Results achieved in 2008 for Home Financial Bancorp and its subsidiary, Owen Community Bank, s.b., represent progress in the right direction. Our performance is not yet at the level we want, but the rebound in earnings is gratifying. Despite an extremely harsh operating environment, we also saw improvement in areas key to the Company’s long-term success.
Home Financial Bancorp ended the year in a very strong capital position. Capital ratios far exceeded regulatory requirements; with tangible equity to total assets nearly 11% and risk-based capital at 17%. This solid financial footing provides the strength required to face tumultuous times with confidence.
Non-interest income continued its growth trend in 2008; improving 33% compared to 2007. An internal efficiency analysis and profit enhancement actions boosted non-interest income and
lowered various expenses. New product and service delivery structures helped diversify and increase fee income. Though modest in amount, secondary market mortgage loan sales generated 2008 income. As a newly approved FHS lender, we anticipate increased opportunity for fee income from loan sales. Some headway has been made controlling non-interest expenses. As a result, total other expense fluctuated very little year-to-year since 2005. Going forward, further action will be taken to control costs and improve operating efficiencies. However, the biggest obstacle to meaningful expense reduction continues to be non-performing assets. Costs related to these problem assets ranged from $400,000 to $500,000 over each of the last five years. Until asset quality issues are more fully resolved, Company performance will fall short of potential. Non-performing asset levels at year end remain too high despite actions taken to improve the situation. Progress is agonizingly slow and unsteady. Higher quality loan production over the past several years is expected to reduce future credit problems. To deal with poor performing loans still in the portfolio, we have an effective monitoring and management structure in place. Future loan performance will be driven by economic conditions, public policy and personal events. Unlike some large banks in the news with loan problems tied to steep payment adjustments or fraud issues, our delinquencies tend to be caused by adverse life events, such as job loss, divorce, and medical hardships. Unfortunately, there are also defaults due to borrower negligence. Adverse life events will continue to cause disruption for the most financially vulnerable and personally irresponsible borrowers. In the past year, we drastically expanded efforts to work with conscientious borrowers to help them retain their homes during tough times. Nobody wins when foreclosure is the last resort.
Loans originated by brokers without concern for a borrower’s ability to pay undeniably contributed to the on-going mortgage industry meltdown. Simply stated, they didn’t care about
people. A community bank can’t survive operating that way. Banking is a “people business.” Or more accurately, community banks are in the “people business.” Policymakers and powerbrokers seem to view community banks as expendable or “to small to bail.” Despite constituting 96% of all banks in the United States, community banks are treated as minor league, or even the little leagues of banking. Community banks don’t have the political protection, size, stature, fame, salaries or big league heavy hitters of Wall Street banks. But, you know, community banks, like little league ball parks are where families gather and grow together. It’s where people strive to nurture something good for their future, and future generations. They care about each other and how the future unfolds for one another. They dream together, plan together, work together, and succeed together. They also feel the pain of losses suffered by others. And in hard times, they help each other. In the big leagues, loyalties are fleeting, scandals rampant, integrity negotiable, behavior irresponsible and failures...simply stunning.
I am optimistic in these highly uncertain times. Optimistic, because we have a solid financial foundation, a stable non-interest income growth trend, a diminishing pace of expense inflation, and effective procedures to monitor, manage and most importantly, to avoid new credit problems. I am guarded in my optimism because many factors that influence our performance are outside local control. Now that mega-banks are sick, it is hard to predict what medicine will be shoved down the throat of community banks. Regardless of the political, economic and regulatory environment ahead, I am gratified to have a tremendous team of seasoned employees to meet our future challenges together. I would like to thank all of our Directors for their service to our Company. Thanks also to our employees, customers and shareholders, who have made this year possible for Home Financial Bancorp and Our Community Bank.

Kurt D. Rosenberger
President and Chief Executive Officer

Home Financial Bancorp’s common stock trades publicly
and is quoted under the
symbol "HWEN.PK" as a pink sheet stock.

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