UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission file number 0-26560
HARDIN BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1719104
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2nd and Elm Streets, Hardin, Missouri 64035
------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (660) 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, 1998 were
$7.5 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, 1998, was $14.5 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, 1998, there were 1,058,000 shares issued and 823,560
shares outstanding 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, 1998.
Part III of Form 10-KSB - Portions of the Proxy Statement for 1998
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,
1998, the Company had total assets of $121.1 million, deposits of $76.9 million
and total equity of $13.5 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 (660) 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. On March 31, 1998, the Bank opened its new branch office
in Richmond, Missouri and vacated its old branch office. See "Item 2.
Description of Property."
2
<PAGE>
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 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 RXVI 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, 1998, the Bank's gross loans and mortgage-backed securities
outstanding totalled $83.5 of which $50.6 million or 60.7% were one- to
four-family residential mortgage loans. Of the one- to four-family mortgage
loans outstanding at that date, 36.7% were fixed-rate loans, and 24.0% were
adjustable-rate loans. At that same date, consumer loans totalled $6.7 million
or 8.0% of the Bank's total loan portfolio, construction loans totalled $4.0
million or 4.8% of the Bank's total loan and mortgage-backed securities
portfolio, commercial real estate loans totalled $2.4 million or 2.8% of the
Bank's total loan and mortgage-backed securities portfolio and land acquisition
loans totalled $810,000 or 1.0% of the Bank's total loan and mortgage-backed
securities portfolio.
The Bank also invests in mortgage-backed securities. At March 31, 1998,
mortgage-backed securities totalled $19.0 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, 1998, the maximum
amount which the Bank could have lent under this limit to any one borrower and
the borrower's related entities was approximately $1.8 million. At March 31,
1998, 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, 1998 was $1.6 million secured
by several one- to four-family real estate dwellings and construction loans
located in Clay County, Missouri. At March 31, 1998, these loans were performing
in accordance with their terms.
3
<PAGE>
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,
-------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Real Estate Loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family.......................... $ 50,646 60.65% $ 47,473 63.09% $38,395 54.76%
Land......................................... 810 .98 328 0.43 123 0.18
Commercial................................... 2,356 2.82 1,045 1.39 184 0.26
Construction................................. 3,967 4.75 1,619 2.15 2,674 3.81
--------- ------- --------- ------- --------- ------
Total real estate loans................... 57,779 69.20 50,465 67.06 41,376 59.01
--------- ------- --------- ------- --------- ------
Consumer Loans:
Consumer Loans:
Secured by deposits......................... 635 .76 570 0.76 678 0.96
Automobile.................................. 1,631 1.95 1,438 1.91 1,316 1.88
Home equity................................. 3,193 3.82 2,363 3.14 1,535 2.19
Home improvement............................ 521 .62 689 0.92 693 0.99
Other consumer loans........................ 725 .88 511 0.68 313 0.45
--------- ------- --------- ------- --------- ------
Total consumer loans...................... 6,705 8.03 5,571 7.41 4,535 6.47
--------- ------- --------- ------- --------- ------
Total loans receivable.................... 64,484 77.23 56,036 74.47 45,911 65.48
--------- ------- -------- ------- --------- -----
Mortgage-Backed Securities:
GNMA......................................... 4,446 5.32 1,815 2.41 2,142 3.05
FHLMC........................................ 5,425 6.50 6,591 8.76 9,044 12.90
FNMA......................................... 9,144 10.95 10,808 14.36 13,020 18.57
--------- ------- --------- ------- --------- ------
Total mortgage-backed securities.......... 19,015 22.77 19,214 25.53 24,206 34.52
--------- ------- --------- ------- --------- ------
Total loan and mortgage-backed
securities portfolio.................... 83,499 100.00% 75,250 100.00% 70,117 100.00%
======= ======= ======
Less:
Loans in process............................... (3,022) (1,353) (766)
Deferred fees and discounts.................... 60 43 17
Allowance for loan losses...................... (248) (158) (131)
--------- --------- ---------
Total loan and mortgage-backed
securities portfolio, net............... $ 80,289 $ 73,782 $ 69,237
========= ========= =========
</TABLE>
4
<PAGE>
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,
-------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Fixed-Rate Loans:
Real estate:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family....................... $ 30,623 36.67% $ 26,019 34.58% $ 18,542 26.44%
Land...................................... 426 .51 255 0.34 86 .12
Commercial................................ 529 .64 64 0.09 67 .10
Construction.............................. 3,298 3.95 1,527 2.03 1,805 2.57
--------- ------- --------- ------- --------- ------
Total real estate loans.................. 34,876 41.77 27,865 37.04 20,500 29.23
Consumer.................................... 5,062 6.06 5,035 6.69 4,442 6.34
Mortgage-backed securities.................. -- -- 35 0.04 588 .84
--------- ------- --------- ------- --------- ------
Total fixed-rate......................... 39,938 47.83 32,935 43.77 25,530 36.41
--------- ------- --------- ------- --------- ------
Adjustable-Rate Loans:
Real estate:
One- to four-family....................... 20,023 23.98 21,454 28.51 19,853 28.31
Land...................................... 384 .46 73 0.10 37 .05
Commercial................................ 1,827 2.19 981 1.30 117 .17
Construction.............................. 669 .80 92 0.12 869 1.24
--------- ------- --------- ------- --------- ------
Total real estate loans.................. 22,903 27.43 22,600 30.03 20,876 29.77
Consumer.................................... 1,643 1.97 536 0.71 93 .14
Mortgage-backed securities.................. 19,015 22.77 19,179 25.49 23,618 33.68
--------- ------- --------- ------- --------- ------
Total adjustable rate.................... 43,561 52.17 42,315 56.23 44,587 63.59
--------- ------- --------- ------- --------- ------
Total loan and mortgage-backed
securities portfolio.................... 83,499 100.00% 75,250 100.00% 70,117 100.00%
======= ======= ======
Less:
Loans in process.......................... (3,022) (1,353) (766)
Deferred loan fees and discounts.......... 60 43 17
Allowance for loan losses................. (248) (158) (131)
---------- --------- ---------
Total loans and mortgage-backed
securities portfolio, net............... $ 80,289 $ 73,782 $ 69,237
========= ========= =========
</TABLE>
5
<PAGE>
The following schedule illustrates the contractual maturity and
weighted average rates of the Bank's loan portfolio at March 31, 1998. 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>
1999(1).................................. $ 157 8.05% $ 3,331 8.93% $ -- --% $ -- --%
2000..................................... 33 9.86 -- -- 704 9.50 1 10.00
2001..................................... 430 8.93 69 8.00 175 9.25 -- --
2002 and 2003............................ 1,335 8.37 -- -- 15 9.50 112 8.75
2004 to 2008............................. 4,426 8.19 -- -- 325 8.79 146 9.39
2009 to 2023............................. 29,178 8.05 100 7.75 1,137 8.93 551 8.60
2024 and following....................... 15,087 8.06 467 8.01 -- -- -- --
-------- --------- --------- ---------
$ 50,646 $ 3,967 $ 2,356 $ 810
======== ========= ========= =========
</TABLE>
Consumer Total
------------------- ------------------
Due Durin Weighted Weighted
Year Endi Average Average
March 31, Amount Rate Amount Rate
- --------- ------ ---- ------ ----
(Dollars in Thousands)
1999(1)........................ $ 1,197 8.72% $ 4,685 8.86%
2000........................... 381 10.48 1,119 9.83
2001........................... 596 10.49 1,270 9.69
2002 and 2003.................. 1,451 9.59 2,913 8.99
2004 to 2008................... 1,356 9.74 6,253 8.59
2009 to 2023................... 1,724 9.27 32,690 8.15
2024 and following............. -- -- 15,554 8.06
--------- --------
$ 6,705 $ 64,484 8.32
========= ========
- ---------------
(1) The total amount of loans due after March 31, 1999 which have predetermined
interest rates is $36.0 million while the total amount of loans due after
such date which have floating or adjustable interest rates is $24.0
million.
6
<PAGE>
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, 1998, the Bank's one- to four-family residential mortgage loans
totalled $50.6 million, or 60.7%, 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,
1998 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, 1998, the Bank originated $12.3 million
fixed-rate one- to four-family loans, which constituted 78.5% of total one- to
four-family loans originated and $3.4 million of adjustable-rate one- to
four-family loans or 21.5% of total one- to four-family loans originated.
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. 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, 1998, the total balance
of one-to four-family adjustable-rate loans was $20.0 million or 24.0% of the
Bank's gross loan and mortgage-backed securities portfolio. See "--Originations,
Purchases and Sales of Loans."
7
<PAGE>
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, 1998, the total balance of one- to four-family fixed-rate
loans was $30.6 million or 36.7% 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, 1998, the Bank's consumer loan portfolio totalled $6.7 million, or
8.0% 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, 1998, home equity
and home improvement loans amounted to $3.2 million and $521,000, respectively,
which represented 3.8% and .6%, respectively, of the Bank's gross loan and
mortgage-backed securities portfolio.
The Bank also recently began originating equity lines of credit. These
loans are generally limited to 90% or less of the appraised value of the
property securing the loan. These loans are all adjustable-rate loans and have
maximum terms of up to 15 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 90% of dealer cost
and loans on used vehicles are made in amounts up to its published value, less
certain adjustments. At March 31, 1998, the Bank's automobile loans totalled
$1.6 million or 2.0% 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
8
<PAGE>
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, 1998, $12,000 of the Bank's consumer loans were
non-performing. See "-- NonPerforming Assets and Classified Assets." There can
be no assurances, however, that delinquencies will not occur in the future.
Construction Lending. At March 31, 1998, the Bank had $4.0 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, 1998, the
Bank had $3.3 million and $669,000 of fixed-rate and adjustable-rate
construction loans, respectively, which represented 4.0% and .8%, respectively,
of the Bank's gross loan and mortgage-backed securities portfolio. From time to
time the Bank may purchase construction loans, but no such purchases were made
during fiscal 1998. 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.
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, 1998 approximately $2.4 million, or 2.8% 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 a multi-family
apartment building in Cole 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
9
<PAGE>
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,
1998, the Bank originated $20.2 million in fixed-rate loans and $7.5 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 its 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
50% of total loans receivable. At March 31, 1998, fixed-rate loans comprised
47.8% of gross loan and mortgage-backed securities portfolio. Reflecting these
policies, during the fiscal years ended March 31, 1998, 1997 and 1996, the Bank
sold $3.7 million, $0, and $0, respectively, of one- to four-family fixed-rate
real estate loans.
During fiscal year 1998, the Bank purchased $1.2 million of real estate
loans originated by other lenders all of which were secured by properties
located in Missouri. At March 31, 1998, none of these loans were 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, 1998 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.
10
<PAGE>
The following table shows the loan and mortgage-backed securities
origination, purchase, sale and repayment activities of the Bank for the periods
indicated.
Year Ended March 31,
---------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Originations by type:
Adjustable rate:
One- to four-family ..................... $ 3,367 $ 1,240 $ 886
Land .................................... 333 55 20
Commercial .............................. 1,140 20 --
Construction ............................ 669 210 229
Consumer ................................ 1,963 455 --
-------- -------- --------
Total adjustable-rate ................. 7,462 1,980 1,135
-------- -------- --------
Fixed rate:
One- to four-family ..................... 12,254 7,452 7,406
Land .................................... 188 180 11
Commercial .............................. -- -- --
Construction ............................ 3,351 1,947 1,502
Consumer ................................ 4,398 4,659 3,864
-------- -------- --------
Total fixed-rate ...................... 20,191 14,238 12,783
-------- -------- --------
Total loans originated ................ 27,653 16,218 13,918
-------- -------- --------
Purchases:
One- to four-family ..................... 1,048 4,250 5,810
Land .................................... 184 -- 491
Commercial .............................. -- 148 640
Mortgage-backed securities - at cost .... 10,940 -- 523
-------- -------- --------
Total purchased ....................... 12,172 4,398 7,464
-------- -------- --------
Sales and Repayments:
One- to four-family ..................... 3,737 -- --
Mortgage-backed securities sold - at
amortized cost ........................ 8,176 1,016 --
-------- -------- --------
Total sales ........................... 11,913 1,016 --
-------- -------- --------
Principal repayments .................... 19,630 14,467 13,356
-------- -------- --------
Total sales and repayments ............ 31,543 15,483 13,356
-------- -------- --------
Decrease (increase) in other items:
Loans in process ........................ (1,669) (587) (519)
Deferred fees and discounts ............. (17) 26 39
Allowance for loan losses ............... (89) (27) (12)
-------- -------- --------
Net increase (decrease) ............... $ 6,507 $ 4,545 $ 7,534
======== ======== ========
11
<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, 1998. 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)
Real Estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family....... 1 $ 49 .10% 4 $ 220 .43% 5 $ 269 .53%
Land...................... -- -- -- -- -- -- -- -- --
Commercial................ -- -- -- -- -- -- -- -- --
Construction.............. -- -- -- -- -- -- -- -- --
Consumer.................... 3 31 .46 1 12 .18 4 43 .64
--------- -------- ------- ------- ------- -------- ------- ------ ------
Total.................. 4 $ 80 .56% 5 $ 232 .61% 9 $ 312 1.17%
========= ======== ======= ======= ======= ======== ======= ====== ======
</TABLE>
12
<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.
Year Ended March 31,
---------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Non-accruing loans
One- to four-family ........................ $220 $274 $ 93
Land ....................................... -- -- --
Commercial ................................. -- -- --
Construction ............................... -- -- --
Consumer ................................... 12 -- --
---- ---- ----
Total .................................... 232 274 93
---- ---- ----
Accruing loans delinquent 90 days
or more
One- to four-family ........................ -- -- 29
Land ....................................... -- -- --
Commercial ................................. -- -- --
Construction ............................... -- -- --
Consumer ................................... -- 3 --
---- ---- ----
Total .................................... -- 3 29
---- ---- ----
Foreclosed assets
One- to four-family ........................ -- 103 --
Land ....................................... -- -- --
Commercial ................................. -- -- --
Construction ............................... -- -- --
Consumer ................................... -- -- 2
---- ---- ----
Total .................................... -- 103 2
---- ---- ----
Total non-performing assets ................... $232 $380 $124
==== ==== ====
Total classified assets ....................... $501 $545 $412
==== ==== ====
Total non-performing assets as
a percentage of total assets ................. .19% 0.37% 0.15%
==== ==== ====
Total non-performing loans as
a percentage of total
loans receivable ............................. .36% 0.68% 0.29%
==== ==== ====
For the year ended March 31, 1998 gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $21,000. The amount that was included in
interest income on such loans was $17,000 for the year ended March 31, 1998.
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
13
<PAGE>
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, 1998, the Bank had classified a
total of $498,000 of its assets as substandard, $0 as doubtful, and $3,000 as
loss. At March 31, 1998, total classified assets comprised $501,000 or 3.7% of
the Bank's capital, or .41% 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, 1998, 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.
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, 1998, 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
14
<PAGE>
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, 1998, the Bank had a total allowance for loan losses
of $248,000, representing 106.97% of total non-performing loans and .40% of the
Bank's loans, net. See Note 5 of the Notes to Consolidated Financial Statements.
15
<PAGE>
The distribution of the Bank's allowance for loan losses at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- ------------------------------- -------------------------------
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)
Real estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family.... $ 74 $50,646 78.54% $ 81 $47,473 84.72% $ 71 $38,395 83.63%
Land................... 8 810 1.26 3 328 0.59 1 123 0.27
Commercial............. 24 2,356 3.65 11 1,045 1.86 2 184 0.40
Construction........... 13 3,967 6.15 10 1,619 2.89 3 2,674 5.82
Consumer.................. 32 6,705 10.40 25 5,571 9.94 19 4,535 9.88
Unallocated............... 97 -- -- 28 -- -- 35 -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total................ $ 248 $64,484 100.00% $ 158 $56,036 100.00% $ 131 $45,911 100.00%
======= ======= ======= ======= ======= ======= ======= ======= =======
</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.
16
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
Year Ended March 31,
----------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Balance at beginning of period ............. $ 158 $ 131 $ 119
Charge-offs:
One- to four-family ..................... -- (7) --
Land .................................... -- -- --
Commercial .............................. -- -- --
Construction ............................ -- -- --
Consumer ................................ (4) -- (2)
----- ----- -----
(4) (7) (2)
----- ----- -----
Recoveries:
One- to four-family ..................... -- -- --
Land .................................... -- -- --
Commercial .............................. -- -- --
Construction ............................ -- -- --
Consumer ................................ -- -- --
----- ----- -----
----- ----- -----
Net recoveries (charge-offs) ............... (4) (7) (2)
Additions charged to operations ............ 94 34 14
----- ----- -----
Balance at end of period ................... $ 248 $ 158 $ 131
===== ===== =====
Ratio of net recoveries (charge-offs)
during the period to average loans
outstanding during the period ............. .01% 0.01% --%
===== ===== =====
Ratio of net recoveries (charge-offs)
during the period to average
non-performing assets ..................... 1.98% 1.84% (1.43)%
===== ===== =====
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, 1998, the
Bank's liquidity ratio (liquid assets as a percentage of net withdrawable
savings deposits with maturities of 1 year or less and current borrowings) was
46.5%. See "Regulation--Liquidity."
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their
17
<PAGE>
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. Bank has
invested primarily in federal agency securities, principally Federal Home Loan
Mortgage Corporation ("FHLMC"), Government National Mortgage Association
("GNMA") and Federal National Mortgage Association ("FNMA") obligations. At
March 31, 1998, the Bank's investment in mortgage-backed securities totalled
$19.0 million or 15.7% of its total assets.
The Bank's available-for-sale mortgage-backed 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, $11.0 million, are classified as held to
maturity and are reported at amortized cost. During the fiscal year ended March
31, 1998, the Bank sold $8.2 million of its mortgage-backed securities. See Note
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
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.
Investment Securities. At March 31, 1998, the Bank's investment
securities (including a $1.5 million investment in the common stock of the FHLB
of Des Moines) totalled $34.1 million, or 28.2% of its total assets.
18
<PAGE>
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 $13.5 million as of March 31, 1998, plus an
additional 10% if the investments are fully secured by readily marketable
collateral. At March 31, 1998, 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.
The following table sets forth the composition of the Bank's investment
portfolio, including mortgage-backed securities, at the dates indicated.
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
Book % of Book % of Book % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
Investment securities:
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities..................... $ -- --% $ 98 .21% $ -- --%
Federal agency securities...................... 31,651 56.15 22,242 47.82 6,363 17.32
Revenue bonds.................................. 1,005 1.78 -- -- --
---------- ------- --------- ------- --------- -------
Subtotal.................................. 32,656 57.93 22,340 48.03 6,363 17.32
FHLB stock..................................... 1,475 2.62 950 2.04 742 2.02
---------- ------- --------- ------- --------- -------
Total investment securities
and FHLB stock......................... $ 34,131 60.55% $ 23,290 50.07% $ 7,105 19.34%
---------- ------- --------- ------- --------- -------
Average remaining life of investment
securities excluding FHLB stock............... 9 years 13 years 4 years
Other interest-bearing assets:
Interest-bearing deposits...................... $ 3,225 5.72% $ 4,007 8.62% $ 5,430 14.78%
Mortgage-backed securities:
GNMA........................................ 4,437 7.87 1,801 3.87 2,124 5.78
FHLMC....................................... 5,320 9.44 6,461 13.89 8.876 24.16
FNMA........................................ 8,962 15.89 10,585 22.76 12,757 34.72
---------- ------- --------- ------- --------- -------
Subtotal.................................. 18,719 33.20 18,847 40.52 23,757 64.66
Unamortized premium (discounts), net........... 296 0.53 367 0.79 449 1.22
---------- ------- --------- ------- --------- -------
Total mortgage-backed securities, net..... 19,015 33.73 19,214 41.31 24,206 65.88
---------- ------- --------- ------- --------- -------
Total investment portfolio..................... $ 56,371 100.00% $ 46,511 100.00% $ 36,741 100.00%
========== ======= ========= ======= ========= =======
</TABLE>
19
<PAGE>
The composition and maturities of the investment securities portfolio,
excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
March 31, 1998
------------------------------------------------------------------------------
Total Investment
Less Than 1 to 5 5 to 10 Over Book Securities
1 Year Years Years 10 Years Value Market Value
----------- ----------- ----------- ----------- ----------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities.............. $ -- $ -- $ -- $ -- $ -- $ --
Federal agency obligations.............. 9,011 16,644 623 5,373 31,651 31,651
Revenue bonds........................... 205 507 293 -- 1,005 1,005
--------- -------- --------- --------- --------- ---------
Total investment securities............. $ 9,216 $ 17,151 $ 916 $ 5,373 $ 32,656 $ 32,656
--------- -------- --------- --------- --------- ---------
Weighted average yield.................. 7.08% 7.10% 5.40% 5.77% 6.83% 6.83%
========= ======== ========= ========= ========= =========
</TABLE>
20
<PAGE>
The Bank's investment securities portfolio at March 31, 1998, contained
tax-exempt securities consisting of local revenue bonds. No securities of any
issuer had 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, 1998, the Bank had $26.4 million in mortgage-backed
securities and investment securities with maturities of less than five years
classified as available for sale. See Notes 3 and 4 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, 1998, the Bank had total FHLB advances
of $29.5 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 savings
deposits, commercial demand, NOW, money market deposit and certificate accounts.
The certificate accounts currently range in terms from 90 days to five 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.
21
<PAGE>
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,
--------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Transactions and Savings Deposits:(1)
- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial Demand................................. $ 1,082 1.41% $ 140 0.20% $ 165 0.25%
Savings Accounts.................................. 3,265 4.25 3,592 5.12 3,675 5.52
NOW Accounts...................................... 4,258 5.53 2,334 3.32 1,825 2.74
Money Market..................................... 5,901 7.68 4,096 5.83 4,053 6.09
Certificates...................................... 62,378 81.13 60,039 85.53 56,887 85.40
-------- ------- -------- ------- ------ -------
Total deposit accounts............................ $ 76,884 100.00% $ 70,201 100.00% $ 66,605 100.00%
======== ======= ======== ====== ======== -======
</TABLE>
- --------------
(1) See Note 7 of the Notes to Consolidated Financial Statements.
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,
1998.
<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> <C>
Certificates of deposit less than $100,000.............. $ 9,321 $ 9,825 $ 17,253 $ 18,845 $ 55,244
Certificates of deposit of $100,000 or more............. 1,578 2,017 1,036 2,118 6,749
Public funds (1)........................................ 59 19 301 6 385
-------- --------- --------- --------- ---------
Total certificates of deposit........................... $ 10,958 $ 11,861 $ 18,590 $ 20,969 $ 62,378
======== ========= ========= ========= =========
</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 FHLB, subject to regulatory
collateral requirements. At March 31, 1998, the Bank had $1,475,000 of FHLB of
Des Moines stock. The Bank has the ability to purchase additional capital stock
from the FHLB. At March 31, 1998 and March 31, 1997, the weighted average
interest rate of the Bank's FHLB advances was 5.68% and 5.64%, respectively. 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."
22
<PAGE>
The following table sets forth the maximum month-end balance and
average balance of FHLB advances.
Year Ended March 31,
---------------------------------------
1998 1997 1996
(In Thousands)
Maximum Balance:
FHLB advances ................ $29,500 $19,000 $ 1,500
Average Balance:
FHLB advances ................ $24,458 $10,000 $ 208
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 $2.4 million
at March 31, 1998, 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,
1998, 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, 1998, the
Bank's investment in HSSC was $31,000. For the year ended March 31, 1998, HSSC
had pre-tax income of approximately $7,000.
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
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. 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.
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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, 1998, was approximately $32,287.
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, 1998, the Bank's lending limit under this restriction was $1.8
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 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 adopted additional guidelines on asset quality and
earnings standards. The guidelines are designed to enhance early identification
and resolution of problem assets. 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 for SAIF-insured institutions are
assessed through a risk- based system under which all insured depository
institutions are placed into one of nine categories and
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assessed insurance premiums, based upon their level of capital and supervisory
evaluation. Under the system, institutions classified as well capitalized (i.e.,
a core capital ratio of at least 5%, a ratio of 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.
In September 1996, Congress enacted legislation to recapitalize the
SAIF by a one-time assessment on all SAIF-insured deposits held as of March 31,
1995. The assessment was 65.7 basis points per $100 in deposits, payable on
November 30, 1996. For the Bank, the assessment amounted to $441,018 (or
$277,841 when adjusted for taxes), based on the Bank's deposits on March 31,
1995. In addition, beginning January 1, 1997, pursuant to the legislation,
interest payments on FICO bonds issued in the late 1980's by the Financing
Corporation to recapitalize the now defunct Federal Savings and Loan Insurance
Corporation will be paid jointly by BIF-insured institutions and SAIF-insured
institutions. The FICO assessment will be 1.29 basis points per $100 in BIF
deposits and 6.44 basis points per $100 in SAIF deposits. Beginning January 1,
2000, the FICO interest payments will be paid pro rata by banks and thrifts
based on deposits (approximately 2.4 basis points per $100 in deposits).
The legislation further provides that the BIF and SAIF will merge on
January 1, 1999 if there are no more savings associations as of that date.
Several bills have been introduced in Congress that would eliminate the federal
thrift charter and OTS. The bills would require that all federal savings
associations convert to national banks or state depository institutions by
specified dates and would treat all state savings associations as state banks
for purposes of federal banking laws. Subject to a narrow grandfathering, all
savings and loan holding companies would become subject to the same regulation
as bank holding companies under the pending legislative proposals. Under such
proposals, any lawful activity in which a savings association participates would
be permitted for up to two years following the effective date of its conversion
to the new charter, with two additional one-year extensions which may be granted
as the discretion of the regulator. The legislative proposals would also abolish
the OTS and transfer its functions to the federal bank regulators with respect
to the institutions and to the Federal Reserve Board with respect to the
regulation of holding companies. The Bank is unable to predict whether the
legislation will be enacted or, given such uncertainty, determine the extent to
which the legislation, if enacted, would affect its business. The Bank is also
unable to predict whether the SAIF and BIF funds will eventually be merged.
While the legislation has reduced the disparity between premiums paid
on BIF deposits and SAIF deposits, and has relieved the thrift industry of a
portion of the contingent liability represented by the FICO bonds, the premium
disparity between SAIF-insured institutions, such as the Bank, and BIF-insured
institutions will continue until at least January 1, 1999. Under the
legislation, the Bank anticipates that its ongoing annual SAIF premiums will be
approximately $47,000.
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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 unrealized
loss on investments and mortgage-backed securities is excluded from the
regulatory capital calculation. At March 31, 1998, the Bank had no intangible
assets and a valuation allowance, net of tax of $98,000.
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, 1998, the Bank had tangible capital of $12.3 million, or
10.2% of adjusted total assets, which is approximately $10.5 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 unless its
supervisory condition is such to allow it to maintain a 3% ratio. At March 31,
1998, the Bank had no intangibles which were subject to these tests.
At March 31, 1998, the Bank had core capital equal to $12.3 million, or
10.2% of adjusted total assets, which is $8.7 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, 1998, the Bank had $248,000 of general loan valuation allowances,
which was less than 1.25% of risk-weighted assets.
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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 and
reciprocal holdings of qualifying capital instruments. Hardin Federal had
$33,000 of such exclusions from capital and assets at March 31, 1998.
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, 1998, the Bank had total risk based capital of $12.3
million (including approximately $12.3 million in core capital and $98,000 in
qualifying supplementary capital) and risk-weighted assets of $46.6 million
(with no converted off-balance sheet assets); or total capital of 26.4% of
risk-weighted assets. This amount was $8.8 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. 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.
The OTS may also require a depository institution to maintain
additional total capital to account for concentration of credit risk and the
risk of non-traditional activities.
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
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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.
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
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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 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, 1998, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 39.7% and a short-term
liquid assets ratio of 38.7%.
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 more stringent than GAAP, to require that transactions be reported in a
manner that best reflects their underlying economic substance and inherent risk
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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, 1998, the Bank met the test and has always met the test since its
effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "--Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income 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."
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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 also impose restrictions on
loans to such persons and their related interests. Generally, such loans must be
made on terms substantially the same as for loans to unaffiliated individuals.
However, recent regulations now permit executive officers and directors to
receive loans with the same terms as those widely available to other employees
through benefit or compensation plans, as long as the director or executive
officer is not given preferential treatment compared to the other participating
employees.
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.
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Federal Securities Law
The stock of the Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At March 31, 1998, 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, 1998, the Bank had $1,475,000 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 7.45% and were 6.86% for fiscal 1998. For the
fiscal year ended March 31, 1998, dividends paid by the FHLB of Des Moines to
the Bank totaled approximately $86,505, which constitutes a $31,813 increase
over the amount of dividends received in fiscal year 1997. 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
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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.
Federal and State Taxation
Federal Taxation. Savings associations such as the Bank that met
certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (the
"Code"), have been permitted to establish reserves for bad debts and to make
annual additions thereto which, within specified formula limits, were 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" was computed
under the experience method. For tax years beginning before December 31, 1995,
the amount of the bad debt reserve deduction for "qualifying real property
loans" (generally, loans secured by improved real estate) was computed under
either the experience method or the percentage of taxable income method (based
on an annual election). If a savings association elected the latter method, it
could claim, each year, a deduction based on a percentage of taxable income,
without regard to actual bad debt experience.
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 taxable income method has been repealed for years
beginning after December 31, 1995, and "large" associations, i.e., the quarterly
average of the association's total assets or of the consolidated group of which
it is a member, exceeds $500 million for the year, may no longer be entitled to
use the experience method of computing additions to their bad debt reserve. A
"large" association must use the direct write-off method for deducting bad
debts, under which charge-offs are deducted and recoveries are taken into
taxable income as incurred. Since the Bank is not a "large" association, the
Bank will continue to be permitted to use the experience method. The Bank will
be required to recapture (i.e., take into income) over a six-year period its
applicable excess reserves, i.e, the balance of its reserves for losses on
qualifying loans and nonqualifying loans, as of March 31, 1996, the close of the
last tax year beginning before January 1, 1996, over the greater of (a) the
balance of such reserves as of December 31, 1987 (pre-1988 reserves) or (b) in
the case of a bank which is not a "large" association, an amount that would have
been the balance of such reserves as of the close of the last tax year beginning
before January 1, 1996, had the bank always computed the additions to its
reserves using the experience method. Postponement of the recapture is possible
for a two-year period if an association meets a minimum level of mortgage
lending for 1996 and 1997. As of March 31, 1998, the Bank's bad debt reserve
subject to recapture over a six-year period totaled approximately $424,000.
If an association ceases to qualify as a "bank" (as defined in Code
Section 581) or converts to a credit union, the pre-1988 reserves and the
supplemental reserve are restored to income ratably over a six-year period,
beginning in the tax year the association no longer qualifies as a bank. The
balance of the pre-1988 reserves are also subject to recapture in the case of
certain excess distributions to (including distributions on liquidation and
dissolution), or redemptions of, shareholders.
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 minimum taxable income. For taxable years
beginning after 1986
33
<PAGE>
and before 1996, corporations, including savings associations such as the Bank,
were 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, 1998, the Bank's excess for tax purposes totaled
approximately $2.1 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 were required by applicable Treasury regulations to reduce
their taxable income for purposes of computing the now expired percentage bad
debt deduction for losses attributable to activities of the non-savings
association members of the consolidated group that were 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.
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.
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
34
<PAGE>
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
six commercial banks and one credit union which compete for deposits and loans
in Ray County, Missouri. In Clay County, Missouri, there are approximately 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, 1998, the Bank had a total of 25 full-time and 2 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
Lyndon M. Goodwin. Mr. Goodwin, age 53, is currently Vice President of
the Bank responsible for the supervision of all lending operations of the Bank.
Prior to joining the Bank in 1994, Mr. Goodwin was a County Supervisor of the
United States Department of Agriculture, Farmer's Home Administration, for 28
years.
J. Michael Schwarz. Mr. Schwarz, age 54, joined the Bank in January
1997 as Vice President of Lending at the Excelsior Springs Branch. Mr. Schwarz
previously was employed as Executive Vice President of Lawson Bank, Lawson,
Missouri.
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 its
Richmond and Excelsior Springs, Missouri branch offices. The following table
sets forth information relating to each of the Bank's offices as of March 31,
1998. 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, 1998 was approximately $1.7 million. See Note 6 of the
Notes to Consolidated Financial Statements.
35
<PAGE>
Total
Approximate
Date Square Net Book Value at
Location Acquired Footage March 31, 1998
- ---------------------------- -------- ------- --------------
Main Office: 1963 4600 $82,594
100-04 North Second Street
Hardin, Missouri
Branch Offices:(1)
201 North Jesse James Road 1990 2024 621,213
Excelsior Springs, Missouri
200 N. Spartan Drive 1998 6800 1,021,576
Richmond, Missouri
- ----------------
(1) The Bank constructed an approximate 6800 sq. foot branch office facility
located at 200 N. Spartan Drive, Richmond, Missouri, which opened for
business on March 31, 1998. At that time, the Bank closed its branch office
which was located at 208 West Main Street in Richmond, Missouri.
Hardin Federal believes that its current 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.
36
<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, 1998.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Page 44 of the attached 1998 Annual Report to Shareholders is herein
incorporated by reference.
37
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Pages 5 to 17 of the attached 1998 Annual Report to Shareholders are
herein incorporated by reference.
Item 7. Financial Statements
Pages 18 to 43 of the attached 1998 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 23, 1998.
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 23, 1998.
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 23, 1998.
38
<PAGE>
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 23, 1998.
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, 1998, is incorporated by reference
in this Form 10-KSB Annual Report as Exhibit 13.
Page in
Annual
Annual Report Section Report
Report of Independent Auditors ........................................... 18
Consolidated Balance Sheets at March 31, 1998 and 1997 ................... 19
Consolidated Statements of Earnings for the Years ended
March 31, 1998, 1997 and 1996 ........................................... 20
Consolidated Statements of Stockholders' Equity for
the Years ended March 31, 1998, 1997 and 1996 ........................... 21
Consolidated Statements of Cash Flows for the Years ended
March 31, 1998, 1997 and 1996 ........................................... 22
Notes to Consolidated Financial Statements ............................... 24
(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.
39
<PAGE>
(a) (3) Exhibits:
<TABLE>
<CAPTION>
Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
<S> <C> <C>
2 Plan of acquisition, reorganization, None
arrangement, liquidation or succession
3 Certificate of Incorporation and Bylaws *
4 Instruments defining the rights of *
security holders, including indentures
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 None
share earnings
12 Statement re: computation or ratios Not required
13 Annual Report to Security Holders 13
16 Letter re: change in certifying None
accountant
18 Letter re: change in accounting None
principles
21 Subsidiaries of Registrant 21
22 Published report regarding matters None
submitted to vote of security holders
23 Consent of experts and counsel 23
40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
<S> <C> <C>
24 Power of Attorney Not Required
27 Financial Data Schedule 27
28 Information from reports furnished to None
State insurance regulatory authorities
99 Additional exhibits None
</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, 1998.
41
<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 26, 1998 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.
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 26, 1998 Date: June 26, 1998
By: /s/ Karen K. Blankenship By: /s/ David K. Hatfield
------------------------------------ ----------------------------
Karen K. Blankenship, Senior Vice David K. Hatfield, Director
President, Secretary and Director
(Principal Accounting Officer)
Date: June 26, 1998 Date: June 26, 1998
By: /s/ David D. Lodwick By: /s/ W. Levan Thurman
------------------------------------ ----------------------------
David D. Lodwick, Director W. Levan Thurman, Director
Date: June 26, 1998 Date: June 26, 1998
By: /s/ William L. Homan
-----------------------------------
William L. Homan, Vice President,
Treasurer and Director
(Principal Financial Officer)
Date: June 26, 1998
<PAGE>
EXHIBIT INDEX
3 Certificate of Incorporation and Bylaws*
4 Instruments defining the rights of security holders,
including indentures*
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*
13 Annual Report to Security Holders
21 Subsidiaries of Registrant
23 Consent of experts and counsel
27 Financial Data Schedule
- ---------------
* 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.
HARDIN BANCORP, INC.
AND SUBSIDIARIES
1998 ANNUAL REPORT
<PAGE>
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.................................................... 44
Corporate Information...................................................... 45
<PAGE>
[HARDIN BANCORP, INC. LOGO]
(Holding Company for Hardin Federal Savings Bank)
June 25, 1998
Dear Fellow Shareholder:
The Board of Directors, Officers, and Staff of Hardin Bancorp, Inc. and its
wholly owned subsidiary, Hardin Federal Savings Bank, are pleased to provide you
with our third annual report.
Fiscal year 1998 was our third year as a stock company after serving area
communities for more than 108 years as a mutual savings institution. Net
earnings for the year were $869,000 an increase from $464,000 for fiscal 1997.
The increase was the result of an increase in both interest and non-interest
income and a decrease in non-interest expense. Earnings per share more than
doubled from $.51 in fiscal 1997 to $1.08 in the current year.
Loans increased by $6.7 million with increases in residential, commercial and
consumer loans. Assets increased $17.7 million to $121.1 million and
stockholders' equity increased to $13.5 million from $13.2 million on March 31,
1997.
We are excited to announce the completion of our new bank facility in Richmond,
with a total of almost 7,000 square feet, three drive-up lanes, 24-hour ATM, and
ease of access. This ultra-modern office will provide the much needed space,
equipment and personnel to accommodate our current and future growth.
Our goal is to enhance shareholder value while fulfilling our mission as an
independently owned and managed financial institution committed to our customers
and the communities we serve.
Thank you for your confidence in our company, and we look forward to a
prosperous future.
Sincerely,
/s/ Robert W. King
Robert W. King
President
P.O. BOX 608 o HARDIN, MO 64035 o 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
remaining net proceeds of the Conversion retained by the Company of
approximately $750,000. The business of the Company 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 the (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. On March 31, 1998, the Company had
total assets of $121.1 million, deposits of $76.9 million and stockholders'
equity of $13.5 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,
together with Federal Home Loan Bank of Des Moines (FHLB) advances, 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
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.
At or for the years ended March 31,
----------------------------------------------
1998 1997 1996 1995(1) 1994(1)
---- ---- ---- ------- -------
(Dollars in Thousands except per share data)
Selected Financial Data:
Total assets .................... $121,092 $103,354 $ 83,387 $75,993 $73,495
Loans receivable, net ........... 61,274 54,568 45,031 33,230 29,105
Mortgage-backed securities:
Held to maturity .............. 10,995 13,457 16,299 28,473 32,743
Available for sale ............ 8,020 5,757 7,907 0 0
Investment securities:
Held to maturity .............. 10,000 0 0 0 0
Available for sale ............ 22,656 22,340 6,363 7,760 6,598
FHLB stock ...................... 1,475 950 742 727 727
Other interest-bearing deposits . 3,225 4,007 5,430 4,306 2,820
Deposits ........................ 76,884 70,201 66,605 67,449 66,722
FHLB advances ................... 29,500 19,000 0 1,500 0
Total stockholders' equity ...... 13,478 13,210 16,035 6,393 6,064
Selected Operating Data:
Total interest income ........... 8,234 6,684 5,552 4,694 4,587
Total interest expense .......... 5,184 3,915 3,454 2,816 2,653
-------- -------- -------- ------- -------
Net interest income ........... 3,050 2,769 2,098 1,878 1,934
Provision for loan losses ....... 94 34 14 0 26
-------- -------- -------- ------- -------
Net interest income after
provision for loan losses ..... 2,957 2,735 2,084 1,878 1,908
-------- -------- -------- ------- -------
Loan fees and service charges ... 176 117 110 116 123
Gain/(loss) on sales of loans,
investments and mortgage-
backed securities ............. 182 (2) 2 (39) 126
Other non-interest income ....... 134 158 167 110 59
-------- -------- -------- ------- -------
Total non-interest income ..... 492 273 279 187 308
-------- -------- -------- ------- -------
Total non-interest expense(2) ... 2,081 2,270 1,576 1,427 1,250
-------- -------- -------- ------- -------
Earnings before income taxes .. 1,368 738 787 638 966
Income tax expense .............. 499 274 277 221 325
-------- -------- -------- ------- -------
Net earnings .................. $ 869 $ 464 $ 511 $ 417 $ 641
======== ======== ======== ======= =======
Diluted earnings per share(3) ... $ 1.08 $ 0.51 $ 0.52 $ n/a $ n/a
======== ======== ======== ======= =======
Weighted average common &
common equivalent shares
outstanding ................... 803,554 906,334 973,383 n/a n/a
======== ======== ======== ======= =======
3
<PAGE>
At or for the years ended March 31,
----------------------------------------------
1998 1997 1996 1995(1) 1994(1)
---- ---- ---- ------- -------
Selected Financial Ratios
and Other Data:
Performance Ratios:
Return on assets (ratio of net
earnings to average total
assets) ...................... 0.76% 0.50% 0.64% 0.56% 0.87%
Return on equity (ratio of net
earnings to average equity) .. 6.52 3.18 4.25 6.68 11.18
Interest rate spread(4):
Average during period ........ 2.16 2.27 2.00 2.25 2.40
End of period ................ 1.97 2.61 2.37 1.85 2.52
Net interest margin(5) ....... 2.73 3.04 2.70 2.56 2.68
Ratio of non-interest expense
to average total assets ...... 1.82 2.43 1.98 1.91 1.70
Ratio of average interest
earning assets to average
interest-bearing liabilities . 112.23 117.85 115.76 107.95 107.59
Quality Ratios:
Non-performing assets to total
assets at end of period ...... 0.19 0.37 0.15 0.22 0.24
Allowance for loan losses to
non-performing loans ......... 106.97 41.58 107.38 70.83 64.29
Allowance for loan losses to
loans receivable, net ........ 0.40 0.29 0.29 0.36 0.40
Capital Ratios(6):
Equity to total assets at end
of period .................... 11.12 12.78 19.23 8.41 8.25
Average equity to average assets 11.65 15.70 15.05 8.33 7.80
Other Data:
Number of full service offices . 3 3 3 3 3
(1) Information for periods prior to 1996 relates to Hardin Federal Savings
Bank and subsidiary.
(2) Total non-interest expense for the year ended March 31, 1997 includes the
one time SAIF assessment of $441,000.
(3) All per share amounts have been restated for the adoption of Statement of
Financial Accounting Standard (SFAS) No. 128.
(4) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(6) 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 OF 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
and FHLB advances. 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 $17.7 million or 17.2% to $121.1 million at
March 31, 1998 from $103.4 million at March 31, 1997. The increase was primarily
funded by an increase in FHLB advances of $10.5 million and an increase in
deposits of $6.7 million. These funds, were used to finance a $6.7 million
increase in loans and a $10.3 million increase in investment securities.
Loans Receivable, Net. Loans receivable, net increased by $6.7 million or 12.3%
to $61.3 million at March 31, 1998 from $54.6 million at March 31, 1997. 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 totaling $1.2
million during the year.
Mortgage-Backed Securities. Mortgage-backed securities decreased to $19.0
million at March 31, 1998 from $19.2 million at March 31, 1997.
Investment Securities. Investment securities increased $10.3 million or 46.2% to
$32.7 million at March 31, 1998 from $22.3 million at March 31, 1997. The
increase was funded by FHLB advances in conjunction with the Company's growth
objectives to enhance return on stockholders' equity. The investment securities
acquired are Federal agency obligations and municipal obligations.
Deposits. Deposits increased $6.7 million or 9.5% to $76.9 million at March 31,
1998 from $70.2 million at March 31, 1997. Special certificates of deposit and
more aggressive pricing of deposits and marketing contributed to the increase.
5
<PAGE>
Federal Home Loan Bank Advances. FHLB advances increased to $29.5 million at
March 31, 1998. These advances were used to fund growth in loans and investment
securities. It is anticipated that FHLB advances will continue to be utilized to
meet the Company's growth objectives.
Equity. Total stockholders' equity increased to $13.5 million at March 31, 1998
from $13.2 million at March 31, 1997. Earnings for the year combined with
decreases in unrealized loss on available for sale securities, net, unearned
employee stock ownership plan, deferred recognition and retention plan added
approximately $86,000 which was partially offset by stock repurchases of
approximately $642,000.
The schedule on the following page presents, for the periods indicated, the
total dollar amount of interest income from average interest-earning assets and
the resultant yields, as well as the total dollar amount of interest expense 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,
----------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ------------------------------ ------------------------------
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 (1) ............... $ 57,819 $4,781 8.27% $50,433 $4,117 8.16% $39,203 $3,194 8.15%
Mortgage-backed securities ......... 19,703 1,216 6.17 21,127 1,347 6.38 26,232 1,619 6.17
Investment securities .............. 25,950 1,803 6.95 14,927 986 6.61 6,922 376 5.43
FHLB stock ......................... 1,290 87 6.74 794 55 6.93 732 53 7.24
Other interest-bearing deposits .... 6,961 347 4.98 3,758 179 4.76 4,639 310 6.68
-------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning assets ........ $111,723 $8,234 7.37% $91,039 $6,684 7.34% $77,728 $5,552 7.14%
======== ====== ==== ======= ====== ==== ======= ====== ====
Interest-bearing liabilities:
Savings accounts ................... $ 3,363 $ 82 2.44% $ 3,567 $ 87 2.44% $ 4,225 $ 91 2.15%
Demand and NOW accounts ............ 8,520 248 2.91 6,439 199 3.09 5,958 185 3.11
Certificate accounts ............... 63,205 3,488 5.52 57,241 3,094 5.41 56,754 3,165 5.58
FHLB advances ...................... 24,458 1,366 5.59% 10,000 535 5.35 208 13 6.25
-------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-bearing liabilities ... $ 99,546 $5,184 5.21% $77,247 $3,915 5.07% $67,145 $3,454 5.14%
======== ====== ==== ======= ====== ==== ======= ====== ====
Net interest income .................. $3,050 $2,769 $2,098
====== ====== ======
Net interest rate spread (2) ......... 2.16% 2.27% 2.00%
==== ==== ====
Net interest-earning assets .......... $ 12,177 $13,792 $10,583
======== ======= =======
Net interest margin (3) .............. 2.73% 3.04% 2.70%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities 112.23% 117.85% 115.76%
====== ====== ======
</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, investment, 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.
March 31,
------------------------
1998 1997 1996
---- ---- ----
Weighted average yield on:
Loans receivable ........................ 8.04% 8.38% 8.51%
Mortgage-backed securities .............. 6.19 7.40 6.65
Investment securities ................... 6.83 6.93 6.05
FHLB stock .............................. 6.50 7.00 6.75
Other interest-earning assets ........... 5.45 5.33 5.15
Combined weighted average yield
on interest-earning assets ............ 7.25% 7.78% 7.53%
---- ---- ----
Weighted average rate paid on:
Savings accounts ........................ 2.50% 2.50% 2.50%
Demand and NOW accounts ................. 2.91 3.05 3.06
Certificate accounts .................... 5.59 5.48 5.56
FHLB advances ........................... 5.68 5.64 0.00
Combined weighted average rate paid
on interest-bearing liabilities ....... 5.28% 5.17% 5.16%
---- ---- ----
Interest Rate Spread ...................... 1.97% 2.61% 2.37%
==== ==== ====
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 (i.e.,
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.
Year Ended March 31,
------------------------------------------------
1998 vs 1997 1997 vs 1996
----------------------- ------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
------------ Increase ------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable ............ $ 608 $ 56 $ 664 $ 919 $ 4 $ 923
Mortgage-backed securities .. (88) (43) (131) (325) 53 (272)
Investment securities ....... 764 53 817 513 97 610
FHLB stock .................. 34 (2) 32 4 (2) 2
Other interest-earning assets 160 8 168 (52) (79) (131)
------ ---- ------ ------ ----- ------
Total interest-earning assets . $1,478 $ 72 $1,550 $1,059 $ 73 $1,132
------ ---- ------ ------ ----- ------
Interest-bearing liabilities:
Savings accounts ............ $ (5) $ 0 $ (5) $ (2) $ (2) $ (4)
Demand and NOW accounts ..... 60 (11) 49 15 (1) 14
Certificate accounts ........ 330 64 394 27 (98) (71)
FHLB advances ............... 806 25 831 524 (2) 522
------ ---- ------ ------ ----- ------
Total interest bearing
liabilities ................. $1,191 $ 78 $1,269 $ 564 $(103) $ 461
------ ---- ------ ------ ----- ------
Net interest income ......... $ 287 $ (6) $ 281 $ 495 $ (30) $ 671
====== ==== ====== ====== ===== ======
9
<PAGE>
Comparison of operating results for the years ended March 31, 1998 and March 31,
1997.
- --------------------------------------------------------------------------------
Performance Summary. Net earnings for the year ended March 31, 1998 increased by
$405,000 or 87% to $869,000 from $464,000 for the year ended March 31, 1997.
Diluted earnings per share were $1.08 for the year ended March 31, 1998, and
$.51 for the year ended March 31, 1997. Improved annual earnings were the result
of an increase in net interest income and non-interest income and a decrease in
non-interest expense primarily due to the Savings Association Insurance Fund
(SAIF) special assessment incurred in fiscal 1997. For the years ended March 31,
1998 and 1997, the return on average assets was .76% and .50%, respectively,
while the return on average equity was 6.52% and 3.18%, respectively.
Net Interest Income. Net interest income increased from $2.8 million for the
fiscal year ended March 31, 1997 to $3.1 million for the current fiscal year, an
increase of $300,000. This reflects an increase of $1.5 million in interest
income to $8.2 million from $6.7 million and an increase of $1.3 million in
interest expense to $5.2 million from $3.9 million. The net increase was
primarily due to an increase in average interest-earning assets from $91.0
million to $111.7 million.
For the year ended March 31, 1998 the average yield on interest-earning assets
was 7.37% compared to 7.34% for fiscal 1997. The average cost of
interest-bearing liabilities was 5.21% for the year ended March 31, 1998, an
increase from 5.07% for fiscal 1997.
The average interest rate spread was 2.16% for the year ended March 31, 1998
compared to 2.27% for fiscal 1997. The average net interest margin decreased to
2.73% for the year ended March 31, 1998 compared to 3.04% for the year ended
March 31, 1997.
Provision for Loan Losses. During the year ended March 31, 1998, the Company
recorded a $94,000 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 $248,000 or .40% of loans
receivable, net at March 31, 1998, compares to $158,000 or .29% of loans
receivable, net at March 31, 1997. The allowance for loan losses as a percentage
of non-performing assets was 106.97% at March 31, 1998, compared to 41.58% at
March 31, 1997.
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 considered to be adequate, 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, 1998, non-interest income
increased by $220,000 or 81% due primarily to increased service charge income,
and gains recognized on the sale of loans, real estate owned, investments and
mortgage-backed securities.
Non-Interest Expense. Non-interest expense decreased $189,000 to $2.1 million
for the year ended March 31, 1998 from $2.3 million for the year ended March 31,
1997. The decrease was due to a decrease in federal insurance premiums and the
SAIF special assessment which was partially off-set by increases in compensation
expense, occupancy expense, data processing and other non-interest expense.
Additional staff and expenses related to the new branch office in Richmond
contributed to increases in compensation, occupancy, and data processing
expenses, while the increase in other expenses were primarily related to ATM
charges, debit card expense, and costs related to the Company's high performance
checking account program.
10
<PAGE>
Income Taxes. Income taxes increased $225,000 to $499,000 for the year ended
March 31, 1998 from $274,000 for the year ended March 31, 1997. The increase is
due to the increase in pre-tax income. The Company's effective tax rate was 36%
for fiscal 1998 and 37% for fiscal 1997.
Comparison of operating results for the years ended March 31, 1997 and March 31,
1996
- --------------------------------------------------------------------------------
Performance Summary. Net earnings for the year ended March 31, 1997 decreased by
$47,000 or 9.1% to $464,000 from $511,000 for the year ended March 31, 1996.
Earnings per share were $.51 for the year ended March 31, 1997, and $.52 for the
year ended March 31, 1996. The results were impacted by an increase of $671,000
in net interest income and a $3,000 decrease in income taxes offset by a $20,000
increase in the provision for loan loss, a $6,000 decrease in non-interest
income and a $694,000 increase in non-interest expense. For the years ended
March 31, 1997 and 1996, the return on average assets was .50% and .64%,
respectively, while the return on average equity was 3.18% and 4.25%,
respectively.
A provision in the Omnibus Appropriation Bill passed by Congress and signed by
President Clinton on September 30, 1996, included a special assessment to
recapitalize the SAIF. The assessment of 65.7 cents per $100 of qualifying
accounts as of March 31, 1995 created a pretax expense of $441,000 to the Bank.
Without the SAIF assessment, net income would have been $743,000, return on
average assets would have been .80%, return on average equity would have been
5.04% and earnings per share would have been $.82 for the fiscal year ended
March 31, 1997.
The recapitalization of SAIF is anticipated to reduce premiums for the deposit
insurance from 23 cents per $100 of deposits to 6.4 cents per $100 of deposits.
The 6.4 cents is anticipated for the years 1997 through 1999, then decreasing
further to 2.4 cents from year 2000 to 2017, assuming a merger of SAIF and the
Bank Insurance Fund (BIF).
Net Interest Income. Net interest income increased from $2.1 million for the
fiscal year ended March 31, 1996 to $2.8 million for the current fiscal year, an
increase of $700,000. This reflects an increase of $1.1 million in interest
income to $6.7 million from $5.6 million and an increase in interest expense of
$461,000 to $3.9 million from $3.5 million. The net increase was primarily due
to an increase in the ratio of average interest-earning assets to average
interest-bearing liabilities to 117.85% in 1997 from 115.76% in 1996.
For the year ended March 31, 1997, the average yield on interest-earning assets
was 7.34% compared to 7.14% for 1996. The average cost of interest-bearing
liabilities was 5.07% for the year ended March 31, 1997, a decrease from 5.14%
for 1996. The average balance of interest-earning assets increased $13.3 million
to $91.0 million for the year ended March 31, 1997 compared to $77.7 million for
fiscal 1996. During the same period, the average balance of interest-bearing
liabilities increased by $10.1 million to $77.2 million for the year ended March
31, 1997 from $67.1 million in fiscal 1996.
The average interest rate spread was 2.27% for the year ended March 31, 1997
compared to 2.00% for fiscal 1996. The average net interest margin increased to
3.04% for the year ended March 31, 1997 compared to 2.70% for the year ended
March 31, 1996.
11
<PAGE>
Provision for Loan Losses. During the year ended March 31, 1997, the Company
recorded a $34,000 provision for the 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 $158,000 or .29% of loans
receivable, net at March 31, 1997, compares to $131,000 or .29% of loans
receivable, net at March 31, 1996. The allowance for loan losses as a percentage
of non-performing assets was 41.58% at March 31, 1997, compared to 107.38% at
March 31, 1996, due to an increase in the Company's non-performing assets during
fiscal 1997.
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 considered to be adequate, there can be no assurance that
future losses will not exceed estimated amounts or that additional provisions
for loan lossess will not be required in the future.
Non-Interest Income. For the year ended March 31, 1997, non-interest income
decreased by $6,000 or 2.2% due primarily to lower loan servicing fees, a loss
in the amount of $2,000 on the sale of investments and reduced earnings from the
Company's investment in its data processing center.
Non-Interest Expense. Non-interest expense increased by $694,000 to $2.3 million
for the year ended March 31, 1997 from $1.6 million for the year ended March 31,
1996. The increase was due to an increase in the amount of $51,000 for the
Hardin Bancorp Inc., ESOP, $85,000 related to the Hardin Bancorp Inc.,
Recognition and Retention Plan (RRP), a special assessment of $441,000 to
recapitalize the SAIF, and additional legal, accounting and tax expense
associated with being a public company.
Income Taxes. Income taxes decreased $3,000 to $274,000 for the year ended March
31, 1997 from $277,000 for the year ended March 31, 1996. The decrease is due to
the decrease in pre-tax income. The Company's effective tax rate was 37% for
fiscal 1997 and 35% for fiscal 1996.
Asset Liability Management and Market Risk
- ------------------------------------------
As with other savings institutions, the Company's most significant form of
market risk is interest rate risk. 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 also
generally sold its long-term fixed-rate loans in the secondary market. The
Company currently retains longer term fixed-rate loans in the 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 50% 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 of interest rates.
The Company has historically relied upon retail deposit accounts as its primary
source of funds. 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. In order to meet the Company's growth objectives more reliance has
been placed on FHLB advances to fund loans and investments. During 1998 the Bank
obtained FHLB advances in the aggregate amount of $10.5 million.
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
negative one-year gap position is within the board-prescribed limits.
The following table sets forth at March 31, 1998, the amount of interest-earning
assets and interest-bearing liabilities maturing, repricing or callable 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
-------- --------- ------- ------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate real estate loans ......... $ 3,842 $ 2,702 $ 4,561 $ 4,800 $18,971 $ 34,876
Adjustable rate real estate loans .... 7,708 8,468 6,727 0 0 22,903
Consumer loans ....................... 1,077 606 1,709 1,902 1,411 6,705
Mortgage-backed securities:
Held to maturity ................... 7,017 3,978 0 0 0 10,995
Available for sale ................. 7,577 443 0 0 0 8,020
Investment securities:
Held to maturity ................... 0 0 0 10,000 0 10,000
Available for sale ................. 14,009 1,203 6,809 342 293 32,656
FHLB stock ........................... 1,475 0 0 0 0 1,475
Other ................................ 3,225 0 0 0 0 3,225
------- ------- ------- ------- ------- --------
Total interest-earning assets ...... $45,930 $17,400 $19,806 $17,044 $20,675 $130,855
======= ======= ======= ======= ======= ========
Interest-bearing liabilities:
Savings accounts ..................... $ 3,265 $ 0 $ 0 $ 0 $ 0 $ 3,262
Demand and NOW accounts .............. 10,159 0 0 0 0 10,162
Certificate accounts ................. 22,819 18,590 16,614 4,310 45 62,378
FHLB advances ........................ 10,500 2,000 7,000 10,000 0 29,500
------- ------- ------- ------- ------- --------
Total interest-bearing liabilities . $46,743 $20,590 $23,614 $14,310 $ 45 $105,302
======= ======= ======= ======= ======= ========
Interest-earning assets less
interest-bearing liabilities ......... $ (813) $(3,190) $(3,808) $ 2,734 $20,630 $ 15,553
Cumulative interest-rate
sensitivity gap ...................... $ (813) $(4,003) $(7,811) $(5,077) $15,553 $ 15,553
Cumulative interest-rate gap as a
percentage of assets at 3/31/98 ...... (0.67)% (3.31)% (6.45)% (4.19)% 12.84% 12.84%
Cumulative interest-rate gap as a
percentage of interest-earning
assets at 3/31/98 .................... (0.67)% (3.31)% (6.46)% (4.20)% 12.87% 12.87%
</TABLE>
13
<PAGE>
Net Portfolio Value
- -------------------
In order to encourage institutions to reduce their interest rate risk, the
Office of Thrift Supervision 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, 1998, as calculated by Farin and Associates, based on
information provided to Farin and Associates by the Bank.
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
Net Portfolio Value NPV as % of PV Assets
Change -------------------- ---------------------
in Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
+400 bp 7,749 (5,729) -49% 6.92% -421 bp
+300 bp 9,601 (3,877) -37% 8.39% -274 bp
+200 bp 11,594 (1,884) -24% 9.90% -123 bp
+100 bp 13,555 77 1% 11.31% +186 bp
0 bp 13,478 11.13%
-100 bp 16,642 3,164 9% 13.36% +223 bp
-200 bp 17,764 4,286 16% 14.02% +289 bp
-300 bp 19,265 5,787 26% 14.91% +378 bp
-400 bp 21,394 7,916 40% 16.15% +502 bp
March 31, March 31,
1998 1997
--------- ---------
***RISK MEASURES: 200 BP RATE SHOCK***
Pre-Shock NPV Ratio: NPV as % of PV of Assets 11.13% 13.19%
Exposure Measure: Post-Shock NPV Ratio 9.90% 9.53%
Sensitivity Measure: Change in NPV Ratio -123 bp -366 bp
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 on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
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.
14
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of funds are deposits, FHLB advances, 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.
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, 1998 and 1997, the Bank
originated loans for its portfolio in the amount of $27.7 million and $16.2
million, respectively. The Bank purchased loans totaling $1.2 million and $4.4
million during the fiscal years ended March 31, 1998 and 1997.
The Bank is required to maintain minimum levels of liquid assets under the 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 4.0% 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 46.5% and
8.81%, respectively, at March 31, 1998 and 1997. The Company's most liquid
assets are cash and cash equivalents, which include short-term investments. At
March 31, 1998 and 1997, cash and cash equivalents were $3.8 million and $4.3
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 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, 1998, the Bank had outstanding loan commitments of $1.3 million and
undisbursed loans in process of $3.0 million. It is anticipated that sufficient
funds will be available to meet current loan commitments including loan
applications received and in process.
Certificates of deposits which are scheduled to mature in one year or less at
March 31, 1998 were $41.4 million. Management believes that a significant
portion of such deposits will remain with the Bank.
At March 31, 1998 the Bank had tangible capital of $12.3 million, or 10.2% of
total adjusted assets, which is approximately $10.5 million above the minimum
requirement of 1.5% of adjusted total assets on that date. The Bank had core
capital of $12.3 million, or 10.2% of adjusted total assets, which is $8.7
million above the minimum leverage ratio requirement of 3.0% in effect on that
date. The Bank had total risk based capital of $12.5 million and total
risk-weighted assets of $46.6 million, or total risk based capital of 26.9% of
risk-weighted assets. This was $8.8 million above the 8.0% requirement in effect
on that date.
15
<PAGE>
Recent Accounting Developments
- ------------------------------
The Financial and Accounting Standards Board (FASB) issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, in June 1997. SFAS No. 130 will require
the Company to classify items of other comprehensive income by their nature in
the financial statements and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the statement of stockholders' equity. SFAS No.
131 requires that public enterprises report financial and descriptive
information about their reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by management. Both SFAS No. 130 and No.
131 are effective for fiscal years beginning after December 15, 1997. The
adoption of the standards is not expected to have a significant impact on the
financial statements of the Company.
The Company adopted SFAS Nos. 125 and 127 relating to transfers and servicing of
financial assets and extinguishments of liabilities during 1997 and 1998,
according to the required implementation dates. The adoption of these statements
is not expected to have a material effect on the financial position or results
of operations.
During February 1998, the FASB issued SFAS No. 132 which revises employer's
disclosure requirements about pension and other postretirement benefit plans.
This statement does not change the measurement or recognition of those plans and
supersedes Statements No. 87, 88 and 106. This statement is effective for fiscal
years beginning after December 15, 1997. The adoption of this standard is not
expected to require any additional disclosure by the Company.
Year 2000 Compliance
- --------------------
The Company utilizes and is dependent upon data processing systems and software
to conduct its business. The data processing systems and software include those
developed and maintained by the Company's data processing provider and purchased
software which is run on in-house computer networks. In 1997, the Company
initiated a review and assessment of all hardware and software to confirm that
it will function properly in the year 2000. The Company's data processing
provider and those vendors which have been contacted have indicated that their
hardware and/or software will be Year 2000 compliant by the end of 1998. This
will allow time for compliance testing. Additionally, alarms, heating and
cooling systems, and other computer-controlled mechanical devices on which the
Company relies are being evaluated. Those found not to be in compliance will be
modified or replaced with a compliant product. While there will be expenses
incurred during the next two years, the Company has not identified any
situations at this time that will require material cost expenditures to become
fully compliant.
16
<PAGE>
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>
Independent Auditors' Report
The Board of Directors
Hardin Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Hardin Bancorp,
Inc. and subsidiaries (the Company) as of March 31, 1998 and 1997 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended March 31, 1998. 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 consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 as of
March 31, 1998 and 1997 and the results of its operations and its cash flows for
each of the years in the three-year period ended March 31, 1998, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
- -------------------------
May 13, 1998
Kansas City, Missouri
18
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Consolidated Balance Sheets
March 31, 1998 and 1997
================================================================================
Assets 1998 1997
- --------------------------------------------------------------------------------
Cash ........................................... $ 556,927 258,745
Interest-bearing deposits in other financial
institutions .................................. 3,224,874 4,007,164
Investment securities (note 3):
Held-to-maturity ............................ 10,000,000 --
Available-for-sale .......................... 22,656,010 22,340,420
Mortgage-backed securities (note 4):
Held-to-maturity ............................ 10,995,511 13,456,912
Available-for-sale .......................... 8,019,725 5,757,213
Loans receivable, net (note 5) ................. 61,273,984 54,567,570
Accrued interest receivable on:
Investment securities ....................... 359,601 309,223
Mortgage-backed securities .................. 133,459 144,271
Loans receivable ............................ 395,138 329,200
Real estate owned .............................. -- 103,410
Premises and equipment (note 6) ................ 1,725,383 850,210
Stock in Federal Home Loan Bank (FHLB) of
Des Moines, at cost ........................... 1,475,000 950,000
Deferred income taxes receivable (note 9) ...... -- 43,000
Prepaid expenses and other assets .............. 276,492 236,410
------------ ------------
Total assets ................................... $121,092,104 103,353,748
============ ============
================================================================================
Liabilities and Stockholders' Equity 1998 1997
- --------------------------------------------------------------------------------
Liabilities:
Deposits (note 7) ......................... $ 76,884,462 70,200,857
Advances from borrowers for property
taxes and insurance ......................... 264,317 275,440
Advances on FHLB line of credit (note 8) .. 29,500,000 19,000,000
Accrued interest payable .................. 56,149 55,251
Income taxes payable (note 9):
Current ................................ 323,520 137,164
Deferred ............................... 15,000 --
Accrued expenses and other liabilities .... 571,084 475,310
------------- -------------
Total liabilities ............................ 107,614,532 90,144,022
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 3,500,000
shares authorized, 1,058,000 shares issued 10,580 10,580
Serial preferred stock, $.01 par value;
500,000 shares authorized, none issued ... -- --
Additional paid-in capital ................ 10,165,436 10,084,729
Retained earnings ......................... 7,482,320 6,994,680
Net unrealized loss on available-for-sale
securities, net .......................... (98,326) (234,597)
Unearned employee benefits (note 10) ...... (518,280) (636,800)
Deferred recognition and retention
plan (note 10) ........................... (327,011) (413,464)
Treasury stock of 234,440 shares in 1998
and 198,640 shares in 1997, at cost ...... (3,237,147) (2,595,402)
------------- -------------
Total stockholders' equity ................... 13,477,572 13,209,726
Commitments and contingencies (notes 5 and 12)
------------- -------------
Total liabilities and stockholders' equity ... $ 121,092,104 103,353,748
============= =============
See accompanying notes to consolidated financial statements.
19
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Consolidated Statements of Earnings
Years ended March 31, 1998, 1997 and 1996
================================================================================
1998 1997 1996
- --------------------------------------------------------------------------------
Interest income:
Loans receivable ................... $4,780,918 4,117,141 3,193,688
Mortgage-backed securities ......... 1,216,181 1,347,251 1,619,048
Investment securities .............. 1,803,383 985,940 376,379
Other .............................. 433,660 234,042 363,164
---------- ---------- ----------
Total interest income ................. 8,234,142 6,684,374 5,552,279
---------- ---------- ----------
Interest expense:
Deposits (note 7) .................. 3,817,487 3,379,903 3,441,049
FHLB advances ...................... 1,366,316 535,227 12,876
---------- ---------- ----------
Total interest expense ................ 5,183,803 3,915,130 3,453,925
---------- ---------- ----------
Net interest income ................... 3,050,339 2,769,244 2,098,354
Provision for losses on loans
(note 5) ............................ 93,671 33,590 13,902
---------- ---------- ----------
Net interest income after
provision for losses ................ 2,956,668 2,735,654 2,084,452
---------- ---------- ----------
Noninterest income:
Service charges .................... 141,531 80,491 67,032
Loan servicing fees ................ 34,260 36,102 42,675
Gain on sale of loans .............. 70,433 -- --
Gain (loss) on sale of investments
and mortgage-backed securities
(notes 3 and 4) ................... 111,484 (2,218) 1,878
Other .............................. 134,472 158,175 167,290
---------- ---------- ----------
Total noninterest income .............. 492,180 272,550 278,875
---------- ---------- ----------
Noninterest expense:
Compensation and benefits (note 10) 1,138,519 1,018,635 854,732
Occupancy and equipment ............ 149,465 115,842 106,008
Federal insurance premiums ......... 45,742 557,351 153,649
Data processing .................... 109,836 94,725 90,897
Real estate owned .................. 1,439 2,202 (3,050)
Other .............................. 636,426 481,394 373,826
---------- ---------- ----------
Total noninterest expense ............. 2,081,427 2,270,149 1,576,062
---------- ---------- ----------
Earnings before income taxes .......... 1,367,421 738,055 787,265
Income tax expense (note 9) ........... 498,847 273,804 276,742
---------- ---------- ----------
Net earnings .......................... $ 868,574 464,251 510,523
========== ========== ==========
Earnings per share:
Basic .............................. $ 1.12 .52 .52
Diluted ............................ 1.08 .51 .52
========== ========== ==========
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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
====================================================================================================================================
Net unrealized Deferred
Additional loss on Unearned recognition
Common paid-in Retained available-for-sale employee and retention Treasury
stock capital earnings securities, net benefits plan stock Total
----- ------- -------- --------------- -------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
($.10 per share) ....... -- -- (105,800) -- -- -- -- (105,800)
------- ----------- ---------- ----------- ---------- --------- ----------- -----------
Balance at March 31, 1996 10,580 10,055,448 6,885,230 (154,597) (761,720) -- -- 16,034,941
Net earnings ............. -- -- 464,251 -- -- -- -- 464,251
Change in net unrealized
loss on securities
available-for-sale,
net of tax ............. -- -- -- (80,000) -- -- -- (80,000)
Allocation of ESOP shares -- 29,281 -- -- 124,920 -- -- 154,201
Repurchase of common stock -- -- -- -- -- -- (3,093,552) (3,093,552)
Adoption of recognition
and retention plan ..... -- -- -- -- -- (498,150) 498,150 --
Amortization of
recognition and
retention plan ......... -- -- -- -- -- 84,686 -- 84,686
Dividends declared
($.40 per share) ....... -- -- (354,801) -- -- -- -- (354,801)
------- ----------- ---------- ----------- ---------- --------- ----------- -----------
Balance at March 31, 1997 10,580 10,084,729 6,994,680 (234,597) (636,800) (413,464) (2,595,402) 13,209,726
Net earnings ............. -- -- 868,574 -- -- -- -- 868,574
Change in net unrealized
loss on securities
available-for-sale,
net of tax ............. -- -- -- 136,271 -- -- -- 136,271
Allocation of ESOP shares -- 80,707 -- -- 118,520 -- -- 199,227
Repurchase of common stock -- -- -- -- -- -- (641,745) (641,745)
Amortization of
recognition and
retention plan ......... -- -- -- -- -- 86,453 -- 86,453
Dividends declared
($.49 per share) ....... -- -- (380,934) -- -- -- -- (380,934)
------- ----------- ---------- ----------- ---------- --------- ----------- -----------
Balance at March 31, 1998 $10,580 10,165,436 7,482,320 (98,326) (518,280) (327,011) (3,237,147) 13,477,572
======= =========== ========== =========== ========== ========= =========== ===========
</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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
===============================================================================================
1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings ................................ $ 868,574 464,251 510,523
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Provision for losses on loans .......... 93,671 33,590 13,902
Depreciation and amortization .......... 80,494 54,352 44,360
Premium amortization and accretion
of discounts and deferred loan
fees, net ............................. (328,422) 83,123 91,248
FHLB stock dividends ................... -- -- (14,600)
Loss (gain) on sales of loans and
securities, net ....................... (181,917) 2,218 (1,878)
Gain on sales of premises
and equipment ......................... -- -- (4,877)
Gain on sales of real estate owned ..... (5,657) (6,684) --
Proceeds from sales of loans held
for sale .............................. 428,016 -- --
Origination of loans held for sale ..... (423,619) -- --
Allocation of ESOP shares .............. 199,227 154,201 103,308
Amortization of deferred recognition
and retention plan .................... 86,453 84,686 --
Provision for deferred income taxes .... (22,000) (44,086) 4,565
Changes in other assets and liabilities:
Accrued interest receivable .......... (105,504) (180,825) (111,762)
Prepaid expenses and other assets .... (43,373) 12,213 9,103
Accrued interest payable ............. 898 24,866 (1,584)
Accrued expenses and other liabilities 74,647 100,752 (38,731)
Income taxes payable ................. 186,295 80,589 52,443
------------ ------------ ------------
Net cash provided by operating activities ...... 907,783 863,246 656,020
------------ ------------ ------------
Investing activities:
Net increase in loans receivable ............ (8,811,940) (5,295,352) (4,871,370)
Proceeds from maturities of
certificates of deposit in other
financial institutions ..................... -- -- 100,000
Purchase of loans ........................... (1,232,050) (4,397,569) (6,941,351)
Proceeds from sales of loans ................ 3,309,109 -- --
Purchase of mortgage-backed
securities available-for-sale .............. (10,786,034) -- (522,781)
Purchase of investment securities
held-to-maturity ........................... (10,000,000) -- --
Purchase of investment securities
available-for-sale ......................... (27,556,342) (21,607,082) (6,657,843)
Principal payments on mortgage-backed
securities held-to-maturity ................ 2,081,172 2,786,969 4,011,982
Principal payments on mortgage-backed
securities available-for-sale .............. 805,804 1,098,488 463,185
Principal payments on investment
securities available-for-sale .............. 76,872 -- --
Proceeds from maturities of investment
securities available-for-sale .............. 23,650,000 3,500,000 4,901,696
Proceeds from sales of mortgage-backed
securities held-to-maturity ................ 337,776 -- --
Proceeds from sales of mortgage-backed
securities available-for-sale .............. 7,838,077 1,016,675 --
Proceeds from sales of investment
securities available-for-sale .............. 4,084,772 2,004,844 3,264,197
Purchase of stock in FHLB of Des Moines ..... (525,000) (208,000) --
Proceeds from sales of real estate owned .... 117,339 35,000 --
Purchase of office property and equipment ... (952,376) (394,344) (50,810)
Proceeds from sale of office properties
and equipment .............................. -- -- 13,500
------------ ------------ ------------
Net cash used in investing activities .......... $(17,562,821) (21,460,371) (6,289,595)
============ ============ ============
</TABLE>
(Continued)
22
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
======================================================================================
1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financing activities:
Net increase (decrease) in deposits $ 6,683,605 3,595,610 (844,034)
Net increase in advances from
borrowers for taxes and insurance (11,123) 51,688 18,446
Proceeds from FHLB advances ....... 30,500,000 19,000,000 1,000,000
Repayments of FHLB advances ....... (20,000,000) -- (2,500,000)
Proceeds from issuance of stock,
net of issuance costs ............ -- -- 9,201,000
Payment of dividends .............. (359,807) (374,665) --
Purchase of treasury stock ........ (641,745) (3,093,552) --
------------ ------------ ------------
Net cash provided by financing
activities ......................... 16,170,930 19,179,081 6,875,412
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents ................... (484,108) (1,418,044) 1,241,837
Cash and cash equivalents at
beginning of year .................. 4,265,909 5,683,953 4,442,116
------------ ------------ ------------
Cash and cash equivalents at
end of year ......................... $ 3,781,801 4,265,909 5,683,953
============ ============ ============
Supplemental disclosure of cash
flow information:
Cash paid for:
Interest ....................... $ 5,182,905 3,890,264 3,455,509
============ ============ ============
Income taxes, net of refunds ... $ 310,100 193,215 224,299
============ ============ ============
Noncash investing and
financing activities:
Loans transferred to real
estate owned ..................... $ 8,272 143,726 --
============ ============ ============
Loans to facilitate sales
of real estate owned ............. $ -- 18,500 --
============ ============ ============
Allocation of recognition
and retention plan shares ........ $ -- 498,150 --
============ ============ ============
Dividend declared and payable ..... $ 107,063 85,936 105,800
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
(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. Significant intercompany balances and transactions
have been eliminated in consolidation.
(b) Investment and Mortgage-backed Securities
The Company classifies its investment and mortgage-backed securities
portfolio as held-to-maturity, which are recorded at amortized cost, or
available-for-sale, which 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.
24
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(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, 1998 or 1997.
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.
(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.
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
The Company accounts for its mortgage servicing rights in accordance with
Statement of Financial Accounting Standards (SFAS) No. 122, Accounting for
Mortgage Servicing Rights, as amended by SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. This statement requires that the value of retained mortgage
servicing rights related to loans originated and sold after January 1, 1996
be capitalized as an asset, thereby increasing the gain on sale of the loan
by the amount of the asset. Such mortgage servicing rights are amortized in
proportion to and over the period of the estimated net servicing income.
Any remaining unamortized amount is charged to expense if the related loan
is repaid prior to maturity. Management monitors the capitalized mortgage
servicing rights for impairment based on the fair value of those rights.
Any impairment is recognized through a valuation allowance.
Included in gains on sales of loans during 1998 are capitalized mortgage
servicing rights aggregating $36,000. Amortization expense related to the
capitalized servicing rights, included in other expenses in the
accompanying consolidated statements of earnings, aggregated $3,000 during
1998.
At March 31, 1998 and 1997, the Bank was servicing loans for others
amounting to $9,759,000 and $8,413,000, 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, 1998 and 1997 was
insignificant.
25
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(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
forty 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 consolidated 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.
(j) 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.
(k) 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.
(l) Earnings Per Share
Earnings per share are computed in accordance with SFAS No. 128, Earnings
per Share. Basic earnings per share is based upon the weighted average
number of common shares outstanding during the periods presented. Diluted
earnings per share include the effects of all dilutive potential common
shares outstanding during each period. Earnings per share for all periods
presented have been restated to conform to SFAS No. 128.
26
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The shares used in the calculation of basic and diluted earnings per share
are shown below:
================================================================================
For the years ended March 31,
----------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Weighted average common shares
outstanding......................... 775,293 900,351 973,383
Stock options......................... 28,261 5,983 --
- --------------------------------------------------------------------------------
803,554 906,334 973,383
================================================================================
(m) Future Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, in June 1997. SFAS No.
130 will require the Company to classify items of other comprehensive
income by their nature in the consolidated financial statements and display
the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of
the statement of stockholders' equity. SFAS No. 131 requires that public
enterprises report financial and descriptive information about their
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by management. Both SFAS No. 130 and SFAS No. 131 are
effective for the Company's year ending March 31, 1999. The adoption of the
standards is not expected to have a significant impact on the consolidated
financial statements of the Company.
27
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(3) Investment Securities
A summary of investment securities information is as follows:
<TABLE>
<CAPTION>
=========================================================================================================================
Gross Gross Estimated
Amortized unrealized unrealized fair
March 31, 1998 cost gains losses value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
United States government and agency
obligations maturing:
Within one year $ 8,994,336 20,860 (3,942) 9,011,254
After one year but within five years 6,695,104 - (51,303) 6,643,801
After five years but within ten years 622,653 185 - 622,838
After ten years 5,333,207 40,799 (1,018) 5,372,988
========= ====== ====== =========
Total U. S. government and agency
obligations 21,645,300 61,844 (56,263) 21,650,881
---------- ------ ------- ----------
State and municipal obligations maturing:
Within one year 205,000 23 - 205,023
After one year but within five years 505,000 2,000 - 507,000
After five years but within ten years 290,000 3,106 - 293,106
------- ----- -------
Total state and municipal obligations 1,000,000 5,129 - 1,005,129
--------- ----- ---------
$ 22,645,300 66,973 (56,263) 22,656,010
============== ====== ======= ==========
Held to maturity:
United States government and agency
obligations maturing after one year
but within five years $ 10,000,000 9,352 - 10,009,352
============== ===== ==========
=========================================================================================================================
Gross Gross Estimated
Amortized unrealized unrealized fair
March 31, 1997 cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
Available-for-sale:
United States government and agency
obligations maturing after one year
but within five years $ 22,485,287 9,077 (153,944) 22,340,420
============== ===== ======== ==========
</TABLE>
Proceeds from the sales of investment securities for the years ended March
31, 1998, 1997 and 1996 totaled $4,084,772, $2,004,844 and $3,264,197,
respectively, and resulted in gross realized gains of $31,433, $5,286 and
$5,671 in 1998, 1997 and 1996, respectively, and gross realized losses of
$3,793 in 1996.
28
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
At March 31, 1998 and 1997, investment securities with a fair value of
approximately $1,467,000 and $1,790,000, respectively, were pledged to
secure public funds on deposit.
(4) Mortgage-backed Securities
Mortgage-backed securities at March 31, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
=========================================================================================================================
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1998:
Available-for-sale:
Pass-through certificates guaranteed
by Government National
Mortgage Association (GNMA) $ 2,967,254 - - 2,967,254
Federal Home Loan Mortgage
Corporation (FHLMC)
participation certificates 1,744,724 - (57,019) 1,687,705
Federal National Mortgage
Association (FNMA) participation
certificates 3,474,530 - (109,764) 3,364,766
--------- ----- -------- ---------
$ 8,186,508 - (166,783) 8,019,725
============== ===== ======== =========
Held-to-maturity:
Pass-through certificates guaranteed
by GNMA $ 1,478,909 25,490 (416) 1,503,983
FHLMC participation certificates 3,736,755 7,350 (56,130) 3,687,975
FNMA participation certificates 5,779,847 15,273 (68,916) 5,726,204
--------- ------ ------- ---------
$ 10,995,511 48,113 (125,462) 10,918,162
============== ====== ======== ==========
</TABLE>
29
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================================================
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1997:
Available-for-sale:
FHLMC participation certificates $ 2,029,460 - (74,100) 1,955,360
FNMA participation certificates 3,955,292 - (153,439) 3,801,853
--------- ------ -------- ---------
$ 5,984,752 - (227,539) 5,757,213
============= ====== ======== =========
Held-to-maturity:
Pass-through certificates guaranteed
by GNMA $ 1,815,581 21,177 (2,391) 1,834,367
FHLMC participation certificates 4,635,361 10,581 (116,929) 4,529,013
FNMA participation certificates 7,005,970 7,817 (98,723) 6,915,064
--------- ----- ------- ---------
$ 13,456,912 39,575 (218,043) 13,278,444
============= ====== ======== ==========
</TABLE>
Proceeds from the sales of mortgage-backed securities for the years ended
March 31, 1998 and 1997 totaled $8,175,853 and $1,016,675, respectively,
and resulted in gross realized losses of $1,096 and $7,696 in 1998 in 1997,
respectively, and gross realized gains of $81,147 and $192 in 1998 and
1997, respectively.
(5) Loans Receivable
Loans receivable at March 31, 1998 and 1997 are summarized as follows:
================================================================================
1998 1997
- --------------------------------------------------------------------------------
Real estate:
One to four family $ 50,645,667 47,473,503
Five or more 543,197 --
Nonresidential 477,263 --
Land 810,581 327,936
Commercial 1,335,685 1,044,996
Construction 3,966,929 1,619,013
Consumer 6,704,534 5,570,651
------------ ------------
64,483,856 56,036,099
Loans in process (3,021,980) (1,352,926)
Discounts and deferred
loan origination fees, net of cost 59,818 42,673
Allowance for loan losses (247,710) (158,276)
------------ ------------
Net loans receivable $ 61,273,984 54,567,570
============ ============
30
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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, 1998 and 1997, the
Bank was committed to originate loans aggregating approximately $1,264,000
and $708,800, respectively. At March 31, 1998, all loan commitments were
fixed with interest rates ranging from 7.25% to 8.0%. At March 31, 1997,
fixed loan commitments approximated $627,800 with interest rates ranging
from 7.75% to 9.50%. There were no commitments to buy loans at March 31,
1998 or 1997.
The Company had loans to directors and officers at March 31, 1998 and 1997
which carry terms similar to those for other loans. A summary of such loans
is as follows:
================================================================================
1998 1997
- --------------------------------------------------------------------------------
Balance at beginning of year $ 145,000 146,000
New loans 105,000 10,000
Payments (8,000) (11,000)
--------- ---------
Balance at end of year $ 242,000 145,000
========= =========
Activity in the allowance for loan losses for the years ended March 31,
1998, 1997 and 1996 is as follows:
================================================================================
1998 1997 1996
- --------------------------------------------------------------------------------
Balance at beginning of year $ 158,276 131,040 118,905
Provision for loan losses 93,671 33,590 13,902
Charge-offs (4,237) (6,354) (1,767)
--------- --------- ---------
Balance at end of year $ 247,710 158,276 131,040
========= ========= =========
Nonaccrual loans at March 31, 1998 and 1997 aggregated approximately
$232,000 and $274,000, respectively.
31
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) Premises and Equipment
Premises and equipment consist of the following at March 31, 1998 and 1997:
================================================================================
1998 1997
- --------------------------------------------------------------------------------
Land $ 150,219 150,219
Building 1,473,400 695,882
Leasehold improvements 34,170 33,603
Furniture and fixtures 734,497 560,205
---------- ----------
2,392,286 1,439,909
Less accumulated depreciation 666,903 589,699
---------- ----------
Office properties and equipment, net $1,725,383 850,210
========== ==========
(7) Deposits
Deposits at March 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
1998 1997
-------------------- ------------------------
Stated rate Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance by interest rate:
Commercial 0.00% $ 1,081,647 1% $ 140,200 --%
NOW accounts 0.00-2.50% 4,258,114 6 2,333,601 3
Money market demand
accounts 3.25-4.00% 5,901,404 8 4,096,530 6
Savings accounts 2.50% 3,265,591 4 3,591,811 5
---------- -- ---------- --
14,506,756 19 10,162,142 14
---------- --- ---------- ---
Certificate accounts 0.00-2.99 105,875 -- -- --
3.00-3.99 23,030 -- 36,737 --
4.00-4.99 3,978,376 5 5,561,972 8
5.00-5.99 44,438,448 58 43,313,598 62
6.00-6.99 12,358,458 16 9,645,129 14
7.00-7.99 1,466,506 2 1,474,266 2
8.00 and up 7,013 -- 7,013 --
---------- --- ---------- ---
62,377,706 81 60,038,715 86
$ 76,884,462 100% $ 70,200,857 100%
========== === ========== ===
Weighted average interest rate
on deposits at March 31 5.07% 5.21%
==== ====
</TABLE>
32
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
A summary of contractual maturity dates for certificate accounts at March
31, 1998 is as follows:
================================================================================
Amount Percent
- --------------------------------------------------------------------------------
Contractual maturity of
certificate accounts:
Under 12 months $41,408,495 66%
12 to 24 months 14,386,506 23
24 to 36 months 2,227,787 4
36 to 48 months 2,467,308 4
48 to 60 months 1,842,750 3
Over 60 months 44,860 --
----------- ---
$62,377,706 100%
=========== ===
The components of interest expense on deposits for the years ended March
31, 1998, 1997 and 1996 are as follows:
================================================================================
1998 1997 1996
- --------------------------------------------------------------------------------
NOW, savings, Super NOW and
money market demand $ 329,197 285,575 276,250
Certificates of deposit 3,488,290 3,094,328 3,164,799
---------- ---------- ----------
$3,817,487 3,379,903 3,441,049
========== ========== ==========
At March 31, 1998 and 1997, certificate accounts of $100,000 or greater
totaled $6,748,657 and $5,712,767, respectively.
During 1997, the Federal Deposit Insurance Corporation imposed a one-time
special assessment on Savings Association Insurance Fund (SAIF) assessable
deposits. The assessment on the Company's SAIF deposits was $441,000 and is
included in federal insurance premiums in the accompanying 1997
consolidated statement of earnings.
33
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(8) FHLB Advances
The Company had the following debt outstanding from the FHLB of Des Moines
at March 31, 1998 and 1997:
<TABLE>
<CAPTION>
========================================================================================
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
$5,000,000 advance, interest at 6.07%, due April 1997 $ -- 5,000,000
$5,000,000 advance, interest at one-month LIBOR less .05%
(5.39% at March 31, 1997), due October 1997 -- 5,000,000
$3,000,000 advance, interest at one-month LIBOR,
(5.69% at March 31, 1998), due August 1998 3,000,000 --
$2,500,000 advance, interest at 5.83%, due September 1998 2,500,000 --
$2,000,000 advance, interest at 5.74%, due November 1998 2,000,000 2,000,000
$5,000,000 advance, interest at one-month LIBOR less .05%,
due December 1998 5,000,000 5,000,000
$2,500,000 advance, interest at 6.14%, due July 1999 2,500,000 --
$2,500,000 advance, interest at 6.15%, due September 1999 2,500,000 --
$2,000,000 advance, interest at 5.87%, due November 1999 2,000,000 2,000,000
$10,000,000 advance, callable beginning on January 23, 2003,
interest at 5.42%, due January 2008 10,000,000 --
----------- -----------
$29,500,000 19,000,000
=========== ===========
</TABLE>
The advances from the FHLB are collateralized by first mortgage loans.
Scheduled maturities of FHLB advances are as follows:
================================================================================
Year ending
March 31, Amount
- --------------------------------------------------------------------------------
1999 $12,500,000
2000 7,000,000
2008 10,000,000
-----------
$29,500,000
===========
34
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) Income Taxes
The components of income tax expense from operations are as follows:
================================================================================
Federal State Total
- --------------------------------------------------------------------------------
Year ended March 31, 1998:
Current $ 452,847 68,000 520,847
Deferred (19,000) (3,000) (22,000)
--------- --------- ---------
$ 433,847 65,000 498,847
--------- --------- ---------
Year ended March 31, 1997:
Current $ 290,804 27,086 317,890
Deferred (40,000) (4,086) (44,086)
--------- --------- ---------
$ 250,804 23,000 273,804
--------- --------- ---------
Year ended March 31, 1996:
Current $ 241,177 31,000 272,177
Deferred 4,565 -- 4,565
--------- --------- ---------
$ 245,742 31,000 276,742
========= ========= =========
In addition, during the years ended March 31, 1998 and 1997, the Company
recorded deferred income tax expense (benefits) of approximately $80,000
and $(47,000), respectively, related to unrealized losses on investment
securities available-for-sale.
The reasons for the difference between the effective tax rates and the
expected federal income tax rate of 34% are as follows:
================================================================================
Percent of earnings before
income tax expense
--------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Expected federal income tax rate 34.0% 34.0 34.0
Items affecting income tax rate:
State taxes, net of federal tax benefit 2.0 2.6 2.2
Other .5 .5 (1.0)
---- ---- ----
Effective tax rate 36.5% 37.1 35.2
==== ==== ====
35
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The tax effects of temporary differences which give rise to a significant
portion of deferred tax assets and liabilities at March 31, 1998 and 1997
are as follows:
================================================================================
1998 1997
- --------------------------------------------------------------------------------
Unrealized loss on available-for-sale
securities $ 58,000 138,000
Allowance for loan losses 100,000 65,000
Accrued compensation 144,000 143,000
Other 22,000 8,000
--------- ---------
Deferred tax assets 324,000 354,000
--------- ---------
FHLB dividends 33,000 33,000
Tax bad debt reserve in excess of
base year 145,000 145,000
Fixed asset basis difference 48,000 49,000
Core deposit premium 15,000 15,000
Accrued interest on loans originated
prior to September 25, 1985 6,000 8,000
Loan origination fees 74,000 61,000
Other 18,000 --
--------- ---------
Deferred tax liabilities 339,000 311,000
--------- ---------
Net deferred tax assets (liabilities) $ (15,000) 43,000
========= =========
There was no valuation allowance for deferred tax assets at March 31, 1998
or 1997. Management believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to
realize the deferred tax assets.
Prior to 1996, savings institutions that met certain definitional tests and
other conditions prescribed by the Internal Revenue Code were allowed to
deduct, within limitations, a bad debt deduction under either of two
alternative methods: (i) a deduction based on a percentage of taxable
income (most recently 8%), or (ii) a deduction based upon actual loan loss
experience (the Experience Method). The Small Business Job Protection Act
(the Act) repealed the bad debt deduction based on a percentage of taxable
income effective for taxable years beginning after December 31, 1995. The
Company, therefore, will be limited to the use of the bad debt deduction
computed under the Experience Method for its year ended March 31, 1997. The
Company's base year tax bad debt reserve balance of approximately $1.6
million as of March 31, 1998 and 1997, will, in future years, be subject to
recapture in whole or in part upon the occurrence of certain events, such
as a distribution to stockholders in excess of the Company's current and
accumulated earnings and profits, a redemption of shares or upon a partial
or complete liquidation of the Company. The Company does not intend to make
distributions to stockholders that would result in recapture of any portion
of its base year bad debt reserve. Since management intends to use the
reserve only for the purpose for which it was intended, a deferred tax
liability of approximately $550,000 has not been recorded.
36
<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 are fully vested after 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
consolidated balance sheets. On March 31, 1998 and 1997, the Company
allocated 11,852 shares and 12,492 shares, respectively, to participants.
ESOP contributions to the Bank, representing the fair value of allocated
shares, charged to compensation and benefits expense in 1998 and 1997 were
approximately $199,000 and $154,000, respectively. The fair value of the
remaining unallocated shares of 51,828 at March 31, 1998 aggregated
approximately $1,004,000.
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 as necessary. Since April 1,
1997, the Bank's defined benefit pension plan has been fully funded.
Pension expense of $32,000 and $52,000 was recorded for the years ended
March 31, 1997 and 1996, 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 predetermined
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, 1998, 1997 and 1996 amounted to approximately $111,000, $106,000 and
$103,000, 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 recognition and
retention plan (RRP). 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 (April 16, 1996). On April 16, 1996 and January 1, 1998, the Company
awarded 35,972 shares and 3,000 shares, respectively, to participants. The
corresponding charge to compensation and benefits expense in 1998 and 1997
was $86,453 and $84,686, respectively.
(11) Stock Options
The Company has authorized the adoption of a stock option plan. 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. On April 16, 1996, the Company granted options for
89,930 shares for $11.50 per share. On January 1, 1998, the Company granted
options for 8,500 shares for $17.50 per share. The options will vest over
the five years following the date of grant and are exercisable for up to
ten years.
37
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize, as expense
over the vesting period, the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 allows entities to disclose pro
forma net income and income per share as if the fair value-based method
defined in SFAS No. 123 had been applied, while continuing to apply the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, under which compensation expense is recorded
on the date of grant only if the current market price of the underlying
stock exceeds the exercise price.
The Company has elected to apply the recognition provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Had
compensation expense for the Company's incentive and nonstatutory stock
options been determined based upon the fair value at the grant date
consistent with the methodology prescribed under SFAS No. 123, the
Company's net earnings and diluted earnings per share would have been
reduced by approximately $56,000, or $.07 per share, in 1998 and $94,000,
or $.10 per share, in 1997.
Following is a summary of the fair values of options granted using the
Black-Scholes option-pricing model:
================================================================================
1998 1997
- --------------------------------------------------------------------------------
Fair value at grant date $ 4.82 3.49
Assumptions:
Dividend yield 2.44% 2.35%
Volatility 14.33% 12.49%
Risk-free interest rate 6.2% 7.0%
Expected life 10 years 10 years
======== ========
Pro forma net earnings reflect only options granted and vested in fiscal
1998 and 1997. Therefore, the full impact of calculating compensation
expense for stock options under SFAS is not reflected in the pro forma net
earnings amount presented above because compensation expense is reflected
over the options' vesting period.
(12) 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.
38
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(13) Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a
direct material effect on the Bank's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of risk-based capital, as defined in the regulations, to
risk-weighted assets, as defined, and of tangible and core capital, as
defined, to total assets, as defined. Management believes, as of March 31,
1998, that the Bank meets all capital adequacy requirements to which it is
subject. To be categorized as well capitalized under the regulatory
framework for prompt corrective action, the Bank must maintain minimum
total risk-based, leverage risk-based, tangible and core capital ratios as
set forth in the table:
<TABLE>
<CAPTION>
=========================================================================================================================
Total Leverage
Tangible Core Risk-based risk-based
capital capital capital capital
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity $ 12,199,000 12,199,000 12,199,000 12,199,000
Adjustments to capital:
Allowance for loan losses -- -- 248,000 --
Unrealized loss on available-for-sale
securities, net 98,000 98,000 98,000 98,000
Other (1,000) (1,000) (1,000) (1,000)
------ ------ ------ ------
Regulatory capital - computed 12,296,000 12,296,000 12,544,000 12,296,000
Minimum capital requirement for
capital adequacy purposes 1,816,000 3,633,000 3,730,000 --
--------- --------- --------- -----
Regulatory minimum capital - excess $ 10,480,000 8,663,000 8,814,000 --
============== ========= ========= =====
To be well capitalized for prompt
corrective action provisions $ -- 6,055,000 4,663,000 2,798,000
============== ========= ========= =========
To be well capitalized capital - excess $ -- 6,241,000 7,881,000 9,498,000
============== ========= ========= =========
Minimum capital requirement - percent 1.5% 3.0 8.0
============== ========= =========
To be well capitalized for prompt corrective
action provisions capital requirement -
percent 5.0% 10.0 6.0
========= ========= ========
Bank capital 10.2% 10.2 26.9 26.4
============== ========= ========= ========
</TABLE>
39
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(14) 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, 1998 and 1997, including methods and assumptions utilized,
are set forth below:
<TABLE>
<CAPTION>
==========================================================================================
1998 1997
------------------------ -------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities $32,656,010 32,665,000 22,340,420 22,340,000
=========== =========== =========== ===========
Mortgage-backed securities $19,015,236 18,938,000 19,214,125 19,036,000
=========== =========== =========== ===========
Loans, net of unearned fees and
allowance for loan losses $61,273,984 60,898,000 54,567,570 54,456,000
=========== =========== =========== ===========
Noninterest bearing demand deposit $ 1,081,647 1,082,000 140,200 140,000
Money market and NOW deposits 10,159,518 10,160,000 6,430,131 6,430,000
Savings accounts 3,265,591 3,266,000 3,591,811 3,592,000
Certificate accounts 62,377,706 62,795,000 60,038,715 60,197,000
----------- ----------- ----------- -----------
Total deposits $76,884,462 77,303,000 70,200,857 70,359,000
=========== =========== =========== ===========
</TABLE>
Methods and Assumptions Utilized
The carrying amount of cash and cash equivalents and accrued interest
receivable and payable are considered to be approximate fair value based on
the short-term nature of these items. The advances on FHLB line of credit
are considered to approximate fair value based on the contractual rates
approximating the rates currently available to the Company.
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.
40
<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, savings
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.
41
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(15) Parent Company Condensed Financial Statements
Condensed Balance Sheets
March 31, 1998 and 1997
================================================================================
Assets 1998 1997
- --------------------------------------------------------------------------------
Interest-bearing deposits $ 848,243 361,004
Investment securities available-for-sale -- 978,516
Loans receivable 531,632 646,415
Investment in subsidiary 12,198,944 11,334,216
Other 60,199 54,000
----------- -----------
Total assets $13,639,018 13,374,151
=========== ===========
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ 161,446 164,425
Stockholders' equity 13,477,572 13,209,726
----------- -----------
Total liabilities and stockholders' equity $13,639,018 13,374,151
=========== ===========
Condensed Statements of Earnings
Years ended March 31, 1998 and 1997
================================================================================
1998 1997
- --------------------------------------------------------------------------------
Interest income $ 105,290 226,786
Other expense, net (212,127) (228,743)
--------- ---------
Loss before equity in undistributed
earnings of subsidiary (106,837) (1,957)
Increase in undistributed equity
of subsidiary 934,535 466,208
--------- ---------
Earnings before income taxes 827,698 464,251
Income tax expense (40,876) --
--------- ---------
Net earnings $ 868,574 464,251
========= =========
42
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
HARDIN, MISSOURI
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Condensed Statements of Cash Flows
Years ended March 31, 1998 and 1997
================================================================================
1998 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 868,574 464,251
Increase in undistributed
equity of subsidiary (934,535) (466,208)
Amortization of deferred RRP 86,453 84,686
Other (37,613) 63,555
----------- -----------
Net cash provided (used) by
operating activities (17,121) 146,284
----------- -----------
Cash flows from investing activities:
Net increase in loans receivable 114,783 115,345
Purchase of investment securities
available-for-sale -- (596,677)
Principal payments on investment
and mortgage-backed
securities available-for-sale 500,000 1,245,811
Sales of investment and mortgage-
backed securities
available-for-sale 486,959 657,642
----------- -----------
Net cash provided by investing activities 1,101,742 1,422,121
----------- -----------
Cash flows from financing activities:
Dividends from subsidiary 404,170 --
Payment of dividends (359,807) (374,665)
Capital contribution to subsidiary -- (30,705)
Purchase of treasury stock (641,745) (3,093,552)
----------- -----------
Net cash used by financing activities (597,382) (3,498,922)
----------- -----------
Net increase (decrease) in cash 487,239 (1,930,517)
Cash at beginning of year 361,004 2,291,521
----------- -----------
Cash at end of year $ 848,243 361,004
=========== ===========
Noncash investing and financing activities:
Dividend declared and payable $ 107,063 85,936
=========== ===========
Allocation of RRP $ -- 498,150
=========== ===========
43
<PAGE>
HARDIN BANCORP, INC.
STOCKHOLDER INFORMATION
Annual Meeting
- --------------
The Annual Meeting of Stockholders will be held at 1:00 p.m., Richmond, Missouri
time on July 23, 1998, at the Hardin Federal Savings Bank office located at 200
North Spartan Drive, Richmond, Missouri 64085.
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:
FISCAL 1996 HIGH LOW DIVIDENDS
----------- ---- --- ---------
Third Quarter $13.00 $10.00 $ --
Fourth Quarter $12.00 $11.25 $.10
FISCAL 1997 HIGH LOW DIVIDENDS
----------- ---- --- ---------
First Quarter $12.00 $11.25 $.10
Second Quarter $12.50 $11.25 $.10
Third Quarter $12.75 $11.875 $.10
Fourth Quarter $15.50 $12.25 $.10
FISCAL 1998 HIGH LOW DIVIDENDS
----------- ---- --- ---------
First Quarter $15.75 $13.50 $.12
Second Quarter $18.25 $15.00 $.12
Third Quarter $18.88 $17.38 $.12
Fourth Quarter $19.50 $18.25 $.13
A $.13 per share dividend was declared by the Board of Directors on March 19,
1998, payable April 17, 1998, to stockholders of record on April 3, 1998. 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, 1998, there were 1,058,000 shares issued and 823,560 shares
outstanding of Hardin Bancorp, Inc. (HFSA) common stock (including unallocated
ESOP shares) and there were approximately 500 registered holders of record.
44
<PAGE>
Shareholders and General Inquiries Transfer Agent
- ---------------------------------- --------------
Robert W. King Registrar and Transfer
President 10 Commerce Drive
Hardin Bancorp, Inc. Cranford, New Jersey 07016
2nd and Elm Street
Hardin, Missouri 64035
(660) 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, 1998, 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
HARDIN BANCORP, INC.
CORPORATE INFORMATION
Company and Bank Addresses
- --------------------------
2nd and Elm Street Telephone: (660) 398-4312
Hardin, Missouri 64035 Fax: (660) 398-4317
200 North Spartan Drive Telephone: (816) 470-6400
Richmond, MO 64085 Fax: (816) 470-2022
201 North Jesse James Road Telephone: (816) 630-2179
Excelsior Springs, MO 64024 Fax: (816) 637-4521
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., and David Hatfield
Hardin Federal Savings Bank Farmer and Part-time Broker
Karen Blankenship William L. Homan
Senior Vice President and Secretary Vice President and Treasurer
45
<PAGE>
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
Mike Schwarz Vickie L. McGinnis
Vice President Assistant Vice President
David A. Schooling
Assistant Vice President
Independent Accountants Special Counsel
- ----------------------- ---------------
KPMG Peat Marwick LLP Luse, Lehman, Gorman,
1000 Walnut, Suite 1600 Pomerenk, & Schick, P.C.
Post Office Box 13127 5335 Wisconsin Ave. N.W.,
Kansas City, Missouri 64199 Suite 400
Washington, DC 20015
46
SUBSIDIARIES OF THE REGISTRANT
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
------ ---------- --------- ---------------
Hardin Bancorp, Inc. Hardin Federal Savings
Bank 100% Federal
Hardin Federal Hardin Savings Service
Savings Bank Corporation 100% Missouri
Accountants' Consent
The Board of Directors
Hardin Bancorp, Inc.:
We consent to the incorporation by reference in the registration statements on
Form S-8 of Hardin Bancorp, Inc. of our report dated May 13, 1998, relating to
the consolidated balance sheets of Hardin Bancorp, Inc. and subsidiaries as of
March 31, 1998 and 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended March 31, 1998, which report appears in the annual report on Form
10-KSB of Hardin Bancorp, Inc. for the fiscal year ended March 31, 1998 filed
pursuant to the Securities Exchange Act of 1934, as amended.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
June 26, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 557
<INT-BEARING-DEPOSITS> 3,225
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,676
<INVESTMENTS-CARRYING> 20,996
<INVESTMENTS-MARKET> 20,927
<LOANS> 61,522
<ALLOWANCE> 248
<TOTAL-ASSETS> 121,092
<DEPOSITS> 76,884
<SHORT-TERM> 29,500
<LIABILITIES-OTHER> 1,230
<LONG-TERM> 0
<COMMON> 11
0
0
<OTHER-SE> 13,467
<TOTAL-LIABILITIES-AND-EQUITY> 121,092
<INTEREST-LOAN> 4,781
<INTEREST-INVEST> 3,019
<INTEREST-OTHER> 434
<INTEREST-TOTAL> 8,234
<INTEREST-DEPOSIT> 3,817
<INTEREST-EXPENSE> 5,184
<INTEREST-INCOME-NET> 2,957
<LOAN-LOSSES> 94
<SECURITIES-GAINS> 111
<EXPENSE-OTHER> 2,081
<INCOME-PRETAX> 1,367
<INCOME-PRE-EXTRAORDINARY> 1,367
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 869
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 7.25
<LOANS-NON> 232
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 501
<ALLOWANCE-OPEN> 158
<CHARGE-OFFS> (4)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 248
<ALLOWANCE-DOMESTIC> 151
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 97
</TABLE>
