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SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 2002
or
[ ] Transition report pursuant to Section 13 or 15(d) or the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
Commission file number: 0-18847
HOME FEDERAL BANCORP
(Exact name of registrant as specified in its charter)
United States 35-1807839
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
501 Washington Street, Columbus, Indiana 47201
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (812) 522-1592
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
and
Common Share Purchase Rights
(Title of Class)
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. YES __X___ NO ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of September 11, 2002, was $88.8 million.
The number of shares of the registrant's Common Stock, no par value, outstanding
as of September 11, 2002, was 4,287,008 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended June 30, 2002,
are incorporated into Part II. Portions of the Proxy Statement for the 2002
annual meeting of shareholders are incorporated into Part I and Part III.
Exhibit Index on Page 38
Page 2 of 54 Pages
HOME FEDERAL BANCORP
FORM 10-K
INDEX
Forward Looking Statements................................................ 4
Item 1. Business....................................................... 4
Item 2. Properties..................................................... 29
Item 3. Legal Proceedings.............................................. 30
Item 4. Submission of Matters to a Vote of Security Holders............ 30
Item 4.5 Executive Officers of Home Federal Bancorp..................... 31
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 31
Item 6. Selected Financial Data........................................ 33
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 33
Item 7.A Quantitative and Qualitative Disclosures About Market Risk..... 33
Item 8. Financial Statements and Supplementary Data.................... 33
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 33
Item 10. Directors and Executive Officers of the Registrant............. 33
Item 11. Executive Compensation......................................... 33
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters............................... 33
Item 13. Certain Relationships and Related Transactions................. 34
Item 14. Controls and Procedures........................................ 34
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K....................................................... 34
SIGNATURES................................................................ 35
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K ("Form 10-K") contains statements, which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-K are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-K
identifies important factors that could cause such differences. These factors
include changes in interest rates, loss of deposits and loan demand to other
financial institutions, substantial changes in financial markets, changes in
real estate values and the real estate market, regulatory changes, changes in
the financial condition of the issuers of the Company's investments and
borrowers, changes in the economic condition of the Company's market area,
increases in compensation and employee expenses or unanticipated results in
pending legal proceedings.
PART I
Item 1. Business
General
Home Federal Bancorp (the "Company" or "HFB") is an Indiana corporation
organized as a bank holding company authorized to engage in activities
permissible for a financial holding company. The principal asset of the Company
consists of 100% of the issued and outstanding capital stock of Home Federal
Savings Bank ("Home Federal" or the "Bank" or "HFSB").
Home Federal began operations in Seymour, Indiana under the name New
Building and Loan Association in 1908, and received its federal charter and
changed its name to Home Federal Savings and Loan Association in 1950. On
November 9, 1983, Home Federal Savings and Loan Association became a federal
savings bank and its name was changed to Home Federal Savings Bank. On January
14, 1988, Home Federal converted to stock form and on March 1, 1993, Home
Federal reorganized by converting each outstanding share of its common stock
into one share of common stock of the Company, thereby causing the Company to be
the holding company of Home Federal. On December 31, 2001 Home Federal completed
a charter conversion to an Indiana commercial bank, which is a member of the
Federal Reserve System. Home Federal currently provides services through its
main office at 501 Washington Street in Columbus, Indiana, seventeen full
service branches located in south central Indiana, a loan production office
located in greater Indianapolis and the STAR network of automated teller
machines at fifteen locations in Seymour, Columbus, North Vernon, Salem,
Madison, Bloomington, Edinburgh, Shelbyville and Batesville. Online banking and
telephone banking are also available to Home Federal Savings Bank customers. As
a result, Home Federal serves primarily Bartholomew, Jackson, Jefferson,
Jennings, Scott, Ripley, Decatur, Monroe, Marion and Washington Counties in
Indiana. Home Federal also participates in the nationwide electronic funds
transfer networks known as Plus System, Inc. and Cirrus System.
Management analyzes the operation of Home Federal Bancorp assuming one
operating segment, community banking services. Home Federal directly and,
through its service corporation subsidiary, indirectly offers a wide range of
consumer and commercial community banking services. These services include: (i)
residential and commercial real estate loans; (ii) NOW checking accounts; (iii)
regular and term savings accounts and savings certificates; (iv) full-service
securities brokerage services; (v) consumer loans; (vi) debit cards; (vii)
business credit cards; (viii) annuity and life insurance products; (ix)
Individual Retirement Accounts and Keogh plans; (x) commercial loans; (xi) trust
services: and (xii) commercial demand deposit accounts.
Home Federal's primary source of revenue is interest from lending
activities. Its principal lending activity is the origination of conventional
mortgage loans to enable borrowers to purchase or refinance one-to-four family
residential real property. These loans are generally secured by first mortgages
on the property. Virtually all of the real estate loans originated by Home
Federal are secured by properties located in Indiana, although Home Federal has
authority to make or purchase real estate loans throughout the United States. In
addition, Home Federal makes secured and unsecured consumer related loans
(including consumer auto loans, second mortgage, home equity, mobile home, and
savings account loans) and commercial loans secured by mortgages on the
underlying property. At June 30, 2002, approximately 19.1% of its loans were
consumer-related loans and 26.2% of its loans were commercial mortgage and
multi-family loans. Home Federal also makes construction loans, which
constituted 8.3% of Home Federal's loans at June 30, 2002. Finally, Home Federal
makes commercial loans, which constituted 13.1% of its loans at June 30, 2002.
Lending Activities
Loan Portfolio Data
The following two tables set forth the composition of Home Federal's loan
porfolio by loan type and security type as of the dates indicated. The third
table represents a reconciliation of gross loans receivable after consideration
of undisbursed portions of loans in process, deferred loans, the allowance for
loan losses, unearned discounts on loans and purchase discounts.
At June 30,
---------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
TYPE OF LOAN
- ---------------------------------------------------------------------------------------------------------------------------------------------
First mortgage loans: (Dollars in Thousands)
One-to-four family residential loans . $214,565 32.6% $270,124 38.2% $282,555 41.3% $248,846 41.0% $268,133 43.6%
Commercial and multi-family .......... 172,495 26.2% 153,169 21.6% 102,974 15.1% 107,908 17.8% 97,469 15.8%
Loans on property under construction . 54,639 8.3% 67,789 9.6% 89,248 13.0% 65,997 10.9% 77,227 12.5%
Loans on unimproved acreage .......... 4,712 0.7% 5,017 0.7% 17,440 2.5% 11,611 1.9% 4,664 0.8%
Second mortgage, home equity ........... 85,819 13.0% 94,140 13.3% 85,300 12.5% 68,873 11.3% 65,321 10.6%
Commercial loans ....................... 86,435 13.1% 74,687 10.5% 60,948 8.9% 56,956 9.4% 50,890 8.3%
Consumer loans ......................... 4,535 0.7% 5,864 0.8% 9,446 1.4% 9,250 1.5% 10,347 1.7%
Auto loans ............................. 25,355 3.9% 25,852 3.6% 22,587 3.3% 21,764 3.6% 23,194 3.8%
Mobile home loans ...................... 6,625 1.0% 8,308 1.2% 9,963 1.5% 12,048 2.0% 14,349 2.3%
Savings accounts loans ................. 3,092 0.5% 3,738 0.5% 3,625 0.5% 3,826 0.6% 4,071 0.7%
----- --- ----- --- ----- --- ----- --- ----- ---
Gross loans receivable ........... $658,272 100.0% $708,688 100.0% $684,086 100.0% $607,079 100.0% $615,665 100.0%
======== ===== ======== ===== ======== ====== ======== ====== ======== ======
TYPE OF SECURITY
Residential:
One-to-four family ............... $320,256 48.6% $388,770 55.0% $409,174 59.9% $347,049 57.2% $366,319 59.5%
Multi-dwelling units ............. 29,640 4.5% 34,008 4.8% 32,937 4.8% 30,358 5.0% 19,003 3.1%
Commercial real estate ................. 177,622 27.0% 162,444 22.9% 117,966 17.2% 114,217 18.8% 122,828 20.0%
Commercial ............................. 86,435 13.1% 74,687 10.5% 60,948 8.9% 56,956 9.4% 50,890 8.3%
Mobile home ............................ 6,625 1.0% 8,308 1.2% 9,963 1.5% 12,048 2.0% 14,349 2.3%
Savings account ........................ 3,092 0.5% 3,738 0.5% 3,625 0.5% 3,826 0.6% 4,071 0.7%
Auto ................................... 25,355 3.9% 25,852 3.6% 22,587 3.3% 21,764 3.6% 23,194 3.8%
Other consumer ......................... 4,535 0.7% 5,864 0.8% 9,446 1.4% 9,250 1.5% 10,347 1.7%
Land acquisition ....................... 4,712 0.7% 5,017 0.7% 17,440 2.5% 11,611 1.9% 4,664 0.8%
----- --- ----- --- ------ --- ------ --- ----- ---
Gross loans receivable ........... $658,272 100.0% $708,688 100.0% $684,086 100.0% $607,079 100.0% $615,665 100.0%
======== ===== ======== ===== ======== ====== ======== ====== ======= ======
LOANS RECEIVABLE-NET
Gross loans receivable ................. $658,272 104.2% $708,688 105.1% $684,086 104.9% $607,079 103.4% $615,665 105.8%
Deduct:
Undisbursed portion of loans in process (19,498) -3.1% (27,999) -4.2% (26,628) -4.1% (15,285) -2.6% (28,691) -4.9%
Deferred net loan fees ................. (508) -0.1% (447) -0.1% (502) -0.1% (527) -0.1% (690) -0.1%
Allowance for loan losses .............. (6,451) -1.0% (5,690) -0.8% (4,949) -0.8% (4,349) -0.7% (4,243) -0.7%
Unearned discounts ..................... -- 0.0% -- 0.0% -- 0.0% -- 0.0% (1) 0.0%
Purchase discount ...................... -- 0.0% -- 0.0% -- 0.0% -- 0.0% -- 0.0%
----- --- ----- --- ------ --- ------ --- ----- ---
Total loans receivable ............. $631,815 100.0% $674,552 100.0% $652,007 100.0% $586,918 100.0% $582,040 100.0%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
The following tables summarize the contractual maturities for Home Federal's
loan portfolio (including participations and mortgage-backed certificates) for
the fiscal periods indicated and the interest rate sensitivity of loans due
after one year:
Balance Maturities in Fiscal
Outstanding 2006 2008 2013 2017
At June 30, to to to and
2002 2003 2004 2005 2007 2012 2017 thereafter
---- ---- ---- ---- ---- ---- ---- ----------
(In Thousands)
Real estate .............. $391,772 $ 7,984 $ 2,417 $ 2,451 $ 13,387 $110,519 $ 63,087 $191,927
Mortgage-backed
certificates,
collateralized
mortgage obligations 79,922 -- 348 -- 1,592 6,080 20,987 50,915
Construction Loans ....... 54,639 12,627 3,798 5,133 5,808 2,451 6,900 17,922
Commercial loans ......... 86,435 35,871 12,637 6,356 14,934 10,660 2,618 3,359
Other loans .............. 125,426 9,101 9,718 14,052 44,924 22,394 11,796 13,441
-------- -------- -------- -------- -------- -------- -------- --------
Total .............. $738,194 $ 65,583 $ 28,918 $ 27,992 $ 80,645 $152,104 $105,388 $277,564
======== ======== ======== ======== ======== ======== ======== ========
Interest Rate Sensitivity:
Due After June 30, 2003
-----------------------
Fixed Variable Rate
Rate and Balloon
(In Thousands)
Real estate ............................. $ 47,561 $336,227
Mortgage-backed certificates,
collateralized mortgage obligations 79,657 265
Construction Loans ...................... 324 41,688
Commercial loans ........................ 15,581 34,983
Other loans ............................. 72,600 43,725
-------- --------
Total ............................. $215,723 $456,888
======== ========
Residential Mortgage Loans
Home Federal is authorized to make one-to-four family residential loans
without any limitation as to interest rate, amount, or number of interest rate
adjustments. Pursuant to federal regulations, if the interest rate is
adjustable, the interest rate must be correlated with changes in a readily
verifiable index. Home Federal also makes residential and commercial mortgage
loans secured by mid-size multi-family dwelling units and apartment complexes.
The residential mortgage loans included in Home Federal's portfolio are
primarily conventional loans. As of June 30, 2002, $236.3 million, or 35.9%, of
Home Federal's total loan portfolio consisted of residential first mortgage
loans, $214.6 million, or 32.6%, of which were secured by one- to four-family
homes.
Many of the residential mortgage loans currently offered by Home Federal
have adjustable rates. These loans generally have interest rates which adjust
(up or down) semi-annually or annually, with maximum rates which vary depending
upon when the loans are written and contractual floors and ceilings. The
adjustment for the majority of these loans is currently based upon the weekly
average of the one-year Treasury constant maturity rate.
The rates offered on Home Federal's adjustable-rate and fixed-rate
residential mortgage loans are competitive with the rates offered by other
financial institutions in its south central Indiana market area.
Although Home Federal's residential mortgage loans are written for
amortization terms up to 30 years, due to prepayments and refinancing, its
residential mortgage loans in the past have generally remained outstanding for a
substantially shorter period of time than the maturity terms of the loan
contracts.
All of the residential mortgages Home Federal currently originates include
"due on sale" clauses, which give Home Federal the right to declare a loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid. Home Federal utilizes the due on sale clause as a means of
protecting the funds loaned by insuring payoff on sale of the property
collateralizing the loan.
Under applicable banking policies, Home Federal must establish loan-
to-value ratios consistent with supervisory loan-to-value limits. The
supervisory limits are 65% for raw land loans, 75% for land development loans,
80% for construction loans consisting of commercial, multi-family and other
non-residential construction, and 85% for improved property. Multi-family
construction includes condominiums and cooperatives. A loan-to-value limit has
not been established for permanent mortgage or home equity loans on
owner-occupied one-to-four family residential property. However, for any such
loan with a loan-to-value ratio that exceeds 90% at origination, an institution
should require appropriate credit enhancement in the form of either mortgage
insurance or readily marketable collateral. The Board of Directors of Home
Federal Savings Bank approved a set of loan-to-value ratios consistent with
these supervisory limits.
It may be appropriate in individual cases to originate loans with
loan-to-value ratios in excess of the FDIC limits based on the support provided
by other credit factors. The aggregate amount of all loans in excess of these
limits should not exceed 100 percent of total capital. Moreover, loans for all
commercial, agricultural, multi-family or other non-one-to-four family
residential properties should not exceed 30% of total capital.
Commercial Mortgage Loans
At June 30, 2001, 27.0% of Home Federal's total loan portfolio consisted of
mortgage loans secured by commercial real estate. These properties consisted
primarily of apartment buildings, office buildings, warehouses, motels, shopping
centers, nursing homes, manufacturing plants, and churches located in central or
south central Indiana. The commercial mortgage loans are generally
adjustable-rate loans, written for terms not exceeding 20 years, and require an
85% loan-to-value ratio. Commitments for these loans in excess of $1.5 million
must be approved in advance by Home Federal's Board of Directors. The largest
such loan as of June 30, 2002, had a balance of $4.9 million. At that date, all
of Home Federal's commercial real estate loans consisted of loans secured by
real estate located in Indiana.
Generally, commercial mortgage loans involve greater risk to Home Federal
than residential loans. Commercial mortgage loans typically involve large loan
balances to single borrowers or groups of related borrowers. In addition, the
payment experience on loans secured by income-producing properties is typically
dependent on the successful operation of the related project and thus may be
subject to adverse conditions in the real estate market or in the general
economy.
Construction Loans
Home Federal offers conventional short-term construction loans. At June 30,
2002, 8.3% of Home Federal's total loan portfolio consisted of construction
loans. Normally, a 95% or less loan-to-value ratio is required from
owner-occupants of residential property, an 80% loan-to-value ratio is required
from persons building residential property for sale or investment purposes, and
an 80% loan-to-value ratio is required for commercial property. Construction
loans are also made to builders and developers for the construction of
residential or commercial properties on a to-be-occupied or speculative basis.
Construction normally must be completed in six months for residential loans. The
largest such loan on June 30, 2002, was $5.8 million.
Consumer Loans
Consumer-related loans, consisting of second mortgage and home equity
loans, mobile home loans, automobile loans, loans secured by savings accounts
and consumer loans were $125.4 million on June 30, 2002, or approximately 19.1%
of Home Federal's total loan portfolio.
Second mortgage loans are made for terms of 1 - 15 years, and are
fixed-rate and variable rate line of credit loans. Home Federal's minimum for
such loans is $5,000. Home Federal will loan up to 90% of the appraised value of
the property, less the existing mortgage amount(s). As of June 30, 2002, Home
Federal had $40.3 million of second mortgage loans, which equaled 6.1% of its
total loan portfolio. Home Federal markets home equity credit lines, which are
adjustable-rate loans. As of June 30, 2002, Home Federal had $45.5 million drawn
on its home equity loans, or 6.9% of its total loan portfolio, with $78.0
million of additional credit available to its borrowers under existing home
equity loans.
Automobile loans are generally made for terms of up to five years. The
vehicles are required to be for personal or family use only. As of June 30,
2002, $25.4 million, or 3.9%, of Home Federal's total loan portfolio consisted
of automobile loans.
As of June 30, 2002, $6.6 million, or 1.0%, of Home Federal's total loan
portfolio consisted of mobile home loans. Generally, these loans are made for
terms of one year for each $1,000.00 of the sales price, with a maximum term of
15 years. On new mobile home loans, Home Federal requires a loan-to-value ratio
of 125% of the manufacturer's invoice price plus sales tax or 90% of the actual
sales price, whichever is lower. Also, Home Federal makes loans for previously
occupied mobile homes up to a 90% loan-to-value ratio based upon the actual
sales price or value as appraised, whichever is lower.
Loans secured by savings account deposits may be made up to 95% of the
pledged savings collateral at a rate 2% above the rate of the pledged savings
account or a rate equal to Home Federal's highest seven-year certificate of
deposit rate, whichever is higher. The loan rate will be adjusted as the rate
for the pledged savings account changes. As of June 30, 2002, $3.1 million, or
0.5%, of Home Federal's total loan portfolio consisted of savings account loans.
Although consumer-related loans generally involve a higher level of risk
than one-to-four family residential mortgage loans, their relatively higher
yields and shorter terms to maturity are believed to be helpful in Home
Federal's asset/liability management.
Commercial Loans
Collateral for Home Federal's commercial loans includes manufacturing
equipment, real estate, inventory, accounts receivable, and securities. Terms of
these loans are normally for up to ten years and have adjustable rates tied to
the reported prime rate and treasury indexes. Generally, commercial loans are
considered to involve a higher degree of risk than residential real estate
loans. However, commercial loans generally carry a higher yield and are made for
a shorter term than real estate loans. As of June 30, 2002, $86.4 million, or
13.1%, of Home Federal's total loan portfolio consisted of commercial loans.
Origination, Purchase and Sale of Loans
Home Federal originates residential loans in conformity with standard
underwriting criteria of the Federal Home Loan Mortgage Corporation ("FHLMC")
and the Federal National Mortgage Association ("FNMA") to assure maximum
eligibility for possible resale in the secondary market. Although Home Federal
currently has authority to lend anywhere in the United States, it has confined
its loan origination activities primarily to the central and south central
Indiana area. Home Federal's loan originations are generated primarily from
referrals from real estate brokers, builders, developers and existing customers,
newspaper, radio and periodical advertising and walk-in customers. Home
Federal's loan approval process is intended to assess the borrower's ability to
repay the loan, the viability of the loan and the adequacy of the value of the
property that will secure the loan.
Home Federal studies the employment, credit history, and information on the
historical and projected income and expenses of its individual and corporate
mortgagors to assess their ability to repay its mortgage loans. Additionally,
HFSB utilizes Freddie Mac's Loan Prospector and Fannie Mae's Desktop Underwriter
as origination, processing, and underwriting tools. It uses its staff appraisers
or independent appraisers to appraise the property securing its loans. It
requires title insurance or abstracts accompanied by an attorney's opinion
evidencing Home Federal's valid lien on its mortgaged real estate and a mortgage
survey or survey coverage on all first mortgage loans and on other loans when
appropriate. Home Federal requires fire and extended coverage insurance in
amounts at least equal to the principal amount of the loan. It may also require
flood insurance to protect the property securing its interest. When private
mortgage insurance is required, borrowers must make monthly payments to an
escrow account from which Home Federal makes disbursements for taxes and
insurance. Otherwise, such escrow arrangements are optional.
The procedure for approval of loans on property under construction is the
same as for residential mortgage loans, except that the appraisal obtained
evaluates the building plans, construction specifications and estimates of
construction costs, in conjunction with the land value. Home Federal also
evaluates the feasibility of the construction project and the experience and
track record of the builder or developer.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
In order to generate loan fee and servicing income and recycle funds for
additional lending activities, Home Federal seeks to sell loans in the secondary
market. Loan sales can enable Home Federal to recognize significant fee income
and to reduce interest rate risk while meeting local market demand. Home Federal
sold $260.0 million of fixed-rate loans in the fiscal year ended June 30, 2002.
Home Federal's current lending policy is to sell fixed-rate residential mortgage
loans exceeding 10 year maturities. In addition, when in the opinion of
management cash flow demands and asset/liability concerns warrant, Home Federal
will consider keeping fixed-rate loans with 15 year maturities. Typically Home
Federal retains adjustable-rate loans in portfolio. Home Federal may sell
participating interests in commercial real estate loans in order to share the
risk with other lenders. Mortgage loans held for sale are carried at lower of
cost or market value, determined on an aggregate basis. The servicing is
retained on most loan sales except Veteran's Administration ("VA"), Federal
Housing Administration ("FHA") and Indiana Housing Finance Authority ("IHFA")
loans.
When loans are sold, Home Federal typically retains the responsibility for
collecting and remitting loan payments, inspecting the properties securing the
loans, making certain that monthly principal and interest payments and real
estate tax payments are made on behalf of borrowers, and otherwise servicing the
loans. Home Federal receives a servicing fee for performing these services. The
amount of fees received by Home Federal varies, but is generally calculated as
an amount equal to 25 basis points per annum on the outstanding principal amount
of the loans serviced. The servicing fee is recognized as income over the life
of the loans. At June 30, 2002, Home Federal serviced $551.4 million of loans
sold to other parties. Gains and losses on sale of loans, loan participations
and mortgage-backed securities are recognized at the time of sale.
Management believes that purchases of loans and loan participations may be
desirable and evaluates potential purchases as opportunities arise. Such
purchases can enable Home Federal to take advantage of favorable lending markets
in other parts of the state, diversify its portfolio and limit origination
expenses. Any participation it acquires in commercial real estate loans requires
a review of financial information on the borrower, a review of the appraisal on
the property by a local designated appraiser, an inspection of the property by a
senior loan officer, and a financial analysis of the loan. The seller generally
does servicing of loans purchased. At June 30, 2002, others serviced
approximately 3.1% or $20.2 million, of Home Federal's gross loan portfolio.
The following table shows loan activity for Home Federal during the periods indicated:
Year Ended June 30,
2002 2001 2000
---- ---- ----
(Dollars in Thousands)
Gross loans receivable at beginning of periods ................. $ 708,688 $ 684,086 $ 607,079
--------- --------- ---------
Loans Originated:
Mortgage loans and contracts:
Construction loans:
Residential ....................................... 28,970 38,838 51,992
Commercial ........................................ 29,468 48,752 18,889
Permanent loans:
Residential ....................................... 124,902 138,016 127,636
Commercial ........................................ 32,874 29,723 13,936
Refinancing .......................................... 202,000 83,017 32,104
Other ................................................ 1,321 1,515 844
--------- --------- ---------
Total ............................................. 419,535 339,861 245,401
Commercial ............................................... 50,382 50,060 45,816
Consumer ................................................. 28,598 37,155 36,555
--------- --------- ---------
Total loans originated ............................... 498,515 427,076 327,772
Loans purchased:
Residential .......................................... -- 441 --
Other ................................................ 4,271 8,694 4,044
--------- --------- ---------
Total loans originated and purchased .............. 502,786 436,211 331,816
Real estate loans sold ................................... 260,022 132,517 46,082
Loan repayments and other deductions ..................... 293,180 279,092 208,727
--------- --------- ---------
Total loans sold, loan repayments and other deductions 553,202 411,609 254,809
Net loan activity ........................................ (50,416) 24,602 77,007
--------- --------- ---------
Gross loans receivable at end of period .................. 658,272 708,688 684,086
Adjustments .............................................. (26,457) (34,136) (32,079)
--------- --------- ---------
Net loans receivable at end of period .................... $ 631,815 $ 674,552 $ 652,007
========= ========= =========
A commercial bank generally may not make any loan to a borrower or its
related entities if the total of all such loans by the commercial bank exceeds
15% of its capital (plus up to an additional 10% of capital in the case of loans
fully collateralized by readily marketable collateral). The maximum amount that
Home Federal could have loaned to one borrower and the borrower's related
entities at June 30, 2002, under the 15% of capital limitation was $13.6
million. At that date, the highest outstanding balance of loans by Home Federal
to one borrower and related entities was approximately $11.6 million, an amount
within such loans-to-one borrower limitations.
Origination and Other Fees
Home Federal realizes income from loan related fees for originating loans,
collecting late charges and fees for other miscellaneous loan services. Home
Federal charges origination fees that range from 0% to 1.0% of the loan amount.
Home Federal also charges processing fees of $150.00 to $225.00, underwriting
fees from $0 to $150.00 and a $50 fee for any loan closed by Home Federal
personnel. In addition, Home Federal makes discount points available to
customers for the purpose of buying the rate down. The points vary from loan to
loan and are quoted on an individual basis. In accordance with Financial
Accounting Boards Statement No. 91, Accounting for Non Refundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases, the Bank amortizes costs and fees associated with originating a loan,
over the life of the loan as an adjustment to the yield earned on the loan. Late
charges are assessed fifteen days after payment is due.
Non-performing Assets
Home Federal assesses late charges on mortgage loans if a payment is not
received by the 15th day following its due date. Any borrower whose payment was
not received by this time is mailed a past due notice. At the same time the
notice is mailed, the delinquent account is downloaded to a PC- based collection
system and assigned to a specific loan service representative. The loan service
representative will attempt to make contact with the customer via a phone call
to resolve any problem that might exist. If contact by phone is not possible,
mail, in the form of preapproved form letters, will be used commencing on the
25th day following a specific due date. Between the 30th and 45th day following
any due date, or at the time a second payment has become due, if no contact has
been made with the customer, a personal visit will be conducted by a Loan
Service Department employee to interview the customer and inspect the property
to determine the borrower's ability to repay the loan. Prompt follow up is a
goal of the Loan Service Department with any and all delinquencies.
When an advanced stage of delinquency appears (generally around the 60th
day of delinquency) and if repayment cannot be expected within a reasonable
amount of time, Home Federal will make a determination of how to proceed to
protect the interests of both the customer and Home Federal. It may be necessary
for the borrower to attempt to sell the property at Home Federal's request. If a
resolution cannot be arranged, Home Federal will consider avenues necessary to
obtain title to the property which include foreclosure and/or accepting a
deed-in-lieu of foreclosure, whichever may be most appropriate. However, Home
Federal attempts to avoid taking title to the property if at all possible.
Home Federal has acquired certain real estate in lieu of foreclosure by
acquiring title to the real estate and then reselling it. Home Federal performs
an updated title check of the property and, if needed, an appraisal on the
property before accepting such deeds.
On June 30, 2002, Home Federal held $2.2 million of real estate and other
repossessed collateral acquired as a result of foreclosure, voluntary deed, or
other means. Such assets are classified as "real estate owned" until sold. When
property is so acquired, it is recorded at the lower of cost or fair market
value less estimated cost to sell at the date of acquisition and any subsequent
write down resulting there from is charged to the allowance for losses on real
estate owned. Interest accrual ceases on the date of acquisition. All costs
incurred from the acquisition date in maintaining the property are expensed.
Consumer loan borrowers who fail to make payments are contacted promptly by
the loan service department in an effort to cure any delinquency. A notice of
delinquency is sent 10 days after any specific due date when no payment has been
received. The delinquent account is downloaded to a PC-based collection system
and assigned to a specific loan service representative. The loan service
representative will then attempt to contact the borrower via a phone call.
Continued follow-up in the form of phone calls, letters, and personal
visits (when necessary) will be conducted to resolve delinquency. If a consumer
loan delinquency continues and advances to the 60-90 days past due status, a
determination will be made by Home Federal on how to proceed. When a consumer
loan reaches 90 days past due Home Federal determines the loan-to-value ratio by
performing an inspection of the collateral (if any). Home Federal may initiate
action to obtain the collateral, (if any) or collect the debt through available
legal remedies. Collateral obtained as a result of loan default is retained by
Home Federal as an asset until sold or otherwise disposed.
The table below sets forth the amounts and categories of Home Federal's
non-performing assets (non-accrual loans, loans past due 90 days or more, real
estate owned and other repossessed assets) for the last five years. It is the
policy of Home Federal that all earned but uncollected interest on conventional
loans be reviewed monthly to determine if any portion thereof should be
classified as uncollectible, for any portion that is due but uncollected for a
period in excess of 90 days. The determination is based upon factors such as the
amount outstanding of the loan as a percentage of the appraised value of the
property and the delinquency record of the borrower.
At June 30,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Non-performing Assets:
Loans:
Non-accrual ............................. $2,281 $6,351 $2,422 $3,509 $3,992
Past due 90 days or more ................ 1,110 -- -- -- --
Restructured loans ...................... 374 879 632 61 --
Total non-performing loans .................... 3,765 7,230 3,054 3,570 3,992
Real estate owned, net (1) .............. 2,168 1,238 1,210 1,936 117
Other repossessed assets, net ........... 71 60 25 114 125
- ----------------------------------------------- ------ ------ ------ ------ ------
Total non-performing assets ................... $6,004 $8,528 $4,289 $5,620 $4,234
=============================================== ====== ====== ====== ====== ======
Total non-performing assets to total assets (2) .70% .99% .52% .75% 0.59%
Loans with allowance for uncollected interest . $2,295 $6,440 $2,422 $3,509 $3,993
(1) Refers to real estate acquired by Home Federal through foreclosure,
voluntary deed, or insubstance foreclosure, net of reserve.
(2) At June 30, 2002, 31.5% of Home Federal's non-performing assets consisted
of residential mortgage loans, 12.3% consisted of home equities/second
mortgages, 1.6% consisted of commercial real estate loans, 7.7% consisted
of commercial loans, 3.4% consisted of consumer-related loans, 6.2%
consisted of restructured loans, 21.9% consisted of residential real estate
owned, 14.2% consisted of commercial real estate owned and 1.2% consisted
of other repossessed assets.
For the year ended June 30, 2002, the income that would have been recorded
under original terms on the above non-accrual and restructured loans was
$503,000 compared to actual income recorded of $431,000. At June 30, 2002, Home
Federal had approximately $5.8 million in loans that were 30-89 days past due.
Investments
Home Federal's investment portfolio consists primarily of mortgage-backed
securities, collateralized mortgage obligations, overnight funds with the FHLB
of Indianapolis, U.S. Treasury obligations, U.S. Government agency obligations,
corporate debt and municipal bonds. At June 30, 2002, 2001, and 2000, Home
Federal had approximately $138.0 million, $97.2 million and $107.2 million in
investments, respectively.
Home Federal's investment portfolio is managed by its officers in
accordance with an investment policy approved by the Board of Directors. The
Board reviews all transactions and activities in the investment portfolio on a
monthly basis. Home Federal does not purchase corporate debt securities which
are not rated in one of the top four investment grade categories by one of
several generally recognized independent rating agencies. Home Federal's
investment strategy has enabled it to (i) shorten the average term to maturity
of its assets, (ii) improve the yield on its investments, (iii) meet federal
liquidity requirements and (iv) maintain liquidity at a level that assures the
availability of adequate funds.
Effective March 31, 2002, Home Federal Savings Bank transferred the
management of approximately $90 million in securities to its wholly owned
subsidiary, Home Investments, Inc. Home Investments, Inc., a Nevada corporation,
holds, services, manages, and invests that portion of the Bank's investment
portfolio as may be transferred from time to time by the Bank to Home
Investments, Inc. Home Investments Inc's., investment policy mirrors that of the
Bank. At June 30, 2002, of the $138.0 million in consolidated investments owned
by Home Federal Savings Bank, $96.4 million was held by Home Investments, Inc.
Source Of Funds
General
Deposits have traditionally been the primary source of funds of Home
Federal for use in lending and investment activities. In addition to deposits,
Home Federal derives funds from loan amortization, prepayments, borrowings from
the FHLB of Indianapolis and income on earning assets. While loan amortization
and income on earning assets are relatively stable sources of funds, deposit
inflows and outflows can vary widely and are influenced by prevailing interest
rates, money market conditions and levels of competition. Borrowings may be used
to compensate for reductions in deposits or deposit inflows at less than
projected levels and may be used on a longer-term basis to support expanded
activities. See "-- Borrowings."
Deposits
Consumer and commercial deposits are attracted principally from within Home
Federal's primary market area through the offering of a broad selection of
deposit instruments including checking accounts, fixed-rate certificates of
deposit, NOW accounts, individual retirement accounts, savings accounts and
commercial demand deposit accounts. Home Federal does not actively solicit or
advertise for deposits outside of the counties in which its branches are
located, with the exception of brokered deposits. Deposit account terms vary,
with the principal differences being the minimum balance required, the amount of
time the funds remain on deposit and the interest rate. To attract funds, Home
Federal may pay higher rates on larger balances within the same maturity class.
Under regulations adopted by the FDIC, well-capitalized insured depository
institutions (those with a ratio of total capital to risk-weighted assets of not
less than 10%, with a ratio of core capital to risk-weighted assets of not less
than 6%, with a ratio of core capital to total assets of not less than 5% and
which have not been notified that they are in troubled condition) may accept
brokered deposits without limitations. Undercapitalized institutions (those that
fail to meet minimum regulatory capital requirements) are prohibited from
accepting brokered deposits. Adequately capitalized institutions (those that are
neither well-capitalized nor undercapitalized) are prohibited from accepting
brokered deposits unless they first obtain a waiver from the FDIC. Under these
standards, Home Federal would be deemed a well-capitalized institution. At June
30, 2002 Home Federal had $23.5 million in brokered deposits.
An undercapitalized institution may not solicit deposits by offering rates
of interest that are significantly higher than the prevailing rates of interest
on insured deposits (i) in such institution's normal market areas or (ii) in the
market area in which such deposits would otherwise be accepted.
Home Federal on a periodic basis establishes interest rates paid, maturity
terms, service fees and withdrawal penalties. Determination of rates and terms
are predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals, federal regulations, and market area of solicitation.
The following table sets forth by nominal interest rate categories the
composition of deposits of Home Federal at the dates indicated:
At June 30,
2002 2001 2000
---- ---- ----
(Dollars in Thousands)
Non-interest bearing and below 2.99% $352,731 $138,395 $138,205
3.00% - 4.99% ...................... 122,596 210,408 65,983
5.00% - 6.99% ...................... 74,139 184,058 347,428
Over 7.00% ......................... 28,014 43,682 21,277
- ------------------------------------ -------- -------- --------
Total .............................. $577,480 $576,543 $572,893
======== ======== ========
The following table sets forth the change in dollar amount of deposits
in the various accounts offered by Home Federal for the periods indicated.
DEPOSIT ACTIVITY
(Dollars in Thousands)
Balance Balance Balance
at at at
June 30, % of Increase June 30, % of Increase June 30, % of Increase
2002 Deposits (Decrease) 2001 Deposits (Decrease) 2000 Deposits (Decrease)
---- -------- -------- ---- -------- -------- ---- -------- --------
Withdrawable:
Non-interest bearing ........... $ 49,884 8.6% $ 8,561 $ 41,323 7.2% $ 1,828 $ 39,495 6.9% $ 3,963
Passbook ....................... 48,382 8.4% 5,129 43,253 7.5% (1,530) 44,783 7.8% (3,243)
Money market savings ........... 121,978 21.1% (9,536) 131,514 22.9% 23,084 108,430 18.9% 1,844
NOW ............................ 67,362 11.7% 13,543 53,819 9.3% (108) 53,927 9.4% 887
------- ---- ------ ------- ---- ------ ------- ---- -----
Total Withdrawable ....... 287,606 49.8% 17,697 269,909 46.8% 23,274 246,635 43.1% 3,451
------- ---- ------ ------- ---- ------ ------- ---- -----
Certificates:
Less than one year ............. 27,175 4.7% (13,453) 40,628 7.0% (16,515) 57,143 10.0% (30,356)
12 to 23 months ................ 58,959 10.2% (65,886) 124,845 21.7% (1,457) 126,302 22.0% 11,394
24 to 35 months ................ 107,408 18.6% 13,201 94,207 16.3% (387) 94,594 16.5% 18,680
36 to 59 months ................ 27,559 4.8% 15,650 11,909 2.1% 1,701 10,208 1.8% (1,700)
60 to 120 months ............... 68,773 11.9% 33,728 35,045 6.1% (2,966) 38,011 6.6% (8,458)
------- ---- ------ ------- ---- ------ ------- ---- -----
Total certificate accounts 289,874 50.2% (16,760) $306,634 53.2% (19,624) 326,258 56.9% (10,440)
------- ---- ------ ------- ---- ------ ------- ---- -----
Total deposits ........ $577,480 100.0% $ 937 $576,543 100.0% $ 3,650 $572,893 100.0% $ (6,989)
======== ===== ========= ======== ===== ======== ======== ===== ========
The following table represents, by various interest rate categories, the
amounts of deposits maturing during each of the three years following June 30,
2002, and the percentage of such maturities to total deposits. Matured
certificates which have not been renewed as of June 30, 2002 have been allocated
based upon certain rollover assumptions.
DEPOSIT MATURITIES
(Dollars in Thousands)
3.99% 4.00 5.00 6.00 7.00
or to to to to Percent of
less 4.99% 5.99% 6.99% 9.00% Total Total
---- ----- ----- ----- ----- ----- -----
Certificate accounts maturing in
the twelve-month period ending:
June 30, 2003.................... $ 82,490 $ 14,020 $ 10,099 $ 13,024 $ 26,910 $146,543 50.6%
June 30, 2004.................... 39,832 15,328 6,749 1,179 211 63,299 21.8%
June 30, 2005.................... 1,094 16,212 3,472 2,590 520 23,888 8.2%
Thereafter ...................... 3 18,742 33,311 3,715 373 56,144 19.4%
-------- -------- -------- -------- -------- -------- -----
Total ........................... $123,419 $ 64,302 $ 53,631 $ 20,508 $ 28,014 $289,874 100.0%
======== ======== ======== ======== ======== ======== =====
Included in the deposit totals in the above table are saving certificates
of deposit with balances exceeding $100,000. The majority of these deposits are
from regular customers of Home Federal, excluding $23.5 million, which were from
brokered deposits. The following table provides a maturity breakdown at June 30,
2002, of certificates of deposits with balances greater than $100,000, by
various interest rate categories.
ACCOUNTS GREATER THAN $100,000
(Dollars in Thousands)
3.00 4.00 5.00 6.00 7.00
to to to to to Percent of
3.99% 4.99% 5.99% 6.99% 7.99% Total Total
----- ----- ----- ----- ----- ----- -----
Certificate accounts maturing in
the twelve-month period ending:
June 30, 2003..................... $22,134 $ 2,060 $ 1,398 $ 2,336 $ 4,610 $32,538 42.3%
June 30, 2004..................... 5,425 1,696 1,597 473 114 9,305 12.1%
June 30, 2005..................... 127 11,659 206 1,505 360 13,857 18.0%
Thereafter ....................... -- 4,419 14,950 1,476 321 21,166 27.5%
------- ------- ------- ------- ------- ------- -----
Total ............................ $27,686 $19,834 $18,151 $ 5,790 $ 5,405 $76,866 100.0%
======= ======= ======= ======= ======= ======= =====
Borrowings
Home Federal relies upon advances (borrowings) from the FHLB of
Indianapolis to supplement its supply of lendable funds, meet deposit withdrawal
requirements and to extend the term of its liabilities. This facility has
historically been Home Federal's major source of borrowings. Advances from the
FHLB of Indianapolis are typically secured by Home Federal's stock in the FHLB
of Indianapolis and a portion of Home Federal's mortgage loans.
Each FHLB credit program has its own interest rate, which may be fixed or
variable, and range of maturities. Subject to the express limits in FIRREA, the
FHLB of Indianapolis may prescribe the acceptable uses to which these advances
may be put, as well as limitations on the size of the advances and repayment
provisions. At June 30, 2002, Home Federal had advances totaling $174.1 million
outstanding from the FHLB of Indianapolis.
The Company has a revolving note with LaSalle Bank N.A. whereby the Company
may borrow up to $12.5 million. The note accrues interest at a variable rate
based on the ninety-day London inter bank offering rate ("LIBOR"), on the date
of the draw, plus 150 basis points. Interest payments are due ninety days after
the date of any principal draws made on the loan and every ninety days
thereafter. On February 13, 2001 the Company modified the payment terms of the
$11.2 million principal balance to allow for principal payments on the maturity
dates of the three interest rate swaps the Company entered into on the same
date. Maturities of senior debt based on maximum scheduled payments as of June
30, 2002 are: 2003 - $2.0 million, 2004 - $4.6 million and 2006 - $4.6 million.
Any remaining principal balance is due by February 15, 2006. The Company used
the funds obtained to buy back shares of the Company's common stock. The note is
collateralized by the assets of the Company. Under terms of the agreement, the
Company is bound by certain restrictive debt covenants relating to earnings, net
worth and various financial ratios. As of June 30, 2002, the Company was in
compliance with the debt covenants.
Effective February 13, 2001, the company entered into three interest rate
swap agreements with LaSalle Bank N.A. In the first agreement the Company will
make fixed rate payments at 5.45% and receive variable rate payments at the
three month LIBOR index on a notional amount of $2.0 million. The maturity date
of the first swap agreement is May 1, 2003. In the second agreement the Company
will make fixed rate payments at 5.6% and receive variable rate payments at the
three month LIBOR on a notional amount of $4.6 million. The maturity date of the
second swap agreement is May 1, 2004. In the third agreement the Company will
make fixed rate payments at 5.77% and receive variable rate payments at the
three month LIBOR on a notional amount of $4.6 million. The maturity date of the
third swap agreement is February 1, 2006. The three interest rate swaps are
accounted for on a settlement basis. The Company is exposed to credit loss in
the event of nonperformance by LaSalle Bank N.A for the net interest rate
differential when floating rates exceed the fixed maximum rate. However, the
Company does not anticipate nonperformance by the counter party.
Other than the FHLB advances and the Senior Debt, Home Federal's only
borrowings in recent years have been short-term borrowings. The following table
sets forth the maximum amount of each category of short-term borrowings
(borrowings with remaining maturities of one year or less) outstanding at any
month-end during the periods shown and the average aggregate balances of
short-term borrowings for such periods.
For the year ended June 30,
2002 2001 2000
---- ---- ----
(Dollars in Thousands)
FHLB advances ............................... $46,400 $73,500 $70,900
Official check overnight remittance ......... $ 9,248 $ 4,961 $ 5,150
Money Order remittance ...................... $ 42 $ 53 $ 54
FHLB overnight remittance ................... $ -- $ 2,875 $ 2,325
Average amount of total short-term borrowings
Outstanding ................................. $40,385 $57,222 $39,878
The following table sets forth the amount of short term FHLB advances
outstanding at year end during the period shown and the weighted average rate of
such FHLB advances.
At the year ended June 30,
2002 2001 2000
---- ---- ----
(Dollars in Thousands)
FHLB advances:
Amount .............. $ 30,600 $ 39,900 $ 69,900
Weighted average rate 6.4% 5.8% 6.5%
Service Corporation Subsidiaries
On December 31, 2001 Home Federal Savings Bank changed its charter from a
Federal savings bank charter to an Indiana commercial bank charter. Commercial
banks are not permitted to participate in real estate development joint
ventures. One of Home Federal's subsidiaries, Home Savings Corporation ("HSC"),
is a partner in six real estate development joint ventures for which exit
strategies are either developed, or are currently being developed. HFSB is
currently mandated to divest itself of these activities within two years, with
three one-year extensions available, subject to regulatory approval. HSC, an
Indiana corporation, is currently engaged in three types of activities: (i) real
estate development and (ii) full-service securities brokerage services. With the
exception of its securities brokerage services, all of HSC's activities are
conducted through joint ventures in which it is an equity investor.
At June 30, 2002, Home Federal's aggregate investment in HSC, including
loans, was $8.2 million. For the year ended June 30, 2002, HSC reported pretax
income of $880,000 from these operations. HSC's office is located at 501
Washington Street, Columbus, Indiana. The consolidated statements of operations
of Home Federal and its subsidiaries included elsewhere herein includes the
operations of HSC. Intercompany balances and transactions have been eliminated
in the consolidation.
The following table sets forth certain information regarding each of the
joint ventures in which HSC was involved at June 30, 2002.
Date
HSC Loans from Home
Entered Savings Corp.
into the Equity Outstanding
Name Type of Project Project Investment June 30, 2002
- ---- --------------- ------- ---------- -------------
Coventry Associates Real Estate development 8/31/89 $ 20,000 $ -
in Seymour, Indiana
Heritage Woods II Rental Apartment project of low income 11/15/89 $ 53,000 $ -
housing (22 units)
Broadmoor North /Heathfield Real estate development 12/15/99 $ 1,415,000 $ 1,366,000
in Columbus, Indiana
McCulloughs Run Real estate development 7/1/94 $ 2,126,000 $ 1,651,000
in Columbus, Indiana
Crystal Lake at River Ridge Single family homes in Indianapolis, 11/29/97 $ 307,000 $ 730,000
Indiana
Bloomington Technology Industrial park in Bloomington, Indiana 11/10/97 $ 553,000 $ -
Park, LLC
Courtyard Homes at Single family homes in Indianapolis, 6/14/99 $ 2,925,000 $ 2,847,000
Sycamore Springs, LLC Indiana
HSC markets Raymond James Financial full-service securities brokerage
services. For the year ended June 30, 2002, HSC received $586,000 in commissions
from its Raymond James Financial activities.
In August, 1989, HSC entered into a financing agreement with Greemann Real
Estate, Inc. to purchase and develop Coventry Place, a residential real estate
subdivision in Seymour, Indiana. HSC is entitled to 65% of the net profit after
the payment of all interest, development and sales fees. The final inventory of
two lots was sold in August 2002.
In November, 1989, HSC invested $184,000 as a limited partner in Heritage
Woods II, a low income housing project in Columbus, Indiana. HSC received
low-income housing tax credits for 10 years from this project and must maintain
the investment for 15 years to avoid any tax credit recapture.
On December 15, 1999, HSC entered into a joint venture agreement with
Breeden Investment Group, Inc. to develop a 100 lot residential real estate
subdivision ("Broadmoor North/Heathfield"). Broadmoor North/Heathfield is
located on the north central side of Columbus, Indiana. Loan documents were
executed on December 23, 1999 for land acquisition and development of phases I
and II in an amount not to exceed $2.2 million. In addition to interest on the
loan, HSC will receive 35% of the profits after all interest, development and
sales costs.
On July 1, 1994, HSC entered into a joint venture agreement with Breeden
Investment Group, Inc. to develop a 320 lot starter home subdivision with
additional multi-family and commercial land ("McCullough's Run"). McCullough's
Run is located on the east side of Columbus, Indiana. Loan documents were
executed on July 1, 1994 for land acquisition and development of phases I and
II. Subsequent closings have encompassed the balance of six phases and on March
6, 2000 loan documents were executed in an amount not to exceed $2.1 million.
The outstanding loan balance of $1.7 million as of June 30, 2002, reflects the
development costs to date of all six phases, the condominium site and commercial
acreage. HSC is entitled to 50% of the profit from sale of lots within
McCullough's Run.
On November 29, 1997, HSC entered into an LLC agreement with Curtis
Enterprises, Inc., and Gary B. Warstler to build up to eighty-five single family
homes at Crystal Lake at River Ridge in northern Indianapolis, Indiana. On May
1, 2000, the LLC agreement was amended when Mr. Warstler desired to withdraw
from the LLC and assign his percentage share in the LLC equally between the two
remaining members. The LLC purchases finished lots from RN Thompson Development
Corporation. HSC has provided a line of credit in the amount of $3 million to
build the homes. HSC is entitled to one third of the profits from homes started
before Mr. Warstler withdrew and 50% of the profits from homes started after Mr.
Warstler withdrew. An agreement has been signed with RN Thompson Development
Corporation to buy back the 10 undeveloped lots owned by the LLC.
On November 10, 1997 HSC entered into an LLC agreement with
Wininger-Stolberg HC, II, Inc. to develop the Bloomington Technology Park in
Bloomington, IN. The City of Bloomington and Monroe County are providing an
$800,000 grant to build infrastructure. HSC provided a matching amount, which
has been repaid along with a fee of $150,000. The eighty-two acre site was
purchased from Otis Elevator Company, Inc. and work started late spring, 1998.
HSC is entitled to 50% of all profit from the sale of lots in Bloomington
Technology Park.
On June 14, 1999, HSC entered into an LLC agreement with Curtis
Enterprises, Inc. to build 54 homes at Courtyard Homes at Sycamore Springs, a
planned community in Indianapolis, Indiana. The LLC purchased the land and will
develop lots and build the homes. HSC has provided a line of credit in the
amount of $5 million to build the homes, and is entitled to one third of the
profits from the home sales.
Home Federal also organized another service corporation subsidiary under
Indiana law, HomeFed Financial Corp, ("HFF"). As a result of Home Federal's
charter conversion to a state commercial bank, Home Federal's subsidiary, HSC,
was required to divest itself of it's ownership interest in Consortium Partners.
On December 31, 2001, Home Federal Bancorp purchased HFF from Home Federal
Savings Bank. On the same date, HFF purchased the investment in Consortium
Partners from HSC. HFF has a 14% interest in Consortium Partners, a Louisiana
partnership, which owns 50% of the outstanding shares of the Family Financial
Life Insurance Company of New Orleans ("Family Financial"). The remaining 50% of
the outstanding shares of Family Financial is owned proportionately by the
partners of Consortium Partners. Family Financial sells life, accident, and
health insurance as well as annuity products to the customers of the partners'
parent-thrifts. HFF receives (1) dividends paid on Family Financial shares owned
directly by it, (2) a pro rata allocation of dividends received on shares held
by Consortium Partners, which are divided among the partners based on the
actuarially determined value of Family Financial's various lines of insurance
generated by customers of these partners, and (3) commissions on sales of
insurance products made to customers. For the year ended June 30, 2002, Home
Federal had income of $408,000, on a consolidated basis, from commissions and
dividends paid on Family Financial activities.
Home Federal also organized a subsidiary under Nevada law, Home Investments,
Inc., ("HII"). Effective March 31, 2002, Home Federal Savings Bank transferred
the management of approximately $90 million in securities to HII. Home
Investments, Inc. holds, services, manages, and invests that portion of the
Bank's investment portfolio as may be transferred from time to time by the Bank
to HII. Home Investments Inc.'s, investment policy mirrors that of the Bank. At
June 30, 2002, of the $138.0 million in consolidated investments owned by Home
Federal Savings Bank, $96.4 million was held by Home Investments, Inc.
Employees
As of June 30, 2002, the Company employed 265 persons on a full-time basis
and 7 persons on a part-time basis. None of the Company's employees are
represented by a collective bargaining group. Management considers its employee
relations to be excellent.
Competition
Home Federal operates in south central Indiana and makes almost all of its
loans to, and accepts almost all of its deposits from, residents of Bartholomew,
Jackson, Jefferson, Jennings, Scott, Ripley, Washington, Decatur, Monroe and
Marion counties in Indiana.
Home Federal is subject to competition from various financial institutions,
including state and national banks, state and federal thrift associations,
credit unions and other companies or firms, including brokerage houses, that
provide similar services in the areas of Home Federal's home and branch offices.
Also, in Seymour, Columbus, North Vernon and Batesville, Home Federal must
compete with banks and savings institutions in Indianapolis. To a lesser extent,
Home Federal competes with financial and other institutions in the market areas
surrounding Cincinnati, Ohio and Louisville, Kentucky. Home Federal also
competes with money market funds that currently are not subject to reserve
requirements, and with insurance companies with respect to its Individual
Retirement and annuity accounts.
Under current law, bank holding companies may acquire thrifts. Thrifts may
also acquire banks under federal law. To date, several bank holding company
acquisitions of healthy thrifts in Indiana have been completed. Affiliations
between banks and thrifts based in Indiana have increased the competition faced
by Home Federal and the Company. See "Acquisitions or Dispositions and
Branching."
The Gramm-Leach-Bliley Act allows insurers and other financial service
companies to acquire banks; removes various restrictions that previously applied
to bank holding company ownership of securities firms and mutual fund advisory
companies; and establishes the overall regulatory structure applicable to bank
holding companies that also engage in insurance and securities operations. These
provisions in the Act may increase the level of competition Home Federal faces
from securities firms and insurance companies.
The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. Competition is affected by,
among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels, and other factors that
are not readily predictable.
REGULATION
Both the Corporation and Home Federal operate in highly regulated
environments and are subject to supervision, examination and regulation by
several governmental regulatory agencies, including the Board of Governors of
the Federal Reserve System (the "Federal Reserve"), the Federal Deposit
Insurance Corporation (the "FDIC"), and the Indiana Department of Financial
Institutions (the "DFI"). The laws and regulations established by these agencies
are generally intended to protect depositors, not shareholders. Changes in
applicable laws, regulations, governmental policies, income tax laws and
accounting principles may have a material effect on the Corporation's business
and prospects. The following summary is qualified by reference to the statutory
and regulatory provisions discussed.
Home Federal Bancorp
The Bank Holding Company Act. Because the Corporation owns all of the
outstanding capital stock of Home Federal, it is registered as a bank holding
company under the federal Bank Holding Company Act of 1956 and is subject to
periodic examination by the Federal Reserve and required to file periodic
reports of its operations and any additional information that the Federal
Reserve may require.
Investments, Control, and Activities. With some limited exceptions, the
Bank Holding Company Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before acquiring another bank holding company or
acquiring more than 5% of the voting shares of a bank (unless it already owns or
controls the majority of such shares).
Bank holding companies are prohibited, with certain limited exceptions,
from engaging in activities other than those of banking or of managing or
controlling banks. They are also prohibited from acquiring or retaining direct
or indirect ownership or control of voting shares or assets of any company which
is not a bank or bank holding company, other than subsidiary companies
furnishing services to or performing services for their subsidiaries, and other
subsidiaries engaged in activities which the Federal Reserve determines to be so
closely related to banking or managing or controlling banks as to be incidental
to these operations. The Bank Holding Company Act does not place territorial
restrictions on the activities of such nonbanking-related activities.
Effective March 11, 2000, the Gramm-Leach Bliley Act of 1999, which was
signed into law on November 12, 1999, allows a bank holding company to qualify
as a "financial holding company" and, as a result, be permitted to engage in a
broader range of activities that are "financial in nature" and in activities
that are determined to be incidental or complementary to activities that are
financial in nature. The Gramm-Leach-Bliley Act amends the Bank Holding Company
Act of 1956 to include a list of activities that are financial in nature, and
the list includes activities such as underwriting, dealing in and making a
market in securities, insurance underwriting and agency activities and merchant
banking. The Federal Reserve is authorized to determine other activities that
are financial in nature or incidental or complementary to such activities. The
Gramm-Leach-Bliley Act also authorizes banks to engage through financial
subsidiaries in certain of the activities permitted for financial holding
companies.
In order for a bank holding company to engage in the broader range of
activities that are permitted by the Gramm-Leach-Bliley Act (1) all of its
depository institutions must be well capitalized and well managed and (2) it
must file a declaration with the Federal Reserve that it elects to be a
"financial holding company." In addition, to commence any new activity permitted
by the Gramm-Leach-Bliley Act, each insured depository institution of the
financial holding company must have received at least a "satisfactory" rating in
its most recent examination under the Community Reinvestment Act. The
Corporation has elected to be a financial holding company.
Dividends. The Federal Reserve's policy is that a bank holding company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income or which could only be funded in ways that weaken the bank holding
company's financial health, such as by borrowing. Additionally, the Federal
Reserve possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies.
Source of Strength. In accordance with Federal Reserve policy, the
Corporation is expected to act as a source of financial strength to Home Federal
and to commit resources to support Home Federal in circumstances in which the
Corporation might not otherwise do so.
Home Federal Savings Bank
General Regulatory Supervision. Home Federal as an Indiana commercial
bank and a member of the Federal Reserve System is subject to examination by the
DFI and the Federal Reserve. The DFI and the Federal Reserve regulate or monitor
virtually all areas of Home Federal's operations. Home Federal must undergo
regular on-site examinations by the Federal Reserve and DFI and must submit
periodic reports to the Federal Reserve and the DFI.
Lending Limits. Under Indiana law, Home Federal may not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of its
unimpaired capital and surplus. Additional amounts may be lent, not in excess of
10% of unimpaired capital and surplus, if such loans or extensions of credit are
fully secured by readily marketable collateral, including certain debt and
equity securities but not including real estate. At June 30, 2002, Home Federal
did not have any loans or extensions of credit to a single or related group of
borrowers in excess of its lending limits.
Deposit Insurance. Deposits in Home Federal are insured by the Savings
Association Insurance Fund of the FDIC up to a maximum amount, which is
generally $100,000 per depositor subject to aggregation rules. Home Federal is
subject to deposit insurance assessments by the FDIC pursuant to its regulations
establishing a risk-related deposit insurance assessment system, based upon the
institution's capital levels and risk profile. Home Federal is also subject to
assessment for the Financing Corporation (FICO) to service the interest on its
bond obligations. The amount assessed on individual institutions, including Home
Federal, by FICO is in addition to the amount paid for deposit insurance
according to the risk-related assessment rate schedule. Home Federal paid
deposit insurance assessments of $102,000 during the fiscal year ended June 30,
2002. Future increases in deposit insurance premiums or changes in risk
classification will increase Home Federal's cost of funds.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe and
unsound condition to continue operations or has violated any applicable law,
regulation, order or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital.
Transactions with Affiliates and Insiders. Home Federal is subject to
limitations on the amount of loans or extensions of credit to, or investments
in, or certain other transactions with, affiliates and on the amount of advances
to third parties collateralized by the securities or obligations of affiliates.
Furthermore, within the foregoing limitations as to amount, each covered
transaction must meet specified collateral requirements. Compliance is also
required with certain provisions designed to avoid the acquisition of low
quality assets. Home Federal is also prohibited from engaging in certain
transactions with certain affiliates unless the transactions are on terms
substantially the same, or at least as favorable to such institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
nonaffiliated companies.
Extensions of credit by Home Federal to its executive officers,
directors, certain principal shareholders, and their related interests must be
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with third parties,
and not involve more than the normal risk of repayment or present other
unfavorable features.
Dividends. Under Indiana law, Home Federal is prohibited from paying
dividends in an amount greater than its undivided profits, or if the payment of
dividends would impair Home Federal's capital. Moreover, Home Federal is
required to obtain the approval of the DFI and the Federal Reserve for the
payment of any dividend if the aggregate amount of all dividends paid by Home
Federal during any calendar year, including the proposed dividend, would exceed
the sum of Home Federal's retained net income for the year to date combined with
its retained net income for the previous two years. For this purpose, "retained
net income" means the net income of a specified period, calculated under the
consolidated report of income instructions, less the total amount of all
dividends declared for the specified period.
Federal law generally prohibits Home Federal from paying a dividend to
its holding company if the depository institution would thereafter be
undercapitalized. The FDIC may prevent an insured bank from paying dividends if
the bank is in default of payment of any assessment due to the FDIC. In
addition, payment of dividends by a bank may be prevented by the applicable
federal regulatory authority if such payment is determined, by reason of the
financial condition of such bank, to be an unsafe and unsound banking practice.
Branching and Acquisitions. Branching by Home Federal requires the
approval of the Federal Reserve and the DFI. Under current law, Indiana
chartered banks may establish branches throughout the state and in other states,
subject to certain limitations. Congress authorized interstate branching, with
certain limitations, beginning in 1997. Indiana law authorizes an Indiana bank
to establish one or more branches in states other than Indiana through
interstate merger transactions and to establish one or more interstate branches
through de novo branching or the acquisition of a branch. There are some states
where the establishment of de novo branches by out-of-state financial
institutions is prohibited.
Capital Regulations. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies and account
for off-balance sheet items. Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet commitments to four risk
weighted categories of 0%, 20%, 50%, or 100%, with higher levels of capital
being required for the categories perceived as representing greater risk.
The capital guidelines divide a bank holding company's or bank's
capital into two tiers. The first tier ("Tier I") includes common equity,
certain non-cumulative perpetual preferred stock and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit and
relationships, subject to certain limitations). Supplementary ("Tier II")
capital includes, among other items, cumulative perpetual and long-term
limited-life preferred stock, mandatory convertible securities, certain hybrid
capital instruments, term subordinated debt and the allowance for loan and lease
losses, subject to certain limitations, less required deductions. Banks and bank
holding companies are required to maintain a total risk-based capital ratio of
8%, of which 4% must be Tier I capital. The federal banking regulations may,
however, set higher capital requirements when a bank's particular circumstances
warrant. Banks experiencing or anticipating significant growth are expected to
maintain capital ratios, including tangible capital positions, well above the
minimum levels.
Also required by the regulations is the maintenance of a leverage ratio
designed to supplement the risk-based capital guidelines. This ratio is computed
by dividing Tier I capital, net of all intangibles, by the quarterly average of
total assets. The minimum leverage ratio is 3% for the most highly rated
institutions, and 1% to 2% higher for institutions not meeting those standards.
Pursuant to the regulations, banks must maintain capital levels commensurate
with the level of risk, including the volume and severity of problem loans, to
which they are exposed.
The following is a summary of the Corporation's and Home Federal's
regulatory capital and capital requirements at June 30, 2002.
As of June 30, 2002
(Dollars in Thousands)
To be "Well-
Capitalized" under
Minimum Prompt Corrective
Actual Requirements Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Consolidated
Tier I Capital to Risk-
Weighted Assets............ $74,842 11.26% $26,598 4.00% $39,897 6.00%
Total Risk-Based Capital to
Risk-Weighted Assets....... $81,293 12.23% $53,196 8.00% $66,494 10.00%
Tier I Leverage Ratio...... $74,842 8.81% $33,992 4.00% $42,490 5.00%
Home Federal
Tier I Capital to Risk-
Weighted Assets............ $83,896 12.65% $26,531 4.00% $39,796 6.00%
Total Risk-Based to
Risk-Weighted Assets....... $90,347 13.62% $53,062 8.00% $66,327 10.00%
Tier I Leverage Ratio...... $83,896 9.91% $33,877 4.00% $42,346 5.00%
Prompt Corrective Regulatory Action. Federal law provides the federal
banking regulators with broad powers to take prompt corrective action to resolve
the problems of under-capitalized institutions. The extent of the regulators'
powers depends on whether the institution in question is "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
or "critically undercapitalized," as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators' corrective
powers include: requiring the submission of a capital restoration plan; placing
limits on asset growth and restrictions on activities; requiring the institution
to issue additional capitol stock (including additional voting stock) or to be
acquired; restricting transactions with affiliates; restricting the interest
rate the institution may pay on deposits; ordering a new election of directors
of the institution; requiring that senior executive officers or directors be
dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest or subordinated debt; and,
ultimately, appointing a receiver for the institution. At June 30, 2002, Home
Federal was categorized as "well capitalized," meaning that Home Federal's total
risk-based capital ratio exceeded 10%, Home Federal's Tier I risk-based capital
ratio exceeded 6%, Home Federal's leverage ratio exceeded 5%, and Home Federal
was not subject to a regulatory order, agreement or directive to meet and
maintain a specific capital level for any capital measure.
Other Regulations. Interest and other charges collected or contracted
for by Home Federal are subject to state usury laws and federal laws concerning
interest rates. Home Federal's loan operations are also subject to federal laws
applicable to credit transactions, such as the:
Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers;
Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and
public officials to determine whether a financial institution is
fulfilling its obligation to help meet the housing needs of the
community it serves;
Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending
credit;
Fair Credit Reporting Act of 1978, governing the use and provision
of information to credit reporting agencies;
Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and
Rules and regulations of the various federal agencies charged with
the responsibility of implementing such federal laws.
The deposit operations of Home Federal also are subject to the:
Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes
procedures for complying with administrative subpoenas of
financial records; and
Electronic Funds Transfer Act, and Regulation E issued by the
Federal Reserve to implement that Act, which governs automatic
deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller
machines and other electronic banking service.
State Bank Activities. Under federal law, as implemented by regulations
adopted by the FDIC, FDIC-insured state banks are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. Federal law, as
implemented by FDIC regulations, also prohibits FDIC-insured state banks and
their subsidiaries, subject to certain exceptions, from engaging as principal in
any activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and could continue to meet, its minimum
regulatory capital requirements and the FDIC determines that the activity would
not pose a significant risk to the deposit insurance fund of which the bank is a
member. Impermissible investments and activities must be divested or
discontinued within certain time frames set by the FDIC. It is not expected that
these restrictions will have a material impact in the operations of Home
Federal.
Enforcement Powers. Federal regulatory agencies may assess civil and
criminal penalties against depository institutions and certain
"institution-affiliated parties," including management, employees, and agents of
a financial institution, as well as independent contractors and consultants such
as attorneys and accountants and others who participate in the conduct of the
financial institution's affairs. In addition, regulators may commence
enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance.
Furthermore, regulators may issue cease-and-desist orders to, among other
things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications or
guarantees against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the regulator to be appropriate.
Recent Legislative Developments. On October 26, 2001, President Bush
signed the USA Patriot Act of 2001 (the "Patriot Act"). The Patriot Act is
intended to strengthen the ability of U.S. Law Enforcement to combat terrorism
on a variety of fronts. The potential impact of the Patriot Act on financial
institutions is significant and wide-ranging. The Patriot Act contains sweeping
anti-money laundering and financial transparency laws and requires financial
institutions to implement additional policies and procedures with respect to, or
additional measures designed to address, any or all the following matters, among
others: money laundering, suspicious activities and currency transaction
reporting, and currency crimes.
Effect of Governmental Monetary Policies. Home Federal's earnings are
affected by domestic economic conditions and the monetary and fiscal policies of
the United States government and its agencies. The Federal Reserve's monetary
policies have had, and are likely to continue to have, an important impact on
the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to curb inflation or
combat a recession. The monetary policies of the Federal Reserve have major
effects upon the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through its
regulation of the discount rate on borrowings of member banks and the reserve
requirements against member bank deposits. It is not possible to predict the
nature or impact of future changes in monetary and fiscal policies.
Federal Home Loan Bank System
Home Federal is a member of the FHLB of Indianapolis, which is one of
twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its
members within its assigned region. The FHLB is funded primarily from funds
deposited by banks and savings associations and proceeds derived from the sale
of consolidated obligations of the FHLB system. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB. All FHLB advances must be fully secured by sufficient
collateral as determined by the FHLB. The Federal Housing Finance Board
("FHFB"), an independent agency, controls the FHLB System, including the FHLB of
Indianapolis.
As a member of the FHLB, Home Federal is required to purchase and
maintain stock in the FHLB of Indianapolis in an amount equal to at least 1% of
its aggregate unpaid residential mortgage loans, home purchase contracts, or
similar obligations at the beginning of each year. At June 30, 2002, Home
Federal's investment in stock of the FHLB of Indianapolis was $ 10.0 million.
The FHLB imposes various limitations on advances such as limiting the amount of
certain types of real estate-related collateral to 30% of a member's capital and
limiting total advances to a member. Interest rates charged for advances vary
depending upon maturity, the cost of funds to the FHLB of Indianapolis and the
purpose of the borrowing.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. For the fiscal year ended June
30, 2002, dividends paid by the FHLB of Indianapolis to Home Federal totaled
approximately $652,000 for an annual rate of 6.6%.
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC pursuant to FedICIA place
limitations on the ability of insured depository institutions to accept, renew
or roll over deposits by offering rates of interest which are significantly
higher than the prevailing rates of interest on deposits offered by other
insured depository institutions having the same type of charter in the
institution's normal market area. Under these regulations, "well-capitalized"
depository institutions may accept, renew or roll such deposits over without
restriction, "adequately capitalized" depository institutions may accept, renew
or roll such deposits over with a waiver from the FDIC (subject to certain
restrictions on payments of rates) and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The regulations
contemplate that the definitions of "well-capitalized," "adequately-capitalized"
and "undercapitalized" will be the same as the definition adopted by the
agencies to implement the corrective action provisions of FedICIA. Management
does not believe that these regulations will have a materially adverse effect on
Home Federal's current operations.
Federal Reserve System
Under regulations of the Board of Governors of the Federal Reserve
Board (the "FRB"), Home Federal is required to maintain reserves against its
transaction accounts (primarily checking and NOW accounts) and non-personal
money market deposit accounts. The effect of these reserve requirements is to
increase Home Federal's cost of funds. Home Federal is in compliance with its
reserve requirements.
Federal Securities Law
The shares of Common Stock of the Holding Company are registered with
the SEC under the Securities Exchange Act of 1934 (the "1934 Act"). The Holding
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the 1934 Act and the rules of the SEC
thereunder. If the Holding Company has fewer than 300 shareholders, it may
deregister its shares under the 1934 Act and cease to be subject to the
foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the
Holding Company may not be resold without registration unless sold in accordance
with the resale restrictions of Rule 144 under the Securities Act of 1933 (the
"1933 Act"). If the Holding Company meets the current public information
requirements under Rule 144, each affiliate of the Holding Company who complies
with the other conditions of Rule 144 (including a one-year holding period and
conditions that require the affiliate's sale to be aggregated with those of
certain other persons) will be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of (i) l % of the outstanding shares of the Holding Company or (ii) the
average weekly volume of trading in such shares during the preceding four
calendar weeks.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- using terms such as satisfactory and
unsatisfactory -- and a written evaluation of each institution's performance.
Each FHLB is required to establish standards of community investment or service
that its members must maintain for continued access to long-term advances from
the FHLBs. The standards take into account a member's performance under the CRA
and its record of lending to first-time homebuyers. The FHLBs have established
an "Affordable Housing Program" to subsidize the interest rate of advances to
member associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. Home Federal
is participating in this program. The examiners have determined that Home
Federal has an outstanding record of meeting community credit needs.
Taxation
Federal Taxation
The Holding Company and its subsidiary file a consolidated federal
income tax return on the accrual basis for each fiscal year ending June 30. The
consolidated federal income tax return has the effect of eliminating
intercompany distributions, including dividends, in the computation of
consolidated taxable income. Income of the Holding Company generally would not
be taken into account in determining the bad debt deduction allowed to Home
Federal, regardless of whether a consolidated tax return is filed. However,
certain "functionally related" losses of the Holding Company would be required
to be taken into account in determining the permitted bad debt deduction which,
depending upon the particular circumstances, could reduce the bad debt
deduction.
Historically, Home Federal had been permitted to compute bad debt
deductions using either the bank experience method or the percentage of taxable
income method. However, for years beginning after December 31, 1995, Home
Federal was no longer able to use the percentage of taxable income method of
computing its allocable tax bad debt deduction. Home Federal is required to
compute its allocable deduction using the experience method. As a result of the
repeal of the percentage of taxable income method, reserves taken after 1987
using the percentage of taxable income method generally must be included in
future taxable income over a six-year period, although a two-year delay may be
permitted for institutions meeting a residential mortgage loan origination test.
Home Federal began recapturing approximately $2.5 million over a six-year period
beginning in fiscal 1999. In addition, the pre-1988 reserve, in which no
deferred taxes have been recorded, will not have to be recaptured into income
unless (i) Home Federal no longer qualifies as a bank under the Code, or (ii)
excess dividends are paid out by Home Federal.
Depending on the composition of its items of income and expense, a bank
may be subject to the alternative minimum tax. A bank must pay an alternative
minimum tax equal to the amount (if any) by which 20% of alternative minimum
taxable income ("AMTI"), as reduced by an exemption varying with AMTI, exceeds
the regular tax due. AMTI equals regular taxable income increased or decreased
by certain tax preferences and adjustments, including depreciation deductions in
excess of that allowable for alternative minimum tax purposes, tax-exempt
interest on most private activity bonds issued after August 7, 1986 (reduced by
any related interest expense disallowed for regular tax purposes), the amount of
the bad debt reserve deduction claimed in excess of the deduction based on the
experience method and 75% of the excess of adjusted current earnings over AMTI
(before this adjustment and before any alternative tax net operating loss). AMTI
may be reduced only up to 90% by net operating loss carryovers, but alternative
minimum tax paid that is attributable to most preferences (although not to
post-August 7, 1986 tax-exempt interest) can be credited against regular tax due
in later years.
State Taxation
Home Federal is subject to Indiana's Financial Institutions Tax
("FIT"), which is imposed at a flat rate of 8.5% on "adjusted gross income."
"Adjusted gross income," for purposes of FIT, begins with taxable income as
defined by Section 63 of the Code, and thus, incorporates federal tax law to the
extent that it affects the computation of taxable income. Federal taxable income
is then adjusted by several Indiana modifications. Other applicable state taxes
include generally applicable sales and use taxes plus real and personal property
taxes.
Home Federal's state income tax returns have not been audited in the
last five years.
Item 2. Properties.
At June 30, 2002, Home Federal conducted its business from its main
office at 501 Washington Street, Columbus, Indiana, 17 full-service branches,
and one loan origination office. Home Federal owns two buildings that it uses
for certain administrative operations located at 218 West Second Street,
Seymour, and 211 Chestnut Street, Seymour. The headquarters of its Raymond James
operations, conducted through its service corporation subsidiary, are located at
501 Washington Street, Columbus, Indiana. Information concerning these
properties, as of June 30, 2002, is presented in the following table:
Net Book Value of
Property, Approximate
Description and Owned or Furniture and Square Lease
Address Leased Fixtures Footage Expiration
------- ------ -------- ------- ----------
(Dollars in Thousands)
Principal Office
501 Washington Street Owned $ 4,474 21,600 N/A
Operations Center
218 West Second Street Owned $ 1,066 20,000 N/A
Loan Processing Center
211 North Chestnut Owned $ 317 5,130 N/A
Branch Offices:
Columbus Branches:
1020 Washington Street Owned $ 489 800 N/A
3805 25th Street Owned $ 316 5,800 N/A
2751 Brentwood Drive Owned $ 405 3,200 N/A
4330 West Jonathon Moore Pike Owned $ 581 2,600 N/A
Hope Branch 1/2 Owned $ 45 2,000
332 Jackson Street 1/2 Leased Month to Month
Austin Branch
67 West Main Street Owned $ 61 3,600 N/A
Brownstown Branch Month to
101 North Main Street Leased $ 23 2,400 Month
North Vernon Branches
111 North State Street Owned $ 344 1,900 N/A
1540 North State Street Leased $ 36 1,600 10/2002
Osgood Branch
South Buckeye Street Owned $ 111 1,280 N/A
Salem Branch
1208 South Jackson $
Owned 723 1,860 N/A
Seymour Branches
222 W. Second Street Owned $ 1,727 9,200 N/A
1117 East Tipton Street Owned $ 418 6,800 N/A
Batesville Branch
12 West Pearl Street Owned $ 580 2,175 N/A
Madison Branch
201 Clifty Drive Owned $ 448 2,550 N/A
Greensburg Branch
115 East North Street Leased $ 20 2,440 Month to Month
Loan Origination Office:
10204 Lantern Rd.
Fishers, Indiana Leased $ 8 1,000 7/04
Home Federal owns its computer and data processing equipment that is used
for accounting, financial forecasting, and general ledger work. Home Federal
also has contracted for the data processing and reporting services of Bisys
headquartered in Cherry Hill, New Jersey. The contract with Bisys expires in
October 2006.
Item 3. Legal Proceedings.
The Corporation and the Bank are involved from time to time as
plaintiff or defendant in various legal actions arising in the normal course of
business. While the ultimate outcome of these proceedings cannot be predicted
with certainty, it is the opinion of management that the resolution of these
proceedings should not have a material effect on the Corporation's consolidated
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the Company's or Home Federal's shareholders
during the quarter ended June 30, 2002.
Item 4.5. Executive Officers of Home Federal Bancorp.
Presented below is certain information regarding the executive officers of HFB
who are not also directors.
Position with HFB
Gerald L. Armstrong Executive Vice President
S. Elaine Pollert Executive Vice President
Retail Banking
Lawrence E. Welker Executive Vice President, Treasurer,
Chief Financial Officer and Secretary
Charles R. Farber Executive Vice President
Gerald L. Armstrong (age 62) has been employed by Home Federal since
February, 1992 as its Executive Vice President, and Chief Operating Officer. On
July 1, 2002 he ceased to be Chief Operating Officer and assumed part-time
duties. Before being employed by Home Federal, he was President, Chief Executive
Officer and a Director of Seymour National Bank, a commercial bank located in
Seymour, Indiana.
S. Elaine Pollert (age 42) has been employed by Home Federal
since 1986. She was elected Vice President Branch Administration in 1989
and Senior Vice President Retail Banking in 1996.
Lawrence E. Welker (age 55) has been employed by Home Federal since 1979.
He was Controller from 1979 to 1982. In 1982, he was elected as Chief
Financial Officer and Treasurer, and in 1994 he became an Executive Vice
President.
Charles R. Farber (age 52) has been employed by Home Federal since March
2002 as its Executive Vice President. He served as Law Firm Administrator for
the Indianapolis, Indiana law firm Locke Reynolds LLP from 2000 to 2002. Prior
thereto, he served for 28 years as Executive Vice President of People's Bank and
Trust Company in Indianapolis, Indiana.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
HFB's common stock ("Common Stock") is quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"),
National Market System, under the symbol "HOMF." For certain information related
to the stock prices and dividends paid by HFB, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
of Operations" on page 5 of HFB's 2002 Shareholder Annual Report (the
"Shareholder Annual Report"). As of June 30, 2002, there were 496 shareholders
of record of HFB's Common Stock.
It is currently the policy of HFB's Board of Directors to continue to
pay quarterly dividends, but any future dividends are subject to the Board's
discretion based on its consideration of HFB's operating results, financial
condition, capital, income tax considerations, regulatory restrictions and other
factors.
Since HFB has no independent operations or other subsidiaries to
generate income, its ability to accumulate earnings for the payment of cash
dividends to its shareholders is directly dependent upon the ability of Home
Federal to pay dividends to the Company. For a discussion of the regulatory
limitations on Home Federal's ability to pay dividends see Item 1,
"Business-Regulation - Home Federal Savings Bank - Dividends", and on the
Corporation's ability to pay dividends, see Item 1, "Business-Regulation - Home
Federal Savings Bank - Dividends".
Income of Home Federal appropriated to bad debt reserves and deducted
for federal income tax purposes is not available for payment of cash dividends
or other distributions to HFB without the payment of federal income taxes by
Home Federal on the amount of such income deemed removed from the reserves at
the then-current income tax rate. At June 30, 2002, approximately $2.2 million
of Home Federal's retained income represented bad debt deductions for which no
federal income tax provision had been made. See "Taxation--Federal Taxation" in
Item 1 hereof.
On November 22, 1994, the Board of Directors of HFB declared a dividend
of one common share purchase right (a "Right" or "Rights") for each outstanding
share of Common Stock. The dividend was paid on December 6, 1994 to the
shareholders of record as of November 22, 1994. If and when Rights become
exercisable, each Right will entitle the registered holder to purchase from HFB
one Common Share at a purchase price of $80.00 (the "Purchase Price"), subject
to adjustment as described in the Rights Agreement between the Company and
LaSalle National Bank, Chicago, Illinois, (the "Rights Agreement") which
specifies the terms of the Rights. The Rights will be represented by the
outstanding Common Share certificates and the Rights cannot be bought, sold or
otherwise traded separately from the Common Shares until the "Distribution
Date," which is the earliest to occur of (i) 10 calendar days following a public
announcement that a person or group (an "Acquiring Person") has (a) acquired
beneficial ownership of 15% or more of the outstanding Common Shares or (b)
become the beneficial owner of an amount of the outstanding Common Shares (but
not less than 10%) which the Board of Directors determines to be substantial and
which ownership the Board of Directors determines is intended or may be
reasonably anticipated, in general, to cause HFB to take actions determined by
the Board of Directors to be not in HFB's best long-term interests (an "Adverse
Person"), or (ii) 10 business days following the commencement or announcement of
an intention to make a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 30% or more of
such outstanding Common Shares.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire HFB on terms
not approved by the Board of Directors of HFB, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors since the Rights may be redeemed by HFB at $.01 per Right
prior to the time that a person or group has acquired beneficial ownership of
15% or more of the Common Shares.
Equity Compensation Plan Information
The following table provides the information about the Corporation's
common stock that may be issued upon the exercise of options and rights under
all existing equity compensation plans as of June 30, 2002.
Number of securities
remaining available for
future issuance under
Number of securities to equity compensation
be issued upon exercise Weighted-average plans as of
of outstanding options, exercise price of June 30, 2002
warrants and rights as outstanding (excluding securities
of options, warrants reflected in
June 30, 2002 and rights column (a))
Plan category (a) (b) (c)
- -------------------------- ------------------------- --------------------------- ----------------------------
Equity compensation
plans approved by
security holders
1,010,409(1) $18.68(1) 318,180(1)
Equity compensation
plans not approved by
security holders
--- --- ---
------------------------- --------------------------- ----------------------------
Total 1,010,409 $18.68 318,180
========================= =========================== ============================
(1) Includes the following plans: the Corporation's 1993 stock option plan, 1995
stock option plan, 1997 stock option plan and 2001 stock option plan, and
individual awards of options to directors.
The Corporation sold no equity securities during the period covered by this
report that were not registered under the Securities Act of 1933.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference to
the material under the heading "Summary of Selected Consolidated Financial Data"
on page 4 of the Shareholder Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this item is incorporated by reference to
pages 6 to 16 of the Shareholder Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is incorporated by reference to
page 12 of the Shareholder Annual Report.
Item 8. Financial Statements and Supplementary Data.
The Company's Consolidated Financial Statements and Notes thereto
contained on pages 17 to 36 of the Shareholder Annual Report are incorporated
herein by reference. HFB's Quarterly Results of Operations contained on page 5
of the Shareholder Annual Report are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There are no such changes and disagreements during the applicable period.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors is
incorporated by reference to pages 2 to 4 of the Company's Proxy Statement for
its 2002 annual shareholder meeting (the "2002 Proxy Statement"). Information
concerning the Company's executive officers who are not also directors is
included in Item 4.5 in Part I of this report.
The information required by this item with respect to the compliance
with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to page 12 to 13 of the 2002 Proxy Statement.
Item 11. Executive Compensation.
The information required by this item with respect to executive
compensation is incorporated by reference to page 5 through page 12 of the 2002
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
See the disclosures in Item 5 on Equity Compensation Plan Information.
Other information referred by this item is incorporated by reference to pages 1
to 3 of the 2002 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to
page 12 of the 2002 Proxy Statement.
Item 14. Controls and Procedures
We currently have in place systems relating to internal controls and
procedures with respect to our financial information. Our management
periodically reviews and evaluates these internal control systems with our
internal auditors and our independent accountants. We have completed such a
review and evaluation in connection with the preparation of the Form 10-K. We
have determined that there have been no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to our most recent evaluation.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List the following documents filed as a part of the report:
Financial Statements Page in
2002
Shareholder
Annual Report
Consolidated Balance Sheets as of June 30, 2002 and 2001 17
Consolidated Statements of Income for each of the years in the three
-year period ended June 30, 2002 18
Consolidated Statements of Shareholders' Equity for each of the years
in the three-year period ended June 30, 2002 19
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 2002 20
Notes to Consolidated Financial Statements 21
Report of Deloitte & Touche LLP Independent Auditors 37
(b) Reports on Form 8-K
Registrant filed a Form 8-K dated March 27, 2002, relating to
a 5% stock repurchase program.
(c) The exhibits filed herewith or incorporated by reference herein are
set forth on the Exhibit Index on page 38.
(d) All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or
related notes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized, this 24th day
of September, 2002.
HOME FEDERAL BANCORP
DATE: September 24, 2002 By: /s/ John K. Keach. Jr.
John K. Keach, Jr., President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 24th day of September,
2002.
/s/ Lawrence E. Welker /s/ John K. Keach. Jr.
Lawrence E. Welker, Executive John K. Keach, Jr.,
Vice President, Treasurer, Chairman of the Board,
Chief Financial Officer and Secretary President and
(Principal Financial Officer) Chief Executive Officer
(Principal Executive
/s/ Melissa A. McGill Officer)
Melissa A. McGill,
Vice President and Controller /s/John K. Keach. Jr.
(Principal Accounting Officer) John K. Keach, Jr,Director
/s/ Gregory J. Pence /s/ John T. Beatty
Gregory J. Pence, Director John T. Beatty, Director
/s/ David W. Laitinen /s/ Harold Force
David W. Laitinen, Director Harold Force, Director
/s/ John Miller /s/ Harvard W. Nolting. Jr.
John Miller, Director Harvard W. Nolting, Jr., Director
CERTIFICATION
I, John K. Keach, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Home Federal Bancorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
Date: September 23, 2002
/S/ John K. Keach, Jr.
President and Chief Executive Officer
CERTIFICATION
I, Lawrence E. Welker, certify that:
1. I have reviewed this annual report on Form 10-K of Home Federal Bancorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
Dated: September 23, 2002
/s/ Lawrence E. Welker
Chief Financial Officer
By signing below, each of the undersigned officers hereby certifies
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to his or her knowledge, (i) this report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in this report fairly
presents, in all material respects, the financial condition and results of
operations of Home Federal Bancorp.
Signed this 23rd day of September 2002.
/s/ Lawrence E. Welker /s/ John K. Keach, Jr.
(Signature of Authorized Officer) (Signature of Authorized Officer)
Lawrence E. Welker John K. Keach, Jr.
(Typed Name) (Typed Name)
Chief Financial Officer President, Chairman and Chief Executive Officer
(Title) (Title)
EXHIBIT INDEX
Reference to
Regulation S-K Sequential
Exhibit Number Document Page Number
3(a) Articles of Incorporation (incorporated by reference from
Exhibit B to Registrant's Registration Statement on Form S-4
(Registration No. 33-55234)).
3(b) Code of By-Laws (incorporated by reference from Exhibit C
to Registrant's Registration Statement on From S-4
(Registration No. 33-55234)).
4(a) Articles of Incorporation (incorporated by reference from
Exhibit B to Registrant's Registration Statement on Form S-4
(Registration No.33-55234)).
4(b) Code of By-Laws (incorporated by reference from
Exhibit C to Registrant's Registration Statement on From S-4
(Registration No. 33-55234).
10(a) Stock Option Plan (incorporated by reference from Exhibit
10(a) to Registrant's Registration Statement on Form S-4
(Registration No. 33-55234).
10(b) 1993 Stock Option Plan (incorporated by reference from
Exhibit 10(b) to Registrant's Form 10-K for the year ended
June 30, 1994).
10(c) Employment Agreement with Lawrence E. Welker (incorporated
by reference from Exhibit 10(c) to Registrants Registration
Statement on Form S-4 (Registration No. 33-55234)); first,
second and third Amendments thereto (incorporated by
reference to Exhibit 10(c) of Registrant's Form 10-K for the
year ended June 30, 1998); fourth amendment thereto
(incorporated by reference to Exhibit 10(c) of Registrant's
Form 10-K for the year ended June 30, 2001); fifth amendment
thereto.
10(d) Employment Agreement with John K. Keach, Jr. (incorporated
by reference from Exhibit 10(d) to Registrant's Registration
Statement on Form S-4 (Registration No. 33-55234)); first,
second and third amendments thereto (incorporated by
reference to Exhibit 10(d) of Registrant's Form 10-K for the
year ended June 30, 1998); fourth amendment thereto
(incorporated by reference to Exhibit 10 (d) of Registrant's
Form 10-K for the year ended June 30, 2001); fifth amendment
thereto.
10(f) Home Federal Savings Bank Excess Benefit Plan Agreement with
John K. Keach, Jr. dated April 1, 2001 (incorporated by
reference to Exhibit 10 (f) of Registrant's Form 10-K for
the year ended June 30, 2001).
10(g) 1999 Stock option plan incorporated by reference to Exhibit
J to the registrant's proxy statement for it's 1999 Annual
shareholder's meeting.
10(i) Stock Option Agreement with Harvard W. Nolting, Jr.
(incorporated by reference from Exhibit 10(i) to Home
Federal Savings Bank's Form 10-K for the fiscal year ended
June 30, 1991).
10(j) Stock Option Agreement with David W. Laitinen (incorporated
by reference from Exhibit 10(j) to Home Federal Savings
Bank's Form 10-K for the fiscal year ended June 30, 1991).
10(k) Stock Option Agreement with John T. Beatty (incorporated by
reference from Exhibit 10(k) to Home Federal Savings Bank's
Form 10-K for the fiscal year ended June 30, 1991).
10(l) Stock Option Agreement with Harold Force (incorporated by
reference from Exhibit 10(l) to Home Federal Savings Bank's
Form 10-K for the fiscal year ended June 30, 1991).
10(n) Supplemental Executive Retirement Plan with John K. Keach,
Jr. dated April 1, 2001(incorporated by reference from
Exhibit 10(n) to Registrant's Form 10-K for the year ended
June 30, 2002).
10(o) Supplemental Executive Retirement Plan with Lawrence E.
Welker dated April 1, 2001 (incorporated by reference from
Exhibit 10(o) to Registrant's Form 10-K for the year ended
June 30, 2002).
10(p) Supplemental Executive Retirement Plan with Elaine Pollert
dated April 1, 2001(incorporated by reference from Exhibit
10(p) to Registrant's Form 10-K for the year ended June 30,
2002).
10(v) Deferred Compensation Agreement with John K. Keach, Sr.
(incorporated by reference from Exhibit 10(v) to Home
Federal Savings Bank Form 10-K for the fiscal year ended
June 30, 1992) and First Amendment to Deferred Compensation
Agreement (incorporated by reference from Exhibit 10(v) to
Registrant's Form 10-K for the year ended June 30, 1994) and
Second Amendment to Deferred Compensation Agreement
(incorporated by reference from Exhibit 10(v) to
Registrant's Form 10-K for the year ended June 30, 1998).
10(w) Employment Agreement with S. Elaine Pollert (incorporated by
reference from Exhibit l0(w) to Home Federal Savings Bank
Form 10-K for the fiscal year ended June 30, 1998); and
First Amendment to Employment Agreement (incorporated by
reference from Exhibit 10(w) to Registrant's Form 10-K for
the year ended June 30, 1998); second amendment thereto
(incorporated by reference from Exhibit 10(w) to
Registrant's Form 10-K for the year ended June 30, 2002);
third amendment thereto.
10(x) Supplemental Executive Retirement Plan with Gerald L.
Armstrong dated April 1, 2001(incorporated by reference from
Exhibit 10(x) to Registrant's Form 10-K for the year ended
June 30, 2002).
10(ab) Stock Option Agreement with Gerald L. Armstrong
(incorporated by reference from Exhibit 10(ab) to Home
Federal Savings Bank Form 10-K for the fiscal year ended
June 30, 1992).
10(ac) Director Deferred Compensation Agreement with John Beatty
(incorporated by reference from Exhibit l0(ac) to Home
Federal Savings Bank Form 10-K for the fiscal year ended
June 30, 1992); first and second amendments thereto
(incorporated by reference from Exhibit 10(ac) to
Registrant's Form 10-K for the year ended June 30, 1998).
10(ad) Director Deferred Compensation Agreement with Lewis Essex
(incorporated by reference from Exhibit 10(ad) to Home
Federal Savings Bank Form 10-K for the fiscal year ended
June 30, 1992); first and second amendments thereto
(incorporated by reference from Exhibit 10(ad) to
Registrant's Form 10-K for the year ended June 30, 1998).
10(ae) Director Deferred Compensation Agreement with Harold Force
(incorporated by reference from Exhibit 10(ae) to Home
Federal Savings Bank Form l0-K for the fiscal year ended
June 30, 1992); first, second and third amendments thereto
(incorporated by reference from Exhibit 10(ae) to
Registrant's Form 10-K for the year ended June 30, 1998).
10(af) Director Deferred Compensation Agreement with David W.
Laitinen (incorporated by reference from Exhibit 10(af) to
Home Federal Savings Bank Form 10-K for the fiscal year
ended June 30, 1992); first, second and third amendments
thereto (incorporated by reference from Exhibit 10(af) to
Registrant's Form 10-K for the year ended June 30, 1998).
10(ag) Director Deferred Compensation Agreement with William
Nolting (incorporated by reference from Exhibit 10(ag) to
Home Federal Savings Bank Form 10-K for the fiscal year
ended June 30, 1992); ); first and second amendments thereto
(incorporated by reference from Exhibit 10(ag) to
Registrant's Form 10-K for the year ended June 30, 1998).
10(ah) Non-Qualified Stock Option Agreement, dated December 22,
1992, with John T. Beatty (incorporated by reference from
Exhibit 10(ah) to Registrant's Form 10-K for the year ended
June 30, 1994).
10(ai) Non-Qualified Stock Option Agreement, dated December 22,
1992, with Lewis W. Essex (incorporated by reference from
Exhibit 10(ai) to Registrant's Form 10-K for the year ended
June 30, 1994).
10(aj) Non-Qualified Stock Option Agreement, dated December 22,
1992, with Harold Force (incorporated by reference from
Exhibit 10(aj) to Registrant's Form 10-K for the year ended
June 30, 1994).
10(ak) Non-Qualified Stock Option Agreement, dated December 22,
1992, with David W. Laitinen (incorporated by reference from
Exhibit 10(ak) to Registrant's Form 10-K for the year ended
June 30, 1994).
10(al) Non-Qualified Stock Option Agreement, dated December 22,
1992, with Harvard W. Nolting, Jr (incorporated by reference
from Exhibit 10 (al) to Registrant's Form 10-K for the year
ended June 30, 1994).
10(am) Non-Qualified Stock Option Agreement, dated August 24,1993,
with John T. Beatty (incorporated by reference from Exhibit
10(am) to Registrant's Form 10-K for the year ended June 30,
1994).
10(an) Non-Qualified Stock Option Agreement, dated August 24,1993,
with Lewis W. Essex (incorporated by reference from Exhibit
10(an) to Registrant's Form 10-K for the year ended June 30,
1994).
10(ao) Non-Qualified Stock Option Agreement, dated August 24, 1993,
with Harold Force (incorporated by reference from Exhibit
10(ao) to Registrant's Form 10-K for the year ended June 30,
1994).
10(ap) Non-Qualified Stock Option Agreement, dated August 24, 1993,
with David W. Laitinen (incorporated by reference from
Exhibit 10(ap) to Registrant's Form 10-K for the year ended
June 30, 1994).
10(aq) Non-Qualified Stock Option Agreement, dated August 24, 1993,
with Harvard W. Nolting, Jr. (incorporated by reference from
Exhibit 10 (aq) to Registrant's Form 10-K for the year ended
June 30, 1994).
10(ar) Rights Agreement, dated as of November 22, 1994, between
Registrant and LaSalle National Bank, Chicago, Illinois, as
Rights Agent (incorporated by reference from Exhibit 1 to
Registrant's Registration Statement on Form 8-A filed with
the SEC on December 5, 1994), first amendment thereto dated
November 25, 1994.
10(as) 1995 Stock Option Plan (incorporated by reference from
Exhibit A to Registrant's Proxy Statement for its 1995
annual shareholder meeting).
10(at) 2001 stock option plan (incorporated by reference from
Exhibit B to the Registrant's Proxy Statement for its 2001
annual shareholder meeting.
10(au) Employment Agreement with Charles R. Farber.
13 2002 Shareholder Annual Report.
21 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.