<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ___________________ TO ________________
COMMISSION FILE NUMBER 0-26560
HARDIN BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1719104
- --------------------------------------------- -------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
2nd and Elm Streets, Hardin, Missouri 64035
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 398-4312
----------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
----
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES X . NO ___.
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
[X]
The registrant's revenues for the fiscal year ended March 31, 1996 were
$5.8 million.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the closing bid price of such stock on
the Nasdaq Small Cap Market as of March 31, 1996, was $11.7 million. (The
exclusion from such amount of the market value of the shares owned by any person
shall not be deemed an admission by the registrant that such person is an
affiliate of the registrant.)
As of March 31, 1996, there were issued and outstanding 1,058,000 shares of
the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and III of Form 10-KSB - Portions of the Annual Report to
Stockholders for the fiscal year ended March 31, 1996.
Part III of Form 10-KSB - Portions of the Proxy Statement for 1996 Annual
Meeting of Stockholders.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
GENERAL
Hardin Bancorp, Inc. ("Hardin Bancorp" and with its subsidiaries, the
"Company") was formed in June 1995 at the direction of Hardin Federal Savings
Bank ("Hardin Federal" or the "Bank") for the purpose of owning all of the
outstanding stock of the Bank issued upon the conversion of the Bank from the
mutual to stock form (the "Conversion"). On September 28, 1995, Hardin
Bancorp acquired all of the shares of the Bank in connection with the
completion of the Conversion. All references to the Company, unless otherwise
indicated, at or before September 28, 1995 refer to the Bank and its
subsidiary on a consolidated basis. The Company's common stock is quoted on
the Nasdaq Small Cap Market under the symbol "HFSA."
Hardin Federal is a federally chartered stock savings bank headquartered
in Hardin, Missouri. Hardin Federal was originally chartered under the laws
of the State of Missouri in 1914, converted to a federally chartered mutual
savings bank in March 1995 and consummated its conversion to a stock savings
bank on September 28, 1995. Its deposits are insured up to the maximum
allowable amount by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation (the "FDIC"). Through its main office
and two branch offices, Hardin Federal serves communities located in Ray and
Clay Counties, and in surrounding counties, in the State of Missouri. At
March 31, 1996, Hardin Federal had total assets of $83.4 million, deposits of
$66.6 million and total equity of $16.0 million.
Hardin Federal has been, and intends to continue to be, a community-
oriented financial institution offering selected financial services to meet
the needs of the communities it serves. The Bank attracts deposits from the
general public and historically has used such deposits, together with other
funds, primarily to originate one- to four-family residential mortgage loans.
The Bank also originates consumer loans, and, to a lesser extent,
construction and land loans and commercial real estate loans. See "- Lending
Activities." The Bank also invests in mortgage-backed securities, which are
insured or guaranteed by federal agencies, and other investment securities.
See "- Investment Activities."
The executive office of the Bank is located at 2nd and Elm Street,
Hardin, Missouri 64035. Its telephone number at that address is (816) 398-
4312.
MARKET AREA
Hardin Federal serves primarily Ray and Clay Counties, Missouri. The
Bank currently has three offices. Its main office and Richmond branch are
located in Ray County, Missouri and its Excelsior Springs branch is located
in Clay County, Missouri.
Ray and Clay Counties, Missouri are located approximately 40 miles east
of Kansas City, Missouri. Ray County, Missouri has a population of
approximately 22,000 and Clay County, Missouri has a population of
approximately 153,000. The major employers in the Bank's
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primary market area are engaged in agricultural, light industry, medical
services and education, and include Ford Motor Co., Orbseal, Inc., American
Italian Pasta Co., Ray County Memorial Hospital, Excelsior Springs Community
Hospital, and the Richmond R16 Public Schools.
LENDING ACTIVITIES
GENERAL. The Bank's loan portfolio consists primarily of conventional,
first mortgage loans secured by one- to four-family residences and, to a
lesser extent, consumer, construction, commercial business and land
acquisition loans. At March 31, 1996, the Bank's gross loans and mortgage-
backed securities outstanding totalled $70.1 million, of which $38.4 million
or 54.8% were one-to four-family residential mortgage loans. Of the one- to
four-family mortgage loans outstanding at that date, 48.3% were fixed-rate
loans, and 51.7% were adjustable-rate loans. At that same date, consumer
loans totalled $4.5 million or 6.5% of the Bank's total loan portfolio,
construction loans totalled $2.7 million or 3.7% of the Bank's total loan and
mortgage-backed securities portfolio, commercial real estate loans totalled
$184,000 or 0.26% of the Bank's total loan and mortgage-backed securities
portfolio and land acquisition loans totalled $123,000 or 0.17% of the Bank's
total loan and mortgage-backed securities portfolio.
The Bank also invests in mortgage-backed securities. At March 31, 1996,
mortgage-backed securities totalled $24.2 million. See "- Investment
Activities."
The Bank's loans-to-one borrower limit is generally limited to the
greater of 15% of unimpaired capital and surplus or $500,000. See
"Regulation - Federal Regulation of Savings Associations." At March 31,
1996, the maximum amount which the Bank could have lent under this limit to
any one borrower and the borrower's related entities was approximately $2.4
million. At March 31, 1996, the Bank had no loans or groups of loans to
related borrowers with outstanding balances in excess of this amount. The
Bank's largest lending relationship in loans to one borrower at March 31,
1996 was $827,080 secured by several one- to four-family real estate
dwellings located in Boone County, Missouri. At March 31, 1996, these loans
were performing in accordance with their terms.
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LOAN PORTFOLIO COMPOSITION. The following information sets forth the
composition of the Bank's loan portfolio (including mortgage-backed
securities) in dollar amounts and in percentages (before deductions for loans
in process, deferred fees and discounts and allowances for losses) at the
dates indicated.
<TABLE>
<CAPTION>
At March 31,
-----------------------------------------------------------
1996 1995 1994
---------------- ---------------- -------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
- ------------------
One- to four-family..................... $38,395 54.76% $28,969 46.66% $25,531 40.95%
Land.................................... 123 0.18 101 0.16 67 0.11
Commercial.............................. 184 0.26 157 0.25 220 0.35
Construction............................ 2,674 3.81 358 0.58 703 1.13
------- ------ ------- ------ ------- ------
Total real estate loans............. 41,376 59.01 29,585 47.65 26,521 42.54
------- ------ ------- ------ ------- ------
Consumer Loans:
- ---------------
Consumer Loans:
Secured by deposits.................... 678 0.96 628 1.01 796 1.28
Automobile............................. 1,316 1.88 1,098 1.77 726 1.16
Home equity............................ 1,535 2.19 1,158 1.87 971 1.56
Home improvement....................... 693 0.99 581 0.94 425 0.68
Other consumer loans................... 313 0.45 568 0.90 165 0.26
------- ------ ------- ------ ------- ------
Total consumer loans................ 4,535 6.47 4,033 6.49 3,083 4.94
------- ------ ------- ------ ------- ------
Total loans receivable.............. 45,911 65.48 33,618 54.14 29,604 47.48
------- ------ ------- ------ ------- ------
Mortgage-Backed Securities:
- ---------------------------
GNMA.................................... 2,142 3.05 2,476 3.99 2,201 3.53
FHLMC................................... 9,044 12.90 11,079 17.84 12,287 19.71
FNMA.................................... 13,020 18.57 14,918 24.03 18,255 29.28
------- ------ ------- ------ ------- ------
Total mortgage-backed securities.... 24,206 34.52 28,473 45.86 32,743 52.52
------- ------ ------- ------ ------- ------
Total loan and mortgage-backed
securities portfolio........ 70,117 100.00% 62,091 100.00% 62,347 100.00%
====== ====== ======
Less:
- ----
Loans in process......................... (766) (247) (335)
Deferred fees and discounts.............. 17 (22) (47)
Allowance for loan losses................ (131) (119) (117)
------- ------- -------
Total loan and mortgage-
backed securities portfolio, net.. $69,237 $61,703 $61,848
======= ======= =======
</TABLE>
4
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The following table shows the composition of the Bank's loan and
mortgage-backed securities portfolio by fixed- and adjustable-rate at the
dates indicated.
<TABLE>
<CAPTION>
At March 31,
-----------------------------------------------------------
1996 1995 1994
------------------ ----------------- -------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
- -----------------
Real estate:
One- to four-family................ $18,542 26.44% $12,308 19.82% $11,299 18.12%
Land............................... 86 .12 82 0.13 46 0.08
Commercial......................... 67 .10 44 0.07 61 0.10
Construction....................... 1,805 2.57 189 0.31 221 0.35
------- ------ ------- ------ ------- ------
Total real estate loans......... 20,500 29.23 12,623 20.33 11,627 18.65
Consumer............................. 4,442 6.34 4,027 6.49 3,076 4.94
Mortgage-backed securities........... 588 .84 350 0.56 426 0.68
------- ------ ------- ------ ------- ------
Total fixed-rate................ 25,530 36.41 17,000 27.38 15,129 24.27
------- ------ ------- ------ ------- ------
Adjustable-Rate Loans:
- ----------------------
Real estate:
One- to four-family................ 19,853 28.31 16,661 26.84 14,232 22.83
Land............................... 37 .05 19 0.03 21 0.03
Commercial......................... 117 .17 113 0.18 159 0.26
Construction....................... 869 1.24 169 0.27 482 0.77
------- ------ ------- ------ ------- ------
Total real estate loans......... 20,876 29.77 16,962 27.32 14,894 23.89
Consumer............................. 93 .14 6 0.01 7 0.01
Mortgage-backed securities........... 23,618 33.68 28,123 45.29 32,317 51.83
------- ------ ------- ------ ------- ------
Total adjustable rate........... 44,587 63.59 45,091 72.62 47,218 75.73
------- ------ ------- ------ ------- ------
Total loan and mortgage-backed
securities portfolio.......... 70,117 100.00% 62,091 100.00% 62,347 100.00%
====== ====== ======
Less:
- -----
Loans in process.................... (766) (247) (335)
Deferred loan fees and discounts.... 17 (22) (47)
Allowance for loan losses........... (131) (119) (117)
------- ------- -------
Total loans and mortgage-backed
securities portfolio, net...... $69,237 $61,703 $61,848
======= ======= =======
</TABLE>
5
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The following schedule illustrates the contractual maturity and weighted
average rates of the Bank's loan portfolio at March 31, 1996. Mortgages which
have adjustable or renegotiable interest rates are shown as maturing in the
period during which the contract is due. The schedule does not reflect the
effects of scheduled payments, possible prepayments or enforcement of due-on-
sale clauses.
<TABLE>
<CAPTION>
One-to Four-Family Construction Commercial Land
-------------------- -------------------- ---------------------- --------------------
Due During Weighted Weighted Weighted Weighted
Year Ending Average Average Average Average
March 31, Amount Rate Amount Rate Amount Rate Amount Rate
- ------------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997/(1)/.................... $ 9 7.89% $ 207 7.66% $ - --% $ - --%
1998......................... 103 9.09 -- -- 1 10.00 - --
1999......................... 153 8.42 -- -- - -- - --
2000 and 2001................ 316 9.17 -- -- 9 9.75 7 10.00
2002 to 2006................. 3,899 8.41 29 9.50 95 9.00 96 10.00
2006 to 2021................. 24,862 8.15 1,413 8.51 79 9.79 20 8.75
2022 and following........... 9,053 7.94 1,025 8.04 - -- - --
------- ------- ----- ------
$38,395 $ 2,674 $ 184 $ 123
======= ======= ===== ======
<CAPTION>
Consumer Total
---------------------- -------------------
Due During Weighted Weighted
Year Ending Average Average
March 31, Amount Rate Amount Rate
- ------------- ------ -------- ------ ----
<S> <C> <C> <C> <C>
1997/(1)/.................... $ 1,063 8.42% $ 1,279 8.29%
1998......................... 358 9.64 462 9.53
1999......................... 560 9.68 713 9.41
2000 and 2001................ 1,155 9.56 1,487 9.48
2002 to 2006................. 1,266 9.85 5,385 8.79
2006 to 2021................. 106 9.06 26,480 8.19
2022 and following........... 27 8.56 10,105 7.95
------ --------
$ 4,535 $ 45,911
====== ========
</TABLE>
_______________________
/(1)/The total amount of loans due after March 31, 1997 which have
predetermined interest rates is $23.7 million while the total amount of loans
due after such date which have floating or adjustable interest rates is $20.9
million.
6
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All of the Bank's lending is subject to its written underwriting standards
and loan origination procedures. Decisions on loan applications are made on the
basis of detailed applications and property valuations, if applicable.
Properties securing real estate loans made by Hardin Federal are generally
appraised by Board-approved independent appraisers. All appraisals are
subsequently reviewed by the Bank's Loan Committee, as applicable. In the loan
approval process, Hardin Federal assesses the borrower's ability to repay the
loan, the adequacy of the proposed security, the employment stability of the
borrower and the credit-worthiness of the borrower.
The Bank requires evidence of marketable title and lien position or
appropriate title insurance on all loans secured by real property. The Bank also
requires fire and extended coverage casualty insurance in amounts at least equal
to the lesser of the principal amount of the loan or the value of improvements
on the property, depending on the type of loan. As required by federal
regulations, the Bank also requires flood insurance to protect the property
securing its interest if such property is located in a designated flood area.
Management reserves the right to change the amount or type of lending in
which it engages to adjust to market or other factors.
ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LENDING. Residential loan
originations are generated by the Bank's marketing efforts, its present
customers, walk-in customers and referrals from real estate brokers. The Bank
has focused its lending efforts primarily on the origination of loans secured by
first mortgages on owner-occupied, single-family residences in its market area.
At March 31, 1996, the Bank's one- to four-family residential mortgage loans
totalled $38.4 million, or 54.8%, of the Bank's gross loan and mortgage-backed
securities portfolio. The Bank experienced significant growth in its one- to
four-family residential mortgage loan portfolio during the year ended March 31,
1996 as a result of increased demand for such loans within the Bank's market
area and increased purchases by the Bank of such loans. It is the Bank's policy
to purchase only those loans which meet its own underwriting criteria.
The Bank currently offers fixed-rate and adjustable-rate mortgage loans.
For the year ended March 31, 1996, the Bank originated $7.5 million of fixed-
rate loans or 89.5% of one-to four-family loans originated and $0.9 million of
adjustable-rate real estate loans or 10.5% of one- to four-family loans
originated, all of which were secured by one- to four-family residential real
estate. Substantially all of the Bank's one- to four-family residential mortgage
originations are secured by properties located in its market area.
The Bank offers adjustable-rate mortgage loans at rates and on terms
determined in accordance with market and competitive factors. The Bank currently
originates adjustable-rate mortgage loans with a term of up to 30 years. The
Bank currently offers one-year and three-year adjustable-rate mortgage loans
(where the terms are fixed for the first one-year and three-years, respectively,
and thereafter adjust every one or three years) with a stated interest rate
margin over the one and three year U.S. Treasury Index adjusted to a constant
maturity. Increases or decreases in the interest rate of the Bank's adjustable-
rate loans are generally limited to 1.0% at any adjustment date and 5.0% over
the life of the loan. As a consequence of using caps, the interest rates on
these loans may not be as rate sensitive as is the Bank's cost of funds.
Currently, all adjustable-rate mortgage loans originated provide for a minimum
interest rate.
7
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The Bank qualifies borrowers for adjustable-rate loans based on a current
interest rate plus the first adjustment. As a result, the risk of default on
these loans may increase as interest rates increase. See "- Asset Quality -Non-
Performing Assets." At March 31, 1996, the total balance of one-to four-family
adjustable-rate loans was $19.9 million or 28.3% of the Bank's gross loan and
mortgage-backed securities portfolio. See "-Originations, Purchases and Sales of
Loans."
Adjustable-rate loans decrease the risk associated with changes in interest
rates but involve other risks, primarily because as interest rates rise, the
payment by the borrowers may rise to the extent permitted by the terms of the
loan, thereby increasing the potential for default. Also, adjustable-rate loans
have features which restrict changes in interest rates on a short-term basis and
over the life of the loan. At the same time, the market value of the underlying
property may be adversely affected by higher interest rates.
The Bank also offers fixed-rate mortgage loans with maturities of up to 30
years. At March 31, 1996, the total balance of one- to four-family fixed-rate
loans was $18.5 million or 26.4% of the Bank's gross loan and mortgage-backed
securities portfolio. See "- Originations, Purchases and Sales of Loans."
Hardin Federal will lend up to 95% of the lesser of the sales price or
appraised value of the security property on owner occupied one- to four-family
loans, provided that private mortgage insurance is obtained in an amount
sufficient to reduce the Bank's exposure to not more than 80% of the appraised
value or sales price, as applicable. Residential loans do not include prepayment
penalties, are non-assumable (other than government-insured or guaranteed
loans), and do not produce negative amortization. Real estate loans originated
by the Bank customarily contain a "due on sale" clause allowing the Bank to
declare the unpaid principal balance due and payable upon the sale of the
security property.
The loans currently originated by the Bank are underwritten and documented
pursuant to the guidelines of the FHLMC. Under current policy, the Bank
originates these loans for its portfolio. See "- Originations, Purchases and
Sales of Loans and Mortgage-Backed Securities."
CONSUMER LENDING. Hardin Federal offers a variety of consumer loans,
including home equity lines of credit, automobile, home improvement, and loans
secured by deposits. The Bank currently originates substantially all of its
consumer loans in its primary market area generally to its existing customers.
At March 31, 1996, the Bank's consumer loan portfolio totalled $4.5 million, or
6.5% of its gross loan and mortgage-backed securities portfolio.
Hardin Federal originates home equity and home improvement loans. Home
equity and home improvement loans secured by second mortgages, together with
loans secured by all prior liens, are generally limited to 80% or less of the
appraised value. If the Bank originates loans with greater than an 80% loan-to-
value ratio, it requires the borrower to obtain private mortgage insurance in an
amount equal to 100% of the loan-to-value ratio. Generally, such loans have a
maximum term of up to 10 years. As of March 31, 1996, home equity and home
improvement loans amounted to $1.5 million and $693,000, respectively, which
represented 2.19% and 0.99%, respectively, of the Bank's gross loan and
mortgage-backed securities portfolio.
8
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The Bank also recently began originating equity lines of credit. These
loans are generally limited to 80% or less of the appraised value of the
property securing the loan. If the Bank originates loans with greater than an
80% loan-to-value ratio, it requires the borrower to obtain private mortgage
insurance in an amount equal to 100% of the loan-to-value ratio. These loans are
all adjustable-rate loans and have maximum terms of up to 20 years.
Another component of the Bank's consumer loan portfolio consists of
automobile loans. The Bank originates automobile loans on a direct basis, where
the Bank extends credit directly to the borrower. These loans generally have
terms that do not exceed five years and carry a fixed-rate of interest.
Generally, loans on new vehicles are made in amounts up to 80% of dealer cost
and loans on used vehicles are made in amounts up to its published value, less
certain adjustments. At March 31, 1996, the Bank's automobile loans totalled
$1.3 million or 1.88% of the Bank's gross loan and mortgage-backed securities
portfolio.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by the Bank for consumer loans include an application, a
determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. Although creditworthiness of the applicant is a primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, such as automobiles. Further, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At March 31, 1996, none of the Bank's consumer loans were non-
performing. See "- Non-Performing Assets and Classified Assets." There can be no
assurances, however, that delinquencies will not occur in the future.
CONSTRUCTION LENDING. At March 31, 1996, the Bank had $2.7 million of
construction loans. Hardin Federal offers loans to both builders and individuals
for the construction of one-to four-family residences. Currently, such loans are
offered with fixed- or adjustable-rates of interest. At March 31, 1996, the Bank
had $1.8 million and $869,000 of fixed-rate and adjustable-rate construction
loans, respectively, which represented 2.57% and 1.24%, respectively, of the
Bank's gross loan and mortgage-backed securities portfolio. During the year
ended March 31, 1996, the Bank purchased $1.2 million of construction loans.
These loans are secured by small multi-family dwelling units, a strip mall and a
residential care facility. The Bank will purchase only those construction loans
which are underwritten under guidelines which are as stringent as those employed
by the Bank when it originates a construction loan. Following the construction
period, these loans may become permanent loans, with terms for up to 30 years.
At March 31, 1996, none of these loans was non-performing.
9
<PAGE>
Construction lending is generally considered to involve a higher level of
credit risk than one- to four-family residential lending since the risk of loss
on construction loans is dependent largely upon the accuracy of the initial
estimate of the individual property's value upon completion of the project and
the estimated cost (including interest) of the project. If the cost estimate
proves to be inaccurate, the Bank may be required to advance funds beyond the
amount originally committed to permit completion of the project.
COMMERCIAL REAL ESTATE LENDING. The Bank also originates commercial real
estate loans. At March 31, 1996 approximately $184,000, or 0.26% of the Bank's
gross loan and mortgage-backed securities portfolio, was comprised of commercial
real estate loans of which none was non-performing at that date. The largest
commercial real estate loan is a permanent loan on an office building in Ray
County, Missouri.
In underwriting these loans, the Bank currently analyzes the financial
condition of the borrower, the borrower's credit history, and the reliability
and predictability of the cash flow generated by the property securing the loan.
The Bank generally requires personal guaranties of the borrowers. Appraisals on
properties securing commercial real estate loans originated by the Bank are to
the extent required by federal regulations performed by independent appraisers.
Commercial real estate loans generally present a higher level of risk than
loans secured by one- to four-family residences. This greater risk is due to
several factors, including the concentration of principal in a limited number of
loans and borrowers, the effect of general economic conditions on income
producing properties and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by commercial
real estate is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the project is reduced (for example,
if leases are not obtained or renewed, or a bankruptcy court modifies a lease
term, or a major tenant is unable to fulfill its lease obligations), the
borrower's ability to repay the loan may be impaired.
ORIGINATIONS, PURCHASES AND SALES OF LOANS
Loan originations are developed from continuing business with depositors
and borrowers, soliciting realtors, builders, walk-in customers and third-party
sources.
While the Bank originates both adjustable-rate and fixed-rate loans, its
ability to originate loans to a certain extent is dependent upon the relative
customer demand for loans in its market, which is affected by the interest rate
environment, among other factors. For the year ended March 31, 1996, the Bank
originated $12.8 million in fixed-rate loans and $1.1 million in adjustable rate
loans.
The Bank from time-to-time sells fixed rate loan originations as part of
its asset/liabilities management policies. The Bank generally followed a policy
of selling its fixed-rate loan originations during fiscal 1994. In early fiscal
1995, the Bank changed its policy to retain fixed-rate loan originations in
portfolio. The Bank's Board of Directors has adopted an informal policy which is
subject to change from time-to-time, of retaining fixed-rate loans in order to
increase the overall level of fixed-rate loans in its portfolio up to 40% of
total loans receivable. At March 31, 1996, fixed-rate loans comprised 36.41% of
gross loan and mortgage-backed
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<PAGE>
securities portfolio. Reflecting these policies, during the fiscal years ended
March 31, 1996, 1995 and 1994, the Bank sold $0, $234,000, and $4.9 million,
respectively, of one- to four-family fixed-rate real estate loans. Sales of
these loans generally are beneficial to the Bank since these sales produce
future servicing income, provide funds for additional lending and other
investments and increase liquidity.
During fiscal year 1996, the Bank purchased $7.5 million of real estate
loans originated by other lenders all of which were secured by properties
located in Missouri. At March 31, 1996, none of these loans was included in the
Bank's non-performing assets. See "- Non-Performing Assets and Classified
Assets." As part of the Bank's effort to increase the size of its loan
portfolio, management anticipates that loan purchases may increase in the
future. It is presently anticipated that such purchases would consist primarily
of loans secured by one-to four-family residences located in the State of
Missouri. The Bank employs the same underwriting standards for purchased loans
as for loans originated by the Bank.
In addition, the Bank purchases mortgage-backed securities, consistent with
its asset/liability management objectives to complement its mortgage lending
activities. The Board believes that the slightly lower yield carried by
mortgage-backed securities is somewhat offset by the lower level of credit risk
and the lower level of overhead required in connection with these assets, as
compared to one- to four-family, non-residential and other types of loans. See
"- Investment Securities--Mortgage-backed Securities."
Loan originations during the year ended March 31, 1996 were substantially
greater than the comparable period in the prior year. The Bank believes the
increase was due to an increased emphasis on the origination of loans and
increased loan demand within the Bank's market area, plus the availability of
lower fixed-rate interest on long-term loans.
11
<PAGE>
The following table shows the loan and mortgage-backed securities
origination, purchase, sale and repayment activities of the Bank for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Originations by type:
- --------------------
Adjustable rate:
One- to four-family................... $ 886 $ 4,746 $ 3,070
Land.................................. 20 -- --
Commercial............................ -- -- --
Construction.......................... 229 -- --
Consumer.............................. -- -- --
------- ------- -------
Total adjustable-rate.......... 1,135 4,746 3,070
------- ------- -------
Fixed rate:.............................
One- to four-family................... 7,406 2,325 9,549
Land.................................. 11 49 6
Commercial............................ -- -- --
Construction.......................... 1,502 273 258
Consumer.............................. 3,864 4,055 3,008
------- ------- -------
Total fixed-rate............... 12,783 6,702 12,821
------- ------- -------
Total loans originated......... 13,918 11,448 15,891
------- ------- -------
........................................
Purchases:..............................
- ---------
One- to four-family................... 5,810 789 --
Five or more.......................... 491 -- --
Commercial............................ 640 -- --
Mortgage-backed securities - at cost.. 523 1,276 6,080
------- ------- -------
Total purchased................ 7,464 2,065 6,080
------- ------- -------
Sales and Repayments:
- --------------------
One- to four-family................... -- 234 4,862
Mortgage-backed securities sold - at
amortized cost...................... -- -- 700
------- ------- -------
Total sales.................... -- 234 5,562
------- ------- -------
Principal repayments.................. 13,356 13,535 17,395
------- ------- -------
Total sales and repayments..... 13,356 13,769 22,957
------- ------- -------
Decrease (increase) in other items:
Loans in process...................... (519) 88 42
Deferred fees and discounts........... 39 25 58
Allowance for loan losses............. (12) (2) (24)
------- ------- -------
Net increase (decrease)........ $ 7,534 $ (145) $ (910)
======= ======= =======
</TABLE>
12
<PAGE>
ASSET QUALITY
GENERAL. When a borrower fails to make a required payment on a loan, the
Bank attempts to cause the delinquency to be cured by contacting the borrower.
In the case of loans secured by real estate, reminder notices are sent to
borrowers. If payment is late, appropriate late charges are assessed and a
notice of late charges is sent to the borrower. If the loan is in excess of 90
days delinquent, the loan will be referred to the Bank's legal counsel for
collection. In all cases, if the Bank believes that its collateral is at risk
and added delay would place the collectibility of the balance of the loan in
further question, management may refer loans for collection even sooner than the
90 days described above.
When a loan becomes more than 90 days delinquent, the Bank will place the
loan on non-accrual status and previously accrued interest income on the loan is
charged against current income. The loan will remain on a non-accrual status as
long as the loan is more than 90 days delinquent.
Delinquent consumer loans are handled in a similar manner as to those
described above; however, shorter time frames for each step apply due to the
type of collateral generally associated with such types of loans. The Bank's
procedures for repossession and sale of consumer collateral are subject to
various requirements under Missouri and federal consumer protection laws.
The following table sets forth the Bank's loan delinquencies by type, by
amount and by percentage of type at March 31, 1996. The amounts presented in the
table below represent the total remaining principal balances of the loans,
rather than the actual payment amounts which are overdue.
<TABLE>
<CAPTION>
Loans Delinquent For
------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
------------------------- --------------------------- --------------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ --------- ------ ------ ----------- -------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family.. 3 $76 0.20% 2 $122 0.32% 5 $198 0.52%
Land................. -- -- -- -- -- -- -- -- --
Commercial........... -- -- -- -- -- -- -- -- --
Construction......... -- -- -- -- -- -- -- -- --
Consumer............... 1 6 0.13 -- -- -- 1 6 0.13
------ ------ -------- ------ ------ ---------- -------- ----------- --------
Total............. 4 $82 0.33% 2 $122 0.32% 6 $204 0.65%
====== ====== ======== ====== ====== ========== ======== =========== ========
</TABLE>
13
<PAGE>
NON-PERFORMING ASSETS. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. Loans are
placed on non-accrual status when the collection of principal and/or interest
become doubtful. For all years presented, the Bank has had no troubled debt
restructurings (which involve forgiving a portion of interest or principal on
any loans or making loans at a rate materially less than that of market rates).
Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------
1996 1995 1994
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Non-accruing loans:
One- to four-family....................... $ 93 $ 109 $ 96
Land...................................... -- -- --
Commercial................................ -- -- --
Construction.............................. -- -- --
Consumer.................................. -- -- --
----- ----- -----
Total.................................. 93 109 96
----- ----- -----
Accruing loans delinquent 90 days or more:
One- to four-family....................... 29 59 75
Land...................................... -- -- --
Commercial................................ -- -- --
Construction.............................. -- -- --
Consumer.................................. -- -- --
----- ----- -----
Total.................................. 29 59 75
----- ----- -----
Foreclosed assets:
One- to four-family....................... -- -- 11
Land...................................... -- -- --
Commercial................................ -- -- --
Construction.............................. -- -- --
Consumer.................................. 2 -- --
----- ----- -----
Total.................................. 2 -- 11
----- ----- -----
Total non-performing assets................. $ 124 $ 168 $ 182
===== ===== =====
Total classified assets..................... $ 412 $ 480 $ 434
===== ===== =====
Total non-performing assets as a
percentage of total assets................ 0.15% 0.22% 0.24%
===== ===== =====
Total non-performing loans as a
percentage of total loans receivable...... 0.29% 0.50% 0.58%
===== ===== =====
</TABLE>
For the year ended March 31, 1996 gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms amounted to $11,000. The amount that was included in interest
income on such loans was $11,000 for the year ended March 31, 1996.
14
<PAGE>
CLASSIFIED ASSETS. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities, considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full" on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for losses in an amount deemed
prudent by management. General allowances represent loss allowances which have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When an insured institution classifies problem assets
as "loss," it is required either to establish a specific allowance for losses
equal to 100% of that portion of the asset so classified or to charge-off such
amount. An institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the
regulatory authorities, who may order the establishment of additional general or
specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank regularly reviews
loans in its portfolio to determine whether such assets require classification
in accordance with applicable regulations. On the basis of management's review
of its assets, at March 31, 1996, the Bank had classified a total of $412,000 of
its assets as substandard, $0 as doubtful, and $0 as loss. At March 31, 1996,
total classified assets comprised $412,000, or 2.6% of the Bank's capital, or
0.5% of the Bank's total assets.
OTHER LOANS OF CONCERN. In addition to the non-performing and classified
loans set forth in the tables above, as of March 31, 1996, there were no other
loans classified by the Bank with respect to which known information about the
possible credit problems of the borrowers or the cash flows of the security
properties have caused management to have some doubts as to the ability of the
borrowers to comply with present loan repayment terms and which may result in
the future inclusion of such items in the non-performing asset categories.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity, including those loans which are being specifically monitored by
management. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, the amount of
loans outstanding and other factors that warrant recognition in providing for an
adequate loan loss allowance.
15
<PAGE>
Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value minus estimated cost to sell. If fair value at the
date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time of
transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations. At March 31, 1996, the Bank had no real estate properties
acquired through foreclosure.
Although management believes that it uses the best information available to
determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Bank's allowance for loan losses will be
the result of periodic loan, property and collateral reviews and thus cannot be
predicted in advance. In addition, federal regulatory agencies, as an integral
part of the examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to increase the allowance based
upon their judgment of the information available to them at the time of their
examination. At March 31, 1996, the Bank had a total allowance for loan losses
of $131,000, representing 107% of total non-performing loans and 0.29% of the
Bank's loans, net. See Note 5 of the Notes to Consolidated Financial Statements.
16
<PAGE>
The distribution of the Bank's allowance for loan losses at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- ------------------------------ ------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- --------- --------- -------- --------- --------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
One- to four-family.. $ 71 $38,395 83.63% $ 61 $ 28,969 86.17% $ 48 $ 25,531 86.24%
Land................. 1 123 0.27 1 101 0.30 1 67 0.23
Commercial........... 2 184 0.40 2 157 0.47 2 220 0.74
Construction......... 3 2,674 5.82 4 358 1.06 7 703 2.37
Consumer............... 19 4,535 9.88 22 4,033 12.00 12 3,083 10.42
Unallocated............ 35 -- -- 29 -- -- 47 -- --
------ ------- ------ ------ -------- ------- ------- -------- ------
Total........... $ 131 $45,911 100.00% $ 119 $ 33,618 100.00% $ 117 $ 29,604 100.00%
====== ======= ====== ====== ======== ====== ======= ======== ======
</TABLE>
The portion of the allowance to each loan category does not necessarily
represent the total available for losses within that category since the total
allowance is applicable to the entire loan portfolio.
17
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------
1996 1995 1994
--------- -------- ---------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of period.................... $ 119 $ 117 $ 93
Charge-offs:
-----------
One- to four-family............................. -- (23) (4)
Land............................................ -- -- --
Commercial...................................... -- -- --
Construction.................................... -- -- --
Consumer........................................ (2) -- --
------- ------- -------
(2) (23) (4)
------- ------- -------
Recoveries:
----------
One- to four-family............................. -- 25 2
Land............................................ -- -- --
Commercial...................................... -- -- --
Construction.................................... -- -- --
Consumer........................................ -- -- --
------- ------- -------
-- 25 2
------- ------- -------
Net recoveries (charge-offs)...................... (2) 2 (2)
Additions charged to operations................... 14 -- 26
------- ------- -------
Balance at end of period.......................... $ 131 $ 119 $ 117
======= ======= =======
Ratio of net recoveries (charge-offs) during the
period to average loans outstanding during the
period........................................... --% 0.01% (0.01)%
======= ======= =======
Ratio of net recoveries (charge-offs) during
the period to average non-performing assets...... (1.43)% .90% (1.10)%
======= ======= =======
</TABLE>
INVESTMENT ACTIVITIES
GENERAL. Hardin Federal must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Bank has
generally maintained liquid assets at levels above the minimum requirements
imposed by the OTS regulations and at levels believed adequate to meet the
requirements of normal operations, including repayments of maturing debt and
potential deposit outflows. Cash flows projections are regularly reviewed and
updated to assure that adequate liquidity is maintained. At March 31, 1996, the
Bank's liquidity ratio (liquid assets as a percentage of net withdrawable
savings deposits and current borrowings) was 7.74%. See "Regulation--Liquidity."
18
<PAGE>
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Bank, as established by the Board
of Directors, is to invest funds among various categories of investments and
maturities based upon the Bank's liquidity needs, asset/liability management
policies, investment quality, marketability and performance objectives.
MORTGAGE-BACKED SECURITIES. The Bank purchases mortgage-backed securities
to supplement residential loan production and as part of its asset/liability
strategy. The type of securities purchased is based upon the Bank's
asset/liability management strategy and balance sheet objectives. For instance,
substantially all of the mortgage-backed investments purchased by the Bank over
the last several years have had adjustable rates of interest. The Bank has
invested primarily in federal agency securities, principally Federal Home Loan
Mortgage Corporation ("FHLMC"), Government National Mortgage Association
("GNMA") and Fannie Mae ("FNMA") obligations. At March 31, 1996, the Bank's
investment in mortgage-backed securities totalled $24.2 million or 29.0% of its
total assets.
During the fiscal year ended March 31, 1996, the Bank transferred $8.1
million of mortgage-backed securities from its held-to-maturity account to its
available-for-sale account. These securities are reported at fair market value,
with unrealized gains and losses excluded from earnings but reported as a
separate component of stockholders' equity. The balance of the Bank's mortgage-
backed securities, or $16.3 million, are reported at amortized cost and are
retained in the Bank's held-to-maturity account. During the fiscal year ended
March 31,1 996, the Bank did not sell any of its mortgage-backed securities. See
Notes 1 and 4 of the Notes to Consolidated Financial Statements.
The FNMA, FHLMC and GNMA certificates are modified pass-through mortgage-
backed securities that represent undivided interests in underlying pools of
fixed-rate, or certain types of adjustable-rate, single-family residential
mortgages issued by these government-sponsored entities. As a result, the
interest rate risk characteristics of the underlying pool of mortgages, i.e.,
fixed rate or adjustable rate, as well as prepayment risk, are passed on to the
certificate holder. FNMA and FHLMC provide the certificate holder a guarantee of
timely payments of interest and ultimate collection of principal, whether or not
they have been collected. GNMA's guarantee to the holder of timely payments of
principal and interest is backed by the full faith and credit of the U.S.
government.
Mortgage-backed securities generally yield less than the loans that
underlie such securities, because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
obligations of the Bank. In general, mortgage-backed securities issued or
guaranteed by FNMA and FHLMC are weighted at no more than 20% for risk-based
19
<PAGE>
capital purposes, and mortgage-backed securities issued or guaranteed by GNMA
are weighted at 0% for risk-based capital purposes, compared to an assigned risk
weighting of 50% to 100% for whole residential mortgage loans. These types of
securities thus allow the Bank to optimize regulatory capital to a greater
extent than non-securitized whole loans.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value, of such
securities.
The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at March 31, 1996.
<TABLE>
<CAPTION>
At
March 31,
Due in 1996
------------------------------------------------------
6 Months 1 to 3 to 10 10 to 20 Over 20 Balance
or Less 3 Years Years Years Years Outstanding
---------- ------- ------- -------- ------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Government National
Mortgage Association... $ -- $ -- $ -- $ -- $ 2,142 $ 2,142
Federal Home Loan
Mortgage Corporation... 157 -- 423 356 8,108 9,044
Federal National
Mortgage Corporation... -- -- 395 1,028 11,597 13,020
-------- ------ -------- -------- --------- ---------
Total................. $ 157 $ -- $ 818 $ 1,384 $ 21,847 $ 24,206
======== ====== ======== ======== ========= =========
</TABLE>
INVESTMENT SECURITIES. At March 31, 1996, the Bank's investment securities
(including a $742,000 investment in the common stock of the FHLB of Des Moines)
totalled $7.1 million, or 8.52% of its total assets. It is the Bank's general
policy to purchase U.S. Government securities and federal agency obligations and
other investment securities. See Note 3 of the Notes to Consolidated Financial
Statements.
OTS regulations restrict investments in corporate debt and equity
securities by the Bank. These restrictions include prohibitions against
investments in the debt securities of any one issuer in excess of 15% of the
Bank's unimpaired capital and unimpaired surplus as defined by federal
regulations, which totalled $1.6 million as of March 31, 1996, plus an
additional 10% if the investments are fully secured by readily marketable
collateral. At March 31, 1996, the Bank was in compliance with this regulation.
See "Regulation - Federal Regulation of Savings Associations" for a discussion
of additional restrictions on the Bank's investment activities.
20
<PAGE>
The following table sets forth the composition of the Bank's investment and
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------------------------------------
1996 1995 1994
--------------------- ---------------------- ------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
-------- ------ ------ ------- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:/(1)/
- ---------------------
U.S. government securities............ $ -- --% $ 3,667 28.67% $ 4,898 48.28%
Federal agency obligations............ 6,363 50.76 4,093 31.99 1,700 16.76
------- ------ ------- ------- ------- -------
Subtotal......................... 7,760 60.66 6,598 65.04
FHLB stock............................ 742 5.92 727 5.68 727 7.16
------- ------ ------- ------- ------- -------
Total investment securities
and FHLB stock.................. $ 7,105 56.68% $ 8,487 66.34% $ 7,325 72.20%
======= ====== ======= ======= ======= =======
Average remaining life of investment
securities excluding FHLB stock...... 4 years 2 years 2 years
Other interest-earning assets:
- -----------------------------
Interest-bearing deposits............. $ 5,430 43.32% $ 4,306 33.66% $ 2,820 27.80%
Total Investment Portfolio............ $12,535 100.00% $12,793 100.00% $10,145 100.00%
======= ==== ======= ==== ======= ====
</TABLE>
______________________
/(1)/ The Bank adopted SFAS No. 115 on April 1, 1994. Investment
securities with an original maturity of less than 5 years are classified as
available-for-sale and are valued at fair value at March 31, 1996 and 1995. At
March 31, 1994, investment securities are reflected at amortized cost.
The composition and maturities of the investment securities portfolio,
excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
At March 31, 1996
------------------------------------------------
Less Than 1 to 5 Investment
1 Year Years Securities
---------- ---------- --------------
Book Value Book Value Market Value(1)
---------- ---------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C>
U.S. Government securities... $ -- $ -- $ --
Federal agency obligations... 2,496 3,867 6,363
---------- ----------- -----------
Total investment securities.. $ 2,496 $ 3,867 $ 6,363
========== =========== ===========
Weighted average yield....... 5.18% 5.95% 5.45%
</TABLE>
______________________
/(1)/ Due to the adoption of SFAS No. 115, all securities are held at
market value.
21
<PAGE>
The Bank's investment securities portfolio at March 31, 1996, contained
neither tax-exempt securities nor securities of any issuer with an aggregate
book value in excess of 10% of the Bank's retained earnings, excluding those
issued by the U.S. government, or its agencies.
Hardin Federal's investments, including the mortgage-backed and related
securities portfolio, are managed in accordance with a written investment
policy adopted by the Board of Directors.
OTS guidelines regarding investment portfolio policy and accounting require
insured institutions to categorize securities and certain other assets as held
for "investment," "sale," or "trading." In addition, effective April 1, 1994,
the Bank adopted SFAS 115 which states that securities available for sale are
accounted for at fair value and securities which management has the intent and
the Bank has the ability to hold to maturity are accounted for on an amortized
cost basis. The Bank's investment policy has strategies for each type of
security. At March 31, 1996, the Bank had $16.3 million in mortgage-backed
securities held to maturity and investment securities with maturities of less
than five years available for sale with a fair value of $6.4 million. See Note 3
of the Notes to the Consolidated Financial Statements.
SOURCES OF FUNDS
GENERAL. The Bank's primary sources of funds are deposits, receipt of
principal and interest on loans and securities, interest-earning deposits with
other banks, FHLB advances, and other funds provided from operations.
FHLB advances are used to support lending activities and to assist in the
Bank's asset/liability management strategy. Typically, the Bank does not use
other forms of borrowings. At March 31, 1996, the Bank had total FHLB advances
of $0 million with the capacity to borrow an additional $14.8 million. See "-
Borrowings" and Note 8 of the Notes to Consolidated Financial Statements.
DEPOSITS. Hardin Federal offers a variety of deposit accounts having a
wide range of interest rates and terms. The Bank's deposits consist of passbook,
commercial demand, NOW, money market deposit and certificate accounts. The
certificate accounts currently range in terms from 90 days to four years.
The Bank relies primarily on advertising, competitive pricing policies
and customer service to attract and retain these deposits. Currently, Hardin
Federal solicits deposits from its market area only, and does not use brokers
to obtain deposits. The flow of deposits is influenced significantly by
general economic conditions, changes in money market and prevailing interest
rates and competition.
The Bank has become more susceptible to short-term fluctuations in deposit
flows as customers have become more interest rate conscious. The Bank endeavors
to manage the pricing of its deposits in keeping with its profitability
objectives giving consideration to its asset/liability management. The ability
of the Bank to attract and maintain savings accounts and certificates of
deposit, and the rates paid on these deposits, has been and will continue to be
significantly affected by market conditions.
22
<PAGE>
The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Opening balance........................ $67,449 $66,722 $67,476
Deposits............................... 89,906 59,441 47,689
Withdrawals............................ 94,205 61,523 51,108
Interest credited...................... 3,455 2,809 2,665
------- ------- -------
Ending balance......................... $66,605 $67,449 $66,722
======= ======= =======
Net increase (decrease)................ $ (844) $ 727 $ (754)
======= ======= =======
Percent increase (decrease)............ (1.25)% 1.09% (1.12)%
======= ======= =======
</TABLE>
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Bank for the periods indicated.
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------------------------------------
1996 1995 1994
--------------------- ----------------------- -----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
---------- --------- ---------- ----------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:/(1)/
- ---------------------------------
Commercial Demand.................................... $ 165 0.25% $ 126 0.19% $ 87 0.13%
Passbook Accounts.................................... 3,675 5.51 3,958 5.87 4,773 7.15
NOW Accounts......................................... 1,825 2.74 1,986 2.94 1,932 2.89
Money Market......................................... 4,053 6.08 4,115 6.09 6,147 9.21
------- ------- ------- ------- ------- ------
Total Non-Certificates............................... 9,718 14.58 10,185 15.09 12,939 19.38
------- ------- ------- ------- ------- ------
Certificates:
- ------------
2.00 - 3.99%........................................ 110 0.17 3,949 5.85 28,695 42.99
4.00 - 5.99%........................................ 36,980 55.50 36,487 54.07 20,817 31.18
6.00 - 7.99%........................................ 19,414 29.13 15,810 23.43 2,744 4.11
8.00 - 9.99%........................................ 383 0.57 1,018 1.51 1,527 2.29
------- ------- ------- ------- ------- ------
Total Certificates................................... 56,887 85.37 57,264 84.86 53,783 80.57
Accrued interest payable............................. 30 0.05 32 0.05 32 0.05
------- ------- ------- ------- ------- ------
Total deposits and accrued interest payable.......... $66,635 100.00% $67,481 100.00% $66,754 100.00%
======= ======= ======= ======= ======= ======
</TABLE>
________________________
/(1)/ See Note 7 of the Notes to Consolidated Financial Statements.
23
<PAGE>
The following tables shows rate and maturity information for the Bank's
certificates of deposit as of March 31, 1996.
<TABLE>
<CAPTION>
2.00- 4.00- 6.00- 8.00- Percent
3.99% 5.99% 7.99% 9.99% Total of Total
----- ----- ----- ----- ----- --------
(Dollars in Thousands)
Certificate accounts maturing
in quarter ending:
- -----------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1996........................................ $ 110 $ 9,007 $10,067 $ 78 $19,262 33.86%
September 30, 1996................................... -- 8,846 220 120 9,186 16.15
December 31, 1996.................................... -- 7,608 930 175 8,713 15.32
March 31, 1997....................................... -- 4,504 329 3 4,836 8.50
June 30, 1997........................................ -- 1,113 13 -- 1,126 1.98
September 30, 1997................................... -- 2,636 444 -- 3,080 5.41
December 31, 1997.................................... -- 605 252 -- 857 1.51
March 31, 1998....................................... -- 1,043 85 -- 1,128 1.98
June 30, 1998........................................ -- 613 27 -- 640 1.13
September 30, 1998................................... -- 464 27 -- 491 0.86
December 31, 1998.................................... -- 97 16 2 115 0.20
March 31, 1999....................................... -- 39 656 -- 695 1.22
Thereafter........................................... -- 405 6,348 5 6,758 11.88
------- ------- ------- ------- ------- ------
Total............................................. $ 110 $36,980 $19,414 $ 383 $56,887 100.00%
======= ======= ======= ======= ======= ======
Percent of total.................................. 0.19% 65.01% 34.13% 0.67% 100.00%
======= ======= ======= ======= =======
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of March 31,
1996.
<TABLE>
<CAPTION>
Maturity
---------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------- ------ ------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000............ $17,618 $8,733 $12,587 $13,697 $52,635
Certificates of deposit of $100,000 or more........... 1,556 414 800 1,043 3,813
Public funds /(1)/.................................... 88 39 162 150 439
------- ------ ------- ------- -------
Total certificates of deposit......................... $19,262 $9,186 $13,549 $14,890 $56,887
======= ====== ======= ======= =======
</TABLE>
__________________________
/(1)/ Deposits from governmental and other public entities, including
deposits greater than $100,000.
BORROWINGS. Hardin Federal's borrowings historically have consisted of
advances from the FHLB of Des Moines. Such advances may be made pursuant to
different credit programs, each of which has its own interest rate and range
of maturities. Federal law limits an institution's borrowings from the FHLB
to 20 times the amount paid for capital stock in the
24
<PAGE>
FHLB, subject to regulatory collateral requirements. At March 31, 1996, the
Bank had $742,000 of FHLB of Des Moines stock. The Bank has the ability to
purchase additional capital stock from the FHLB. For additional information
regarding the term to maturity and average rate paid on FHLB advances, see
Note 8 of the Notes to Consolidated Financial Statements and "- Lending
Activities."
The following table sets forth the maximum month-end balance and average
balance of FHLB advances.
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------
1996 1995 1994
------ ----- -----
(In Thousands)
<S> <C> <C> <C>
Maximum Balance:
- ---------------
FHLB advances.......... $1,500 $2,500 $ --
Average Balance:
- ---------------
FHLB advances.......... $ 208 $ 654 $ 60
</TABLE>
SERVICE CORPORATION ACTIVITIES
As a federally chartered savings bank, Hardin Federal is permitted by OTS
regulations to invest up to 2% of its assets, or approximately $1.7 million at
March 31, 1996, in the stock of, or loans to, service corporation subsidiaries.
Hardin Federal may invest an additional 1% of its assets in service corporations
where such additional funds are used for inner-city or community development
purposes and up to 50% of its total capital in conforming loans to service
corporations in which it owns more than 10% of the capital stock. In addition to
investments in service corporations, federal associations are permitted to
invest an unlimited amount in operating subsidiaries engaged solely in
activities in which a federal association may engage. At March 31, 1996, Hardin
Federal had one subsidiary, Hardin Savings Service Corporation ("HSSC"). HSSC
was established in 1993 for the purpose of offering credit life, disability and
accident insurance to its customers. At March 31, 1996, the Bank's investment in
HSSC was $18,000. For the year ended March 31, 1996, HSSC had pre-tax income of
approximately $9,000.
REGULATION
GENERAL
Hardin Federal is a federally chartered savings bank, the deposits of which
are federally insured and backed by the full faith and credit of the United
States Government. Accordingly, the Bank is subject to broad federal regulation
and oversight extending to all its operations. The Bank is a member of the FHLB
of Des Moines and is subject to certain limited regulation by the Federal
Reserve Board. As the savings and loan holding company of the Bank, the
25
<PAGE>
Company also is subject to federal regulation and oversight. The purpose of the
regulation of the Company and other holding companies is to protect subsidiary
savings associations. The Bank is a member of the SAIF. The deposits of the Bank
are insured by the SAIF of the FDIC. As a result, the FDIC has certain
regulatory and examination authority over the Bank.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
The OTS has extensive authority over the operations of savings
associations. As part of this authority, the Bank is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS and the
FDIC. The last regular OTS and FDIC examinations of the Bank were as of October
1995 and February 1996, respectively. When these examinations are conducted by
the OTS and the FDIC, the examiners may require the Bank to provide for higher
general or specific loan loss reserves.
All savings associations are subject to a semi-annual assessment, based
upon the savings association's total assets. The Bank's OTS assessment for the
fiscal year ended March 31, 1996, was approximately $25,650.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank and the Holding
Company. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the Bank is
prescribed by federal laws, and regulations, and it is prohibited from engaging
in any activities not permitted by such laws and regulations. For instance, no
savings institution may invest in non-investment grade corporate debt
securities. In addition, the permissible level of investment by federal
associations in loans secured by non-residential real property may not exceed
400% of total capital, except with approval of the OTS. Federal savings
associations are also generally authorized to branch nationwide. The Bank is in
compliance with the noted restrictions.
The Bank's general permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
March 31, 1996, the Bank's lending limit under this restriction was $1.6
million. The Bank is in compliance with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and
26
<PAGE>
documentation, internal controls and audit systems, interest rate risk exposure
and compensation and other employee benefits. Any institution which fails to
comply with these standards must submit a capital compliance plan. A failure to
submit a plan or to comply with an approved plan will subject the institution to
further enforcement action. The OTS and the other federal banking agencies have
also proposed additional guidelines on asset quality and earnings standards. No
assurance can be given as to whether or in what form the proposed regulations
will be adopted. The guidelines are not expected to materially effect the Bank.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
Hardin Federal is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct examinations of
and to require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the FDIC. The FDIC also has the
authority to initiate enforcement actions against savings banks, after giving
the OTS an opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged or is engaging in
unsafe or unsound practices, or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, ranging from .23% to .31% of
deposits, based upon their level of capital and supervisory evaluation. Under
the system, institutions classified as well capitalized (i.e., a core capital
ratio of at least 5%, a ratio of core capital to risk-weighted assets of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
would pay the lowest premium while institutions that are less than adequately
capitalized (i.e., a core capital or core capital to risk-based capital ratios
of less than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial supervisory concern would pay the highest premium. Risk
classification of all insured institutions will be made by the FDIC for each
semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the Bank Insurance Fund
("BIF") of the FDIC in order to maintain the reserve ratio of the BIF at 1.25%
of BIF insured deposits. The FDIC has reported that the BIF attained the 1.25%
reserve ratio in May 1995 but that the SAIF is not likely to reach the 1.25%
reserve ratio until 2002. In August 1995, the FDIC issued final regulations to
reduce the assessment rates for the BIF. Under the revised assessment schedule,
which became
27
<PAGE>
effective on June 1, 1995, BIF-insured institutions paid an average of 0.045% of
deposits, with new assessment rates ranging from 0.04% of deposits to 0.31% of
deposits. The FDIC refunded any assessments collected in excess of those due
under the revised schedule. On November 14, 1995, the FDIC voted to reduce
annual BIF assessments to the legal minimum of $2,000, effective January 1, 1996
for all BIF-insured institutions except for those that were not well capitalized
or were assigned to the higher supervisory risk categories. It is estimated that
92% of the BIF-insured institutions will pay only the minimum annual assessment.
SAIF-insured institutions will continue to pay assessments at the current
assessment rates until the SAIF attains the 1.25% reserve ratio. The resulting
disparity in deposit insurance assessments between SAIF members and BIF members
is likely to provide BIF-insured institutions with certain competitive
advantages in the pricing of loans and deposits, and in lowered operating costs,
pending any legislative action to remedy the disparity.
The proposed Balanced Budget Act of 1995 (the "Budget Act"), which was
vetoed by the President, included provisions that focused on a resolution of the
financial problems of the SAIF. Under the provisions of the Budget Act, all SAIF
member institutions would pay a special assessment to recapitalize the SAIF, and
the assessment base for the payments on bonds ("FICO bonds") that were issued in
the late 1980s by the Financing Corporation to recapitalize the now defunct
Federal Savings and Loan Insurance Corporation, would be expanded to include the
deposits of both BIF- and SAIF-insured institutions. The amount of the special
assessment required to recapitalize the SAIF has been estimated to be
approximately 80 basis points of the SAIF-assessable deposits. This estimate of
the special SAIF assessment is less than the assessment of 85 to 90 basis points
that had been previously estimated. The special assessment would have been
imposed on the first business day of January 1996, or on such other date
prescribed by the FDIC not later than 60 days after enactment of the Budget Act,
based on the amount of SAIF deposits on March 31, 1995. The Budget Act would
have also permitted BIF-insured institutions with deposits subject to SAIF
assessments to reduce such SAIF-deposits by 20% in computing the institution's
special assessment. If a 90 basis point assessment were assessed against the
Bank's deposits as of March 31, 1996, the Bank's aggregate special SAIF
assessment would be approximately $600,000, and an assessment of 80 basis points
would be $533,088. Assuming this special assessment is tax deductible, the
charge to earnings, net of income tax benefits, will be approximately $390,000.
Future assessments would then be anticipated to be reduced to .04% to .31% of
eligible deposits, based on the risk classification assigned to the Bank by the
FDIC. The Budget Act also would have provided that the BIF could not assess
regular insurance assessments when it has a reserve ratio of 1.25% or more
except on those of its member institutions that have been found to have
"moderately severe" or "unsatisfactory" financial, operational, or compliance
weaknesses.
The Budget Act also provided for the merger of the BIF and SAIF on January
1, 1998, with such merger being conditioned upon the prior elimination of the
thrift charter. Congressional leaders had also agreed that Congress should
consider and act upon separate legislation to eliminate the thrift charter as
early as possible in 1996. If adopted, such legislation would require that the
Bank, as a federal savings bank, convert to a bank charter. Such a requirement
to convert to a bank charter could cause the Bank to lose the favorable tax
treatment for its bad debt reserves that it currently enjoys under Section 593
of the Code and to have all or part of its existing bad debt reserves recaptured
into income. At March 31, 1996, the Bank had a balance of approximately $2.0
million in bad debt reserves.
28
<PAGE>
The above described provisions of the Budget Act were not the basis for the
President's veto, and Congressional leaders have indicated that these provisions
will be the basis for future legislation to recapitalize the SAIF. If enacted by
Congress, such legislation would have the effect of reducing the capital of SAIF
member institutions by the after-tax cost of the special SAIF assessment, plus
any related additional tax liabilities. The legislation would also have the
effect of reducing any differential that may otherwise be required in the
assessment rates for the BIF and SAIF.
REGULATORY CAPITAL REQUIREMENTS
Federally insured savings associations, such as the Bank, are required to
maintain a minimum level of regulatory capital. The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings associations. Generally, these capital requirements must be generally as
stringent as the comparable capital requirements for national banks. The OTS is
also authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. Further, the valuation allowance applicable to the write-down
of investments and mortgage-backed securities in accordance with SFAS No. 115 is
excluded from the regulatory capital calculation. At March 31, 1996, the Bank
had $ 0 of intangible assets and a valuation allowance, net of tax under SFAS
No. 115 of $155,000.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. The Bank has one service corporation subsidiary.
At March 31, 1996, the Bank had tangible capital of $10.9 million, or
13.8% of adjusted total assets, which is approximately $9.7 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets (as defined by regulation). Core capital generally
consists of tangible capital plus certain intangible assets, including
supervisory goodwill (which is phased-out over a five-year period) and a limited
amount of purchased credit card relationships and purchased mortgage servicing
rights. As a result of the prompt corrective action provisions of FDICIA
discussed below, however, a savings association must maintain a core capital
ratio of at least 4% to be considered adequately capitalized
29
<PAGE>
unless its supervisory condition is such to allow it to maintain a 3% ratio.
At March 31, 1996, the Bank had no intangibles which were subject to these
tests.
At March 31, 1996, the Bank had core capital equal to $10.9 million, or
13.8% of adjusted total assets, which is $8.5 million above the minimum
leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. At
March 31, 1996, the Bank had $131,000 of general loan valuation allowances,
which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio (these
items are excluded on a sliding scale through March 31, 1995, after which they
must be excluded in their entirety) and reciprocal holdings of qualifying
capital instruments. Hardin Federal had $28,000 of such exclusions from capital
and assets at March 31, 1996.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless the
loan amount in excess of such ratio is insured by an insurer approved by the
FNMA or FHLMC.
On March 31, 1996, the Bank had total capital of $11 million (including
approximately $10.9 million in core capital and $131,000 in qualifying
supplementary capital) and risk-weighted assets of $33.3 million (with no
converted off-balance sheet assets); or total capital of 33% of risk-weighted
assets. This amount was $8.4 million above the 8% requirement in effect on that
date.
The OTS has adopted a final rule that requires every savings association
with more than normal interest rate risk exposure to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal to 50% of its interest-rate risk exposure multiplied by the present value
of its assets. This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts. The rule provides for a two quarter lag between
calculating interest rate risk and recognizing any deduction from capital. The
rule will not become effective until the OTS adopts the process by which savings
associations may appeal an interest rate risk deduction determination. Any
savings association with less than $300 million in assets and a total risk-based
capital ratio in excess of 12% is exempt from this requirement unless the OTS
determines otherwise.
30
<PAGE>
Pursuant to FDICIA, the federal banking agencies, including the OTS, have
also proposed regulations authorizing the agencies to require a depository
institution to maintain additional total capital to account for concentration of
credit risk and the risk of non-traditional activities. No assurance can be
given as to the final form of any such regulation.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. Effective December 19, 1992, the federal banking
agencies, including the OTS, were given additional enforcement authority over
undercapitalized depository institutions. The OTS is generally required to take
action to restrict the activities of an "undercapitalized association"
(generally defined to be one with less than either a 4% core capital ratio, a 4%
Tier 1 risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions, which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized.
Any undercapitalized association is also subject to the general enforcement
activity of the OTS and the FDIC, including the appointment of a receiver or
conservator.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose restrictions applicable to such category if
the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on Hardin
Federal may have a substantial adverse effect on the Bank's operations and
profitability and the value of the Company's common stock. Company shareholders
do not have preemptive rights, and therefore, if the Company is directed by the
OTS or the FDIC to issue additional shares of its common stock, such issuance
may result in the dilution in the percentage of ownership to current
shareholders.
31
<PAGE>
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS
OTS regulations impose various restrictions or requirements on associations
with respect to their ability to pay dividends or make other distributions of
capital. OTS regulations prohibit an association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory
capital of the association would be reduced below the amount required to be
maintained for the liquidation account established in connection with its mutual
to stock conversion.
The OTS utilizes a three-tiered approach to permit associations, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. See "- Regulatory Capital
Requirements."
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in capital requirements,
may make capital distributions during any calendar year equal to the greater of
100% of net income for the year-to-date plus 50% of the amount by which the
lesser of the association's tangible, core or risk-based capital exceeds its
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. The Bank meets the requirements
for a Tier 1 association and has not been notified of a need for more than
normal supervision. Tier 2 associations, which are associations that before and
after the proposed distribution meet their current minimum capital requirements,
may make capital distributions of up to 75% of net income over the most recent
four quarter period.
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution. As a subsidiary of the Company, the Bank is required to give
the OTS 30 days notice prior to declaring any dividend on its stock. The OTS may
object to the distribution during that 30-day period based on safety and
soundness concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. Under the proposal a savings
association may make a capital distribution without notice to the OTS (unless it
is a subsidiary of a holding company) provided that it has a CAMEL 1 or 2
rating, is not in troubled condition and would remain adequately capitalized (as
defined by regulation) following the proposed distribution. Savings associations
that would remain adequately capitalized following the proposed distribution but
do not meet the other noted requirements must notify the OTS 30 days prior to
declaring a capital distribution. The OTS stated it will generally regard as
permissible that amount of capital distributions that do not exceed 50% of the
institution's excess regulatory capital plus net income to date during the
calendar year. A savings association may not make a capital distribution without
prior approval of the OTS and the FDIC if it is
32
<PAGE>
undercapitalized before, or as a result of, such a distribution. A savings
association will be considered in troubled condition if it has a CAMEL rating of
4 or 5, is subject to an enforcement action relating to its safety and soundness
or financial viability or has been informed in writing by the OTS that it is in
troubled condition. As under the current rule, the OTS may object to a capital
distribution if it would constitute an unsafe or unsound practice. No assurance
may be given as to whether or in what form the regulations may be adopted.
LIQUIDITY
All savings associations, including the Bank, are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the sum
of its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. This liquid asset ratio requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the minimum liquid asset
ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the association's average daily balance
of net withdrawable deposit accounts and current borrowings. Penalties may be
imposed upon associations for violations of either liquid asset ratio
requirement. At March 31, 1996, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 7.74% and a short-term
liquid assets ratio of 6.75%.
ACCOUNTING
An OTS policy statement applicable to all savings associations clarifies
and re-emphasizes that the investment activities of a savings association must
be in compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with GAAP. Under the policy
statement, management must support its classification of and accounting for
loans and securities (i.e., whether held for investment, sale or trading) with
appropriate documentation.
The OTS has adopted an amendment to its accounting regulations, which may
be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS. The Bank is in compliance with
these amended rules.
QUALIFIED THRIFT LENDER TEST
All savings associations, including the Bank, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. Such assets
primarily consist of residential housing related loans and investments. At March
31, 1996, the Bank met the test and has always met the test since its
effectiveness.
33
<PAGE>
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of the
Bank, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by the Bank. An
unsatisfactory rating may be used as the basis for the denial of an application
by the OTS.
The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years, the Bank may be required to devote additional funds for investment
and lending in its local community. The Bank was examined for CRA compliance in
February 1996 and received a rating of "satisfactory."
TRANSACTIONS WITH AFFILIATES
Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the association
as transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital. Affiliates of the Bank include the Company and any
company which is under common control with the Bank. In addition, a savings
association may not lend to any affiliate engaged in activities not permissible
for a bank holding company or acquire the securities of most affiliates.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes
34
<PAGE>
also impose restrictions on loans to such persons and their related interests.
Among other things, such loans must be made on terms substantially the same as
for loans to unaffiliated individuals.
HOLDING COMPANY REGULATION
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries which also permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association.
As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to such restrictions unless such other associations each
qualify as a QTL and were acquired in a supervisory acquisition.
If the Bank fails the QTL test, the Company must obtain the approval of the
OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company. See "-
Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control of
any other SAIF-insured association. Such acquisitions are generally prohibited
if they result in a multiple savings and loan holding company controlling
savings associations in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization or in a
supervisory acquisition of a failing savings association.
FEDERAL SECURITIES LAW
The stock of the Company is registered with the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company is subject to
the information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
35
<PAGE>
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At March 31,
1996, the Bank was in compliance with these reserve requirements. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements that may be imposed by the OTS.
See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require associations to
exhaust other reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB of Des Moines, which is one of 12 regional
FHLBs, that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB. These policies and procedures are subject
to the regulation and oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Des Moines. At March 31, 1996, the Bank had $742,000 of FHLB stock,
which was in compliance with this requirement. In past years, the Bank has
received substantial dividends on its FHLB stock. Over the past five fiscal
years such dividends have averaged 8.28% and were 7.24% for fiscal 1996. For the
fiscal year ended March 31, 1996, dividends paid by the FHLB of Des Moines to
the Bank totaled approximately $53,000, which constitutes a $6,000 decrease over
the amount of dividends received in fiscal year 1995. No assurance can be given
that such dividends will continue in the future at such levels.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
36
<PAGE>
FEDERAL AND STATE TAXATION
FEDERAL TAXATION. Savings associations such as the Bank that meet certain
definitional tests relating to the composition of assets and other conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), are
permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in
computing taxable income for federal income tax purposes. The amount of the bad
debt reserve deduction for "non-qualifying loans" is computed under the
experience method. The amount of the bad debt reserve deduction for "qualifying
real property loans" (generally loans secured by improved real estate) may be
computed under either the experience method or the percentage of taxable income
method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an amount
determined under a formula based generally upon the bad debts actually sustained
by the savings association over a period of years.
The percentage of specially computed taxable income that is used to compute
a savings association's bad debt reserve deduction under the percentage of
taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
If an association's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four-year period. No representation
can be made as to whether the Bank will meet the 60% test for subsequent taxable
years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. At
March 31, 1996, the 6% and 12% limitations did not restrict the percentage bad
debt deduction available to the Bank. It is possible that these limitations will
be a limiting factor in the future.
In addition to the regular federal income tax, corporations, including
savings associations such as the Bank, generally are subject to a minimum tax.
An alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of alternative
37
<PAGE>
minimum taxable income. For taxable years beginning after 1986 and before 1996,
corporations, including savings associations such as the Bank, are also subject
to an environmental tax equal to 0.12% of the excess of alternative minimum
taxable income for the taxable year (determined without regard to net operating
losses and the deduction for the environmental tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the Bank's supplemental reserves for
losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of March 31, 1996, the Bank's Excess for tax purposes totaled
approximately $2.0 million.
The Company and its subsidiaries file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting. Savings
associations, such as the Bank, that file federal income tax returns as part of
a consolidated group are required by applicable Treasury regulations to reduce
their taxable income for purposes of computing the percentage bad debt deduction
for losses attributable to activities of the non-savings association members of
the consolidated group that are functionally related to the activities of the
savings association member.
The Bank has not been audited by the IRS recently with respect to federal
income tax returns. In the opinion of management, any examination of still open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of the Bank.
Legislation currently pending in Congress contains a provision that would
repeal the tax bad-debt reserve currently available to thrifts (including the
percentage of taxable income method) for tax years beginning after December 31,
1995. If enacted, the Bank would have to change to the experience method of
computing its bad debt deduction. The legislation would require a thrift to
recapture the portion of its bad debt reserve that exceeds the base year reserve
(defined as the tax reserve of the last taxable year beginning before 1988). The
amount of the recapture would generally be taken into taxable income ratably
over a six year period.
At March 31, 1996 the Bank's bad debt reserve exceeded the base year
reserve by approximately $425,000. In accordance with SFAS No. 109 a deferred
tax liability has been established for the tax effect of this item. Management
cannot predict whether the pending legislation will be enacted, or if enacted,
the final form of such legislation and its ultimate impact on the Bank.
MISSOURI TAXATION. The State of Missouri has a corporate income tax;
however, savings associations are exempt from such tax. Missouri-based thrift
institutions, such as the Bank, are subject to a special financial institutions
tax, based on net income without regard to net operating loss carryforwards, at
the rate of 7% of net income as defined in the Missouri statutes. This tax is a
prospective tax for the privilege of the Bank exercising its corporate franchise
within the state, based on its net income for the preceding year. The tax is in
lieu of all other state taxes on thrifts, except taxes on real estate, tangible
personal property owned by the taxpayer and held for lease or rental to others,
certain payroll taxes, and sales and use taxes.
38
<PAGE>
DELAWARE TAXATION. As a Delaware holding company, the Company is exempted
from Delaware corporate income tax but is required to file an annual report with
and pay an annual fee to the State of Delaware. The Company is also subject to
an annual franchise tax imposed by the State of Delaware.
COMPETITION
Hardin Federal faces strong competition, both in originating real estate
loans and in attracting deposits. Competition in originating real estate loans
comes primarily from commercial banks, credit unions and savings institutions
located in the Bank's market area. Commercial banks, credit unions and savings
institutions provide vigorous competition in consumer lending. The Bank competes
for real estate and other loans principally on the basis of the quality of
services it provides to borrowers, the interest rates and loan fees it charges,
and the types of loans it originates. See "Business - Lending Activities."
The Bank attracts all of its deposits through its retail banking offices,
primarily from the communities in which those retail banking offices are
located. Therefore, competition for those deposits is principally from retail
brokerage offices, commercial banks, credit unions and savings institutions
located in these communities. The Bank competes for these deposits by offering a
variety of account alternatives at competitive rates and by providing convenient
business hours, branch locations and interbranch deposit and withdrawal
privileges.
The Bank serves primarily Ray and Clay Counties, Missouri. There are seven
commercial banks, one credit union and one savings institution, other than
Hardin Federal, which compete for deposits and loans in Ray County, Missouri. In
Clay County, Missouri, there are 36 commercial banks, 44 credit unions, and 10
savings institutions, other than Hardin Federal, which compete for deposits and
loans in Clay County, Missouri.
EMPLOYEES
At March 31, 1996, the Bank had a total of 19 full-time and 3 part-time
employees. The Bank's employees are not represented by any collective bargaining
group. Management considers its employee relations to be good.
EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK WHO ARE NOT DIRECTORS
KAREN K. BLANKENSHIP. Mrs. Blankenship, age 52, is the Senior Vice
President and Secretary of the Bank, responsible for the supervision of the
accounting department and reporting to the regulatory authorities. Mrs.
Blankenship joined the Bank as a teller in 1967, and has served the Bank in
various capacities prior to her promotion to Senior Vice President in 1993. Ms.
Blankenship has been nominated to serve on the Board of Directors of the Company
for a one-year term. Stockholders of the Company will vote on a proposal to
approve this nomination at the Annual Meeting of Stockholders to be held on July
25, 1996.
LYNDON M. GOODWIN. Mr. Goodwin, age 51, is currently Vice President of the
Bank responsible for the supervision of all lending operations of the Bank.
Prior to joining the Bank
39
<PAGE>
in 1994, Mr. Goodwin was a County Supervisor of the United States Department of
Agriculture, Farmer's Home Administration, for 28 years.
WILLIAM L. HOMAN. Mr. Homan, age 48, joined the Bank in June 1995 as Vice
President and Treasurer. In that capacity, Mr. Homan is responsible for the
supervision of all investments and cash flows of the Bank. Prior to joining the
Bank, Mr. Homan was President and Chief Executive Officer of Brenton Savings
Bank, FSB, Ames, Iowa. Mr. Homan has been nominated to serve on the Board of
Directors of the Company for a two-year term. Stockholders of the Company will
vote on a proposal to approve this nomination at the Annual Meeting of
Stockholders to be held on July 25, 1996.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
The Bank conducts its business through three offices, which are located in
Ray and Clay Counties, Missouri. The Bank owns its main office and the Excelsior
Springs, Missouri branch. The Bank's Richmond, Missouri branch is leased. The
following table sets forth information relating to each of the Bank's offices as
of March 31, 1996. The total net book value of the Bank's premises and equipment
(including land, buildings and leasehold improvements and furniture, fixtures
and equipment) at March 31, 1996 was approximately $510,000. See Note 6 of the
Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Total
Approximate
Date Square Net Book Value at
Location Acquired Footage March 31, 1996
- ------------------------------ -------- ----------- -----------------
<S> <C> <C> <C>
Main Office: 1963 4,600 $ 30,000
100-04 North Second Street
Hardin, Missouri
Branch Offices:/(1)/
201 North Jesse James Road 1990 2,024 $471,000
Excelsior Springs, Missouri
208 West Main Street Leased 1,200 N/A
Richmond, Missouri (expires 1996)
</TABLE>
_________________________
/(1)/ The Bank has entered into a contract to acquire land to build a new
branch office in Richmond, Missouri and to vacate its current Richmond, Missouri
branch location. The Bank expects construction on this branch facility to begin
in 1997. The Bank has begun a renovation and expansion of its Excelsior Springs,
Missouri branch. It is expected that the renovation and expansion will be
completed during September 1996 and it is estimated that the costs of
improvement will approximate $235,000.
Hardin Federal believes that its current and planned facilities are
adequate to meet the present and foreseeable needs of the Bank and the Holding
Company.
The Bank maintains an on-line data base with an independent service bureau
servicing financial institutions.
40
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company and Hardin Federal are involved, from time to time, as
plaintiff or defendant in various legal actions arising in the normal course of
their businesses. While the ultimate outcome of these proceedings cannot be
predicted with certainty, it is the opinion of management, after consultation
with counsel representing Hardin Federal and the Company in the proceedings,
that the resolution of these proceedings should not have a material effect on
the Company's financial position or results of operations on a consolidated
basis.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended March 31,
1996.
On April 16, 1996, the Company held a Special Meeting of Stockholders
for the purpose of having stockholders consider and vote upon the
ratification and adoption of the Company's 1995 Stock Option and Incentive
Plan and the Company's Recognition and Retention Plan.
The Stock Option and Incentive Plan, which required the affirmative vote
of a majority of the holders of the Company's outstanding common stock, was
approved by the following: 660,104 votes for, 37,115 votes against, 4,985
votes withheld, and 0 broker non-votes. The Recognition and Retention Plan,
which required the affirmative vote of a majority of the holders of the
Company's outstanding common stock, was approved by the following: 614,804
votes for, 82,415 votes against, 4,985 votes withheld, and 0 broker non-
votes.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
--------------------------------------------------------------------
MATTERS
- --------
Page 41 of the attached 1996 Annual Report to Shareholders is herein
incorporated by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
-------------------------------------------------------------------
Pages 5 to 17 of the attached 1996 Annual Report to Shareholders are
herein incorporated by reference.
41
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
Pages 18 to 40 of the attached 1996 Annual Report to Shareholders are
herein incorporated by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
----------------------------------------------------------------------
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change
of accountants and/or reporting disagreements on any matter of accounting
principle or financial statement disclosure.
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
Information concerning Directors of the Registrant is incorporated
herein by reference from the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held on July 25, 1996.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on July 25, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders scheduled
to be held on July 25, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders scheduled to be held on July
25, 1996.
42
<PAGE>
PART IV
-------
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
--------------------------------------
(a) (1) Financial Statements:
-----------------------------
The following information appearing in the Registrant's Annual Report
to Shareholders for the year ended March 31, 19is incorporated by reference
in this Form 10-KSB Annual Report as Exhibit 13 .
<TABLE>
<CAPTION>
Page in
Annual
Annual Report Section Report
--------------------- -------
<S> <C>
Report of Independent Auditors ............................................... 18
Consolidated Balance Sheets at March 31, 1996 and 1995 ....................... 19
Consolidated Statements of Earnings for the Years ended March 31, 1996, 1995
and 1994 ..................................................................... 20
Consolidated Statements of Stockholders' Equity for the Years ended
March 31, 1996, 1995 and 1994 ............................................... 21
Consolidated Statements of Cash Flows for the Years ended March 31, 1996,
1995 and 1994 ............................................................... 22
Notes to Consolidated Financial Statements ................................... 24
</TABLE>
43
<PAGE>
(a) (2) Financial Statement Schedules:
--------------------------------------
All financial statement schedules have been omitted as the
information is not required under the related instructions or is
inapplicable.
(a) (3) Exhibits:
-----------------
<TABLE>
<CAPTION>
Sequential Page
Reference to Number Where
Regulation Prior Filing or Attached Exhibits
S-B Exhibit Exhibit Number Are Located in this
Number Document Attached Hereto Form 10-KSB Report
- ------------ -------------------------------------- --------------- -------------------
<S> <C> <C> <C>
2 Plan of acquisition, reorganization, None Not applicable
arrangement, liquidation or succession
3 Certificate of Incorporation and Bylaws * Not applicable
4 Instruments defining the rights of * Not applicable
security holders, including indentures
9 Voting trust agreement None Not applicable
10.1 1995 Stock Option and Incentive Plan ** Not Applicable
10.2 Employment Agreement with Robert W. * Not applicable
King
10.3 Employment Agreement with Karen K. * Not Applicable
Blankenship
10.4 Employee Stock Ownership Plan * Not Applicable
10.5 Recognition and Retention Plan ** Not applicable
10.6 Deferred Compensation Agreement * Not applicable
10.7 Compensation Agreement with Directors * Not Applicable
11 Statement re: computation of per None Not applicable
share earnings
12 Statement re: computation or ratios Not required Not applicable
13 Annual Report to Security Holders 13 Page 48
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Sequential Page
Reference to Number Where
Regulation Prior Filing or Attached Exhibits
S-B Exhibit Exhibit Number Are Located in this
Number Document Attached Hereto Form 10-KSB Report
- ----------- -------------------------------------- ---------------- --------------------
<S> <C> <C> <C>
16 Letter re: change in certifying None Not applicable
accountant
18 Letter re: change in accounting None Not applicable
principles
21 Subsidiaries of Registrant 21 Page 92
22 Published report regarding matters None Not applicable
submitted to vote of security holders
23 Consent of experts and counsel None Not applicable
24 Power of Attorney Not Required Not applicable
27 Financial Data Schedule 27 Page 93
28 Information from reports furnished to None Not applicable
State insurance regulatory authorities
99 Additional exhibits None Not applicable
</TABLE>
___________________
*Filed on June 23, 1995, as exhibits to the Registrant's Form S-1
registration statement (Registration No. 33-93888), pursuant to the Securities
Act of 1933. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.
**Filed on March 18, 1996, as exhibits to the Registrant's definitive proxy
statement relating to the Registrant's special meeting of stockholders held on
April 16, 1996. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.
(b) Reports on Form 8-K:
------------------------
No current reports on Form 8-K were filed by the Company during the
three months ended March 31, 1996.
45
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HARDIN BANCORP, INC.
Date: June 27, 1996 By: /s/ Robert W. King
---------------------------------------
Robert W. King
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
By: /s/ Robert W. King By: /s/ Ivan R. Hogan
------------------------------------ ----------------------------------------
Robert W. King, President Ivan R. Hogan
Chief Executive Officer and Director Chairman of the Board
Date: June 27, 1996 Date: June 27, 1996
By: /s/ Karen K. Blankenship By: /s/ David K. Hatfield
------------------------------------ ----------------------------------------
Karen K. Blankenship, Senior Vice David K. Hatfield, Director
President and Secretary
Date: June 27, 1996 Date: June 27, 1996
By: /s/ David D. Lodwick By: /s/ W. Levan Thurman
------------------------------------ ----------------------------------------
David D. Lodwick, Director W. Levan Thurman, Director
Date: June 27, 1996 Date: June 27, 1996
By: /s/ William L. Homan
------------------------------------
William L. Homan, Vice President
and Treasurer
Date: June 27, 1996
</TABLE>
<PAGE>
EXHIBIT INDEX
2 Plan of acquisition, reorganization, arrangement, liquidation or
succession (none)
3 Certificate of Incorporation and Bylaws *
4 Instruments defining the rights of security holders, includingindentures *
9 Voting trust agreement *(none)
10.1 1995 Stock Option and Incentive Plan *
10.2 Employment Agreement with Robert W. King *
10.3 Employment Agreement with Karen K. Blankenship *
10.4 Employee Stock Ownership Plan *
10.5 Recognition and Retention Plan *
10.6 Deferred Compensation Agreement *
10.7 Compensation Agreement with Directors *
11 Statement re: computation of per share earnings (none)
12 Statement re: computation or ratios (not required)
13 Annual Report to Security Holders
16 Letter re: change in certifying accountant (none)
18 Letter re: change in accounting principles (none)
21 Subsidiaries of Registrant
22 Published report regarding matters submitted to vote of security
holders (none)
23 Consent of experts and counsel (none)
24 Power of Attorney (not required)
27 Financial Data Schedule
28 Information from reports furnished to State insurance regulatory
authorities (none)
99 Additional exhibits
__________________________
* Filed Previously
<PAGE>
Exhibit 13
TABLE OF CONTENTS
Page
President's Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Selected Consolidated Financial and Other Data of the Company . . . . . . . 3
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 18
Stockholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
<PAGE>
[LOGO OF HARDIN BANCORP, INC. APPEARS HERE]
(Holding Company for Hardin Federal Savings Bank)
June 25, 1996
Dear Fellow Shareholder:
The Board of Directors, Officers, and Staff of Hardin Bancorp, Inc. and Hardin
Federal Savings Bank are pleased to provide you with our first annual report.
During the fiscal year ended March 31, 1996 we completed the conversion from a
mutual savings bank to a federally chartered stock savings bank. We are
confident this event will enable Hardin Federal Savings Bank to meet the
challenges and opportunities in the ever changing financial services industry.
1996 was our first year as a stock firm after more than 107 years of service to
area communities as a mutual company. Net earnings for the year were $511,000
and total loans increased $11.8 million. Hardin Bancorp, Inc. will continue as
a community-oriented financial institution, emphasizing mortgage and consumer
lending and developing new products and services for our customers.
We are excited to announce our plans to renovate our Excelsior Springs office,
and build a new facility in Richmond. These building projects will provide the
additional space and equipment needed to accommodate our future growth.
Our goal is to enhance shareholder value while continuing our mission as a
community oriented financial institution committed to our customers and to the
communities we serve.
Thank you for your confidence in our company, and we are looking forward to a
prosperous future.
Sincerely,
/s/ Robert W. King
Robert W. King
President
P.O. BOX 608 . HARDIN, MO. 64035 . 816-398-4312
<PAGE>
GENERAL INFORMATION
-------------------
Hardin Bancorp, Inc. (the "Company") is a Delaware Corporation which is the
holding company for Hardin Federal Savings Bank (the "Bank"). The Company was
organized by the Bank for the purpose of acquiring all of the capital stock of
the Bank in connection with the conversion of the Bank from mutual to stock
form, which was completed on September 28, 1995 (the "Conversion"). The only
significant assets of the Company are the capital stock of the Bank, the
Company's loan to the Company's Employee Stock Ownership Plan (ESOP), and the
net proceeds of the Conversion retained by the Company of approximately $5.0
million. The business of the Company initially consists of the business of the
Bank.
The Bank, which was originally chartered in 1888 as a Missouri-chartered mutual
savings and loan association, is headquartered in Hardin, Missouri. The Bank
amended its mutual charter to become a federal mutual savings bank in 1995. Its
deposits are insured up to the maximum allowable amount by the Federal Deposit
Insurance Corporation (FDIC). The Bank serves the financial needs of its
customers throughout Ray and Clay Counties through its offices in Hardin,
Richmond, and Excelsior Springs, Missouri. At March 31, 1996, the Bank had
total assets of $83.4 million, deposits of $66.6 million and stockholder's
equity of $16.0 million.
The Bank has been, and intends to continue to be, a community-oriented financial
institution offering financial services to meet the needs of the market area it
serves. The Bank attracts deposits from the general public and uses such funds
primarily to originate and purchase loans secured by first mortgages on owner-
occupied one-to-four family residences. The Bank also originates construction
and consumer loans and, to a lesser extent, land loans and commercial real
estate loans. The Bank also invests in mortgage-backed securities, which are
insured or guaranteed by federal agencies, and other investment securities.
2
<PAGE>
HARDIN BANCORP, INC.
--------------------
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE
-----------------------------------------------------
COMPANY
-------
Set forth below are selected consolidated financial and other data of the
Company. The financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and Notes thereto
presented elsewhere in this Annual Report.
<TABLE>
<CAPTION>
At or for the years ended March 31,
--------------------------------------------
1996 1995(1) 1994(1) 1993(1) 1992(1)
---- ------- ------- ------- -------
(Dollars in Thousands except per share data)
Selected Financial
- ------------------
Condition Data:
- ------------------
<S> <C> <C> <C> <C> <C>
Total assets $83,387 $75,993 $73,495 $73,743 $72,393
Loans receivable, net 45,031 33,230 29,105 26,668 28,387
Mortgage-backed securities:
Held to maturity 16,299 28,473 32,743 36,090 33,931
Available for sale 7,907 - - - -
Investment securities 6,363 7,760 6,598 4,882 2,994
FHLB Stock 742 727 727 625 574
Other interest-bearing
deposits 5,430 4,306 2,820 3,875 4,902
Deposits 66,605 67,449 66,722 67,476 66,794
FHLB Advances - 1,500 - - -
Equity 16,035 6,393 6,064 5,422 4,829
</TABLE>
<TABLE>
<CAPTION>
Selected Operations Data:
- -------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 5,552 $4,694 $4,587 $5,249 $6,123
Total interest expense 3,454 2,816 2,653 3,330 4,412
----- ----- ----- ----- -----
Net interest income 2,098 1,878 1,934 1,919 1,711
Provision for loan losses 14 - 26 26 42
----- ----- ----- ----- -----
Net interest income after
provision for loan losses 2,084 1,878 1,908 1,893 1,669
----- ----- ----- ----- -----
Loan fees and service charges 110 116 123 134 114
Gain/(loss) on sales of loans,
investments and mortgage-
backed securities 2 (39) 126 90 (116)
Other non-interest income 167 110 59 (2) 5
----- ----- ----- ----- -----
Total non-interest income 279 187 308 222 3
----- ----- ----- ----- -----
Total non-interest expense 1,576 1,427 1,250 1,125 1,011
----- ----- ----- ------ -----
Earnings before income
taxes 787 638 966 990 661
Income tax expense (2) 277 221 325 397 250
--- --- --- --- ---
Net earnings $ 511 $ 417 $ 641 $ 593 $ 411
=== === === === ===
Pro forma net earnings per
share-primary and fully
diluted 0.52 - - - -
==== === === === ===
Pro forma average common
shares outstanding 973,383 - - - -
======= === === === ===
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
At or for the years ended March 31,
----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Selected Financial
- ------------------
Ratios and Other Data:
- ------------------------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on assets (ratio of
net earnings to average
total assets) 0.64% 0.56% 0.87% 0.81% 0.58%
Return on equity (ratio of
net earnings to average
equity) 4.25 6.68 11.18 11.57 8.89
Interest rate spread (3)
Average during period 2.00 2.25 2.40 2.38 2.43
End of period 2.37 1.85 2.52 2.75 2.50
Net interest margin (4) 2.70 2.56 2.68 2.68 2.78
Ratio of non-interest
expense to average
total assets 1.98 1.91 1.70 1.54 1.42
Ratio of average interest
earning assets to
average interest-
bearing liabilities 115.76 107.95 107.59 106.47 105.60
Quality Ratios:
Non-performing assets to
total assets at end
of period 0.15 0.22 0.24 0.29 0.07
Allowance for loan losses
to non-performing loans 107.38 70.83 64.29 42.08 129.33
Allowance for loan losses
to loans receivable, net 0.29 0.36 0.40 0.35 0.24
Capital Ratios (5):
Equity to total
assets at end of period 19.23 8.41 8.25 7.35 6.67
Average equity
to average assets 15.05 8.33 7.80 7.01 6.47
Other Data:
Number of full service
offices 3 3 3 3 3
</TABLE>
(1) Information for periods prior to 1996 relates to Hardin Federal Savings
Bank and subsidary.
(2) The Bank adopted Statement of Financial Accounting Standards ("SFAS")
NO. 109 during the year ended March 31, 1994.
(3) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average rate
on interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(5) For a discussion of the Bank's regulatory capital ratios, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
---------------------------------------------
GENERAL
- -------
Hardin Bancorp, Inc. (the "Company") was formed in June 1995 by Hardin Federal
Savings Bank (the "Bank") to become the holding company of the Bank. The
acquisition of the Bank by Hardin Bancorp, Inc. was consummated on September 28,
1995, in connection with the Bank's conversion from a mutual company to a stock
company (the "Conversion"). All references to the company prior to September
28, 1995, except where otherwise indicated, are to the Bank and its subsidiary
on a consolidated basis.
The Company's results of operation depend primarily on its level of net interest
income, which is the difference between interest earned on interest-earning
assets, consisting primarily of mortgage loans and other investments, and the
interest paid on interest-bearing liabilities, consisting primarily of deposits.
Net interest income is a function of the Company's net interest margin which is
the difference between the interest earned on interest-earning assets and the
interest paid on interest-bearing liabilities. The net interest margin is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand, and deposit flows. The Company, like other financial
institutions, is subject to interest rate risk to the degree that its interest-
earning assets mature or reprice at different times, or on a different basis,
than its interest-bearing liabilities. The Company's operating results are also
affected by the amount of its non-interest income, including loan fees, service
charges and other income, which includes commissions from sales of insurance by
the Bank's service corporation. Non-interest expense consists principally of
employee compensation, occupancy expense, data processing, Federal Insurance
premiums, advertising, and other operating expenses. The Company's operating
results are significantly affected by general economic and competitive
conditions, in particular, the changes in market interest rates, government
policies and actions by regulatory authorities.
FINANCIAL CONDITION
- -------------------
Total Assets. Total assets increased $7.4 million or 9.7% to $83.4 million at
March 31, 1996 from $76.0 million at March 31, 1995. The increase was primarily
due to the Company's stock conversion, which generated net proceeds of $10.0
million. The proceeds were used, in part, to fund an $11.8 million increase in
loans receivable, net.
Loans Receivable, Net. Loans receivable, net increased by $11.8 million or
35.5% to $45.0 million at March 31, 1996 from $33.2 million at March 31, 1995.
The increase is primarily due to increased loan demand in the market areas
served by the Bank's three full-service offices and the purchase of loans during
the year.
Mortgage-Backed Securities. Mortgage-backed securities decreased by $4.3
million or 15.0% to $24.2 million at March 31, 1996 from $28.5 million at March
31, 1995. The decrease was due to prepayments on loans which secure the Bank's
mortgage-backed securities.
At December 31, 1995, management reclassified mortgage-backed securities
totaling $8.1 million from the held to maturity category to available for sale.
The redesignation was done in accordance with the Financial Accounting Standards
Board (FASB) Implementation Guide of Statement 115 released November 15, 1995.
The guide allows a one-time reclassification of investment securities from held
to maturity to the available for sale category without impacting securities
remaining in held to maturity. The reclassification
5
<PAGE>
provides the Bank with increased flexibility in the management of the mortgage-
backed securities portfolio.
Deposits. Deposits decreased $844,000 or 1.3% to $66.6 million at March 31,
1996 from $67.4 million at March 31, 1995. Withdrawals of $1.6 million by
savers purchasing common stock of the Company contributed to the deposit loss.
Equity. Total equity increased by $9.6 million or 150.8% to $16.0 million at
March 31, 1996 from $6.4 million at March 31, 1995. Net proceeds from the
conversion provided a $10.0 million increase and earnings for the fiscal year
provided $511,000 which was offset by an increase in the net effect of
unrealized losses on available for sale securities of $67,000, and the remaining
unpaid Employee Stock Ownership Plan (ESOP) loan of $762,000 at March 31, 1996.
The schedule on the following page presents, for the periods indicated, the
total dollar amount of interest income from average interest-earnings assets and
the resultant yields, as well as the total dollar amount of interest expense on
average interest-bearing liabilities and resultant rates. All average balances
are monthly average balances. Management does not believe that the use of
monthly balances instead of daily balances has caused a material difference in
the information presented.
6
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $39,203 $3,194 8.15% $31,034 $2,466 7.95% $27,714 $2,349 8.48%
Mortgage-backed
securities 26,232 1,619 6.17 30,149 1,574 5.22 34,281 1,815 5.29
Investment securities 6,922 376 5.43 8,960 495 5.52 6,384 274 4.29
FHLB stock 732 53 7.24 727 59 8.12 847 68 8.03
Other interest-bearing
deposits 4,639 310 6.68 2,536 100 3.94 2,969 81 2.73
------- ------ ------- ------ ------- ------
Total interest-earning
assets (1) $77,728 $5,552 7.14% $73,406 $4,694 6.39% $72,195 $4,587 6.35%
======= ====== ======= ====== ======= ======
Interest-bearing liabilities:
Passbook accounts $ 4,225 $ 91 2.15% $ 4,437 $ 109 2.46% $ 4,665 $ 121 2.59%
Demand and NOW deposits 5,958 185 3.11 7,194 189 2.63 8,190 223 2.72
Certificate accounts 56,754 3,165 5.58 55,717 2,476 4.44 54,190 2,307 4.26
Borrowings 208 13 6.25 654 42 6.42 60 2 3.33
------- ------- ----- ------- ------ ---- ------- ------ -----
Total interest-bearing
liabilities $67,145 $3,454 5.14% $68,002 $2,816 4.14% $67,105 $2,653 3.95%
======= ====== ===== ======= ====== ===== ======= ====== =====
Net interest income $2,098 $1,878 $1,934
====== ====== ======
Net interest rate spread(2) 2.00% 2.25% 2.40%
===== ===== =====
Net interest
earnings assets $10,583 $5,404 $5,090
======= ====== ======
Net interest margin(3) 2.70% 2.56% 2.68%
===== ===== =====
Average interest-earning assets to
average interest-bearing
liabilities 115.76% 107.95% 107.59%
======= ======= =======
</TABLE>
(1) Calculated net of deferred loan fees and discounts, loans in process and
loss reserves.
(2) Net interest rate spread represents the difference between the average yield
on interest-earning assets and the average rate on interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
7
<PAGE>
The following table presents the weighted average yields earned on loans,
mortgage-backed securities, investments, and other interest-earning assets, and
the weighted average rates paid on deposits and borrowings and the resultant
interest rate spreads at the dates indicated.
<TABLE>
<CAPTION>
At March 31,
-------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable 8.51% 8.08% 8.00%
Mortgage-backed securities 6.65 5.95 5.49
Investment securities 6.05 5.64 4.47
FHLB Stock 6.75 7.00 8.33
Other interest-earning assets 5.15 5.33 2.46
Combined weighted average yield on
interest-earning assets 7.53 6.84 6.32
---- ---- ----
Weighted average rate paid on:
Passbook accounts 2.50 2.50 2.50
Demand and NOW deposits 3.06 2.79 2.59
Certificate accounts 5.56 5.37 4.10
FHLB Advances 0.00 6.16 0.00
Combined weighted average rate paid on
interest-bearing liabilities 5.16 4.99 3.80
---- ---- ----
Spread 2.37% 1.85% 2.52%
==== ==== ====
</TABLE>
8
<PAGE>
Rate/Volume Analysis
- --------------------
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes due to
changes in outstanding balances and those due to changes in interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (ie.,
changes in volume multiplied by prior interest rate) and (ii) changes in rates
(i.e., changes in rate multiplied by prior volume). For purposes of this table,
changes attributable to both rate and volume, which cannot be segregated, have
been allocated proportionately to the changes due to volume and the changes due
to rate.
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------------
1996 vs 1995 1995 vs 1994
----------------------------------------------------------------
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable $ 667 $ 76 $ 743 $ 270 $ (153) $ 117
Mortgage-backed
securities (219) 264 45 (216) (25) (241)
Investment
securities (125) (9) (134) 129 92 221
FHLB Stock 0 (6) (6) (10) 1 (9)
Other interest-
earning assets 115 95 210 (11) 30 19
----- ---- ----- ----- ----- -----
Total interest-
earnings assets 438 420 858 162 (55) 107
----- ---- ----- ----- ----- -----
Interest-bearing liabilities:
Savings deposits (5) (13) (18) (6) (6) (12)
Demand and NOW (36) 32 (4) (26) (8) (34)
Certificate
accounts 47 642 689 66 103 169
Borrowings (28) (1) (29) 38 2 40
----- ---- ----- ----- ----- -----
Total interest-
bearing
liabilities (22) 660 638 72 91 163
----- ---- ----- ----- ----- ---
Net interest income $ 460 $(240) $ 220 $ 90 $ (146) $ (56)
====== ===== ===== ===== ===== =====
</TABLE>
9
<PAGE>
Comparison of operating results for the years ended March 31, 1996 and
- ----------------------------------------------------------------------
March 31, 1995.
- ---------------
Performance Summary. Net earnings for the year ended March 31, 1996 increased
by $93,722 or 22.5% to $511,000 from $417,000 for the year ended March 31, 1995.
The increase was primarily due to an increase in net interest income of $220,000
offset by an increase in non-interest income in the amount of $92,000 and an
increase in non-interest expense of $148,000. For the years ended March 31,
1996 and 1995, the return on average assets was .64% and .56%, respectively,
while the return on average equity was 4.25% and 6.68%, respectively.
Net Interest Income. Net interest income increased from $1.9 million for the
fiscal year ended March 31, 1995 to $2.1 million for the current fiscal year, an
increase of $220,000. This reflects an increase of $858,000 in interest income
to $5.6 million from $4.7 million and an increase in interest expense of
$638,000 to $3.5 million from $2.8 million. The net increase was primarily due
to an increase in the ratio of average interest-earning assets to average
interest-bearing liabilities to 115.76% in 1996 from 107.95% in 1995. The
increase in the ratio was due primarily to the deployment of the $10.0 million
of net proceeds from the Company's stock conversion.
For the year ended March 31, 1996, the average yield on interest-earning assets
was 7.14% compared to 6.39% for 1995. The average cost of interest-bearing
liabilities was 5.14% for the year ended March 31, 1996 an increase from 4.14%
for 1995. The average balance of interest-earning assets increased $4.3 million
to $77.7 million for the year ended March 31, 1996 compared to $73.4 million for
fiscal 1995. During the same period, the average balance of interest-bearing
liabilities decreased by $857,000 to $67.1 million for the year ended March 31,
1996 from $68.0 million in fiscal 1995.
Due to higher funding costs, the average interest rate spread was 2.00% for the
year ended March 31, 1996 compared to 2.25% for fiscal 1995. The average net
interest margin increased to 2.70% at March 31, 1996 compared to 2.56% for the
year ended March 31, 1995.
Provision for loan losses. During the year ended March 31, 1996, the Company
recorded a $14,000 provision for loan losses in accordance with its
classification of assets policy. The Company's loan portfolio consists
primarily of one-to-four family mortgage loans, and has experienced minimal
charge-offs in the past two years. The allowance for loan losses of $131,000 or
.29% of loans receivable, net at March 31, 1996, compares to $119,000 or .36% of
loans receivable, net at March 31, 1995. The allowance for loan losses as a
percentage of non-performing assets was 107.38% at March 31, 1996, compared to
70.83% at March 31, 1995.
Management will continue to monitor its allowance for loan losses and make
additions to the allowance through the provision for loan losses as economic
conditions dictate. Although the Company maintains its allowance for loan losses
at a level which it considers to be adequate to provide for loan losses, there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in the future.
Non-Interest Income. For the year ended March 31, 1996, non-interest income
increased by $92,000 or 49% due primarily to losses on securities sales in the
amount of $41,000 in 1995 being off-set by a gain of $2,000 on securities sales
in 1996. In addition, an increase in the dividend received from the Company's
investment in its data processing center enhanced non-interest income.
Non-Interest Expense. Non-interest expense increased by $148,000 to $1.6
10
<PAGE>
million for the year ended March 31, 1996 from $1.4 million for the year ended
March 31, 1995. The increase was due to expenses in the amount of $103,000 for
the newly adopted Hardin Bancorp, Inc. Employee Stock Ownership Plan (ESOP), and
additional legal, accounting, and tax expense associated with becoming a stock
company.
Income taxes. Income taxes increased by $56,000 to $277,000 for the year ended
March 31, 1996 from $221,000 for the year ended March 31, 1995. The increase is
due to the increase in pre-tax income. The Company's effective tax rate was 35%
for both fiscal 1996 and 1995.
Comparison of Operating Results for the Years Ended March 31, 1995 and
- ----------------------------------------------------------------------
March 31, 1994
- --------------
Performance Summary. Net earnings for the year ended March 31, 1995 decreased
by $224,000 or 34.9% to $417,000 from $641,000 for the year ended March 31,
1994. The decrease was primarily due to a reduction in non-interest income of
$121,000 and an increase in non-interest expense of $177,000 offset by a
reduction in income tax expense of $104,000. For the years ended March 31, 1995
and 1994, the return on average assets was .56% and .87%, respectively, while
the return on average equity was 6.68% and 11.18%, respectively.
Net Interest Income. For the year ended March 31, 1995, net interest income
decreased by $56,000. This reflects an increase of $107,000 in interest income
to $4.7 million from $4.6 million and an increase in interest expense of
$163,000 to $2.8 million and $2.7 million. The net decrease was primarily due
to the cost of the Company's interest-bearing liabilities increasing faster than
the yield on the Company's interest-earning assets. The yield on the Company's
assets was negatively impacted by the lagging nature of repricing on the
Company's mortgage-backed securities portfolio, a significant portion of which
reprices based upon the Eleventh District cost of funds index. In addition, to
address competition for deposits in the local area, the Bank offered special
certificate accounts during the 1995 fiscal year.
For the year ended March 31, 1995, the average yield on interest-earning assets
was 6.39% compared to 6.35% for 1994. The average cost of interest-bearing
liabilities was 4.14% for the year ended March 31, 1995 an increase from 3.95%
for 1994. The average balance of interest-earning assets increased by $1.2
million to $73.4 million for the year ended March 31, 1995 compared to $72.2
million for fiscal 1994. During this same time period, the average balance of
interest-bearing liabilities increased by $897,000 to $68.0 million for the year
ended March 31, 1995 from $67.1 million fiscal 1994.
Due to the higher funding costs, the average interest rate spread was 2.25% for
the year ended March 31, 1995 compared to 2.40% for fiscal 1994. The average
net interest margin was 2.56% for the year ended March 31, 1995 compared to
2.68% for the year ended March 31, 1994.
Provision for Loan Losses. During the year ended March 31, 1995, the Bank did
not record a provision for additional loan losses. The Bank's loan portfolio
consists primarily of one-to-four family mortgage loans, and the Bank
experienced little change in the composition of its loan portfolio and
experienced minimal charge-offs in the past three years. The allowance for
loan losses of $119,000 or .36% of loans receivable, net at March 31, 1995,
compares to $117,000 or .40% of loans receivable, net at March 31, 1994. The
allowance for loan losses as a percentage of non-performing assets was 70.83% at
March 31, 1995, compared to 64.29% at March 31, 1994.
Non-Interest Income. For the year ended March 31, 1995, non-interest income
decreased by $121,000 or 39.3% due primarily to fewer gains being realized from
the sale of mortgage loans in the secondary market, a loss on the sale of
available for sale securities, partially offset by an increase in other
11
<PAGE>
income. The gain on the sale of loans in the secondary market decreased $84,000
as the Bank discontinued selling fixed rate loan originations in the secondary
market early in fiscal 1995. In fiscal 1995, losses of $39,000 were incurred
from the sale of available for sale securities and loans held for sale. During
fiscal 1994, a gain of $126,000 was recognized on the sale of securities. Other
income includes commissions on insurance sales by the Bank's service corporation
of $105,000 during fiscal 1995 compared to $53,000 during fiscal 1994, the
service corporation's first year of existence.
Non-Interest Expense. Non-interest expense increased by $177,000 to $1.4
million for the year ended March 31, 1995 from $1.2 million for the year ended
March 31, 1994. Compensation expense increased $113,000 to $748,000 in fiscal
1995 from $635,000 in fiscal 1994. During fiscal 1995, the Bank adopted a
supplemental officers retirement plan which increased expenses by $22,000.
During this period, the Bank was required due to updated actuarial computations
to increase its contribution to its retirement plan by $48,000. The Bank also
deferred $28,000 less in compensation cost for fiscal 1995 compared with fiscal
1994 due to a decrease in loan originations. In accordance with generally
accepted accounting principles ("GAAP"), the Bank defers certain direct loan
origination and modification costs and amortizes these costs as an adjustment to
interest income. Federal insurance premiums increased $16,000 to $154,000 from
$138,000 due to a credit received in fiscal 1994 for the return of the prepaid
Federal Savings and Loan Insurance Corporation ("FSLIC") secondary reserve. In
addition, other operating expenses increased $49,000 to $346,000 in fiscal 1995
from $297,000 in fiscal 1994, due primarily to the operations of the Bank's
service corporation.
Income Taxes. Income taxes decreased by $104,000 to $221,000 for the year ended
March 31, 1995 from $325,000 for the year ended March 31, 1994. This decease
results from the decrease in income before income taxes. The Bank's effective
tax rates were 35% and 34% for fiscal 1995 and 1994, respectively.
Asset Liability Management
- --------------------------
One of the Company's principal financial objectives is to achieve long-term
profitability while reducing its exposure to fluctuations in interest rates. The
Company has sought to reduce exposure of its earnings to changes in market
interest rates by managing the mismatch between asset and liability maturities
and interest rates. The principal element in achieving this objective has been
to increase the interest-rate sensitivity of the Company's assets by originating
loans with interest rates subject to periodic adjustment to market conditions.
Accordingly, the Company has emphasized the origination of ARM loans and
consumer loans for retention in its portfolio. Until early in fiscal 1995, the
Company also generally sold its long-term fixed-rate loans in the secondary
market. The Company currently retains longer term fixed rate loans in portfolio
as part of its effort to increase the size and yield of its loan portfolio and
to reduce its mortgage-backed securities portfolio. The Company has adopted an
informal policy, which is subject to change from time to time, to increase the
longer term fixed rate loans in its portfolio so that such loans comprise up to
40% of total loans receivable. In addition, the Company has invested in short
to intermediate term investments and adjustable rate mortgage-backed securities,
which although long-term in nature, adjust periodically in response to changes
in general levels ofinterest rates.
The Company has historically relied upon retail deposit accounts as its primary
source of funds and will continue to do so. Management believes that retail
deposit accounts as a source of funds, compared to brokered deposits and long-
term borrowings, reduces the effects of interest rate fluctuations because these
deposits generally represent a more stable source of funds. In addition, the
Company has emphasized longer term certificate accounts in an effort to extend
the maturity of its liabilities.
12
<PAGE>
The Company's Board of Directors has formulated an Asset Liability Management
Policy designed to promote long-term profitability while managing interest-rate
risk. The Company recognizes the inherent risk in its interest-sensitive gap
position, particularly in periods of fluctuating interest rates. The current
positive one-year gap position is within the board-prescribed limits for
interest rate periods and for periods when rates are increasing.
The following table sets forth at March 31, 1996, the amount of interest-earning
assets and interest-bearing liabilities maturing or repricing within the time
periods indicated. The table assumes an 8% annual prepayment rate for fixed-
rate real estate loans, adjustable-rate real estate loans, mortgage-backed
securities and consumer loans. The Bank's deposits are classified as repricing
in the "six months or less" category, except for certificate accounts which are
classified based upon their actual maturity.
<TABLE>
<CAPTION>
Maturing or Repricing
-----------------------------------------------------------
Over 6 Over Over
6 Months Months to 1-3 3-5 Over
or Less One Year Years Years 5 Years Total
Amount Amoun Amount Amount Amount Amount
-----------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate real
estate loans $ 930 $ 884 $ 3,049 $2,570 $13,069 $20,502
Adjustable rate
real estate loans 11,048 7,927 1,900 - - 20,875
Consumer loans 808 497 1,377 1,393 460 4,535
Mortgage-backed
securities HTM 9,778 6,521 - - - 16,299
Mortgage-backed
securities AFS 6,949 617 - 341 - 7,907
Investment securities 1,499 997 888 499 2,480 6,363
FHLB Stock 742 - - - - 742
Other 5,430 - - - - 5,430
----- ----- ---- ---- ----- -----
Total interest-
earning assets $37,184 $17,443 $ 7,214 $4,803 $16,009 $82,653
====== ====== ===== ===== ====== ======
Interest-bearing
liabilities:
Savings deposits $ 3,676 $ - $ - $ - $ - $ 3,676
Demand and NOW deposits 5,877 - - - - 5,877
Certificate accounts 28,448 13,548 8,134 6,619 138 56,887
------ ------ ----- ----- --- ------
Total interest-
bearing liabilities $38,001 $13,548 $ 8,134 $6,619 $ 138 $66,440
====== ====== ===== ===== === ======
Interest-earning assets
less interest-bearing
liabilities (817) 3,895 (920)(1,816) 15,871 16,213
Cumulative interest-rate
sensitivity gap (817) 3,078 2,158 342 16,213 16,213
Cumulative interest-rate
gap as a percentage
of assets at 3/31/96 -.98% 3.69% 2.59% 0.41% 19.44% 19.44%
Cumulative interest-rate
gap as a percentage of
interest-earning
assets at 3/31/96 -.99 3.72 2.61 0.41 19.61 19.61
</TABLE>
13
<PAGE>
Net Portfolio Value
- -------------------
In order to encourage associations to reduce their interest rate risk, the OTS
adopted a rule incorporating an interest rate risk ("IRR") component into the
risk-based capital rules. The IRR component is a dollar amount that will be
deducted from total capital for the purpose of calculating an institution's
risk-based capital requirement and is measured in terms of the sensitivity of
its net portfolio value ("NPV") to changes in interest rates. NPV is the
difference between incoming and outgoing discounted cash flows from assets,
liabilities, and off-balance sheet contracts. An institution's IRR is measured
as the change to its NPV as a result of a hypothetical 200 basis point ("bp")
change in market interest rates. A resulting change in NPV of more than 2% of
the estimated market value of its assets will require the institution to deduct
from its capital 50% of that excess change. The rules provide that the OTS will
calculate the IRR component quarterly for each institution. The Bank, based on
asset size and risk-based capital, has been informed by the OTS that it is
exempt from this rule. Nevertheless, the following table presents the Bank's
NPV at March 31, 1996, as calculated by the OTS, based on information provided
to the OTS by the Bank.
<TABLE>
<CAPTION>
Net Portfolio Value NPV as % of PV of Assets
Change
in Rates $ Amount $ Change % Change NPV Ratio Change
- -------- -------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
+400 bp 7,368 -4,618 -39% 10.05% -493 bp
+300 bp 8,796 -3,191 -27 11.69 -329 bp
+200 bp 10,099 -1,888 -16 13.11 -187 bp
+100 bp 11,171 -816 -7 14.21 -78 bp
- bp 11,986 14.98
- -l00 bp 12,517 531 +4 15.43 +45 bp
- -200 bp 12,766 780 +7 15.57 +59 bp
- -300 bp 13,002 1,016 +8 15.70 +71 bp
- -400 bp 13,451 1,465 +12 16.03 +105 bp
</TABLE>
<TABLE>
<CAPTION>
March 31,
1996
-------------
<S> <C>
*** Risk measures: 200 BP rate shock ***
Pre-Shock NPV ratio: NPV as % of PV of Assets 14.98%
Exposure Measure: Post-shock NPV ratio 13.11
Sensitivity Measure: Change in NPV ratio -187 bp
*** Calculation of capital component ***
Change in NPV as % of PV of Assets -2.36%
Interest rate risk capital component ($000) -
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in both
the computation of NPV and in the analysis presented in prior tables setting
forth the maturing and repricing of interest-earning assets and interest-bearing
liabilities. Although certain assets and liabilities may have similar
maturities or periods within which they will reprice, they may react differently
to changes in market interest rates. The interest rates on certain types of
assets and
14
<PAGE>
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, adjustable-rate mortgages have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. The
proportion of adjustable-rate loans could be reduced in future periods if market
interest rates would decrease and remain at lower levels for a sustained period,
due to increased refinance activity. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in the table. Finally, the ability of many
borrowers to service their adjustable-rate debt may decrease in the event of a
sustained interest rate increase.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of funds are deposits, repayments and prepayments
of loans and mortgage-backed securities, the maturity of investment securities
and interest income. Although maturity and scheduled amortization of loans are
relatively predictable sources of funds, deposit flows and prepayments on loans
are influenced significantly by general interest rates, economic conditions and
competition. Mortgage loans and mortgage-backed securities prepayments
accelerated through all of 1992 and 1993 and the first few months of 1994, due
to lower level of interest rates which have prompted significant mortgage loan
refinancing activity. Since early 1994, however, interest rates have increased
and mortgage loan refinancing has decreased.
The primary investing activity of the Company is originating adjustable rate
mortgages and fixed rate mortgages to be held to maturity. The Company will
purchase loans from other Missouri originators if loans are unavailable in its
market area. For the fiscal years ended March 31, 1996 and 1995, the Bank
originated loans for its portfolio in the amount of $13.9 million and $11.2
million, respectively. Purchases of loans during fiscal 1996 and 1995 totaled
$6.9 million and $789,000, respectively. For the fiscal years ended March 31,
1996 and 1995, these activities were partially funded by principal repayments of
$13.4 million and $13.5 million, respectively.
The Bank is required to maintain minimum levels of liquid assets under the
Office of Thrift Supervision (OTS) regulations. Savings institutions are
required to maintain an average daily balance of liquid assets (including cash,
certain time deposits, and specified U.S. Government, State or Federal Agency
obligations) of not less than 5.0% of its average daily balance of net
withdrawable accounts plus short-term borrowings
It is the Bank's policy to maintain its liquidity portfolio in excess of
regulatory requirements. The Bank's eligible liquidity ratios were 7.74%, and
18.74% respectively, at March 31, 1996 and 1995.
The Company's most liquid assets are cash and cash equivalents, which include
short-term investments. At March 31, 1996 and 1995, cash and cash equivalents
were $5.7 million and $4.5 million, respectively.
Liquidity management for the Company is both an ongoing and long-term component
of the Company's asset liability management strategy. Excess funds generally
are invested in overnight deposits at the Federal Home Loan Bank of Des Moines
(FHLB). Should the Company require funds beyond its ability to generate them
internally additional sources of funds are available through advances from the
FHLB. The Company would pledge its FHLB stock or certain other assets as
collateral for such advances.
At March 31, 1996, the Bank had outstanding loan commitments of $1,007,000 and
undisbursed loans in process of $766,000. The Bank anticipates it will have
sufficient funds available to meet its current loan commitments, including loan
applications received and in process prior to the issuance of firm commitments.
15
<PAGE>
Certificates of deposit which are scheduled to mature in one year or less at
March 31, 1996 were $42.0 million. Management believes that a significant
portion of such deposits will remain with the Bank.
At March 31, 1996, the Bank had tangible capital of $10.9 million, or 13.8% of
total adjusted assets, which is approximately $9.7 million above the minimum
requirement of 1.5% of adjusted total assets in effect on that date. The Bank
had core capital of $10.9 million, or 13.8% of adjusted total assets, which is
$8.5 million above the minimum leverage ratio requirement of 3.0% in effect on
that date. The Bank had total capital of $11.0 million and total risk-weighted
assets of $33.3 million, or total capital of 33.1% of risk-weighted assets.
This was $8.4 million above the 8.0% requirement in effect on that date.
The deposits of savings associations such as the Bank are presently insured by
the Savings Association Insurance Fund (the "SAIF"), which along with the Bank
Insurance Fund (the "BIF"), is one of the two insurance funds administered by
the Federal Deposit Insurance Corporation. Financial institutions which are
members of the BIF are experiencing substantially lower deposit insurance
premiums because the BIF has achieved its required level of reserves while the
SAIF has not yet achieved its required level of reserves. A number of proposals
are being considered to recapitalize the SAIF in order to eliminate this
disparity. One plan currently being considered by the Treasury Department, the
FDIC, the OTS and the Congress provides for a one-time assessment of .85% to
.90% to be imposed on all deposits assessed at the SAIF rates as of March 31,
1995, including those held by commercial banks, and for BIF deposit insurance
premiums to be used to pay the FICO bond interest on a pro rata basis together
with SAIF premiums. The BIF and SAIF would be merged into one fund as soon as
practicable, but no later than January 1, 1998. There can be no assurance that
any particular proposal will be implemented or that premiums for either BIF or
SAIF members will not be adjusted in the future by the FDIC or by legislative
action. If the legislation is enacted, the Bank will be assessed approximately
$600,000. Assuming the special assessment is tax deductible, the cost, net of
income tax benefits, will be approximately $375,000. Future assessments would
then be anticipated to be reduced to .04% to .31% of eligible deposits, based on
risk classification assigned to the Bank by FDIC.
Recent Accounting Developments
- ------------------------------
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of," is effective for the fiscal year beginning April 1, 1996. The statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized if the sum of the expected future
cash flows is less than the carrying amount of the asset. Management does not
expect the implementation of SFAS No. 121 to have a material impact on the
Company's consolidated financial position or results of operations.
SFAS No. 122, Accounting for Mortgage Servicing Rights, will be effective for
the Bank for the year beginning April 1, 1996 and generally requires entities
that sell or securities loans and retain the mortgage servicing rights to
allocate the total cost of the mortgage loans to the mortgage servicing right
and the loan based on their relative fair value. Costs allocated to mortgage
servicing rights should be recognized as a separate asset and amortized over the
period of estimated net servicing income and evaluated for impairment based on
fair value. The adoption of this statement is not expected to have a material
effect on the consolidated financial statements.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-based Compensation" will require pro forma disclosures in 1997 of net
earnings and earnings per share as if the new accounting method based on the
16
<PAGE>
estimated fair value of employee stock options had been adopted. The Company
has not decided if the optional accounting treatment allowed by SFAS No. 123
will be adopted.
In April 1995, the FASB issued SOP 94-6, "Disclosure of Certain Significant
Risks and Uncertainties." This SOP applies to financial statements prepared in
conformity with generally accepted accounting principles by all nongovernmental
entities. The disclosure requirements in SOP 94-6 focus primarily on risks and
uncertainties that could significantly affect the amounts reported in the
financial statements in the near-term functioning of the reporting entity. The
risks and uncertainties discussed in SOP 94-6 stem from the nature of the
entity's operations, from the necessary use of estimates in the preparation of
the entity's financial statements, and from significant concentrations in
certain aspects of the entity's operations. SOP 94-6 is effective for financial
statements issued for fiscal years ending after December 31, 1995 and is not
expected to have any impact on the Bank's operations.
For a discussion of certain recent accounting developments including SFAS No.
107, SFAS No. 114, SFAS No. 115, SFAS No. 118, SFAS No. 119, and SOP 93-6 see
Notes to the Consolidated Financial Statements in this Annual Report.
Impact of Inflation and Changing Prices
- ---------------------------------------
The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles, which
generally requires the measurement of financial position and operating results
in terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation
is reflected in the increased cost of the Company's operations. Nearly all the
assets and liabilities of the Company are financial, unlike most industrial
companies. As a result, the Company's performance is directly impacted by
changes in interest rates, which are indirectly influenced by inflationary
expectations. The Company's ability to match the interest sensitivity of its
financial assets to the interest sensitivity of its financial liabilities in its
asset/liability management may tend to minimize the effect of change in interest
rates on the Company's performance. Changes in interest rates do not
necessarily move to the same extent as changes in the price of goods and
services. In the current increasing interest rate environment, liquidity and
the maturity structure of the Company's assets and liabilities are critical to
the maintenance of acceptable performance levels.
17
<PAGE>
[LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE]
1000 Walnut, Suite 1600
P.O. Box 13127
Kansas City, MO 64199
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Hardin Bancorp, Inc.:
We have audited the accompanying consolidated balance sheet of Hardin Bancorp,
Inc. and subsidiaries (the Company) as of March 31, 1996 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
the year then ended, and the balance sheet of Hardin Federal Savings Bank and
subsidiary (the Bank) as of March 31, 1995 and the related consolidated
statements of earnings, stockholders' equity and cash flows for the years ended
March 31, 1995 and 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and the
Bank as of March 31, 1996 and 1995 and the results of their operations and
their cash flows for each of the years in the three-year period ended March 31,
1996, in conformity with generally accepted accounting principles.
As described in note 1 to the consolidated financial statements, the Bank
adopted Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," effective April 1, 1994.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
May 24, 1996
18
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Consolidated Balance Sheets
March 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash $ 253,557 236,475
Interest-bearing deposits in other financial institutions 5,430,396 4,205,641
Certificates of deposit - 100,000
Investment securities available-for-sale (note 3) 6,362,850 7,760,068
Mortgage-backed securities (note 4):
Held-to-maturity 16,298,987 28,473,015
Available-for-sale 7,906,862 -
Loans receivable, net (note 5) 45,031,460 33,230,233
Accrued interest receivable on:
Investment securities 116,562 110,752
Mortgage-backed securities 188,532 193,059
Loans receivable 296,775 186,296
Premises and equipment (note 6) 510,218 512,390
Stock in Federal Home Loan Bank (FHLB) of Des Moines, at cost 742,000 727,400
Prepaid expenses and other assets 248,623 257,726
---------- ----------
Total assets $ 83,386,822 75,993,055
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits (note 7) $ 66,605,247 67,449,281
Advances from borrowers for property taxes and insurance 223,752 205,306
Advances on FHLB line of credit (note 8) - 1,500,000
Accrued interest payable 30,385 31,969
Income taxes payable (note 9):
Current 56,575 4,132
Deferred 48,000 89,000
Accrued expenses and other liabilities 387,922 320,853
---------- ----------
Total liabilities 67,351,881 69,600,541
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; 3,500,000 shares authorized,
1,058,000 shares issued and outstanding at March 31, 1996 10,580 -
Serial preferred stock, $.01 par value; 500,000 shares
authorized, none issued or outstanding - -
Additional paid-in capital 10,055,448 -
Retained earnings (note 12) 6,885,230 6,480,507
Net unrealized loss on available-for-sale securities, net (154,597) (87,993)
Unearned employee benefits (note 10) (761,720) -
---------- ----------
Total stockholders' equity 16,034,941 6,392,514
Commitments (note 5)
Total liabilities $ 83,386,822 75,993,055
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Consolidated Statements of Earnings
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans receivable $ 3,193,688 2,466,374 2,348,628
Mortgage-backed securities 1,619,048 1,573,741 1,815,290
Investment securities 376,379 495,302 274,584
Other 363,164 158,587 148,939
--------- --------- ---------
Total interest income 5,552,279 4,694,004 4,587,441
--------- --------- ---------
Interest expense:
Deposits 3,441,049 2,773,931 2,650,493
FHLB advances 12,876 41,725 2,255
--------- --------- ---------
Total interest expense 3,453,925 2,815,656 2,652,748
--------- --------- ---------
Net interest income 2,098,354 1,878,348 1,934,693
Provision for losses on loans (note 5) 13,902 - 26,400
--------- --------- ---------
Net interest income after provision for losses 2,084,452 1,878,348 1,908,293
========= ========= =========
Noninterest income:
Service charges 67,021 67,799 66,548
Loan servicing fees 42,675 48,611 56,075
Gain on sale of loans held for sale - 1,433 85,558
Gain (loss) on sale of investments and mortgage-
backed securities (notes 3 and 4) 1,878 (40,816) 40,750
Other income 167,290 110,261 58,892
--------- --------- ---------
Total noninterest income 278,875 187,288 307,823
--------- --------- ---------
Noninterest expenses:
Compensation and benefits (note 10) 854,732 748,074 634,832
Occupancy and equipment 106,008 93,765 87,166
Federal insurance premiums 153,649 154,018 138,376
Data processing 90,897 85,835 81,753
Real estate owned (3,050) 205 9,989
Other 373,826 345,863 297,175
--------- --------- ---------
Total noninterest expenses 1,576,062 1,427,760 1,249,291
--------- --------- ---------
Earnings before income taxes 787,265 637,876 966,825
Income tax expense (note 9) 276,742 221,075 325,389
--------- --------- ---------
Net earnings $ 510,523 416,801 641,436
========= ========= =========
Net earnings per share (pro forma) $ .52 N/A N/A
========= ========= =========
Average number of shares outstanding (pro forma) 973,383 N/A N/A
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Net
unrealized
loss on
available-
Additional for-sale Unearned
Common paid-in Retained securities, employee
stock capital earnings net benefits Total
----- ------- -------- --- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31 1993 $ - - 5,422,270 - - 5,422,270
Net earnings - - 641,436 - - 641,436
Balance at March 31, 1994 - - 6,063,706 - - 6,063,706
Adoption of accounting change to record
net unrealized loss on securities available-
for-sale at April 1, 1994, net of taxes - - - (16,500) - (16,500)
Net earnings - - 416,801 - - 416,801
Change in net unrealized loss on securities
available-for-sale, net of tax - - - (71,493) - (71,493)
Balance at March 31, 1995 - - 6,480,507 (87,993) - 6,392,514
Net earnings - - 510,523 - - 510,523
Sale of common stock, net of issuance costs 10,580 10,036,820 - - - 10,047,400
Change in net unrealized loss on securities
available-for-sale, net of tax - - - (66,604) - (66,604)
Unearned Employee Stock Ownership Plan
(ESOP) benefit - - - - (846,400) (846,400)
Allocation of ESOP shares - 18,628 - - 84,680 103,308
Dividends declared ($.10 per share) - - (105,800) - - (105,800)
------ ---------- --------- --------- --------- ----------
Balance at March 31, 1996 $ 10,580 10,055,448 6,885,230 (154,597) (761,720) 16,034,941
====== ========== ========= ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Consolidated Statements of Cash Flows
Years ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Operating activities:
<S> <C> <C> <C>
Net earnings $ 510,523 416,801 641,436
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Provision for losses on loans 13,902 - 26,400
Depreciation 44,360 44,539 39,536
Premium amortization and accretion of discounts
and deferred loan fees, net 91,248 90,835 50,297
FHLB stock dividends (14,600) - (12,400)
Loss (gain) on sale of loans and securities, net (1,878) 39,383 (126,308)
Gain on sales of premises and equipment (4,877) - -
(Gain) loss on sales of real estate owned - (564) 9,678
Proceeds from sale of loans held for sale - 235,433 4,947,921
Origination of loans held for sale - (234,000) (4,862,363)
Allocation of ESOP shares 103,308 - -
Provision for deferred income taxes 4,565 (26,254) 22,607
Changes in other assets and liabilities:
Accrued interest receivable (111,762) (61,190) 81,454
Prepaid expenses and other assets 9,103 31,158 (6,018)
Accrued interest payable (1,584) (264) (6,229)
Accrued expenses and other liabilities (38,731) 71,609 43,804
Income taxes payable 52,443 (61,057) (225,463)
----------- --------- ----------
Net cash provided by operating
activities 656,020 546,429 624,352
----------- --------- ----------
Investing activities:
Net increase in loans receivable (4,871,370) (3,347,718) (2,407,937)
Proceeds from maturities of certificates of deposit in other
financial institutions 100,000 497,473 1,533
Purchase of loans (6,941,351) (788,502) -
Purchase of mortgage-backed securities (522,781) (1,276,446) (6,079,884)
Principal payments on mortgage-backed securities 4,475,167 5,437,003 8,634,960
Proceeds from sales of mortgage-backed securities - - 700,421
Purchase of investment securities available-for-sale (6,657,843) (7,489,375) -
Proceeds from maturities of investment securities available-
for-sale 4,901,696 700,000 -
Proceeds from sales of investment securities available-for-sale 3,264,197 5,457,594 -
Purchase of investment securities held-to-maturity - - (5,692,132)
Proceeds from maturities of investment securities held-to-
maturity - - 2,112,769
Proceeds from sales of investment securities held-to-maturity - - 1,894,085
Purchase of stock in FHLB of Des Moines - - (444,700)
Sale of stock in FHLB of Des Moines - - 355,000
Proceeds from sales of real estate owned - 35,976 33,009
Purchase of office property and equipment (50,810) (23,694) (14,539)
Proceeds from sale of office properties and equipment 13,500 1,260 -
----------- --------- ----------
Net cash used in investing activities $ (6,289,595) (796,429) (907,415)
----------- --------- ----------
</TABLE>
(Continued)
22
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Financing activities:
<S> <C> <C> <C>
Net increase (decrease) in deposits $ (844,034) 727,003 (753,596)
Net increase (decrease) in advances from borrowers for
taxes and insurance 18,446 3,045 (4,409)
Proceeds from FHLB advances 1,000,000 2,500,000 21,468,000
Repayments of FHLB advances (2,500,000) (1,000,000) (21,468,000)
Proceeds from issuance of stock, net of issuance costs 9,201,000 - -
---------- --------- -----------
Net cash provided by (used in) financing
activities 6,875,412 2,230,048 (758,005)
---------- --------- -----------
Increase (decrease) in cash and cash equivalents 1,241,837 1,980,048 (1,041,068)
Cash and cash equivalents at beginning of year 4,442,116 2,462,068 3,503,136
---------- --------- -----------
Cash and cash equivalents at end of year $ 5,683,953 4,442,116 2,462,068
========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 3,455,509 2,821,920 2,664,977
========== ========= ===========
Income taxes, net of refunds $ 224,299 308,388 528,244
========== ========= ===========
Noncash investing and financing activities:
Loans transferred to real estate owned $ - 24,540 33,503
========== ========= ===========
Loans to facilitate sales of real estate owned $ - - 7,100
========== ========= ===========
Dividend declared and payable on April 18, 1996 $ 105,800 - -
========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(1) Conversion and Acquisition of the Bank by the Company
-----------------------------------------------------
On September 28, 1995, Hardin Federal Savings Bank (the Bank) converted
from a federally chartered mutual savings bank to a federally chartered
stock savings bank, at which time all of the capital stock of the
converted bank was acquired by Hardin Bancorp, Inc. (the Company). The
Company was organized to acquire all of the stock issued by the Bank
upon consummation of the stock conversion. Prior to September 28, 1995,
the Company had no assets or liabilities and had not engaged in any
business other than as necessary to complete its organization and the
conversion. On September 28, 1995, in connection with the stock
conversion, the Company issued and sold 1,058,000 shares of its common
stock, par value $0.01 per share, in a subscription and community
offering to the Company's Employee Stock Ownership Plan, the Bank's
members and the general public. Total net proceeds of the subscription
and community offering, after conversion expenses of approximately
$532,600, were approximately $10,047,400. The Company utilized
$5,023,700 of the net proceeds to acquire all of the common stock
issued by the Bank in connection with the stock conversion. The
remaining $5,023,700 was retained for investment. The transaction was
accounted for in a manner similar to a pooling-of-interests method.
Accordingly, the accounting basis for assets, liabilities and equity
accounts remained the same as prior to the conversion.
(2) Summary of Significant Accounting Policies
------------------------------------------
(a) Principles of Consolidation and Basis of Presentation
-----------------------------------------------------
The accompanying consolidated financial statements include the accounts of
the Company and the Bank and its wholly-owned subsidiary, Hardin
Savings Service Corporation. Amounts for 1995 and 1994 are those of the
Bank. Significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Investment and Mortgage-backed Securities
-----------------------------------------
Prior to April 1, 1994, securities were stated at cost, adjusted for
amortization of premiums and accretion of discounts. The Company
adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on April 1, 1994. Under SFAS No. 115, investment
securities are classified as either available-for-sale or held-to-
maturity. Held-to-maturity securities are those which the Company has
the positive intent and ability to hold to maturity. The Company
classified all investment securities as available-for-sale and
classified all mortgage-backed securities as held-to-maturity on the
date of adoption. Pursuant to SFAS No. 115, implementation guidance
recently issued by the Financial Accounting Standards Board (FASB), the
Company reclassified certain held-to-maturity securities with aggregate
cost and fair value of approximately $8,076,000 and $7,838,000,
respectively, to available-for-sale in December 1995.
(Continued)
24
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
Held-to-maturity securities are recorded at amortized cost. Available-for-
sale securities are recorded at fair value. Unrealized holding gains
and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. Transfers of
securities from available-for-sale to held-to-maturity are recorded at
fair value at the date of transfer, and unrealized holding gains or
losses are amortized over the remaining life of the security.
A decline in the market value of any security below cost that is deemed
other than temporary is charged to income, resulting in the
establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to interest income using the interest
method. Realized gains and losses are included in income using the
specific identification method for determining the cost of the
securities sold.
(c) Loans
-----
The Company determines at the time of origination whether mortgage loans
will be held for the Company's portfolio or sold in the secondary
market. Loans originated and intended for sale in the secondary market
are recorded at the lower of aggregate cost or estimated fair value.
Fees received on such loans are deferred and recognized in income as
part of the gain or loss on sale. There were no such loans at March 31,
1996 or 1995.
The Company defers all loan origination, commitment and related fees and
certain direct origination costs related to loans generated for the
Bank's portfolio. The Bank amortizes the net fees over the expected
life of the individual loans using the interest method.
SFAS No. 114 and SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan," were adopted effective April 1, 1995. They require that impaired
loans be measured based on the present value of future cash flows
discounted at the loan's effective interest rate. The impact of these
statements on the consolidated financial statements of the Company was
immaterial.
(d) Allowance for Loan Losses
-------------------------
The provision for losses on loans is based upon management's estimate of
the amount required to maintain an adequate allowance for losses,
relative to the risks in the loan portfolio. This estimate is based on
reviews of the loan portfolio, including assessment of the estimated
net realizable value of the related underlying collateral, and
consideration of historical loss experience, current economic
conditions and such other factors which, in the opinion of management,
deserve current recognition. Loans are also subject to periodic
examination by regulatory agencies. Such agencies may require charge-
offs or additions to the allowance based upon their judgments about
information available at the time of their examination.
(Continued)
25
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
Additionally, accrual of interest on potential problem loans is excluded
from income by an offsetting increase in a specific allowance for loss
where, in the opinion of management, such exclusion is warranted.
(e) Mortgage Banking Activities
---------------------------
At March 31, 1996 and 1995, the Bank was servicing loans for others
amounting to $9,910,000 and $11,712,000, respectively. Loan servicing
fees include servicing fees from investors and certain charges
collected from borrowers, such as late payment fees, which are recorded
when received. The amount of escrow balances held for borrowers at
March 31, 1996 and 1995 was insignificant.
(f) Real Estate Owned
-----------------
Real estate properties acquired through foreclosure are initially recorded
at estimated fair value, less selling costs, at the date of
foreclosure. Costs relating to development and improvement of property
are capitalized, whereas holding costs are expensed when incurred.
Valuations are periodically reviewed and an allowance for losses is
established by a charge to operations if the carrying value of a
property exceeds its estimated fair value, less selling costs.
(g) Stock in Federal Home Loan Bank of Des Moines
---------------------------------------------
The Bank is a member of the Federal Home Loan Bank (FHLB) system. As a
member, the Bank is required to purchase and hold stock in the FHLB of
Des Moines in an amount equal to the greater of (a) 1% of unpaid
residential loans, (b) 5% of outstanding FHLB advances, or (c) .3% of
total assets. FHLB stock is carried at cost in the accompanying
consolidated balance sheets.
(h) Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using both straight-line and accelerated
methods over the estimated useful lives of the assets, which range from
three to thirty-five years. Major replacements and betterments are
capitalized while normal maintenance and repairs are charged to expense
when incurred. Gains or losses on dispositions are reflected in current
operations.
(i) Income Taxes
------------
The Company records deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective income tax bases. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the
period that includes the enactment date.
(Continued)
26
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
(j) Effect of New Financial Accounting Standards
--------------------------------------------
SFAS No. 122, "Accounting for Mortgage Servicing Rights," will be effective
for the year beginning April 1, 1996 and generally requires entities
that sell or securitize loans and retain the mortgage servicing rights
to allocate the total cost of the mortgage loans to the mortgage
servicing right and the loan based on their relative fair value. Costs
allocated to mortgage servicing rights should be recognized as a
separate asset and amortized over the period of estimated net servicing
income and evaluated for impairment based on fair value. The adoption
of this statement is not expected to have a material effect on the
consolidated financial statements.
Also, SFAS No. 123, "Accounting for Stock-based Compensation," will require
pro forma disclosures in 1997 of net earnings and earnings per share as
if the new accounting method based on the estimated fair value of
employee stock options had been adopted. The Company has not decided if
the optional accounting treatment allowed by SFAS No. 123 will be
adopted.
(k) Cash and Cash Equivalents
-------------------------
For purposes of the cash flows, all short-term investments with a maturity
of three months or less at date of purchase are considered cash
equivalents.
(l) Use of Estimates
----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(m) Pro Forma Earnings
------------------
Pro form earnings per share assumes the common shares issued in 1996 have
been outstanding for all periods and further assumes no earnings on
reinvested proceeds from the sale of the shares. The shares issued to
the Employee Stock Ownership Plan are not included in this computation
until they are allocated to plan participants (see note 10).
(Continued)
27
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
(3) Investment Securities
---------------------
A summary of investment securities available-for-sale at March 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
March 31, 1996:
United States government and
agency obligations maturing:
Within one year $ 2,499,948 102 (4,103) 2,495,947
After one year, but within
five years 3,888,286 - (21,383) 3,866,903
----------- --- ------- ---------
$ 6,388,234 102 (25,486) 6,362,850
=========== === ======= =========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
March 31, 1995:
United States government and
agency obligations maturing:
Within one year $ 1,697,573 - 17,727 1,679,846
After one year, but within
five years 6,195,819 - 115,597 6,080,222
----------- --- ------- ---------
$ 7,893,392 - 133,324 7,760,068
============ === ======= =========
</TABLE>
Proceeds from the sales of investment securities for the years ended
March 31, 1996, 1995 and 1994 totaled $3,264,197, $5,457,594 and
$1,894,085, respectively, and resulted in gross realized losses of
$3,793 and $40,816 in 1996 and 1995, respectively, and gross realized
gains of $5,671 in 1996.
At March 31, 1996, investment securities with a fair value of approximately
$702,000 were pledged to secure public funds on deposit.
(Continued)
28
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
(4) Mortgage-backed Securities
--------------------------
Mortgage-backed securities at March 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
March 31, 1996:
Available-for-sale:
FHLMC participation
certificates $ 3,324,193 - (105,019) 3,219,174
FNMA participation
certificates 4,802,778 - (115,090) 4,687,688
------------ ------ -------- ----------
$ 8,126,971 - (220,109) 7,906,862
============ ====== ======== ==========
Held-to-maturity:
Pass-through certificates $ 2,141,827 20,000 (5,004) 2,156,823
guaranteed by GNMA
FHLMC participation
certificates 5,825,293 7,031 (193,518) 5,638,806
FNMA participation
certificates 8,331,867 14,003 (122,467) 8,223,403
------------ ------ -------- ----------
$ 16,298,987 41,034 (320,989) 16,019,032
============ ====== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
March 31, 1995:
Held-to-maturity:
Pass-through certificates $ 2,475,442 - 62,914 2,412,528
guaranteed by GNMA
FHLMC participation
certificates 11,079,404 17,484 399,009 10,697,879
FNMA participation
certificates 14,918,169 - 467,979 14,450,190
------------ ------ -------- ----------
$ 28,473,015 17,484 929,902 27,560,597
============ ====== ======== ==========
</TABLE>
During the years ended March 31, 1996 and 1995, there were no sales of
mortgage-backed securities.
(Continued)
29
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
(5) Loans Receivable
----------------
Loans receivable at March 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Real estate:
One to four family $38,395,962 28,968,859
Land 122,843 100,778
Commercial 184,195 156,865
Construction 2,673,827 358,300
Consumer 4,535,437 4,033,635
----------- ----------
45,912,264 33,618,437
Loans in process (766,414) (247,161)
Discounts and deferred loan
origination fees, net of cost 16,650 (22,138)
Allowance for loan losses (131,040) (118,905)
----------- ----------
Net loans receivable $45,031,460 33,230,233
=========== ==========
</TABLE>
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. Residential loans with a loan-to-value ratio exceeding 80% are
required to have private mortgage insurance or to pledge savings
account balances or additional collateral. The Bank's principal lending
areas are agricultural-based rural communities northeast of Kansas
City, Missouri.
The Bank makes contractual commitments to extend credit which are subject
to the Bank's credit monitoring procedures. At March 31, 1996, the Bank
was committed to originate loans aggregating approximately $1,007,340.
Fixed loan commitments approximated $975,340 with interest rates
ranging from 7.50% to 8.50%. There were no commitments to buy loans at
March 31, 1996.
The Company had loans to directors and officers at March 31, 1996 and 1995,
which carry terms similar to those for other loans. A summary of such
loans is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Balance at beginning of year $187,000 165,000
New loans 22,000 58,000
Payments (63,000) (36,000)
-------- -------
Balance at end of year $146,000 187,000
======== =======
</TABLE>
(Continued)
30
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
Activity in the allowance for loan losses for the years ended
March 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 118,905 117,023 92,615
Provision for loan losses 13,902 - 26,400
Charge-offs (1,767) (23,493) (4,189)
Recoveries - 25,375 2,197
--------- ------- -------
Balance at end of year $ 131,040 118,905 117,023
========= ======= =======
</TABLE>
Nonaccrual loans at March 31, 1996 and 1995 aggregated approximately
$93,000 and $109,000, respectively.
(6) Premises and Equipment
----------------------
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and improvements $ 78,000 $ 78,000
Building 460,384 421,839
Leasehold improvements 33,603 33,603
Furniture and fixtures 473,578 461,313
Automobile - 15,678
---------- ----------
1,045,565 1,010,433
Less accumulated depreciation 535,347 498,043
---------- ----------
Office properties and equipment, net $ 510,218 $ 512,390
========== ==========
</TABLE>
(Continued)
31
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
(7) Deposits
--------
Deposits at March 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- ----------------------
Stated rate Amount Percent Amount Percent
----------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Balance by interest rate:
Commercial 0.00% $ 164,993 - % $ 126,142 - %
NOW accounts 0.00-2.50% 1,824,743 3 1,984,950 3
Money market demand -
accounts 3.25-4.00% 4,052,579 6 4,115,421 6
Passbook accounts 2.50% 3,675,537 6 3,957,937 6
---------- --- ----------- ---
9,717,852 15 10,184,450 15
---------- --- ----------- ---
Certificate accounts 0.00-2.99% - - 5,000 -
3.00-3.99 109,512 - 3,944,235 6
4.00-4.99 8,731,472 13 16,004,835 24
5.00-5.99 28,248,958 42 20,482,390 30
6.00-6.99 15,427,213 23 5,868,785 9
7.00-7.99 3,987,487 6 9,941,340 15
8.00 and up 382,753 1 1,018,246 1
----------- --- ----------- ---
56,887,395 85 57,264,831 85
----------- --- ----------- ---
$66,605,247 100% $67,449,281 100%
=========== === =========== ===
Weighted average interest rate
on deposits at March 31 5.16% 4.96
==== ====
</TABLE>
A summary of contractual maturity dates for certificate accounts at
March 31, 1996 is as follows:
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
Contractual maturity of
certificate accounts:
Under 12 months $41,995,948 74%
12 to 24 months 6,192,281 11
24 to 36 months 1,941,646 3
36 to 48 months 6,332,678 11
48 to 60 months 286,195 1
Over 60 months 138,647 -
----------- ---
$56,887,395 100%
=========== ===
</TABLE>
(Continued)
32
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
The components of interest expense on deposits for the years ended March
31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NOW, passbook, Super NOW and
money market demand $ 276,250 297,811 344,054
Certificates of deposit 3,164,799 2,476,120 2,306,439
---------- --------- ---------
$3,441,049 2,773,931 2,650,493
========== ========= =========
</TABLE>
At March 31, 1996 and 1995, certificate accounts of $100,000 or greater
totaled $3,812,778 and $2,671,496, respectively.
(8) Advance on FHLB Line of Credit
------------------------------
At March 31, 1995, the Bank had advances of $1,500,000 on a $3,500,000 line
of credit from the FHLB of Des Moines. The line of credit expired in
January 1996. The rate on this line was 65 basis points above the New
York Federal Funds Rate. One to four family real estate mortgages of
approximately $27,831,000 were pledged to secure this line of credit.
(9) Income Taxes
------------
The components of income tax expense from operations are as follows:
<TABLE>
<CAPTION>
Federal State Total
------- ----- -----
<S> <C> <C> <C>
Year ended March 31, 1996:
Current $241,177 31,000 272,177
Deferred 4,565 - 4,565
-------- ------- -------
$245,742 31,000 276,742
======== ======= =======
Year ended March 31, 1995:
Current $247,659 45,000 292,659
Deferred (54,584) (17,000) (71,584)
-------- ------- -------
$193,075 28,000 221,075
======== ======= =======
Year ended March 31, 1994:
Current $340,389 57,000 397,389
Deferred (58,000) (14,000) (72,000)
-------- ------- -------
$282,389 43,000 325,389
======== ======= =======
</TABLE>
In addition, during the years ended March 31, 1996 and 1995, the Company
recorded deferred income tax benefits of approximately $46,000 and
$45,000, respectively, related to unrealized losses on investment
securities available-for-sale.
(Continued)
33
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
The reasons for the difference between the effective tax rates and the
expected federal income tax rate of 34% are as follows:
<TABLE>
<CAPTION>
Percent of earnings before
income tax expense
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Expected federal income tax rate 34.0% 34.0 34.0
Items affecting income tax rate:
State taxes, net of federal tax benefit 2.2 2.9 3.0
Reduce valuation allowance for
capital loss carryforward - - (4.7)
Other (1.0) (2.2) 1.4
---- ---- ----
Effective tax rate 35.2% 34.7 33.7
==== ==== ====
</TABLE>
The tax effects of temporary differences which give rise to a significant
portion of deferred tax assets and liabilities at March 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Unrealized loss on available-for-sale $ 91,000 45,000
securities
Allowance for loan losses 51,000 35,000
Accrued compensation 93,000 45,000
Other 7,000 1,000
-------- -------
Deferred tax assets 242,000 126,000
-------- -------
FHLB dividends 33,000 20,000
Tax bad debt reserve in excess of base year 145,000 110,000
Fixed asset basis difference 42,000 50,000
Core deposit premium 15,000 15,000
Accrued interest on loans originated prior to
September 25, 1985 10,000 9,000
Loan origination fees 41,000 7,000
Other 4,000 4,000
-------- -------
Deferred tax liabilities 290,000 215,000
-------- -------
Net deferred tax liabilities $ 48,000 89,000
======== =======
</TABLE>
There was no valuation allowance for the deferred tax assets at March 31,
1996 or 1995.
Under the Internal Revenue Code, the Bank is allowed the greater of an
experience method bad debt deduction based on actual charge-offs or a
statutory bad debt deduction based on a percentage of taxable income
before such deduction for additions to tax bad debt reserves
established for the purpose of absorbing losses. The allowable
deduction under the percentage of taxable income method is 8% of income
subject to tax before such deduction.
(Continued)
34
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
(10) Benefit Plans
-------------
Qualified employees of the Company and Bank participate in an employee
stock ownership plan (the ESOP). In connection with the conversion
described in note 1, the ESOP has borrowed from the Company, the
proceeds of which were used to acquire 84,640 shares of the Company's
common stock. Contributions from the Company and the Bank, along with
dividends on unallocated shares of common stock, are used by the ESOP
to make payments of principal and interest on the loan. Under the terms
of the ESOP, contributions are allocated to participants using a
formula based upon compensation. Participants vest over five years.
Because the Company has provided the ESOP's borrowing, the unearned
compensation is presented as a reduction of stockholders' equity in the
accompanying 1996 consolidated balance sheet. On March 31, 1996, 8,468
shares were allocated to participants. ESOP contributions by the Bank,
representing the fair value of allocated shares, charged to
compensation and benefits expense in 1996 were approximately $103,000.
The fair value of the remaining unallocated shares at March 31, 1996
aggregated approximately $876,000.
The Bank's employees participate in the Financial Institutions Retirement
Fund, a noncontributory, multiemployer, defined benefit pension plan
which covers all eligible employees with one or more years of
continuous service. The Bank's policy is to fund pension costs accrued.
Pension expense of $52,000, $53,360 and $4,862 was recorded for the
years ended March 31, 1996, 1995 and 1994, respectively.
The Bank has supplemental retirement plans for officers and directors.
Under the Directors' Plan, members forfeit their first five years of
directors' fees to enter into the plan and will receive monthly
payments for a ten-year period beginning at the time the member turns
sixty-five. Under the Officers' Plan, two officers, after completing a
pre-determined service period, will receive benefit payments beginning
at age sixty-five for a term of ten years. Expense under the plans for
the years ended March 31, 1996, 1995 and 1994 amounted to approximately
$103,000, 111,000 and $99,000, respectively. The Bank has purchased
life insurance policies to fund its obligations under the plans.
The Board of Directors has approved the adoption of a stock option plan and
a recognition and retention plan (RRP). Under the stock option plan,
options to acquire 105,800 shares of the Company's common stock may be
granted to certain officers, directors and employees of the Company or
the Bank. The options will enable the recipient to purchase stock at an
exercise price equal to the fair market value of the stock at the date
of the grant. The options will vest over the five years following the
date of grant.
Under the RRP, common stock aggregating 42,320 shares may be awarded to
certain officers and directors of the Company and the Bank. The awards
will not require any payment by the recipients, and will vest over five
years beginning one year after shareholder approval of the RRP.
(Continued)
35
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
(11) Financial Instruments With Off-balance Sheet Risk and Concentrations of
-----------------------------------------------------------------------
Credit Risk
-----------
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet customer financing needs. These
financial instruments consist principally of commitments to extend
credit. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet
instruments. The Bank's exposure to credit loss in the event of
nonperformance by the other party is represented by the contractual
amount of those instruments. The Bank does not generally require
collateral or other security on unfunded loan commitments until such
time that loans are funded.
In addition to financial instruments with off-balance sheet risk, the Bank
is exposed to varying risks associated with concentrations of credit
relating primarily to lending activities in specific geographic areas.
The Bank's principal lending area consists of the agricultural-based
rural communities northeast of Kansas City and the Bank's loans are
primarily to residents of or secured by properties located in its
principal lending area. Accordingly, the ultimate collectibility of the
Bank's loan portfolio is dependent upon market conditions in that area.
This geographic concentration is considered in management's
establishment of the allowance for loan losses.
(12) Regulatory Capital Requirements
-------------------------------
Financial Institution Reform, Recovery and Enforcement Act of 1989 (FIRREA)
and the capital regulations of the Office of Thrift Supervision (OTS)
promulgated thereunder require institutions to have a minimum
regulatory tangible capital equal to 1.5% of total assets, a minimum 3%
leverage capital ratio and a minimum 8% risk-based capital ratio. These
capital standards set forth in the capital regulations must generally
be no less stringent than the capital standards applicable to banks.
FIRREA also specifies the required ratio of housing-related assets in
order to qualify as a savings institution. The Bank met the regulatory
capital requirements at March 31, 1996 and 1995.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established additional capital requirements which require regulatory
action against depository institutions in one of the undercapitalized
categories defined in implementing regulations. Institutions such as
the Bank, which are defined as well capitalized, must generally have a
leverage capital (core) ratio of at least 5%, a tier risk-based capital
ratio of at least 6% and a total risk-based capital ratio of at least
10%. In November 1994, the OTS revised its regulations whereby
unrealized gains or losses on available-for-sale securities accounted
for under SFAS No. 115 are not considered in the determination of
regulatory capital. FDICIA also provides for increased supervision by
federal regulatory agencies, increased reporting requirements for
insured depository institutions and other changes in the legal and
regulatory environment for institutions. The Bank met the regulatory
capital requirements at March 31, 1996 and 1995.
(Continued)
36
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
At March 31, 1996, the Bank had federal income tax bad debt reserves of
approximately $2,060,000, which constitute allocations to bad debt
reserves for federal income tax purposes for which no provision for
taxes on income had been made. If such allocations are charged for
other than bad debt losses, taxable income would be created to the
extent of the charges. The Bank's retained earnings at March 31, 1996
was substantially restricted because of the effect of these tax bad
debt reserves.
(13) Fair Value of Financial Instruments
-----------------------------------
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of estimated fair value for financial instruments
held by the Company. Fair value estimates of the Company's financial
instruments as of March 31, 1996, including methods and assumptions
utilized, are set forth below:
<TABLE>
<CAPTION>
Carrying Estimated
amount fair value
------ ----------
<S> <C> <C>
Investment securities $ 6,362,850 6,363,000
=========== ==========
Mortgage-backed securities $24,205,849 23,926,000
=========== ==========
Loans, net of unearned fees and
allowance for loan losses $45,031,460 44,104,000
=========== ==========
Noninterest bearing demand deposit $ 164,993 165,000
Money market and NOW deposits 5,877,322 5,877,000
Passbook accounts 3,675,537 3,676,000
Certificate accounts 56,887,395 57,184,000
----------- ----------
Total deposits $66,605,247 66,902,000
=========== ==========
</TABLE>
Methods and Assumptions Utilized
--------------------------------
The estimated fair value of mortgage-backed and investment securities,
except certain obligations of states and political subdivisions, is
based on bid prices published in financial newspapers or bid quotations
received from securities dealers. The fair value of certain obligations
of states and political subdivisions is not readily available through
market sources other than dealer quotations, so fair value estimates
are based upon quoted market prices of similar instruments, adjusted
for differences between the quoted instruments and the instruments
being valued.
(Continued)
37
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
The estimated fair value of the Company's loan portfolio is based on the
segregation of loans by collateral type, interest terms and maturities.
In estimating the fair value of each category of loans, the carrying
amount of the loan is reduced by an allocation of the allowance for
loan losses. Such allocation is based on management's loan
classification system which is designed to measure the credit risk
inherent in each classification category. The estimated fair value of
performing variable rate loans is the carrying value of such loans,
reduced by an allocation of the allowance for loan losses. The
estimated fair value of performing fixed rate loans is calculated by
discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the interest rate risk
inherent in the loan, reduced by an allocation of the allowance for
loan losses. The estimate of maturity is based on the Company's
historical experience with repayments for each loan classification,
modified, as required, by an estimate of the effect of current economic
and lending conditions. The fair value for significant nonperforming
loans, if any, is the estimated fair value of the underlying collateral
based on recent external appraisals or other available information,
which generally approximates carrying value, reduced by an allocation
of the allowance for loan losses.
The estimated fair value of deposits with no stated maturity, such as
noninterest bearing deposits, savings, money market accounts, passbook
accounts and NOW accounts, is equal to the amount payable on demand.
The fair value of interest-bearing time deposits is based on the
discounted value of contractual cash flows of such deposits. The
discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Because no market
exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding
future loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates. Fair value estimates are based on existing balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments.
(Continued)
38
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
(14) Parent Company Only Condensed Financial Statements
--------------------------------------------------
Following is condensed financial information of the Parent Company Only as
of and for the year ended March 31, 1996:
<TABLE>
<CAPTION>
Condensed Balance Sheet
Assets
------
<S> <C>
Interest-bearing deposits $ 2,291,521
Investment and mortgage-backed 2,278,473
securities available-for-sale
Loans receivable 761,760
Investment in subsidiary 10,765,886
Other 44,986
-----------
Total assets $16,142,626
===========
Liabilities and Stockholders' Equity
------------------------------------
Accrued expenses and other liabilities $ 107,685
Stockholders' equity 16,034,941
-----------
Total liabilities and stockholders' $16,142,626
equity ===========
Condensed Statement of Earnings
Dividends from subsidiary $ 286,152
Interest income 152,268
Other expense, net (40,514)
-----------
Income before equity in
undistributed earnings of subsidiary 397,906
Increase in undistributed equity of
subsidiary 155,450
-----------
Earnings before income taxes 553,356
Income tax expense 42,833
-----------
Net earnings $ 510,523
===========
</TABLE>
(Continued)
39
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Condensed Statement of Cash Flows
Cash flows from operating activities:
<S> <C>
Net earnings $ 510,523
Increase in undistributed equity of (155,450)
subsidiary
Other (40,319)
----------
Net cash provided by
operating activities 314,754
----------
Cash flows from investing activities:
Net increase in loans receivable (761,760)
Purchase of investment and
mortgage-backed securities
available-for-sale (2,412,969)
Principal payments on investment and
mortgage-backed securities
available-for-sale 127,846
Investment in subsidiary (5,023,750)
----------
Net cash used by
investing activities (8,070,633)
----------
Cash flows from financing activities:
Issuance of 10,580 shares common
stock, net of offering costs 10,047,400
----------
Cash at end of year $ 2,291,521
===========
</TABLE>
Dividends paid by the Company are provided through subsidiary Bank
dividends. At March 31, 1996, the Bank could distribute dividends of up
to $463,000 without regulatory approvals.
40
<PAGE>
HARDIN BANCORP, INC.
--------------------
STOCKHOLDER INFORMATION
-----------------------
Annual Meeting
- --------------
The Annual Meeting of Stockholders will be held at 1:30 p.m., Hardin, Missouri
time on July 25, 1996, at the American Legion Hall located at 103 West Elm
Street, Hardin, Missouri 64035.
Stock Listing
- -------------
Hardin Bancorp, Inc. common stock is traded on the National Association of
Securities Dealers, Inc. Small Cap Market under the symbol "HFSA."
Price Range of Common Stock
- ---------------------------
The per share price range of the common stock for each quarter since the common
stock began trading on September 29, 1995 was as follows:
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW DIVIDENDS
----------- ---- --- ---------
<S> <C> <C> <C>
Third Quarter $13.00 $10.00 $ --
Fourth Quarter $12.00 $11.25 $ .10
</TABLE>
A $.10 per share dividend was declared by the Board of Directors on March 21,
1996, payable April 18, 1996 to stockholders of record on April 4, 1996. The
stock price information set forth in the table above was provided by the
National Association of Securities Dealers, Inc. Automated Quotation System.
At March 31, 1996, there were 1,058,000 shares of Hardin Bancorp, Inc. (HFSA)
common stock issued and outstanding (including unallocated ESOP shares) and
there were 601 registered holders of record.
Shareholders and General Inquiries Transfer Agent
- ---------------------------------- --------------
Robert W. King Registrar and Transfer Co.
President 10 Commerce Drive
Hardin Bancorp, Inc. Cranford, New Jersey 07016
2nd and Elm Street
Hardin, Missouri 64035
(816) 398-4312
Annual and Other Reports
- ------------------------
A copy of Hardin Bancorp, Inc.'s Annual Report on Form 10-K for the year ended
March 31, 1996, as filed with the Securities and Exchange Commission, may be
obtained without charge by contacting Robert W. King, President and Chief
Executive Officer, Hardin Bancorp, Inc., 2nd and Elm Street, Hardin, Missouri
64035.
41
<PAGE>
HARDIN BANCORP, INC.
--------------------
CORPORATE INFORMATION
---------------------
Company and Bank Address
- ------------------------
2nd and Elm Street Telephone: (816) 398-4312
Hardin, Missouri 64035 Fax: (816) 398-4317
Board of Directors
- ------------------
Ivan Hogan
Chairman of Hardin Bancorp, Inc. and David D. Lodwick
Hardin Federal Savings Bank Attorney at Law
and Retired CEO of
Hardin Federal Savings Bank W. Levan Thurman
Retired Funeral
Director
Robert W. King
President of Hardin Bancorp, Inc., David Hatfield
and Hardin Federal Savings Bank Farmer and Part-time
Broker
Hardin Bancorp, Inc. Executive Officers
- ---------------------------------------
Robert W. King William L. Homan
President and Chief Executive Officer Vice President and
Treasurer
Karen K. Blankenship
Senior Vice President and Secretary
Hardin Federal Savings Bank Executive Officers
- ----------------------------------------------
Robert W. King William L. Homan
President and Chief Executive Officer Vice President and
Treasurer
Karen K. Blankenship Lyndon M. Goodwin
Senior Vice President and Secretary Vice President of
Lending
Independent Accountants Special Counsel
- ----------------------- ---------------
KPMG Peat Marwick LLP Luse, Lehman, Gorman,
1000 Walnut, Suite 1600 Pomerenk, and Schick
Post Office Box 13127 5335 Wisconsin Ave, N.W.,
Kansas City, Missouri 64199 Suite 400
Washington, D.C. 20015
42
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 254
<INT-BEARING-DEPOSITS> 5,430
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,270
<INVESTMENTS-CARRYING> 16,299
<INVESTMENTS-MARKET> 16,019
<LOANS> 45,911
<ALLOWANCE> (131)
<TOTAL-ASSETS> 83,387
<DEPOSITS> 66,605
<SHORT-TERM> 0
<LIABILITIES-OTHER> 747
<LONG-TERM> 0
0
0
<COMMON> 11
<OTHER-SE> 16,035
<TOTAL-LIABILITIES-AND-EQUITY> 83,387
<INTEREST-LOAN> 3,194
<INTEREST-INVEST> 1,995
<INTEREST-OTHER> 363
<INTEREST-TOTAL> 5,552
<INTEREST-DEPOSIT> 3,441
<INTEREST-EXPENSE> 13
<INTEREST-INCOME-NET> 2,098
<LOAN-LOSSES> 14
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 1,576
<INCOME-PRETAX> 787
<INCOME-PRE-EXTRAORDINARY> 787
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 511
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> .0714
<LOANS-NON> 93
<LOANS-PAST> 29
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 412
<ALLOWANCE-OPEN> 119
<CHARGE-OFFS> 14
<RECOVERIES> (2)
<ALLOWANCE-CLOSE> 131
<ALLOWANCE-DOMESTIC> 96
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 35
</TABLE>
