TABLE OF CONTENTS
Page
President's Message....................................................... 1
General Information....................................................... 2
Selected Consolidated Financial and Other Data of the Company............. 3
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 5
Consolidated Financial Statements........................................ 17
Stockholder Information.................................................. 43
Corporate Information.................................................... 44
<PAGE>
June 23, 2000
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 fifth annual report.
Fiscal year 2000 was our fifth year as a stock company after serving area
communities for more than 107 years as a mutual savings institution. In fiscal
2000 we achieved record earnings of $1,272,000, an increase from $1,073,000 for
fiscal 1999. The increase was primarily the result of an increase in
net-interest income after provision for loan losses. Non-interest income was
lower due to a reduction in gains on the sale of loans, investments and
mortgage-backed securities, while non-interest expense increased due to
increases in personnel cost, occupancy expense, technology expense and Y2K
related costs. Diluted earnings per share were $1.78 in fiscal 2000 compared to
$1.42 in fiscal 1999.
The Bank's net loans receivable increased by $8.6 million, as a result of
increases in residential, construction and consumer loans. Assets increased $1.4
million to $138.5 million at March 31, 2000 and stockholders' equity decreased
to $12.4 million from $12.6 million at March 31, 1999. The decrease in
stockholders' equity was the result of an increase in the unrealized market loss
on investments available for sale.
In view of the positive operating results during fiscal 2000, the Board of
Directors increased the Company's quarterly dividend to $.20 in the first
quarter of the fiscal year. This represents the seventh dividend increase during
the Company's five years as a public company.
While fiscal 2000 was a very successful year for the Company, we look forward to
continuing our record of achievement in fiscal 2001. 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 $687,000. 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, 2000, the Company had
total assets of $138.5 million, deposits of $86.6 million and stockholders'
equity of $12.4 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,
-------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in Thousands except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
------------------------
Total assets $ 138,484 $ 137,056 $ 121,092 $ 103,354 $ 83,387
Loan receivable, net 78,059 69,505 61,274 54,568 45,031
Mortgage-backed securities:
Held to maturity - - 10,995 13,457 16,299
Available for sale 11,806 12,584 8,020 5,757 7,907
Investment securities:
Held to maturity - - 10,000 - -
Available for sale 37,793 44,519 22,656 22,340 6,363
FHLB stock 2,015 2,000 1,475 950 742
Other interest-bearing deposits 3,332 4,157 3,225 4,007 5,430
Deposits 86,565 83,327 76,884 70,201 66,605
FHLB advances 38,300 40,000 29,500 19,000 -
Total stockholders' equity 12,426 12,560 13,478 13,210 16,035
Selected Operating Data:
Total interest income 9,618 9,013 8,234 6,684 5,552
Total interest expense 5,735 5,920 5,184 3,915 3,454
-------------- --------------- -------------- --------------- --------------
Net interest income 3,883 3,093 3,050 2,769 2,098
Provision for loan losses 1 66 94 34 14
-------------- --------------- -------------- --------------- --------------
Net interest income after
provision for loan losses 3,882 3,027 2,957 2,735 2,084
-------------- --------------- -------------- --------------- --------------
Loan fees and service charges 626 451 176 117 110
Gain/(loss) on sales of loans,
investments and mortgage-
backed securities 16 569 182 (2) 2
Other non-interest income 234 172 134 158 167
-------------- --------------- -------------- --------------- --------------
Total non-interest income 876 1,192 492 273 279
-------------- --------------- -------------- --------------- --------------
Total non-interest expense 2,798 2,545 2,081 2,270 (1) 1,576
-------------- --------------- -------------- --------------- --------------
Earnings before income
taxes 1,960 1,674 1,368 738 787
Income tax expense 688 601 499 274 277
-------------- --------------- -------------- --------------- --------------
Net earnings $ 1,272 $ 1,073 $ 869 $ 464 $ 511
============== =============== ============== =============== ==============
Basic earnings per share $ 1.84 $ 1.48 $ 1.12 $ 0.52 $ 0.52
Diluted earnings per share $ 1.78 $ 1.42 $ 1.08 $ 0.51 $ 0.52
============== =============== ============== =============== ==============
Weighted average common &
common equivalent shares
outstanding 713,278 756,526 803,554 906,334 973,383
============== =============== ============== =============== ==============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
At or for the years ended March 31,
------------------------------------------------------
2000 1999 1998 1997 1996
--------- -------- -------- -------- ---------
<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) 0.94 % 0.81 % 0.76 % 0.50 % 0.64
Return on equity (ratio of net earnings to average equity) 10.34 8.23 6.52 3.18 4.25
Interest rate spread (2):
Average during year 2.58 1.93 2.16 2.27 2.00
End of year 2.20 2.07 1.97 2.61 2.37
Net interest margin (3) 2.98 2.42 2.73 3.04 2.70
Ratio of non-interest expense to average total assets 2.07 1.93 1.82 2.43 1.98
Ratio of average interest earning assets to average
interest-bearing liabilities 109.10 110.49 112.23 117.85 115.76
Quality Ratios:
Non-performing assets to total assets at end of year 0.17 0.20 0.19 0.37 0.15
Allowance for loan losses to non-performing loans 128.30 112.48 106.97 41.58 107.38
Allowance for loan losses to loans receivable, net 0.39 0.45 0.40 0.29 0.29
Capital Ratios (4):
Equity to total assets at end of year 8.98 9.16 11.12 12.78 19.23
Average equity to average assets 9.07 9.88 11.65 15.70 15.05
Other Data:
Number of full service offices 3 3 3 3 3
</TABLE>
(1) Total non-interest expense for the year ended March 31, 1997 includes the
one time SAIF assessment of $441,000.
(2) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(4) 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,
gains on sale of loans, investments and mortgage-backed securities 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-QSB reports and reports filed on Form 10-KSB.
Financial Condition
-------------------
Total Assets. Total assets increased $1.4 million, or 1.1%, to $138.5 million at
March 31, 2000 from $137.1 million at March 31, 1999. The increase was primarily
funded by an increase in deposits of $3.2 million a portion of which was used to
reduce FHLB advances by $1.7 million.
Loans Receivable, Net. Loans receivable, net increased by $8.6 million, or
12.3%, to $78.1 million at March 31, 2000 from $69.5 million at March 31, 1999.
The increase is primarily due to increased loan demand in the market areas
served by the Bank's three full-service offices and was funded by deposit
5
<PAGE>
growth, net of FHLB advance repayments, proceeds from sales and maturities of
investment securities and repayments of mortgage-backed securities.
Mortgage-Backed Securities. Mortgage-backed securities decreased to $11.8
million at March 31, 2000 from $12.6 million at March 31, 1999. The decrease of
$779,000 was used to fund loan growth.
Investment Securities. Investment securities decreased $6.7 million, or 15.1%,
to $37.8 million at March 31, 2000 from $44.5 million at March 31, 1999. The
cash generated from the reduction in investment securities was utilized to fund
loan growth.
Deposits. Deposits increased $3.3 million, or 3.9%, to $86.6 million at March
31, 2000 from $83.3 million at March 31, 1999. Special certificates of deposit
and more aggressive pricing of deposits and marketing of the Bank's totally free
checking accounts contributed to the increase.
Federal Home Loan Bank Advances. FHLB advances decreased to $38.3 million at
March 31, 2000 from $40.0 million at March 31, 1999. Excess funds generated from
deposits and from the sales of the Bank's investment portfolio enabled the Bank
to repay $1.7 million of FHLB advances.
Equity. Total stockholders' equity decreased to $12.4 million at March 31, 2000
from $12.6 million at March 31, 1999. The $133,000 reduction was primarily due
to an increase in the unrealized market loss related to investment securities,
available for sale, partially offset by net earnings during fiscal 2000.
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,
---------------------------------------- ----------------------------------------
2000 1999
---------------------------------------- ----------------------------------------
Average Interest Average Interest
Outstanding Earned / Yield / Outstanding Earned / Yield /
Balance Paid Rate Balance Paid Rate
------------- ----------- ---------- ------------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loan receivable (1) $ 74,542 $ 6,015 8.07% $ 66,515 $ 5,394 8.11%
Mortgage-backed securities 11,687 685 5.86% 16,864 1,016 6.02%
Investment securities 39,277 2,668 6.79% 36,233 2,238 6.18%
FHLB stock 2,008 129 6.42% 1,919 124 6.46%
Other interest-bearing deposits 2,853 121 4.24% 6,531 241 3.69%
------------- ----------- -------- ------------- ----------- --------
Total interest-earning assets $ 130,367 $ 9,618 7.38% $ 128,062 $ 9,013 7.04%
============= =========== ======== ============= =========== ========
Interest-bearing liabilities:
Savings accounts $ 3,960 $ 78 1.97% $ 3,386 $ 67 1.98%
Demand and NOW accounts 14,965 385 2.57% 11,951 358 3.00%
Certificate accounts 63,987 3,296 5.15% 63,112 3,453 5.47%
FHLB advances 36,583 1,976 5.40% 37,458 2,042 5.45%
------------- ----------- -------- ------------- ----------- --------
Total interest-bearing liabilities $ 119,495 $ 5,735 4.80% $ 115,907 $ 5,920 5.11%
============= =========== ======== ============= =========== ========
Net interest income $ 3,883 $ 3,093
=========== ===========
Net interest rate spread (2) 2.58% 1.93%
======== ========
Net interest-earning assets $ 10,872 $ 12,155
============= =============
Net interest margin (3) 2.98% 2.42%
======== ========
Average interest-earning assets to
average interest-bearing liabilities 109.10% 110.49%
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------
1998
-----------------------------------------
Average Interest
Outstanding Earned / Yield /
Balance Paid Rate
------------- ----------- -----------
<S> <C> <C> <C>
Interest-earning assets:
Loan receivable (1) $ 57,819 $ 4,781 8.27%
Mortgage-backed securities 19,703 1,216 6.17%
Investment securities 25,950 1,803 6.95%
FHLB stock 1,290 87 6.74%
Other interest-bearing deposits 6,961 347 4.98%
------------- ----------- -----------
Total interest-earning assets $ 111,723 $ 8,234 7.37%
============= =========== ===========
Interest-bearing liabilities:
Savings accounts $ 3,363 $ 82 2.44%
Demand and NOW accounts 8,520 248 2.91%
Certificate accounts 63,205 3,488 5.52%
FHLB advances 24,458 1,366 5.59%
------------- ----------- -----------
Total interest-bearing liabilities $ 99,546 $ 5,184 5.21%
============= =========== ===========
Net interest income $ 3,050
===========
Net interest rate spread (2) 2.16%
===========
Net interest-earning assets $ 12,177
=============
Net interest margin (3) 2.73%
===========
Average interest-earning assets to
average interest-bearing liabilities 112.23%
===========
</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,
-------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable 7.71 % 7.76 % 8.04 %
Mortgage-backed securities 6.09 5.89 6.19
Investment securities 6.55 6.32 6.83
FHLB stock 6.63 6.25 6.50
Other interest-earning assets 5.58 4.55 5.45
Combined weighted average yield on
interest-earning assets 7.15 % 6.92 % 7.25 %
---------- ---------- ----------
Weighted average rate paid on:
Savings accounts 2.00 % 2.00 % 2.50 %
Demand and NOW accounts 2.16 2.28 2.91
Certificate accounts 5.28 5.29 5.59
FHLB advances 5.84 5.18 5.68
Combined weighted average rate paid on
interest-bearing liabilities 4.95 % 4.85 % 5.28 %
---------- ---------- ----------
Interest Rate Spread 2.20 % 2.07 % 1.97 %
========== ========== ==========
</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,
---------------------------------------------------------------------------------------
2000 vs 1999 1999 vs 1998
---------------------------------------------------------------------------------------
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
----------------------- -----------------------
Volume Rate (Decrease) Volume Rate (Decrease)
----------------------- ---------- ----------------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 648 $ (27) $ 621 $ 704 $ (91) $ 613
Mortgage-backed securities (305) (26) (331) (171) (29) (200)
Investment securities 198 232 430 448 (13) 435
FHLB stock 6 (1) 5 41 (4) 37
Other interest-earning assets (163) 43 (120) (20) (86) (106)
--------- -------- --------- --------- -------- -----------
Total interest-earning assets $ 384 $ 221 $ 605 $ 1,002 $ (223) $ 779
--------- -------- --------- --------- -------- -----------
Interest-bearing liabilities:
Savings accounts $ 11 $ - $ 11 $ 1 $ (16) $ (15)
Demand and NOW accounts 62 (35) 27 102 8 110
Certificate accounts 49 (206) (157) (5) (30) (35)
FHLB advances (47) (19) (66) 709 (33) 676
--------- -------- --------- --------- -------- -----------
Total interest-bearing liabilities $ 75 $ (260) $ (185) $ 807 $ (71) $ 736
--------- -------- --------- --------- -------- -----------
Net interest income $ 309 $ (39) $ 420 $ 195 $ (152) $ 43
========= ======== ========= ========= ======== ===========
</TABLE>
9
<PAGE>
Comparison of operating results for the years ended March 31, 2000
------------------------------------------------------------------
and March 31, 1999.
------------------
Performance Summary. Net earnings for the year ended March 31, 2000 increased by
$199,000, or 18.5%, to $1,272,000 from $1,073,000 for the year ended March 31,
1999. Diluted earnings per share were $1.78 for the year ended March 31, 2000,
and $1.42 for the year ended March 31, 1999. Improved annual earnings were
primarily the result of an increase in net interest income after provision for
loan losses. This increase was due to a change in the composition of earning
assets from investments to higher yielding loans. For the years ended March 31,
2000 and 1999, the return on average assets was .94% and .81%, respectively,
while the return on average equity was 10.34% and 8.23%, respectively.
Net Interest Income. Net interest income for the year ended March 31, 2000
increased by $790,000 or 25.5%, to $3,883,000 from $3,093,000 for the year ended
March 31, 1999. Growth in the loan portfolio funded by investments was the
primary reason for the increase.
For the year ended March 31, 2000, the average yield on interest-earning assets
was 7.38% compared to 7.04% for fiscal 1999. The average cost of
interest-bearing liabilities was 4.80% for the year ended March 31, 2000, a
decrease from 5.11% for fiscal 1999.
The average interest rate spread was 2.58% for the year ended March 31, 2000
compared to 1.93% for fiscal 1999. The average net interest margin increased to
2.98% for the year ended March 31, 2000 compared to 2.42% for the year ended
March 31, 1999.
Provision for Loan Losses. During the year ended March 31, 2000, the Company
recorded $1,297 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
recent years. The allowance for loan losses of $304,000 or .39% of loans
receivable, net at March 31, 2000, compares to $311,000 or .45% of loans
receivable, net at March 31, 1999. The allowance for loan losses as a percentage
of non-performing assets was 128.30% at March 31, 2000, compared to 112.48% at
March 31, 1999.
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, 2000, non-interest income
decreased by $315,000 or 26.5% due primarily to a substantial decrease in gains
recognized on the sale of loans, investments and mortgage-backed securities.
Service charges, loan servicing fees and other non-interest income increased for
the year.
Non-Interest Expense. Non-interest expense increased $253,000 to $2.8 million
for the year ended March 31, 2000 from $2.5 million for the year ended March 31,
1999. 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 $88,000 to $689,000 for the year ended
March 31, 2000 from $601,000 for the year ended March 31, 1999. The increase is
due to the increase in pre-tax income. The Company's effective tax rate was 35%
and 36% for fiscal 2000 and 1999, respectively.
10
<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.
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.
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
11
<PAGE>
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.
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, 2000, 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.
12
<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 $ 3,045 $ 3,775 $ 9,658 $ 6,973 $ 22,334 $ 45,785
Adjustable rate real estate loans 7,792 9,095 7,507 - - 24,394
Commercial business loans 475 - 21 - 300 796
Consumer loans 1,645 1,376 2,962 2,643 1,565 10,191
Mortgage-backed securities
available for sale 9,079 2,727 - - - 11,806
Investment securities 26,122 - 1,289 1,241 9,141 37,793
FHLB Stock 2,015 - - - - 2,015
Other 3,332 - - - - 3,332
------------ ------------ ------------ ------------ ----------- ------------
Total interest-earning assets $ 53,505 $ 16,973 $ 21,437 $ 10,857 $ 33,340 $ 136,112
============ ============ ============ ============ =========== ============
Interest-bearing liabilities:
Savings accounts $ 4,402 $ - $ - $ - $ - 4,402
Demand and NOW accounts 15,816 - - - - 15,816
Certificate accounts 55,975 2,034 3,223 2,442 20 63,694
FHLB advances 5,000 18,300 15,000 - - 38,300
------------ ------------ ------------ ------------ ----------- ------------
Total interest-bearing liabilities $ 81,193 $ 20,334 $ 18,223 $ 2,442 $ 20 $ 122,212
============ ============ ============ ============ =========== ============
Interest-earning assets
less interest-bearing liabilities $ (27,688) $ (3,361) $ 3,214 $ 8,415 $ 33,320 $ 13,900
Cumulative interest-rate
sensitivity gap $ (27,688) $ (31,049) $ (27,835) $ (19,420) $ 13,900 $ 13,900
Cumulative interest-rate gap as a
percentage of assets
at March 31, 2000 (19.99) % (22.42) % (20.10)% (14.02) % 10.04 % 10.04 %
Cumulative interest-rate gap as a
percentage of interest-earning
assets at March 31, 2000 (20.34) % (22.81) % (20.45)% (14.27) % 10.21 % 10.21 %
</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, 2000, as calculated by the
OTS.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Net Portfolio Value NPV as % of PV of Assets
Change in Rates $ Amount $ Change % Change NPV Ratio Change
--------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+300 bp 3,967 -10,798 -73% 3.14% -744 bp
+200 bp 7,546 -7,220 -49% 5.78% -481 bp
+100 bp 11,066 -3,699 -25% 8.20% -239 bp
0 bp 14,765 10.59%
-100 bp 17,645 2,880 +20% 12.32% +174 bp
-200 bp 17,740 2,974 +20% 12.31% +172 bp
-300 bp 18,029 3,263 +22% 12.41% +182 bp
--------------------------------------------------------------------------------------------
</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 2001.
Certain shortcomings are inherent in the method of analysis presented in both
the computation of NPV and in the analysis presented in prior tables setting
forth the maturing and repricing of interest-earning assets and interest-bearing
liabilities. Although certain assets and liabilities may have similar maturities
or periods within which they will reprice, they may react differently to changes
in market interest rates. The interest on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, adjustable-rate mortgages have features, which restrict changes in
interest rates on a short-term basis and over the life of the asset. The
proportion of adjustable-rate loans could be reduced in future periods if market
interest rates would decrease and remain at lower levels for a sustained period,
due to increased refinance activity. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in the table. Finally, the ability of many
borrowers to service their adjustable-rate debt may decrease in the event of a
sustained interest rate increase.
14
<PAGE>
Liquidity and Capital Resources
-------------------------------
The Company's primary sources of funds are deposits, FHLB advances, repayments
and prepayments of loans and mortgage-backed securities, the maturity of
investment securities and interest income. Although maturity and scheduled
amortization of loans are relatively predictable sources of funds, deposit flows
and prepayments on loans are influenced significantly by general interest rates,
economic conditions and competition.
The primary investing activity of the Company is originating adjustable rate
mortgages and fixed rate mortgages to be held to maturity. The Company will
purchase loans from other Missouri originators if loans are unavailable in its
market area. For the fiscal years ended March 31, 2000 and 1999, the Bank
originated loans for its portfolio in the amount of $30.3 million and $29.5
million, respectively. The Bank purchased loans totaling $423,000 and $1.7
million during the fiscal years ended March 31, 2000 and 1999, respectively.
The Bank is required to maintain minimum levels of liquid assets under the OTS
regulations. Savings institutions are required to maintain an average daily
balance of liquid assets (including cash, certain time deposits, and specified
U.S. Government, State or Federal Agency obligations) of not less than 4.0% of
its average daily balance of net withdrawable accounts plus short-term
borrowings.
It is the Bank's policy to maintain its liquidity portfolio in excess of
regulatory requirements. The Bank's eligible liquidity ratios were 33.8% and
61.2%, respectively, at March 31, 2000 and 1999. The Company's most liquid
assets are cash and cash equivalents, which include short-term investments. At
March 31, 2000 and 1999, cash and cash equivalents were $ 4.8 million and $5.0
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, 2000, the Bank had outstanding loan commitments of $1.5 million and
undisbursed loans in process of $2.9 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, 2000 were $58.0 million. Management believes that a significant
portion of such deposits will remain with the Bank.
At March 31, 2000 the Bank had tangible equity of $13.2 million, or 9.43% of
total adjusted assets, which is approximately $11.1 million above the minimum
requirement of 1.5% of adjusted total assets on that date. The Bank had core
capital of $13.2 million, or 9.43% of adjusted total assets, which is $7.6
million above the minimum leverage ratio requirement of 4% in effect on that
date. The Bank had total risk based capital of $13.5 million and total
risk-weighted assets of $72.4 million, or total risk based capital of 18.63% of
risk-weighted assets. This was $7.7 million above the 8.0% requirement in effect
on that date.
15
<PAGE>
Recent Accounting Developments
------------------------------
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 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
--------------------
Hardin Bancorp, Inc. had a successful transition to year 2000 processing. The
Company will continue to monitor all processing to ensure that no Y2K issues
arise in the future. The Company has taken 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 in the future.
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.
16
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
March 31, 2000, 1999, and 1998
(With Independent Auditors' Report Thereon)
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, 2000 and 1999
and the related consolidated statements of earnings, stockholders' equity
and comprehensive income, and cash flows for each of the years in the
three-year period ended March 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999 and the results of its operations and
its cash flows for each of the years in the three-year period ended March
31, 2000, in conformity with accounting principles generally accepted in
the United States of America.
/s/ KPMG LLP
-------------
May 19, 2000
Kansas City, Missouri
18
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2000 and 1999
<TABLE>
<CAPTION>
Assets 2000 1999
--------------- --------------
<S> <C> <C>
Cash $ 1,418,308 838,044
Interest-bearing deposits in other financial institutions 3,331,934 4,156,648
Investment securities available-for-sale (note 2): 37,793,223 44,519,193
Mortgage-backed securities available-for-sale (note 3): 11,805,699 12,584,419
Loans receivable, net (note 4) 78,059,195 69,504,900
Accrued interest receivable on:
Investment securities 487,312 501,114
Mortgage-backed securities 84,232 91,008
Loans receivable 548,094 456,003
Premises and equipment (note 5) 1,777,911 1,832,311
Stock in Federal Home Loan Bank (FHLB) of Des Moines, at cost 2,015,000 2,000,000
Deferred income taxes (note 8) 816,000 188,000
Prepaid expenses and other assets 347,403 384,481
--------------- --------------
Total assets $ 138,484,311 137,056,121
=============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 6) $ 86,565,365 83,326,871
Advances from borrowers for property taxes and insurance 359,670 294,424
Advances from FHLB (note 7) 38,300,000 40,000,000
Accrued interest payable 40,935 40,949
Current income taxes payable (note 8) 73,601 159,367
Accrued expenses and other liabilities 718,463 674,969
--------------- --------------
Total liabilities 126,058,034 124,496,580
--------------- --------------
Stockholders' equity:
Serial preferred stock, $.01 par value; 500,000 shares authorized, none
issued -- -- Common stock, $.01 par value; 3,500,000 shares authorized,
1,058,000
shares issued 10,580 10,580
Additional paid-in capital 10,319,573 10,252,604
Retained earnings 8,813,865 8,097,420
Accumulated other comprehensive loss (1,477,663) (394,038)
Unearned employee benefits (note 9) (429,323) (643,395)
Treasury stock of 326,547 and 323,247 shares in 2000 and 1999,
respectively, at cost (4,810,755) (4,763,630)
--------------- --------------
Total stockholders' equity 12,426,277 12,559,541
Commitments and contingencies (notes 4 and 11)
--------------- --------------
Total liabilities and stockholders' equity $ 138,484,311 137,056,121
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended March 31, 2000, 1999, and 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- ----------
<S> <C> <C> <C>
Interest income:
Loans receivable $ 6,014,979 5,394,023 4,780,918
Mortgage-backed securities 684,603 1,015,679 1,216,181
Investment securities 2,667,517 2,238,362 1,803,383
Other 250,509 365,046 433,660
----------- ----------- ----------
Total interest income 9,617,608 9,013,110 8,234,142
----------- ----------- ----------
Interest expense:
Deposits (note 6) 3,759,431 3,878,471 3,817,487
FHLB advances 1,975,589 2,041,955 1,366,316
----------- ----------- ----------
Total interest expense 5,735,020 5,920,426 5,183,803
----------- ----------- ----------
Net interest income 3,882,588 3,092,684 3,050,339
Provision for losses on loans (note 4) 1,297 65,973 93,671
----------- ----------- ----------
Net interest income after provision for losses 3,881,291 3,026,711 2,956,668
----------- ----------- ----------
Noninterest income:
Service charges 594,671 421,299 141,531
Loan servicing fees 31,155 29,586 34,260
Gain on sale of loans 9,331 90,061 70,433
Gain on sale of investments and mortgage-backed
securities (notes 2 and 3) 7,164 478,940 111,484
Other 234,706 172,570 134,472
----------- ----------- ----------
Total noninterest income 877,027 1,192,456 492,180
----------- ----------- ----------
Noninterest expense:
Compensation and benefits (note 9) 1,427,493 1,374,315 1,138,519
Occupancy and equipment 273,400 242,363 149,465
Federal insurance premiums 41,074 47,180 45,742
Data processing 212,249 171,375 109,836
Real estate owned 3,377 -- 1,439
Other 840,522 709,931 636,426
----------- ----------- ----------
Total noninterest expense 2,798,115 2,545,164 2,081,427
----------- ----------- ----------
Earnings before income taxes 1,960,203 1,674,003 1,367,421
Income tax expense (note 8) 688,580 600,651 498,847
----------- ----------- ----------
Net earnings $ 1,271,623 1,073,352 868,574
=========== =========== ==========
Earnings per share:
Basic $ 1.84 1.48 1.12
Diluted 1.78 1.42 1.08
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended March 31, 2000, 1999, and 1998
<TABLE>
<CAPTION>
Accumulated
Additional other
comprehensive Unearned
Common paid-in Retained income employee Treasury
stock capital earnings (loss) benefits stock Total
--------- ---------- ----------------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
$70,000 -- -- -- 136,271 -- -- 136,271
--------- ---------- --------- --------- ---------- ---------- ----------
Total comprehensive income -- -- 868,574 136,271 -- -- 1,004,845
--------- ---------- --------- --------- ---------- ---------- ----------
Allocation of Employee Stock Ownership
Plan (ESOP) shares -- 80,707 -- -- 118,520 -- 199,227
Repurchase of common stock -- -- -- -- -- (641,745) (641,745)
Amortization of recognition and retention plan -- -- -- -- 86,453 -- 86,453
Dividends declared ($.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 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 $283,000 -- -- -- (295,712) -- -- (295,712)
--------- ---------- --------- --------- ---------- ---------- ----------
Total comprehensive income (loss) -- -- 1,073,352 (295,712) -- -- 777,640
--------- ---------- --------- --------- ---------- ---------- ----------
Allocation of ESOP shares -- 87,168 -- -- 113,090 -- 200,258
Repurchase of common stock -- -- -- -- -- (1,526,483) (1,526,483)
Amortization of recognition and retention plan -- -- -- -- 88,806 -- 88,806
Dividends declared ($.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
--------- ---------- --------- --------- ---------- ---------- ----------
Comprehensive income:
Net earnings -- -- 1,271,623 -- -- -- 1,271,623
Other comprehensive 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 $4,000 -- -- -- (1,083,625) -- -- (1,083,625)
--------- ---------- --------- --------- ---------- ---------- ----------
Total comprehensive income (loss) -- -- 1,271,623 (1,083,625) -- -- 187,998
--------- ---------- --------- --------- ---------- ---------- ----------
Allocation of ESOP shares -- 66,969 -- -- 117,140 -- 184,109
Repurchase of common stock -- -- -- -- -- (47,125) (47,125)
Amortization of recognition and retention plan -- -- -- -- 96,932 -- 96,932
Dividends declared ($.80 per share) -- -- (555,178) -- -- -- (555,178)
--------- ---------- --------- --------- ---------- ---------- ----------
Balance, March 31, 2000 $ 10,580 10,319,573 8,813,865 (1,477,663) (429,323) (4,810,755) 12,426,277
========= ========== ========= ========= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 2000, 1999, and 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- --------------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 1,271,623 1,073,352 868,574
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Provision for losses on loans 1,297 65,973 93,671
Depreciation and amortization 152,046 131,524 80,494
Premium amortization and accretion of discounts and
deferred loan fees, net 50,092 (154,421) (328,422)
Gain on sales of loans and securities, net (16,495) (569,001) (181,917)
Gain on sales of real estate owned -- -- (5,657)
Proceeds from sales of loans held for sale 674,219 1,913,636 428,016
Origination of loans held for sale (664,888) (2,066,821) (423,619)
Allocation of ESOP shares 184,109 200,258 199,227
Amortization of deferred recognition and retention plan 96,932 88,806 86,453
Provision for deferred income taxes (33,000) (30,000) (22,000)
Changes in other assets and liabilities:
Accrued interest receivable (71,513) (159,927) (105,504)
Prepaid expenses and other assets 43,984 (107,989) (43,373)
Accrued interest payable (14) (15,200) 898
Accrued expenses and other liabilities 29,418 78,692 74,647
Income taxes payable (85,766) (163,481) 186,295
------------- ------------- --------------
Net cash provided by operating activities 1,632,044 285,401 907,783
------------- ------------- --------------
Investing activities:
Net increase in loans receivable (8,152,353) (7,982,133) (8,811,940)
Purchase of loans (423,406) (1,662,300) (1,232,050)
Proceeds from sales of loans -- 1,571,964 3,309,109
Purchase of mortgage-backed securities available-for-sale (2,361,567) -- (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)
Principal payments on mortgage-backed securities held-to-maturity -- -- 2,081,172
Principal payments on mortgage-backed securities available-for-sale 6,449,400 7,875,715 805,804
Principal payments on investment securities available-for-sale -- -- 76,872
Proceeds from maturities of investment securities available-for-sale 340,000 9,000,000 23,650,000
Proceeds from sales of mortgage-backed securities held-to-maturity -- -- 337,776
Proceeds from sales of mortgage-backed securities available-for-sale 363,166 2,768,669 7,838,077
Proceeds from sales of investment securities available-for-sale 1,005,400 18,341,167 4,084,772
Purchase of stock in FHLB of Des Moines (15,000) (525,000) (525,000)
Proceeds from sales of real estate owned -- -- 117,339
Purchase of office premises and equipment (97,646) (238,452) (952,376)
------------- ------------- --------------
Net cash used in investing activities $ (2,892,006) (14,085,484) (17,562,821)
------------- ------------- --------------
</TABLE>
(Continued)
22
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Hardin, Missouri
Consolidated Statements of Cash Flows, Continued
Years ended March 31, 2000, 1999, and 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- --------------
<S> <C> <C> <C>
Financing activities:
Net increase in deposits $ 3,238,494 6,442,409 6,683,605
Net increase (decrease) in advances from borrowers for taxes
and insurance 65,246 30,107 (11,123)
Proceeds from FHLB advances 47,800,000 26,000,000 30,500,000
Repayments of FHLB advances (49,500,000) (15,500,000) (20,000,000)
Payment of dividends (541,103) (433,059) (359,807)
Purchase of treasury stock (47,125) (1,526,483) (641,745)
------------- ------------- --------------
Net cash provided by financing activities 1,015,512 15,012,974 16,170,930
------------- ------------- --------------
Increase (decrease) in cash and cash equivalents (244,450) 1,212,891 (484,108)
Cash and cash equivalents at beginning of year 4,994,692 3,781,801 4,265,909
------------- ------------- --------------
Cash and cash equivalents at end of year $ 4,750,242 4,994,692 3,781,801
============= ============= ==============
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 5,735,034 5,935,626 5,182,905
============= ============= ==============
Income taxes, net of refunds $ 804,062 779,804 310,100
============= ============= ==============
Noncash investing and financing activities:
Loans transferred to real estate owned $ 99,957 -- 8,272
============= ============= ==============
Loans to facilitate sales of real estate owned $ 93,051 -- --
============= ============= ==============
Dividend declared and payable $ 146,331 132,256 107,063
============= ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
(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 comprehensive
income 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, 2000 or 1999.
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.
(Continued)
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 capitalizes the value of retained mortgage servicing
rights 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 are capitalized mortgage
servicing rights aggregating $6,700, $35,000, and $36,000 for the
years ending March 31, 2000, 1999, and 1998. Amortization expense
related to the capitalized servicing rights, included in other
expenses in the accompanying consolidated statements of earnings,
aggregated $6,500, $10,000, and $3,000 for the years ending March
31, 2000, 1999, and 1998.
At March 31, 2000 and 1999, the Bank was servicing loans for
others amounting to $9,036,000 and $10,154,000, 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, 2000 and 1999 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 consolidated statements of 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
accounting principles generally accepted in the United States of
America. Actual results could differ from those estimates.
(l) 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:
For the years ended
March 31,
---------------------------------
2000 1999 1998
--------- ---------- ----------
Weighted average common shares outstanding 690,596 724,615 775,293
Stock options 22,682 31,911 28,261
--------- ---------- ----------
713,278 756,526 803,554
========= ========== ==========
26
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
(2) Investment Securities
A summary of investment securities information is as follows:
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------------------------------------
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 $ 27,991,158 -- (1,869,388) 26,121,770
After ten years 6,764,813 124,054 (85,010) 6,803,857
--------------- --------------- -------------- --------------
Total United States government
and agency obligations 34,755,971 124,054 (1,954,398) 32,925,627
--------------- --------------- -------------- --------------
State and municipal obligations maturing:
Within one year -- -- -- --
After one year but within five years 630,000 -- (12,263) 617,737
After five years but within ten years 500,000 -- (64,015) 435,985
--------------- --------------- -------------- --------------
Total state and municipal
obligations 1,130,000 -- (76,278) 1,053,722
--------------- --------------- -------------- --------------
Equity securities 3,966,496 -- (152,622) 3,813,874
--------------- --------------- -------------- --------------
$ 39,852,467 124,054 (2,183,298) 37,793,223
=============== =============== ============== ==============
<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>
27
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
Proceeds from the sales of investment securities for the years ended
March 31, 2000, 1999, and 1998 totaled $1,005,400, $18,341,167, and
$4,084,772, respectively, and resulted in gross realized gains of
$5,400, $449,795, and $31,433 in 2000, 1999, and 1998, respectively.
At March 31, 2000 and 1999, investment securities with a fair value of
approximately $4,666,000 and $3,328,000, respectively, were pledged to
secure public funds on deposit.
(3) Mortgage-backed Securities
Mortgage-backed securities at March 31, 2000 and 1999 are summarized as
follows:
<TABLE>
<CAPTION>
March 31, 2000
---------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Pass-through certificates guaranteed
by Government National
Mortgage Association (GNMA) $ 2,079,391 5,251 (31,383) 2,053,259
Federal Home Loan Mortgage
Corporation (FHLMC) participation
certificates 4,125,656 13,260 (71,078) 4,067,838
Federal National Mortgage Association
(FNMA) participation certificates 5,871,963 6 (187,367) 5,684,602
--------------- --------------- --------------- ---------------
$ 12,077,010 18,517 (289,828) 11,805,699
=============== =============== =============== ===============
March 31, 1999
---------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------------- --------------- --------------- ---------------
Pass-through certificates guaranteed
by GNMA $ 1,109,675 11,120 (2,214) 1,118,581
FHLMC participation certificates 4,220,822 5,878 (68,620) 4,158,080
FNMA participation certificates 7,388,420 5,195 (85,857) 7,307,758
--------------- --------------- --------------- ---------------
$ 12,718,917 22,193 (156,691) 12,584,419
=============== =============== =============== ===============
</TABLE>
Proceeds from the sales of mortgage-backed securities for the years
ended March 31, 2000 and 1999 totaled $363,166 and $2,768,669,
respectively, and resulted in gross realized gains of $4,539 and $29,145
in 2000 and 1999, respectively, and gross realized losses of $2,775 in
2000.
28
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
(4) Loans Receivable
Loans receivable at March 31, 2000 and 1999 are summarized as follows:
2000 1999
--------------- --------------
Real estate:
One to four family $ 60,674,965 54,122,490
Five or more 498,943 479,473
Nonresidential 1,387,443 1,432,875
Land 3,304,131 3,048,016
Commercial 1,099,063 1,118,098
Construction 3,214,029 2,380,400
Consumer 10,191,518 8,569,463
Commercial 796,000 781,000
--------------- --------------
81,166,092 71,931,815
Loans in process (2,909,681) (2,194,823)
Discounts and deferred loan
origination fees, net of cost 107,206 79,104
Allowance for loan losses (304,422) (311,196)
--------------- --------------
Net loans receivable $ 78,059,195 69,504,900
=============== ==============
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, 2000
and 1999, the Bank was committed to originate loans aggregating
approximately $828,000 and $2,241,000, respectively. Fixed loan
commitments approximated $342,000 with interest rates ranging from 8.5%
to 9.0% at March 31, 2000 and $2,241,000 with interest rates ranging
from 6.75% to 8.0% at March 31, 1999. There were no commitments to buy
loans at March 31, 2000.
29
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
The Company had loans to directors and officers at March 31, 2000 and
1999 which carry terms similar to those for other loans. A summary of
such loans is as follows:
2000 1999
----------- ------------
Balance at beginning of year $ 295,000 291,000
New loans 266,000 259,000
Payments (37,000) (255,000)
----------- ------------
Balance at end of year $ 524,000 295,000
=========== ============
Activity in the allowance for loan losses for the years ended March 31,
2000, 1999, and 1998 is as follows:
2000 1999 1998
------------ ----------- -----------
Balance at beginning of year $ 311,196 247,710 158,276
Provision for loan losses 1,297 65,973 93,671
Charge-offs (8,071) (2,487) (4,237)
------------ ----------- -----------
Balance at end of year $ 304,422 311,196 247,710
============ =========== ===========
Nonaccrual loans at March 31, 2000 and 1999 aggregated approximately
$237,000 and $231,000, respectively.
(5) Premises and Equipment
Premises and equipment consist of the following at March 31, 2000 and
1999:
2000 1999
------------- -------------
Land $ 195,114 159,779
Building 1,511,052 1,503,251
Leasehold improvements 34,170 34,170
Furniture and fixtures 974,746 921,737
Automobile 13,300 11,800
------------- -------------
2,728,382 2,630,737
Less accumulated depreciation 950,471 798,426
------------- -------------
Premises and
equipment, net $ 1,777,911 1,832,311
============= =============
(Continued)
30
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
(6) Deposits
Deposits at March 31, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
Stated ----------------------------- -----------------------------
rate Amount Percent Amount Percent
----------------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance by interest rate:
Commercial 0.00% $ 2,652,869 3 % $ 1,918,980 2 %
NOW accounts 1.75-2.25% 8,782,434 10 6,852,307 8
Money market demand
accounts 2.75-3.50% 7,033,360 8 6,583,405 8
Savings accounts 2.00% 4,402,212 5 3,804,878 5
-------------- ----------- -------------- -----------
22,870,875 26 19,159,570 23
-------------- ----------- -------------- -----------
Certificate accounts 0.00-2.99% 50,000 -- -- --
3.00-3.99% 32,446 -- 49,133 --
4.00-4.99% 18,352,426 21 12,805,257 15
5.00-5.99% 32,879,486 38 40,780,548 49
6.00-6.99% 12,375,127 14 9,631,651 12
7.00-7.99% -- -- 895,707 1
8.00% and up 5,005 -- 5,005 --
-------------- ----------- -------------- -----------
63,694,490 73 64,167,301 77
-------------- ----------- -------------- -----------
$ 86,565,365 100 % $ 83,326,871 100 %
============== =========== ============== ===========
Weighted average interest rate
on deposits at March 31 4.45 % 4.56
============== ==============
</TABLE>
A summary of contractual maturity dates for certificate accounts at
March 31, 2000 is as follows:
Amount Percent
--------------- ---------
Contractual maturity of certificate accounts:
Under 12 months $ 41,670,716 65 %
12 to 24 months 16,338,134 26
24 to 36 months 3,223,485 5
36 to 48 months 2,295,360 4
48 to 60 months 146,252 0
Over 60 months 20,543 0
--------------- -----------
$ 63,694,490 100 %
=============== ===========
(Continued)
31
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
The components of interest expense on deposits for the years ended March
31, 2000, 1999, and 1998 are as follows:
2000 1999 1998
------------- ------------- ------------
NOW, savings, Super NOW,
and money market demand $ 463,580 425,006 329,197
Certificates of deposit 3,295,851 3,453,465 3,488,290
------------- ------------- ------------
$ 3,759,431 3,878,471 3,817,487
============= ============= ============
At March 31, 2000 and 1999, certificate accounts of $100,000 or greater
totaled $10,811,000 and $8,381,000, respectively.
(7) FHLB Advances
The Company had the following debt outstanding from the FHLB of Des
Moines at March 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
--------------- --------------
<S> <C> <C>
$4,000,000 advance, interest at 6.09%, due October 2000 $ 4,000,000 --
$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 4.99%, due September 2008 5,000,000 5,000,000
$2,300,000 advance, interest at 5.43%, due October 2009 2,300,000 --
$5,000,000 advance, interest at 5.77%, due January 2010 5,000,000 --
$5,000,000 federal funds advance, interest at 6.63%, due
December 2000 5,000,000 --
$7,000,000 federal funds advance, interest at 6.53%, due
December 2000 7,000,000 --
Advances outstanding at March 31, 1999; refinanced in 2000 -- 25,000,000
--------------- --------------
$ 38,300,000 40,000,000
=============== ==============
</TABLE>
The advances from the FHLB are collateralized by first mortgage loans and
investment securities.
(Continued)
32
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
Scheduled maturities of FHLB advances are as follows:
Year ending
March 31, Amount
-------------- --------------
2000 $ 16,000,000
2008 15,000,000
2009 2,300,000
2010 5,000,000
--------------
$ 38,300,000
==============
(8) Income Taxes
The components of income tax expense from operations are as follows:
Federal State Total
----------- --------- -----------
Year ended March 31, 2000:
Current $ 650,580 71,000 721,580
Deferred (30,000) (3,000) (33,000)
----------- --------- -----------
$ 620,580 68,000 688,580
=========== ========= ===========
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
=========== ========= ===========
In addition, during the years ended March 31, 2000, 1999, and 1998, the
Company recorded deferred income tax expense (benefits) of approximately
$(595,000), $231,000, and $58,000, respectively, related to unrealized
gains (losses) on investment securities available-for-sale.
(Continued)
33
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
The reasons for the difference between the effective tax rates and the expected
federal income tax rate of 34% are as follows:
Percent of earnings
before income tax
expense
--------------------------------
2000 1999 1998
-------- ------- ---------
Expected federal income tax rate 34.0 % 34.0 34.0
Items affecting income tax rate:
Municipal interest (1.0) (1.0) --
State taxes, net of federal tax benefit 2.3 3.0 2.0
Other (0.2) (0.1) .5
-------- ------- ---------
Effective tax rate 35.1 % 35.9 36.5
======== ======= =========
The tax effects of temporary differences which give rise to a significant
portion of deferred tax assets and liabilities at March 31, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
<S> <C> <C>
Unrealized loss on available-for-sale securities $ 826,000 231,000
Allowance for loan losses 104,000 131,000
Accrued compensation 192,000 150,000
Other 25,000 29,000
-------------- ----------------
Deferred tax assets 1,147,000 541,000
-------------- ----------------
FHLB dividends 33,000 33,000
Tax bad debt reserve in excess of base year 96,000 108,000
Fixed asset basis difference 90,000 93,000
Core deposit premium 13,000 15,000
Accrued interest on loans originated prior to
September 25, 1985 2,000 4,000
Loan origination fees 77,000 75,000
Other 20,000 25,000
-------------- ----------------
Deferred tax liabilities 331,000 353,000
-------------- ----------------
Net deferred tax assets $ 816,000 188,000
============== ================
</TABLE>
There was no valuation allowance for deferred tax assets at March 31,
2000 or 1999. 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)
34
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
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 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,
2000, 1999, and 1998, the Company allocated 11,714 shares, 11,309
shares, and 11,852 shares, respectively, to participants. The fair value
of allocated shares charged to compensation and benefits expense in
2000, 1999, and 1998 was approximately $184,000, $200,000, and $199,000,
respectively. The fair value of the remaining unallocated shares of
28,805 at March 31, 2000 aggregated approximately $413,000.
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. Effective February 1, 2000, the Bank withdrew
from the plan.
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, 2000, 1999, and 1998 amounted to approximately
$102,000, $104,000, and $111,000, respectively. The Bank has purchased
life insurance policies to fund its obligations under the plans.
(Continued)
35
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
The Board of Directors has adopted 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 do not require any payment by the recipients and vest over
five years. On April 16, 1996, January 1, 1998, and January 1, 2000, the
Company awarded 35,972, 3,000, and 4,348 shares, respectively, to
participants. During fiscal year 1999, 1,000 of the 3,000 shares were
forfeited and were then allocated during fiscal year 2000. The
corresponding charge to compensation and benefits expense was $96,932,
$88,806, and $86,453 in 2000, 1999, and 1998, respectively.
(10) Stock Options
The Company has a stock option plan under which 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 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. On January 1, 2000, the Company granted
options for 4,348 shares for $14.00 per share. 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 Statement of Financial
Accounting Standards (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 $25,000, or $.04 per share, in 2000;
$41,000, or $.05 per share, in 1999; and $56,000, or $.07 per share, in
1998.
(Continued)
36
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
Following is a summary of the fair values of options granted in 2000 and
1998 using the Black-Scholes option-pricing model:
2000 1998
------------- --------------
Fair value at grant date $ 4.39 4.82
Assumptions:
Dividend yield 5.00 % 2.44
Volatility 36.34 % 14.33
Risk-free interest rate 6.00 % 6.20
Expected life 10 years 10 years
============= ==============
Pro forma net earnings reflect only options granted and vested in fiscal
2000, 1999, and 1998. Therefore, the full impact of calculating
compensation expense for stock options under SFAS No. 123 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.
(Continued)
37
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
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, 2000, 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 $ 11,708,000 11,708,000 11,708,000 11,708,000
Adjustments to capital:
Allowance for loan losses -- -- 304,000 --
Unrealized loss on available-for-sale
securities, net 1,478,000 1,478,000 1,478,000 1,478,000
-------------- -------------- ------------- --------------
Regulatory capital - computed 13,186,000 13,186,000 13,490,000 13,186,000
Minimum capital requirement for capital
adequacy purposes 2,096,000 5,590,000 5,792,000 5,590,000
-------------- -------------- ------------- --------------
Regulatory minimum capital -
excess $ 11,090,000 7,596,000 7,698,000 7,596,000
============== ============== ============= ==============
To be well-capitalized for prompt corrective
action provisions $ -- 6,846,000 6,159,000 8,215,000
============== ============== ============= ==============
To be well-capitalized capital - excess $ -- 6,340,000 7,328,000 4,971,000
============== ============== ============= ==============
Minimum capital requirement - percent 1.5 % 4.0 8.0 4.0
============== ============== ============= ==============
To be well-capitalized for prompt corrective
action provisions capital requirement -
percent 5.0 % 10.0 6.0
============== ============= ==============
Bank capital - parent 9.43 % 9.43 18.63 18.21
============== ============== ============= ==============
</TABLE>
(Continued)
38
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
(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, 2000 and 1999, including methods and
assumptions utilized, are set forth below:
<TABLE>
<CAPTION>
2000 1999
----------------------------------------- ---------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Investment securities $ 37,793,223 37,793,000 44,519,193 44,519,000
=================== ================== ================= ==================
Mortgage-backed securities $ 11,805,699 11,806,000 12,584,419 12,584,000
=================== ================== ================= ==================
Loans, net of unearned fees and
allowance for loan losses $ 78,059,195 78,301,000 69,504,900 71,968,000
=================== ================== ================= ==================
Noninterest bearing demand deposit $ 2,652,869 2,653,000 1,918,980 1,919,000
Money market and NOW deposits 15,815,794 15,816,000 13,435,712 13,436,000
Savings accounts 4,402,212 4,402,000 3,804,878 3,805,000
Certificate accounts 63,694,490 63,857,000 64,167,301 64,515,000
------------------- ------------------ ----------------- ------------------
Total deposits $ 86,565,365 86,728,000 83,326,871 83,675,000
=================== ================== ================= ==================
</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 the 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.
(Continued)
39
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
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.
(Continued)
40
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
(14) Parent Company Condensed Financial Statements
<TABLE>
<CAPTION>
Condensed Balance Sheets
March 31, 2000 and 1999
Assets 2000 1999
------------------ -----------------
<S> <C> <C>
Interest-bearing deposits $ 687,169 495,489
Loans receivable 299,002 416,140
Investment in subsidiary 11,708,252 11,905,108
Other 39,301 39,305
------------------ -----------------
Total assets $ 12,733,724 12,856,042
================== =================
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ 307,447 296,501
Stockholders' equity 12,426,277 12,559,541
------------------ -----------------
Total liabilities and stockholders' equity $ 12,733,724 12,856,042
================== =================
Condensed Statements of Earnings
Years ended March 31, 2000 and 1999
<CAPTION>
2000 1999
------------------ -----------------
Interest income $ 63,317 76,706
Other expense, net (224,938) (233,480)
------------------ -----------------
Loss before equity in undistributed earnings
of subsidiary (161,621) (156,774)
Increase in undistributed equity of subsidiary 1,372,851 1,170,192
------------------ -----------------
Earnings before income taxes 1,211,230 1,013,418
Income tax benefit (60,393) (59,934)
------------------ -----------------
Net earnings $ 1,271,623 1,073,352
================== =================
</TABLE>
(Continued)
41
<PAGE>
HARDIN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000, 1999, and 1998
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years ended March 31, 2000 and 1999
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,271,623 1,073,352
Increase in undistributed equity of subsidiary (1,372,851) (1,170,192)
Amortization of deferred RRP 96,932 88,806
Other (3,126) 130,756
--------------- --------------
Net cash provided by (used in) operating activities (7,422) 122,722
--------------- --------------
Cash flows from investing activities - net decrease
in loans receivable 117,138 115,492
--------------- --------------
Cash flows from financing activities:
Dividends from subsidiary 670,192 1,368,574
Payment of dividends (541,103) (433,059)
Purchase of treasury stock (47,125) (1,526,483)
--------------- --------------
Net cash provided by (used in) financing activities 81,964 (590,968)
--------------- --------------
Net increase (decrease) in cash 191,680 (352,754)
Cash at beginning of year 495,489 848,243
--------------- --------------
Cash at end of year $ 687,169 495,489
=============== ==============
Noncash investing and financing activities - dividend
declared and payable $ 146,331 132,256
=============== ==============
</TABLE>
42
<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 27, 2000, 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 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
FISCAL 2000 HIGH LOW DIVIDENDS
----------- ---- --- ---------
First Quarter $17.50 $15.25 $.20
Second Quarter $17.50 $15.63 $.20
Third Quarter $16.50 $15.00 $.20
Fourth Quarter $15.50 $13.00 $.20
A $.20 per share dividend was declared by the Board of Directors on March 16,
2000, payable April 21, 2000, to stockholders of record on April 7, 2000. 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, 2000, there were 1,058,000 shares issued and 731,453 shares
outstanding of Hardin Bancorp, Inc. (HFSA) common stock (including unallocated
ESOP shares) and there were approximately 600 registered holders of record.
43
<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-KSB for the year ended
March 31, 2000, 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 Chief Executive Officer
of Hardin Federal Savings Bank W. Levan Thurman
Retired Funeral Director
Robert W. King
President and Chief Executive Officer David Hatfield
of Hardin Bancorp, Inc, and Farmer and Part-time Broker
Hardin Federal Savings Bank
Karen Blankenship William L. Homan
Senior Vice President and Secretary Vice President and Treasurer
44
<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
<PAGE>
================================================================================
HARDIN BANCORP, INC.
Holding Company for
Hardin Federal Savings Bank
2000 Annual Report
================================================================================
[Graphic of HFSA
a Globe] ----------
NASDAQ
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Listed/TM/
