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, 1999
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, 1999 were
$8.1 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, 1999, was $11.9 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, 1999, there were 1,058,000 shares issued and 734,753
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, 1999.
Part III of Form 10-KSB - Portions of the Proxy Statement for 1999
Annual Meeting of Stockholders.
1
<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,
1999, the Company had total assets of $137.1 million, deposits of $83.3 million
and total equity of $12.6 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 201 Northeast 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."
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.
2
<PAGE>
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, 1999, the Bank's gross loans and mortgage-backed securities
outstanding totalled $84.5 of which $54.1 million or 64.0% were one- to
four-family residential mortgage loans. Of the one- to four-family mortgage
loans outstanding at that date, 43.3% were fixed-rate loans, and 20.8% were
adjustable-rate loans. At that same date, consumer loans totalled $8.6 million
or 10.1% of the Bank's total loan portfolio, construction loans totalled $2.4
million or 2.8% of the Bank's total loan and mortgage-backed securities
portfolio, commercial real estate loans totalled $3.0 million or 3.6% of the
Bank's total loan and mortgage-backed securities portfolio and land acquisition
loans totalled $3.0 million or 3.61% of the Bank's total loan and
mortgage-backed securities portfolio.
The Bank also invests in mortgage-backed securities. At March 31,
1999, mortgage-backed securities totalled $12.6 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, 1999, the maximum
amount which the Bank could have lent under this limit to any one borrower and
the borrower's related entities was approximately $1.7 million. At March 31,
1999, 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, 1999 was $1.4 million secured
by a loan to develop raw land into residential lots located in Clay County,
Missouri. At March 31, 1999, 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,
1999 1998 1997
---------------------- ---------------------- ---------------------
Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
Real Estate Loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family.......................... $ 54,122 64.04% $ 50,646 60.65% $ 47,473 63.09%
Land......................................... 3,048 3.61 810 .98 328 0.43
Commercial................................... 3,031 3.59 2,356 2.82 1,045 1.39
Construction................................. 2,380 2.81 3,967 4.75 1,619 2.151
--------- ------- --------- ------- --------- ------
Total real estate loans................... 62,581 74.05 57,779 69.20 50,465 67.06
--------- ------- --------- ------- --------- ------
Consumer Loans:
Consumer Loans:
Secured by deposits......................... 976 1.15 635 .76 570 0.76
Automobile.................................. 2,008 2.38 1,631 1.95 1,438 1.91
Home equity................................. 4,338 5.13 3,193 3.82 2,363 3.14
Home improvement............................ 303 0.36 521 .62 689 0.92
Other consumer loans........................ 945 1.12 725 .88 511 0.68
--------- ------- --------- ------- --------- ------
Total consumer loans...................... 8,570 10.14 6,705 8.03 5,571 7.41
--------- ------- --------- ------- --------- ------
Commercial business loans.................... 781 0.92 -- -- -- --
--------- ------- --------- ------- --------- ------
Total loans receivable...................... 71,932 85.11 64,484 77.23 56,036 74.47
--------- ------- --------- ------- -------- ------
Mortgage-Backed Securities:
GNMA......................................... 1,118 1.32 4,446 5.32 1,815 2.41
FHLMC........................................ 4,158 4.92 5,425 6.50 6,591 8.76
FNMA......................................... 7,308 8.65 9,144 10.95 10,808 14.36
--------- ------- --------- ------- --------- ------
Total mortgage-backed securities.......... 12,584 14.89 19,015 22.77 19,214 25.53
--------- ------- --------- ------- --------- ------
Total loan and mortgage-backed
securities portfolio.................... 84,516 100.00% 83,499 100.00% 75,250 100.00%
====== ======= ======
Less:
Loans in process............................... (2,195) (3,022) (1,353)
Deferred fees and discounts.................... 79 60 43
Allowance for loan losses...................... (311) (248) (158)
--------- --------- ---------
Total loan and mortgage-backed
securities portfolio, net............... $ 82,089 $ 80,289 $ 73,782
========= ========= =========
</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,
1999 1998 1997
---------------------- ---------------------- -------------
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....................... $ 36,589 43.29% $ 30,623 36.67% $ 26,019 34.58%
Land...................................... 512 0.61 426 .51 255 0.34
Commercial................................ 624 0.74 529 .64 64 0.09
Construction.............................. 1,711 2.02 3,298 3.95 1,527 2.03
--------- ------- --------- ------- --------- ------
Total real estate loans.................. 39,436 46.66 34,876 41.77 27,865 37.04
Consumer.................................... 5,829 6.90 5,062 6.06 5,035 6.69
Mortgage-backed securities.................. -- -- -- -- 35 0.04
--------- ------- --------- ------- --------- ------
Total fixed-rate......................... 45,265 53.56 39,938 47.83 32,935 43.77
--------- ------- --------- ------- --------- ------
Adjustable-Rate Loans:
Real estate:
One- to four-family....................... 17,533 20.75 20,023 23.98 21,454 28.51
Land...................................... 2,536 3.00 384 .46 73 0.10
Commercial................................ 2,407 2.85 1,827 2.19 981 1.30
Construction.............................. 669 0.79 669 .80 92 0.12
--------- ------- --------- ------- --------- ------
Total real estate loans.................. 23,145 27.39 22,903 27.43 22,600 30.03
Consumer.................................... 2,741 3.24 1,643 1.97 536 0.71
Commercial business loans................... 781 0.92 -- -- -- --
Mortgage-backed securities.................. 12,584 14.89 19,015 22.77 19,179 25.49
--------- ------- --------- ------- --------- ------
Total adjustable rate.................... 39,251 46.44 43,561 52.17 42,315 56.23
--------- ------- --------- ------- --------- ------
Total loan and mortgage-backed
securities portfolio.................... 84,516 100.00% 83,499 100.00% 75,250 100.00%
====== ======= ======
Less:
Loans in process.......................... (2,195) (3,022) (1,353)
Deferred loan fees and discounts.......... 79 60 43
Allowance for loan losses................. (311) (248) (158)
--------- ---------- ---------
Total loans and mortgage-backed
securities portfolio, net............... $ 82,089 $ 80,289 $ 73,782
========= ========= =========
</TABLE>
5
<PAGE>
The following schedule illustrates the contractual maturity and
weighted average rates of the Bank's loan portfolio at March 31, 1999. 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.
<PAGE>
<TABLE>
<CAPTION>
Commercial Real
One-to Four-Family Construction EstateLand
-------------------- -------------------- --------------------
Due During Weighted Weighted Weighted
Year Ending Average Average Average
March 31, Amount Rate Amount Rate Amount Rate
- ------------ --------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
2000(1)............. $ 50 10.62% $ 2,118 8.13% $ 1 9.75%
2001................ 339 8.46 69 8.50 475 8.38
2002................ 812 8.48 -- -- 11 9.38
2003 and 2004....... 522 8.13 -- -- -- --
2005 to 2009........ 5,358 7.77 -- -- 569 8.53
2010 to 2024........ 31,702 7.81 193 7.09 1,975 8.60
2025 and following.. 15,339 8.47 -- -- -- --
-------- -------- ---------
.................... $ 54,122 $ 2,380 $ 3,031
======== ======== =========
</TABLE>
- -----------------------
<PAGE>
<TABLE>
<CAPTION>
Land Consumer Commercial Business Total
--------------------- ------------------- -------------------- -------------------
Due During Weighted Weighted Weighted Weighted
Year Ending Average Average Average Average
March 31, Amount Rate Amount Rate Amount Rate Amount Rate
- ------------ --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000(1)............. $ 700 8.25% $ 1,660 8.37% $ 27 8.38% $ 4,556 8.27%
2001................ 1,400 7.75 531 10.65 454 8.25 3,268 8.47
2002................ -- -- 721 10.14 -- -- 1,544 9.13
2003 and 2004....... 128 8.25 1,624 9.43 300 8.25 2,574 8.97
2005 to 2009........ 316 8.43 1,147 9.57 -- -- 7,390 8.14
2010 to 2024........ 504 8.57 2,887 8.67 -- -- 37,261 7.93
2025 and following.. -- -- -- -- -- -- 15,339 7.92
--------- --------- --------- --------
.................... $ 3,048 $ 8,570 $ 781 $ 71,932
========= ========= ========= ========
</TABLE>
- -----------------------
(Continued)
(1) The total amount of loans due after March 31, 2000 which have predetermined
interest rates is $42.0 million while the total amount of loans due after
such date which have floating or adjustable interest rates is $25.3
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, 1999, the Bank's one- to four-family residential mortgage loans
totalled $54.1 million, or 64.0%, 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,
1999 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, 1999, the Bank originated $15.1 million
fixed-rate one- to four-family loans, which constituted 93.4% of total one- to
four-family loans originated and $1.1 million of adjustable-rate one- to
four-family loans or 6.6% 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, 1999, the total balance
of one-to four-family adjustable-rate loans was $17.5 million or 20.8% 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, 1999, the total balance of one- to four-family fixed-rate
loans was $36.6 million or 43.3% 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, 1999, the Bank's consumer loan portfolio totalled $8.6 million, or
10.1% 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, 1999, home equity
and home improvement loans amounted to $4.3 million and $303,000, respectively,
which represented 5.1% and 0.4%, 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.
<PAGE>
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, 1999, the Bank's automobile loans totalled
$2.0 million or 2.4% 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, 1999, $25,000 of the Bank's consumer loans were
non-performing. See "-- Non-Performing Assets and Classified Assets." There can
be no assurances, however, that delinquencies will not occur in the future.
Construction Lending. At March 31, 1999, the Bank had $2.4 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, 1999, the
Bank had $1.7 million and $669,000 of fixed-rate and adjustable-rate
construction loans, respectively, which represented 2.02% and 0.79%,
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 1999. 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, 1999 approximately $3.0 million, or 3.6% 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 real estate development loan secured by
property in Clay 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.
<PAGE>
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.
Commercial Business Loans
At March 31, 1999, the Bank had a total of $781,000 outstanding in
commercial business loans, and an additional commitment to fund a $149,000 line
of credit. At March 31, 1999, the largest outstanding commercial business loan
was a $415,000 loan to a farm implement dealership in Ray County, Missouri that
was secured by machinery, equipment and accounts receivable. The Bank had a
total of four commercial loans at March 31, 1999.
Commercial business loans are underwritten by analyzing the financial
condition of the borrower, the borrower's credit history, the reliability and
predictability of the business operations and the security for the loan.
Commercial loans and credit lines are continually monitored in an attempt to
detect any adverse conditions at the earliest possible stages to limit the
Bank's exposure to potential losses.
Commercial business lending represents a relatively new lending arena
for the Bank. In the near term, management intends to limit both the size and
number of commercial loans.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is generally considered to be collateral based lending with
loan amounts based on predetermined loan to collateral values and liquidation of
the underlying real estate collateral is viewed as primary source of repayment
in the event of borrower default. Although commercial business loans may be
collateralized by equipment or other business assets, the liquidation of
collateral in the event of borrower default is often not a sufficient source of
repayment. Accordingly, the repayment of a commercial business loan depends
primarily on the creditworthiness of the borrower, while liquidation of
collateral is a secondary and often insufficient source of repayment.
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,
1999, the Bank originated $29.5 million in fixed-rate loans and $7.7 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
60% of total loans receivable. At March 31, 1999, fixed-rate loans comprised
53.6% of gross loan and mortgage-backed securities portfolio. Reflecting these
policies, during the fiscal years ended March 31, 1999, 1998 and 1997, the Bank
sold $3.5 million, $3.7 million, and $0, respectively, of one- to four-family
fixed-rate real estate loans.
10
<PAGE>
During fiscal year 1999, the Bank purchased $1.7 million of real estate
loans originated by other lenders all of which were secured by properties
located in Missouri. At March 31, 1999, 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, 1999 were greater
than the comparable period in the prior year. The Bank believes the increase was
due to an increased emphasis on the origination of loans and increased loan
demand within the Bank's market area, plus the availability of lower fixed-rate
interest on long-term loans.
11
<PAGE>
The following table shows the loan and mortgage-backed securities
origination, purchase, sale and repayment activities of the Bank for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended March 31,
1999 1998 1997
--------- --------- ---------
(In Thousands)
Originations by type:
Adjustable rate:
<S> <C> <C> <C>
One- to four-family.................................................. $ 1,072 $ 3,367 $ 1,240
Land................................................................. 1,525 333 55
Commercial real estate............................................... 2,215 1,140 20
Construction......................................................... -- 669 210
Consumer............................................................. 2,007 1,963 455
Commercial business.................................................. 930 -- --
--------- --------- ---------
Total adjustable-rate.............................................. 7,749 7,462 1,980
--------- --------- ---------
Fixed rate:
One- to four-family.................................................. 15,064 12,254 7,452
Land................................................................. 292 188 180
Commercial real estate............................................... 225 -- --
Construction......................................................... 1,964 3,351 1,947
Consumer............................................................. 4,247 4,398 4,659
--------- --------- ---------
Total fixed-rate................................................... 21,792 20,191 14,238
--------- --------- ---------
Total loans originated............................................. 29,541 27,653 16,218
--------- --------- ---------
Purchases:
One- to four-family.................................................. 1,212 1,048 4,250
Land................................................................. -- 184 --
Commercial real estate............................................... 450 -- 148
Mortgage-backed securities - at cost................................. -- 10,940 --
--------- --------- ----------
Total purchased.................................................... 1,662 12,172 4,398
--------- --------- ---------
Sales and Repayments:
One- to four-family.................................................. 3,486 3,737 --
Mortgage-backed securities sold - at amortized cost.................. 2,769 8,176 1,016
--------- --------- ---------
Total sales........................................................ 6,255 11,913 1,016
--------- --------- ---------
Principal repayments................................................. 23,893 19,630 14,467
--------- --------- ---------
Total sales and repayments......................................... 30,148 31,543 15,483
--------- --------- ---------
Decrease (increase) in other items:
Loans in process..................................................... 827 (1,669) (587)
Deferred fees and discounts.......................................... (19) (17) 26
Allowance for loan losses............................................ (63) (89) (27)
--------- --------- ----------
Net increase (decrease)............................................ $ 1,800 $ 6,507 $ 4,545
========= ========= =========
</TABLE>
12
<PAGE>
Asset Quality
General. When a borrower fails to make a required payment on a loan,
the Bank attempts to cause the delinquency to be cured by contacting the
borrower. In the case of loans secured by real estate, reminder notices are sent
to borrowers. If payment is late, appropriate late charges are assessed and a
notice of late charges is sent to the borrower. If the loan is in excess of 90
days delinquent, the loan will be referred to the Bank's legal counsel for
collection. In all cases, if the Bank believes that its collateral is at risk
and added delay would place the collectibility of the balance of the loan in
further question, management may refer loans for collection even sooner than the
90 days described above.
When a loan becomes more than 90 days delinquent, the Bank will place
the loan on non-accrual status and previously accrued interest income on the
loan is charged against current income. The loan will remain on a non-accrual
status as long as the loan is more than 90 days delinquent.
Delinquent consumer loans are handled in a similar manner as to those
described above; however, shorter time frames for each step apply due to the
type of collateral generally associated with such types of loans. The Bank's
procedures for repossession and sale of consumer collateral are subject to
various requirements under Missouri and federal consumer protection laws.
The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at March 31, 1999. The amounts presented in
the table below represent the total remaining principal balances of the loans,
rather than the actual payment amounts which are overdue.
<TABLE>
<CAPTION>
Loans Delinquent For
60-89 Days 90 Days and Over Total Delinquent Loans
------------------------------- ------------------------------- --------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
--------- -------- ------- ------- ------- -------- ------- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family.......... 8 $ 307 .57% 5 $ 252 .46% 13 $ 559 1.03%
Land......................... -- -- -- -- -- -- -- -- --
Commercial................... -- -- -- -- -- -- -- -- --
Construction................. -- -- -- -- -- -- -- -- --
Consumer....................... 2 24 .26 6 25 .27 8 49 .53
Commercial business............ -- -- -- -- -- -- -- -- --
--------- -------- ------- ------- ------- -------- ------- ------ ------
Total..................... 10 $ 331 .83% 11 $ 277 .73% 21 $ 608 1.56%
========= ======== ======= ======= ======= ======== ======= ====== ======
</TABLE>
13
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. Loans are
placed on non-accrual status when the collection of principal and/or interest
become doubtful. For all years presented, the Bank has had no troubled debt
restructurings (which involve forgiving a portion of interest or principal on
any loans or making loans at a rate materially less than that of market rates).
Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
Year Ended March 31,
1999 1998 1997
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Non-accruing loans
One- to four-family............................................. $ 205 $ 220 $ 274
Land............................................................ -- -- --
Commercial real estate.......................................... -- -- --
Construction.................................................... -- -- --
Consumer........................................................ 25 12 --
Commercial business............................................. -- -- --
--------- --------- ---------
Total......................................................... 230 232 274
--------- --------- ---------
Accruing loans delinquent 90 days or more
One- to four-family............................................. 47 -- --
Land............................................................ -- -- --
Commercial real estate.......................................... -- -- --
Construction.................................................... -- -- --
Consumer........................................................ -- -- 3
Commercial business............................................. -- -- --
--------- --------- ---------
Total......................................................... 47 -- 3
--------- --------- ---------
Foreclosed assets
One- to four-family............................................. -- -- 103
Land............................................................ -- -- --
Commercial real estate.......................................... -- -- --
Construction.................................................... -- -- --
Consumer........................................................ -- -- --
Commercial business............................................. -- -- --
--------- --------- ---------
Total......................................................... -- -- 103
--------- --------- ---------
Total non-performing assets........................................ $ 277 $ 232 $ 380
========= ========= =========
Total classified assets............................................ $ 336 $ 501 $ 545
========= ========= =========
Total non-performing assets as a percentage of total assets........ .20% .19% 0.37%
========= ========= =========
Total non-performing loans as a percentage of total
loans receivable................................................ .45% .36% 0.68%
========= ========= =========
</TABLE>
<PAGE>
For the year ended March 31, 1999 gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $24,000. The amount that was included in
interest income on such loans was $18,000 for the year ended March 31, 1999.
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
14
<PAGE>
paying capacity of the obligor or the collateral pledged, if any. "Substandard"
assets include those characterized by the "distinct possibility" that the
insured institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified "substandard" with the added characteristic that the
weaknesses present make "collection or liquidation in full" on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for losses in an
amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and
in accordance with its classification of assets policy, the Bank regularly
reviews loans in its portfolio to determine whether such assets require
classification in accordance with applicable regulations. On the basis of
management's review of its assets, at March 31, 1999, the Bank had classified a
total of $333,000 of its assets as substandard, none as doubtful, and $3,000 as
loss. At March 31, 1999, total classified assets comprised $336,000 or .3% of
the Bank's capital, or 2.5% of the Bank's total assets.
Other Loans of Concern. In addition to the non-performing and
classified loans set forth in the tables above, as of March 31, 1999, 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.
<PAGE>
Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value minus estimated cost to sell. If fair value at the
date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time of
transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations. At March 31, 1999, 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
15
<PAGE>
affected if circumstances differ substantially from the assumptions used in
making the final determination. Future additions to the Bank's allowance for
loan losses will be the result of periodic loan, property and collateral reviews
and thus cannot be predicted in advance. In addition, federal regulatory
agencies, as an integral part of the examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to
increase the allowance based upon their judgment of the information available to
them at the time of their examination. At March 31, 1999, the Bank had a total
allowance for loan losses of $311,000, representing 112.5% of total
non-performing loans and .45% of the Bank's loans, net. See Note 4 of the Notes
to Consolidated Financial Statements.
16
<PAGE>
The distribution of the Bank's allowance for loan losses at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
At March 31,
------------------------------- ------------------------------- -----------------------------
1999 1998 1997
------------------------------- ------------------------------- -----------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
One- to four-family....... $ 113 $54,122 75.24% $ 74 $50,646 78.54% $ 81 $47,473 84.72%
Land...................... 31 3,048 4.24 8 810 1.26 3 328 0.59
Commercial real estate.... 31 3,031 4.21 24 2,356 3.65 11 1,045 1.86
Construction.............. 7 2,380 3.31 13 3,967 6.15 10 1,619 2.89
Consumer..................... 49 9,350 13.00 32 6,705 10.40 25 5,571 9.94
Commercial business.......... 8 781 1.09 -- -- -- -- -- --
Unallocated.................. 72 -- -- 97 -- -- 28 -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total................... $ 311 $71,932 100.00% $ 248 $64,484 100.00% $ 158 $56,036 100.00%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The portion of the allowance to each loan category does not necessarily
represent the total available for losses within that category since the total
allowance is applicable to the entire loan portfolio.
17
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
Year Ended March 31,
1999 1998 1997
----------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of period........................................... $ 248 $ 158 $ 131
Charge-offs:
One- to four-family................................................... -- -- (7)
Land.................................................................. -- -- --
Commercial real estate................................................ -- -- --
Construction.......................................................... -- -- --
Consumer.............................................................. (3) (4) --
Commercial business................................................... -- -- --
------- ------- -------
(3) (4) (7)
------- -------- --------
Recoveries:
One- to four-family................................................... -- -- --
Land.................................................................. -- -- --
Commercial real estate................................................ -- -- --
Construction.......................................................... -- -- --
Consumer.............................................................. -- -- --
Commercial business................................................... -- -- --
------- ------- -------
-- -- --
Net charge-offs.......................................................... (3) (4) (7)
Additions charged to operations.......................................... 66 94 34
------- ------- -------
Balance at end of period................................................. $ 311 $ 248 $ 158
======= ======= =======
Ratio of net charge-offs during the
period to average loans outstanding during the period................. .004% .01% 0.01%
======= ======= =======
Ratio of net charge-offs during the period to
average non-performing assets......................................... 1.13% 1.98% 1.84%
======= ======= =======
</TABLE>
Investment Activities
General. Hardin Federal must maintain minimum levels of investments
that qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Bank has
generally maintained liquid assets at levels above the minimum requirements
imposed by the OTS regulations and at levels believed adequate to meet the
requirements of normal operations, including repayments of maturing debt and
potential deposit outflows. Cash flows projections are regularly reviewed and
updated to assure that adequate liquidity is maintained. At March 31, 1999, 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
61.2%. See "Regulation--Liquidity."
<PAGE>
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Bank, as established by the
Board of Directors, is to invest funds among various categories of investments
and maturities based upon the Bank's liquidity needs, asset/liability management
policies, investment quality, marketability and performance objectives.
18
<PAGE>
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 Freddie Mac,
Government National Mortgage Association ("GNMA") and Fannie Mae obligations. At
March 31, 1999, the Bank's investment in mortgage-backed securities totalled
$12.6 million or 9.2% 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. During the fiscal
year ended March 31, 1999, the Bank sold $2.8 million of its mortgage-backed
securities. See Note 3 of the Notes to Consolidated Financial Statements.
The Fannie Mae, Freddie Mac 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. Fannie Mae and Freddie Mac
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 Fannie Mae and Freddie Mac 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, 1999, the Bank's investment
securities (including a $2.0 million investment in the common stock of the FHLB
of Des Moines) totalled $46.5 million, or 33.9% of its total assets. It is the
Bank's general policy to purchase U.S. Government securities and federal agency
obligations and other investment securities. See Note 2 of the Notes to
Consolidated Financial Statements.
<PAGE>
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 $12.6 million as of March 31, 1999, plus an
additional 10% if the investments are fully secured by readily marketable
collateral. At March 31, 1999, 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.
19
<PAGE>
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,
-------------------------------------------------------------
1999 1998 1997
------------------ ------------------ -----------------
Book % of Book % of Book % of
Value Total Value Total Value Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. government securities..................... $ -- --% $ -- --% $ 98 .21%
Federal agency securities...................... 38,206 60.40 31,651 56.15 22,242 47.82
Revenue bonds.................................. 1,473 2.33 1,005 1.78 -- --
Perpetual preferred stock...................... 4,840 7.65 -- -- -- --
---------- ------- --------- ------- --------- -------
Subtotal.................................. 44,519 70.37 32,656 57.93 22,340 48.03
FHLB stock..................................... 2,000 3.16 1,475 2.62 950 2.04
---------- ------- --------- ------- --------- -------
Total investment securities
and FHLB stock......................... $ 46,519 73.54% $ 34,131 60.55% $ 23,290 50.07%
---------- ------- --------- ------- --------- -------
Average remaining life of investment
securities excluding FHLB stock............... 8 years 9 years 13 years
Other interest-bearing assets:
Interest-bearing deposits...................... $ 4,157 6.57% $ 3,225 5.72% $ 4,007 8.62%
Mortgage-backed securities:
GNMA........................................ 1,118 1.77 4,446 7.89 1,816 3.90
Freddie Mac................................. 4,158 6.57 5,424 9.62 6,590 14.17
Fannie Mae.................................. 7,308 11.55 9,145 16.22 10,808 23.24
---------- ------- --------- ------- --------- -------
Total mortgage-backed securities, net..... 12,584 19.89 19,015 33.73 19,214 41.31
---------- ------- --------- ------- --------- -------
Total investment portfolio..................... $ 63,260 100.00% $ 56,371 100.00% $ 46,511 100.00%
========== ======= ========= ======= ========= =======
</TABLE>
20
<PAGE>
The composition and maturities of the investment securities portfolio,
excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
March 31, 1999
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>
Federal agency obligations.............. $ 22,711 $ 5,000 $ -- $ 10,494 $ 38,206 $ 38,206
Revenue bonds........................... 341 643 489 -- 1,473 1,473
Perpetual preferred stock............... 1,000 1,924 1,917 -- 4,840 4,840
--------- -------- --------- --------- --------- ---------
Total investment securities............. $ 24,052 $ 7,567 $ 2,406 $ 10,494 $ 44,519 $ 44,519
--------- -------- --------- --------- --------- ---------
Weighted average yield.................. 6.59% 6.59% 5.94% 5.64% 6.19% 6.19%
========= ======== ========= ========= ========= =========
</TABLE>
21
<PAGE>
The Bank's investment securities portfolio at March 31, 1999, 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, 1999, the Bank had $31.6 million in mortgage-backed
securities and investment securities with maturities of less than five years
classified as available for sale. See Notes 2 and 3 of the Notes to the
Consolidated Financial Statements.
Sources of Funds
General. The Bank's primary sources of funds are deposits, receipt of
principal and interest on loans and securities, interest-earning deposits with
other banks, FHLB advances, and other funds provided from operations.
FHLB advances are used to support lending activities and to assist in
the Bank's asset/liability management strategy. Typically, the Bank does not use
other forms of borrowings. At March 31, 1999, the Bank had total FHLB advances
of $40.0 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.
22
<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,
--------------------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:(1)
Commercial Demand................................. $ 1,919 2.30% $ 1,082 1.41% $ 140 0.20%
Savings Accounts.................................. 3,805 4.57 3,265 4.25 3,592 5.12
NOW Accounts...................................... 6,852 8.22 4,258 5.53 2,334 3.32
Money Market..................................... 6,584 7.90 5,901 7.68 4,096 5.83
Certificates...................................... 64,167 77.01 62,378 81.13 60,039 85.53
-------- ------- -------- ------- -------- -------
Total deposit accounts............................ $ 83,327 100.00% $ 76,884 100.00% $ 70,201 100.00%
======== ====== ======== ======= ======== ======
</TABLE>
(1) See Note 6 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,
1999.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000.............. $ 10,087 $ 9,025 $ 19,091 $ 17,345 $ 55,548
Certificates of deposit of $100,000 or more............. 2,462 1,001 3,641 1,128 8,232
Public funds (1)........................................ 60 19 158 150 387
-------- --------- --------- --------- ---------
Total certificates of deposit........................... $ 12,609 $ 10,045 $ 22,890 $ 18,623 $ 64,167
======== ========= ========= ========= =========
</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, 1999, the Bank had $2.0 million of FHLB of
Des Moines stock. The Bank has the ability to purchase additional capital stock
from the FHLB. At March 31, 1999 and March 31, 1998, the weighted average
interest rate of the Bank's FHLB advances was 5.18% and 5.68%, 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."
23
<PAGE>
The following table sets forth the maximum month-end balance and
average balance of FHLB advances.
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------
1999 1998 1997
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Maximum Balance:
FHLB advances............................................ $ 40,000 $ 29,500 $ 19,000
Average Balance:
FHLB advances............................................ $ 37,458 $ 24,458 $ 10,000
</TABLE>
Service Corporation Activities
As a federally chartered savings bank, Hardin Federal is permitted by
OTS regulations to invest up to 2% of its assets, or approximately $2.7 million
at March 31, 1999, 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,
1999, 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, 1999, the
Bank's investment in HSSC was $37,000. For the year ended March 31, 1999, HSSC
had pre-tax income of approximately $5,000.
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.
24
<PAGE>
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, 1999, was approximately $37,000.
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, 1999, the Bank's lending limit under this restriction was $1.9
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
Deposit Insurance. The FDIC is an independent federal agency that
insures deposits of banks and thrift institutions up to certain specified limits
and regulates such institutions for safety and soundness. The FDIC administers
two separate insurance funds, the Bank Insurance Fund ("BIF") for commercial
banks and state savings banks, and the SAIF for savings associations such as the
Bank and banks that have acquired deposits from savings associations. The FDIC
is required to maintain designated levels of reserves in each fund.
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time, and may decrease these rates if the target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary
25
<PAGE>
depending on the risk the institution poses to its deposit insurance fund. An
institution's risk level is determined based on its capital levels, and the
FDIC's level of supervisory concern about the institution.
In 1996, federal legislation was enacted to recapitalize the SAIF and
eliminate the significant premium disparity between the BIF and the SAIF. Under
that law, the Bank and other institutions with SAIF- insured deposits were
charged a one-time special assessment equal to $0.657 per $100 of assessable
deposits at March 31,1995. The Bank recognized this special assessment as a
charge to noninterest expense of $441,018 (or $277,841 when adjusted for taxes)
during the year ended March 31, 1997. The assessment was fully deductible for
both federal and state income tax purposes. Assessment rates for regular
ongoing, deposit insurance premiums currently range from 0.0% of deposits for an
institution in the highest category (i.e., well-capitalized and financially
sound, with no more than a few minor weaknesses) to 0.27% of deposits for an
institution in the lowest category (i.e., undercapitalized and substantial
supervisory consent). The Bank's assessment rate for deposit insurance was
reduced to 0.0% of deposits beginning on January 1, 1997. The FDIC is authorized
to raise the assessment rates as necessary to maintain the required reserve
ratio of 1.25%, and both the BIF and the SAIF currently satisfy the reserve
ratio requirement. The annual rate of assessments on SAIF-assessable deposits
for the payments on the FICO bonds was 0.0648% for the semi-annual period
beginning on January 1, 1997; 0.0630% for the semi-annual period beginning on
July 1, 1997; and 0.0622% currently. The 1996 law also provides for the merger
of the SAIF and the BIF by 1999, but not until such time as bank and thrift
charters are combined. Until the charters are combined, savings associations
with SAIF deposits may not transfer deposits to the BIF without paying various
exit and entrance fees, and SAIF institutions will continue to pay higher FICO
assessments. Such exit and entrance fees need not be paid if a SAIF institution
converts to a bank charter or merges with a bank, as long as the resulting bank
continues to pay applicable insurance assessments to the SAIF, and as long as
certain other conditions are met.
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 may continue in the future.
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.
<PAGE>
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, 1999, the Bank had no intangible
assets and a valuation allowance, net of tax of $394,000.
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
26
<PAGE>
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, 1999, the Bank had tangible capital of $12.3 million, or
9.0% of adjusted total assets, which is approximately $10.2 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 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,
1999, the Bank had no intangibles which were subject to these tests.
At March 31, 1999, the Bank had core capital equal to $12.3 million, or
9.0% of adjusted total assets, which is $8.2 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.
The OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At March 31, 1999, the Bank had
$311,000 of general loan valuation allowances, which was less than 1.25% of
risk- weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Hardin Federal had no
such exclusions from capital and assets at March 31, 1999.
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 Fannie Mae or Freddie Mac.
On March 31, 1999, the Bank had total risk based capital of $12.6
million (including approximately $12.3 million in core capital and $305,000 in
qualifying supplementary capital) and risk-weighted assets of $61.6 million
(with no converted off-balance sheet assets); or total capital of 20% of
risk-weighted assets. This amount was $7.7 million above the 8% requirement in
effect on that date.
27
<PAGE>
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.
Thrift Charter
Congress has been considering legislation in various forms that would
require federal thrifts, such as the Bank, to convert their charters to national
or state bank charters. Legislation enacted in 1996 required the Treasury
Department to prepare for Congress a comprehensive study on development of a
common charter for federal savings associations and commercial banks; and
provided for the merger of the BIF and the SAIF into a single deposit insurance
fund on January 1, 1999 provided the thrift charter was eliminated. The Bank
cannot determine whether, or in what form, such legislation may eventually be
enacted and there can be no assurance that any legislation that is enacted would
not adversely affect the Bank and the Company.
Prompt Corrective Regulatory Action
Under the OTS Prompt Corrective Action regulations, the OTS is required
to take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has total
risk-based capital of less than 6.0%, a Tier 1 core risk-based capital ratio of
less than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized," and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions. The OTS may also take any one
of a number of discretionary supervisory actions, including the issuance of a
capital directive and the replacement of senior executive officers and
directors.
<PAGE>
At March 31, 1999, the Bank was categorized as "well capitalized,"
meaning that the Bank's total risk-based capital ratio exceeded 10.0%, Tier I
risk-based capital ratio exceeded 6.0%, leverage capital ratio exceeded 5.0%,
and the Bank was not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure.
Limitations on Dividends and Other Capital Distributions
OTS regulations applicable to the Bank governed capital distributions
by savings institutions, which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain
28
<PAGE>
convertible debt and other transactions charged to the capital account of a
savings institution to make capital distributions. Generally, the regulations
create a safe harbor for specified levels of capital distributions for
institutions meeting at least their minimum capital requirements, so long as
such institutions notify the OTS and receive no objection to the distribution
from the OTS. Institutions and distributions that do not qualify for the safe
harbor are required to obtain prior OTS approval before making any capital
distributions.
Pursuant to a recent revision to these regulations, effective April 1,
1999, a "well capitalized" savings association, such as the Bank, will be
permitted to make capital distributions during a calendar year in an amount up
to the savings association's net income for the year plus the savings
association's retained net income for the preceding two years, without filing an
application for approval of the capital distribution with the OTS. However, a
"well capitalized" savings association must provide 30 days written notice to
the OTS prior to making the distribution as long as the savings association is a
subsidiary of a savings and loan holding company.
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, 1999, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 61.2% and a short-term
liquid assets ratio of 44.4%.
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
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.
<PAGE>
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
29
<PAGE>
related loans and investments. At March 31, 1999, 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 1999 and received a rating of "satisfactory."
Transactions with Affiliates
Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of the Bank include the Company and any
company which is under common control with the Bank. In addition, a savings
association may not lend to any affiliate engaged in activities not permissible
for a bank holding company or acquire the securities of most affiliates.
<PAGE>
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
30
<PAGE>
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.
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.
31
<PAGE>
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At March 31, 1999, 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, 1999, the Bank had $2.0 million 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 7.14% and were 6.53% for fiscal 1999. For the
fiscal year ended March 31, 1999, dividends paid by the FHLB of Des Moines to
the Bank totaled approximately $123,668, which constitutes a $37,163 increase
over the amount of dividends received in fiscal year 1998. No assurance can be
given that such dividends will continue in the future at such levels.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
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
32
<PAGE>
(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, 1999, the Bank's bad debt reserve
subject to recapture over a six-year period totaled approximately $350,000.
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 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.
<PAGE>
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, 1999, the Bank's excess for tax purposes totaled
approximately $1.6 million.
33
<PAGE>
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
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, one savings institution, 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.
<PAGE>
Employees
At March 31, 1999, the Bank had a total of 28 full-time and 5 part-time
employees. The Bank's employees are not represented by any collective bargaining
group. Management considers its employee relations to be good.
34
<PAGE>
Executive Officers of the Company and the Bank Who Are Not Directors
Lyndon M. Goodwin. Mr. Goodwin, age 54, 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 55, 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,
1999. 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, 1999 was approximately $1.8 million.
See Note 5 of the Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Total
Approximate
Date Square Net Book Value at
Location Acquired Footage March 31, 1999
- ---------------------------------------------------- -------- ------- --------------
<S> <C> <C> <C>
Main Office: 1963 4600 $75,059
201 Northeast Elm Street
Hardin, Missouri
Branch Offices:(1)
201 North Jesse James Road 1990 2024 597,213
Excelsior Springs, Missouri
200 N. Spartan Drive 1998 6800 1,160,039
Richmond, Missouri
</TABLE>
- ----------------
(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.
35
<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, 1999.
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Page 45 of the attached 1999 Annual Report to Shareholders is herein
incorporated by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Pages 5 to 17 of the attached 1999 Annual Report to Shareholders are
herein incorporated by reference.
Item 7. Financial Statements
Pages 18 to 44 of the attached 1999 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.
36
<PAGE>
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 22, 1999.
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 22, 1999.
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 22, 1999.
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 22, 1999.
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, 1999, is incorporated by reference
in this Form 10-KSB Annual Report as Exhibit 13.
<TABLE>
<CAPTION>
Page in
Annual
Annual Report Section Report
--------------------- ------
<S> <C>
Report of Independent Auditors....................................................................... 18
Consolidated Balance Sheets at March 31, 1999 and 1998............................................... 19
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Earnings for the Years ended March 31, 1999, 1998 and 1997................ 20
Consolidated Statements of Stockholders' Equity for the Years ended
March 31, 1999, 1998 and 1997....................................................................... 21
Consolidated Statements of Cash Flows for the Years ended March 31, 1999,
1998 and 1997...................................................................................... 22
Notes to Consolidated Financial Statements........................................................... 24
</TABLE>
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information
is not required under the related instructions or is inapplicable.
(a) (3) Exhibits:
Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
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
38
<PAGE>
Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
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
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
-------------------
*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, 1999.
39
<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 28, 1999 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 28, 1999 Date: June 28, 1999
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 28, 1999 Date: June 28, 1999
By: /s/ David D. Lodwick By: /s/ W. Levan Thurman
----------------------------- --------------------------------
David D. Lodwick, Director W. Levan Thurman, Director
Date: June 28, 1999 Date: June 28, 1999
By: /s/ William L. Homan
-----------------------------
William L. Homan, Vice President,
Treasurer and Director
(Principal Financial Officer)
Date: June 28, 1999
<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.
June 22, 1999
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 fourth annual report.
Fiscal year 1999 was our fourth year as a stock company after serving area
communities for more than 108 years as a mutual savings institution. In fiscal
1999 we achieved record earnings of $1,073,000, an increase from $869,000 for
fiscal 1998. The increase was primarily the result of an increase in
non-interest income, partially offset by an increase in non-interest expense.
Diluted earnings per share were $1.42 in fiscal 1999 compared to $1.08 in fiscal
1998.
The Bank's net loans receivable increased by $8.2 million, as a result of
increases in residential, commercial and consumer loans. Assets increased $16.0
million to $137.1 million at March 31, 1999 and stockholders' equity decreased
to $12.6 million from $13.5 million on March 31, 1998. The decrease in
stockholders' equity was the result of the Company's stock repurchase program,
under which the Company repurchased 88,807 shares of its stock in fiscal 1999.
A highlight of fiscal 1999 was the huge success of our new bank facility in
Richmond, which opened in March 1998. This ultra-modern office has provided the
much-needed space to accommodate the equipment and personnel necessary to manage
the growth we have experienced. In view of the favorable results achieved in
fiscal 1999, the Board of Directors increased the Company's quarterly dividends
four separate times to $.18 per share in the fourth quarter of the year.
While fiscal 1999 was a very successful year for the Company, we look forward to
continuing our record of achievement in fiscal 2000. 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
<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 (the "ESOP"), and
the remaining net proceeds of the Conversion retained by the Company of
approximately $495,000. 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. The
Federal Deposit Insurance Corporation (the "FDIC") insures the Bank's deposits
up to the maximum allowable amount. 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, 1999, the Company had
total assets of $137.1 million, deposits of $83.3 million and stockholders'
equity of $12.6 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 (the "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.
<TABLE>
<CAPTION>
At or for the years ended March 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 (1)
---- ---- ---- ---- --------
(Dollars in Thousands except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $ 137,056 $ 121,092 $ 103,354 $ 83,387 $ 75,993
Loan receivable, net 69,505 61,274 54,568 45,031 33,230
Mortgage-backed securities:
Held to maturity - 10,995 13,457 16,299 28,473
Available for sale 12,584 8,020 5,757 7,907 -
Investment securities:
Held to maturity - 10,000 - - -
Available for sale 44,519 22,656 22,340 6,363 7,760
FHLB stock 2,000 1,475 950 742 727
Other interest-bearing deposits 4,157 3,225 4,007 5,430 4,306
Deposits 83,327 76,884 70,201 66,605 67,449
FHLB advances 40,000 29,500 19,000 - 1,500
Total stockholders' equity 12,560 13,478 13,210 16,035 6,393
Selected Operating Data:
Total interest income 9,013 8,234 6,684 5,552 4,694
Total interest expense 5,920 5,184 3,915 3,454 2,816
--------------- -------------- -------------- -------------- --------------
Net interest income 3,093 3,050 2,769 2,098 1,878
Provision for loan losses 66 94 34 14 -
--------------- -------------- -------------- -------------- --------------
Net interest income after
provision for loan losses 3,027 2,957 2,735 2,084 1,878
--------------- -------------- -------------- -------------- --------------
Loan fees and service charges 451 176 117 110 116
Gain/(loss) on sales of loans,
investments and mortgage-
backed securities 569 182 (2) 2 (39)
Other non-interest income 172 134 158 167 110
--------------- -------------- -------------- -------------- --------------
Total non-interest income 1,192 492 273 279 187
--------------- -------------- -------------- -------------- --------------
Total non-interest expense 2,545 2,081 2,270 (2) 1,576 1,427
--------------- -------------- -------------- -------------- --------------
Earnings before income
taxes 1,674 1,368 738 787 638
Income tax expense 601 499 274 277 221
=============== ============== ============== ============== ==============
Net earnings $ 1,073 $ 869 $ 464 $ 511 $ 417
=============== ============== ============== ============== ==============
Diluted earnings per share $ 1.42 $ 1.08 $ 0.51 $ 0.52 n/a
=============== ============== ============== ============== ==============
Weighted average common &
common equivalent shares
outstanding 756,526 803,554 906,334 973,383 n/a
=============== ============== ============== ============== ==============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
At or for the years ended March 31,
---------------------------------------------------------
1999 1998 1997 1996 1995(1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Selected Financial
Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net earnings to average
total assets) 0.%1 0.%6 0.%0 0.%4 0.%6
Return on equity (ratio of net earnings to average equity) 8.23 6.52 3.18 4.25 6.68
Interest rate spread (3):
Average during period 1.93 2.16 2.27 2.00 2.25
End of period 2.07 1.97 2.61 2.37 1.85
Net interest margin (4) 2.42 2.73 3.04 2.70 2.56
Ratio of non-interest expense to average total assets 1.93 1.82 2.43 1.98 1.91
Ratio of average interest earning assets to average
interest-bearing liabilities 110.49 112.23 117.85 115.76 107.95
Quality Ratios:
Non-performing assets to total assets at end of period 0.20 0.19 0.37 0.15 0.22
Allowance for loan losses to non-performing loans 112.48 106.97 41.58 107.38 70.83
Allowance for loan losses to loans receivable, net 0.45 0.40 0.29 0.29 0.36
Capital Ratios (5):
Equity to total assets at end of period 9.16 11.12 12.78 19.23 8.41
Average equity to average assets 9.88 11.65 15.70 15.05 8.33
Other Data:
Number of full service offices 3 3 3 3 3
</TABLE>
(1) Information for periods prior to 1996 relates to Hardin Federal Savings
Bank and subsidiary.
(2) Total non-interest expense for the year ended March 31, 1997 includes the
one time SAIF assessment of $441,000.
(3) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(5) For a discussion of the Bank's regulatory capital ratios, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
General
- -------
The Company was formed in June 1995 by the Bank to become the holding company of
the Bank. The acquisition of the Bank by the Company was consummated on
September 28, 1995, in connection with the Bank's 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 operations 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.
Forward-Looking Statements
- --------------------------
In addition to historical information, this Annual Report contains
forward-looking statements. The forward-looking statements contained in the
following sections are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected in the
forward-looking statements. Important factors that might cause such a difference
include, but are not limited to, those discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Readers should not place undue reliance on these forward-looking
statements, as they reflect management's analysis as of the date of this report.
The Company has no obligation to update or revise these forward-looking
statements to reflect events or circumstances that occur after the date of this
report. Readers should carefully review the risk factors described in other
documents the Company files from time to time with the Securities and Exchange
Commission, including Quarterly 10-Q reports and reports filed on Form 8-K
Financial Condition
- -------------------
Total Assets. Total assets increased $16.0 million, or 13.2%, to $137.1 million
at March 31, 1999 from $121.1 million at March 31, 1998. The increase was
primarily funded by an increase in FHLB advances of $10.5 million and an
increase in deposits of $6.4 million. These funds together with other cash flows
from the Bank, were used to finance an $8.2 million increase in loans and an
$11.8 million increase in investment securities.
Loans Receivable, Net. Loans receivable, net increased by $8.2 million, or
13.4%, to $69.5 million at March 31, 1999 from $61.3 million at March 31, 1998.
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 $1.7 million during the year.
5
<PAGE>
Mortgage-Backed Securities. Mortgage-backed securities decreased to $12.6
million at March 31, 1999 from $19.0 million at March 31, 1998. The decrease of
$6.4 million is in accordance with the Company's plan to reduce holdings of
mortgage-backed securities.
Investment Securities. Investment securities increased $11.8 million, or 36.1%,
to $44.5 million at March 31, 1999 from $32.7 million at March 31, 1998. 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 $6.4 million, or 8.4%, to $83.3 million at March
31, 1999 from $76.9 million at March 31, 1998. Special certificates of deposit
and more aggressive pricing of deposits and marketing contributed to the
increase.
Federal Home Loan Bank Advances. FHLB advances increased to $40.0 million at
March 31, 1999 from $29.5 million at March 31, 1998. These advances were used to
fund growth in loans and investment securities.
Equity. Total stockholders' equity decreased to $12.6 million at March 31, 1999
from $13.5 million at March 31, 1998. The $.9 million reduction was primarily
due to the purchase of 88,807 shares of the Company's common stock at an
aggregate purchase price of $1.5 million.
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 the 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,
----------------------------------- -----------------------------------
1999 1998
----------------------------------- -----------------------------------
Average Interest Average Interest
Outstanding Earned / Yield / Outstanding Earned / Yield /
Balance Paid Rate Balance Paid Rate
--------- --------- --------- --------- --------- ---------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loan receivable (1) $ 66,515 $ 5,394 8.11% $ 57,819 $ 4,781 8.27%
Mortgage-backed securities 16,864 1,016 6.02% 19,703 1,216 6.17%
Investment securities 36,233 2,238 6.18% 25,950 1,803 6.95%
FHLB stock 1,919 124 6.46% 1,290 87 6.74%
Other interest-bearing deposits 6,531 241 3.69% 6,961 347 4.98%
--------- --------- --------- --------- --------- ---------
Total interest-earning assets $ 128,062 $ 9,013 7.04% $ 111,723 $ 8,234 7.37
========= ========= ========= ========= ========= =========
Interest-bearing liabilities:
Savings accounts $ 3,386 $ 67 1.98% $ 3,363 $ 82 2.44%
Demand and NOW accounts 11,951 358 3.00% 8,520 248 2.91%
Certificate accounts 63,112 3,453 5.47% 63,205 3,488 5.52%
FHLB advances 37,458 2,042 5.45% 24,458 1,366 5.59%
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities $ 115,907 $ 5,920 5.11% $ 99,546 $ 5,184 5.21%
========= ========= ========= ========= ========= =========
Net interest income $ 3,093 $ 3,050
========= =========
Net interest rate spread (2) 1.93% 2.16%
========= =========
Net interest-earning assets $ 12,155 $ 12,177
========= =========
Net interest margin (3) 2.42% 2.73%
========= =========
Average interest-earning assets to
average interest-bearing liabilities 110.49% 112.23%
========= =========
</TABLE>
<PAGE>
(continued)
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------
1997
-----------------------------------
Average Interest
Outstanding Earned / Yield /
Balance Paid Rate
--------- --------- ---------
Interest-earning assets:
<S> <C> <C> <C> <C>
Loan receivable (1) $ 50,433 $ 4,117 8.16%
Mortgage-backed securities 21,127 1,347 6.38%
Investment securities 14,927 986 6.61%
FHLB stock 794 55 6.93%
Other interest-bearing deposits 3,758 179 4.76%
--------- --------- ---------
Total interest-earning assets $ 91,039 $ 6,684 7.34%
========= ========= =========
Interest-bearing liabilities:
Savings accounts $ 3,567 $ 87 2.44%
Demand and NOW accounts 6,439 199 3.09%
Certificate accounts 57,241 3,094 5.41%
FHLB advances 10,000 535 5.35%
--------- --------- ---------
Total interest-bearing liabilities $ 77,247 $ 3,915 5.07%
========= ========= =========
Net interest income $ 2,769
=========
Net interest rate spread (2) 2.27%
=========
Net interest-earning assets $ 13,792
=========
Net interest margin (3) 3.04%
=========
Average interest-earning assets to
average interest-bearing liabilities 117.85%
=========
</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.
<TABLE>
<CAPTION>
March 31,
--------------------------------------------
1999 1998 1997
---------- ---------- ----------
Weighted average yield on:
<S> <C> <C> <C>
Loans receivable 7.76 % 8.04 % 8.38 %
Mortgage-backed securities 5.89 6.19 7.40
Investment securities 6.32 6.83 6.93
FHLB stock 6.25 6.50 7.00
Other interest-earning assets 4.55 5.45 5.33
Combined weighted average yield on
interest-earning assets 6.92 % 7.25 % 7.78 %
---------- ---------- ----------
Weighted average rate paid on:
Savings accounts 2.00 % 2.50 % 2.50 %
Demand and NOW accounts 2.28 2.91 3.50
Certificate accounts 5.29 5.59 5.48
FHLB advances 5.18 5.68 5.64
Combined weighted average rate paid on
interest-bearing liabilities 4.85 % 5.28 % 5.17 %
---------- ---------- ----------
Interest Rate Spread 2.07 % 1.97 % 2.61 %
========== ========== ==========
</TABLE>
8
<PAGE>
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes due to
changes in outstanding balances and those due to changes in interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (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.
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------------------------------
1999 vs 1998 1998 vs 1997
---------------------------------------------------------------------------------
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
---------------------- (Decrease) ---------------------- (Decrease
Volume Rate ---------- Volume Rate ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 704 $ (91) $ 613 $ 608 $ 56 $ 664
Mortgage-backed securities (171) (29) (200) (88) (43) (131)
Investment securities 448 (13) 435 764 53 817
FHLB stock 41 (4) 37 34 (2) 32
Other interest-earning assets (20) (86) (106) 160 8 168
-------- -------- ------- -------- ------- --------
Total interest-earning assets $ 1,002 $ (223) $ 779 $ 1,478 $ 72 $ 1,550
-------- -------- ------- -------- ------- --------
Interest-bearing liabilities:
Savings accounts $ 1 $ (16) $ (15) $ (5) $ 0 $ (5)
Demand and NOW accounts 102 8 110 60 (11) 49
Certificate accounts (5) (30) (35) 330 64 394
FHLB advances 709 (33) 676 806 25 831
-------- -------- ------- -------- ------- --------
Total interest-bearing liabilities $ 807 $ (71) $ 736 $ 1,191 $ 78 $ 1,269
-------- -------- ------- -------- ------- --------
Net interest income $ 195 $ (294) $ 43 $ 287 $ (6) $ 281
======== ======== ======= ======== ======= ========
</TABLE>
9
<PAGE>
Comparison of operating results for the years ended March 31, 1999 and
- --------------------------------------------------------------------------------
March 31,1998.
- -------------
Performance Summary. Net earnings for the year ended March 31, 1999 increased by
$204,000, or 23.5%, to $1,073,000 from $869,000 for the year ended March 31,
1998. Diluted earnings per share were $1.42 for the year ended March 31, 1999,
and $1.08 for the year ended March 31, 1998. Improved annual earnings were
primarily the result of an increase in non-interest income, which was partially
offset by an increase in non-interest expense. For the years ended March 31,
1999 and 1998, the return on average assets was .81% and .76%, respectively,
while the return on average equity was 8.23% and 6.52%, respectively.
Net Interest Income. Net interest income remained basically the same at $3.1
million for the fiscal years ended March 31, 1999 and 1998.
For the year ended March 31, 1999, the average yield on interest-earning assets
was 7.04% compared to 7.37% for fiscal 1998. The average cost of
interest-bearing liabilities was 5.11% for the year ended March 31, 1999, a
decrease from 5.21% for fiscal 1998.
The average interest rate spread was 1.93% for the year ended March 31, 1999
compared to 2.16% for fiscal 1998. The average net interest margin decreased to
2.42% for the year ended March 31, 1999 compared to 2.73% for the year ended
March 31, 1998.
Provision for Loan Losses. During the year ended March 31, 1999, the Company
recorded $66,000 in 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 $311,000 or .45% of loans
receivable, net at March 31, 1999, compares to $248,000 or .40% of loans
receivable, net at March 31, 1998. The allowance for loan losses as a percentage
of non-performing assets was 112.48% at March 31, 1999, compared to 106.97% at
March 31, 1998.
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, 1999, non-interest income
increased by $700,000 or 142% due primarily to increased service charge income,
and gains recognized on the sale of loans, investments and mortgage-backed
securities.
Non-Interest Expense. Non-interest expense increased $464,000 to $2.5 million
for the year ended March 31, 1999 from $2.1 million for the year ended March 31,
1998. The increase was due to added staff in both the Richmond and Excelsior
Springs office, as well as expenses related to technological enhancements and
year 2000 issues.
Income Taxes. Income taxes increased $102,000 to $601,000 for the year ended
March 31, 1999 from $499,000 for the year ended March 31, 1998. The increase is
due to the increase in pre-tax income. The Company's effective tax rate was 36%
for fiscal 1999 and 1998.
10
<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 fiscal year ended March
31, 1998, 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.
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 offset 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.
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.
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 60% 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 the 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 1999 the Bank
obtained FHLB advances in the aggregate amount of $10.5 million.
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, 1999, the amount of interest-earning
assets and interest-bearing liabilities maturing, repricing or callable within
the time periods indicated. The table assumes a 12% 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.
<PAGE>
<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 $ 3,575 $ 2,509 $ 8,408 $ 6,077 $ 18,868 $ 39,437
Adjustable rate real estate loans 8,678 8,524 5,943 -- -- 23,145
Commercial business loans 781 -- -- -- -- 781
Consumer loans 4,259 922 1,939 1,449 -- 8,569
Mortgage-backed securities
available for sale 9,995 2,589 -- -- -- 12,584
Investment securities 18,971 5,081 6,143 1,423 12,901 44,519
FHLB Stock 2,000 -- -- -- -- 2,000
Other 4,157 -- -- -- -- 4,157
-------- -------- -------- -------- -------- --------
Total interest-earning assets $ 52,416 $ 19,625 $ 22,433 $ 8,949 $ 31,769 $135,192
======== ======== ======== ======== ======== ========
Interest-bearing liabilities:
Savings accounts $ 3,805 $ -- $ -- $ -- $ -- 3,805
Demand and NOW accounts 13,436 -- 13,436
Certificate accounts 22,654 22,890 12,180 3,260 3,183 64,167
FHLB advances 18,000 7,000 5,000 10,000 -- 40,000
======== ======== ======== ======== ======== ========
Total interest-bearing liabilities $ 57,895 $ 29,890 $ 17,180 $ 13,260 $ 3,183 $121,408
======== ======== ======== ======== ======== ========
Interest-earning assets
less interest-bearing liabilities $ (5,479) $(10,265) $ 5,253 $ (4,311) $ 28,586 $ 13,784
Cumulative interest-rate
sensitivity gap $ (5,479) $(15,744) $(10,491) $(14,802) $ 13,784 $ 13,784
Cumulative interest-rate gap as a
percentage of assets
at March 31, 1999 (4.00)% (11.49)% (7.65)% (10.80)% 10.06% 10.06%
Cumulative interest-rate gap as a
percentage of interest-earning
assets at March 31, 1999 (4.05)% (11.65)% (7.76)% (10.95)% 10.20% 10.20%
</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, 1999, as calculated by
Farin and Associates, based on information provided to Farin and Associates by
the Bank.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-400 bp -200 bp Flat +200 bp +400 bp
Market Value Assets (MVA) $ 144,697 $ 141,295 $ 139,129 $ 131,152 $ 125,157
Market Value Liabilities (MVL) $ 131,520 $ 126,928 $ 124,012 $ 123,066 $ 122,035
Net Portfolio Value (NPV) $ 13,178 $ 14,367 $ 15,117 $ 8,086 $ 3,122
Net Portfolio Value Ratio 9.11% 10.17% 10.87% 6.17% 2.50%
Interest Rate Risk Sensitivity -175.8 bp -69.7 bp -470.0 bp -837.1 bp
Equity Exposure -12.82% -4.96% -46.51% -79.35%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Board of Directors reviews and evaluates the Bank's interest rate risk
exposure on a quarterly basis. Based upon its recent analysis of the Bank's
interest rate risk, as measured by the net portfolio value methodology set forth
above, the Board of Directors has determined to take steps to reduce the Bank's
interest rate risk sensitivity as measured by that methodology. Management of
the Bank is evaluating several alternatives to accomplish the Board's
objectives, which are expected to be implemented in fiscal 2000.
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.
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.
14
<PAGE>
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, 1999 and 1998, the Bank
originated loans for its portfolio in the amount of $29.5 million and $27.7
million, respectively. The Bank purchased loans totaling $1.7 million and $1.2
million during the fiscal years ended March 31, 1999 and 1998.
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 5.0% of
its average daily balance of net withdrawable accounts plus short-term
borrowings.
It is the Bank's policy to maintain its liquidity portfolio in excess of
regulatory requirements. The Bank's eligible liquidity ratios were 61.2% and
46.5%, respectively, at March 31, 1999 and 1998. The Company's most liquid
assets are cash and cash equivalents, which include short-term investments. At
March 31, 1999 and 1998, cash and cash equivalents were $5.0 million and $3.8
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, 1999, the Bank had outstanding loan commitments of $1.9 million and
undisbursed loans in process of $2.2 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, 1999 were $45.5 million. Management believes that a significant
portion of such deposits will remain with the Bank.
At March 31, 1999 the Bank had tangible equity of $12.3 million, or 9.0% of
total adjusted assets, which is approximately $10.2 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 9.0% of adjusted total assets, which is $8.2
million above the minimum leverage ratio requirement of 3% in effect on that
date. The Bank had total risk based capital of $12.6 million and total
risk-weighted assets of $61.6 million, or total risk based capital of 20.5% of
risk-weighted assets. This was $7.7 million above the 8.0% requirement in effect
on that date.
Recent Accounting Developments
The Financial Accounting Standards Board (the "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 requires the
Company to classify items of other comprehensive income by their nature in the
consolidated financial statements. The Company has adopted the provision of SFAS
No. 130 in the year ended March 31, 1999, and has displayed 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 public enterprises to 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. The Company adopted the
provisions of
15
<PAGE>
SFAS No. 131 in the year ended March 31, 1999. The Company has one reportable
operating segment.
The FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities in June 1998. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Its requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000; however, the Company adopted the provisions of SFAS No. 133
at July 1, 1998 and utilized an option to transfer its held-to-maturity
investment security portfolio to available-for-sale. Accordingly, all unrealized
gains and losses were recorded at the date. Management believes adoption of the
remaining provisions of SFAS No. 133 did not have a material effect on the
Company's financial position or results of operations, nor did adoption require
additional capital resources.
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 has replaced its
computer hardware with Year 2000 compliant equipment and updated software with
Year 2000 compliant versions. The primary service provider for the company is
Fiserv, Inc., Des Moines, Iowa. Fiserv has provided the Company with proxy test
results indicating Year 2000 compliance. A specific connectivity was tested with
Fiserv in March 1999. Third party vendors have identified Year 2000 issues and
are completing revisions to systems and software to become Year 2000 compliant.
Security systems, heating and cooling systems and other mechanical devices on
which the Company relies have been evaluated.
The approximate cost incurred by the Company to date for Year 2000 compliance is
$83,000. Other expenses, if incurred, are expected to be minimal.
The Company is substantially dependent on its computer systems and the computer
system of its data processor. Failure of the data center would have a serious
impact on the operation of the Company and could result in an interruption of
service to customers, as well as an adverse financial impact on the Company. The
worse case scenario might be, (1) loss of customers due to decreased levels of
customer service or loss of utilities, (2) large withdrawal requests creating
deposit outflows, (3) increased employee expense if extra staff is needed to
perform data processing.
The Company has prepared a contingency/business resumption plan to provide
contingencies for possible serious failures of the Company's hardware, software
or vendor's systems. The plan addresses recovery procedures for potential
failures in the event of a Year 2000 disruption. The Company is taking the
necessary steps to validate and test its contingency/business resumption plan in
order to minimize the impact on operations should there be system failures.
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 changes 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, 1999 and 1998
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, 1999. 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, 1999 and 1998 and the results of its operations and
its cash flows for each of the years in the three-year period ended March
31, 1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
------------------------
KPMG LLP
May 21, 1999
Kansas City, Missouri
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Hardin, Missouri
Consolidated Balance Sheets
March 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
-------------- -----------
<S> <C> <C>
Cash $ 838,044 556,927
Interest-bearing deposits in other financial institutions 4,156,648 3,224,874
Investment securities (note 2):
Held-to-maturity -- 10,000,000
Available-for-sale 44,519,193 22,656,010
Mortgage-backed securities (note 3):
Held-to-maturity -- 10,995,511
Available-for-sale 12,584,419 8,019,725
Loans receivable, net (note 4) 69,504,900 61,273,984
Accrued interest receivable on:
Investment securities 501,114 359,601
Mortgage-backed securities 91,008 133,459
Loans receivable 456,003 395,138
Premises and equipment (note 5) 1,832,311 1,725,383
Stock in Federal Home Loan Bank (FHLB) of Des Moines, at cost 2,000,000 1,475,000
Deferred income taxes (note 8) 188,000 --
Prepaid expenses and other assets 384,481 276,492
------------ -----------
Total assets $137,056,121 121,092,104
============ ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 6) $ 83,326,871 76,884,462
Advances from borrowers for property taxes and insurance 294,424 264,317
Advances from FHLB (note 7) 40,000,000 29,500,000
Accrued interest payable 40,949 56,149
Income taxes payable (note 8):
Current 159,367 323,520
Deferred -- 15,000
------------ -----------
Accrued expenses and other liabilities 674,969 571,084
------------ -----------
Total liabilities 124,496,580 107,614,532
------------ -----------
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 10,252,604 10,165,436
Retained earnings 8,097,420 7,482,320
Accumulated other comprehensive income (394,038) (98,326)
Unearned employee benefits (note 9) (643,395) (845,291)
Treasury stock of 323,247 and 234,440 shares in 1999 and 1998, respectively, at cost (4,763,630) (3,237,147)
------------ -----------
Total stockholders' equity 12,559,541 13,477,572
Commitments and contingencies (notes 4 and 11)
------------ -----------
Total liabilities and stockholders' equity $137,056,121 121,092,104
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Hardin, Missouri
Consolidated Statements of Earnings
Years ended March 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans receivable $ 5,394,023 4,780,918 4,117,141
Mortgage-backed securities 1,015,679 1,216,181 1,347,251
Investment securities 2,238,362 1,803,383 985,940
Other 365,046 433,660 234,042
----------- ----------- -----------
Total interest income 9,013,110 8,234,142 6,684,374
----------- ----------- -----------
Interest expense:
Deposits (note 6) 3,878,471 3,817,487 3,379,903
FHLB advances 2,041,955 1,366,316 535,227
----------- ----------- -----------
Total interest expense 5,920,426 5,183,803 3,915,130
----------- ----------- -----------
Net interest income 3,092,684 3,050,339 2,769,244
Provision for losses on loans (note 4) 65,973 93,671 33,590
----------- ----------- -----------
Net interest income after provision for losses 3,026,711 2,956,668 2,735,654
----------- ----------- -----------
Noninterest income:
Service charges 421,299 141,531 80,491
Loan servicing fees 29,586 34,260 36,102
Gain on sale of loans 90,061 70,433 --
Gain (loss) on sale of investments and mortgage-backed
securities (notes 2 and 3) 478,940 111,484 (2,218)
Other 172,570 134,472 158,175
----------- ----------- -----------
Total noninterest income 1,192,456 492,180 272,550
----------- ----------- -----------
Noninterest expense:
Compensation and benefits (note 9) 1,374,315 1,138,519 1,018,635
Occupancy and equipment 242,363 149,465 115,842
Federal insurance premiums 47,180 45,742 557,351
Data processing 171,375 109,836 94,725
Real estate owned -- 1,439 2,202
Other 709,931 636,426 481,394
----------- ----------- -----------
Total noninterest expense 2,545,164 2,081,427 2,270,149
----------- ----------- -----------
Earnings before income taxes 1,674,003 1,367,421 738,055
Income tax expense (note 8) 600,651 498,847 273,804
----------- ----------- -----------
Net earnings $ 1,073,352 868,574 464,251
=========== =========== ===========
Earnings per share:
Basic $ 1.48 1.12 .52
Diluted 1.42 1.08 .51
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Hardin Bancorp, Inc. and Subsidiaries
Hardin, Missouri
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Accumulated
Additional other Unearned
Common paid-in Retained comprehensive employee Treasury
stock capital earnings income benefits stock Total
-------- ---------- ------------------------ -------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 $ 10,580 10,055,448 6,885,230 (154,597) (761,720) -- 16,034,941
Comprehensive income:
Net earnings -- -- 464,251 -- -- -- 464,251
Other comprehensive income (loss) -
unrealized holding losses on debt and
equity securities available-for-sale,
net of reclassification adjustments for
amounts included in net income, net of
taxes of $4,500 -- -- -- (80,000) -- -- (80,000)
-------- ---------- --------- -------- ---------- --------- --------
Total comprehensive income -- -- 464,251 (80,000) -- -- 384,251
-------- ---------- --------- -------- ---------- --------- --------
Allocation of ESOP shares -- 29,281 -- -- 124,920 -- 154,201
Repurchase of common stock -- -- -- -- -- (3,093,552) (3,093,552)
Adoption of recognition and retention plan -- -- -- -- (498,150) 498,150 --
Amortization of recognition and retention plan -- -- -- -- 84,686 -- 84,686
Dividends declared ($.40 per share) -- -- (354,801) -- -- -- (354,801)
-------- ---------- --------- -------- ---------- --------- --------
Balance, March 31, 1997 10,580 10,084,729 6,994,680 (234,597) (1,050,264 (2,595,402) 13,209,726
-------- ---------- --------- -------- ---------- --------- --------
Comprehensive income:
Net earnings -- -- 868,574 -- -- -- 868,574
Other comprehensive income - unrealized
holding gains on debt and equity
securities available-for-sale, net of
reclassification adjustments for amounts
included in net income, net of taxes of
$70,000 -- -- -- 136,271 -- -- 136,271
-------- ---------- --------- -------- ---------- --------- ----------
Total comprehensive income -- -- 868,574 136,271 -- -- 1,004,845
-------- ---------- --------- -------- ---------- --------- ----------
Allocation of ESOP shares -- 80,707 -- -- 118,520 -- 199,227
Repurchase of common stock -- -- -- -- -- (641,745) (641,745)
Amortization of recognition and retention plan -- -- -- -- 86,453 -- 86,453
Dividends declared ($.49 per share) -- -- (380,934) -- -- -- (380,934)
-------- ---------- --------- -------- ---------- --------- ----------
Balance, March 31, 1998 10,580 10,165,436 7,482,320 (98,326) (845,291) (3,237,147) 13,477,572
-------- ---------- --------- -------- ---------- --------- ----------
Comprehensive income:
Net earnings -- -- 1,073,352 -- -- -- 1,073,352
Other comprehensive income (loss) -
unrealized holding losses on debt and
equity securities available-for-sale,
net of reclassification adjustments for
amounts included in net income, net of
taxes of $283,000 -- -- -- (295,712) -- -- (295,712)
-------- ---------- --------- -------- ---------- --------- ----------
Total comprehensive income -- -- 1,073,352 (295,712) -- -- 777,640
-------- ---------- --------- -------- ---------- --------- ----------
Allocation of ESOP shares -- 87,168 -- -- 113,090 -- 200,258
Repurchase of common stock -- -- -- -- -- (1,526,483)( 1,526,483)
Amortization of recognition and retention plan -- -- -- -- 88,806 -- 88,806
Dividends declared ($.63 per share) -- -- (458,252) -- -- -- (458,252)
-------- ---------- --------- -------- ---------- --------- ----------
Balance, March 31, 1999 $ 10,580 10,252,604 8,097,420 (394,038) (643,395) (4,763,630) 12,559,541
======== ========== ========= ========= ========== ========= ==========
</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, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- -----------------------------
Operating activities:
<S> <C> <C> <C>
Net earnings $ 1,073,352 868,574 464,251
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Provision for losses on loans 65,973 93,671 33,590
Depreciation and amortization 131,524 80,494 54,352
Premium amortization and accretion of discounts and
deferred loan fees, net (154,421) (328,422) 83,123
Loss (gain) on sales of loans and securities, net (569,001) (181,917) 2,218
Gain on sales of real estate owned -- (5,657) (6,684)
Proceeds from sales of loans held for sale 1,913,636 428,016 --
Origination of loans held for sale (2,066,821) (423,619) --
Allocation of ESOP shares 200,258 199,227 154,201
Amortization of deferred recognition and retention plan 88,806 86,453 84,686
Provision for deferred income taxes (30,000) (22,000) (44,086)
Changes in other assets and liabilities:
Accrued interest receivable (159,927) (105,504) (180,825)
Prepaid expenses and other assets (107,989) (43,373) 12,213
Accrued interest payable (15,200) 898 24,866
Accrued expenses and other liabilities 78,692 74,647 100,752
Income taxes payable (163,481) 186,295 80,589
------------- ------------- -------------
Net cash provided by operating activities 285,401 907,783 863,246
------------- ------------- -------------
Investing activities:
Net increase in loans receivable (7,982,133) (8,811,940) (5,295,352)
Purchase of loans (1,662,300) (1,232,050) (4,397,569)
Proceeds from sales of loans 1,571,964 3,309,109 --
Purchase of mortgage-backed securities available-for-sale -- (10,786,034) --
Purchase of investment securities held-to-maturity -- (10,000,000) --
Purchase of investment securities available-for-sale (43,235,114) (27,556,342) (21,607,082)
Principal payments on mortgage-backed securities held-to-maturity -- 2,081,172 2,786,969
Principal payments on mortgage-backed securities available-for-sale 7,875,715 805,804 1,098,488
Principal payments on investment securities available-for-sale -- 76,872 --
Proceeds from maturities of investment securities available-for-sale 9,000,000 23,650,000 3,500,000
Proceeds from sales of mortgage-backed securities held-to-maturity -- 337,776 --
Proceeds from sales of mortgage-backed securities available-for-sale 2,768,669 7,838,077 1,016,675
Proceeds from sales of investment securities available-for-sale 18,341,167 4,084,772 2,004,844
Purchase of stock in FHLB of Des Moines (525,000) (525,000) (208,000)
Proceeds from sales of real estate owned -- 117,339 35,000
Purchase of office property and equipment (238,452) (952,376) (394,344)
------------- ------------- -------------
Net cash used in investing activities $ (14,085,484) (17,562,821) (21,460,371)
------------- ------------- -------------
</TABLE>
(Continued)
22
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Hardin, Missouri
Consolidated Statements of Cash Flows, Continued
Years ended March 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
Financing activities:
<S> <C> <C> <C>
Net increase in deposits $ 6,442,409 6,683,605 3,595,610
Net increase (decrease) in advances from borrowers for taxes
and insurance 30,107 (11,123) 51,688
Proceeds from FHLB advances 26,000,000 30,500,000 19,000,000
Repayments of FHLB advances (15,500,000) (20,000,000) --
Payment of dividends (433,059) (359,807) (374,665)
Purchase of treasury stock (1,526,483) (641,745) (3,093,552)
------------- ------------- -------------
Net cash provided by financing activities 15,012,974 16,170,930 19,179,081
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 1,212,891 (484,108) (1,418,044)
Cash and cash equivalents at beginning of year 3,781,801 4,265,909 5,683,953
------------- ------------- -------------
Cash and cash equivalents at end of year $ 4,994,692 3,781,801 4,265,909
============= ============= =============
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 5,935,626 5,182,905 3,890,264
============= ============= =============
Income taxes, net of refunds $ 779,804 310,100 193,215
============= ============= =============
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 $ 132,256 107,063 85,936
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Hardin Bancorp, Inc. (the Company) and Hardin Federal
Savings Bank (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.
(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. The
Company had no loans classified as loans held for sale at March
31, 1999 or 1998.
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.
24
<PAGE>
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 1999 are capitalized
mortgage servicing rights aggregating $35,000. Amortization
expense related to the capitalized servicing rights, included in
other expenses in the accompanying consolidated statements of
earnings, aggregated $10,000 during 1999.
At March 31, 1999 and 1998, the Bank was servicing loans for
others amounting to $10,154,000 and $9,759,000, 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, 1999 and 1998 was insignificant.
(f) Real Estate Owned
Real estate properties acquired through foreclosure are initially
recorded at estimated fair value, less selling costs, at the date
of foreclosure. Costs relating to development and improvement of
property are capitalized, whereas holding costs are expensed when
incurred.
Valuations are periodically reviewed and an allowance for losses
is established by a charge to operations if the carrying value of
a property exceeds its estimated fair value, less selling costs.
(g) Stock in Federal Home Loan Bank of Des Moines
The Bank is a member of the Federal Home Loan Bank (FHLB) system.
As a member, the Bank is required to purchase and hold stock in
the FHLB of Des Moines in an amount equal to the greater of (a) 1%
of unpaid residential loans, (b) 5% of outstanding FHLB advances,
or (c) .3% of total assets. FHLB stock is carried at cost in the
accompanying consolidated balance sheets.
25
<PAGE>
(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.
The shares used in the calculation of basic and diluted earnings per share are
shown below:
<TABLE>
<CAPTION>
For the years ended
March 31,
1999 1998 1997
<S> <C> <C> <C>
Weighted average common shares outstanding 724,615 775,293 900,351
Stock options 31,911 28,261 5,983
756,526 803,554 906,334
======= ======= =======
26
<PAGE>
</TABLE>
(m) Recently Issued 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 requires the Company to classify items of other
comprehensive income by their nature in the consolidated financial
statements. The Company has adopted the provisions of SFAS No. 130
for the year ended March 31, 1999 and has displayed the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity
section of the consolidated statement of stockholders' equity.
SFAS No. 131 requires public enterprises to 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. The Company adopted the provisions of
SFAS No. 131 for the year ended March 31, 1999. The Company has
one reportable operating segment.
The FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, in June 1998. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fair value. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000,
however, the Company adopted the provisions of SFAS No. 133 at
July 1, 1998 and utilized an option to transfer its
held-to-maturity investment security portfolio to
available-for-sale. Accordingly, all unrealized gains and losses
were recorded at that date. Management believes adoption of the
remaining provisions of SFAS No. 133 did not have material effect
on the Company's financial position or results of operations, nor
will adoption require additional capital resources.
27
<PAGE>
(2) Investment Securities
A summary of investment securities information is as follows:
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-sale:
United States government and agency
obligations maturing:
Within one year $ 22,990,625 11,577 (290,936) 22,711,266
After one year but within five years 5,000,000 -- -- 5,000,000
After five years but within ten years -- -- -- --
After ten years 10,584,257 -- (89,771) 10,494,486
----------- ----------- ----------- -----------
Total United States government
and agency obligations 38,574,882 11,577 (380,707) 38,205,752
----------- ----------- ----------- -----------
State and municipal obligations maturing:
Within one year 340,000 930 -- 340,930
After one year but within five years 630,000 12,590 -- 642,590
After five years but within ten years 500,000 -- (10,510) 489,490
----------- ----------- ----------- -----------
Total state and municipal
obligations 1,470,000 13,520 (10,510) 1,473,010
----------- ----------- ----------- -----------
Equity securities 4,965,269 -- (124,838) 4,840,431
----------- ----------- ----------- -----------
$ 45,010,151 25,097 (516,055) 44,519,193
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
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 United States 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
=========== =========== =========== ===========
</TABLE>
Proceeds from the sales of investment securities for the years ended
March 31, 1999, 1998, and 1997 totaled $18,341,167, $4,084,772, and
$2,004,844, respectively, and resulted in gross realized gains of
$449,795, $31,433, and $5,286 in 1999, 1998, and 1997, respectively.
At March 31, 1999 and 1998, investment securities with a fair value of
approximately $3,328,000 and $1,467,000, respectively, were pledged to
secure public funds on deposit.
29
<PAGE>
(3) Mortgage-backed Securities
Mortgage-backed securities at March 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1999
------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-sale:
Pass-through certificates guaranteed
by Government National
Mortgage Association (GNMA) $ 1,109,675 11,120 (2,214) 1,118,581
Federal Home Loan Mortgage
Corporation (FHLMC) participation
certificates 4,220,822 5,878 (68,620) 4,158,080
Federal National Mortgage Association
(FNMA) participation certificates 7,388,420 5,195 (85,857) 7,307,758
----------- ----------- ----------- -----------
$ 12,718,917 22,193 (156,691) 12,584,419
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-sale:
Pass-through certificates guaranteed
by GNMA $ 2,967,254 -- -- 2,967,254
FHLMC participation certificates 1,744,724 -- (57,019) 1,687,705
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>
Proceeds from the sales of mortgage-backed securities for the years
ended March 31, 1999 and 1998 totaled $2,768,669 and $8,175,853,
respectively, and resulted in gross realized gains of $29,145 and
$81,147 in 1999 and 1998, respectively, and gross realized losses of
$1,096 in 1998.
30
<PAGE>
(4) Loans Receivable
Loans receivable at March 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
Real estate:
<S> <C> <C>
One to four family $ 54,122,490 50,645,667
Five or more 479,473 543,197
Nonresidential 1,432,875 477,263
Land 3,048,016 810,581
Commercial 1,118,098 1,335,685
Construction 2,380,400 3,966,929
Consumer 8,569,463 6,704,534
Commercial 781,000 --
-------------- ---------------
71,931,815 64,483,856
Loans in process (2,194,823) (3,021,980)
Discounts and deferred loan
origination fees, net of cost 79,104 59,818
Allowance for loan losses (311,196) (247,710)
-------------- ---------------
Net loans receivable $ 69,504,900 61,273,984
============== ===============
</TABLE>
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. Residential loans with a loan-to-value ratio exceeding 80% are
required to have private mortgage insurance or to pledge savings account
balances or additional collateral. The Bank's principal lending areas
are agricultural-based rural communities northeast of Kansas City,
Missouri.
The Bank makes contractual commitments to extend credit which are
subject to the Bank's credit monitoring procedures. At March 31, 1999
and 1998, the Bank was committed to originate loans aggregating
approximately $2,241,000 and $1,264,000, respectively. At March 31,
1999, all loan commitments were fixed with interest rates ranging from
6.75% to 8.0%. There were no commitments to buy loans at March 31, 1999.
The Company had loans to directors and officers at March 31, 1999 and
1998 which carry terms similar to those for other loans. A summary of
such loans is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Balance at beginning of year $ 291,000 194,000
New loans 259,000 105,000
Payments (255,000) (8,000)
------------ -----------
Balance at end of year $ 295,000 291,000
============ ===========
</TABLE>
31
<PAGE>
Activity in the allowance for loan losses for the years ended March 31, 1999,
1998, and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 247,710 158,276 131,040
Provision for loan losses 65,973 93,671 33,590
Charge-offs (2,487) (4,237) (6,354)
----------- ----------- ----------
Balance at end of year $ 311,196 247,710 158,276
=========== =========== ==========
</TABLE>
Nonaccrual loans at March 31, 1999 and 1998 aggregated approximately
$231,000 and $232,000, respectively.
(5) Premises and Equipment
Premises and equipment consist of the following at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land $ 159,779 157,779
Building 1,503,251 1,465,840
Leasehold improvements 34,170 34,170
Furniture and fixtures 921,737 734,497
Automobile 11,800 --
----------- -----------
2,630,737 2,392,286
Less accumulated depreciation 798,426 666,903
----------- -----------
Office properties and
equipment, net $ 1,832,311 1,725,383
=========== ===========
</TABLE>
(continued)
32
<PAGE>
(6)Deposits
Deposits at March 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
Stated -------------------- --------------------
rate Amount Percent Amount Percent
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance by interest rate:
Commercial 0.0 1,918,980 2% $ 1,081,647 1%
NOW accounts 1.75-2.25 6,852,307 8 4,258,114 6
Money market demand
accounts 2.75-3.50 6,583,405 8 5,901,404 8
Savings accounts 2.00% 3,804,878 5 3,265,591 4
---------- --------- --------- ---------
19,159,570 23 14,506,756 19
---------- --------- --------- ---------
Certificate accounts 0.00-2.99% -- -- 105,875 --
3.00-3.99% 49,133 -- 23,030 --
4.00-4.99% 12,805,257 15 3,978,376 5
5.00-5.99% 40,780,548 49 44,438,448 58
6.00-6.99% 9,631,651 12 12,358,458 16
7.00-7.99% 895,707 1 1,466,506 2
8.00% and up 5,005 -- 7,013 --
---------- --------- --------- ---------
64,167,301 77 62,377,706 81
---------- --------- --------- ---------
$ 83,326,871 100% $76,884,462 100%
========== ========= ========= =========
Weighted average interest rate
on deposits at March 31 4.56% 5.07%
==== ====
</TABLE>
A summary of contractual maturity dates for certificate accounts at
March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Amount Percent
--------------- -----------
Contractual maturity of certificate accounts:
<S> <C> <C>
Under 12 months $ 45,543,965 71 %
12 to 24 months 12,180,401 19
24 to 36 months 3,259,719 5
36 to 48 months 2,353,946 4
48 to 60 months 809,515 1
Over 60 months 19,755 --
--------------- -----------
$ 64,167,301 100 %
=============== ===========
</TABLE>
33
<PAGE>
The components of interest expense on deposits for the years ended March 31,
1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
NOW, savings, Super NOW,
and money market demand $ 425,006 329,197 285,575
Certificates of deposit 3,453,465 3,488,290 3,094,328
------------- ------------- -------------
$ 3,878,471 3,817,487 3,379,903
============= ============= =============
</TABLE>
At March 31, 1999 and 1998, certificate accounts of $100,000 or greater
totaled $8,381,000 and $6,749,000, 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.
(7) FHLB Advances
The Company had the following debt outstanding from the FHLB of Des Moines at
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
$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
$5,000,000 advance, interest at one-month LIBOR less
.05%, due December 1998 -- 5,000,000
$5,000,000 advance, interest at 4.86%, due April 1999 5,000,000 --
$3,000,000 advance, interest at 4.95%, due June 1999 3,000,000 --
$2,500,000 advance, interest at 6.14%, due July 1999 2,500,000 2,500,000
$2,500,000 advance, interest at 6.15%, due September 1999 2,500,000 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 10,000,000
$5,000,000 advance, interest at 5.03%, due June 2008 5,000,000 --
$5,000,000 advance, interest at 4.99%, due September 2008 5,000,000 --
$5,000,000 advance, interest at 4.27%, due January 2009 5,000,000 --
----------- --------------
$40,000,000 29,500,000
=========== ==============
</TABLE>
The advances from the FHLB are collateralized by first mortgage loans and
investment securities.
34
<PAGE>
Scheduled maturities of FHLB advances are as follows:
Year ending
March 31, Amount
------------------ ---------------
1999 $ 15,000,000
2008 10,000,000
2009 15,000,000
---------------
$ 40,000,000
===============
(8)Income Taxes
The components of income tax expense from operations are as follows:
<TABLE>
<CAPTION>
Federal State Total
----------- ---------- -----------
<S> <C> <C> <C>
Year ended March 31, 1999:
Current $ 545,881 84,770 630,651
Deferred (26,000) (4,000) (30,000)
----------- ---------- -----------
$ 519,881 80,770 600,651
=========== ========== ===========
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
=========== ========== ===========
</TABLE>
In addition, during the years ended March 31, 1999 and 1998, the Company
recorded deferred income tax expense (benefits) of approximately $231,000 and
$58,000, respectively, related to unrealized losses on investment securities
available-for-sale.
35
<PAGE>
The reasons for the difference between the effective tax rates and the expected
federal income tax rate of 34% are as follows:
<TABLE>
<CAPTION>
Percent of earnings
before income tax
expense
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Expected federal income tax rate 34.0% 34.0 34.0
Items affecting income tax rate:
Municipal interest (1.0) -- --
State taxes, net of federal tax benefit 3.0 2.0 2.6
Other (0.1) .5 .5
-------- -------- -------
Effective tax rate 35.9% 36.5 37.1
======== ======== =======
</TABLE>
The tax effects of temporary differences which give rise to a significant
portion of deferred tax assets and liabilities at March 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Unrealized loss on available-for-sale securities $ 231,000 58,000
Allowance for loan losses 131,000 100,000
Accrued compensation 150,000 144,000
Other 29,000 22,000
----------- -----------
Deferred tax assets 541,000 324,000
----------- -----------
FHLB dividends 33,000 33,000
Tax bad debt reserve in excess of base year 108,000 145,000
Fixed asset basis difference 93,000 48,000
Core deposit premium 15,000 15,000
Accrued interest on loans originated prior to
September 25, 1985 4,000 6,000
Loan origination fees 75,000 74,000
Other 25,000 18,000
----------- -----------
Deferred tax liabilities 353,000 339,000
----------- -----------
Net deferred tax assets (liabilities) $ 188,000 (15,000)
=========== ===========
</TABLE>
There was no valuation allowance for deferred tax assets at March 31,
1999 or 1998. 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.
(continued)
36
<PAGE>
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, 1999 and 1998
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.
(9) Benefit Plans
Qualified employees of the Company and Bank participate in an Employee
Stock Ownership Plan (the ESOP). In connection with the conversion to a
federally chartered stock savings bank in 1995, 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, 1999 and 1998, the Company allocated 11,309 shares and
11,852 shares, respectively, to participants. ESOP contributions to the
Bank, representing the fair value of allocated shares, are charged to
compensation and benefits expense in 1999 and 1998 and were
approximately $200,000 and $199,000, respectively. The fair value of the
remaining unallocated shares of 40,519 at March 31, 1999 aggregated
approximately $666,000.
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 was recorded for the
year ended March 31, 1997.
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, 1999, 1998, and 1997 amounted to approximately
$104,000, $111,000, and $106,000, respectively. The Bank has purchased
life insurance policies to fund its obligations under the plans.
<PAGE>
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 and 3,000 shares, respectively, to
participants. During fiscal year 1999, 1,000 of the 3,000 shares were
forfeited and remain unallocated. The corresponding charge to
compensation and benefits expense was $88,806, $86,453, and $84,686 in
1999, 1998, and 1997, respectively.
(10) 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. Options to purchase 1,500 shares were forfeited in fiscal
year 1999. The options will vest over the five years following the date
of grant and are exercisable for up to ten years.
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 $41,000, or $.05 per share, in 1999
and $56,000, or $.07 per share, in 1998.
Following is a summary of the fair values of options granted in 1998 and 1997
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 6.20% 7.00
Expected life 10 years 10 years
=========== ===========
38
<PAGE>
Pro forma net earnings reflect only options granted and vested in fiscal
1999 and 1998. 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.
(11) Financial Instruments With Off-balance Sheet Risk and Concentrations of
Credit Risk
The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet customer financing needs. These
financial instruments consist principally of commitments to extend
credit. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
Bank's exposure to credit loss in the event of nonperformance by the
other party is represented by the contractual amount of those
instruments. The Bank does not generally require collateral or other
security on unfunded loan commitments until such time that loans are
funded.
In addition to financial instruments with off-balance sheet risk, the
Bank is exposed to varying risks associated with concentrations of
credit relating primarily to lending activities in specific geographic
areas. The Bank's principal lending area consists of the
agricultural-based rural communities northeast of Kansas City and the
Bank's loans are primarily to residents of or secured by properties
located in its principal lending area. Accordingly, the ultimate
collectibility of the Bank's loan portfolio is dependent upon market
conditions in that area. This geographic concentration is considered in
management's establishment of the allowance for loan losses.
(12) Regulatory Capital Requirements
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.
39
<PAGE>
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, 1999, 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
risk- risk-
Tangible Core based based
capital capital capital capital
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Equity $ 11,905,000 11,905,000 11,905,000 11,905,000
Adjustments to capital:
Allowance for loan losses -- -- 311,000 --
Unrealized loss on available-for-sale
securities, net 394,000 394,000 394,000 394,000
Other (1,000) (1,000) (1,000) (1,000)
------------ ------------ ------------ -------------
Regulatory capital - computed 12,298,000 12,298,000 12,609,000 12,298,000
Minimum capital requirement for capital
adequacy purposes 2,054,000 4,099,000 4,927,000 --
------------ ------------ ------------ -------------
Regulatory minimum capital -
excess $ 10,244,000 8,199,000 7,682,000 --
============ ============ ============ =============
To be well capitalized for prompt corrective
action provisions $ -- 6,846,000 6,159,000 8,215,000
============ ============ ============ =============
To be well capitalized capital - excess $ -- 5,452,000 6,450,000 4,083,000
============ ============ ============ =============
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 9.0% 9.0 20.5 20.0
============ ============ ============ =============
</TABLE>
40
<PAGE>
(13) Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of estimated fair value for financial instruments held by the
Company. Fair value estimates of the Company's financial instruments as of March
31, 1999 and 1998, including methods and assumptions utilized, are set forth
below:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ---------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment securities $44,519,193 44,519,000 32,656,010 32,665,000
=========== ========== ========== ==========
Mortgage-backed securities $12,584,419 12,584,000 19,015,236 18,938,000
=========== ========== ========== ==========
Loans, net of unearned fees and
allowance for loan losses $69,504,900 71,968,000 61,273,984 60,898,000
=========== ========== ========== ==========
Noninterest bearing demand deposit $ 1,918,980 1,919,000 1,081,647 1,082,000
Money market and NOW deposits 13,435,712 13,436,000 10,159,518 10,160,000
Savings accounts 3,804,878 3,805,000 3,265,591 3,266,000
Certificate accounts 64,167,301 64,515,000 62,377,706 62,795,000
----------- ---------- ---------- ----------
Total deposits $83,326,871 83,675,000 76,884,462 77,303,000
=========== ========== ========== ==========
</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.
41
<PAGE>
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.
42
<PAGE>
(14) Parent Company Condensed Financial Statements
<TABLE>
<CAPTION>
Condensed Balance Sheets
March 31, 1999 and 1998
Assets 1999 1998
------------ ----------
<S> <C> <C>
Interest-bearing deposits $ 495,489 848,243
Loans receivable 416,140 531,632
Investment in subsidiary 11,905,108 12,198,944
Other 39,305 60,199
------------ ----------
Total assets $ 12,856,042 13,639,018
============ ==========
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ 296,501 161,446
Stockholders' equity 12,559,541 13,477,572
------------ ----------
Total liabilities and stockholders' equity $ 12,856,042 13,639,018
============ ==========
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Earnings
Years ended March 31, 1999 and 1998
1999 1998
------------ ----------
<S> <C> <C>
Interest income $ 76,706 105,290
Other expense, net (233,480) (212,127)
------------ ----------
Loss before equity in undistributed earnings
of subsidiary (156,774) (106,837)
Increase in undistributed equity of subsidiary 1,170,192 934,535
------------ ----------
Earnings before income taxes 1,013,418 827,698
Income tax expense (benefit) (59,934) (40,876)
------------ ----------
Net earnings $ 1,073,352 868,574
============ ==========
</TABLE>
(continued)
43
<PAGE>
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,073,352 868,574
Increase in undistributed equity of subsidiary (1,170,192) (934,535)
Amortization of deferred RRP 88,806 86,453
Other 130,756 (37,613)
----------- -----------
Net cash provided (used) by operating activities 122,722 (17,121)
----------- -----------
Cash flows from investing activities:
Net decrease in loans receivable 115,492 114,783
Principal payments on investment and mortgage-backed
securities available-for-sale -- 500,000
Sales of investment and mortgage-backed securities
available-for-sale -- 486,959
----------- -----------
Net cash provided by investing activities 115,492 1,101,742
----------- -----------
Cash flows from financing activities:
Dividends from subsidiary 1,368,574 404,170
Payment of dividends (433,059) (359,807)
Purchase of treasury stock (1,526,483) (641,745)
----------- -----------
Net cash used in financing activities (590,968) (597,382)
----------- -----------
Net increase (decrease) in cash (352,754) 487,239
Cash at beginning of year 848,243 361,004
----------- -----------
Cash at end of year $ 495,489 848,243
----------- -----------
Noncash investing and financing activities:
Dividend declared and payable $ 132,256 107,063
----------- -----------
</TABLE>
44
<PAGE>
HARDIN BANCORP, INC.
STOCKHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Stockholders will be held at 1:00 p.m., Hardin, Missouri
time on July 22, 1999, at the Hardin United Methodist Church Fellowship Hall,
located at 101 Northeast First Street, Hardin, Missouri, 64035.
Stock Listing
Hardin Bancorp, Inc. common stock is traded on the National Association of
Securities Dealers, Inc., Small Cap Market under the symbol"HFSA."
Price Range of Common Stock
The per share price range of the common stock and the dividends declared for
each quarter during the past two fiscal years is set forth below. These
quotations reflect inter-dealer prices, without retail markup, markdown or
commissions and may not necessarily represent actual transactions.
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
FISCAL 1999 HIGH LOW DIVIDENDS
- ----------- ---- --- ---------
First Quarter $19.63 $18.75 $.14
Second Quarter $19.25 $16.13 $.15
Third Quarter $20.50 $14.25 $.16
Fourth Quarter $18.13 $16.38 $.18
An $.18 per share dividend was declared by the Board of Directors on March 18,
1999, payable April 16, 1999, to stockholders of record on April 2, 1999. 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, 1999, there were 1,058,000 shares issued and 734,753 shares
outstanding of Hardin Bancorp, Inc. (HFSA) common stock (including unallocated
ESOP shares) and there were approximately 600 registered holders of record.
45
<PAGE>
Shareholders and General Inquiries Transfer Agent
- ---------------------------------- --------------
Robert W. King Registrar and Transfer
President 10 Commerce Drive
Hardin Bancorp, Inc. Cranford, New Jersey 07016
201 Northeast 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, 1999, 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., 201 Northeast Elm Street, Hardin,
Missouri 64035
HARDIN BANCORP, INC.
CORPORATE INFORMATION
Company and Bank Addresses
201 Northeast Elm Street Telephone: (660) 398-4312
Hardin, Missouri 64035 Fax: (660) 398-4317
200 North Spartan Drive Telephone: (816) 470-6400
Richmond, Missouri 64085 Fax: (816) 470-2022
201 North Jesse James Road Telephone: (816) 630-2179
Excelsior Springs, Missouri 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
46
<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
Vice President
Independent Accountants Special Counsel
- ----------------------- ---------------
KPMG 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
47
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
------ ---------- --------- ---------------
<S> <C>
Hardin Bancorp, Inc. Hardin Federal Savings Bank 100% Federal
Hardin Federal Hardin Savings Service
Savings Bank Corporation 100% Missouri
</TABLE>
Exhibit 23
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 21, 1999, relating to
the consolidated balance sheets of Hardin Bancorp, Inc. and subsidiaries as of
March 31, 1999 and 1998, 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, 1999, which report appears in the annual report on Form
10-KSB of Hardin Bancorp, Inc. for the fiscal year ended March 31, 1999 filed
pursuant to the Securities Exchange Act of 1934, as amended.
/s/KPMG LLP
- -----------
Kansas City, Missouri
June 28, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 838
<INT-BEARING-DEPOSITS> 4,157
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,104
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 69,816
<ALLOWANCE> 311
<TOTAL-ASSETS> 137,056
<DEPOSITS> 83,327
<SHORT-TERM> 15,000
<LIABILITIES-OTHER> 1,169
<LONG-TERM> 25,000
0
0
<COMMON> 11
<OTHER-SE> 12,549
<TOTAL-LIABILITIES-AND-EQUITY> 137,056
<INTEREST-LOAN> 5,394
<INTEREST-INVEST> 3,254
<INTEREST-OTHER> 365
<INTEREST-TOTAL> 9,013
<INTEREST-DEPOSIT> 3,878
<INTEREST-EXPENSE> 5,920
<INTEREST-INCOME-NET> 3,093
<LOAN-LOSSES> 66
<SECURITIES-GAINS> 479
<EXPENSE-OTHER> 2,545
<INCOME-PRETAX> 1,674
<INCOME-PRE-EXTRAORDINARY> 1,674
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,073
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.42
<YIELD-ACTUAL> 6.92
<LOANS-NON> 230
<LOANS-PAST> 47
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 336
<ALLOWANCE-OPEN> 248
<CHARGE-OFFS> 2
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 311
<ALLOWANCE-DOMESTIC> 239
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 72
</TABLE>
