stock --- --- --- --- --- ---
Total interest-earning
assets $ 249 $(185) (74) $ 20 $(104) (84)
Interest-Bearing Liabilities:
Savings deposits 0 (47) (47) $ (32) $ (5) (37)
Demand and NOW deposits 4 (62) (58) 6 (3) 3
Certificate accounts 101 (39) 62 (53) 3 (50)
Borrowings 68 (21) 47 80 6 86
Total interest-bearing
liabilities $ 173 $ (169) 4 $ 1 $ 1 2
Net interest income $ 70 $ (86)
</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 inter-
mediate-term maturities reprice more rapidly, or on a different basis, than
its interest-earning assets. Management 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. Specific strategies to manage interest rate risk have
included the origination of ARMs and advances from the FHLB to match
durations of fixed rate mortgages. In addition, management monitors the
<PAGE>
spread between short-term and long-term liabilities, and at the
appropriate time, may lengthens its interest-bearing liabilities to keep the
percent change in NPV within acceptable limits. At September 30, 1999,
approximately $8.3 million, or 25.0%, of the Corporation's mortgage loans
and mortgage-backed securities were scheduled to mature or reprice during the
next five years. Management anticipates that it will replace these loans in the
normal course of business and through marketing efforts, which are devoted
to attracting mortgage loans directly from the public. Subject to demand, new
loans will be originated at market interest rates. Loans may also be purchased
from other originators as whole loans or participations in pools of loans
shouldlocal demand prove unsatisfactory. Furthermore, mortgage-backed
securities may also be purchased if excess funds cannot be invested in mortgage
loans.
OTS regulations provide a NPV approach to the quantification of interest
rate risk. Under OTS regulation TB 13a, institutions are expected to
establish minimum board-approved interest rate risk limits and maintain an
ability to measure their interest rate risk exposure. The Bank relies on the
OTS Interest Rate Risk Exposure Report, which is calculated and reviewed by
the Bank's board quarterly. TB 13a assigns a "Level of Interest Rate Risk"
based on a bank's post shock NPV and its Interest Rate Sensitivity Measure,
as defined. Based on the most recently available Report, for the quarter
ending September 30, 1999, the Bank had a post shock NPV at +200bp of 8.60%
and a Sensitivity measure of -281 bp. Banks having post shock NPV of 6% to
10% and Sensitivity Measures of 200-400bp are rated "Moderate Risk".
Presented below, as of September 30, 1999, is an analysis of the Bank's
interest rate risk as measured by changes in NPV for instantaneous and sus-
tained parallel shifts in the yield curve in 100 basis point increments up and
down 300 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.
At September 30, 1999
Change in NPV NPV NPV as a %
Interest Rate Estimated Dollar Percent of the Present
(Basis Points) NPV Change Change Value Assets
(Dollars in Thousands)
+300bp 3,184 (2,394) (43)% 6.97%
+200bp 4,022 (1,556) (28)% 8.60%
+100bp 4,845 (734) (13)% 10.02%
0bp 5,578 11.41%
- 100bp 6,109 530 10% 12.29%
- 200bp 6,480 902 16% 12.86%
- 300bp 6,809 1,231 22% 13.34%
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. Management reviews the OTS measurements on a
quarterly basis. 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.
<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 is required to maintain minimum levels of liquid assets as defined
by OTS regulations. OTS regulations presently require the Bank to maintain
an average daily balance of liquid assets equal to at least 4.0% of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. Such investments are intended to
provide a source of relatively liquid funds upon which the Bank may rely, if
necessary, to fund deposit withdrawals and other short-term funding needs.
The Bank's regulatory liquidity at September 30, 1999 was 21.78%.
Liquidity management is both a daily and long-term responsibility of
management. Management adjusts the Bank's investments in liquid assets
based upon its assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning investments and (iv) the
objectives of its asset/liability management program. Excess liquidity
generally is invested in interest-bearing overnight deposits. If the Bank
requires additional funds beyond its internal ability to generate such funds it
has additional borrowing capacity with the FHLB of Indianapolis and collateral
eligible for repurchase agreements. At September 30, 1999, the Corporation
had outstanding borrowings consisting $ 6.7 million in FHLB advances, with
the capacity to borrow up to an additional $13.3 million from the FHLB of
Indianapolis.
The Bank principally uses its liquidity resources to fund maturing
certificates of deposit and deposit withdrawals, to invest, to fund existing
and future loan commitments, to maintain liquidity, and to meet other operating
needs. At September 30, 1999, the Bank had $1.7 million of loan commitments.
Certificates of deposit scheduled to mature in a year or less at September
30, 1999 totaled $17.4 million. Based on historical experience, management
believes that a significant portion of such deposits will remain
with the Bank. There can be no assurance, however, that the Bank can retain
all such deposits. Management anticipates that it will have sufficient funds
available to meet the Bank's liquidity needs.
The primary investing activities of the Bank includes the origination
and purchase of loans and the purchase of mortgage-backed and investment
securities. At September 30, 1999, these assets accounted for 85.06% of the
Bank's total assets. Such originations and purchases are funded primarily from
loan repayments, repayments of mortgage-backed and investment securities,
FHLB advances and net income.
<PAGE>
At September 30, 1999, the Bank had tangible and core capital of $4.85
million, or 10.04% of adjusted total assets, which was approximately $4.13
million and $ 2.92 million above the minimum requirements of 1.5% and 4.0%,
respectively, of the adjusted total assets in effect on that date. The
Bank had risk-based capital at September 30, 1999 of $ 4.94 million, or
18.88% of risk-weighted assets of $26.16 million. This amount was $ 2.85
million above the 8.0% requirement in effect on that date. At September 30,
1999, the Bank was considered a "well capitalized" institution under OTS
regulations.
The Corporation also has a need for, and sources of, liquidity. Liquidity
is required to fund its operating expenses, fund stock repurchase programs,
as well as for the payment of any dividends to shareholders. At September
30, 1999, Home Building Bancorp Inc. had $945,000 in liquid assets on hand.
The primary source of liquidity on an ongoing basis is dividends from the
Bank. Dividends totaling $150,000 were paid from the Bank to Home Building
for the year ended September 30, 1999. Home Building also retained cash
from the Conversion and, as a public company, has access to public debt and
equity markets. For the year ended September 30, 1999, Home Building paid
dividends to shareholders totaling $88,999. Home Building currently has no
significant liquidity commitments as its operating costs are modest and
dividends on common stock are discretionary. Management anticipates that it
will have adequate funds to meet the Corporation's foreseeable short- and
long-term liquidity needs.
Impact of Inflation and Changing Prices
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 Corporation's operations.
Nearly all the assets and liabilities of the Corporation are financial, unlike
most industrial companies. As a result, the Corporation's performance is
directly impacted by changes in interest rates, which are indirectly influenced
by inflationary expectations. The Corporation's ability to match the interest
sensitivity of its financial assets to the interest sensitivity of its
financialliabilities in its asset/liability management may tend to minimize
the effect of changes in interest rates on the Corporation's performance.
Changes in interest rates do not necessarily move to the same extent as do
changes in the price of goods and services.
Forward-Looking Statements
When used in this report, the words "believes," "anticipates," "expect" and
similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could
cause actual results to differ materially, including, but not limited
to, those set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Corporation undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
WASHINGTON, INDIANA
CONSOLIDATED
FINANCIAL STATEMENTS
FISCAL YEARS ENDED
SEPTEMBER 30, 1999 AND 1998
AND
INDEPENDENT AUDITOR'S REPORT
13
<PAGE>
HOME BUILDING BANCORP, INC. AND SUBSIDIARIES
WASHINGTON, INDIANA
Index to Consolidated Financial Statements
PAGE
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . 15
Consolidated Statements of Financial Condition
as of September 30, 1999 and 1998 . . . . . . . . . . . . . . . . . 16
Consolidated Statements of Income for the
years ended September 30, 1999 and 1998. . . . . . . . . . . . . . . 17
Consolidated Statements of Comprehensive Income for the
years ended September 30, 1999 and 1998. . . . . . . . . . . . . . . 18
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1999 and 1998 . . . . . . . . . . . . . . 19
Consolidated Statements of Cash Flows for the
years ended September 30, 1999 and 1998 . . . . . . . . . . . . . . 20
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 21-33
14
<PAGE>
[KEMPER CPA GROUP LLC LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Home Building Bancorp, Inc.
Washington, Indiana
We have audited the accompanying consolidated statements of financial
condition of Home Building Bancorp, Inc., and subsidiaries, as of September 30,
1999 and 1998, and the related consolidated statements of income,
comprehensive income, shareholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated 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
obtainreasonable 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 consolidated financial position of Home
Building Bancorp, Inc., and subsidiaries, as of September 30, 1999 and 1998 and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
Mt. Carmel, Illinois
November 4, 1999
15
<PAGE>
HOME BUILDING BANCORP, INC.
WASHINGTON, INDIANA
Consolidated Statements of Financial Condition
September 30, 1999 and 1998
1999 1998
ASSETS
Cash and due from banks $ 1,247,958 $ 1,366,761
Interest-bearing deposits with banks 4,760,057 4,238,977
Securities available for sale 4,634,094 5,443,539
Securities held to maturity,
fair market value of $129,697
in 1999 and $229,754 in 1998 129,362 228,059
Loans receivable, net of allowance
for loan losses of $86,288 in 1999
and $92,249 in 1998 36,842,618 32,659,339
Accrued interest receivable 251,030 226,102
Premises and equipment, net 744,516 759,343
Other assets 277,436 180,465
Total assets $ 48,887,071 $ 45,102,585
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Savings and NOW deposits $ 11,190,073 $ 10,713,887
Other time deposits 24,398,525 21,452,629
Total deposits 35,588,598 32,166,516
Advances from Federal Home Loan Bank 6,677,863 6,327,415
Accrued expenses and other liabilities 459,888 436,809
Total liabilities 42,726,349 38,930,740
Shareholders' equity:
Common stock, $.01 par value,
1 million shares authorized,
331,660 issued and outstanding 3,317 3,317
Additional paid-in capital 3,098,774 3,088,095
Common stock in treasury, at cost
(1999 - 35,000 shares;
1998 - 20,000 shares) (605,000) (345,000)
Retained earnings 3,855,608 3,618,107
Accumulated other comprehensive
income (loss) (37,946) 20,741
Unearned ESOP & recognition and
retention shares (154,031) (213,415)
Total shareholders' equity 6,160,722 6,171,845
Total liabilities and
shareholders' equity $ 48,887,071 $ 45,102,585
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
HOME BUILDING BANCORP, INC.
WASHINGTON, INDIANA
Consolidated Statements of Income
Years Ended September 30, 1999 and 1998
1999 1998
Interest income:
Loans receivable $ 2,713,084 $ 2,547,091
Investments 134,928 181,022
Mortgage-backed securities 207,540 298,676
Deposits with other banks 299,672 255,233
Total interest income 3,355,224 3,282,022
Interest expense:
Deposits 1,484,936 1,528,344
Other borrowed funds 351,840 304,898
Total interest expense 1,836,776 1,833,242
Net interest income 1,518,448 1,448,780
Provision for loan losses 15,163 27,000
Net interest income after
provision for loan losses 1,503,285 1,421,780
Noninterest income:
Net gain (loss) on assets (34,040) 17,238
Customer service fees 173,203 177,113
Total other income 139,163 194,351
Noninterest expenses:
Salaries and employee benefits 622,836 620,514
Occupancy and equipment 142,848 143,008
Deposit insurance premium 20,063 21,222
Data processing 59,149 54,071
Service fees 61,598 78,304
Advertising expense 58,805 59,156
Professional fees 56,263 91,140
Other expense 113,434 118,115
Total other expenses 1,134,996 1,185,530
Income before income taxes 507,452 430,601
Income tax expense (180,952) (168,872)
Net income $ 326,500 $ 261,729
Basic earnings per share of common stock $ 1.16 $ .90
Weighted average shares outstanding 281,966 290,769
Diluted earnings per share of common stock $ 1.16 $ .89
Diluted weighted average shares outstanding 281,966 294,478
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
HOME BUILDING BANCORP, INC.
WASHINGTON, INDIANA
Consolidated Statements of Comprehensive Income
Years Ended September 30, 1999 and 1998
1999 1998
Net income: $ 326,500 $ 261,729
Change in net unrealized gain
(loss) on securities available for
sale, net of reclassification
adjustment tax effects (58,495) 8,135
Comprehensive income $ 268,005 $ 269,864
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
HOME BUILDING BANCORP, INC.
WASHINGTON, INDIANA
Consolidated Statements of Shareholders' Equity
Years Ended September 30, 1999 and 1998
1999 1998
Common stock, $.01 par value,
1 million shares authorized,
331,660 issued and outstanding $ 3,317 $ 3,317
Additional paid-in capital
Beginning of period 3,088,095 3,046,415
Allocation of ESOP shares 13,944 32,616
Allocation of RRP shares (3,265) 9,064
End of period 3,098,774 3,088,095
Treasury stock, at cost
Beginning of period (345,000) (345,000)
Purchase of treasury stock
(1999-15,000 shares) (260,000) -
End of period (605,000) (345,000)
Retained earnings
Beginning of period 3,618,107 3,449,876
Net income 326,500 261,729
Dividends declared (88,999) (94,488)
End of period 3,855,608 3,618,107
Unrealized gain (loss) on securities
available for sale, net of deferred tax
Beginning of period 20,741 12,606
Change in unrealized gain or (loss) (58,687) 8,135
End of period (37,946) 20,741
Unearned ESOP and recognition and
retention shares
Beginning of period (213,415) (274,283)
Allocation of ESOP shares 27,023 28,507
Allocation of recognition and
retention shares 32,361 32,361
End of period (154,031) (213,415)
Total shareholders' equity $ 6,160,722 $ 6,171,845
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
HOME BUILDING BANCORP, INC.
WASHINGTON, INDIANA
Consolidated Statements of Cash Flows
Years Ended September 30, 1999 and 1998
1999 1998
Cash flows from operating activities:
Net income $ 326,500 $ 261,729
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 37,044 35,928
Non cash compensation 70,063 102,548
Other gains, net (797) (9,929)
Net realized (gains) losses on
available-for-sale securities 34,837 (7,434)
(Increase) decrease in insurance
receivable - 240,444
Increase in accrued interest
receivable (24,928) (15,846)
Increase (decrease) in accrued
expenses and other liabilities 36,906 92,486
(Increase) decrease in other assets (76,076) (97,361)
Provision for loan loss 15,163 27,000
Total adjustments 92,212 367,836
Net cash provided by operating activities 418,712 629,565
Cash flows from investing activities:
Net (increase) decrease in interest-
bearing deposits with banks (521,080) (1,717,399)
Activity in available for sale securities:
Sales - 258,653
Maturities, prepayments and calls 2,131,834 2,759,847
Purchases (1,415,000) (957,647)
Activity in held to maturity securities:
Maturities, prepayments and calls 98,697 116,198
Net increase in loans (4,233,279) (4,103,729)
Net purchases of premises and equipment (22,218) (11,304)
Proceeds from sale of foreclosed collateral - 15,900
Net cash (used) provided by investing
activities (3,961,046) (3,639,481)
Cash flows from financing activities:
Net decrease in savings and
NOW deposit accounts 476,186 (166,156)
Net increase (decrease) in time deposits 2,945,896 815,139
Repayments of Federal Home Loan
Bank Advances (649,552) (172,926)
Proceeds from Federal Home Loan
Bank Advances 1,000,000 2,500,000
Purchase of Treasury Stock (260,000) -
Dividends paid (88,999) (93,498)
Net cash (used) provi Net cash (used)
provided by financing activitie s 3,423,531 (2,882,559)
Net increase (decrease) in cash and
due from banks (118,803) (127,357)
Cash and due from banks at beginning
of period 1,366,761 1,494,118
Cash and due from banks at end of period $ 1,247,958 $ 1,366,761
Interest paid on deposits and
borrowed funds $ 1,801,930 $ 1,814,229
Income taxes paid $ 270,514 $ 233,131
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Home Building Bancorp, Inc. (the"Company") was formed at the direction of
Home Building Savings Bank, FSB (the "Bank"), for the purpose of owning all
the stock outstanding in the Bank. Established in 1908, Home Building Savings
Bank, FSB is a community oriented financial institution offering a variety of
financial services to meet the needs of the communities it serves. The Bank's
primary market area covers Daviess and Pike Counties in southwestern Indiana.
The Bank attracts deposits from the general public and uses such deposits,
together with borrowings and other funds, to originate one- to four-family
residential mortgage, automobile and consumer loans, and to a lesser extent
commercial, multifamily and construction real estate loans.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the
accounts of Home Building Bancorp, Inc., Home Building Savings Bank, FSB,
and White River Service Corporation (the "Service Corp"), the Bank's wholly
owned subsidiary, which sells stocks, bonds, mutual funds, and annuities. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Cash and Cash Equivalents - For the purpose of presentation in the consolidated
statements of cash flows, cash and cash equivalents are defined as those
amountsincluded in the balance-sheet caption cash and due from banks.
Securities Held to Maturity - Held to maturity securities, consisting of
mortgage-backed securities for which the Bank has the positive intent and
ability to hold to maturity, are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method
over the period to maturity.
Securities Available for Sale - Available for sale securities consist of bonds
and mortgage backed securities not classified as held to maturity.
Unrealized holding gains and losses, net of tax, on available for sale
securities are reported as a net amount in a separate component of retained
earnings until realized.
Gains and losses on the sale of available for sale securities are determined
using the specific identification method.
Declines in the fair value of individual held to maturity and available for
sale securities below their cost that are other than temporary result in write-
downs of the individual securities to their fair value. Stock in the Federal
Home Loan Bank is carried at cost.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans Receivable - 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 adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Discounts on purchased, first mortgage loans are amortized to income using the
interest method over the remaining period to contractual maturity, adjusted for
anticipated prepayments. Unearned discounts on installment loans are
recognized over the term of the loans using the interest method.
Loan origination fees and direct costs related to loan originations are
capitalized and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due.
When interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
21
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
Allowances for impaired loans are generally determined based on collateral
values. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries. Changes in
the allowance relating to impaired loans are charged or credited to the
provision for loan losses. Management's periodic evaluation of the adequacy
of the allowance is based on the Bank's 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.
Foreclosed Real Estate - Real estate properties acquired through, or in lieu
of, loan foreclosure are to be sold and are initially recorded at fair value
at the date of foreclosure establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations and changes in the valuation allowance are
included in loss on foreclosed real estate.
Costs relating to development and improvement of property are capitalized,
whereas costs relating to the holding of property are expensed. The portion of
interest costs relating to the development of real estate is capitalized.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its estimated net realizable value.
Income Taxes - Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Premises and Equipment - Land is carried at cost. Building, improvements, and
furniture, fixtures, and equipment, are carried at cost, less accumulated
depreciation computed principally by the straight-line method.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A material estimate that is particularly susceptible to significant change
relates to the determination of the allowance for losses on loans. In
connection with the determination of the allowances for losses on loans,
management obtains independent appraisals for significant properties.
Financial Instruments - In the ordinary course of business, the Bank has entered
into off-balance-sheet financial instruments consisting of commitments to extend
credit. Such financial nstruments are recorded in the financial statements when
they are funded or related fees are incurred or received.
Effect of New Financial Accounting Standards - In June of 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognizes all derivatives as either
assets or liabilities in the statement of financial position and measures those
instruments at fair value.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods
must be consistent with the entity's approach to managing risk. In September
1999, the FASB issued SFAS No. 137 that defers the effective date of SFAS No.
133. This Statement shall be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company had no derivatives as of
September 30, 1998 nor does the Company engage in any hedging activities.
The Company does not anticipate that the adoption of SFAS No. 133 will have
a material impact of its financial position or results of operations.
22
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
Fair Values of Financial Instruments
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed in Note 8:
Cash and short term instruments. The carrying amounts of cash and short term
instruments approximate their fair value.
Available for sale and held to maturity securities. Fair values for securities
are based on quoted market prices. The carrying values of restricted equity
securities approximate fair values.
Loans receivable. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
Fair values for mortgage loans and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values for
commercial real estate and commercial loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow analyses or underlying collateral
values, where applicable.
Deposit liabilities. The carrying amounts of variable-rate, fixed-term money-
market accounts and certificates of deposit (CD's) approximate their fair
values at the reporting date. Fair values for fixed-rate CD's are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Short-term borrowings. The carrying amounts of securities sold under
agreements to repurchase maturing within 90 days approximate their fair value.
The fair values of the Bank's Federal Home Loan Bank advances are estimated
using discounted cash flow analyses based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
Accrued interest. The carrying amounts of accrued interest approximate their
fair values.
Off-balance-sheet instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standings.
Earnings Per Common Share - Basic earnings per share of common stock have
been computed by dividing net income by the weighted average number of share
outstanding during the fiscal year, less Employee Stock Ownership Plan
("ESOP") shares, and Recognition and Retention Plan ("RRP") shares not
committed to be released. Dilutive earnings per share is consistent with
that of basic earnings per share while giving effect to all dilutive potential
common shares that were outstanding during the fiscal year.
Reclassifications - Certain amounts from the prior year have been reclassified
to conform to the current year's presentation.
23
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - DEBT AND EQUITY SECURITIES
Debt and equity securities have been classified in the consolidated
statements of financial condition according to management's intent.
Amortized cost of securities and their approximate fair values at September
30 follow.
Available for sale
GROSS GROSS
1999 AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
U.S. Government
Agency securities $ 1,317,215 $ - $ (26,559) $ 1,290,656
Mortgage-backed
securities 2,618,518 7,588 (31,110) 2,594,996
Stock in FHLB 341,400 - - 341,400
Other securities 415,000 - (7,958) 407,042
TOTALS $ 4,692,133 $ 7,588 $ (65,627) $ 4,634,094
GROSS GROSS
1998 AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
U.S. Government
Agency securities $ 1,266,222 $ 14,491 - $ 1,280,713
Mortgage-backed
securities 3,761,450 20,269 - 3,781,719
Stock in FHLB 334,900 - - 334,900
Other securities 46,399 - (192) 46,207
TOTALS $ 5,408,971 $ 34,760 $ (192) $ 5,443,539
Held to maturity
GROSS GROSS
1999 AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
Mortgage-backed
securities $ 129,362 $ 548 $ (213) $ 129,697
GROSS GROSS
1998 AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
Mortgage-backed
securities $ 228,059 $ 1,695 $ - $ 229,754
Gross realized gains and gross realized losses on available for sale securities
were $0 and $34,837 respectively, in 1999 and $7,434 and $0, respectively, in
1998.
The scheduled maturities of securities held to maturity and securities (other
than equity securities) available for sale at September 30, 1999 were as
follows:
<TABLE>
<CAPTION>
Held to maturity securities: Available for sale securities:
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 115,000 $ 114,845
Due from one to five years - - 1,317,214 1,290,653
Due from five to ten years - - - -
Due after ten years - - 300,000 292,200
Subtotal - - 1,732,214 1,697,698
Mortgage backed securities 129,362 129,697 2,618,518 2,594,996
Total $ 129,362 $ 129,697 $4,350,732 $4,292,694
</TABLE>
24
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS RECEIVABLE
Loans receivable at September 30 are summarized as follows:
1999 1998
Commercial $ 812,977 $ 300,892
Real estate construction 468,437 110,611
Commercial real estate 1,540,419 328,347
Residential real estate 28,900,075 26,869,867
Consumer 5,463,203 5,336,329
Subtotal 37,185,111 32,946,046
Loans in process (192,083) (127,261)
Net deferred loan fees and discounts (64,122) (67,197)
Allowance for loan losses (86,288) (92,249)
$ 36,842,618 $ 32,659,339
An analysis of the change in the allowance for loan losses follows:
1999 1998
Balance at October 1 $ 92,249 $ 80,680
Loans charged off (24,276) (16,663)
Recoveries 3,152 1,232
Net loans charged off (21,124) (15,431)
Provision for loan losses 15,163 27,000
Balance at September 30 $ 86,288 $ 92,249
Impairment of loans having recorded investments of $129,530 at September 30,
1999 and $145,940 at September 30, 1998 has been recognized in conformity
with FASB Statement 114, as amended by FASB Statement 118. The average
recorded investment in impaired loans during 1999 and 1998 was $129,530 and
$184,057, respectively. The total allowance for loan losses related to these
loans was $21,192 and $44,811 on September 30, 1999 and 1998, respectively.
Interest income on impaired loans of $7,397 and $15,411 was recognized for
cash payments received in 1999 and 1998, respectively.
The Bank is not committed to lend additional funds to debtors whose loans have
been modified.
NOTE 4 - PREMISES AND EQUIPMENT
Components of premises and equipment included in the consolidated statements
of financial condition at September 30, 1999 and 1998 were as follows:
1999 1998
Cost:
Land $ 140,048 $ 140,048
Bank premises 1,001,307 1,001,307
Furniture and equipment 150,619 142,588
Total Cost 1,291,974 1,283,943
Less accumulated depreciation (547,458) (524,600)
Net book value $ 744,516 $ 759,343
Depreciation expense for the years ended September 30, 1999 and 1998 was
$37,044 and $35,928, respectively.
25
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - DEPOSITS
The aggregate amount of short-term jumbo CDs, each with a minimum denomination
of $100,000, was approximately $3,028,000 and $2,469,000 as of September 30,
1999 and 1998, respectively.
At September 30, 1999 the scheduled maturities of CDs are as follows:
2000 $ 7,208,097
2001 11,480,617
2002 2,749,018
2003 1,175,355
2004 and there after 1,785,438
$ 24,398,525
NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK AND
OTHER BORROWED FUNDS
The advances from the Federal Home Loan Bank consisted of advances ranging
in interest rates from 5.32%-6.34%. These advances are collateralized by
virtually the Corporation's entire mortgage loan and securities portfolio.
Maturity dates for advances outstanding at September 30, 1999 and 1998 are as
follows:
1999 1998
1999 $ 1,000,000 $ 1,000,000
2000 2,177,863 1,000,000
2001 2,500,000 827,415
2002 - -
2003 and thereafter 1,000,000 3,500,000
$ 6,677,863 $ 6,327,415
NOTE 7 - FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and lines of credit. Those
instruments involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amount recognized in the consolidated statements of
financial condition. The contract or notional amounts of these instruments
reflect the extent of the Bank's involvement in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and lines of
credit is represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Commitments to Extend Credit. Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Bank's experience has been that approximately 32% of home equity
commitments and 100% of mortgage loan commitments are drawn upon by
customers. The bank evaluates each customer's creditworthiness on a case-by-
case basis. The amount of collateral obtained, if it is deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant, and equipment, and income-producing
commercial properties.
26
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments were as follows:
<TABLE>
<CAPTION>
September 30, 1999: September 30,1998:
Carrying Fair Carrying Fair
Value Value Value Value
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks, interest-
bearing deposits with banks $ 6,008,015 $ 6,008,015 $ 5,605,738 $ 5,605,738
Securities available for sale 4,634,094 4,634,094 5,443,539 5,443,539
Securities held to maturity 129,362 129,696 228,059 229,754
Loans receivable 36,842,618 36,820,003 32,659,339 33,347,170
Accrued interest receivable 251,030 251,030 226,102 226,102
Financial Liabilities:
Deposit liabilities 35,588,598 35,782,337 32,166,516 32,166,156
FHLB advances 6,677,863 6,609,315 6,327,415 6,336,726
</TABLE>
A summary of the notional amounts of the Bank's financial instruments with
off-balance sheet risk at September 30, 1999 follows.
Notional
Amount
Commitments to extend credit $ 1,014,251
NOTE 9- PENSION PLAN
The Corporation participates in the Financial Institutions Retirement Fund,
which is a multi-employer retirement fund that covers substantially all of
the Corporation's employees providing defined benefits. The relative position
of the Corporation regarding the accumulated plan benefits and plan net
assets is not determinable by the Corporation. Pension expense totaled $0
and $0 for the years ended September 30, 1999 and 1998, respectively.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, significant share-
holders, and their affiliates (related parties). The aggregate amount of
loans to such related parties at September 30, 1999, was $270,643. For the
year ended September 30, 1999, new loans to such related parties amounted to
$103,054 and repayments amounted to $37,251.
NOTE 11 - CONCENTRATION OF CREDIT RISK
Most of the Bank's business and lending activity is with customers located
within Daviess County and other surrounding counties in Indiana. Thus, the
risk of its loan portfolio is directly affected by the economic well being of
this primarily agricultural area.
NOTE 12 - INCOME TAXES
The Corporation and subsidiaries file consolidated federal income tax returns
on a fiscal-year basis. Before 1997, if certain conditions were met in
determining taxable income, the Bank was allowed a special bad debt deduction
based on a percentage of taxable income or on specified experience formulas.
The percentage of taxable income method was repealed for tax years beginning
after December 31, 1995. The Bank is now required to use either the experience
method or the specific charge-off method. The Bank is also required to include
in income for tax purposes only a portion of its tax bad debt reserve.
Approximately $170,000 will be taxed over a period of six years beginning with
the year ended September 30, 1997.
27
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES, CONTINUED
The provision for income taxes consisted of the following for the years ended
September 30:
Current tax provision: 1999 1998
Federal $ 148,230 $ 138,193
State 43,921 41,878
Total current expense 192,151 180,071
Deferred benefit (11,199) (11,199)
Total provision $ 180,952 $ 168,872
The reasons for the differences between the statutory federal income tax rates
and the effective tax rates are summarized as follows.
1999 1998
Statutory rates 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes 8.5 8.5
Tax bad debt recapture (5.7) (6.6)
Non-taxable interest income (2.5) (2.1)
Bad debt deduction (1.0) 2.9
Other 2.4 2.5
Effective tax rate 35.7% 39.2%
Deferred tax liabilities included in other liabilities at September 30 consist
of the following:
1999 1998
Deferred tax assets
Net unrealized losses on available
for sale securities $ 20,097 -
Deferred tax liabilities:
Net unrealized gains on available
for sale securities - $ (13,817)
Allowance for loan losses (33,596) (44,795)
$ (33,596) $ (58,622)
NOTE 13 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Corporation has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Corporation
is exposed but seldom becomes a defendant in 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 Corporation.
The Corporation has deposits with two other Banks, which exceed the federal
deposit insurance limits by approximately $618,000.
NOTE 14 - RESTRICTIONS ON RETAINED EARNINGS
The Bank must obtain regulatory approval before any dividends may be
declared. Dividends from the Corporation are limited to the unconsolidated
retained earnings of the parent corporation.
28
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -and possibly additional discretionary- actions by
regulators that, if undertaken, 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 that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined) to average assets (as defined).
Management believes, as of September 30, 1999, that the Bank meets all capital
adequacy requirements to which it is subject.
As of September 15, 1997, the most recent notification from the Office of the
Thrift Supervision categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
REGULATORY CAPITAL RATIOS
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
As of September 30, 1999:
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets) 4,940,000 18.9% >2,092,800 >8.0% >2,616,000 >10.0%
Tier I Capital
(to Risk-Weighted Assets) 4,854,000 18.6% >1,046,400 >4.0% >1,569,600 > 6.0%
Tier I Capital
(to Average Assets) 4,854,000 10.0% >1,935,680 >4.0% >2,419,600 > 5.0%
Tangible Capital Ratio 4,824,000 10.0% > 725,880 >1.5%
As of September 30, 1998:
Total Capital
(to Risk-Weighted Assets) 4,722,000 19.7% >1,914,800 >8.0% >2,393,500 >10.0%
Tier I Capital
(to Risk-Weighted Assets) 4,635,000 19.4% > 957,400 >4.0% >1,436,100 > 6.0%
Tier I Capital
(to Average Assets) 4,635,000 10.3% >1,797,280 >4.0% >2,246,600 > 5.0%
Tangible Capital Ratio 4,635,000 10.3% > 673,980 >1.5%
</TABLE>
29
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - EMPLOYEE STOCK OWNERSHIP PLAN
Employee Stock Ownership Plan - Concurrent with the conversion the board of
directors approved the adoption of the Home Building Bancorp, Inc., Employees
Stock Ownership Plan (the "ESOP"). The ESOP is qualified under Sections 401
(a) and 501 (a) of the Internal Revenue Code. Eligibility is based on hours of
service, date of hire, and age. Contributions to the ESOP are determined by
theboard of directors, in the form of cash or the Corporation's common stock.
No employee contributions are accepted. Contributions are allocated based on
the ratio of the participant's compensation to total compensation of all
participants. Participant's account balances are fully vested after five years
of service. ESOP expense recorded for the year ended September 30, 1999 and
1998, totaled $41,339 and $61,125, with 2,702 and 2,851 shares committed to be
allocated at September 30, 1999 and 1998, respectively. The fair value of
unallocated shares was $169,350 and $276,845 at September 30, 1999 and 1998,
respectively.
The ESOP shares at September 30 were as follows:
1999 1998
Allocated Shares 11,524 8,673
Shares released for allocation 2,702 2,851
Purchased shares allocated 1,291 -
Unreleased shares 11,290 13,992
Total ESOP shares 26,807 25,516
NOTE 17 - RECOGNITION AND RETENTION PLAN
The adoption of the Recognition and Retention Plan ("RRP"), was approved by
the Corporation's shareholders on January 22, 1996. This plan is for the
benefit of directors and certain officers of the Corporation. The RRP is a
restricted stock award plan. The RRP is administered by a Committee of
Directors of the Corporation. This Committee selects recipients and terms of
awards pursuant to the plan. The total shares made available for awards under
the RRP plan were 12,880. The Committee has awarded 9,660 shares of common
stock under the RRP. RRP awards vest in five equal annual installments, with
the first award vesting on January 22, 1997, subject to the continuous
employment of the recipients and the Corporation's achievement of certain
performance standards as defined under such plans. The unamortized unearned
compensation value of the RRP is shown as a reduction to shareholders' equity
in the accompanying consolidated statements of financial condition.
Compensation expense related to the RRP was $28,724 and $41,423 for the years
ended September 30, 1999 and 1998, respectively.
NOTE 18 - STOCK OPTION AND INCENTIVE PLAN
The adoption of the 1995 Stock Option and Incentive plan ("1995 SOIP"), was
approved by the Corporation's shareholders on January 22, 1996. The purpose
of the Plan is to promote the long-term interests of the Corporation and its
shareholders by providing a means for attracting and retaining directors
(including emeritus and advisory directors), officers and employees of the
Corporation and its Affiliates. The Plan shall be administered by a Committee
consisting of two or more each of whom shall be a Disinterested Person. This
Committee selects recipients and terms of awards pursuant to the plan. The
maximum number of Shares with respect to which Awards may be made under the
Plan is 10% of the total Shares issued in the Bank's conversion to the capital
stock form, which is 32,200.
On January 22, 1996, the Committee granted a total of 24,146 Options with an
exercise price of $16.75.
30
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - STOCK OPTION AND INCENTIVE PLAN, CONTINUED
Information with respect to these stock options is summarized below:
Outstanding at September 30, 1997 24,146
Granted -
Exercised -
Expired -
Outstanding at September 30, 1998 24,146
Granted -
Exercised -
Expired -
Outstanding at September 30, 1999 24,146
These Options vest over a period of five years, with the first 20% vested on
January 22, 1997. At September 30, 1999 and 1998 there were 14,487 and 9,658
outstanding exercisable options, respectively. These options are exercisable
at $16.75 per share.
The Company applies APB Opinion 25 and related Interpretations in accounting
for stock options. Compensation cost charged against operations for 1999 and
1998 was $0 for each year which reflects no options were exercised that have
been granted under the Plan.
In compliance with SFAS No. 123, the Company has elected to provide the pro
forma disclosure. As such, the Company's net income and earnings per share for
1999 and 1998 adjusted to reflect pro forma amounts are indicated as follows:
1999 1998
Net Income
As reported $326,500 $261,729
Pro forma 326,500 240,821
Basic earnings per share
As reported 1.16 0.90
Pro forma 1.16 0.83
Diluted earnings per share
As reported 1.16 0.89
Pro forma 1.16 0.82
The fair value of stock options granted in 1996 was estimated on the date of
grant using the Black-Scholes option pricing model. The weighted average fair
values and related assumptions were:
Weighted average fair value $ 6.56
Expected volatility 25.17%
Risk-free interest rate 5.5%
Expected lives 8 years
Dividend yield 1.5%
31
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - PARENT ONLY FINANCIAL STATEMENTS
Summarized financial information concerning Home Building Bancorp, Inc.,
only as of September 30 is as follows:
1999 1998
ASSETS
Cash $ 683,349 $ 1,228,171
Investments available for sale 292,200 -
Investment in subsidiary 4,824,524 4,658,382
Loan receivable from subsidiary 128,800 154,560
Other assets 228,487 128,486
Total Assets $ 6,157,360 $ 6,169,599
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities 24,514 25,361
Common stock, $.01 par value,
331,660 outstanding at September 30, 1998 3,317 3,317
Paid in capital 6,234,002 6,223,592
Treasury stock (605,000) (345,000)
Dividends declared (88,999) (93,498)
Retained earnings 781,503 548,501
Unearned compensation (154,031) (213,415)
Unrealized gain (loss) on securities
available for sale (37,946) 20,741
Total liabilities & shareholders' equity $ 6,157,360 $ 6,169,599
Interest income $ 39,790 $ 49,838
Gain on sale of investment - 9,803
Income(loss) from subsidiary 341,268 299,402
Total income (loss) 381,058 359,043
Expenses (86,420) (123,495)
Income (loss) before income tax expense 294,638 235,548
Income tax benefit (expense) 31,862 26,180
Net income 326,500 261,728
Change in net unrealized gain (loss) on
securities available for sale,
net of reclassification adjustment
and tax effects (58,495) 8,135
Comprehensive income $ 268,005 $ 269,836
32
<PAGE>
HOME BUILDING BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - PARENT ONLY FINANCIAL STATEMENTS,
CONTINUED
1999 1998
Cash flows from operating activities
Net income (loss) $ 326,500 $ 261,728
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Non cash compensation expense 45,034 768,307
Increase in other assets (101,001) (82,824)
Increase (decrease) in other
liabilities (848) (2,097)
Dividends received from sub 150,000 150,000
(Income) loss from subsidiary (341,268) (299,402)
Net cash provided by operating activities 78,417 104,235
Cash flows from investing activities
Net (increase) decrease in
interest-bearing deposits with banks - 199,000
Purchase of available for
sale securities (300,000) -
Net decrease in loans 25,760 25,760
Net cash provided by investing activities(274,240) 224,760
Cash flows from financing activities
Dividends paid (88,999) (93,498)
Purchase of Treasury Stock (260,000) -
Net cash used by financing activities (348,999) (94,498)
Net increase (decrease) in cash (544,822) 235,497
Cash at beginning of period 1,228,171 992,674
Cash at end of period $ 683,349 $ 1,228,171
Cash dividends paid to the Corporation from the Bank for the years
ended September 30,
1999 1998
$ 150,000 $ 150,000
33
<PAGE>
HOME BUILDING BANCORP, INC.
SHAREHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of shareholders will be held at 10:30 a.m., Monday,
January 17, 2000, at the main office of the Corporation, located at 200 East
VanTrees Street, Washington, Indiana.
STOCK LISTING
The Corporation's stock is traded on The Nasdaq Pink Sheet/Electronic
Bulletin Board under the symbol "HBBI".
PRICE RANGE OF COMMON STOCK
The table below presents the quarterly range of high and low bid prices of, and
dividends declared on, the Corporation's Common Stock during fiscal 1999
and 1998. The price 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 therefore may not
represent actual transactions.
1999 1998
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
First Quarter $ 18.25 $ 15.50 $ .075 $23.75 $21.25 $.075
Second Quarter $ 17.00 $ 15.75 $ .075 $24.00 $21.00 $.075
Third Quarter $ 15.75 $ 12.00 $ .075 $26.00 $17.00 $.075
Fourth Quarter $ 16.00 $ 12.00 $ .075 $20.50 $18.00 $.075
Dividend payment decisions are made with consideration of a variety of factors
including earnings, financial condition, market considerations and regulatory
restrictions. The Corporation paid a $.075 quarterly dividend on October 25,
1999 to shareholders of record on October 11, 1999. Restrictions on dividend
payments are described in Note 14 of the Notes to Consolidated Financial
Statements included in this Annual Report.
At September 30, 1999, the Corporation had approximately 350 shareholders
of record and 282,793 outstanding shares of Common Stock.
<PAGE>
SHAREHOLDERS AND GENERAL INQUIRIES
Bruce A. Beesley, President
Home Building Bancorp, Inc.
200 East VanTrees Street
Washington, Indiana 47501
(812) 254-2641
TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
(908) 272-8511
ANNUAL AND OTHER REPORTS
The Corporation is required to file an annual report on Form 10-KSB for its
fiscal year ended September 30, 1999, with the Securities and Exchange
Commission. Copies of the Form 10-KSB annual report and the Corporation's
quarterly reports may be obtained without charge by contacting: Bruce A.
Beesley, President, Home Building Bancorp, Inc., 200 East Van Trees Street,
Washington, Indiana 47501; telephone number (812) 254-2641.
HOME BUILDING BANCORP, INC.
CORPORATE INFORMATION
CORPORATION AND BANK ADDRESS
200 East Van Trees Street Telephone: (812) 254-2641
Washington, Indiana 47501 Fax: (812) 254-2619
DIRECTORS OF THE BOARD OF HOME
BUILDING BANCORP, INC AND HOME
BUILDING SAVINGS BANK, FSB
Bruce A. Beesley
President and Chief Executive Officer of Home Building Bancorp, Inc. and
Home Building Savings Bank, FSB
Washington, Indiana
Blake L. Chambers
Partner, Law firm of Waller, Chambers & Hanson
Washington, Indiana
C. Darrell Deem, D.D.S.
Dentist
Washington, Indiana
Gregory L. Haag
President, Haag Heating and Air Conditioning, Inc.
Washington, Indiana
James E. Scheid
Owner, Scheid Farms
Washington, Indiana
Larry G. Wilson
President, R.L. Wilson Family Farms, Inc.
Montgomery, Indiana
EXECUTIVE OFFICERS OF HOME BUILDING BANCORP.INC.
Bruce A. Beesley
President and Chief Executive Officer of Home Building Bankcorp, Inc. and
Home Building Savings Bank, FSB
Debra K. Shields
Vice President and Chief Financial Officer of Home Building Bancorp, Inc. and
Home Building Savings Bank, FSB
INDEPENDENT AUDITORS
Kemper CPA Group LLC
1500 Cherry Street
Mt. Carmel, Illinois 62863
SPECIAL COUNSEL
Silver, Freedman & Taff, L.L.P.
1110 New York Avenue, N.W.
Seventh Floor, East Tower
Washington, D.C. 20005
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State
Parent Subsidiary Percent of of Incorporation
Ownership or Organization
Home Building Bancorp, Inc. Home Building 100% Federal
Savings Bank, FSB
Home Building Savings Bank, White River Service 100% Indiana
FSB Corporation
<PAGE> Exhibit 23
CONSENT OF EXPERTS
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
333-3946 and 333-3948 of Home Building Bancorp, Inc. on Form S-8, of our
report dated November 4, 1999 contained in the Annual Report to Shareholders
under Exhibit 13 to Home Building Bancorp, Inc.'s Annual Report on Form 10-
KSB for the fiscal year ended September 30, 1999.
/s/ Kemper CPA Group LLC
KEMPER CPA GROUP LLC
Mt. Carmel, Illinois
December 27, 1999
<PAGE>
Exhibit 27
FINANCIAL DATA SCHEDULE
<PAGE>
36
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS DATED September 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BYREFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 1247958
<INT-BEARING-DEPOSITS> 4760057
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4634094
<INVESTMENTS-CARRYING> 129362
<INVESTMENTS-MARKET> 129697
<LOANS> 36842618
<ALLOWANCE> 86288
<TOTAL-ASSETS> 48887701
<DEPOSITS> 35588598
<SHORT-TERM> 0
<LIABILITIES-OTHER> 459888
<LONG-TERM> 6677863
0
0
<COMMON> 3317
<OTHER-SE> 6157405
<TOTAL-LIABILITIES-AND-EQUITY> 48887071
<INTEREST-LOAN> 2713084
<INTEREST-INVEST> 342468
<INTEREST-OTHER> 299672
<INTEREST-TOTAL> 3355224
<INTEREST-DEPOSIT> 1484936
<INTEREST-EXPENSE> 1836776
<INTEREST-INCOME-NET> 1518448
<LOAN-LOSSES> 15163
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1134996
<INCOME-PRETAX> 507452
<INCOME-PRE-EXTRAORDINARY> 326500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 326500
<EPS-BASIC> 1.16
<EPS-DILUTED> 1.16
<YIELD-ACTUAL> .08
<LOANS-NON> 129530
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 55993
<ALLOWANCE-OPEN> 92249
<CHARGE-OFFS> 24276
<RECOVERIES> 3152
<ALLOWANCE-CLOSE> 86288
<ALLOWANCE-DOMESTIC> 86288
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
