<PAGE> 1
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934]
For the quarter ended September 30, 1996
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 0-24084
SHO-ME FINANCIAL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 44-0363938
- --------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer ID Number)
of incorporation or organization)
109 N. HICKORY, MT. VERNON, MISSOURI 65712
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(417) 466-2171
--------------------------------------------------
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 registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 7, 1996
- ----------------------------- -------------------------------
Common Stock, Par Value $ .01 1,646,290 Shares1
<PAGE> 2
SHO-ME FINANCIAL CORP.
AND SUBSIDIARY
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE NO.
Item 1. Consolidated Condensed Financial Statements
- Consolidated Statements of Financial Condition 3
- Consolidated Condensed Statements of Income 4
- Consolidated Statements of Cash Flows 5
- Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
PART II OTHER INFORMATION 14
Signature Page 15
</TABLE>
<PAGE> 3
Part I: FINANCIAL INFORMATION
Item I
SHO-ME FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 (UNAUDITED) and DECEMBER 31, 1995
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash $1,475,559 $1,323,867
Interest bearing deposits in other
financial institutions 2,077,788 4,250,841
------------ ------------
Cash and cash equivalents 3,553,347 5,574,708
Available-for-sale investment securities 14,928,125 9,154,546
Available-for-sale mortgage-backed securities 8,368,622 11,655,941
Loans held for sale 0 0
Loans receivable, net 252,875,584 214,445,042
Foreclosed assets held for sale, net 0 0
Premises and equipment 5,474,979 5,216,836
Accrued interest receivable
Loans 1,585,130 1,238,760
Investments 253,497 213,487
Investment in FHLB stock 4,325,000 3,871,000
Prepaid expenses and other assets 250,335 283,032
Deferred income taxes 479,386 406,390
------------ ------------
Total Assets $292,094,005 $252,059,742
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $175,748,230 $146,550,426
Federal Home Loan Bank advances 82,531,000 73,024,000
Advances from borrowers for taxes and insurance 1,719,860 502,188
Accounts payable and accrued expenses 2,323,476 765,867
Income taxes payable (29,042) 251,746
------------ ------------
Total Liabilities 262,293,524 221,094,227
Common stock 20,499 20,499
Additional paid-in-capital 19,866,752 19,716,466
Unrealized depreciation on
available-for-sale securities, net (76,388) (3,899)
Retained earnings 18,023,097 16,688,663
Unearned ESOP shares (1,095,775) (1,228,346)
Unearned MRP shares (373,498) (600,966)
Treasury Stock (6,564,206) (3,626,902)
------------ ------------
Total Stockholders' Equity 29,800,481 30,965,515
------------ ------------
Total Liabilities and Stockholders' Equity $292,094,005 $252,059,742
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
PART I: FINANCIAL INFORMATION
SHO-ME FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Three-months Nine-months
ended ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $5,179,093 $3,811,769 $14,502,952 $9,949,778
Investment securities 201,980 228,234 502,119 695,370
Mortgage-backed securities 138,137 180,197 494,583 612,095
Other 17,691 25,258 70,675 71,478
------ ------ ------ ------
5,536,901 4,245,458 15,570,329 11,328,721
INTEREST EXPENSE
Deposits 1,991,768 1,639,784 5,670,095 4,602,956
Federal Home Loan Bank advances 1,238,123 860,444 3,361,178 1,950,412
--------- ------- --------- ---------
3,229,891 2,500,228 9,031,273 6,553,368
NET INTEREST INCOME 2,307,010 1,745,230 6,539,056 4,775,353
PROVISION FOR LOAN LOSSES 45,000 0 110,000 85,000
------ - ------- ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,262,010 1,745,230 6,429,056 4,690,353
--------- --------- --------- ---------
NONINTEREST INCOME
Service charges 133,391 106,657 363,585 298,300
Gain (Loss) on sale of loans
and available-for-sale securites 3,519 4,685 (14,791) 11,029
Income on foreclosed assets 5,701 905 5,079 3,912
Other income 182,738 97,370 499,481 310,199
------- ------ ------- -------
325,349 209,617 853,354 623,440
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 741,121 627,185 2,094,282 1,673,234
Net occupancy expense 224,525 149,554 653,318 432,783
Deposit insurance premium 1,001,630 78,832 1,167,825 233,029
FHLB service charges 56,238 47,686 171,487 145,951
Data processing 90,374 81,918 273,031 241,370
Legal and professional fees 40,945 47,452 155,827 159,627
Advertising 69,262 52,388 162,369 126,199
Other operating expense 130,412 104,896 474,100 325,781
------- ------- ------- -------
2,354,507 1,189,911 5,152,239 3,337,974
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 232,852 764,936 2,130,171 1,975,819
PROVISION FOR INCOME TAXES 48,520 276,051 795,737 738,761
-------- -------- ---------- ----------
NET INCOME $184,332 $488,885 $1,334,434 $1,237,058
======== ======== ========== ==========
EARNINGS PER COMMON SHARE: $ .11 $ .28 $ .80 $ .67
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
PART I: FINANCIAL INFORMATION
SHO-ME FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Nine-months
ended
September 30,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES (unaudited) (unaudited)
<S> <C> <C>
Net income $1,334,434 $1,237,058
Items not requiring (providing) cash:
Depreciation 302,558 213,651
Provision for loan losses 110,000 85,000
Net realized (gains) losses on available-for-sale securities 111,258 (543)
Net realized gains on equity investments (83,613)
Origination of loans held for delivery against commitments (588,820) (790,400)
Proceeds from sale of loans held for delivery against commitments 601,674 606,537
Gain on sale of loans (12,854) (10,487)
Gain on sale of foreclosed assets (7,406) (9,228)
Amortization of deferred income,
premiums and discounts on loans and investments (50,723) 3,617
Deferred income taxes (28,569)
Accruals for MRP shares 227,468 0
Accruals for ESOP shares 272,083 104,008
Changes in:
Accrued interest receivable (386,380) (446,899)
Prepaid expenses and other assets (63,590) (87,632)
Accounts payable and accrued expenses 1,721,995 599,245
Income taxes payable (280,788) 21,256
------------ ------------
Net cash provided by operating activities 3,178,727 1,525,183
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans (42,893,559) (46,248,871)
Purchase of loans 0 (1,026,670)
Proceeds from sale of loans 4,367,437 0
Purchase of premises and equipment (560,701) (1,699,826)
Proceeds from maturity of held-to-maturity securities 0 1,000,000
Proceeds from maturity of available-for-sale securities 2,000,000 1,500,000
Proceeds from the sale of available-for-sale
investment and mortgage-backed securities 2,595,545 7,312,754
Purchases of available-for-sale investment and mortgage-backed securities (8,000,103) (6,352,827)
Principal reductions of investment and mortgage-backed securities 854,275 1,209,310
Purchases of Federal Home Loan Bank stock (454,000) (2,000,000)
Proceeds from the sale of foreclosed assets 59,458 59,729
------------ ------------
Net cash used in investing activities ($42,031,648) ($46,246,401)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in certificates of deposit $21,371,382 $5,879,198
Net increase in checking and savings 7,669,036 1,302,212
Proceeds from FHLB advances 54,260,000 92,200,000
Repayments of FHLB advances (44,760,000) (51,800,000)
Stock issuance from exercised options 3,625
Vesting of MRP shares 7,148
Net increase in advances from borrowers for taxes and insurance 1,217,672 932,455
Purchase of treasury stock (2,937,304) (3,618,256)
------------ ------------
Net cash provided by financing activities 36,831,559 44,895,609
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,021,362) 174,391
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,574,708 3,911,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $3,553,346 $4,085,391
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 6
SHO-ME FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
and nine months ended September 30, 1996 and 1995 are not necessarily
indicative of the results that may be expected for the full year. For further
information, refer to the Company's December 31, 1995 Form 10-KSB which was
filed with the Securities and Exchange Commission and the Company's annual
report which contains the audited financial statements for the fiscal years
ended December 31, 1995 and 1994.
Note 2: Holding Company Formation and Stock Issuance
Sho-Me Financial Corp. (SMFC) was established May 9, 1990, for the
purpose of becoming a holding company for the shares of 1st Savings Bank,
f.s.b., upon its conversion from a federal mutual savings bank to a federal
stock savings bank.
The Company's subscription and community stock offering was completed on June
28, 1994, with the issuance of 2,049,875 shares at a price of $10 per share,
providing net proceeds of approximately $18.1 million after conversion costs
and approximately $1.6 million in debt incurred by the employee stock ownership
plan (ESOP).
Note 3: Principles of Consolidation
The consolidated financial statements include the accounts of SMFC and
its wholly-owned subsidiary, 1st Savings Bank, f.s.b. which in turn owns all of
First Savings Financial Corporation. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Note 4: Employee Stock Ownership Plan
In conjunction with the stock conversion, the Company established an
ESOP with 163,990 unallocated shares available for distribution. The
unallocated shares have been credited to Unearned ESOP Shares, a contra-equity
account. As shares are released from collateral the Company reports
compensation expense equal to the current market price of the shares, and the
shares become outstanding for Earnings Per Share calculations. The ESOP has
allocated 41,158 shares to the employees of the Bank.
<PAGE> 7
Note 5: Benefit Plans
On April 26, 1995, the Company's stockholders voted to approve both a
Management Recognition and Retention Plan (MRP) and a Stock Option and
Incentive Plan (SOIP). The MRP authorized 81,995 shares to be issued to
directors, officers and employees of the Bank of which 63,038 shares have been
awarded. The SOIP authorized 204,987 stock options on shares to be issued to
directors, officers, and employees of the Bank, of which 153,346 remain awarded
and outstanding. Both the MRP and SOIP vest over a five year period with
compensation expense being amortized over each participant's vesting period for
the MRP.
Note 6: Earnings Per Share
Earnings per share of common stock have been determined by dividing
net income for the period by the weighted average number of outstanding shares
of common stock, common stock equivalents and allocated ESOP shares.
Unallocated ESOP shares were not included in the determination of either
primary or fully diluted earnings per share. Stock options were considered to
be common stock equivalents and were therefore included in both primary and
fully diluted earnings per share calculations. Primary earnings per share for
the three and nine months ended September 30, 1996 were computed on weighted
average shares or share equivalents of 1,598,221 and 1,655,024, respectively as
compared to 1,790,878 and 1,876,128 from the prior year.
<PAGE> 8
PART I
Item 2
Sho-Me Financial Corp.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
GENERAL
The accompanying Consolidated Financial Statements include the
accounts of Sho-Me Financial Corp. (the "Company") and all accounts of its
wholly-owned subsidiary, 1st Savings Bank, f.s.b. (the "Bank" or "1st
Savings"). All significant intercompany transactions and balances have been
eliminated in consolidation.
The Company's results of operations are primarily dependent on the
difference (or "interest rate spread") between the average yield earned on its
interest-earning assets, which consist primarily of loans receivable,
investment securities, mortgage-backed securities (MBS), and other investments,
and the average rate paid on interest-bearing liabilities which consist
primarily of retail deposits and Federal Home Loan Bank ("FHLB") advances. The
interest rate spread is affected by economic, regulatory, and competitive
factors which influence interest rates, loan demand, prepayment rates, and
deposit flows. The Bank, 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 varying basis, from its interest-bearing
liabilities.
The Company's results of operations are also affected by provisions
for loan losses, non-interest income and non-interest expenses, such as
employee salary and benefits, occupancy expenses, and other expenses. The
following discussion reviews the Company's financial condition at September 30,
1996 and the results of operations for the three and nine months ended
September 30, 1996 and 1995.
FINANCIAL CONDITION
The Company's total assets increased $40.0 million, or 15.9%, from
$252.1 million at December 31, 1995 to $292.1 million at September 30, 1996.
The increase was primarily due to a $38.4 million increase in loans receivable
which was primarily funded by an increase in deposits of $29.2 million and an
increase in FHLB advances of $9.5 million.
Loans receivable increased $38.4 million, or 17.9%, from $214.4
million at December 31, 1995 to $252.9 million at September 30, 1996. The
growth in loans receivable was attributed to good local economic conditions,
the opening of a second full-service office in Springfield and a successful
marketing program. Loan growth consisted primarily of a $31.4 million, or
18.4% increase in one- to four-family residential loans and, to a lesser
degree, an increase in loans secured by non-residential properties and consumer
loans of $7.1 million. Growth in loans receivable has been and continues to be
the primary component of the Company's asset growth.
<PAGE> 9
Deposits increased $29.2 million, or 19.9%, from $146.6 million at
December 31, 1995 to $175.7 million at September 30, 1996. The increase was
attributable to increased advertising, the opening of a new branch facility,
enhanced cross-selling efforts, and price competitiveness. The increase was
composed of a $21.4 million increase in certificates of deposit and a $7.8
million increase in transaction accounts, statement savings accounts, and
accrued interest.
FHLB advances increased $9.5 million, or 13.0%, from $73.0 million at
December 31, 1995 to $82.5 million at September 30, 1996. Outstanding advances
have terms of up to five years at both variable and fixed interest rates and
were primarily used to finance growth in loans receivable. During the third
quarter of 1996, the average cost of advances was 40 basis points higher than
the average cost of the Company's certificates of deposit.
At September 30, 1996, stockholders' equity was $29.8 million as
compared to $31.0 million, at December 31, 1995. The reduction in
stockholders' equity was primarily attributed to the $2.9 million cost of stock
repurchased during the year exceeding net income of $1.3 million and benefit
plan accruals of $360,000. The ratio of stockholders' equity to total assets
was reduced to 10.2% at September 30, 1996 as compared to 12.3% on December 31,
1995. The 2.1% reduction was attributed to the overall reduction in
stockholders' equity and asset growth of the Company.
Results of Operations - Comparison of the three and nine month periods ended
September 30, 1996 and 1995.
GENERAL. The Company's net income for the three and nine month
periods ended September 30, 1996 was $184,000 and $1.3 million, respectively,
as compared to net income of $489,000 and $1.2 million earned during the same
periods of 1995. In the third quarter of 1996, net income was reduced by a
$564,000 special assessment, net of taxes, as part of the plan to recapitalize
the Savings Association Insurance Fund (See "Regulatory Items"). Exclusive of
the SAIF assessment, net income would have increased $259,000 and $661,000,
respectively, during the three and nine months ended September 30, 1996 when
compared to the three and nine months ended September 30, 1995. The increase
in pre-assessment income was primarily due to increased net interest income
which was partially offset by increased noninterest expenses.
NET INTEREST INCOME. Net interest income before provision for loan
losses increased by $562,000, or 32.2%, to $2.3 million for the three months
ended September 30, 1996 as compared to the $1.7 million earned during the same
quarter of the prior year. The increase was primarily due to a .36% increase
in the average interest rate spread and a $53.8 million increase in the average
balance of interest-earning assets ("IEA") which was partially offset by a
$57.7 million increase in the average balance of interest-bearing liabilities
("IBL").
Net interest income before provision for loan losses increased by $1.7
million, or 36.9%, to $6.5 million for the nine months ended September 30, 1996
as compared to the $4.8 million earned during the same period of the prior
year. The increase was primarily due to a .50% increase in the average
interest rate spread and a $52.4 million increase in the average balance of IEA
which was partially offset by a $57.8 million increase in the average balance
of IBL.
<PAGE> 10
INTEREST INCOME. Interest income for the three and nine months ended
September 30, 1996 increased $1.3 million, or 30.4%, and $4.2 million, or
37.4%, respectively, as compared to the three and nine months ended September
30, 1995. The increases were primarily attributed to the $52.4 million, or
25.4% increase in the average balance of IEA and the .70% increase in the
average yield earned on IEA, from 7.34% during the first nine months of 1995 to
8.04% during the first nine months of 1996. The increase in IEA was primarily
due to growth in loans receivable, while improved yields were primarily
attributed to upward loan repricing and an increase in the ratio of loans,
which earned higher yields than other IEA, to total assets.
INTEREST EXPENSE. Interest expense for the three and nine months
ended September 30, 1996 increased $730,000, or 29.2%, and $2.5 million, or
37.8%, respectively, as compared to the three and nine months ended September
30, 1995. The increases were primarily attributed to a $57.8 million increase
in the average balance of IBL and a .20% increase in the average rate paid on
IBL, from 4.87% during the first nine months of 1995 to 5.07% during the first
nine months of 1996. The increase in IBL was attributed to the growth of
deposits and FHLB advances, while the increase in the average rate was
primarily due to an increase in the ratio of certificates of deposit and FHLB
advances, which represented higher costing liabilities than transaction and
savings accounts, to IBL.
PROVISION FOR LOSSES ON LOANS The provision for loan losses for the
three and nine months ended September 30, 1996 was $45,000 and $110,000,
respectively, as compared to the $85,000 established during the nine month
period ended September 30, 1995. The Company will continue to monitor its
allowance for loan losses and make future additions based on management's
analysis of the loan portfolio, the amount of non-performing and classified
assets, and general economic conditions. Although the Company maintains its
allowance for loan losses at a level which it considers to be sufficient to
provide for potential losses, there can be no assurance that future losses will
not exceed internal estimates. In addition, the amount of the allowance for
loan losses is subject to review by regulatory agencies which can order the
establishment of additional loss provisions (See "Nonperforming Assets").
NONINTEREST INCOME. Noninterest income for the three and nine months
ended September 30, 1996 increased $116,000, or 55.2%, and $230,000, or 36.9%,
respectively, as compared to the three and nine months ended September 30,
1995. Over each of these respective periods, lease income increased $22,000
and $127,000, while FHLB dividends increased $28,000 and $99,000, and service
charges increased $27,000 and $65,000. Increased lease income was due to the
leasing of office space in the new Springfield location, while increased FHLB
dividends were due to higher average balances of FHLB stock and increased
service charges were primarily attributed to an expanded customer base.
NONINTEREST EXPENSE. Noninterest expense for the three and nine
months ended September 30, 1996 increased $1.2 million, and $1.8 million,
respectively, as compared to the three and nine months ended September 30,
1995. Over each of these respective periods, excluding the one-time SAIF
assessment of $910,000, noninterest expense increased $255,000, or 21.4%, and
$904,000, or 27.1%. These increases were due, in part, to increased
compensation expense of $114,000 and $421,000, and occupancy expense of $75,000
and $221,000. Increased
<PAGE> 11
compensation expense was primarily due to increased staffing while higher
operating expenses were primarily attributed to operating the new Springfield
facility. In addition, noninterest expense during 1996 was increased by a
$910,000 special assessment, before taxes, as part of the plan to recapitalize
the SAIF (See "Regulatory Items"). Much of the remaining increase in
noninterest expense was the result of the Company's asset growth.
PROVISION FOR INCOME TAXES. The provision for income taxes for the
three and nine months ended September 30, 1996 declined $228,000 and increased
$57,000, respectively, as compared to the same periods of 1995. Exclusive of
the $346,000 tax benefit related to the SAIF assessment, the effective tax rate
for the three and nine months ended September 30, 1996 was 34.6% and 37.6%,
respectively, as compared to 36.1% and 37.4%, respectively, for the same period
of 1995. The decline in the effective tax rate was due to changes in accrual
estimates.
NONPERFORMING ASSETS
The allowance for loan losses is calculated based upon an evaluation
of pertinent factors underlying the various types and quality of the Company's
loans. Management considers such factors as the repayment status of a loan,
the estimated net fair value of the underlying collateral, the borrower's
intent and ability to repay the loan, local economic conditions, and the
Company's historical loss ratios. The Company's allowance for loan losses was
$1.8 million at September 30, 1996 and $1.7 million at December 31, 1995. On
September 30, 1996, classified assets totaled $184,000, or .06% of total
assets. Management has considered each of these factors in evaluating the
adequacy of the allowance for loan losses.
The ratio of nonperforming assets to total assets is another useful
tool in evaluating exposure to credit risk. Non-performing assets of the
Company include non-accruing loans, accruing loans delinquent/past maturity 90
days or more, and assets which have been acquired as a result of foreclosure or
deed-in-lieu of foreclosure. The following table illustrates changes in the
Company's level of non-performing assets:
<TABLE>
<CAPTION>
09/30/96 12/31/95 12/31/94
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Loans Delinquent/Past Maturity 90 Days or More $ 182 $ 35 $ 46
Foreclosed Assets 0 0 51
--------- ---------- ----------
Total Non-performing Assets $ 182 $ 35 $ 97
========= ========== ==========
Total Non-Performing Assets as a
Percentage of Total Assets .06% .01% .05%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and
interest payments on loans receivable, investments and MBS, and FHLB advances.
While scheduled loan and security repayments and the maturity of short-term
investments are somewhat predictable sources of funding, deposit flows and loan
prepayment rates are influenced by many factors which make their
<PAGE> 12
cash flows difficult to anticipate. Office of Thrift Supervision regulations
require the Bank to maintain cash and eligible investments in an amount equal
to at least 5% of customer accounts and short-term borrowings to assure its
ability to meet demands for withdrawals and repayment of short-term borrowings.
During the month ended September 30, 1996, the Bank's liquidity ratio averaged
6.2%.
The Company uses its liquidity resources principally to satisfy its
ongoing cash requirements which include funding loan commitments, funding
maturing certificates of deposit as well as deposit withdrawals, maintaining
liquidity, purchasing investments, and meeting operating expenses. At
September 30, 1996 the Company had approximately $8.1 million in commitments to
originate mortgage loans, and $6.3 million in loans-in-process on mortgage
loans. These commitments are anticipated to be funded primarily through a
combination of FHLB advances, deposit growth, and principal and interest
payments received on loans receivable. Management believes that anticipated
cash flows will be adequate to meet the Company's liquidity needs.
IMPACT OF NEW ACCOUNTING STANDARDS
The FASB has issued Statement of Financial Accounting Standards No.
122 ("FAS 122"), "Accounting for Mortgage Servicing Rights". FAS 122 requires
that mortgage banking concerns recognize as separate assets rights to service
mortgage loans for others. The Company adopted FAS 122 during the first
quarter of 1996. The adoption of FAS 122 has not had a material effect on the
Company's financial statements.
The FASB has issued Financial Accounting Standards Statement No. 123
("FAS 123"), "Accounting for Stock-Based Compensation". FAS 123 establishes a
fair value based method of accounting for stock-based compensation plans. It
encourages entities to adopt that method in place of the provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees", for all
arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of its stock. FAS 123 applies to financial
statements for fiscal 1996. Management is continuing to account for
stock-based compensation in accordance with the provisions of APB No. 25.
The FASB has issued Statement of Financial Accounting Standards No.
125, ("SFAS 125"), "Accounting for Transfers and Servicing of Financial Asses
and Extinguishment of Liabilities". The primary impact of SFAS 125 on mortgage
banking concerns is to extend the rules in SFAS 122 from servicing of mortgage
loans to all loan servicing. Adoption of SFAS 125 will be required by the
Company during the fiscal year ending December 31, 1997. The impact of this
statement is not expected to have a material effect of the Company's financial
statements.
REGULATORY CAPITAL
Federally insured savings institutions are required to maintain a
minimum level of regulatory capital. The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings associations. These capital requirements must be generally as
stringent
<PAGE> 13
as the comparable capital requirements for national banks. The OTS is also
authorized to impose capital requirements in excess of these standards on
select thrifts on a case-by-case basis.
At September 30, 1996, the Bank continued to exceed all regulatory
capital requirements with tangible capital of $24.5 million (8.6% of tangible
assets); core capital of $24.5 million (8.6% of adjusted tangible assets); and
risk-based capital of $26.3 million (16.4% of risk- weighted assets). Under
current regulatory guidelines, the Bank was classified as well-capitalized.
REGULATORY ITEMS
Federal law requires that the FDIC maintain reserves at both the SAIF
and the Bank Insurance Fund ("BIF") of at least 1.25% of insured deposits. The
reserves are funded through the payment of insurance premiums by the insured
institution members of each fund. The BIF reached this level during 1995.
Upon attainment of the required reserve level, the FDIC may reduce insurance
premiums applicable to BIF-insured institutions while retaining the premiums
applicable to SAIF members, such as the Bank, at their current levels until the
SAIF reaches its required reserve level.
In order to help eliminate this disparity and any competitive
disadvantage due to disparate deposit insurance premium schedules, legislation
to recapitalize the SAIF was enacted in September 1996. The legislation
provides for a one-time assessment to be imposed on all deposits assessed at
the SAIF rates, as of March 31, 1995, in order to recapitalize the SAIF. It
also provides for the merger of the BIF and the SAIF on January 1, 1999
provided no savings associations then exist. The special assessment rate was
65.7 basis points and will be payable on November 27, 1996. Accordingly, this
special assessment increased noninterest expense and adversely affect the
Bank's results of operations. The Bank's liability for the special assessment,
estimated to total approximately $564,000, net of taxes, was recorded during
the third quarter of 1996. Following the special assessment, and depending
upon capital level and supervisory rating, the Bank's deposit insurance
premiums could decrease significantly for future periods.
Prior to the enactment of the legislation a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing for resolving the
thrift crisis of the 1980s. Although the SAIF rates are expected to be reduced
significantly, in the near future the minimum assessment paid by SAIF-insured
institutions is not anticipated to be equalized with the minimum BIF rate as a
result of this continuing obligation. Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
that assessment will be limited to 20% of the rate imposed on SAIF assessable
deposits until the earlier of December 31, 1999 or when no savings association
continues to exist, thereby imposing a greater burden on SAIF member
institutions such as the Bank. Thereafter, however, assessments on BIF-member
institutions will be made on the same basis as SAIF-member institutions. The
rates to be established by the FDIC to implement this requirement for all
FDIC-insured institutions are uncertain at this time.
<PAGE> 14
Part II - Other Information
Item 1 - Legal Proceedings
The Company and the Bank are not involved in any pending legal
proceedings other than legal proceedings incident to the
business of the Company and the Bank, involving amounts in the
aggregate which management believes are material to the financial
condition and results of operations of the Company and the Bank.
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
Not applicable
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) The following is a description of the Form 8-K's filed during
the quarter ended September 30, 1996.
On August 20, 1996, the Corporation filed a current report of
Form 8-K which contained a press release announcing the
Company's intention to repurchase up to approximately five
percent, or 86,634 shares of its outstanding stock.
On August 27, 1996, the Corporation filed a current report on
Form 8-K which contained a press release announcing that the
Company had completed its repurchase of approximately five
percent or 86,634 shares of its outstanding stock.
<PAGE> 15
SIGNATURES
Pursuant to the requirement 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.
SHO-ME FINANCIAL CORP.
Registrant
Date: November 7, 1996 /s/ Raymond G. Merryman
-------------------------- -------------------------------------
Raymond G. Merryman
President and Chief Executive Officer
Date: November 7, 1996 /s/ Greg A. Steffens
-------------------------- -------------------------------------
Greg A. Steffens
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,538,582
<INT-BEARING-DEPOSITS> 2,077,788
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,296,747
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 252,875,584
<ALLOWANCE> 1,783,521
<TOTAL-ASSETS> 292,094,005
<DEPOSITS> 175,748,230
<SHORT-TERM> 82,531,000
<LIABILITIES-OTHER> 4,014,294
<LONG-TERM> 0
0
0
<COMMON> 29,800,481
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 292,094,005
<INTEREST-LOAN> 5,179,093
<INTEREST-INVEST> 340,117
<INTEREST-OTHER> 17,691
<INTEREST-TOTAL> 5,536,901
<INTEREST-DEPOSIT> 1,991,768
<INTEREST-EXPENSE> 3,229,891
<INTEREST-INCOME-NET> 2,307,010
<LOAN-LOSSES> 45,000
<SECURITIES-GAINS> 3,519
<EXPENSE-OTHER> 2,354,507
<INCOME-PRETAX> 232,852
<INCOME-PRE-EXTRAORDINARY> 232,852
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184,332
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<YIELD-ACTUAL> 8.04
<LOANS-NON> 179,864
<LOANS-PAST> 2,516
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 986,454
<ALLOWANCE-OPEN> 1,742,155
<CHARGE-OFFS> 4,663
<RECOVERIES> 729
<ALLOWANCE-CLOSE> 1,783,521
<ALLOWANCE-DOMESTIC> 1,783,521
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
