UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- --------
Commission File Number 0-27940
HARRINGTON FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 48-1050267
- --------------------------------------------------- ------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
722 East Main
Richmond, Indiana 47374
- --------------------------------------------------- ------------------------
(Address of principal executive office) (Zip Code)
(765) 962-8531
----------------------------------------------------
(Registrant's telephone number, including area code)
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
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of February 10,
2000, there were issued and outstanding 3,205,382 shares of the Registrant's
Common Stock, par value $.125 per share.
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999
(unaudited) and June 30, 1999 1
Consolidated Statements of Operations (unaudited) for the three
and six months ended December 31, 1999 and 1998 2
Consolidated Statements of Cash Flows (unaudited) for the six
months ended December 31, 1999 and 1998 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II.Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security-Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
December 31, June 30,
1999 1999
--------- ---------
ASSETS
Cash $ 3,358 $ 1,414
Interest-bearing deposits 10,031 8,087
--------- ---------
Total cash and cash equivalents 13,389 9,501
Securities held for trading - at fair value
(amortized cost of $121,141 and $188,130) 116,571 183,200
Securities available for sale - at fair value
(amortized cost of $1,310 and $461) 1,356 502
Securities held to maturity - at amortized cost 1,651 --
Loans receivable, net 276,361 259,674
Interest receivable, net 2,153 2,340
Premises and equipment, net 6,205 6,499
Federal Home Loan Bank of Indianapolis stock 4,879 4,878
Other 5,266 4,745
--------- ---------
Total assets $ 427,831 $ 471,339
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 362,078 $ 333,245
Securities sold under agreements to repurchase 28,820 60,198
Federal Home Loan Bank advances -- 40,000
Interest payable on securities sold under agreements to
repurchase 25 66
Other interest payable 2,044 1,925
Note payable 14,995 13,995
Advance payments by borrowers for taxes & insurance 705 795
Accrued expenses payable and other liabilities 746 1,039
--------- ---------
Total liabilities 409,413 451,263
--------- ---------
Minority interest 888 937
--------- ---------
Common stock 425 425
Additional paid-in-capital 16,946 16,946
Treasury stock, 194,556 shares at cost (2,162) (2,162)
Retained earnings 2,293 3,905
Accumulated other comprehensive income, net of taxes 28 25
--------- ---------
Total stockholders' equity 17,530 19,139
--------- ---------
Total liabilities and stockholders' equity $ 427,831 $ 471,339
========= =========
See notes to unaudited consolidated financial statements.
1
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Dollars in Thousands Except Share Data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
INTEREST INCOME
Securities held for trading $ 3,033 $ 5,168 $ 6,290 $ 10,936
Securities available for sale 26 19 36 39
Securities held to maturity 29 -- 34 --
Loans receivable 5,025 3,709 9,766 6,905
Dividends on Federal Home Loan Bank stock 98 98 197 197
Deposits 201 161 373 278
Net interest income (expense) on interest rate
contracts maintained in the trading portfolio 41 (271) (56) (553)
-------- -------- -------- --------
Interest income 8,453 8,884 16,640 17,802
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 4,466 3,495 8,664 6,221
Federal Home Loan Bank advances 353 654 1,106 1,155
Short-term borrowings 1,052 3,402 2,014 7,856
Long-term borrowings 323 274 614 568
-------- -------- -------- --------
Interest expense 6,194 7,825 12,398 15,800
-------- -------- -------- --------
NET INTEREST INCOME 2,259 1,059 4,242 2,002
PROVISION FOR LOAN LOSSES 197 95 314 245
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,062 964 3,928 1,757
-------- -------- -------- --------
OTHER INCOME (LOSS)
Gain (loss) on sale of securities held for trading (959) 2,927 (2,008) (6,314)
Unrealized gain (loss) on securities held for
trading 1,352 (1,963) 360 3,808
Other 195 114 336 214
-------- -------- -------- --------
Total other income (loss) 588 1,078 (1,312) (2,292)
-------- -------- -------- --------
OTHER EXPENSE
Salaries and employee benefits 1,300 984 2,656 1,931
Premises and equipment expense 391 286 794 574
FDIC insurance premiums 50 26 96 52
Marketing 118 81 220 181
Computer services 160 88 302 170
Consulting fees 70 76 143 150
Other 413 351 813 748
-------- -------- -------- --------
Total other expenses 2,502 1,892 5,024 3,806
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION AND MINORITY INTEREST 148 150 (2,408) (4,341)
INCOME TAX PROVISION (BENEFIT) 56 60 (940) (1,721)
-------- -------- -------- --------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST 92 90 (1,468) (2,620)
MINORITY INTEREST 20 -- 49 --
-------- -------- -------- --------
NET INCOME (LOSS) $ 112 $ 90 $ (1,419) $ (2,620)
======== ======== ========= ========
BASIC EARNINGS (LOSS) PER SHARE $ 0.03 $ 0.03 $ (0.44) $ (0.81)
======== ======== ========= ========
DILUTED EARNINGS (LOSS) PER SHARE $ 0.03 $ 0.03 $ (0.44) $ (0.81)
======== ======== ========= ========
See notes to unaudited consolidated financial statements.
2
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Six Months Ended
December 31,
--------------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,419) $ (2,620)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for loan losses 314 245
Depreciation 384 250
Premium and discount amortization of securities, net 1,068 1,109
Loss on sale of securities held for trading 2,008 6,314
Unrealized gain on securities held for trading (360) (3,808)
Effect of minority interest (49) --
Purchases of securities held for trading (290,894) (363,271)
Increase in amounts due to brokers -- 3,898
Proceeds from maturities of securities held for trading 8,340 26,619
Proceeds from sales of securities held for trading 346,467 339,687
Deferred income tax provision and other 1,023 95
Net decrease in assets and other liabilities (1,583) (434)
--------- ---------
Net cash provided by operating activities 65,299 8,084
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities held to maturity (1,662) --
Purchases of securities available for sale (980) --
Proceeds from maturities of securities held to maturity 11 --
Proceeds from maturities of securities available for sale 127 39
Increase in loans receivable, net (17,080) (71,563)
Purchases of premises and equipment (90) (492)
--------- ---------
Net cash used in investing activities (19,674) (72,016)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 28,833 99,602
Decrease in securities sold under agreements to repurchase (31,378) (49,271)
Proceeds from Federal Home Loan Bank advances 3,000 53,000
Principal repayments on Federal Home Loan Bank advances (43,000) (39,000)
Proceeds from note payable 1,000 --
Purchase of treasury stock -- (784)
Proceeds from issuance of treasury stock -- 73
Dividends paid on common stock (192) (194)
--------- ---------
Net cash provided by (used in) financing activities (41,737) 63,426
--------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 3,888 (506)
CASH AND CASH EQUIVALENTS
Beginning of period 9,501 11,779
--------- ---------
CASH AND CASH EQUIVALENTS
End of period $ 13,389 $ 11,273
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 12,132 $ 16,277
See notes to unaudited consolidated financial statements.
3
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1 - Business of the Company
-----------------------
Harrington Financial Group, Inc. (the "Company") is an
Indiana-chartered, registered thrift holding company incorporated in
1988 to acquire and hold all of the outstanding common stock of
Harrington Bank, FSB (the "Bank"), a federally chartered savings bank
with principal offices in Richmond, Indiana and eight full-service
banking offices, five of which were opened within the past two years.
The Company is a community-focused financial institution with three
distinct banking units in Indiana, Kansas, and North Carolina. The
Company's business includes the gathering of deposits, the origination
of mortgage related and consumer loans, and the operation of a
commercial loan division for business customers. It also owns a 51%
interest in Harrington Wealth Management Company ("HWM"), which provides
trust, investment management, and custody services for individuals and
institutions (see Note 2). The Company manages a hedged mortgage
investment portfolio, on a mark-to-market basis, to utilize excess
capital until it can be deployed in community banking assets.
Earnings per Share
------------------
The following is a reconciliation of the weighted average common shares
for the basic and diluted earnings per share computations in accordance
with Statement of Accounting Standards (SFAS) No. 128:
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Basic earnings per share:
Weighted average common shares 3,205,382 3,205,339 3,205,382 3,227,694
========= ========= ========= =========
Diluted earnings per share:
Weighted average common shares 3,205,382 3,205,339 3,205,382 3,227,694
Dilutive effect of stock options (1) --- --- --- ---
--------- --------- --------- ---------
Weighted average common and
incremental shares 3,205,382 3,205,339 3,205,382 3,227,694
========= ========= ========= =========
(1) No dilutive effect of stock options for the three and six months ended
December 31, 1999 and 1998 was used in the calculation as the effects
of the stock options were anti-dilutive.
Note 2 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of results for
the interim periods.
4
The results of operations for the three and six months ended December
31, 1999 are not necessarily indicative of the results to be expected
for the year ending June 30, 2000. The unaudited consolidated financial
statements and notes thereto should be read in conjunction with the
audited financial statements and notes thereto for the year ended June
30, 1999.
In February 1999, the Company formed HWM. HWM is a strategic alliance
between the Bank (51% owner) and Los Padres Bank (49% owner), a
federally chartered savings bank located in California. HWM provides
trust and investment management services for individuals and
institutions. The accompanying unaudited consolidated balance sheets
include 100 percent of the assets and liabilities of HWM and the
ownership of Los Padres Bank is recorded as "Minority interest." The
results of operations for the three and six months ended December 31,
1999 include 100 percent of the revenues and expenses of HWM from the
date of formation, and the ownership of Los Padres Bank is recorded as
"Minority interest" net of taxes.
Note 3 - Recent Accounting Pronouncements
--------------------------------
The Company adopted SFAS No. 130, Comprehensive Income, effective July
1, 1998. It requires that changes in the amounts of certain items,
including gains and losses on certain securities, be shown in the
financial statements. SFAS No. 130 does not require a specific format
for the financial statement in which comprehensive income is reported,
but does require that an amount representing total comprehensive income
be reported in that statement. All prior year financial statements have
been reclassified for comparative purposes.
The following is a summary of the Company's total comprehensive income
(loss) for the interim three and six month periods ended December 31,
1999 and 1998 under SFAS No. 130:
Three Months Ended Six Months Ended
(Dollars in Thousands) December 31, December 31,
1999 1998 1999 1998
------- ------- ------- -------
Net income (loss) $ 112 $ 90 $(1,419) $(2,620)
------- ------- ------- -------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period (1) 6 3 19
------- ------- ------- -------
Other comprehensive income (loss) (1) 6 3 19
------- ------- ------- -------
COMPREHENSIVE INCOME (LOSS) $ 111 $ 96 $(1,416) $(2,601)
======= ======= ======= =======
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998 and amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of SFAS 133. SFAS 133, as amended by SFAS 137, is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. If certain conditions are met, a derivative
may be specifically
5
designated as a fair value hedge, a cash flow hedge, or a hedge of
foreign currency exposure. The accounting for changes in the fair value
of a derivative (that is, gains and losses) depends on the intended use
of the derivative and the resulting designation. Management is currently
in the process of determining the effect, if any, of the new standard on
the financial statements.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
At December 31, 1999, the Company's total assets amounted to $427.8
million, as compared to $471.3 million at June 30, 1999. The $43.5 million or
9.2% decrease in total assets during the six months ended December 31, 1999 was
primarily the result of a $66.6 million decrease in securities held for trading
which was partially offset with a $16.7 million increase in net loans receivable
and a $3.9 million increase in cash and cash equivalents. The decrease in
securities held for trading is a result of the Company's reduction in the size
of its investment portfolio due to narrowing mortgage spreads to Treasury, to
allow for growth of loans, and to somewhat reduce earnings volatility from mark
to market accounting. The increase in net loans receivable primarily reflected
the Company's increase in the origination of business loans through its
commercial division. The decrease in the Company's assets from June 30, 1999 to
December 31, 1999 resulted in a $31.4 million decrease in securities sold under
agreements to repurchase and a $40.0 million decrease in Federal Home Loan Bank
advances which were partially offset by a $28.8 million increase in deposits.
The growth in the deposits was primarily due to the retail deposit growth from
the new North Carolina banking unit.
Minority interest decreased by $49,000 to $888,000 at December 31, 1999.
The financial statements as of and for the three and six month periods ended
December 31, 1999 include all of the assets, liabilities, and results of
operations for HWM. The minority interest represents the portion of the assets,
liabilities, and results of operations attributable to the ownership interest of
Los Padres Bank.
At December 31, 1999, the Company's stockholders' equity amounted to
$17.5 million, as compared to $19.1 million at June 30, 1999. The 8.4% decrease
in stockholders' equity was primarily due to the $1.4 million of net loss
recognized during the six month period and the quarterly $0.03 per share
payments of cash dividends totaling $192,000. At December 31, 1999, the Bank's
Tier 1 core capital amounted to $31.7 million or 7.4% of adjusted total assets,
which exceeded the minimum 4.0% requirement by $14.7 million. Additionally, as
of such date, the Bank's risk-based capital totaled $32.9 million or 11.3% of
total risk-adjusted assets, which exceeded the minimum 8.0% requirement by $9.5
million.
Results of Operations
General. The Company reported earnings of $112,000 or $0.03 per share
and losses of $1.4 million or $0.44 per share during the three and six months
ended December 31, 1999, as compared to earnings of $90,000 or $0.03 per share
and losses of $2.6 million or $0.81 per share during the prior comparable
periods. The $22,000 increase in earnings during the three months ended December
31, 1999, as compared to the same period in the prior year, was primarily due to
a $1.2 million increase in net interest income which was partially offset by a
$610,000 increase in operating expenses, a $571,000 decrease in realized and
unrealized net gains on securities held for trading, and a $102,000 increase in
the provision for loan losses. The $1.2 million decrease in losses during the
six months ended December 31, 1999, as compared to the same period in the
7
prior year, was primarily due to a $2.2 million increase in net interest income
and a $858,000 decrease in realized and unrealized net losses on securities held
for trading which were partially offset by a $1.2 million increase in operating
expenses, and a $781,000 decrease in the Company's income tax provision.
Selected Financial Ratios. The following schedule shows selected
financial ratios for the three and six months ended December 31, 1999 and 1998.
At or for the Three At or for the Six
Months Ended Months Ended
December 31, December 31,
----------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
Return on average assets 0.09% 0.06% -0.58% -0.90%
Return on average equity 2.58 1.93 -16.18 -26.19
Interest rate spread (1) 1.76 0.75 1.67 0.68
Net interest margin (2) 1.89 0.75 1.76 0.72
Operating expenses to average assets 2.05 1.28 2.05 1.31
Efficiency ratio (3) 110.85 175.51 117.83 193.10
Non-performing assets to total assets 0.15 0.15 0.15 0.15
Loan loss reserves to non-performing loans 515.33 289.47 515.33 289.47
- -------------------------
(1) Interest rate spread is the difference between interest income as a
percentage of interest-earning assets and interest expense as a percentage of
interest-bearing liabilities.
(2) Net interest margin is net interest income divided by average
interest-earning assets.
(3) The efficiency ratio is total other expense as a percentage of the net
interest income after provision for loan losses plus other income, excluding
gains and losses on securities held for trading.
Interest Income. Interest income decreased by $431,000 or 4.9% during
the three months ended December 31, 1999, as compared to the same period in the
prior year. This decrease was primarily due to a $2.1 million decrease in
interest income from the Company's investment portfolio which was partially
offset by a $1.3 million increase in interest income from the loan portfolio and
a $312,000 decrease in net interest expense on interest rate contracts
maintained in the trading portfolio. The decrease in interest income from the
Company's investment portfolio was a result of a $148.6 million decrease in the
level of the average investment portfolio which was partially offset by a 41
basis point increase in the interest yield earned. The Company substantially
reduced the investment portfolio for three reasons: (1) mortgage spreads to
Treasury have narrowed, (2) to allow for the growth of loans, and (3) to reduce
earnings volatility from mark-to-market accounting. The increase in interest
income on the loan portfolio was a direct result of the $60.2 million increase
in the level of the average loan portfolio in addition to a 37 basis point
increase in the interest yield earned. The net increase in the average balance
and interest yield earned on the Company's loan portfolio is primarily due to
the origination of business loans through its commercial division.
Interest income decreased by $1.2 million or 6.53% during the six months
ended December 31, 1999, as compared to the same period in the prior year. This
decrease was primarily due to a $4.6 million decrease in interest income from
the Company's investment portfolio which was partially offset by a $2.9 million
increase in interest income from the loan portfolio and a $497,000 decrease in
net interest expense on interest rate contracts maintained in the trading
portfolio. The decrease in interest income from the Company's investment
portfolio was a result of a $154.2 million decrease in the level of the average
investment portfolio which
8
was partially offset by a 21 basis point increase in the interest yield earned.
The increase in interest income on the loan portfolio was a direct result of the
$72.8 million increase in the level of the average loan portfolio in addition to
a 19 basis point increase in the interest yield earned.
Interest Expense. Interest expense decreased by $1.6 million during the
three months ended December 31, 1999, as compared to the same period in the
prior year. This decrease was primarily due to a $98.4 million decrease in the
level of average interest-bearing liabilities and a 23 basis point decrease in
the cost of interest-bearing liabilities resulting from an overall decrease in
the wholesale and retail funding costs and a higher mix of low cost deposits.
Interest expense decreased by $3.4 million during the six months ended
December 31, 1999, as compared to the same period in the prior year. This
increase was primarily due to a $86.1 million decrease in the level of average
interest-bearing liabilities and a 41 basis point decrease in the cost of
interest-bearing liabilities.
Net Interest Income. Net interest income increased by $1.2 million or
113.3% during the three months ended December 31, 1999, as compared to the same
period in the prior year. Net interest income increased by $2.2 million or
111.9% during the six months ended December 31, 1999, as compared to the same
period in the prior year.
Provision for Loan Losses. During the three and six months ended
December 31, 1999, the Company increased the general allowance for loan losses
by $197,000 and $314,000, respectively, in response to the continued loan
growth. Delinquencies and loan write-offs continue to be minimal, and the
non-performing assets remain stable. During the three and six months ended
December 31, 1998, the Company increased the general allowance for loan losses
by $95,000 and $245,000, respectively, in response to the continued loan growth.
Other Income (Loss). Total other income (loss) amounted to $588,000 and
$(1.3) million during the three and six months ended December 31, 1999, as
compared to $1.1 million and $(2.3) million during the respective periods in the
prior year. Other income (loss) principally represents the net market value gain
or loss (realized or unrealized) on securities held for trading, offset by the
net market value gain or loss (realized or unrealized) on interest rate
contracts used for hedging such securities. Management's goal is to attempt to
offset any change in the fair value of its securities portfolio with the change
in the fair value of the interest rate risk management contracts and
mortgage-backed derivative securities utilized by the Company to hedge its
interest rate exposure. In addition, management attempts to produce a positive
hedged excess return (i.e. total return, which includes interest income plus
realized and unrealized net gains/losses on investments minus the one month
LIBOR funding cost for the period) on the investment portfolio using
option-adjusted pricing analysis.
During the three months ended December 31, 1999, the Company recognized
$3.5 million of realized losses on the sale of securities held for trading, $2.5
million of realized gains on futures instruments and $1.4 million of unrealized
gains on securities and hedges held for trading. During the six months ended
December 31, 1999, the Company recognized $4.3 million of realized losses on the
sale of securities held for trading, $2.3 million of realized gains on futures
instruments and $360,000 of unrealized gains on securities and hedges held for
trading. The total net realized and unrealized gain of $393,000 for the December
31, 1999 quarter was attributable to the narrowing of mortgage spreads and the
selection of high performing CMBS
9
(commercial mortgage backed securities), as the gain on interest rate contracts
hedging the investment portfolio exceeded the loss on the investment securities.
The total net realized and unrealized loss of $1.6 million for the six months
ended December 31, 1999 was due to overall wider spreads between comparable
duration U.S. Treasury hedges and mortgage rates existing on June 30, 1999. This
period's spread widening was supply-driven, as the issuance of corporate bonds
was very heavy in the quarter, and financing and thus mortgage spreads were put
under pressure as the Year 2000 approached.
During the three months ended December 31, 1998, the Company recognized
$1.1 million of realized gains on the sale of securities held for trading, $1.8
million realized gains on futures instruments and $2.0 million of unrealized
losses on securities and hedges held for trading. During the six months ended
December 31, 1998, the Company recognized $1.9 million of realized gains on the
sale of securities held for trading, $8.2 million of realized losses on futures
instruments and $3.8 million of unrealized gains on securities and hedges held
for trading. Losses on hedge contracts during the first half of the six months
ended December 31, 1998 substantially exceeded gains on mortgage investments as
U.S. Treasury and mortgage rates declined to the lowest level in many years. The
primary reasons for the underperformance of mortgages were (1) fears of an
unprecedented wave of mortgage refinancings and (2) dramatically increased
volatility in many financial markets (stocks, corporate bonds, and emerging
markets). This volatility caused a flight to quality that increased risk
premiums and widened spreads to comparable Treasury securities in all of these
markets, including mortgage securities. During the latter half of the six months
ended December 31, 1998, the slight narrowing of risk adjusted spreads on
mortgages and strategic trades between adjustable and fixed rate securities
contributed to a significant improvement in performance, as hedge gains exceeded
the losses on the mortgage investments.
Other Expense. Total other expense amounted to $2.5 million and $5.0
million during the three and six months ended December 31, 1999, as compared to
$1.9 million and $3.8 million during the respective period in the prior year.
The increase in total other expense was due to increases in salaries, premises
and equipment expense, and other operating expenses, which were primarily the
result of the Company's retail growth (including the opening of new branch
offices in Mission, Kansas and Chapel Hill, North Carolina), the operating
systems conversion, and Year 2000 compliance related expenses.
Income Tax Provision (Benefit). The Company recorded an income tax
provision of $56,000 during the three months ended December 31, 1999 as compared
to $60,000 during the respective period in the prior year. For the six months
ended December 31, 1999 and 1998, the Company recorded income tax benefits of
$940,000 and $1.7 million, respectively. During the three and six months ended
December 31, 1999, the Company's effective tax rate amounted to 37.8% and 39.0%
as compared to 40.0% and 39.6% during the same periods in 1998.
Liquidity and Capital Resources
The Bank is required under applicable federal regulations to maintain
specified levels of "liquid" investments as defined by the Office of Thrift
Supervision ("OTS"). As of November 24, 1997, the required level of such liquid
investments was changed from 5% to 4% of certain liabilities as defined by the
OTS. In addition to the change in the percentage of required level of
10
liquid assets, the OTS also modified its definition of investments that are
considered liquid. As a result of this change, the level of assets eligible for
regulatory liquidity calculations increased considerably.
The total eligible regulatory liquidity of the Bank was 14.6% at
December 31, 1999, as compared to 16.7% and 15.6% at June 30, 1999 and 1998,
respectively. At December 31, 1999, the Bank's average "liquid" assets totaled
approximately $67.0 million, which was $48.7 million in excess of the current
OTS minimum requirement.
At December 31, 1999, the Company's total approved originated loan
commitments outstanding amounted to $8.9 million, and the unused lines of credit
outstanding totaled $19.9 million. At the same date, commitments outstanding to
purchase investment securities and loans were $25.0 million. Certificates of
deposit scheduled to mature in one year or less at December 31, 1999 totaled
$143.3 million. The Company believes that it has adequate resources to fund
ongoing commitments such as investment security and loan purchases as well as
deposit account withdrawals and loan commitments.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
In addition to historical information, forward-looking statements are
contained herein that are subject to risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations, include, but are not limited to, the impact of economic conditions
(both generally and more specifically in the markets in which the Company
operates), the impact of competition for the Company's customers from other
providers of financial services, the impact of government legislation and
regulation (which changes from time to time and over which the Company has no
control), and other risks detailed in this Form 10-Q and in the Company's other
Securities and Exchange Commission (SEC) filings. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements, to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the SEC.
Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company's
computer programs and those of third-party computer related providers may
recognize a date using "00" as the year 1900 rather than the year 2000. This
situation could result in system failures or miscalculations causing disruption
of operations that could affect the ability of the Company to operate
effectively and service customers.
I. THE COMPANY'S STATE OF READINESS
The Company has prepared for the Year 2000 by testing and evaluating
both its information technology (IT) and non-information technology systems. The
Company does not
11
have any mission critical processes that are dependent on non-IT systems. The
non-IT systems, such as the telephone system, are currently Year 2000 compliant.
The IT systems used by the Company have been extensively tested. The components
of the IT systems that were examined are: 1) personal computers (PCs), hardware
and software, 2) data service bureau, and 3) other service providers.
The hardware and software on all the PCs used by the Company have been
inventoried and tested. The limited number of PCs and software that were not
Year 2000 compliant were replaced in the first quarter of calendar year 1999.
The Company converted its data service provider to the Vision platform
supplied by FISERV. The conversion was accomplished in April of 1999. FISERV
provided the Company with assurances and documentation that the Vision product
was Year 2000 compliant. Over one hundred sixty (160) FISERV clients tested the
Vision platform in 1998 and did not find any material Year 2000 problems. The
Company conducted tests in May 1999 on the Vision software system to confirm
this compliance. The tests performed by the Company did not find any problems
related to the Year 2000.
Other service providers, such as the Company's financial advisors or
the FHLB of Indianapolis, have provided the Company with materials that show
that they are Year 2000 compliant. As part of the Company's Year 2000 compliance
program, the Company has been monitoring the vendors' progress toward compliance
and, if necessary, has tested systems to help ensure compliance.
II. THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The limited number of PCs and software that were not Year 2000
compliant were replaced in the first quarter of calendar year 1999. The cost of
replacing these machines and software was approximately $43,500 in capitalized
fixed assets in fiscal year 1999. The Company did not incur any significant
outlays related to Year 2000 issues or readiness as of December 31, 1999.
III. THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES
The Company has established parameters and processes for management to
identify material customers, evaluate their preparedness, assess their credit
risk and implement controls to manage the risk arising from their failure to
properly address Year 2000 technology issues. The Company faces increased
credit, liquidity, or counterparty trading risk when customers encounter Year
2000-related problems. Customers that must be evaluated and monitored are those
that, if adversely impacted by Year 2000 technology issues, represent a
significant financial exposure to the Company in terms of either credit loss or
liquidity. The organizations that have been identified as material customers of
the Company are being monitored because of their reliance on technology for
their successful business operations.
Failure of borrowers, counterparties or servicers to address Year 2000
problems may increase credit risk to the Company through the inability of these
parties to meet the terms of
12
their contracts and make timely payments of principal and interest to the
Company. Liquidity risk may result if depositors, lenders or counterparties
experience Year 2000-related business disruption or operational failures and are
unable to provide funds or fulfill funding commitments to the Company. Capital
market counterparties, such as trading counterparties or interest rate swap or
interest rate cap/floor counterparties, provide contracts that allow the Company
to enter into forward commitments to purchase or sell securities or to use
hedges to reduce interest rate risk. Liquidity and credit risk may result if
capital market counterparties are unable to fulfill contractual commitments due
to operational problems caused by the Year 2000 date change.
In those cases where the Company is not fully satisfied that its
counterparties will be Year 2000 ready, mitigating controls will be established
such as early termination agreements, additional collateral, netting
arrangements, and third-party payment arrangements or guarantees. In cases where
the Company has a high degree of uncertainty regarding a counterparty's ability
to address its Year 2000 problems, the Company avoided all transactions with
that counterparty that mature on or after January 1, 2000 with liquidity,
credit, or settlement risk. The Company will not resume normal transaction
activities until the counterparty has demonstrated that it is prepared for the
Year 2000.
IV. THE COMPANY'S CONTINGENCY PLAN
DATA SERVICE BUREAU
- -------------------
In the event, the data service bureau used by the Bank fails to operate
satisfactorily after the turn of the century, the Bank would be forced to
operate on a manual system until a conversion could be made to a different
service bureau or the existing service bureau corrects its problems. The Bank
would establish ledger cards for each customer account and would manually post
transactions to the cards each day. Transactions would also be batched and
manually posted to the general ledger. The ledger cards would be balanced to the
general ledger frequently to provide some assurance that the manual system is
functioning accurately.
The Bank would have to make some temporary changes in its product menu
during the time operating on a manual system. For instance, the Bank would
probably discontinue originating mortgage loans because of the complexities
involved with them. The Bank would also stop opening new checking accounts. The
Bank might have to convert its existing checking accounts to savings accounts
(with appropriate advance notice and disclosures to the customers) so that the
Bank could more efficiently process these accounts.
Undoubtedly, the Bank would experience significant deposit run-off were
the Bank to function in such a limited capacity for any length of time. However,
the Bank has a substantial mortgage-backed security portfolio which provides the
Bank with ready liquidity should the need arise to liquidate deposits.
INVESTMENT SECURITIES
- ---------------------
The Company has received assurances that the major brokers with which
it trades are Year 2000 compliant. Some of the smaller regional brokers have yet
to provide these assurances. Beginning in November 1999, the Company did not
enter into any transactions with any brokers
13
that were not Year 2000 compliant. In this way, the Company controlled its
exposure to Year 2000 risks with these brokers. After the turn of the
millennium, the Company will carefully evaluate regional brokers individually
before resuming business with them. Most of the Company's securities are in
safekeeping at the FHLB of Indianapolis, which has provided documentation to the
Company that they are Year 2000 compliant.
PERSONAL COMPUTERS
- ------------------
By the end of the first quarter of calendar year 1999, the Company had
replaced or upgraded all of its personal computers that failed Year 2000
compliance tests. Thus, it is expected that the Company's PCs will be in
compliance when the century turns. The Company has previously tested the
software used on its PCs, and those software packages that did not properly
handle the Year 2000 have been replaced.
OTHER VENDORS AND SERVICE PROVIDERS
- -----------------------------------
The Company closely monitored all of its other vendors and service
providers to determine that they would be Year 2000 compliant. As of December
31, 1999, the vendors and service providers used by the Company had provided the
Company with assurances that they were Year 2000 compliant. The Company did not
have to replace any of its vendors or service providers.
GENERAL
- -------
The costs of the project and the date on which the Company plans to
complete the Year 2000 compliance program are based on management's best
estimates which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from these estimates.
The information contained within this document is intended to provide
general information regarding the efforts of the Company to address the Year
2000 computer problem and is not intended to be a formal or legally binding
representation as to Year 2000 compliance. Any assessment or proposed timetable
is subject to change without prior notice. This information constitutes a "Year
2000 Readiness Disclosure."
As of the filing date of this Form 10-Q, the Company's business
operations have not been materially impacted by Year 2000 matters.
14
Segment Information
The Company's principal business lines include community banking in the
Indiana, Kansas and North Carolina markets, investment activities including
treasury management, and other activities including HWM (see Notes 1 and 2) and
the unconsolidated holding company functions. For the three and six months ended
December 31, 1998, the other category also includes start-up costs for the North
Carolina bank which opened in July of 1999 and is treated as a separate segment
from that time forward. The community banking segment provides a full range of
deposit products as well as mortgage, consumer and commercial loans. The
investment segment is comprised of the Company's held for trading, available for
sale and held to maturity securities, as well as the treasury management
function. A standard investment return is allocated to each of the Community
Banking segments based on whether the segment is a funds provider (excess
deposits relative to loans) or user (excess loans relative to deposits). If the
segment generates excess funds, then it is assigned an investment return on
those excess funds of one month LIBOR plus 1.00%. If the banking segment is a
funds user, those funds are provided from the Investments segment at one month
LIBOR flat. The overall profitability of the Investment and Community Banking
segments are therefore affected by this funds transfer methodology. The
financial information for each operating segment is reported on the basis used
internally by the Company's management to evaluate performance and allocate
resources.
The measurement of the performance of the operating segments is based on
the management and corporate structure of the Company and is not necessarily
comparable with similar information for any other financial institution. The
information presented is also not necessarily indicative of the segments' asset
size and results of operations if they were independent entities.
15
(Dollars in Thousands) Three Months Ended December 31, 1999
----------------------------------------------------------------------------------
COMMUNITY BANKING
--------------------------------------
North
Indiana Kansas Carolina INVESTMENTS OTHER TOTAL
--------- --------- --------- --------- --------- ---------
Net interest income (1) $ 1,310 $ 630 $ 52 $ 564 $ (297) $ 2,259
Provision for loan losses 58 126 13 -- -- 197
--------- --------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 1,252 504 39 564 (297) 2,062
Other operating income 155 13 -- 2 25 195
Depreciation expense 135 23 20 13 3 194
Other operating expense 1,283 343 273 208 201 2,308
--------- --------- --------- --------- --------- ---------
CORE BANKING INCOME
(LOSS) BEFORE TAXES (11) 151 (254) 345 (476) (245)
Realized and unrealized gain
on securities, net of hedging -- -- -- 391 2 393
--------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes (11) 151 (254) 736 (474) 148
Applicable income taxes (5) 59 (98) 287 (187) 56
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS)
BEFORE MINORITY
INTEREST (6) 92 (156) 449 (287) 92
Minority interest, net of taxes -- -- -- -- 20 20
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (6) $ 92 $ (156) $ 449 $ (267) $ 112
========= ========= ========= ========= ========= =========
Identifiable assets $ 208,765 $ 53,220 $ 5,107 $ 136,212 $ 24,527 $ 427,831
========= ========= ========= ========= ========= =========
(1) Interest income is presented net of interest expense
(Dollars in Thousands) Six Months Ended December 31, 1999
----------------------------------------------------------------------------------
COMMUNITY BANKING
---------------------------------------
North
Indiana Kansas Carolina INVESTMENTS OTHER TOTAL
--------- --------- --------- --------- --------- ---------
Net interest income (1) $ 2,460 $ 1,130 $ 53 $ 1,166 $ (567) $ 4,242
Provision for loan losses 103 179 32 -- -- 314
--------- --------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 2,357 951 21 1,166 (567) 3,928
Other operating income 267 21 (1) 3 46 336
Depreciation expense 268 46 40 25 7 386
Other operating expense 2,555 691 511 421 460 4,638
--------- --------- --------- --------- --------- ---------
CORE BANKING INCOME
(LOSS) BEFORE TAXES (199) 235 (531) 723 (988) (760)
Realized and unrealized gain
on securities, net of hedging -- -- -- (1,657) 9 (1,648)
--------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes (199) 235 (531) (934) (979) (2,408)
Applicable income taxes (78) 92 (206) (363) (385) (940)
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS)
BEFORE MINORITY
INTEREST (121) 143 (325) (571) (594) (1,468)
Minority interest, net of taxes -- -- -- -- 49 49
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (121) $ 143 $ (325) $ (571) $ (545) $ (1,419)
========= ========= ========= ========= ========= =========
Identifiable assets $ 208,765 $ 53,220 $ 5,107 $ 136,212 $ 24,527 $ 427,831
========= ========= ========= ========= ========= =========
(1) Interest income is presented net of interest expense
16
(Dollars in Thousands) Three Months Ended December 31, 1998
---------------------------------------------------------------------
COMMUNITY BANKING
------------------------
Indiana Kansas INVESTMENTS OTHER TOTAL
--------- --------- --------- --------- ---------
Net interest income (1) $ 1,042 $ 109 $ 180 $ (272) $ 1,059
Provision for loan losses (45) 140 -- -- 95
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 1,087 (31) 180 (272) 964
Other operating income 88 1 2 23 114
Depreciation expense 100 18 6 3 127
Other operating expense 1,075 300 202 188 1,765
--------- --------- --------- --------- ---------
CORE BANKING LOSS
BEFORE TAXES -- (348) (26) (440) (814)
Realized and unrealized gain
(loss) on securities, net of
hedging -- -- 968 (4) 964
--------- --------- --------- --------- ---------
Income (loss) before income
taxes -- (348) 942 (444) 150
Applicable income taxes -- (138) 373 (175) 60
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ -- $ (210) $ 569 $ (269) $ 90
========= ========= ========= ========= =========
Identifiable assets $ 212,658 $ 25,789 $ 303,813 $ 7,677 $ 549,937
========= ========= ========= ========= =========
(1) Interest income is presented net of interest expense
(Dollars in Thousands) Six Months Ended December 31, 1998
---------------------------------------------------------------------
COMMUNITY BANKING
------------------------
Indiana Kansas INVESTMENTS OTHER TOTAL
--------- --------- --------- --------- ---------
Net interest income (1) $ 1,976 $ 149 $ 441 $ (564) $ 2,002
Provision for loan losses 78 167 -- -- 245
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 1,898 (18) 441 (564) 1,757
Other operating income 162 2 4 46 214
Depreciation expense 201 30 12 7 250
Other operating expense 2,188 533 414 421 3,556
--------- --------- --------- --------- ---------
CORE BANKING LOSS
BEFORE TAXES (329) (579) 19 (946) (1,835)
Realized and unrealized loss on
securities, net of hedging -- -- (2,462) (44) (2,506)
--------- --------- --------- --------- ---------
Loss before income taxes (329) (579) (2,443) (990) (4,341)
Applicable income taxes (131) (230) (970) (390) (1,721)
--------- --------- --------- --------- ---------
NET LOSS $ (198) $ (349) $ (1,473) $ (600) $ (2,620)
========= ========= ========= ========= =========
Identifiable assets $ 212,658 $ 25,789 $ 303,813 $ 7,677 $ 549,937
========= ========= ========= ========= =========
(1) Interest income is presented net of interest expense
17
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The OTS requires each thrift institution to calculate the estimated
change in the institution's market value of portfolio equity (MVPE) assuming an
instantaneous, parallel shift in the Treasury yield curve of 100 to 300 basis
points either up or down in 100 basis point increments. MVPE is defined as the
net present value (NPV) of an institution's existing assets, liabilities and
off-balance sheet instruments. A post shock MVPE to market value of assets (NPV)
ratio can then be calculated in each interest rate scenario. The OTS permits
institutions to perform this MVPE analysis using their own internal model based
upon reasonable assumptions. The Company has contracted with Smith Breeden
Associates, Inc. for the provision of consulting services regarding, among other
things, the management of its investments and borrowings, the pricing of loans
and deposits, the use of various financial instruments to reduce interest rate
risk and assistance in performing the required calculation of the sensitivity of
its market value to changes in interest rates. In estimating the market value of
mortgage loans and mortgage-backed securities, the Company utilizes various
prepayment assumptions which vary, in accordance with historical experience,
based upon the term, interest rate and other factors with respect to the
underlying loans.
The following table sets forth at December 31, 1999, the estimated
sensitivity of the Bank's MVPE and NPV ratios to parallel yield curve shifts
using the Company's internal market value calculation. The Company actively
manages the interest rate risk of the balance sheet and investment portfolio by
dynamically rebalancing the hedges on a frequent basis. This rebalancing is
undertaken to further reduce the interest rate risk for large rate changes.
Since the following analysis is based on instantaneous changes in rates, the
benefits of the dynamic rebalancing process on interest rate risk reduction are,
therefore, not reflected in this analysis.
The table set forth below does not purport to show the impact of
interest rate changes on the Company's equity under generally accepted
accounting principles. Market value changes only impact the Company's income
statement or the balance sheet (1) to the extent the affected instruments are
marked to market and (2) over the life of the instruments as an impact on
recorded yields.
Change in Interest Rates
(In Basis Points)(1)
(Dollars in Thousands) -300 -200 -100 - +100 +200 +300
- ----------------------------------------------------------------------------------------------------------------------------------
Market value gain (loss) of assets $ 37,689 $ 28,885 $ 16,051 -- $(18,001) $(36,038) $ (53,295)
Market value gain (loss) of liabilities (9,617) (6,819) (3,655) -- 4,253 9,122 14,402
-------- -------- ---------- ---- -------- -------- ---------
Market value gain (loss) of net
assets before interest rate contracts 28,072 22,066 12,396 -- (13,748) (26,916) (38,893)
Pre-tax market value gain (loss) of
interest rate contracts (28,172) (19,340) (10,177) -- 11,268 22,848 33,976
-------- -------- ---------- ---- -------- -------- ---------
Total change in MVPE (2) (Model) $ (100) $ 2,726 $ 2,219 -- $ (2,480) $ (4,068) $ (4,917)
======== ======== ========= ==== ======== ======== =========
NPV post shock ratio 6.7% 7.5% 7.6% 7.3% 7.0% 6.9% 7.0%
======== ======== ========= ==== ======== ======== =========
Change in MVPE as a percent of:
MVPE (2) (Model) (0.3)% 9.1% 7.4% -- (8.3)% (13.6)% (16.4)%
Total assets of the Bank 0.0% 0.6% 0.5% -- (0.6)% (1.0)% (1.2)%
Change in NPV post shock ratio (0.6)% 0.2% 0.3% -- (0.3)% (0.4)% (0.3)%
(1) Assumes an instantaneous parallel change in interest rates at all
maturities.
(2) Based on the Bank's pre-tax MVPE of $30.0 million at December 31, 1999.
18
Since a portion of the Company's assets is recorded at market value, the
following table is included to show the estimated impact on the Company's equity
of instantaneous, parallel shifts in the yield curve, using the methodology
described above. The assets and interest rate contracts included in the table
below are only those which are either classified by the Company as held for
trading or available for sale and, therefore, reflected at fair value.
Consequently, the Company's liabilities, which are reflected at cost, are not
included in the table below. All amounts are shown net of taxes, with an
estimated effective tax rate of 39.0%.
Change in Interest Rates
(In Basis Points)
(Dollars in Thousands) -300 -200 -100 - +100 +200 +300
- ----------------------------------------------------------------------------------------------------------------------------------
After tax market value gain (loss) $ 9,640 $ 6,696 $ 3,505 -- $ (3,806) $ (7,849) $(11,913)
of assets
After tax market value gain (loss)
of interest rate contracts (8,634) (5,929) (3,151) -- 3,589 7,289 10,809
-------- -------- -------- -------- -------- -------- --------
After tax gain (loss) in equity (Model) $ 1,006 $ 767 $ 354 -- $ (217) $ (560) $ (1,104)
======== ======== ======== ======== ======== ======== ========
After tax gain (loss) in equity as a
percent of the Company's equity at
December 31, 1999 5.7% 4.4% 2.0% -- (1.2)% (3.2)% (6.3)%
19
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Part II
Item 1. Legal Proceedings
-----------------
Neither the Company nor the Bank is involved in any pending legal
proceedings other than non-material legal proceedings occurring
in the ordinary course of business.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
a) An annual meeting of stockholders ("Annual Meeting") was
held on October 21, 1999.
b) Not applicable.
c) Three matters were voted upon at the Annual Meeting. The
stockholders approved matters brought before the Annual
Meeting. The matters voted upon together with the
applicable voting results were as follows:
1) Proposal to elect three directors for a
three-year term expiring in 2002 - Russell
Breeden III received votes for 2,897,483;
withheld 4,000; not voted 303,899. Craig J. Cerny
and Stanley J. Kon each received votes for
2,897,333; withheld 4,150; not voted 303,899.
2) Proposal to approve an amendment to the Company's
Stock Option Plan - votes for 2,892,008; against
9,325; abstain 150; not voted 303,899.
3) Proposal to ratify the appointment by the Board
of Directors of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal
year ending June 30, 2000 - votes for 2,900,633;
against 0; abstain 850; not voted 303,899.
d) Not applicable.
20
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibit 3.1: Amended and Restated Articles of
Incorporation of Harrington Financial Group, Inc. This
exhibit is incorporated herein by reference from the
Registration Statement on Form S-1 (Registration No.
333-1556) filed by the Company with the SEC on February
20, 1996, as amended.
b) Exhibit 3.2: Amended and Restated Bylaws of Harrington
Financial Group, Inc. This exhibit is incorporated herein
by reference from the Registration Statement on Form S-1
(Registration No. 333-1556) filed by the Company with the
SEC on February 20, 1996, as amended.
c) Exhibit 27: Financial Data Schedule
d) No Form 8-K reports were filed during the quarter.
21
SIGNATURES
Pursuant to the requirements 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.
HARRINGTON FINANCIAL GROUP, INC.
Date: February 10, 2000 By: /s/Craig J. Cerny
-----------------
Craig J. Cerny
President
Date: February 10, 2000 By: /s/John E. Fleener
------------------
John E. Fleener
Principal Financial &
Accounting Officer