-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ChnhBa3Bl0P31ydHHnBHBUuG9V/tLpWvZOx9EJsKXxQbi3EAPzcGw3Ari6rMXdwA UGc4QMU47L4PiE66uzEAXQ== /in/edgar/work/20000629/0000914317-00-000469/0000914317-00-000469.txt : 20000920 0000914317-00-000469.hdr.sgml : 20000920 ACCESSION NUMBER: 0000914317-00-000469 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARDIN BANCORP INC CENTRAL INDEX KEY: 0000947220 STANDARD INDUSTRIAL CLASSIFICATION: [6035 ] IRS NUMBER: 431719104 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-26560 FILM NUMBER: 664397 BUSINESS ADDRESS: STREET 1: 2ND & ELM STS STREET 2: P O BOX 608 CITY: HARDIN STATE: MO ZIP: 64035 BUSINESS PHONE: 8163984312 MAIL ADDRESS: STREET 1: 2ND & ELM STS STREET 2: P O BOX 608 CITY: HARDIN STATE: MO ZIP: 64035 10KSB 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- Commission file number 0-26560 HARDIN BANCORP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 43-1719104 - ---------------------------------------------- ----------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 2nd and Elm Streets, Hardin, Missouri 64035 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (660) 398-4312 ---------------------- Securities Registered Pursuant to Section 12(b) of the Act: None ---- Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. YES X . NO ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The registrant's revenues for the fiscal year ended March 31, 2000 were $8.8 million. The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing bid price of such stock on the Nasdaq Small Cap Market as of March 31, 2000, was $10.1 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.) As of March 31, 2000, there were 1,058,000 shares issued and 731,453 shares outstanding of the registrant's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Parts II and III of Form 10-KSB - Portions of the Annual Report to Stockholders for the fiscal year ended March 31, 2000. Part III of Form 10-KSB - Portions of the Proxy Statement for 2000 Annual Meeting of Stockholders. PART I Item 1. Description of Business General Hardin Bancorp, Inc. ("Hardin Bancorp" and with its subsidiaries, the "Company") was formed in June 1995 at the direction of Hardin Federal Savings Bank ("Hardin Federal" or the "Bank") for the purpose of owning all of the outstanding stock of the Bank issued upon the conversion of the Bank from the mutual to stock form (the "Conversion"). On September 28, 1995, Hardin Bancorp acquired all of the shares of the Bank in connection with the completion of the Conversion. All references to the Company, unless otherwise indicated, at or before September 28, 1995 refer to the Bank and its subsidiary on a consolidated basis. The Company's common stock is quoted on the Nasdaq Small Cap Market under the symbol "HFSA." Hardin Federal is a federally chartered stock savings bank headquartered in Hardin, Missouri. Hardin Federal was originally chartered under the laws of the State of Missouri in 1914, converted to a federally chartered mutual savings bank in March 1995 and consummated its conversion to a stock savings bank on September 28, 1995. Its deposits are insured up to the maximum allowable amount by the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation (the "FDIC"). Through its main office and two branch offices, Hardin Federal serves communities located in Ray and Clay Counties, and in surrounding counties, in the State of Missouri. At March 31, 2000, the Company had total assets of $138.5 million, deposits of $86.6 million and total equity of $12.4 million. Hardin Federal has been, and intends to continue to be, a community-oriented financial institution offering selected financial services to meet the needs of the communities it serves. The Bank attracts deposits from the general public and historically has used such deposits, together with other funds, primarily to originate one- to four-family residential mortgage loans. The Bank also originates consumer loans, and, to a lesser extent, construction and land loans and commercial real estate loans. See "- Lending Activities." The Bank also invests in mortgage-backed securities, which are insured or guaranteed by federal agencies, and other investment securities. See "--Investment Activities." The executive office of the Bank is located at 201 Northeast Elm Street, Hardin, Missouri 64035. Its telephone number at that address is (660) 398-4312. Market Area Hardin Federal serves primarily Ray and Clay Counties, Missouri. The Bank currently has three offices. Its main office and Richmond branch are located in Ray County, Missouri and its Excelsior Springs branch is located in Clay County, Missouri. On March 31, 1998, the Bank opened its new branch office in Richmond, Missouri and vacated its old branch office. See "Item 2. Description of Property." Ray and Clay Counties, Missouri are located approximately 40 miles east of Kansas City, Missouri. Ray County, Missouri has a population of approximately 22,000 and Clay County, Missouri has a population of approximately 153,000. The major employers in the Bank's primary market area are engaged in agricultural, light industry, medical services and education, and include Ford Motor Co., Orbseal, Inc., 2 American Italian Pasta Co., Ray County Memorial Hospital, Excelsior Springs Community Hospital, the Richmond RXVI Public Schools, Lawson RXIV Public Schools and Excelsior Springs Public Schools. Lending Activities General. The Bank's loan portfolio consists primarily of conventional, first mortgage loans secured by one- to four-family residences and, to a lesser extent, consumer, construction, commercial business and land acquisition loans. At March 31, 2000, the Bank's gross loans and mortgage-backed securities outstanding totalled $93.0 of which $60.7 million or 65.3% were one- to four-family residential mortgage loans. Of the one- to four-family mortgage loans outstanding at that date, 45.0% were fixed-rate loans, and 20.3% were adjustable-rate loans. At that same date, consumer loans totalled $10.2 million or 11.0% of the Bank's total loan portfolio, construction loans totalled $3.2 million or 3.5% of the Bank's total loan and mortgage-backed securities portfolio, commercial real estate loans totalled $3.0 million or 3.2% of the Bank's total loan and mortgage-backed securities portfolio and land acquisition loans totalled $3.3 million or 3.6% of the Bank's total loan and mortgage-backed securities portfolio. The Bank also invests in mortgage-backed securities. At March 31, 2000, mortgage-backed securities totalled $11.8 million. See "--Investment Activities." The Bank's loans-to-one borrower limit is generally limited to the greater of 15% of unimpaired capital and surplus or $500,000. See "Regulation - Federal Regulation of Savings Associations." At March 31, 2000, the maximum amount which the Bank could have lent under this limit to any one borrower and the borrower's related entities was approximately $1.8 million. At March 31, 2000, the Bank had no loans or groups of loans to related borrowers with outstanding balances in excess of this amount. The Bank's largest lending relationship in loans to one borrower at March 31, 2000 was $1.1 million secured by a loan to develop raw land into residential lots located in Clay County, Missouri. At March 31, 2000, these loans were performing in accordance with their terms. 3 Loan Portfolio Composition. The following information sets forth the composition of the Bank's loan portfolio (including mortgage-backed securities) in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowances for losses) at the dates indicated.
At March 31, -------------------------------------------------------------------------- 2000 1999 1998 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ------- --------- ---------- --------- ------ ------- (Dollars in Thousands) Real Estate Loans: - ----------------- One- to four-family.......................... $ 60,675 65.26% $ 54,122 64.04% $ 50,646 60.65% Land......................................... 3,304 3.55 3,048 3.61 810 .98 Commercial................................... 2,986 3.21 3,031 3.59 2,356 2.82 Construction................................. 3,214 3.46 2,380 2.81 3,967 4.75 --------- ------- --------- ------- --------- ------ Total real estate loans................... 70,179 75.48 62,581 74.05 57,779 69.20 --------- ------- --------- ------- --------- ------ Consumer Loans: - -------------- Consumer Loans: Secured by deposits......................... 829 0.89 976 1.15 635 .76 Automobile.................................. 2,548 2.74 2,008 2.38 1,631 1.95 Home equity................................. 5,337 5.74 4,338 5.13 3,193 3.82 Home improvement............................ 316 0.34 303 0.36 521 .62 Other consumer loans........................ 1,161 1.25 945 1.12 725 .88 --------- ------- --------- ------- --------- ------ Total consumer loans...................... 10,191 10.96 8,570 10.14 6,705 8.03 --------- ------- --------- ------- --------- ------ Commercial business loans.................... 796 0.86 781 0.92 -- -- --------- ------- --------- ------- --------- ------ Total loans receivable...................... 81,166 87.30 71,932 85.11 64,484 77.23 --------- ------- --------- ------- --------- ------ Mortgage-Backed Securities: - -------------------------- GNMA......................................... 2,053 2.21 1,118 1.32 4,446 5.32 FHLMC........................................ 4,068 4.38 4,158 4.92 5,425 6.50 FNMA......................................... 5,685 6.11 7,308 8.65 9,144 10.95 --------- ------- --------- ------- --------- ------ Total mortgage-backed securities.......... 11,806 12.70 12,584 14.89 19,015 22.77 --------- ------- --------- ------- --------- ------ Total loan and mortgage-backed securities portfolio.................... 92,972 100.00% 84,516 100.00% 83,499 100.00% ======= ====== ====== Less: - ---- Loans in process............................... (2,910) (2,195) (3,022) Deferred fees and discounts.................... 107 79 60 Allowance for loan losses...................... (304) (311) (248) --------- --------- --------- Total loan and mortgage-backed securities portfolio, net............... $ 89,865 $ 82,089 $ 80,289 ========= ========= =========
4 The following table shows the composition of the Bank's loan and mortgage-backed securities portfolio by fixed- and adjustable-rate at the dates indicated.
At March 31, -------------------------------------------------------------------------- 2000 1999 1998 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent --------- ---------- --------- ---------- --------- ---------- (Dollars in Thousands) Fixed-Rate Loans: - ---------------- Real estate: One- to four-family....................... $ 41,810 44.97% $ 36,589 43.29% $ 30,623 36.67% Land...................................... 538 0.58 512 0.61 426 .51 Commercial................................ 567 0.61 624 0.74 529 .64 Construction.............................. 2,870 3.08 1,711 2.02 3,298 3.95 ------- --------- ------- --------- ------ Total real estate loans.................. 45,785 49.24 39,436 46.66 34,876 41.77 Consumer.................................... 6,340 6.82 5,829 6.90 5,062 6.06 Commercial business......................... 18 0.02 -- -- -- -- Mortgage-backed securities.................. -- -- -- -- -- -- --------- ------- --------- ------- --------- ------ Total fixed-rate......................... 52,143 56.08 45,265 53.56 39,938 47.83 --------- ------- --------- ------- --------- ------ Adjustable-Rate Loans: - --------------------- Real estate: One- to four-family....................... 18,865 20.29 17,533 20.75 20,023 23.98 Land...................................... 2,766 2.98 2,536 3.00 384 .46 Commercial................................ 2,419 2.60 2,407 2.85 1,827 2.19 Construction.............................. 344 0.37 669 0.79 669 .80 --------- ------- --------- ------- --------- ------ Total real estate loans.................. 24,394 26.24 23,145 27.39 22,903 27.43 Consumer.................................... 3,851 4.14 2,741 3.24 1,643 1.97 Commercial business......................... 778 0.84 781 0.92 -- -- Mortgage-backed securities.................. 11,806 12.70 12,584 14.89 19,015 22.77 --------- ------- --------- ------- --------- ------ Total adjustable rate.................... 40,829 43.92 39,251 46.44 43,561 52.17 --------- ------- --------- ------- --------- ------ Total loan and mortgage-backed securities portfolio.................... 92,972 100.00% 84,516 100.00% 83,499 100.00% ========= ====== ====== Less: - ---- Loans in process.......................... (2,910) (2,195) (3,022) Deferred loan fees and discounts.......... 107 79 60 Allowance for loan losses................. (304) (311) (248) --------- --------- ---------- Total loans and mortgage-backed securities portfolio, net............... $ 89,865 $ 82,089 $ 80,289 ========= ========= =========
5 The following schedule illustrates the contractual maturity and weighted average rates of the Bank's loan portfolio at March 31, 2000. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The schedule does not reflect the effects of scheduled payments, possible prepayments or enforcement of due-on-sale clauses.
One-to Four-Family Construction Commercial Real EstateLand Consumer -------------------- -------------------- -------------------------------- ------------ Due During Weighted Weighted Weighted Weighted Weighted Year Ending Average Average Average Average Average March 31, Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate - ------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- (Dollars in Thousands) 2001(1)............. $ 353 7.92% $ 1,594 8.64% $ 475 9.63% $ 40 9.00% $ 1,896 8.47% 2002................ 852 8.37 -- -- 7 9.00 1,800 9.69 544 10.11 2003................ 200 8.39 -- -- -- -- -- -- 886 9.82 2004 and 2005....... 489 8.48 -- -- 16 9.50 87 8.55 1,802 9.40 2006 to 2010........ 5,551 7.82 -- -- 530 8.64 187 8.41 1,082 9.65 2011 to 2025........ 31,134 7.79 396 8.16 1,893 8.62 992 8.95 3,981 9.97 2026 and following.. 22,096 7.97 1,224 8.57 65 7.50 198 8.29 -- -- -------- -------- --------- --------- --------- .................... $ 60,675 $ 3,214 $ 2,986 $ 3,304 $ 10,191 ======== ======== ========= ========= =========
Commercial Business Total -------------------- ------------------------ Due During Weighted Weighted Year Ending Average Average March 31, Amount Rate Amount Rate - ------------ --------- --------- --------- ------------ 2001(1)............. $ 475 9.57% $ 4,833 8.71% 2002................ -- -- 3,203 9.41 2003................ 21 10.36 1,107 9.57 2004 and 2005....... -- -- 2,394 9.18 2006 to 2010........ 300 8.75 7,650 8.19 2011 to 2025........ -- -- 38,396 8.09 2026 and following.. -- -- 23,583 8.01 --------- -------- .................... $ 796 $ 81,166 ========= ========
- ----------------------- (1)The total amount of loans due after March 31, 2001 which have predetermined interest rates is $48.8 million while the total amount of loans due after such date which have floating or adjustable interest rates is $27.8 million. 6 All of the Bank's lending is subject to its written underwriting standards and loan origination procedures. Decisions on loan applications are made on the basis of detailed applications and property valuations, if applicable. Properties securing real estate loans made by Hardin Federal are generally appraised by Board-approved independent appraisers. All appraisals are subsequently reviewed by the Bank's Loan Committee, as applicable. In the loan approval process, Hardin Federal assesses the borrower's ability to repay the loan, the adequacy of the proposed security, the employment stability of the borrower and the credit-worthiness of the borrower. The Bank requires evidence of marketable title and lien position or appropriate title insurance on all loans secured by real property. The Bank also requires fire and extended coverage casualty insurance in amounts at least equal to the lesser of the principal amount of the loan or the value of improvements on the property, depending on the type of loan. As required by federal regulations, the Bank also requires flood insurance to protect the property securing its interest if such property is located in a designated flood area. Management reserves the right to change the amount or type of lending in which it engages to adjust to market or other factors. One- to Four-Family Residential Mortgage Lending. Residential loan originations are generated by the Bank's marketing efforts, its present customers, walk-in customers and referrals from real estate brokers. The Bank has focused its lending efforts primarily on the origination of loans secured by first mortgages on owner-occupied, single-family residences in its market area. At March 31, 2000, the Bank's one- to four-family residential mortgage loans totalled $60.7 million, or 65.3%, of the Bank's gross loan and mortgage-backed securities portfolio. The Bank experienced significant growth in its one- to four-family residential mortgage loan portfolio during the year ended March 31, 2000 as a result of increased demand for such loans within the Bank's market area and increased purchases by the Bank of such loans. It is the Bank's policy to purchase only those loans which meet its own underwriting criteria. The Bank currently offers fixed-rate and adjustable-rate mortgage loans. For the year ended March 31, 2000, the Bank originated $11.4 million fixed-rate one- to four-family loans, which constituted 70.5% of total one- to four-family loans originated and $4.8 million of adjustable-rate one- to four-family loans or 29.5% of total one- to four-family loans originated. Substantially all of the Bank's one- to four- family residential mortgage originations are secured by properties located in its market area. The Bank offers adjustable-rate mortgage loans at rates and on terms determined in accordance with market and competitive factors. The Bank currently originates adjustable-rate mortgage loans with a term of up to 30 years. The Bank currently offers one-year and three-year adjustable-rate mortgage loans (where the terms are fixed for the first one-year and three-years, respectively, and thereafter adjust every one or three years) with a stated interest rate margin over the one and three year U.S. Treasury Index adjusted to a constant maturity. Increases or decreases in the interest rate of the Bank's adjustable-rate loans are generally limited to 2.0% at any adjustment date and 6.0% over the life of the loan. As a consequence of using caps, the interest rates on these loans may not be as rate sensitive as is the Bank's cost of funds. Currently, all adjustable-rate mortgage loans originated provide for a minimum interest rate. The Bank qualifies borrowers for adjustable-rate loans based on a current interest rate plus the first adjustment. As a result, the risk of default on these loans may increase as interest rates increase. See "--Asset Quality--Non-Performing Assets." At March 31, 2000, the total balance of one-to four-family adjustable-rate loans was $18.9 million or 20.3% of the Bank's gross loan and mortgage-backed securities portfolio. See "--Originations, Purchases and Sales of Loans." 7 Adjustable-rate loans decrease the risk associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrowers may rise to the extent permitted by the terms of the loan, thereby increasing the potential for default. Also, adjustable-rate loans have features which restrict changes in interest rates on a short-term basis and over the life of the loan. At the same time, the market value of the underlying property may be adversely affected by higher interest rates. The Bank also offers fixed-rate mortgage loans with maturities of up to 30 years. At March 31, 2000, the total balance of one- to four-family fixed-rate loans was $41.8 million or 45.0% of the Bank's gross loan and mortgage-backed securities portfolio. See "--Originations, Purchases and Sales of Loans." Hardin Federal will lend up to 95% of the lesser of the sales price or appraised value of the security property on owner occupied one- to four-family loans, provided that private mortgage insurance is obtained in an amount sufficient to reduce the Bank's exposure to not more than 80% of the appraised value or sales price, as applicable. Residential loans do not include prepayment penalties, are non-assumable (other than government-insured or guaranteed loans), and do not produce negative amortization. Real estate loans originated by the Bank customarily contain a "due on sale" clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property. The loans currently originated by the Bank are underwritten and documented pursuant to the guidelines of the FHLMC. Under current policy, the Bank originates these loans for its portfolio. See "--Originations, Purchases and Sales of Loans and Mortgage-Backed Securities." Consumer Lending. Hardin Federal offers a variety of consumer loans, including home equity lines of credit, automobile, home improvement, and loans secured by deposits. The Bank currently originates substantially all of its consumer loans in its primary market area generally to its existing customers. At March 31, 2000, the Bank's consumer loan portfolio totalled $10.2 million, or 11.0% of its gross loan and mortgage-backed securities portfolio. Hardin Federal originates home equity and home improvement loans. Home equity and home improvement loans secured by second mortgages, together with loans secured by all prior liens, are generally limited to 80% or less of the appraised value. If the Bank originates loans with greater than an 80% loan-to- value ratio, it requires the borrower to obtain private mortgage insurance in an amount equal to 100% of the loan-to-value ratio. Generally, such loans have a maximum term of up to 10 years. As of March 31, 2000, home equity and home improvement loans amounted to $5.3 million and $316,000, respectively, which represented 5.7% and .3%, respectively, of the Bank's gross loan and mortgage-backed securities portfolio. The Bank also recently began originating equity lines of credit. These loans are generally limited to 89% or less of the appraised value of the property securing the loan. These loans are all adjustable-rate loans and have maximum terms of up to 15 years. Another component of the Bank's consumer loan portfolio consists of automobile loans. The Bank originates automobile loans on a direct basis, where the Bank extends credit directly to the borrower. These loans generally have terms that do not exceed five years and carry a fixed-rate of interest. Generally, loans on new vehicles are made in amounts up to 90% of dealer cost and loans on used vehicles are made in amounts up to its published value, less certain adjustments. At March 31, 2000, the Bank's automobile loans totalled $2.5 million or 2.7% of the Bank's gross loan and mortgage-backed securities portfolio. 8 Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant's payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles. Further, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. At March 31, 2000, $18,000 of the Bank's consumer loans were non-performing. See "-- Non-Performing Assets and Classified Assets." There can be no assurances, however, that delinquencies will not occur in the future. Construction Lending. At March 31, 2000, the Bank had $3.2 million of construction loans. Hardin Federal offers loans to both builders and individuals for the construction of one- to four-family residences. Currently, such loans are offered with fixed- or adjustable-rates of interest. At March 31, 2000, the Bank had $2.9 million and $344,000 of fixed-rate and adjustable-rate construction loans, respectively, which represented 3.1% and .4%, respectively, of the Bank's gross loan and mortgage-backed securities portfolio. From time to time the Bank may purchase construction loans, but no such purchases were made during fiscal 2000. The Bank will purchase only those construction loans which are underwritten under guidelines which are as stringent as those employed by the Bank when it originates a construction loan. Following the construction period, these loans may become permanent loans, with terms for up to 30 years. Construction lending is generally considered to involve a higher level of credit risk than one- to four- family residential lending since the risk of loss on construction loans is dependent largely upon the accuracy of the initial estimate of the individual property's value upon completion of the project and the estimated cost (including interest) of the project. If the cost estimate proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the project. Commercial Real Estate Lending. The Bank also originates commercial real estate loans. At March 31, 2000 approximately $3.0 million, or 3.2% of the Bank's gross loan and mortgage-backed securities portfolio, was comprised of commercial real estate loans of which none was non-performing at that date. The largest commercial real estate loan is a real estate development loan secured by property in Clay County, Missouri. In underwriting these loans, the Bank currently analyzes the financial condition of the borrower, the borrower's credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. The Bank generally requires personal guaranties of the borrowers. Appraisals on properties securing commercial real estate loans originated by the Bank are to the extent required by federal regulations performed by independent appraisers. 9 Commercial real estate loans generally present a higher level of risk than loans secured by one- to four-family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, or a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower's ability to repay the loan may be impaired. Commercial Business Loans At March 31, 2000, the Bank had a total of $796,000 outstanding in commercial business loans, and an additional commitment to fund a $240,000 line of credit. At March 31, 2000, the largest outstanding commercial business loan was a $340,000 loan to a farm implement dealership in Ray County, Missouri that was secured by machinery, equipment and accounts receivable. The Bank had a total of eight commercial loans at March 31, 2000. Commercial business loans are underwritten by analyzing the financial condition of the borrower, the borrower's credit history, the reliability and predictability of the business operations and the security for the loan. Commercial loans and credit lines are continually monitored in an attempt to detect any adverse conditions at the earliest possible stages to limit the Bank's exposure to potential losses. Commercial business lending represents a relatively new lending arena for the Bank. In the near term, management intends to limit both the size and number of commercial loans. Commercial business lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential, commercial and multi-family real estate lending. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral is viewed as primary source of repayment in the event of borrower default. Although commercial business loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of borrower default is often not a sufficient source of repayment. Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower, while liquidation of collateral is a secondary and often insufficient source of repayment. Originations, Purchases and Sales of Loans Loan originations are developed from continuing business with depositors and borrowers, soliciting realtors, builders, walk-in customers and third-party sources. While the Bank originates both adjustable-rate and fixed-rate loans, its ability to originate loans to a certain extent is dependent upon the relative customer demand for loans in its market, which is affected by the interest rate environment, among other factors. For the year ended March 31, 2000, the Bank originated $21.1 million in fixed-rate loans and $9.2 million in adjustable rate loans. The Bank from time-to-time sells fixed rate loan originations as part of its asset/liabilities management policies. The Bank generally followed a policy of selling its fixed-rate loan originations during 10 fiscal 1994. In early fiscal 1995, the Bank changed its policy to retain fixed-rate loan originations in its portfolio. The Bank's Board of Directors has adopted an informal policy which is subject to change from time-to-time, of retaining fixed-rate loans in order to increase the overall level of fixed-rate loans in its portfolio up to 60% of total loans receivable. At March 31, 2000, fixed-rate loans comprised 56.1% of gross loan and mortgage-backed securities portfolio. Reflecting these policies, during the fiscal years ended March 31, 2000, 1999 and 1998, the Bank sold $675,000, $3.5 million, and $3.7 million, respectively, of one- to four-family fixed-rate real estate loans. During fiscal year 2000, the Bank purchased $423,000 of real estate loans originated by other lenders all of which were secured by properties located in Missouri. At March 31, 2000, none of these loans were included in the Bank's non-performing assets. See "--Non-Performing Assets and Classified Assets." As part of the Bank's effort to increase the size of its loan portfolio, management anticipates that loan purchases may increase in the future. It is presently anticipated that such purchases would consist primarily of loans secured by one- to four-family residences located in the State of Missouri. The Bank employs the same underwriting standards for purchased loans as for loans originated by the Bank. In addition, the Bank purchases mortgage-backed securities, consistent with its asset/liability management objectives to complement its mortgage lending activities. The Board believes that the slightly lower yield carried by mortgage-backed securities is somewhat offset by the lower level of credit risk and the lower level of overhead required in connection with these assets, as compared to one- to four-family, non- residential and other types of loans. See "--Investment Securities--Mortgage-backed Securities." Loan originations during the year ended March 31, 2000 were greater than the comparable period in the prior year. The Bank believes the increase was due to an increased emphasis on the origination of loans and increased loan demand within the Bank's market area, plus the availability of lower fixed-rate interest on long-term loans. 11 The following table shows the loan and mortgage-backed securities origination, purchase, sale and repayment activities of the Bank for the periods indicated.
Year Ended March 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- (In Thousands) Originations by type: - -------------------- Adjustable rate: One- to four-family.................................................. $ 4,769 $ 1,072 $ 3,367 Land................................................................. 1,855 1,525 333 Commercial real estate............................................... 15 2,215 1,140 Construction......................................................... -- -- 669 Consumer............................................................. 2,130 2,007 1,963 Commercial business.................................................. 417 930 -- --------- --------- --------- Total adjustable-rate.............................................. 9,186 7,749 7,462 --------- --------- --------- Fixed rate: One- to four-family.................................................. 11,395 15,064 12,254 Land................................................................. 306 292 188 Commercial real estate............................................... -- 225 -- Construction......................................................... 3,357 1,964 3,351 Consumer............................................................. 6,068 4,247 4,398 Commercial business.................................................. 20 -- -- --------- --------- --------- Total fixed-rate................................................... 21,146 21,792 20,191 --------- --------- --------- Total loans originated............................................. 30,332 29,541 27,653 --------- --------- --------- Purchases: - --------- One- to four-family.................................................. 423 1,212 1,048 Land................................................................. -- -- 184 Commercial real estate............................................... -- 450 -- Mortgage-backed securities - at cost................................. 2,362 -- 10,940 --------- --------- --------- Total purchased.................................................... 2,785 1,662 12,172 --------- --------- --------- Sales and Repayments: - -------------------- One- to four-family.................................................. 675 3,486 3,737 Mortgage-backed securities sold - at amortized cost.................. 361 2,769 8,176 --------- --------- --------- Total sales........................................................ 1,036 6,255 11,913 --------- --------- --------- Principal repayments................................................. 23,569 23,893 19,630 --------- --------- --------- Total sales and repayments......................................... 24,605 30,148 31,543 --------- --------- --------- Decrease (increase) in other items: Loans in process..................................................... (715) 827 (1,669) Deferred fees and discounts.......................................... (28) (19) (17) Allowance for loan losses............................................ 7 (63) (89) --------- --------- --------- Net increase (decrease)............................................ $ 7,776 $ 1,800 $ 6,507 ========= ========= =========
12 Asset Quality General. When a borrower fails to make a required payment on a loan, the Bank attempts to cause the delinquency to be cured by contacting the borrower. In the case of loans secured by real estate, reminder notices are sent to borrowers. If payment is late, appropriate late charges are assessed and a notice of late charges is sent to the borrower. If the loan is in excess of 90 days delinquent, the loan will be referred to the Bank's legal counsel for collection. In all cases, if the Bank believes that its collateral is at risk and added delay would place the collectibility of the balance of the loan in further question, management may refer loans for collection even sooner than the 90 days described above. When a loan becomes more than 90 days delinquent, the Bank will place the loan on non-accrual status and previously accrued interest income on the loan is charged against current income. The loan will remain on a non-accrual status as long as the loan is more than 90 days delinquent. Delinquent consumer loans are handled in a similar manner as to those described above; however, shorter time frames for each step apply due to the type of collateral generally associated with such types of loans. The Bank's procedures for repossession and sale of consumer collateral are subject to various requirements under Missouri and federal consumer protection laws. The following table sets forth the Bank's loan delinquencies by type, by amount and by percentage of type at March 31, 2000. The amounts presented in the table below represent the total remaining principal balances of the loans, rather than the actual payment amounts which are overdue.
Loans Delinquent For ---------------------------------------------------------------- 60-89 Days 90 Days and Over Total Delinquent Loans ------------------------------- ------------------------------- ------------------------------- Percent Percent Percent of Loan of Loan of Loan Number Amount Category Number Amount Category Number Amount Category ------ ------ -------- ------ ------ -------- ------ ------ -------- (Dollars in Thousands) Real Estate: One- to four-family.......... 7 $ 230 0.38% 3 $ 219 0.36% 10 $ 449 0.74% Land......................... -- -- -- -- -- -- -- -- -- Commercial................... -- -- -- -- -- -- -- -- -- Construction................. -- -- -- -- -- -- -- -- -- Consumer....................... -- -- -- 2 11 0.10 2 11 0.10 Commercial business............ -- -- -- -- -- -- -- -- -- --------- -------- ------- ------- ------- -------- ------- ------ ------ Total....................... 7 $ 230 0.38% 5 $ 230 0.46% 12 $ 460 0.84% ========= ======== ======= ======= ======= ======== ======= ====== ======
13 Non-Performing Assets. The table below sets forth the amounts and categories of non-performing assets in the Bank's loan portfolio. Loans are placed on non-accrual status when the collection of principal and/or interest become doubtful. For all years presented, the Bank has had no troubled debt restructurings (which involve forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates). Foreclosed assets include assets acquired in settlement of loans.
Year Ended March 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- (In Thousands) Non-accruing loans One- to four-family............................................. $ 100 $ 205 $ 220 Land............................................................ -- -- -- Commercial real estate.......................................... -- -- -- Construction.................................................... -- -- -- Consumer........................................................ 11 25 12 Commercial business............................................. -- -- -- --------- --------- --------- Total......................................................... 111 230 232 --------- --------- --------- Accruing loans delinquent 90 days or more One- to four-family............................................. 119 47 -- Land............................................................ -- -- -- Commercial real estate.......................................... -- -- -- Construction.................................................... -- -- -- Consumer........................................................ -- -- -- Commercial business............................................. -- -- -- --------- --------- --------- Total......................................................... 119 47 -- --------- --------- --------- Foreclosed assets One- to four-family............................................. -- -- -- Land............................................................ -- -- -- Commercial real estate.......................................... -- -- -- Construction.................................................... -- -- -- Consumer........................................................ 7 -- -- Commercial business............................................. -- -- -- --------- --------- --------- Total......................................................... 7 -- -- --------- --------- --------- Total non-performing assets........................................ $ 237 $ 277 $ 232 ========= ========= ========= Total classified assets............................................ $ 628 $ 336 $ 501 ========= ========= ========= Total non-performing assets as a percentage of total assets 0.17% .20% Total non-performing loans as a percentage of total loans receivable................................................ 0.30% .45% .36% ========= ========= =========
For the year ended March 31, 2000 gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $20,000. The amount that was included in interest income on such loans was $18,000 for the year ended March 31, 2000. 14 Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities, considered by the OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard" with the added characteristic that the weaknesses present make "collection or liquidation in full" on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, who may order the establishment of additional general or specific loss allowances. In connection with the filing of its periodic reports with the OTS and in accordance with its classification of assets policy, the Bank regularly reviews loans in its portfolio to determine whether such assets require classification in accordance with applicable regulations. On the basis of management's review of its assets, at March 31, 2000, the Bank had classified a total of $628,000of its assets as substandard, -0- as doubtful, and $7,000 as loss. At March 31, 2000, total classified assets comprised $635,000 or 5.11% of the Bank's capital, or .46% of the Bank's total assets. Other Loans of Concern. In addition to the non-performing and classified loans set forth in the tables above, as of March 31, 2000, there were no other loans classified by the Bank with respect to which known information about the possible credit problems of the borrowers or the cash flows of the security properties have caused management to have some doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non- performing asset categories. Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risk inherent in its loan portfolio and changes in the nature and volume of its loan activity, including those loans which are being specifically monitored by management. Such evaluation, which includes a review of loans for which full collectibility may not be reasonably assured, considers among other matters, the loan classifications discussed above, the estimated fair value of the underlying collateral, economic conditions, historical loan loss experience, the amount of loans outstanding and other factors that warrant recognition in providing for an adequate loan loss allowance. Real estate properties acquired through foreclosure are recorded at the lower of cost or fair value minus estimated cost to sell. If fair value at the date of foreclosure is lower than the balance of the related loan, the difference will be charged-off to the allowance for loan losses at the time of transfer. Valuations are periodically updated by management and if the value declines, a specific provision for losses on such 15 property is established by a charge to operations. At March 31, 2000, the Bank had no real estate properties acquired through foreclosure. Although management believes that it uses the best information available to determine the allowance, unforeseen market conditions could result in adjustments and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the final determination. Future additions to the Bank's allowance for loan losses will be the result of periodic loan, property and collateral reviews and thus cannot be predicted in advance. In addition, federal regulatory agencies, as an integral part of the examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to increase the allowance based upon their judgment of the information available to them at the time of their examination. At March 31, 2000, the Bank had a total allowance for loan losses of $304,000, representing 128.3% of total non-performing loans and .39% of the Bank's loans, net. See Note 4 of the Notes to Consolidated Financial Statements. 16 The distribution of the Bank's allowance for loan losses at the dates indicated is summarized as follows:
At March 31, ------------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------- ------------------------------- ------------------------------- Percent Percent Percent of Loans of Loans of Loans Loan in Each Loan in Each Loan in Each Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total Allowance Category Loans Allowance Category Loans Allowance Category Loans -------------------- --------- -------------------- --------- -------------------- --------- (Dollars in Thousands) Real estate: One- to four-family....... 152 $60,675 74.75% $ 113 $54,122 75.24% $ 74 $50,646 78.54% Land...................... 34 3,304 4.07 31 3,048 4.24 8 810 1.26 Commercial real estate.... 30 2,986 3.68 31 3,031 4.21 24 2,356 3.65 Construction.............. 3 3,214 3.96 7 2,380 3.31 13 3,967 6.15 Consumer..................... 63 10,191 12.56 49 9,350 13.00 32 6,705 10.40 Commercial business.......... 8 796 0.98 8 781 1.09 -- -- -- Unallocated.................. 14 -- -- 72 -- -- 97 -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total................... $ 304 $81,166 100.00% $ 311 $71,932 100.00% $ 248 $64,484 100.00% ======= ======= ======= ======= ======= ======= ======= ======= =======
The portion of the allowance to each loan category does not necessarily represent the total available for losses within that category since the total allowance is applicable to the entire loan portfolio. 17 The following table sets forth an analysis of the Bank's allowance for loan losses.
Year Ended March 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- (In Thousands) Balance at beginning of period........................................... $ 311 $ 248 $ 158 Charge-offs: - ----------- One- to four-family................................................... -- -- -- Land.................................................................. -- -- -- Commercial real estate................................................ -- -- -- Construction.......................................................... -- -- -- Consumer.............................................................. (11) (3) (4) Commercial business................................................... -- -- -- ------- ------- ------- (11) (3) (4) ------- ------- -------- Recoveries: - ---------- One- to four-family................................................... -- -- -- Land.................................................................. -- -- -- Commercial real estate................................................ -- -- -- Construction.......................................................... -- -- -- Consumer.............................................................. 3 -- -- Commercial business................................................... -- -- -- ------- ------- ------- 3 -- -- ------- ------- ------- Net charge-offs.......................................................... (8) (3) (4) Additions charged to operations.......................................... 1 66 94 ------- ------- ------- Balance at end of period................................................. $ 304 $ 311 $ 248 ======= ======= ======= Ratio of net charge-offs during the period to average loans outstanding during the period................. 0.011% .004% .01% ======= ======= ======= Ratio of net charge-offs during the period to average non-performing assets......................................... 5.22% 1.13% 1.98% ======= ======= =======
Investment Activities General. Hardin Federal must maintain minimum levels of investments that qualify as liquid assets under OTS regulations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, the Bank has generally maintained liquid assets at levels above the minimum requirements imposed by the OTS regulations and at levels believed adequate to meet the requirements of normal operations, including repayments of maturing debt and potential deposit outflows. Cash flows projections are regularly reviewed and updated to assure that adequate liquidity is maintained. At March 31, 2000, the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable savings deposits with maturities of 1 year or less and current borrowings) was 33.8%. See "Regulation--Liquidity." Federally chartered savings institutions have the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements and federal funds. Subject to various restrictions, federally chartered savings institutions may also invest their assets in commercial paper, investment grade corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings institution is otherwise authorized to make directly. 18 Generally, the investment policy of the Bank, as established by the Board of Directors, is to invest funds among various categories of investments and maturities based upon the Bank's liquidity needs, asset/liability management policies, investment quality, marketability and performance objectives. Mortgage-backed Securities. The Bank purchases mortgage-backed securities to supplement residential loan production and as part of its asset/liability strategy. The type of securities purchased is based upon the Bank's asset/liability management strategy and balance sheet objectives. For instance, substantially all of the mortgage-backed investments purchased by the Bank over the last several years have had adjustable rates of interest. The Bank has invested primarily in federal agency securities, principally Freddie Mac, Government National Mortgage Association ("GNMA") and Fannie Mae obligations. At March 31, 2000, the Bank's investment in mortgage-backed securities totalled $11.8 million or 8.5% of its total assets. The Bank's available-for-sale mortgage-backed securities are reported at fair value, with unrealized gains and losses excluded from earnings but reported as a separate component of stockholders' equity. During the fiscal year ended March 31, 2000, the Bank sold $361,000 of its mortgage-backed securities. See Note 3 of the Notes to Consolidated Financial Statements. The Fannie Mae, Freddie Mac and GNMA certificates are modified pass-through mortgage-backed securities that represent undivided interests in underlying pools of fixed-rate, or certain types of adjustable- rate, single-family residential mortgages issued by these government-sponsored entities. As a result, the interest rate risk characteristics of the underlying pool of mortgages, i.e., fixed rate or adjustable rate, as well as prepayment risk, are passed on to the certificate holder. Fannie Mae and Freddie Mac provide the certificate holder a guarantee of timely payments of interest and ultimate collection of principal, whether or not they have been collected. GNMA's guarantee to the holder of timely payments of principal and interest is backed by the full faith and credit of the U.S. government. Mortgage-backed securities generally yield less than the loans that underlie such securities, because of the cost of payment guarantees or credit enhancements that reduce credit risk. In addition, mortgage- backed securities are more liquid than individual mortgage loans and may be used to collateralize obligations of the Bank. In general, mortgage-backed securities issued or guaranteed by Fannie Mae and Freddie Mac are weighted at no more than 20% for risk-based capital purposes, and mortgage-backed securities issued or guaranteed by GNMA are weighted at 0% for risk-based capital purposes, compared to an assigned risk weighting of 50% to 100% for whole residential mortgage loans. These types of securities thus allow the Bank to optimize regulatory capital to a greater extent than non-securitized whole loans. While mortgage-backed securities carry a reduced credit risk as compared to whole loans, such securities remain subject to the risk that a fluctuating interest rate environment, along with other factors such as the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of such mortgage loans and so affect both the prepayment speed, and value, of such securities. Investment Securities. At March 31, 2000, the Bank's investment securities (including a $2.0 million investment in the common stock of the FHLB of Des Moines) totalled $39.8 million, or 28.7% of its total assets. It is the Bank's general policy to purchase U.S. Government securities and federal agency obligations and other investment securities. See Note 2 of the Notes to Consolidated Financial Statements. OTS regulations restrict investments in corporate debt and equity securities by the Bank. These restrictions include prohibitions against investments in the debt securities of any one issuer in excess of 15% 19 of the Bank's unimpaired capital and unimpaired surplus as defined by federal regulations, which totalled $12.4 million as of March 31, 2000, plus an additional 10% if the investments are fully secured by readily marketable collateral. At March 31, 2000, the Bank was in compliance with this regulation. See "Regulation--Federal Regulation of Savings Associations" for a discussion of additional restrictions on the Bank's investment activities. The following table sets forth the composition of the Bank's investment portfolio, including mortgage-backed securities, at the dates indicated.
At March 31, -------------------------------------------------------------------------- 2000 1999 1998 ---------------------- ---------------------- ---------------------- Book % of Book % of Book % of Value Total Value Total Value Total --------- --------- --------- --------- --------- -------- (Dollars in Thousands) Investment securities: - --------------------- Federal agency securities........... $ 32,821 59.73% $ -- --% $ -- --% Revenue bonds....................... 1,054 1.92 38,206 60.40 31,651 56.15 Perpetual preferred stock........... 3,814 6.94 1,473 2.33 1,005 1.78 Other investments................... 104 0.19 4,840 7.65 -- -- --------- ------- --------- --------- --------- -------- Subtotal.......................... 37,793 68.78 44,519 70.37 32,656 57.93 FHLB stock.......................... 2,015 3.67 2,000 3.16 1,475 2.62 --------- ------- --------- --------- --------- -------- Total investment securities and FHLB stock................... 39,808 72.45 $ 46,519 73.54% $ 34,131 60.55% --------- ------- --------- --------- --------- -------- Average remaining life of investment securities excluding FHLB stock... 9 years 8 years 9 years Other interest-bearing assets: - ----------------------------- Interest-bearing deposits........... $ 3,332 6.06% $ 4,157 6.57% $ 3,225 5.72% Mortgage-backed securities: GNMA.............................. 2,053 3.74 1,118 1.77 4,446 7.89 Freddie Mac....................... 4,068 7.40 4,158 6.57 5,424 9.62 Fannie Mae........................ 5,685 10.35 7,308 11.55 9,145 16.22 --------- ------- --------- --------- --------- -------- Total mortgage-backed securities, net 11,806 21.49 12,584 19.89 19,015 33.73 --------- --------- ---------- -------- ---------- ---------- Total investment portfolio.......... $ 54,946 100.00% $ 63,260 100.00% $ 56,371 100.00% ========= ======= ========= ========= ========= ========
20 The composition and maturities of the investment securities portfolio, excluding FHLB stock, are indicated in the following table.
March 31, 2000 ----------------------------------------------------------------------------- Total Investment Less Than 1 to 5 5 to 10 Over Book Securities 1 Year Years Years 10 Years Value Market Value ----------- ----------- ----------- ----------- ----------- ------------ (Dollars in Thousands) Federal agency obligations.............. $ 26,122 $ -- $ -- $ 6,699 $ 32,821 $ 32,821 Revenue bonds........................... -- 618 436 -- 1,054 1,054 Perpetual preferred stock............... -- 1,913 1,901 -- 3,814 3,814 Other Investments....................... -- -- -- 104 104 104 --------- -------- --------- --------- --------- --------- Total investment securities............. $ 26,122 $ 2,531 $ 2,337 $ 6,803 $ 37,793 $ 37,793 --------- -------- --------- --------- --------- --------- Weighted average yield.................. 6.66% 6.24% 6.36% 6.38% 6.42% 6.42% ========= ======== ========= ========= ========= =========
The Bank's investment securities portfolio at March 31, 2000, contained tax-exempt securities consisting of local revenue bonds. No securities of any issuer had an aggregate book value in excess of 10% of the Bank's retained earnings, excluding those issued by the U.S. government, or its agencies. Hardin Federal's investments, including the mortgage-backed and related securities portfolio, are managed in accordance with a written investment policy adopted by the Board of Directors. OTS guidelines regarding investment portfolio policy and accounting require insured institutions to categorize securities and certain other assets as held for "investment," "sale," or "trading." In addition, effective April 1, 1994, the Bank adopted SFAS 115 which states that securities available for sale are accounted for at fair value and securities which management has the intent and the Bank has the ability to hold to maturity are accounted for on an amortized cost basis. The Bank's investment policy has strategies for each type of security. At March 31, 2000, the Bank had $28.7 million in mortgage-backed securities and investment securities with maturities of less than five years classified as available for sale. See Notes 2 and 3 of the Notes to the Consolidated Financial Statements. Sources of Funds General. The Bank's primary sources of funds are deposits, receipt of principal and interest on loans and securities, interest-earning deposits with other banks, FHLB advances, and other funds provided from operations. FHLB advances are used to support lending activities and to assist in the Bank's asset/liability management strategy. Typically, the Bank does not use other forms of borrowings. At March 31, 2000, the Bank had total FHLB advances of $38.3 million. See "--Borrowings" and Note 7 of the Notes to Consolidated Financial Statements. Deposits. Hardin Federal offers a variety of deposit accounts having a wide range of interest rates and terms. The Bank's deposits consist of savings deposits, commercial demand, NOW, money market deposit and certificate accounts. The certificate accounts currently range in terms from 90 days to five years. 21 The Bank relies primarily on advertising, competitive pricing policies and customer service to attract and retain these deposits. Currently, Hardin Federal solicits deposits from its market area only, and does not use brokers to obtain deposits. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition. The Bank has become more susceptible to short-term fluctuations in deposit flows as customers have become more interest rate conscious. The Bank endeavors to manage the pricing of its deposits in keeping with its profitability objectives giving consideration to its asset/liability management. The ability of the Bank to attract and maintain savings accounts and certificates of deposit, and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions. The following table sets forth the dollar amount of savings deposits in the various types of deposit programs offered by the Bank for the periods indicated.
At March 31, -------------------------------------------------------------------------- 2000 1999 1998 ---------------------- ---------------------- ---------------------- Percent Percent Percent Amount of Total Amount of Total Amount of Total --------- --------- --------- --------- --------- -------- (Dollars in Thousands) Transactions and Savings Deposits:(1) - --------------------------------- Commercial Demand................... $ 2,653 3.06% $ 1,919 2.30% $ 1,082 1.41% Savings Accounts.................... 4,402 5.09 3,805 4.57 3,265 4.25 NOW Accounts........................ 8,783 10.15 6,852 8.22 4,258 5.53 Money Market....................... 7,033 8.12 6,584 7.90 5,901 7.68 Certificates........................ 63,694 73.58 64,167 77.01 62,378 81.13 --------- ------- --------- ------- --------- ------ Total deposit accounts.............. $ 86,565 100.00% $ 83,327 100.00% $ 76,884 100.00% ========= ======= ========= ====== ========= ======
(1) See Note 6 of the Notes to Consolidated Financial Statements. The following table indicates the amount of the Bank's certificates of deposit and other deposits by time remaining until maturity as of March 31, 2000.
Maturity --------------------------------------- Over Over Over 3 Months 3 to 6 6 to 12 12 or Less Months Months Months Total --------- --------- --------- --------- --------- (In thousands) Certificates of deposit less than $100,000.............. $ 40,466 $ 5,673 $ 1,715 $ 4,597 $ 52,451 Certificates of deposit of $100,000 or more............. 8,624 784 313 1,089 10,810 Public funds (1)........................................ 390 37 6 -- 433 --------- --------- --------- --------- --------- Total certificates of deposit........................... $ 49,480 $ 6,494 $ 2,034 $ 5,686 $ 63,694 ========= ========= ========= ========= =========
(1) Deposits from governmental and other public entities, including deposits greater than $100,000. 22 Borrowings. Hardin Federal's borrowings historically have consisted of advances from the FHLB of Des Moines. Such advances may be made pursuant to different credit programs, each of which has its own interest rate and range of maturities. Federal law limits an institution's borrowings from the FHLB to 20 times the amount paid for capital stock in the FHLB, subject to regulatory collateral requirements. At March 31, 2000, the Bank had $2.0 million of FHLB of Des Moines stock. The Bank has the ability to purchase additional capital stock from the FHLB. At March 31, 2000 and March 31, 1999, the weighted average interest rate of the Bank's FHLB advances was 5.84% and 5.18%, respectively. For additional information regarding the term to maturity and average rate paid on FHLB advances, see Note 7 of the Notes to Consolidated Financial Statements and "--Lending Activities." The following table sets forth the maximum month-end balance and average balance of FHLB advances.
Year Ended March 31, ------------------------------------------------ 2000 1999 1998 -------------- -------------- ------------- (In Thousands) Maximum Balance: - --------------- FHLB advances............................................ $ 38,300 $ 40,000 $ 29,500 Average Balance: - --------------- FHLB advances............................................ $ 36,583 $ 37,458 $ 24,458
Service Corporation Activities As a federally chartered savings bank, Hardin Federal is permitted by OTS regulations to invest up to 2% of its assets, or approximately $2.8 million at March 31,2000, in the stock of, or loans to, service corporation subsidiaries. Hardin Federal may invest an additional 1% of its assets in service corporations where such additional funds are used for inner-city or community development purposes and up to 50% of its total capital in conforming loans to service corporations in which it owns more than 10% of the capital stock. In addition to investments in service corporations, federal associations are permitted to invest an unlimited amount in operating subsidiaries engaged solely in activities in which a federal association may engage. At March 31, 2000, Hardin Federal had one subsidiary, Hardin Savings Service Corporation ("HSSC"). HSSC was established in 1993 for the purpose of offering credit life, disability and accident insurance to its customers. At March 31, 2000, the Bank's investment in HSSC was $50,000. For the year ended March 31, 2000, HSSC had pre-tax income of approximately $14,000. In November 1999, Hardin Federal Savings Bank established a wholly-owned direct operating subsidiary, Hardin Investment, LLC. The subsidiary's activities consists solely of investment portfolio management activities. REGULATION General Hardin Federal is a federally chartered savings bank, the deposits of which are federally insured and backed by the full faith and credit of the United States Government. Accordingly, the Bank is subject to 23 broad federal regulation and oversight extending to all its operations. The Bank is a member of the FHLB of Des Moines and is subject to certain limited regulation by the Federal Reserve Board. As the savings and loan holding company of the Bank, the Company also is subject to federal regulation and oversight. The purpose of the regulation of the Company and other holding companies is to protect subsidiary savings associations. The Bank is a member of the SAIF. The deposits of the Bank are insured by the SAIF of the FDIC. As a result, the FDIC has certain regulatory and examination authority over the Bank. Certain of these regulatory requirements and restrictions are discussed below or elsewhere in this document. Federal Regulation of Savings Associations The OTS has extensive authority over the operations of savings associations. As part of this authority, the Bank is required to file periodic reports with the OTS and is subject to periodic examinations by the OTS and the FDIC. When these examinations are conducted by the OTS and the FDIC, the examiners may require the Bank to provide for higher general or specific loan loss reserves. All savings associations are subject to a semi-annual assessment, based upon the savings association's total assets. The Bank's OTS assessment for the fiscal year ended March 31, 2000, was approximately $41,000. The OTS also has extensive enforcement authority over all savings institutions and their holding companies, including the Bank and the Holding Company. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OTS. Except under certain circumstances, public disclosure of final enforcement actions by the OTS is required. In addition, the investment, lending and branching authority of the Bank is prescribed by federal laws, and regulations, and it is prohibited from engaging in any activities not permitted by such laws and regulations. For instance, no savings institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by federal associations in loans secured by non- residential real property may not exceed 400% of total capital, except with approval of the OTS. Federal savings associations are also generally authorized to branch nationwide. The Bank is in compliance with the noted restrictions. The Bank's general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). At March 31, 2000, the Bank's lending limit under this restriction was $1.8 million. The Bank is in compliance with the loans-to-one-borrower limitation. The OTS, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution which fails to comply with these standards must submit a capital compliance plan. A failure to submit a plan or to 24 comply with an approved plan will subject the institution to further enforcement action. The OTS and the other federal banking agencies have also adopted additional guidelines on asset quality and earnings standards. The guidelines are designed to enhance early identification and resolution of problem assets. The guidelines are not expected to materially effect the Bank. Insurance of Deposits The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of depository institutions. The FDIC currently maintains two separate insurance funds: the Bank Insurance Fund and the Savings Association Insurance Fund. As insurer of Hardin Federal's deposits, the FDIC has examination, supervisory and enforcement authority over Hardin Federal. Hardin Federal's accounts are insured by the Savings Association Insurance Fund to the maximum extent permitted by law. Hardin Federal pays deposit insurance premiums based on a risk-based assessment system established by the FDIC. Under applicable regulations, institutions are assigned to one of three capital groups that are based solely on the level of an institution's capital -- "well capitalized," "adequately capitalized," and "undercapitalized" - -- which are defined in the same manner as the regulations establishing the prompt corrective action system, as discussed below. These three groups are then divided into three subgroups which reflect varying levels of supervisory concern, from those which are considered to be healthy to those which are considered to be of substantial supervisory concern. The matrix so created results in nine assessment risk classifications, with rates that until September 30, 1996 ranged from 0.23% for well capitalized, financially sound institutions with only a few minor weaknesses to 0.31% for undercapitalized institutions that pose a substantial risk of loss to the Savings Association Insurance Fund unless effective corrective action is taken. Under the Deposit Insurance Funds Act, which was enacted on September 30, 1996, the FDIC imposed a special assessment on each depository institution with Savings Association Insurance Fund-assessable deposits which resulted in the Savings Association Insurance Fund achieving its designated reserve ratio. As a result, the FDIC reduced the assessment schedule for Savings Association Insurance Fund members, effective January 1, 1997, to a range of 0% to 0.27%, with most institutions, including Hardin Federal, paying 0%. This assessment schedule is the same as that for the Bank Insurance Fund, which reached its designated reserve ratio in 1995. In addition, since January 1, 1997, Savings Association Insurance Fund members are charged an assessment of .065% of Savings Association Insurance Fund-assessable deposits to pay interest on the obligations issued by the Financing Corporation in the 1980s to help fund the thrift industry cleanup. Bank Insurance Fund-assessable deposits have been charged an assessment to help pay interest on the Financing Corporation bonds at a rate of approximately .013% until the earlier of December 31, 1999 or the date upon which the last savings association ceases to exist, after which time the assessment will be the same for all insured deposits. The Deposit Insurance Funds Act also contemplates the development of a common charter for all federally chartered depository institutions and the abolition of separate charters for national banks and federal savings associations. It is not known what form the common charter may take and what effect, if any, the adoption of a new charter would have on the operation of Hardin Federal. The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any 25 condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances that could result in termination of the deposit insurance of Hardin Federal. Capital Requirements. The OTS capital regulations require savings institutions to meet three capital standards: a 1.5% tangible capital standard, a 3.0% leverage (core capital) standard, and an 8.0% risk-based capital standard. Core capital is defined as common stockholders' equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus, minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain mortgage servicing rights ("MSRs") and purchased credit card relationships. The OTS regulations require that, in meeting the tangible, core and risk-based capital standards, institutions generally must deduct investments in and loans to subsidiaries engaged in activities not permissible for a national bank. In addition, the OTS prompt corrective action regulation provides that a savings institution that has a leverage capital ratio of less than 4.0% (3.0% for institutions receiving the highest CAMELS examination rating) will be deemed to be "undercapitalized" and may be subject to certain restrictions. The risk-based capital standard for savings institutions requires the maintenance of total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of 8.0%. In determining the amount of risk-weighted assets, assets and certain off-balance sheet assets items are multiplied by a risk- weight of 0% to 100%, as assigned by the OTS capital regulation based on the risks OTS believes are inherent in the type of asset. The components of core capital are equivalent to those discussed earlier under the 3.0% leverage standard. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock and, within specified limits, the allowance for loan losses. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. The OTS has incorporated an interest rate risk component into its regulatory capital rule. Under the rule, savings associations with "above normal" interest rate risk exposure would be subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. A savings association's interest rate risk is measured by the decline in the net portfolio value of its assets (i.e., the difference between incoming and outgoing discounted cash flows from assets, liabilities and off-balance sheet contracts) that would result from a hypothetical 200-basis point increase or decrease in market interest rates divided by the estimated economic value of the association's assets, as calculated in accordance with guidelines set forth by the OTS. A savings association whose measured interest rate risk exposure exceeds 2% must deduct an interest rate component in calculating its total capital under the risk-based capital rule. The interest rate risk component is an amount equal to one-half of the difference between the institution's measured interest rate risk and 2%, multiplied by the estimated economic value of the association's assets. That dollar amount is deducted from an association's total capital in calculating compliance with its risk-based capital requirement. Under the rule, there is a two quarter lag between the reporting date of an institution's financial data and the effective date for the new capital requirement based on that data. A savings association with assets of less than $300 million and risk-based capital ratios in excess of 12% is exempt from the interest rate risk component, unless the OTS determines otherwise. The rule also provides that the OTS may waive or defer 26 an association's interest rate risk component on a case-by-case basis. Under certain circumstances, a savings association may request an adjustment to its interest rate risk component if it believes that the calculated interest rate risk component, as calculated by the OTS, overstates its interest rate risk exposure. In addition, certain "well-capitalized" institutions may obtain authorization to use their own interest rate risk model to calculate their interest rate risk component in lieu of the amount as calculated by the OTS. The OTS has postponed the date that the component will first be deducted from an institution's total capital. At March 31, 2000, the Bank had tangible capital of $13.2 million, or 9.43% of adjusted total assets, which is approximately $11.1 million above the minimum requirement of 1.5% of adjusted total assets in effect on that date. At March 31, 2000, the Bank had core capital equal to $13.2 million, or 9.43% of adjusted total assets, which is $7.6 million above the minimum leverage ratio requirement of 4% as in effect on that date. At that date, the Bank had total risk based capital of $13.5 million (including approximately $13.2 million in core capital and $304,000 in qualifying supplementary capital) and risk-weighted assets of $72.4 million (with no converted off-balance sheet assets); or total capital of 18.63% of risk-weighted assets. This amount was $7.7 million above the 8% requirement in effect on that date. Prompt Corrective Regulatory Action Each federal banking agency is required to implement a system of prompt corrective action for institutions that it regulates. The federal banking agencies have promulgated substantially similar regulations to implement this system of prompt corrective action. Under the regulations, an institution shall be deemed to be "well capitalized" if it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is not required to meet and maintain a specific capital level for any capital measure;"adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, has a Tier I risk-based capital ratio of 4.0% or more, has a leverage ratio of 4.0% or more, or 3.0% under certain circumstances, and does not meet the definition of "well capitalized"; "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or has a leverage ratio that is less than 4.0%, or 3.0% under certain circumstances; "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, has a Tier I risk-based capital ratio that is less than 3.0% or has a leverage ratio that is less than 3.0%; and "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. A federal banking agency may, after notice and an opportunity for a hearing, reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category if the institution is in an unsafe or unsound condition or has received in its most recent examination, and has not corrected, a less than satisfactory rating for asset quality, management, earnings or liquidity. The OTS may not, however, reclassify a significantly undercapitalized institution as critically undercapitalized. An institution generally must file a written capital restoration plan that meets specified requirements, as well as a performance guaranty by each company that controls the institution, with the appropriate federal banking agency within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. Immediately upon becoming undercapitalized, an institution shall face various mandatory and discretionary restrictions on its operations. 27 At March 31, 2000, the Bank was categorized as "well capitalized"under the prompt corrective action regulations. Standards for Safety and Soundness The federal banking regulatory agencies have adopted regulatory guidelines for all insured depository institutions relating to internal controls, information systems and internal audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; asset quality; earnings; and compensation, fees and benefits. The guidelines outline the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the OTS determines that the Bank fails to meet any standard prescribed by the guidelines, it may require the Bank to submit to the agency an acceptable plan to achieve compliance with the standard. OTS regulations establish deadlines for the submission and review of safety and soundness compliance plans. Capital Distributions OTS regulations govern capital distributions by savings institutions, which include cash dividends, stock repurchases and other transactions charged to the capital account of a savings institution to make capital distributions. Under new regulations effective April 1, 1999, a savings institution must file an application for OTS approval of the capital distribution if either (1) the total capital distributions for the applicable calendar year exceed the sum of the institution's net income for that year to date plus the institution's retained net income for the preceding two years, (2) the institution would not be at least adequately capitalized following the distribution, (3) the distribution would violate any applicable statute, regulation, agreement or OTS-imposed condition, or (4) the institution is not eligible for expedited treatment of its filings. If an application is not required to be filed, savings institutions which are a subsidiary of a holding company, as well as certain other institutions, must still file a notice with the OTS at least 30 days before the board of directors declares a dividend or approves a capital distribution. Liquidity All savings associations, including the Bank, are required to maintain an average daily balance of liquid assets equal to a certain percentage of the sum of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. This liquid asset ratio requirement may vary from time to time (between 4% and 10%) depending upon economic conditions and savings flows of all savings associations. At the present time, the minimum liquid asset ratio is 5%. In addition, short-term liquid assets (e.g., cash, certain time deposits, certain bankers acceptances and short-term United States Treasury obligations) currently must constitute at least 1% of the association's average daily balance of net withdrawable deposit accounts and current borrowings. Penalties may be imposed upon associations for violations of either liquid asset ratio requirement. At March 31, 2000, the Bank was in compliance with both requirements, with an overall liquid asset ratio of 33.8% and a short-term liquid assets ratio of 24.4%. 28 Accounting An OTS policy statement applicable to all savings associations clarifies and re-emphasizes that the investment activities of a savings association must be in compliance with approved and documented investment policies and strategies, and must be accounted for in accordance with GAAP. Under the policy statement, management must support its classification of and accounting for loans and securities (i.e., whether held for investment, sale or trading) with appropriate documentation. The OTS has adopted an amendment to its accounting regulations, which may be more stringent than GAAP, to require that transactions be reported in a manner that best reflects their underlying economic substance and inherent risk and that financial reports must incorporate any other accounting regulations or orders prescribed by the OTS. The Bank is in compliance with these amended rules. Qualified Thrift Lender Test All savings associations are required to meet a qualified thrift lender test to avoid certain restrictions on their operations. A savings institution that fails to become or remain a qualified thrift lender shall either convert to a national bank charter or face the following restrictions on its operations. These restrictions are: the association may not make any new investment or engage in activities that would not be permissible for national banks; the association may not establish any new branch office where a national bank located in the savings institution's home state would not be able to establish a branch office; the association shall be ineligible to obtain new advances from any Federal Home Loan Bank; and the payment of dividends by the association shall be under the rules regarding the statutory and regulatory dividend restrictions applicable to national banks. Also, beginning three years after the date on which the savings institution ceases to be a qualified thrift lender, the savings institution would be prohibited from retaining any investment or engaging in any activity not permissible for a national bank and would be required to repay any outstanding advances to any Federal Home Loan Bank. In addition, within one year of the date on which a savings association controlled by a company ceases to be a qualified thrift lender, the company must register as a bank holding company and follow the rules applicable to bank holding companies. A savings institution may requalify as a qualified thrift lender if it thereafter complies with the test. Currently, the qualified thrift lender test requires that either an institution qualify as a domestic building and loan association under the Internal Revenue Code or that 65% of an institution's "portfolio assets" consist of certain housing and consumer-related assets on a monthly average basis in nine out of every 12 months. Assets that qualify without limit for inclusion as part of the 65% requirement are loans made to purchase, refinance, construct, improve or repair domestic residential housing and manufactured housing; home equity loans; mortgage-backed securities where the mortgages are secured by domestic residential housing or manufactured housing; Federal Home Loan Bank stock; direct or indirect obligations of the FDIC; and loans for educational purposes, loans to small businesses and loans made through credit cards. In addition, the following assets, among others, may be included in meeting the test based on an overall limit of 20% of the savings institution's portfolio assets: 50% of residential mortgage loans originated and sold within 90 days of origination; 100% of consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio assets consist of total assets minus the sum of goodwill and other intangible assets, property used by the savings institution to conduct its business, and liquid assets up to 20% of the institution's total assets. At March 31, 2000, the Bank was in compliance with the qualified thrift lender test. 29 Community Reinvestment Act Savings associations are required to follow the provisions of the Community Reinvestment Act of 1977, which requires the appropriate federal bank regulatory agency, in connection with its regular examination of a savings association, to assess the savings association's record in meeting the credit needs of the community serviced by the savings associations, including low and moderate income neighborhoods. The regulatory agency's assessment of the savings association's record is made available to the public. Further, an assessment is required of any savings associations which has applied, among other things, to establish a new branch office that will accept deposits, relocate an existing office or merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. The Bank received a "satisfactory" rating as a result of its most recent examination. Activities of Associations and Their Subsidiaries A savings association may establish operating subsidiaries to engage in any activity that the savings association may conduct directly and may establish service corporation subsidiaries to engage in certain pre- approved activities or, with approval of the OTS, other activities reasonably related to the activities of financial institutions. When a savings association establishes or acquires a subsidiary or elects to conduct any new activity through a subsidiary that the association controls, the savings association must notify the FDIC and the OTS 30 days in advance and provide the information each agency may, by regulation, require. Savings associations also must conduct the activities of subsidiaries in accordance with existing regulations and orders. The OTS may determine that the continuation by a savings association of its ownership control of, or its relationship to, the subsidiary constitutes a serious risk to the safety, soundness or stability of the association or is inconsistent with sound banking practices. Based upon that determination, the FDIC or the OTS has the authority to order the savings association to divest itself of control of the subsidiary. The FDIC also may determine by regulation or order that any specific activity poses a serious threat to the Savings Association Insurance Fund. If so, it may require that no Savings Association Insurance Fund member engage in that activity directly. Transactions with Affiliates Savings associations must comply with Sections 23A and 23B of the Federal Reserve Act relative to transactions with affiliates in the same manner and to the same extent as if the savings association were a Federal Reserve member bank. A savings and loan holding company, its subsidiaries and any other company under common control are considered affiliates of the subsidiary savings association under the Home Owners Loan Act. Generally, Sections 23A and 23B limit the extent to which the insured association or its subsidiaries may engage in certain covered transactions with an affiliate to an amount equal to 10% of the institution's capital and surplus and place an aggregate limit on all transactions with affiliates to an amount equal to 20% of capital and surplus, and require that all transactions be on terms substantially the same, or at least as favorable to the institution or subsidiary, as those provided to a non-affiliate. The term"covered transaction" includes the making of loans, the purchase of assets, the issuance of a guarantee and similar types of transactions. Any loan or extension of credit by the Bank to an affiliate must be secured by collateral in accordance with Section 23A. 30 Three additional rules apply to savings associations. First, a savings association may not make any loan or other extension of credit to an affiliate unless that affiliate is engaged only in activities permissible for bank holding companies. Second, a savings association may not purchase or invest insecurities issued by an affiliate, other than securities of a subsidiary. Third, the OTS may, for reasons of safety and soundness, impose more stringent restrictions on savings associations but may not exempt transactions from or otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted only by the Federal Reserve, as is currently the case with respect to all FDIC-insured banks. The Bank's authority to extend credit to executive officers, directors and 10% shareholders, as well as entities controlled by those persons, is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and Regulation O thereunder. Among other things, these regulations require that loans be made on terms and conditions substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. Regulation O also places individual and aggregate limits on the amount of loans the Bank may make to those persons based, in part, on the Bank's capital position, and requires certain board approval procedures to be followed. The OTS regulations, with certain minor variances, apply Regulation O to savings institutions. Holding Company Regulation The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Company is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over holding companies and their non-savings association subsidiaries which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. Federal law and regulation generally prohibit a savings and loan holding company, without prior OTS approval, from acquiring more than 5% of the voting stock of any other savings association or savings and loan holding company or controlling the assets thereof. They also prohibit, among other things, any director or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting shares of the Company from acquiring control of any savings association not a subsidiary of a savings and loan holding company, unless the acquisition is approved by the OTS. Until recently, a unitary savings and loan holding company was not restricted as to the types of business activities in which it could engage, provided that its subsidiary savings association continued to be a qualified thrift lender. Recent legislation, however, restricts unitary saving and loan holding companies not existing or applied for before May 4, 1999 to activities permissible for a financial holding company as defined under the legislation, including insurance and securities activities, and those permitted for a multiple savings and loan holding company as described below. The Company has certain grandfather rights under this legislation. Upon any non-supervisory acquisition by the Company of another savings association as a separate subsidiary, the Company would become a multiple savings and loan holding company and would have extensive limitations on the types of business activities in which it could engage. The Home Owner's Loan Act limits the activities of a multiple savings and loan holding company and its non-insured institution subsidiaries primarily to activities permissible for the bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, provided the prior approval of the Office of Thrift Supervision is obtained, and to other activities authorized by Office of Thrift Supervision regulation. Multiple savings and loan holding companies are generally prohibited from acquiring or retaining more than 5% of a non-subsidiary company engaged in activities other than those permitted by the Home Owners. Loan Act. 31 The activities authorized by the Federal Reserve Board as permissible for bank holding companies also must be approved by the OTS prior to being engaged in by a multiple savings and loan holding company. If the Bank fails the QTL test, the Company must obtain the approval of the OTS prior to continuing after such failure, directly or through its other subsidiaries, any business activity other than those approved for multiple savings and loan holding companies or their subsidiaries. In addition, within one year of such failure the Company must register as, and will become subject to, the restrictions applicable to bank holding companies. The activities authorized for a bank holding company are more limited than are the activities authorized for a unitary or multiple savings and loan holding company. See "--Qualified Thrift Lender Test." Federal Securities Law The stock of the Company is registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange Act. Company stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three-month period. Federal Reserve System The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts). At March 31, 2000, the Bank was in compliance with these reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements that may be imposed by the OTS. See "--Liquidity." Savings associations are authorized to borrow from the Federal Reserve Bank "discount window," but Federal Reserve Board regulations require associations to exhaust other reasonable alternative sources of funds, including FHLB borrowings, before borrowing from the Federal Reserve Bank. Federal Home Loan Bank System The Bank is a member of the FHLB of Des Moines, which is one of 12 regional FHLBs, that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the FHLB. These policies and procedures are subject to the regulation and oversight of the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member, the Bank is required to purchase and maintain stock in the FHLB of Des Moines. At March 31, 2000, the Bank had $2.0 million of FHLB stock, which was in compliance with this requirement. 32 In past years, the Bank has received substantial dividends on its FHLB stock. Over the past five fiscal years such dividends have averaged 6.81% and were 6.40% for fiscal 2000. For the fiscal year ended March 31, 2000, dividends paid by the FHLB of Des Moines to the Bank totaled approximately $129,000, which constitutes a $5,000 increase over the amount of dividends received in fiscal year 1999. No assurance can be given that such dividends will continue in the future at such levels. Under federal law, the FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to low- and moderately priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have affected adversely the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Bank's FHLB stock may result in a corresponding reduction in the Bank's capital. Federal and State Taxation Federal Taxation. Savings associations such as the Bank that met certain definitional tests relating to the composition of assets and other conditions prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), have been permitted to establish reserves for bad debts and to make annual additions thereto which, within specified formula limits, were taken as a deduction in computing taxable income for federal income tax purposes. The amount of the bad debt reserve deduction for "non-qualifying loans" was computed under the experience method. For tax years beginning before December 31, 1995, the amount of the bad debt reserve deduction for "qualifying real property loans" (generally, loans secured by improved real estate) was computed under either the experience method or the percentage of taxable income method (based on an annual election). If a savings association elected the latter method, it could claim, each year, a deduction based on a percentage of taxable income, without regard to actual bad debt experience. Under the experience method, the bad debt reserve deduction is an amount determined under a formula based generally upon the bad debts actually sustained by the savings association over a period of years. The percentage of taxable income method was repealed for years beginning after December 31, 1995, and "large" associations, i.e., the quarterly average of the association's total assets or of the consolidated group of which it is a member, exceeds $500 million for the year, may no longer be entitled to use the experience method of computing additions to their bad debt reserve. A "large" association must use the direct write-off method for deducting bad debts, under which charge-offs are deducted and recoveries are taken into taxable income as incurred. Since the Bank is not a "large" association, the Bank will continue to be permitted to use the experience method. The Bank will be required to recapture (i.e., take into income) over a six-year period its applicable excess reserves, i.e, the balance of its reserves for losses on qualifying loans and nonqualifying loans, as of March 31, 1996, the close of the last tax year beginning before January 1, 1996, over the greater of (a) the balance of such reserves as of December 31, 1987 (pre-1988 reserves) or (b) in the case of a bank which is not a "large" association, an amount that would have been the balance of such reserves as of the close of the last tax year beginning before January 1, 1996, had the bank always computed the additions to its reserves using the experience method. Postponement of the recapture is possible for a two-year period if an association meets a minimum level of mortgage lending for 1996 and 1997. As of March 31, 2000, the Bank's bad debt reserve subject to recapture over a six-year period totaled approximately $282,000. 33 If an association ceases to qualify as a "bank" (as defined in Code Section 581) or converts to a credit union, the pre-1988 reserves and the supplemental reserve are restored to income ratably over a six-year period, beginning in the tax year the association no longer qualifies as a bank. The balance of the pre-1988 reserves are also subject to recapture in the case of certain excess distributions to (including distributions on liquidation and dissolution), or redemptions of, shareholders. In addition to the regular federal income tax, corporations, including savings associations such as the Bank, generally are subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation's regular taxable income (with certain adjustments) and tax preference items, less any available exemption. The alternative minimum tax is imposed to the extent it exceeds the corporation's regular income tax and net operating losses can offset no more than 90% of alternative minimum taxable income. For taxable years beginning after 1986 and before 1996, corporations, including savings associations such as the Bank, were also subject to an environmental tax equal to 0.12% of the excess of alternative minimum taxable income for the taxable year (determined without regard to net operating losses and the deduction for the environmental tax) over $2 million. To the extent earnings appropriated to a savings association's bad debt reserves for "qualifying real property loans" and deducted for federal income tax purposes exceed the allowable amount of such reserves computed under the experience method and to the extent of the Bank's supplemental reserves for losses on loans ("Excess"), such Excess may not, without adverse tax consequences, be utilized for the payment of cash dividends or other distributions to a shareholder (including distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb bad debt losses). As of March 31, 2000, the Bank's excess for tax purposes totaled approximately $1.6 million. The Company and its subsidiaries file consolidated federal income tax returns on a fiscal year basis using the accrual method of accounting. Savings associations, such as the Bank, that file federal income tax returns as part of a consolidated group were required by applicable Treasury regulations to reduce their taxable income for purposes of computing the now expired percentage bad debt deduction for losses attributable to activities of the non-savings association members of the consolidated group that were functionally related to the activities of the savings association member. The Bank has not been audited by the IRS recently with respect to federal income tax returns. In the opinion of management, any examination of still open returns would not result in a deficiency which could have a material adverse effect on the financial condition of the Bank. Missouri Taxation. The State of Missouri has a corporate income tax; however, savings associations are exempt from such tax. Missouri-based thrift institutions, such as the Bank, are subject to a special financial institutions tax, based on net income without regard to net operating loss carryforwards, at the rate of 7% of net income as defined in the Missouri statutes. This tax is a prospective tax for the privilege of the Bank exercising its corporate franchise within the state, based on its net income for the preceding year. The tax is in lieu of all other state taxes on thrifts, except taxes on real estate, tangible personal property owned by the taxpayer and held for lease or rental to others, certain payroll taxes, and sales and use taxes. 34 Delaware Taxation. As a Delaware holding company, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual fee to the State of Delaware. The Company is also subject to an annual franchise tax imposed by the State of Delaware. Competition Hardin Federal faces strong competition, both in originating real estate loans and in attracting deposits. Competition in originating real estate loans comes primarily from commercial banks, credit unions and savings institutions located in the Bank's market area. Commercial banks, credit unions and savings institutions provide vigorous competition in consumer lending. The Bank competes for real estate and other loans principally on the basis of the quality of services it provides to borrowers, the interest rates and loan fees it charges, and the types of loans it originates. See "Business--Lending Activities." The Bank attracts all of its deposits through its retail banking offices, primarily from the communities in which those retail banking offices are located. Therefore, competition for those deposits is principally from retail brokerage offices, commercial banks, credit unions and savings institutions located in these communities. The Bank competes for these deposits by offering a variety of account alternatives at competitive rates and by providing convenient business hours, branch locations and interbranch deposit and withdrawal privileges. The Bank serves primarily Ray and Clay Counties, Missouri. There are six commercial banks, one savings institution, and one credit union which compete for deposits and loans in Ray County, Missouri. In Clay County, Missouri, there are approximately 36 commercial banks, 44 credit unions, and 10 savings institutions, other than Hardin Federal, which compete for deposits and loans in Clay County, Missouri. Employees At March 31, 2000, the Bank had a total of 31 full-time and 5 part-time employees. The Bank's employees are not represented by any collective bargaining group. Management considers its employee relations to be good. Executive Officers of the Company and the Bank Who Are Not Directors Lyndon M. Goodwin. Mr. Goodwin, age 55, is currently Vice President of the Bank responsible for the supervision of all lending operations of the Bank. Prior to joining the Bank in 1994, Mr. Goodwin was a County Supervisor of the United States Department of Agriculture, Farmer's Home Administration, for 28 years. J. Michael Schwarz. Mr. Schwarz, age 56, joined the Bank in January 1997 as Vice President of Lending at the Excelsior Springs Branch. Mr. Schwarz previously was employed as Executive Vice President of Lawson Bank, Lawson, Missouri. 35 Item 2. Description of Property ----------------------- The Bank conducts its business through three offices, which are located in Ray and Clay Counties, Missouri. The Bank owns its main office and its Richmond and Excelsior Springs, Missouri branch offices. The following table sets forth information relating to each of the Bank's offices as of March 31, 2000. The total net book value of the Bank's premises and equipment (including land, buildings and leasehold improvements and furniture, fixtures and equipment) at March 31, 2000 was approximately $1.8 million. See Note 5 of the Notes to Consolidated Financial Statements. Total Approximate Date Square Net Book Value at Location Acquired Footage March 31, 2000 - ---------------------------- -------- ------- -------------- Main Office: 1963 4600 62,128 201 Northeast Elm Street Hardin, Missouri Branch Offices:(1) 201 North Jesse James Road 1990 2024 591,842 Excelsior Springs, Missouri 200 N. Spartan Drive 1998 6800 1,123,941 Richmond, Missouri - ---------------- (1) The Bank constructed an approximate 6800 sq. foot branch office facility located at 200 N. Spartan Drive, Richmond, Missouri, which opened for business on March 31, 1998. At that time, the Bank closed its branch office which was located at 208 West Main Street in Richmond, Missouri. Hardin Federal believes that its current facilities are adequate to meet the present and foreseeable needs of the Bank and the Holding Company. The Bank maintains an on-line data base with an independent service bureau servicing financial institutions. Item 3. Legal Proceedings ----------------- The Company and Hardin Federal are involved, from time to time, as plaintiff or defendant in various legal actions arising in the normal course of their businesses. While the ultimate outcome of these proceedings cannot be predicted with certainty, it is the opinion of management, after consultation with counsel representing Hardin Federal and the Company in the proceedings, that the resolution of these proceedings should not have a material effect on the Company's financial position or results of operations on a consolidated basis. 36 Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended March 31, 2000. PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters ------------------------------------------------------------- Page 43 of the attached 2000 Annual Report to Shareholders is herein incorporated by reference. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------- Pages 5 to 16 of the attached 2000 Annual Report to Shareholders are herein incorporated by reference. Item 7. Financial Statements Pages 17 to 42 of the attached 2000 Annual Report to Shareholders are herein incorporated by reference. Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ----------------------------------------------------------- There has been no Current Report on Form 8-K filed within 24 months prior to the date of the most recent financial statements reporting a change of accountants and/or reporting disagreements on any matter of accounting principle or financial statement disclosure. PART III -------- Item 9. Directors and Executive Officers of the Registrant -------------------------------------------------- Information concerning Directors of the Registrant is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on July 27, 2000. Item 10. Executive Compensation ---------------------- Information concerning executive compensation is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on July 27, 2000. Item 11. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on July 27, 2000. 37 Item 12. Certain Relationships and Related Transactions ---------------------------------------------- Information concerning certain relationships and transactions is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on July 27, 2000. PART IV ------- Item 13. Exhibits List and Reports on Form 8-K ------------------------------------- (a) (1) Financial Statements: ----------------------------- The following information appearing in the Registrant's Annual Report to Shareholders for the year ended March 31, 2000, is incorporated by reference in this Form 10-KSB Annual Report as Exhibit 13.
Page in Annual Annual Report Section Report --------------------- ------ Report of Independent Auditors............................................................... 17 Consolidated Balance Sheets at March 31, 2000 and 1999....................................... 18 Consolidated Statements of Earnings for the Years ended March 31, 2000, 1999 and 1998........ 19 Consolidated Statements of Stockholders' Equity for the Years ended March 31, 2000, 1999 and 1998............................................................... 20 Consolidated Statements of Cash Flows for the Years ended March 31, 2000, 1999 and 1998.............................................................................. 21 Notes to Consolidated Financial Statements................................................... 23
(a) (2) Financial Statement Schedules: -------------------------------------- All financial statement schedules have been omitted as the information is not required under the related instructions or is inapplicable. (a) (3) Exhibits: ----------------- 38 Reference to Regulation Prior Filing or S-B Exhibit Exhibit Number Number Document Attached Hereto - ----------- -------------------------------------- ----------------- 2 Plan of acquisition, reorganization, None arrangement, liquidation or succession 3 Certificate of Incorporation and Bylaws * 4 Instruments defining the rights of * security holders, including indentures 9 Voting trust agreement None 10.1 1995 Stock Option and Incentive Plan ** 10.2 Employment Agreement with Robert W. King * 10.3 Employment Agreement with Karen K. * Blankenship 10.4 Employee Stock Ownership Plan * 10.5 Recognition and Retention Plan ** 10.6 Deferred Compensation Agreement * 10.7 Compensation Agreement with Directors * 11 Statement re: computation of per None share earnings 12 Statement re: computation or ratios Not required 13 Annual Report to Security Holders 13 16 Letter re: change in certifying None accountant 18 Letter re: change in accounting None principles 21 Subsidiaries of Registrant 21 22 Published report regarding matters None submitted to vote of security holders 39 Reference to Regulation Prior Filing or S-B Exhibit Exhibit Number Number Document Attached Hereto - ----------- -------------------------------------- ----------------- 23 Consent of experts and counsel 23 24 Power of Attorney Not Required 27 Financial Data Schedule 27 28 Information from reports furnished to None State insurance regulatory authorities 99 Additional exhibits None - ------------------- *Filed on June 23, 1995, as exhibits to the Registrant's Form S-1 registration statement (Registration No. 33-93888), pursuant to the Securities Act of 1933. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. **Filed on March 18, 1996, as exhibits to the Registrant's definitive proxy statement relating to the Registrant's special meeting of stockholders held on April 16, 1996. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. (b) Reports on Form 8-K: ------------------------ No current reports on Form 8-K were filed by the Company during the three months ended March 31, 2000. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HARDIN BANCORP, INC. Date: June 28, 2000 By: /s/ Robert W. King ------------------------------- Robert W. King (Duly Authorized Representative) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Robert W. King By: /s/ Ivan R. Hogan -------------------------------------- ---------------------------- Robert W. King, President Ivan R. Hogan Chief Executive Officer and Director Chairman of the Board Date: June 28, 2000 Date: June 28, 2000 By: /s/ Karen K. Blankenship By: /s/ David K. Hatfield -------------------------------------- ---------------------------- Karen K. Blankenship, Senior Vice David K. Hatfield, Director President, Secretary and Director (Principal Accounting Officer) Date: June 28, 2000 Date: June 28, 2000 By: /s/ David D. Lodwick By: /s/ W. Levan Thurman -------------------------------------- ---------------------------- David D. Lodwick, Director W. Levan Thurman, Director Date: June 28, 2000 Date: June 28, 2000 By: /s/ William L. Homan -------------------------------------- William L. Homan, Vice President, Treasurer and Director (Principal Financial Officer) Date: June 28, 2000 EXHIBIT INDEX 3 Certificate of Incorporation and Bylaws* 4 Instruments defining the rights of security holders, including indentures* 10.1 1995 Stock Option and Incentive Plan** 10.2 Employment Agreement with Robert W. King* 10.3 Employment Agreement with Karen K. Blankenship* 10.4 Employee Stock Ownership Plan* 10.5 Recognition and Retention Plan** 10.6 Deferred Compensation Agreement* 10.7 Compensation Agreement with Directors* 13 Annual Report to Security Holders 21 Subsidiaries of Registrant 23 Consent of experts and counsel 27 Financial Data Schedule - --------------- *Filed on June 23, 1995, as exhibits to the Registrant's Form S-1 registration statement (Registration No. 33-93888), pursuant to the Securities Act of 1933. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. **Filed on March 18, 1996, as exhibits to the Registrant's definitive proxy statement relating to the Registrant's special meeting of stockholders held on April 16, 1996. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. EX-13 2 0002.txt 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 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 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 HARDIN BANCORP, INC. ----------------------- SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA -------------------------------------------------- Set forth below are selected consolidated financial and other data of the Company. The financial data is derived in part from, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto presented elsewhere in this Annual Report.
At or for the years ended March 31, ------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (Dollars in Thousands except per share data) 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 ============== =============== ============== =============== ==============
3
At or for the years ended March 31, ------------------------------------------------------ 2000 1999 1998 1997 1996 --------- -------- -------- -------- --------- 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
(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 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 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
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) 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% =========== ===========
Year Ended March 31, ----------------------------------------- 1998 ----------------------------------------- Average Interest Outstanding Earned / Yield / Balance Paid Rate ------------- ----------- ----------- 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% ===========
(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 The following table presents the weighted average yields earned on loans, mortgage-backed securities, investment, and other interest-earning assets, and the weighted average rates paid on deposits and borrowings and the resultant interest rate spreads at the dates indicated.
March 31, ------------------------------------------- 2000 1999 1998 ---- ---- ---- 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 % ========== ========== ==========
8 Rate/Volume Analysis The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes due to changes in outstanding balances and those due to changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by prior interest rate) and (ii) changes in rates (i.e., changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the changes due to volume and the changes due to rate.
Year Ended March 31, --------------------------------------------------------------------------------------- 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) 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 ========= ======== ========= ========= ======== ===========
9 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 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 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
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) 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 %
13 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.
- -------------------------------------------------------------------------------------------- Net Portfolio Value NPV as % of PV of Assets Change in Rates $ Amount $ Change % Change NPV Ratio Change - -------------------------------------------------------------------------------------------- (Dollars in Thousands) +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 - --------------------------------------------------------------------------------------------
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 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 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 HARDIN BANCORP, INC. AND SUBSIDIARIES Consolidated Financial Statements and Schedules March 31, 2000, 1999, and 1998 (With Independent Auditors' Report Thereon) 17 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 HARDIN BANCORP, INC. AND SUBSIDIARIES Consolidated Balance Sheets March 31, 2000 and 1999
Assets 2000 1999 --------------- -------------- 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 =============== ==============
See accompanying notes to consolidated financial statements. 19 HARDIN BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Earnings Years ended March 31, 2000, 1999, and 1998
2000 1999 1998 ----------- ----------- ---------- 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 =========== =========== ==========
See accompanying notes to consolidated financial statements. 20 HARDIN BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity and Comprehensive Income Years ended March 31, 2000, 1999, and 1998
Accumulated Additional other comprehensive Unearned Common paid-in Retained income employee Treasury stock capital earnings (loss) benefits stock Total --------- ---------- ----------------------- ------------ --------- ---------- 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 ========= ========== ========= ========= ========== ========== ==========
See accompanying notes to consolidated financial statements. 21 HARDIN BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended March 31, 2000, 1999, and 1998
2000 1999 1998 ------------- ------------- -------------- 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) ------------- ------------- --------------
(Continued) 22 HARDIN BANCORP, INC. AND SUBSIDIARIES Hardin, Missouri Consolidated Statements of Cash Flows, Continued Years ended March 31, 2000, 1999, and 1998
2000 1999 1998 ------------- ------------- -------------- 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 ============= ============= ==============
See accompanying notes to consolidated financial statements. 23 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 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 (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 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:
March 31, 2000 -------------------------------------------------------------- Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value --------------- --------------- -------------- -------------- 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 =============== =============== ============== ============== March 31, 1999 -------------------------------------------------------------- Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value --------------- --------------- -------------- -------------- 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 =============== =============== ============== ==============
27 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:
March 31, 2000 --------------------------------------------------------------- Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value --------------- --------------- --------------- --------------- 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 =============== =============== =============== ===============
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 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 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 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:
2000 1999 Stated ----------------------------- ----------------------------- rate Amount Percent Amount Percent ----------------- -------------- ----------- -------------- ----------- 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 ============== ==============
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 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:
2000 1999 --------------- -------------- $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 =============== ==============
The advances from the FHLB are collateralized by first mortgage loans and investment securities. (Continued) 32 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 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:
2000 1999 ---------------- ---------------- 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 ============== ================
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 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 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 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 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:
Total Leverage risk- risk- Tangible Core based based capital capital capital capital -------------- -------------- ------------- -------------- 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 ============== ============== ============= ==============
(Continued) 38 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:
2000 1999 ----------------------------------------- --------------------------------------- Carrying Estimated Carrying Estimated amount fair value amount fair value ------------------- ------------------ ----------------- ------------------ 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 =================== ================== ================= ==================
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 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 HARDIN BANCORP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2000, 1999, and 1998 (14) Parent Company Condensed Financial Statements
Condensed Balance Sheets March 31, 2000 and 1999 Assets 2000 1999 ------------------ ----------------- 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 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 ================== =================
(Continued) 41 HARDIN BANCORP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2000, 1999, and 1998
Condensed Statements of Cash Flows Years ended March 31, 2000 and 1999 2000 1999 -------------- -------------- 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 =============== ==============
42 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 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 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 ================================================================================ HARDIN BANCORP, INC. Holding Company for Hardin Federal Savings Bank 2000 Annual Report ================================================================================ [Graphic of HFSA a Globe] ---------- NASDAQ ---------- Listed/TM/ EX-21 3 0003.txt SUBSIDIARIES OF REGISTRANT
EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Percentage of State of Incorporation Parent Subsidiary Ownership or Organization ------ ---------- ------------- ---------------------- Hardin Bancorp, Inc. Hardin Federal Savings Bank 100% Federal Hardin Federal Hardin Savings Service Savings Bank Corporation 100% Missouri Hardin Federal Hardin Investment LLC 100% Missouri Savings Bank
EX-23 4 0004.txt ACCOUNTANTS' CONSENT Accountants' Consent The Board of Directors Hardin Bancorp, Inc.: We consent to the incorporation by reference in the registration statements on Form S-8 of Hardin Bancorp, Inc. of our report dated May 19, 2000, relating to the consolidated balance sheets of Hardin Bancorp, Inc. and subsidiaries as of March 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and other comprehensive income, and cash flows for each of the years in the three-year period ended March 31, 2000, which report appears in the annual report on Form 10-KSB of Hardin Bancorp, Inc. for the fiscal year ended March 31, 2000 filed pursuant to the Securities Exchange Act of 1934, as amended. /s/KPMG LLP - ----------- Kansas City, Missouri June 28, 2000 EX-27 5 0005.txt
9 1,000 YEAR MAR-31-2000 MAR-31-2000 1,418 3,332 0 0 49,599 0 0 78,363 304 138,451 86,565 23,300 1,159 15,000 0 0 11 12,415 138,451 6,015 3,352 251 9,618 3,759 5,735 3,883 1 7 2,802 1,956 1,956 0 0 1,272 1.84 1.78 7.15 111 0 0 628 311 11 3 304 290 0 14
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