--------------------------------------------------------------------------------
2000 ANNUAL REPORT
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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>
Dear Shareholders,
I am pleased to present to you our Annual Report for fiscal year 2000. While we
remain profitable and extremely well capitalized, our income declined to
$178,000 for 2000 from $326,000 in 1999, primarily as a result of additional
compensation expense, and professional fees that are not expected to reoccur at
the same levels. On the bright side, our net interest income was $1,525,000, a
small improvement over the prior year, and both our deposits and loans were up.
During the year, management worked with its advisors to evaluate and strengthen
key internal controls and procedures and to fill key customer service positions
with experienced community bankers.
This year we intend to finish laying the groundwork and putting in the
infrastructure for the future. We are planning to make a computer conversion
this coming August. Our new ITI/Fiserv system will be state of the art and allow
for improved efficiencies, strong controls, and most importantly, the new system
will allow our customers to choose from a wider range of products and services.
At the Home Building Investment Center, we are changing our clearing broker
dealer from SII to Fiserv. This move offers many advantages to our customers,
such as a choice of telephone trading or trading with our in house broker, Kim
Murray. Customers will also receive just one brokerage statement and tax
statement to make it easier to read and keep track of their investments. Our
customers will also find that their trades are less expensive with the new
system.
We are ready for an exciting year here at Home Building. Our staff is very
experienced and knowledgeable. We call ourselves "The Home Team", because we
believe that working together we can make Home Building the best place to bank
for a variety of financial products with the comfort of home town banking.
Our vision for the future is based on the following premises:
1. Our customers demand and deserve the latest and greatest in financial
products and services, and they will pay a fair price for those products and
services.
2. Our customers want to deal with local people that they know and trust, and
they expect their banker to be able to make decisions.
3. Our shareholders deserve and demand a fair return for their investment.
We believe that as a locally owned and operated bank we are well suited for the
future.
The pendulum will be swinging back to smaller local banks because of superior
customer service. As long as we can offer the products, we can win on service.
We think that our success will be tied to being the best at the basics, taking
deposits and making loans. We have opportunities in small business lending, in
non-qualifying real estate mortgages, in consumer loans, and of course in
checking, savings and C.D.s.
We think you will agree that our future looks bright, and we hope you will be a
part of that success. Please consider Home Building Savings Bank for your
personal banking needs.
Thank you for your investment in Home Building.
Sincerely,
/s/ John B. Graham
------------------
John B. Graham
President
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
---------------------------------
Total assets....................................... $47,164 $48,887 $45,103 $41,750 $42,561
Loans receivable, net.............................. 36,971 36,843 32,659 28,583 28,108
Cash and cash equivalents.......................... 4,468 6,008 5,606 4,016 5,222
Securities......................................... 4,144 4,763 5,672 7,827 8,006
Deposits........................................... 36,856 35,598 32,167 31,518 32,628
Total borrowings................................... 3,500 6,679 6,327 4,000 3,974
Shareholders' equity............................... 6,301 6,161 6,172 5,893 5,499
</TABLE>
<TABLE>
<CAPTION>
At and For Year Ended September 30,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
------------------------
Total interest income .............................. $ 3,338 $ 3,355 $ 3,282 $ 3,306 $ 3,214
Total interest expense ............................. 1,812 1,837 1,833 1,831 1,756
------- ------- ------- ------- -------
Net interest income ................................ 1,525 1,518 1,449 1,475 1,458
Provision for loan losses .......................... 28 15 27 5 409
------- ------- ------- ------- -------
Net interest income after provision for loan losses 1,497 1,503 1,422 1,470 1,049
------- ------- ------- ------- -------
Gain (loss) on sales of mortgage-backed
securities, investment securities, and other assets -- (34) 17 13 --
Other noninterest income ........................... 119 173 177 113 141
------- ------- ------- ------- -------
Total noninterest income ........................... 119 139 194 126 141
Total noninterest expense .......................... 1,345 1,135 1,185 1,058 1,298
------- ------- ------- ------- -------
Income before taxes ................................ 272 507 431 538 (108)
Income tax expense ................................. 94 181 169 210 29
------- ------- ------- ------- -------
Net income (loss) .................................. $ 178 $ 326 $ 262 $ 328 $ (137)
======= ======= ======= ======= =======
Basic earnings (loss) per share .................... $ .62 $ 1.16 $ .90 $ 1.15 $ (.46)
Dividends per share ................................ $ .30 $ .30 $ .30 $ .30 $ .30
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------
2000 1999 1998 1997 1996
--------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
----------------------------------------
Performance Ratios:
Return on average assets(1) ........................... .38% .69% .60% .78% (.33)%
Return on average shareholders' equity(1) ............... 2.86 5.29 4.34 5.75 (.02)
Interest rate spread ..................................... 3.07 2.93 2.88 2.97 2.98
Net interest margin(2) .................................. 3.42 3.32 3.25 3.33 3.53
Ratio of operating expense to average total assets ...... 2.86 2.62 2.78 2.51 3.08
Ratio of average interest-earning assets to average
Interest-bearing liabilities .......................... 108.54 109.53 110.12 108.18 112.99
Quality Ratios:
Non-performing assets to total assets at end of period(3) .34 .26 .32 .60 .35
Allowance for loan losses to non-performing loans ....... 55.60 66.67 63.21 32.67 51.68
Allowance for loan losses to loans receivable, net ...... .24 .23 .28 .29 .27
Capital Ratios:
Shareholders' equity to total assets at end of period ... 13.36 12.60 13.68 14.11 12.92
Average shareholders' equity to average assets .......... 13.26 13.12 13.89 13.51 13.74
Dividend payout ratio(4) ................................ 48.39 25.86 35.72 26.09 >100.00
Other Data:
Number of full-service offices .......................... 2 2 2 2 2
</TABLE>
------------------------------
(1) The fiscal 1996 numbers include 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.
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 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.
3
<PAGE>
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 decreased $1.7 million, or 3.52% to $47.2
million at September 30, 2000 from $48.9 million at September 30, 1999. Loan
receivable increased $129,000, or 0.35%, to $37.0 million at September 30, 2000.
The Bank continues to compete successfully in its own marketplace for quality
mortgage loans, as well as installment, auto, and commercial loans. Assets
decreased primarily due to interest-bearing deposits with banks, which decreased
$1.7 million, to $3.0 million at September 30, 2000. The decrease was due
largely in part to the payoffs of Federal Home Loan Bank advances. Securities
available for sale decreased $553,000 to $3.7 million, as securities continue to
pay down and cash flows were invested in new loans.
Total deposits increased $1.3 million, or 3.56%, to $36.9 million at
September 30, 2000. The increase was approximately $1.9 million in time deposits
which was offset by a decrease of $637,000 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 decreased $3.2
million, to $3.5 million at year-end.
Shareholders' equity increased $140,000, to $6.3 million, at September 30,
2000. Dividends paid to shareholders equaled $0.30 per share during the fiscal
year. At September 30, 2000
4
<PAGE>
shareholders' equity was $22.10 per share based on 285,037 shares, compared to
$21.79 per share on September 30, 1999, based on 282,793 shares.
Results of Operations
Comparison of the Fiscal Years Ended September 30, 2000 and 1999.
General. The Corporation had net income of $178,000 for the year ended
September 30, 2000 compared to net income of $326,000 for the same period last
year. Net interest income increased $7,000, while noninterest income decreased
$20,000, primarily due to lower commissions from White River Service
Corporation. Noninterest expense increased $210,000, driven by severance
agreement expenses and expenses related to an employee defalcation. Service fee,
occupancy and equipment, data processing and advertising expenses remained
relatively unchanged compared to the previous year.
Interest Income. Total interest income decreased $17,000, or 0.52%, to
$3.3 million for the year ended September 30, 2000 compared to the previous
year. The slight decrease was impacted by a $45,000 write-off of loan interest
due to an employee defalcation offset by 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 decreased $24,000, or 1.32%, to
$1.8 million for the year ended September 30, 2000 compared to the previous
year. Slightly higher interest expense on deposits was offset by reduced
interest expense on borrowed funds due to maturity of FHLB advances and the
average cost of funds was stable. See "Average Balances, Interest Rates and
Yields" and " Rate/Volume Analysis of Net Interest Income".
Net Interest Income. Net interest income increased $7,000, or 0.45%, to
$1.5 million for the year ended September 30, 2000 compared to the previous
year. The Bank has successfully maintained, and even increased its deposits
while controlling their cost. 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.
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, 2000 was
$28,000. Net losses after recoveries were $25,600 for the year. The $89,000
allowance at September 30, 2000 represents 0.24% of net loans receivable,
similar to 1999, and 55.6% of total non-performing loans, compared to 66.7% of
non-performing loans at 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 and management's
assessment of the local economy.
5
<PAGE>
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.
Noninterest Income. Total noninterest income decreased $20,000, or 14.2%,
to $119,000 for the period ended September 30, 2000 from $139,000 for the
previous year. A $41,000 decrease, 58.72%, in commission income from the Bank's
investment sales subsidiary drove the decline. Management has decided to
transfer customer investment accounts to another vendor and will not emphasize
this area of business. Lower volumes of savings and checking accounts resulted
in reduced service charge income in 2000, compared to 1999.
Noninterest Expense. Noninterest expense increased $210,000, or 18.51%, to
$1,345,000 for the period ended September 30, 2000 from $1,135,000 for the
previous year. The increases were due to an employee severance agreement and
higher salaries and benefits, professional fees and other expense. Compared to
the same period a year ago, the Bank has added a full time commercial loan
officer. In addition, during December, 1999, management discovered an employee
fraud and the Company has incurred higher professional fees related to this
matter.
During April, 2000, the Company entered into a separation and
severance agreement with its Chief Executive Officer. Pursuant to the terms of
the agreement, he will continue to receive salary and benefits for a period of
time. In April, 2000, the Company accrued and expensed approximately $106,000
related to this agreement. This agreement accounts for 50.46% of the noninterest
expense increase for fiscal year 2000.
Income Tax Expense. Income tax expense decreased to $94,000 for the fiscal
year ended September 30, 2000 from $181,000 in fiscal year 1999, as a result of
lower income before tax. The effective tax rate declined to 34.4% in 2000,
compared to 35.7% in 1999.
6
<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.(in thousands)
<TABLE>
<CAPTION>
September 30,
2000 1999
-------------------------------------------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1) ................ $36,712 $ 2,823 7.69% $34,998 $ 2,713 7.75%
Securities ......................... 3,570 275 7.70 4,474 315 7.04
Interest-earning deposits at banks . 3,984 211 5.30 5,947 300 5.04
FHLB stock ......................... 341 28 8.21 337 27 8.01
------- ------- ------- -------
Total interest-earning assets(1) .. 44,607 3,337 7.48 45,756 3,355 7.33
------- ------- ------- -------
Interest-Bearing Liabilities:
Savings deposits ................... 5,693 113 1.98 6,340 144 2.27
Demand and NOW deposits ............ 6,010 72 1.20 6,228 88 1.41
Certificate accounts ............... 24,056 1,332 5.54 22,793 1,253 5.50
Borrowings ......................... 5,335 295 5.53 6,412 352 5.49
------- ------- ------- -------
Total interest-bearing liabilities 41,094 1,812 4.41 41,773 1,837 4.40
------- ------- ------- -------
Net interest income ................. $ 1,525 $ 1,518
======= =======
Net interest rate spread(1)(2) ...... 3.07% 2.93%
Net interest-earning assets(1) ...... $ 3,513 $ 3,983
======= =======
Net yield on average interest- ...... 3.42% 3.32%
earning assets(3) ..................
Average interest-earning assets to
Average interest-bearing liabilities 108.54% 109.53%
</TABLE>
(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.
7
<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,
------------------------
2000 vs. 1999 1999 vs. 1998
----------------------------------------------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
---------------------- Increase -------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
---------- --------- --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable ............................... $ 132 $ (22) $ 110 $ 321 $(155) $ 166
Securities ..................................... (68) 28 (40) (131) (6) (137)
Interest-earning deposits at banks ............. (103) 14 (89) 69 (24) 45
FHLB Stock ..................................... -- 1 1 -- -- --
----- ----- ----- ----- ----- -----
Total interest-earning assets .................. $ (39) $ 21 (18) $ 259 $(185) (74)
===== ===== ===== ===== ===== =====
Interest-Bearing Liabilities:
Savings deposits ............................... (14) (17) (31) $ 0 $ (47) (47)
Demand and NOW deposits ........................ (3) (13) (16) 4 (62) (58)
Certificate accounts ........................... 70 9 79 101 (39) 62
Borrowings ..................................... (60) 3 (57) 68 (21) 47
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities ............. $ (7) $ (18) (25) $ 173 $(169) 4
====== ====== ----- ===== ====== ----
Net interest income ............................ $ 7 $ 70
===== =====
</TABLE>
Asset/Liability Management
The Bank, like other financial institutions, is subject to interest
rate risk to the extent that its interest-bearing liabilities with short- and
intermediate-term maturities reprice more rapidly, or on a different basis, than
its interest-earning assets. Management 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
8
<PAGE>
the FHLB to match durations of fixed rate mortgages. In addition, management
monitors the 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, 2000,
approximately $8.9 million, or 27.4%, 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 should
local 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, 2000, the Bank had a post shock NPV at +200bp of 9.00% and a Sensitivity
measure of -299 bp. Banks having post shock NPV of 6% to10% and Sensitivity
Measures of 200-400bp are rated "Moderate Risk".
Presented below, as of September 30, 2000, is an analysis of the
Bank's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve in 100 basis point increments up
and down 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, 2000
----------------------------
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 3,231 (2,426) (43)% 7.35%
+200bp 4,055 (1,602) (28)% 9.00%
+100bp 4,879 (778) (14)% 10.58%
0bp 5,657 12.00%
- 100bp 6,268 612 11% 13.05%
- 200bp 6,676 1,020 18% 13.70%
- 300bp 6,984 1,327 23% 14.16%
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
9
<PAGE>
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.
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 5.0% 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, 2000 was 19.23%.
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, 2000, the Corporation had outstanding
borrowings consisting $ 3.5 million in FHLB advances, with the capacity to
borrow up to an additional $12.9 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, 2000, the Bank had $626,000 of loan commitments.
Certificates of deposit scheduled to mature in a year or less at September 30,
2000 totaled $20.4 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 of loans and the purchase of securities. At September 30, 2000,
these assets accounted for 86.45% of the Bank's
10
<PAGE>
total assets. Such originations and purchases are funded primarily from loan
repayments, repayments of mortgage-backed and investment securities, FHLB
advances and net income.
At September 30, 2000, the Bank had tangible and core capital of $
4.88 million, or 10.50% of adjusted total assets, which was approximately $ 4.18
million and $ 3.01 million above the minimum requirements, of 1.5% and 4.0%,
respectively, of the adjusted total assets on that date. The Bank had total
risk-based capital at September 30, 2000 of $ 4.97 million, or 18.8% of
risk-weighted assets of approximately $26.40 million. This amount was $ 2.86
million above the 8.0% requirement in effect on that date. At September 30,
2000, 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, 2000, Home Building Bancorp Inc. had more than $1.0 million in
liquid assets on hand. The primary source of liquidity on an ongoing basis is
dividends from the Bank. Dividends totaling $200,000 were paid from the Bank to
Home Building for the year ended September 30, 2000. 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, 2000, Home Building paid
dividends to shareholders totaling $89,000. 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.
Forward-Looking Statements
When used in this Annual Report 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, which 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.
11
<PAGE>
HOME BUILDING BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
12
<PAGE>
HOME BUILDING BANCORP, INC.
Washington, Indiana
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
REPORT OF INDEPENDENT AUDITORS..........................................14
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET..............................................15
CONSOLIDATED STATEMENTS OF INCOME.......................................16
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY....................................................17
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............................19
13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Home Building Bancorp, Inc.
Washington, Indiana
We have audited the accompanying consolidated balance sheet of Home Building
Bancorp, Inc. as of September 30, 2000 and the related consolidated statements
of income, changes in shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Home Building
Bancorp, Inc. as of September 30, 1999 were audited by other auditors whose
report dated November 4, 1999 expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Home Building
Bancorp, Inc. as of September 30, 2000, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
Indianapolis, Indiana
November 8, 2000
14
<PAGE>
HOME BUILDING BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks 1,438,888 1,247,958
Interest-bearing time deposits with banks 3,029,003 4,760,057
Available-for-sale securities 3,739,453 4,292,694
Held-to-maturity securities
(Fair value of $62,425 and $129,697) 62,945 129,362
Loans, net of allowance ($88,659 and $86,288) 36,971,356 36,842,618
Federal Home Loan Bank stock, at cost 341,400 341,400
Premises and equipment - net 730,422 744,516
Accrued interest receivable and other assets 850,683 528,466
--------------- --------------
$ 47,164,150 $ 48,887,071
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest-bearing deposits 36,856,308 35,588,598
Federal Home Loan Bank advances 3,500,000 6,677,863
Accrued expenses and other liabilities 507,075 459,888
--------------- --------------
40,863,383 42,726,349
Common stock in ESOP subject to put option 217,238 192,225
Other shareholders' equity
Common stock, $.01 par value, 1,000,000 shares authorized,
331,660 shares issued 3,317 3,317
Additional paid-in capital 3,098,381 3,098,774
Treasury stock, 35,000 shares at cost (605,000) (605,000)
Retained earnings 3,944,650 3,855,608
Amount reclassified on ESOP shares (217,238) (192,225)
Accumulated other comprehensive loss (44,472) (37,946)
Unearned ESOP & recognition and retention shares (96,109) (154,031)
--------------- --------------
6,083,529 5,968,497
--------------- --------------
$ 47,164,150 48,887,071
=============== ==============
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes.
15
<PAGE>
HOME BUILDING BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Interest income
Loans, including related fees $ 2,823,114 $ 2,713,084
Taxable securities 303,226 342,468
Deposits with other banks 211,411 299,672
----------- -----------
Total interest income 3,337,751 3,355,224
Interest expense
Deposits 1,517,838 1,484,936
Borrowings 294,611 351,840
----------- -----------
Total interest expense 1,812,449 1,836,776
----------- -----------
Net interest income 1,525,302 1,518,448
Provision for loan losses 28,000 15,163
----------- -----------
Net interest income after provision for loan losses 1,497,302 1,503,285
Noninterest income
Deposit account service charges and fees 51,250 65,662
Net gain (loss) on sales of securities -- (34,837)
Investment sales commissions 28,905 70,035
Other 39,210 38,303
----------- -----------
119,365 139,163
Noninterest expense
Salaries and employee benefits 729,729 622,836
Occupancy and equipment 140,415 142,848
Data processing 62,340 59,149
Professional fees 124,934 56,263
Service fees 60,037 61,598
Advertising 53,557 58,805
Other 174,064 133,497
----------- -----------
1,345,076 1,134,996
----------- -----------
Income before income taxes 271,591 507,452
Income taxes 93,551 180,952
----------- -----------
Net income $ 178,040 $ 326,500
=========== ===========
Per share data
Earnings per share $ 0.62 $ 1.16
=========== ===========
Earnings per share, assuming dilution $ 0.62 $ 1.16
=========== ===========
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes.
16
<PAGE>
HOME BUILDING BANCORP, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Amount
Common Paid-In Treasury Reclassified
Stock Capital Stock on ESOP
----- ------- ----- -------
<S> <C> <C> <C> <C>
Balance October 1, 1998 $ 3,317 $ 3,088,095 $ (345,000) $ (171,725)
Comprehensive income
Net income - - - -
Change in net unrealized gain (loss), net of tax - - - -
Total comprehensive income -
Cash dividends - $.30 per share - - - -
Purchase of treasury stock (15,000 shares) - - (260,000) -
Change in value of ESOP put - - - (20,500)
Allocation of benefit plan shares - 10,679 - -
--------- ------------ ------------ -----------
Balance September 30, 1999 3,317 3,098,774 (605,000) (192,225)
Comprehensive income
Net income - - - -
Change in net unrealized gain (loss), net of tax - - - -
(6,526)
Total comprehensive income -
Cash dividends - $.30 per share - - - -
Change in value of ESOP put - - - (25,013)
Allocation of benefit plan shares - (393) - -
--------- ------------ ------------ -----------
Balance September 30, 2000 $ 3,317 $ 3,098,381 $ (605,000) $ (217,238)
========= ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Unearned ESOP Total
Other and Recognition Other
Retained Comprehensive and Retention Shareholders'
Earnings Income/(Loss) Shares Equity
-------- ------------- ------ ------
<S> <C> <C> <C> <C>
Balance October 1, 1998 $ 3,618,107 $ 20,741 (213,415) $ 6,000,120
Comprehensive income
Net income 326,500 - - 326,500
Change in net unrealized gain (loss), net of tax - (58,687) - (58,687)
Total comprehensive income 267,813
Cash dividends - $.30 per share (88,999) - - (88,999)
Purchase of treasury stock (15,000 shares) - - - (260,000)
Change in value of ESOP put - - - (20,500)
Allocation of benefit plan shares - - 59,384 70,063
------- --------- --------- -----------
Balance September 30, 1999 855,608 (37,946) (154,031) 5,968,497
Comprehensive income
Net income 178,040 - - 178,040
Change in net unrealized gain (loss), net of tax - (6,526) - (6,526)
Total comprehensive income 171,514
Cash dividends - $.30 per share (88,998) - - (88,998)
Change in value of ESOP put - - - (25,013)
Allocation of benefit plan shares - - 57,922 57,529
------- --------- --------- -----------
Balance September 30, 2000 $ 3,944,650 $ (44,472) $ (96,109) $ 6,083,529
============ ========= ============ ============
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes.
17
<PAGE>
HOME BUILDING BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 178,040 $ 326,500
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 37,617 37,044
Net losses on sales of securities -- 34,837
Provision for loan losses 28,000 15,163
Non cash compensation 57,529 70,063
Change in assets and liabilities
Accrued interest receivable and other assets (15,943) (101,004)
Accrued expenses and other liabilities 47,187 36,109
----------- -----------
Net cash from operating activities 332,430 418,712
Cash flows from investing activities
Net change in interest-bearing deposits with banks 1,731,054 (521,080)
Proceeds from maturities and principal reductions of
held-to-maturity securities 66,417 98,697
Proceeds from maturities of available-for-sale securities 635,676 2,131,834
Purchase of available-for-sale securities (96,513) (1,415,000)
Loans made to customers, net of principal collections
thereon (455,460) (4,233,279)
Property and equipment expenditures, net (23,523) (22,218)
----------- -----------
Net cash from investing activities 1,857,651 (3,961,046)
Cash flows from financing activities
Net change in deposits 1,267,710 3,422,082
Proceeds from Federal Home Loan Bank advances -- 1,000,000
Payments on Federal Home Loan Bank advances (3,177,863) (649,552)
Dividends paid on common stock (88,998) (88,999)
Purchase of treasury stock -- (260,000)
----------- -----------
Net cash from financing activities (1,999,151) 3,423,531
----------- -----------
Net change in cash and cash equivalents 190,930 (118,803)
Cash and cash equivalents at beginning of year 1,247,958 1,366,761
----------- -----------
Cash and cash equivalents at end of year $ 1,438,888 $ 1,247,958
=========== ===========
Cash paid for interest $ 1,771,233 $ 1,801,930
Cash paid for income taxes 214,047 270,514
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes.
18
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of Home Building Bancorp, Inc. (Company), its wholly-owned subsidiary,
Home Building Savings Bank (Bank), and the Bank's wholly owned subsidiary, White
River Service Corporation (Service Corp). Intercompany transactions are
eliminated in consolidation.
Description of Business: The Company provides financial services through its
subsidiary which conducts basic banking operations in Daviess and Pike counties
in southwestern Indiana. Operations primarily consist of generating mortgage and
consumer loans and accepting deposits from customers. The loan portfolio is
diversified and the ability of debtors to repay loans is not dependent upon any
single industry. The majority of the institution's loans are secured by specific
items of collateral including business assets, real property and consumer
assets.
Cash Flow Reporting: Cash and cash equivalents include cash on hand, amounts due
from banks and short-term investments. The Company reports net cash flows for
customer loan and deposit transactions, and interest-bearing balances with other
financial institutions.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions based on available information that affect the amounts reported
in the financial statements and the disclosures provided. Actual results could
differ from those estimates. Estimates that are most susceptible to change in
the near term include the allowance for loan losses and the fair value of
financial instruments.
Securities: Securities are classified as held-to-maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Available-for-sale securities are classified as available-for-sale
when they might be sold before maturity. Available-for-sale securities are
carried at fair value, with unrealized holding gains and losses reported in
other comprehensive income. Other securities such as Federal Home Loan Bank
stock are carried at cost.
Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and include amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are significantly past due. Payments received on such loans
are reported as principal reductions.
--------------------------------------------------------------------------------
(Continued)
19
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated collectively for smaller-balance loans of
similar nature such as residential mortgage, consumer, and credit card loans,
and on an individual loan basis for other loans. If a loan is impaired, a
portion of the allowance is allocated so that the loan is reported, net, at the
present value of estimated future cash flows using the loan's existing rate.
Loans are evaluated for impairment when payments are significantly delayed or
when the internal grading system indicates a doubtful classification.
The carrying values of impaired loans are periodically adjusted to reflect cash
payments, revised estimates of future cash flows, and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as provision for loan losses expense.
Stock Compensation: Employee compensation expense under stock option plans is
reported if options are granted below market price at grant date. Pro forma
disclosures of net income and earnings per share are shown using the fair value
method to measure expense, using an option pricing model to estimate fair value.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not
yet allocated to participants, is shown as a reduction of shareholders' equity.
Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce earnings; dividends on unearned ESOP shares reduce debt and
accrued interest. A participant receiving a distribution of stock from the ESOP
has an option for two separate 60 day periods to require the Company to
repurchase the shares received at fair value. No participants are presently
within such an option period; however, the fair value of the potential liability
under the put option has been separately reclassified on the balance sheet.
--------------------------------------------------------------------------------
(Continued)
20
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Premises and equipment are depreciated on the
straight-line and declining-balance methods over the estimated useful lives of
the assets.
Other Real Estate: Other real estate acquired through foreclosure is carried at
the lower of cost (fair value at foreclosure) or fair value less estimated
selling costs. Expenses incurred in carrying other real estate are charged to
operations as incurred.
Income Taxes: Income tax expense is the amount of taxes payable for the current
year plus or minus the change in deferred taxes. Deferred tax liabilities and
assets are the expected future tax consequences of temporary differences between
the carrying amounts and tax bases of assets and liabilities, computed using
enacted tax rates. Recognition of deferred tax assets is limited by the
establishment of a valuation allowance unless management concludes that they are
more likely than not to result in future tax benefits to the Company.
Financial Instruments: Financial instruments include credit instruments, such as
commitments to make loans and standby letters of credit, issued to meet customer
financing needs. The face amount of these items represents the exposure to loss,
before considering customer collateral or ability to repay.
Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as separate
components of equity.
Dividend Restriction: Banking regulations require the maintenance of certain
capital levels may limit the amount of dividends which may be paid by the Bank
to the Company or by the Company to its shareholders.
--------------------------------------------------------------------------------
(Continued)
21
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-term Assets: These assets are reviewed for impairment when events indicate
their carrying amount may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at discounted amounts.
Share Data: Earnings, dividends and stock option related per share data are
restated for the effect of stock splits and dividends. Outstanding share data is
not restated.
Industry Segment: Internal financial information is reported and aggregated in
one line of business, banking.
New Accounting Pronouncements: Effective October 1, 2000, a new accounting
standard required all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedges item, even if the
fair value of the hedged item is not otherwise recorded. The Company does not
utilize derivatives and the implementation of this standard did not have a
material effect on the Company.
NOTE 2 - SECURITIES
Securities at year-end are as follows:
<TABLE>
<CAPTION>
Gross Gross
Available-for-Sale Amortized Unrealized Unrealized Fair
------------------ Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
2000
----
Obligations of the U.S. Treasury
and government agencies $ 1,274,733 $ -- $ (34,035) $ 1,240,698
Mortgage-backed securities 2,236,840 4,667 (39,752) 2,201,755
Other Securities 300,000 -- (3,000) 297,000
----------- ----------- ----------- -----------
$ 3,811,573 $ 4,667 $ (76,787) $ 3,739,453
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Available-for-Sale Amortized Unrealized Unrealized Fair
------------------ Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1999
----
Obligations of the U.S. Treasury and
government agencies $ 1,317,215 $ -- $ (26,559) $ 1,290,656
Mortgage-backed securities 2,618,518 7,588 (31,110) 2,594,996
Other Securities 415,000 -- (7,958) 407,042
----------- ----------- ----------- -----------
$ 4,350,733 $ 7,588 $ (65,627) $ 4,292,694
=========== =========== =========== ===========
</TABLE>
--------------------------------------------------------------------------------
(Continued)
22
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
Gross Gross
Held-to-Maturity Amortized Unrealized Unrealized Fair
---------------- Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
2000
----
Mortgage-backed securities $ 62,945 $ 219 $ (739) $ 62,425
=========== ======== ====== ========
1999
----
Mortgage-backed securities $ 129,362 $ 548 $ (213) $129,697
=========== ======== ====== ========
</TABLE>
The amortized cost and fair value of securities at September 30, 2000 are shown
below by contractual maturity. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties. Mortgage-backed securities are not due
at a single maturity date and are shown separately.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ - $ -
Due after one year through
five years 1,574,733 1,537,698 - -
Due after five years through
ten years - - - -
Mortgage-backed securities 2,236,840 2,201,755 62,945 62,425
------------- ------------- -------- ---------
$ 3,811,573 $ 3,739,453 $ 62,945 $ 62,425
============= ============= ======== =========
</TABLE>
There were no sales of securities in 2000 or 1999. In 1999, a loss of $34,837
was recorded when a security was deemed impaired and written off.
--------------------------------------------------------------------------------
(Continued)
23
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 3 - LOANS
Year-end loans are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Commercial $ 1,264,544 $ 812,977
Residential real estate 29,248,928 28,900,075
Nonresidential real estate 1,081,260 1,540,419
Construction 72,437 468,437
Consumer 5,493,748 5,463,203
------------- ------------
Gross loans 37,160,917 37,185,111
Less: Deferred loan origination fees (43,598) (64,122)
Loans in process (57,304) (192,083)
Allowance for loan losses (88,659) (86,288)
------------- ------------
Net loans $ 36,971,356 $ 36,842,618
============= ============
</TABLE>
Certain of the Company's directors were loan customers of the Bank. A schedule
of the aggregate activity in these loans follows:
Balance as of October 1, 1999 $ 270,643
New loans and advances on lines of credit 18,000
Loan reductions (105,995)
-------------
Balance as of September 30, 2000 $ 182,648
=============
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is as follows:
2000 1999
---- ----
Beginning balance $ 86,288 $ 92,249
Provision charged to operations 28,000 15,163
Loans charged off (26,244) (24,276)
Recoveries 615 3,152
--------- ---------
Ending balance $ 88,659 $ 86,288
========= =========
There are no loans designated as impaired at September 30, 2000 or 1999, nor
were any loans so designated during those years.
--------------------------------------------------------------------------------
(Continued)
24
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises, furniture and equipment by major category follows:
2000 1999
---- ----
Land and improvements $ 140,048 $ 140,048
Buildings 1,010,127 1,001,307
Furniture, fixtures and equipment 165,322 150,619
-------------- --------------
Total 1,315,497 1,291,974
Accumulated depreciation (585,075) (547,458)
-------------- --------------
Net premises and equipment $ 730,422 $ 744,516
============== ==============
NOTE 6 - INTEREST BEARING DEPOSITS
Time deposits of $100,000 or more were $9,677,000 and $3,028,000 at September
30, 2000 and 1999. Interest expense on such deposits was $1,535,000 and
$1,191,000 for 2000 and 1999.
Scheduled maturities of time deposits outstanding at year-end 2000 are as
follows:
Year Ended
September 30,
-------------
2001 $ 20,424,184
2002 1,742,328
2003 1,311,109
2004 1,078,941
2005 1,745,768
Thereafter -
--------------
$ 26,303,330
==============
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances require monthly interest payments and are
secured by a pledge of substantially all of the Company's mortgage loan and
securities portfolio.
Advances outstanding at year-end 2000 and 1999 had interest rates ranging from
5.32% to 5.33% and 5.32% to 6.34%, respectively, and final maturity dates
extending to 2003.
--------------------------------------------------------------------------------
(Continued)
25
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES (Continued)
The following table presents contractually required principal payments at
September 30, 2000. Certain advances can be prepaid prior to maturity without
penalty.
Year ended
September 30 Amount Due
------------ ----------
2001 $ 2,500,000
2002 -
2003 1,000,000
-------------
$ 3,500,000
=============
NOTE 8 - EMPLOYEE BENEFITS
The Bank participates in the Financial Institutions Retirement Fund, a
multi-employer retirement fund that covers substantially all of the Bank's
employees providing defined benefits. The relative position of the Bank
regarding the accumulated plan benefits and plan net assets is not determinable
by the Bank. Pension expense totaled $0 and $0 for the years ended September 30,
2000 and 1999, respectively.
Options to buy stock are granted to directors and officers under the Company's
1995 stock option and incentive plan which provide for the issuance of up to
32,200 shares. The specific terms of each option agreement are determined by the
Compensation Committee at the date of the grant.
On January 22, 1996, 24,146 options were granted with an exercise price of
$16.75 per share and a ten year term. These options vest ratably over five years
and none have been exercised. At September 30, 2000 and 1999, 19,317 and 14,487
of these options were vested and exercisable. These options expire on January
22, 2006.
The following pro forma information presents net income and earnings per share
had the fair value method been used to measure compensation cost for stock
option plans.
2000 1999
---- ----
Pro forma net income $ 157,132 $ 305,592
Pro forma earnings per share .55 1.08
Pro forma diluted earnings per share .55 1.08
--------------------------------------------------------------------------------
(Continued)
26
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 8 - EMPLOYEE BENEFITS (Continued)
The Company has established the Home Building Bancorp, Inc., Employees Stock
Ownership Plan (ESOP). The ESOP covers essentially all full-time employees.
Eligibility is based on hours of service, date of hire and age. Contributions to
the ESOP are determined by the Board 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 is based on the fair
value of contributions made, if any, and shares earned by participants. For the
years ended September 30, 2000 and 1999 expense totaled $32,763 and $41,339 with
2,556 and 2,702 shares committed to be allocated at September 30, 2000 and 1999,
respectively. The fair value of unallocated shares was $122,000 and $169,000 at
September 30, 2000 and 1999, respectively.
ESOP shares at September 30, were as follows:
2000 1999
---- ----
Allocated shares 15,517 12,815
Shares released for allocation 2,556 2,702
Unreleased shares 8,734 11,290
-------- ---------
Total ESOP shares 26,807 26,807
======== =========
A 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.
Compensation expense related to the RRP was $24,765 and $28,724 for the years
ended September 30, 2000 and 1999, respectively.
--------------------------------------------------------------------------------
(Continued)
27
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES
Income taxes consist of the following components:
2000 1999
---- ----
Income tax/(benefit)
Currently payable $ 135,505 $ 192,151
Deferred (41,954) (11,199)
----------- -----------
$ 93,551 $ 180,952
=========== ===========
The following is a reconciliation of income tax expense and the amount computed
by applying the effective federal income tax rate of 34% to income before income
taxes:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Statutory rate applied to income before income taxes $ 92,341 $ 172,534
Tax exempt income (3,745) (4,644)
State tax expense, net of federal tax benefit 13,179 28,927
Other (8,224) (15,865)
--------- ---------
$ 93,551 $ 180,952
========= =========
</TABLE>
Year-end deferred tax assets and liabilities were due to the following factors:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred tax assets/(liability) from:
Loan loss provisions $(22,403) $(33,596)
Net unrealized loss on available-for-sale securities 27,648 20,093
Accrued expenses 30,761 -
-------- --------
36,006 (13,503)
Valuation allowance for deferred tax assets - -
-------- --------
Net deferred tax asset/(liability) $ 36,006 $(13,503)
======== ========
</TABLE>
--------------------------------------------------------------------------------
(Continued)
28
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 10 - EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of shares
outstanding during the period which were 285,037 for 2000 and 281,966 for 1999.
Diluted earnings per share assume that the stock options outstanding are
exercised and the proceeds used entirely to reacquire shares at the year's
average price. For 2000 and 1999, the options outstanding were not dilutive and,
therefore, were not considered.
NOTE 11 - COMMITMENTS AND OFF BALANCE SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.
Financial instruments with off-balance-sheet risk were as follows at year end.
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
------- -------
Fixed Variable Fixed Variable
Rate Rate Rate Rate
---- ---- ---- ----
<S> <C> <C> <C> <C>
Commitments to make loans
(at market rates) $ 474,000 $ 152,000 $1,334,020 $ 80,231
Unused lines of credit and
letters of credit - 274,378 - 274,569
</TABLE>
NOTE 12 - CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS
The Bank is subject to various regulatory capital requirements administered by
its primary regulator, the Office of Thrift Supervision (OTS) and by the Federal
Deposit Insurance Corporation (FDIC). Failure to meet minimum capital
requirements can result in certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. These guidelines and the regulatory
framework for prompt corrective action involve quantitative measures of capital,
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices as well as qualitative judgments by the
regulators about components, risk weightings, and other factors. The Bank's
deposit insurance premium rate is also based, in part, on these requirements. At
September 30, 2000 and 1999, the Bank's actual and required minimum capital
ratios were as follows:
--------------------------------------------------------------------------------
(Continued)
29
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 12 - CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS (Continued)
<TABLE>
<CAPTION>
Minimum Needed
To Be Well
Minimum Needed Capitalized
For Capital Under Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------ -------- ----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to Risk
Weighted
Assets)
2000 $4,967,000 18.8% $2,111,000 8.0% $2,639,000 10.0%
1999 4,940,000 18.9 2,093,000 8.0 2,616,000 10.0
Tier I Capital
(to Risk
Weighted
Assets)
2000 4,879,000 18.5 1,056,000 4.0 1,583,000 6.0
1999 4,854,000 18.6 1,046,000 4.0 1,570,000 6.0
Tier 1 Capital
(to Average
Assets)
2000 4,879,000 10.5 1,866,000 4.0 2,333,000 5.0
1999 4,854,000 10.0 1,936,000 4.0 2,420,000 5.0
Tangible Capital
Ratio
2000 4,879,000 10.5 700,000 1.5 N/A
1999 4,854,000 10.0 726,000 1.5 N/A
</TABLE>
Risk-based capital differs from tangible and core capital due to the inclusion
of the Bank's general valuation allowance which totaled $89,000 and $86,000 at
September 30, 2000 and 1999, respectively.
At September 30, 2000 and 1999, the Bank's capital ratios result in its being
designated a well capitalized institution.
The Qualified Thrift Lender test requires at least 65% of assets be maintained
in housing-related financial and other specified areas. If this test is not met,
limits are placed on growth, branching, new investments, FHLB advances and
dividends, or the Bank must convert to a commercial bank charter. Management
believes that this test is met.
--------------------------------------------------------------------------------
(Continued)
30
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 12 - CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS (Continued)
OTS regulations limit capital distributions by savings institutions. The lease
restriction is placed on "tier 1" institutions, defined as well-capitalized and
with favorable qualitative OTS examination ratings, which can make distributions
in a year up to one-half the capital in excess of the most stringent capital
requirement at the beginning of the year plus net income to date. Other
institutions have more stringent requirements, the most restrictive being prior
OTS approval of any capital distribution. The Bank is a tier 1 institution.
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments at year-end are as follows at September 30 (in thousands):
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
------- -------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial assets
Cash, cash equivalents, and
deposits with banks $ 4,468 $ 4,234 $ 6,008 $ 6,008
Available-for-sale securities 3,739 3,739 4,293 4,293
Held-to-maturity securities 63 62 129 130
Loans (net) 36,971 36,030 36,843 36,820
Accrued interest receivable 239 239 251 251
Financial liabilities
Deposits (36,856) (37,255) (35,589) (35,782)
FHLB Advances (3,500) (3,432) (6,678) (6,609)
Accrued interest payable (127) (127) (86) (86)
</TABLE>
The estimated fair value approximates carrying amount for all items except those
described below. Estimated fair value for securities is based on quoted market
values for the individual securities or for equivalent securities. Estimated
fair value for loans is based on the rates charged at year end for new loans
with similar maturities, applied until the loan is assumed to reprice or be
paid. Estimated fair value for time deposits is based on the rates paid at year
end for new deposits, applied until maturity. Estimated fair value for
off-balance-sheet loan commitments are considered nominal.
--------------------------------------------------------------------------------
(Continued)
31
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are condensed balance sheets and the related statements of
income and cash flows for the parent company:
CONDENSED BALANCE SHEETS
September 30, 2000 and 1999
2000 1999
---- ----
Assets
Cash $ 809,852 $ 683,349
Investment in subsidiary 4,837,300 4,824,524
Other assets 653,615 652,849
---------- ----------
$6,300,767 $6,160,722
========== ==========
Shareholders' equity $6,300,767 $6,160,722
========== ==========
CONDENSED STATEMENTS OF INCOME
Years ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Interest income $ 52,656 $ 39,790
Dividends from subsidiary 200,000 150,000
Operating expenses (105,030) (86,420)
Tax benefit 32,072 31,862
--------- ---------
Income before equity in undistributed income of the Bank 179,698 135,232
Equity in undistributed income of the Bank (1,658) 191,268
--------- ---------
Net income $ 178,040 $ 326,500
========= =========
</TABLE>
--------------------------------------------------------------------------------
(Continued)
32
<PAGE>
HOME BUILDING BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 178,040 $ 326,500
Adjustments to reconcile net income to
net cash from operating activities
Equity in undistributed income of the Bank 1,658 (191,268)
Non-cash compensation expense 31,769 45,034
Change in other assets and other liabilities (21,726) (101,849)
----------- -----------
Net cash from operating activities 189,741 78,417
Cash flows from investing activities
Purchase of securities - (300,000)
Repayment of ESOP loan 25,760 25,760
----------- -----------
Net cash from investing activities 25,760 (274,240)
Cash flows from financing activities
Dividends paid (88,998) (88,999)
Purchase of treasury stock - (260,000)
----------- -----------
Net cash from financing activities (88,998) (348,999)
----------- -----------
Net change in cash 126,503 (544,822)
Cash at beginning of year 683,349 1,228,171
----------- -----------
Cash at end of year $ 809,852 $ 683,349
=========== ===========
</TABLE>
NOTE 15 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows.
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Unrealized holding gains (losses) on securities available-
for-sale $ (14,081) $(127,438)
Realized (gains)/losses on sales - 34,837
--------- ---------
Net unrealized gains (losses) (14,081) (92,601)
Tax effect 7,555 33,914
--------- ---------
Other comprehensive income (loss) $ (6,526) $ (58,687)
========= =========
</TABLE>
--------------------------------------------------------------------------------
(Continued)
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
15, 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 2000 and
1999. 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.
2000 1999
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
First Quarter $ 16.00 $ 13.50 $ .075 $ 18.25 $ 15.50 $ .075
Second Quarter $ 13.50 $ 9.25 $ .075 $ 17.00 $ 15.75 $ .075
Third Quarter $ 13.63 $ 9.50 $ .075 $ 15.75 $ 12.00 $ .075
Fourth Quarter $ 15.25 $ 13.13 $ .075 $ 16.00 $ 12.00 $ .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 24,
2000 to shareholders of record on October 11, 2000. Restrictions on dividend
payments are described in Note 14 of the Notes to Consolidated Financial
Statements included in this Annual Report.
At September 30, 2000, the Corporation had approximately 350 shareholders of
record and 285,037 outstanding shares of Common Stock.
34
<PAGE>
HOME BUILDING BANCORP, INC.
SHAREHOLDER INFORMATION
-------------------------------------------------------------------------------
SHAREHOLDERS AND GENERAL INQUIRIES TRANSFER AGENT
John B. Graham, President Registrar and Transfer Company
Home Building Bancorp, Inc. 10 Commerce Drive
200 East VanTrees Street Cranford, New Jersey 07016
Washington, Indiana 47501 (908) 272-8511
(812) 254-2641
ANNUAL AND OTHER REPORTS
The Corporation is required to file an annual report on Form 10-KSB for its
fiscal year ended September 30, 2000, 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: John B. Graham,
President, Home Building Bancorp, Inc., 200 East Van Trees Street, Washington,
Indiana 47501; telephone number (812) 254-2641.
35
<PAGE>
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 EXECUTIVE
OFFICERS OF HOME BUILDING BANCORP, INC SAVINGS BANK, FSB
<TABLE>
<CAPTION>
<S> <C>
John B. Graham
John B. Graham President and Chief Executive Officer of
President and Chief Executive Officer of Home Building Bancorp, Inc. and
Home Building Bancorp, Inc. and Home Home Building Savings Bank, FSB
Building Savings Bank, FSB
Washington, Indiana
Debra K. Shields
Vice President and Chief Financial Officer
of Home Building Bancorp, Inc. and Home
Building Savings Bank, FSB
Blake L. Chambers
Partner, Law firm of Waller, Chambers & INDEPENDENT AUDITORS
Hanson
Washington, Indiana
Crowe, Chizek and Company LLP
3815 River Crossing Pkwy., Ste. 300
C. Darrell Deem, D.D.S. P.O. Box 40977
Dentist Indianapolis, IN 46240-0977
Washington, Indiana
SPECIAL COUNSEL
Gregory L. Haag Silver, Freedman & Taff, L.L.P
President, Haag Heating and Air 1110 New York Avenue, N.W.
Conditioning, Inc. Seventh Floor, East Tower
Washington, Indiana Washington, D.C. 20005
James E. Scheid
Owner, Scheid Farms
Washington, Indiana
Larry G. Wilson
President, R.L. Wilson Family Farms, Inc.
Montgomery, Indiana
</TABLE>
36
