SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-23406
SOUTHERN MISSOURI BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1665523
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
531 Vine Street, Poplar Bluff, Missouri 63901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 785-1421
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES x NO
Indicate by check mark whether disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
other information statements incorporated by reference in Part III of this
Form 10-KSB or any amendments to this Form 10-KSB. YES x NO
The registrant's revenues for the fiscal year ended June 30, 1996 were
$11,649,811.
As of September 18, 1996, there were issued and outstanding 1,803,201
shares of the registrant's Common Stock, which are listed on the Nasdaq
National Market System under the symbol "SMBC." Based on the average of the
bid and asked prices for the Common Stock on September 18, 1996, the aggregate
value of the Common Stock outstanding held by nonaffiliates of the registrant
was $25,695,614 (1,803,201 shares at $14.25 per share). For purposes of this
calculation, officers and directors of the registrant are considered
nonaffiliates.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1996 ("Annual Report") (Parts I and II).
2. Portions of Registrant's Definitive Proxy Statement for the 1996
Annual Meeting of Stockholders (Part III).
Transitional Small Business Disclosure Format (check one) Yes No X
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PART I
Item 1. Description of Business
General
Southern Missouri Bancorp, Inc. ("Southern Missouri Bancorp" or the
"Company"), a Delaware corporation, was incorporated on December 30, 1993 for
the purpose of becoming the holding company for Southern Missouri Savings Bank
("Southern Missouri" or the "Savings Bank") upon the Savings Bank's conversion
from a state chartered mutual to a state chartered stock savings and loan
association ("Conversion"). The Conversion was completed on April 13, 1994
through the sale and issuance of 1,785,375 shares of common stock by the
Company. At June 30, 1996, the Company had total assets of $159.8 million,
total deposits of $120.1 million and stockholders' equity of $26.2 million.
Southern Missouri Bancorp has not engaged in any significant activity other
than holding the stock of Southern Missouri. Accordingly, the information set
forth in this report, including financial statements and related data, relates
primarily to the Savings Bank and its subsidiaries.
Southern Missouri was chartered as a Missouri savings and loan
association in 1887. On June 20, 1995, the Savings Bank converted to a
federally chartered stock savings bank and took its current name, Southern
Missouri Savings Bank, FSB. The Savings Bank conducts its business from its
home office in Poplar Bluff and seven full service branch facilities in Poplar
Bluff, Van Buren, Dexter, Malden, Kennett, Doniphan and Ellington, Missouri.
The deposits of the Savings Bank are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC").
The Savings Bank provides its customers with a full array of community
banking services. The Savings Bank is primarily engaged in the business of
attracting deposits from the general public and using such deposits, together
with other funding sources, to invest in one- to four-family residential
mortgage loans and, to a lesser extent, consumer and commercial real estate
loans, including loans secured by farm properties, for its loan portfolio.
The Savings Bank also invests in mortgage-backed and related securities,
obligations of state and political subdivisions and U.S. Government and agency
securities, and other assets.
Market Area
The Savings Bank is headquartered in Poplar Bluff, Missouri, which is the
economic hub of the Savings Bank's primary market area. The Savings Bank's
primary market area has a population of approximately 127,000. The largest
employer in the primary market area is Briggs & Stratton which has a small
engine manufacturing facility and employs approximately 750 persons. Other
employers in the market area are Gates Rubber Co., Rowe Furniture Co., Lucy
Lee Hospital, John Pershing VA Hospital, Doctors Regional Hospital, Poplar
Bluff School District, Arvin, Noranda and Paramount Cap Manufacturing Company.
The economy of the primary market area is primarily rural in nature and also
encompasses Shannon, Wayne, New Madrid and Pemiscott counties. Farming is
significant to the local economy with the primary emphasis on livestock, rice,
timber, soybeans, wheat, watermelons, corn and cotton.
Supervisory Agreement
On December 21, 1994, the Savings Bank voluntarily entered into a
Supervisory Agreement with the OTS as a result of its latest OTS examination.
The Supervisory Agreement generally concerns the Savings Bank's investment
portfolio and more specifically focuses on the reporting, monitoring and
assessment of interest rate risk in connection with the Savings Bank's
portfolio of collateralized mortgage obligations ("CMOs"). As part of the
Supervisory Agreement, the Savings Bank hired a Chief Financial Officer. See
Part III, Item 9. of this Form 10-KSB for information concerning the Savings
Bank's Chief Financial Officer. In addition, the Savings Bank revised its
Investment Policy to conform more closely to the OTS's policy on securities
activities and implemented additional procedures to review the investment
activities and monitor interest rate risk management.
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Proposed Federal Legislation
Effective January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well-capitalized, well-managed financial institutions
that are members of the Bank Insurance Fund ("BIF"). Under the new assessment
schedule, approximately 92% of BIF members pay the statutory minimum annual
assessment of $2,000. With respect to financial institutions that are members
of the SAIF, the FDIC has retained the existing rate schedule of 23 to 31
basis points. The Savings Bank is a member of the SAIF rather than the BIF.
SAIF premiums may not be reduced for several years because the SAIF has lower
reserves than the BIF. Because deposit insurance premiums are often a
significant component of noninterest expense for insured depository
institutions, the reduction in BIF premiums may place the Savings Bank at a
competitive disadvantage since BIF-insured institutions (such as most
commercial banks) may be able to offer more attractive loan rates, deposit
rates, or both.
Proposed federal legislation would recapitalize the SAIF and resolve the
current premium disparity by requiring savings institutions like the Savings
Bank to pay a one-time assessment to increase SAIF's reserves to $1.25 per
$100 of deposits that is expected to be approximately 80 basis points on the
amount of deposits held by a SAIF-member institution. The payment of a
one-time fee would have the effect of immediately reducing the capital and
pre-tax earnings of SAIF-member institutions by the amount of the fee. Based
on the Savings Bank's assessable deposits of $120.1 million at June 30, 1996,
a one-time assessment of 80 basis points would equal approximately $961,000 on
a pre-tax basis, or $634,000 after tax. Management cannot predict whether any
legislation imposing such a fee will be enacted, or, if enacted, the amount or
timing of any one-time fee or whether ongoing SAIF premiums will be reduced to
a level equal to that of BIF premiums. See "REGULATION."
Selected Consolidated Financial Information
This information is incorporated by reference from pages 5 and 6 of the
1996 Annual Report to Stockholders ("Annual Report") attached hereto as
Exhibit 13.
Yields Earned and Rates Paid
The information contained under the section captioned "Yields Earned and
Rates Paid" in the Annual Report is incorporated herein by reference.
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes
on net interest income of the Savings Bank. Information is provided with
respect to (i) effects on interest income attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior volume);
and (iii) changes in rate/volume (change in rate multiplied by change in
volume).
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Increase (Decrease)
Due to Due to
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
(Dollars in thousands)
Interest-earning assets:
Loans receivable(1) $451 $708 $55 $1,214 (283) $ 518 $ (26) $ 209
Mortgage-backed and
related securities (68) 372 (15) 289 122 104 9 235
Investment securities 89 (252) (11) (174) (213) 163 (17) (67)
Other interest-earning
deposits 33 6 1 40 60 (10) (6) 44
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1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Increase (Decrease)
Due to Due to
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
(Dollars in thousands)
Total net change in
income on interest-
earning assets 505 834 30 1,369 (314) 775 (40) 421
Interest-bearing
liabilities:
Deposits 513 184 19 716 635 (160) (22) 453
FHLB advances and
other borrowings (1) 414 (8) 405 (2) 12 (1) 9
Total net change in
expense on interest-
bearing liabilities 512 598 11 1,121 633 (148) (23) 462
Net change in net
interest income $ (7) $236 $19 $ 248 $(947) $ 923 $ (17) $(41)
(1) Does not include interest on loans 90 days or more past due.
Asset and Liability Management
The Savings Bank employs various strategies intended to minimize the
adverse effect of interest rate risk on future operations by providing for a
better match between the interest rate sensitivity of its assets and
liabilities. In particular, the Savings Bank's strategies are intended to
stabilize net interest income for the long-term by protecting its interest
rate spread against increases in interest rates. Such strategies include the
origination for portfolio of adjustable-rate mortgage loans ("ARMs") secured
by one to four family residential real estate and the origination of consumer
and other loans with greater interest rate sensitivities than long-term,
fixed-rate residential mortgage loans.
Asset/liability management in the form of structuring cash instruments
provides greater flexibility to adjust exposure to interest rates. During
periods of high interest rates, management believes it is prudent to offer
competitive rates on short-term deposits and less competitive rates for
long-term liabilities. This posture allows the Savings Bank to benefit
quickly from declines in interest rates. Likewise, offering more competitive
rates on long-term deposits during the low interest rate periods allows the
Savings Bank to extend the repricing and/or maturity of its liabilities thus
reducing its exposure to rising interest rates.
The OTS provides a net market value methodology to measure the interest
rate risk exposure of thrift institutions. This exposure is a measure of the
potential decline in the net portfolio value ("NPV") of the institution based
upon the effect of an assumed 200 basis point increase or decrease in interest
rates. NPV is the present value of the expected net cash flows from the
institution's assets, liabilities and off-balance sheet contracts. Under OTS
regulations, an institution's "normal" level of interest rate risk in the
event of this assumed change in interest rates is a decrease in the
institution's NPV in an amount not exceeding 2% of the present value of its
assets. Beginning July 1, 1994, thrift institutions with greater than
"normal" interest rate exposure must take a deduction from their total capital
available to meet their risk-based capital requirement. The amount of that
deduction is one-half of the difference between (a) the institution's actual
calculated exposure to the 200 basis point interest rate increase or decrease
(whichever results in the greater pro forma decrease in NPV) and (b) its
"normal" level of exposure which is 2% of the present value of its assets.
Utilizing this measurement concept, at June 30, 1996, the change in the
Savings Bank's NPV as a percent of the present value of its assets was
negative 2.68% in the event of a 200 basis point increase in interest rates.
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On this basis, the Savings Bank believes that its interest rate risk is
substantially less than the amount treated as "normal" under the OTS
regulations.
The table below measures interest rate risk by estimating the change in
market value of the Savings Bank's assets, liabilities, and off-balance sheet
contracts in response to an instantaneous change in the general level of
interest rates. The procedure for measuring interest rate risk was developed
by the OTS to replace the "gap" analysis (the difference between
interest-earning assets and interest-bearing liabilities that mature or
reprice within a specific time period). The model first estimates the level
of the Savings Bank's NPV (market value of assets, less market value of
liabilities, plus or minus the market value of any off-balance sheet items)
under the current rate environment. In general, market values are estimated
by discounting the estimated cash flows of each instrument by appropriate
discount rates. The model then recalculates the Savings Bank's NPV under
different interest rate scenarios. The change in NPV under the different
interest rate scenarios provides a measure of the Savings Bank's exposure to
interest rate risk. The data presented below is based on information provided
by the Savings Bank as calculated by the OTS as of June 30, 1996.
NPV as % of
Net Portfolio PV of Assets
Change
in Rates $ Amount $ Change % Change NPV Ratio Change
(Dollars in thousands)
+400 bp $11,799 $(10,786) (48)% 8.11% (619) bp
+300 bp 14,863 (7,721) (34) 9.98 (432) bp
+200 bp 17,683 (4,901) (22) 11.62 (268) bp
+100 bp 20,265 (2,320) (10) 13.06 (124) bp
0 bp 22,585 14.30
- -100 bp 23,873 1,289 6 14.95 65 bp
- -200 bp 24,864 2,279 10 15.42 112 bp
- -300 bp 25,735 3,150 14 15.82 152 bp
- -400 bp 26,815 4,230 19 16.32 202 bp
Lending Activities
General. The principal lending activity of the Savings Bank is the
origination of conventional mortgage loans for the purpose of purchasing or
refinancing one- to four-family owner occupied homes within its primary market
area. In an attempt to diversify its lending portfolio, however, the Savings
Bank also engages in community banking activities and originates real estate
loans, consumer loans, mobile home dealer paper, home improvement loans,
commercial real estate loans, commercial business loans, agricultural loans,
student loans, and loans secured by deposit accounts.
At June 30, 1996, the Savings Bank's net loans receivable totaled
approximately $95.5 million representing approximately 59.8% of total assets.
Since 1983, the Savings Bank has originated primarily adjustable rate mortgage
("ARM") loan products. At June 30, 1996, ARM loans accounted for $74.0
million or 72.5% of the net loan portfolio. The Savings Bank focuses on
serving the needs of its local community and strongly believes in a lending
philosophy that stresses individual customer service and flexibility in
meeting the needs of its customers.
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Loan Portfolio Analysis. The following table sets forth the
composition of the Savings Bank's loan portfolio by type of loan and type of
security as of the dates indicated.
At June 30,
1996 1995 1994
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
Type of Loan:
Mortgage Loans:
Conventional $68,330 71.52% $60,521 73.02% $58,995 78.73%
Commercial 16,584 17.36 14,775 17.82 11,392 15.20
Construction 4,283 4.48 4,587 5.53 2,013 2.69
Total mortgage
loans $89,197 $79,883 $72,400
Other Loans:
Loan secured
by deposit
accounts $ 753 .79 $ 726 .88 $ 819 1.09
Home equity
and second
mortgage
loans 689 .72 493 .59 701 .94
Automobile
loans 3,196 3.35 1,252 1.51 823 1.09
Other 5,157 5.40 2,616 3.16 2,199 2.94
Total other
loans 9,795 5,087 4,542
Total loans $98,992 103.62 $84,970 102.51 $76,942 102.68
Less:
Undisbursed
loans in
process $2,610 (2.73) $1,260 (1.52) $1,228 (1.64)
Unearned
discounts
on loans
originated
and purchased -- -- 4 -- 28 (.03)
Deferred gain on
sale of other
real estate 131 (.14) 172 (.21) 209 (.28)
Unamortized loan
origination
fees, net or
direct costs 89 (.09) 75 (.09) 68 (.09)
Allowance for
loan losses 627 (.66) 572 (.69) 477 (.64)
Total loans
receivable,
net $95,535 100.00% $82,887 100.00% $74,932 100.00%
Type of Security:
Residential real
estate
One- to four-
family $69,368 72.61% $62,626 75.56% $59,334 79.18%
Other
dwellings 2,663 2.79 3,616 4.36 2,393 3.19
Commercial real
estate 15,612 16.34 12,666 15.28 9,641 12.87
Land 1,554 1.63 975 1.17 1,032 1.38
Savings
accounts 753 .79 726 .88 819 1.09
Consumer and
other 9,042 9.46 4,361 5.26 3,723 4.97
Total loans $98,992 103.62 84,970 102.51 76,942 102.68
(table continued on following page)
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At June 30,
1996 1995 1994
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
Less:
Due to borrowers
on construction
loans $2,610 (2.73) 1,260 (1.52) 1,228 (1.64)
Unamortized loan
fees . 89 (.09) 75 (.09) 68 (.09)
Unearned discount
on loans
purchased -- 4 -- 28 (.03)
Deferred gain
on sale of other
real estate 131 (.14) 172 (.21) 209 (.28)
Allowance for
possible loan
losses 627 (.66) 572 (.69) 477 (.64)
Total loans
receivable,
net $95,535 100.00% $82,887 100.00% $74,932 100.00%
One- to Four-Family Residential Loans. The primary lending activity of
the Savings Bank has been the origination of mortgage loans to enable
borrowers to purchase existing homes, to construct new one- to four-family
homes or refinance existing debt on their homes. At June 30, 1996,
approximately $69.4 million, or 72.7% of the Savings Bank's net loan portfolio
consisted of loans secured by one- to four-family residential real estate.
The Savings Bank presently originates ARM loans secured by one- to
four-family properties with loan terms of 15 to 20 years in its primary market
area. Since 1983, the Savings Bank has originated primarily ARM loan
products. Initially, ARMs were indexed to the semi annual national average
cost of funds for FSLIC insured institutions. In 1986, the Savings Bank
discontinued the use of the District Cost of Funds Index and changed to the
Savings Bank's cost of funds index. On June 21, 1995, the Savings Bank began
to use the 11th District cost of funds for ARMs indexing.
The Savings Bank's long-term, fixed-rate loans are originated with terms
of up to 15 to 20 years, and are amortized on a monthly basis with principal
and interest due each month. At June 30, 1996, the Savings Bank had $11.4
million of long-term, fixed-rate mortgage loans in its portfolio or 11.5% of
its total loan portfolio.
The loan fees charged, interest rates and other provisions of the Savings
Bank's ARMs are determined by the Savings Bank on the basis of its own pricing
criteria and competitive market conditions. At June 30, 1996, the Savings
Bank charged an origination fee on its ARMs ranging from 0% to 1% of the
principal amount of the loan. Interest rates and payments on the Savings
Bank's ARMs generally are adjusted annually to a rate typically equal to 250
to 300 basis points above the ARM index used by the Savings Bank.
The Savings Bank offers ARMs with initial rates below those which would
prevail under the foregoing computations, determined by the Savings Bank based
on market factors and competitive rates for loans having similar features
offered by other lenders for such initial periods. At June 30, 1996, the
initial interest rate being offered on the Savings Bank's ARMs ranged from
7.25% to 8.25% per annum. The periodic interest rate cap (the maximum amount
by which the interest rate may be increased or decreased in a given period) on
the Savings Bank's ARMs is generally 100 to 200 basis points and the maximum
lifetime interest rate cap is 12% and there is generally a minimum interest
rate of 5%. The Savings Bank underwrites ARMs based on the borrower's ability
to repay the loan using the first year adjusted rate to qualify the borrower.
While single-family residential real estate loans are normally originated
with 15-year terms, such loans typically remain outstanding for substantially
shorter periods. This is because borrowers often prepay their loans in full
upon sale of the property pledged as security or upon refinancing the original
loan. In addition, substantially all of the fixed interest rate loans in the
Savings Bank's loan portfolio contain due-on-sale clauses providing that the
Savings Bank may declare the unpaid amount due and payable upon the sale of
the property securing the loan. The Savings Bank enforces these due-on-sale
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clauses to the extent permitted by law. Thus, average loan maturity, which
the Savings Bank estimates is between 7 to 10 years, is a function of, among
other factors, the level of purchase and sale activity in the real estate
market, prevailing interest rates and the interest rates payable on
outstanding loans. On loans originated since 1980, a total of 2,437 real
estate mortgage loans have prepaid as of June 30, 1996 with an average
estimated life of approximately 8.4 years. On all loans originated by the
Savings Bank, a total of 1,222 real estate mortgage loans have prepaid during
the past three fiscal years and these loans had an average estimated life of
seven to 10 years.
The Savings Bank's lending policies generally limit the maximum
loan-to-value ratio on adjustable rate residential mortgage loans to 80% of
the lesser of the appraised value or purchase price of the underlying
residential property. Loan requests for 80 - 90% can be approved by the loan
committee, discount committee, or the Board of Directors. The Savings Bank
requires title insurance or an abstract extension and attorney's opinion, and
fire, flood (if applicable) and casualty coverage on all mortgage loans
originated or purchased. All of the Savings Bank's real estate loans contain
"due-on-sale" clauses. At June 30, 1996, the maximum loan-to-value ratio on
loans to borrowers was 90%.
At June 30, 1996, the Savings Bank had $4.3 million in interim
construction loans in its portfolio with maximum loan to value ratios of 90%.
Most of these loans are residential construction loans for one- to four- or
multi-family dwelling units. All of these loans automatically convert into
permanent residential real estate loans. The Savings Bank also has a
construction loan on a local motel project and also is committed to a
construction loan on a church.
Multi-Family Residential Loans. At June 30, 1996, approximately $2.7
million, or 2.73% of the Savings Bank's net loan portfolio consisted of loans
secured by multi-family residential real estate. Multi-family real estate
loans are generally originated at 80% of the appraised value of the property
or selling price, whichever is less, and carry adjustable rate mortgages with
the principal amortized over 10 to 15 years. Loans secured by multi-family
real estate are generally larger and involve a greater degree of risk than
one- to four- family residential loans. In addition, multi-family real estate
loans carry risks similar to those associated with commercial real estate
lending. See "-- Consumer and Commercial Business Loans."
Commercial Real Estate and Land Loans. The Savings Bank had land and
commercial real estate loans outstanding of $17.2 million or 18.0% of the loan
portfolio at June 30, 1996. Commercial real estate loans amounted to
approximately $15.6 million or 16.3% of the loan portfolio at that date, as
compared to $12.7 million or 16.5% of the loan portfolio at June 30, 1995.
The commercial real estate loans originated by the Savings Bank traditionally
have been secured by motels, medical centers, churches, industrial buildings
and fast food restaurants. The Savings Bank expanded its commercial real
estate portfolio in fiscal 1996 and fiscal 1995 by targeting a more diverse
group of commercial borrowers, such as farmers, rental property owners,
manufacturing concerns and small business entities. Land loans on property
located primarily in the Savings Bank's primary market area amounted to $1.6
million or 1.7% of the total loan portfolio at that date. The Savings Bank's
land loans generally are secured by undeveloped lots, farm land, crops,
equipment and livestock and involve the risks associated with general
agricultural conditions.
Currently, the Savings Bank originates commercial real estate loans to
select borrowers known to the Savings Bank and secured by properties in its
primary market area. The origination of commercial loans in excess of
$500,000 was restricted from August 1989 to January 1993 in connection with a
Supervisory Agreement entered into by the Savings Bank with the Federal Home
Loan Bank Board ("FHLBB"), the predecessor to the OTS. At June 30, 1996,
commercial real estate loans outstanding ranged in principal balance from
approximately $1,000 to $1.52 million, with an average balance of
approximately $141,000. At June 30, 1996, the Savings Bank's largest
commercial real estate loan was a $1.52 million loan secured by a motel
located in Poplar Bluff, Missouri, which was performing according to its
terms. Subject to market conditions, the Savings Bank intends to originate
commercial real estate loans in excess of $500,000 and, since the Supervisory
Agreement was lifted in January 1993, the Savings Bank has originated four
loans in excess of $500,000 (that amount to $4.25 million in the aggregate at
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June 30, 1996). At June 30, 1996, the Savings Bank also had two other
commercial loans that were each in excess of $500,000 that had been originated
prior to the Supervisory Agreement and at June 30, 1996 totaled approximately
$2.73 million.
Of primary concern in commercial real estate lending is the borrower's
creditworthiness and the feasibility and cash flow potential of the project.
To diversify the risks inherent in such lending, the Savings Bank's income
property collateral is not concentrated in any one industry or area. Loans
secured by income properties are generally larger and involve greater risks
than residential mortgage loans because payments on loans secured by income
properties are often dependent on successful operation or management of the
properties. As a result, repayment of such loans may be subject, to a greater
extent than residential real estate loans, to supply and demand in the market
in the type of property securing the loan and therefore, may be subject to
adverse conditions in the real estate market or the economy. If the cash flow
from the project is reduced, the borrowers ability to repay the loan may be
impaired. Moreover, to the extent that the properties constitute new
ventures, projections regarding their operating results are inherently
speculative, and cash flow and other financial problems may take some time to
develop. If these borrowers develop problems, because of the relatively large
size of such loans, such problems may require increased reserves and may
result in significant reductions in net income. The Savings Bank's general
loan-to-value maximum at origination for commercial and industrial property
loans is 70%.
Consumer and Other Loans. The Savings Bank's consumer loans consist of
car loans, mobile home loans, deposit account loans, student loans and various
other consumer loans. At June 30, 1996, the Savings Bank's consumer loans
totaled approximately $9.8 million, or 10.3% of the Savings Bank's loans
receivable. Subject to market conditions, management expects to continue to
market and originate consumer loans as part of its strategy to provide a wide
range of personal financial services to its depository customer base and as a
means to enhance the interest rate sensitivity of the Savings Bank's
interest-earning assets and its interest rate spread.
The Savings Bank has purchased mobile home loans that are originated by a
local dealer. Such loans are made by the Savings Bank to the dealer's
customers. At June 30, 1996, such loans amounted to $1.33 million. Reserves
for losses maintained by the dealers at June 30, 1996 totaled $131,000. These
loans are originated by the mobile home dealer and underwritten by the Savings
Bank. Payments are made to the Savings Bank by the borrower. The Savings
Bank obtains and reviews regularly updated financial statements of the dealer
and monitors the individual loans.
The Savings Bank's procedures for underwriting consumer loans include an
assessment of the applicant's payment history on other debts and ability to
meet existing obligations and payments on the proposed loan. Although the
borrower's creditworthiness is a primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, to
the proposed loan amount.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles, mobile homes, boats and
recreational vehicles. In such cases, any repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage, loss
or depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on
the borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which
can be recovered on such loans. Such loans may also give rise to claims and
defenses by a consumer loan borrower against an assignee of such loans such as
the Savings Bank, and a borrower may be able to assert against such assignee
claims and defenses that it has against the seller of the underlying
collateral. The Savings Bank historically has had a low level of
delinquencies on its consumer loans. See "-- Nonperforming Assets and
Delinquencies." At June 30, 1996, $45,000 of the Savings Bank's consumer loan
portfolio was 90 days or more past due.
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Loan Maturity and Repricing
The following table sets forth certain information at June 30, 1996
regarding the dollar amount of loans maturing in the Savings Bank's portfolio
based on their contractual terms to maturity, but does not include scheduled
payments or potential prepayments. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdrafts are reported as
due in one year or less. Mortgage loans which have adjustable rates are shown
as maturing at their next repricing date. Loan balances are before deductions
for undisbursed loan proceeds, unearned discounts, unearned income and
allowance for loan losses.
Within After One Year After 3 Years
One Year Through 3 Years Through 5 Years
(In thousands)
Real estate mortgage $56,072 $2,345 $1,681
Commercial real estate 13,654 1,085 422
Construction (net of
undisbursed proceeds) 4,283 -- --
Consumer 1,881 1,785 1,733
Commercial 2,508 329 308
Total loans $78,398 $5,544 $4,144
After 5 Years
Through 10 Years Beyond 10 Years Total
(In thousands)
Real estate mortgage $6,048 $2,184 $68,330
Commercial real estate 167 1,256 16,584
Construction (net of
undisbursed proceeds) -- -- 4,283
Consumer 905 2 6,306
Commercial 193 151 3,489
Total loans $7,313 $3,593 $98,992
The following table sets forth the dollar amount of all loans due one
year after June 30, 1996, which have fixed interest rates and have floating or
adjustable interest rates and which do not reprice within one year.
Fixed Floating or
Rates Adjustable Rates(1)
(In thousands)
Real estate mortgage $11,247 $ --
Commercial real estate 3,359 --
Construction 4,283 --
Consumer 6,306 --
Commercial 1,206 --
Total $26,401 $ --
(1) All ARM's outstanding at June 30, 1996 adjust within one year.
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The following table sets forth scheduled contractual amortization of
loans at June 30, 1996 and June 30, 1995, and the dollar amount of such
securities and loans at the date which are scheduled to mature after one year
which have fixed or adjustable interest rates. Demand loans, loans having no
stated schedule of repayments and no stated maturity and overdraft loans are
reported as due in one year or less.
At June 30, 1996
Commercial
Mortgage Consumer Business Total
Loans Loans Loans Loans
(In thousands)
Amounts due:
Within one year $74,009 $1,881 $2,508 $78,398
After one year through
three years 3,430 1,785 329 5,544
After three years through
five years 2,103 1,733 308 4,144
After five years 9,655 907 344 10,906
Total $89,197 $6,306 $3,489 $98,992
Interest rate terms on
amounts due after one
year:
Fixed $18,889 $6,306 $1,206 $26,401
Adjustable 70,308 -- 2,283 72,591
At June 30, 1996
Commercial
Mortgage Consumer Business Total
Loans Loans Loans Loans
(In thousands)
Amounts due:
Within one year $ 9,215 $1,981 $ 474 $11,670
After one year through
three years 14,164 1,156 336 15,656
After three years through
five years 12,644 417 197 13,258
After five years 43,860 147 379 44,386
Total $79,883 $3,701 $1,386 $84,970
Interest rate terms on
amounts due after one
year:
Fixed $19,002 $3,701 $780 $23,483
Adjustable 59,571 -- 606 60,177
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Loan Solicitation and Processing. A majority of the loans originated by
the Savings Bank are made to existing customers. Upon receipt of a loan
application, a credit report is ordered to verify specific information
relating to the loan applicant's employment, income and credit standing. A
loan applicant's income is verified through the applicant's employer or from
the applicant's tax returns. In the case of a resident real estate loan, an
appraisal of the real estate intended to secure the proposed loan is required.
Since June 30, 1994 the Savings Bank has used outside appraisers for the
majority of its real estate loans.
Certain individual officers have loan approval authority up to $50,000.
The Savings Bank's President, Donald R. Crandell, or Senior Vice President,
Kent Nichols, may approve a loan of between $50,000 and $100,000 and all loans
over that amount are submitted to the Board of Directors or a Discount
Committee consisting of members of the Board of Directors. Upon approval, a
commitment letter is issued to the customer with a commitment period generally
not exceeding 30 days. All loans are subsequently reviewed by the full Board
of Directors.
Loan Commitments. The Savings Bank issues commitments for fixed- and
adjustable-rate single-family residential mortgage loans conditioned upon the
occurrence of certain events. Such commitments are made in writing on
specified terms and conditions and are honored generally for up to 30 days
from approval, depending on the type of transaction. The Savings Bank had
outstanding mortgage loan commitments of approximately $4.0 million at June
30, 1996 including $2.9 million of commitments for construction loans and
$545,000 for a church. See Note 13 of Notes to Consolidated Financial
Statements contained in the Annual Report.
Loan Originations, Purchases and Sales. The Savings Bank has originated
loans for its portfolio and not with a view toward sale in the secondary
market and many of the loans would not be eligible for sale in the secondary
market.
The Savings Bank has infrequently purchased loans primarily because the
Savings Bank's primary market area has provided the Savings Bank with a
sufficient demand for lendable funds and because of the uncertain credit risks
associated with such purchases.
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The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
Year Ended June 30,
1996 1995 1994
(In thousands)
Total mortgage loans at beginning
of period $79,883 $72,400 $69,661
Loans originated:
One- to four-family residential 16,032 13,489 14,577
Multi-family residential and
commercial real estate 5,781 2,671 4,750
Construction loans 3,242 4,113 1,575
Other loans -- -- --
Total loans originated 25,055 20,273 20,902
Loans purchased:
Other -- -- --
Total loans purchased -- -- --
Loans sold:
Total loans sold -- -- --
Total loans sold -- -- --
Mortgage loan principal
repayments (15,620) (12,770) (17,942)
Foreclosures (121) (20) (221)
Net loan activity 9,314 7,483 2,739
Total mortgage loans
at end of period $89,197 $79,883 $72,400
Loan Origination and Other Fees. The Savings Bank, in many instances,
receives loan origination fees and discount "points." Loan fees and points
are a percentage of the principal amount of the mortgage loan that are charged
to the borrower for funding the loan. The Savings Bank usually charges
origination fees of 0% to 1% on one- to four-family residential real estate
loans, long-term commercial real estate loans and residential construction
loans. Current accounting standards require fees received for originating
loans to be deferred and amortized into interest income over the contractual
life of the loan. Deferred fees associated with loans that are sold are
recognized as income at the time of sale. The Savings Bank had $89,000 of net
deferred loan fees at June 30, 1996.
Non-Performing Assets and Delinquencies. When a mortgage loan borrower
fails to make a required payment by the end of the grace period in which the
payment is due, the Savings Bank generally institutes collection procedures.
The first notice is generally mailed to the borrower within 15 days of the end
of the grace period, and if necessary, a second notice follows at the end of
the next two week period. In most cases, delinquencies are cured promptly;
however, if the Savings Bank is unable to make contact with the borrower to
obtain full payment, or, if it is not possible to work out a repayment
schedule, a notice to commence foreclosure may be mailed to the borrower. The
Savings Bank makes every reasonable effort, however, to work with delinquent
borrowers. Understanding that borrowers sometimes cannot make payments
because of illness, lost jobs, etc., the Savings Bank will attempt to work
with delinquent borrowers who are communicating and cooperating with the
Savings Bank. The Savings Bank institutes the same collection procedures for
non-mortgage loans.
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The Board of Directors is informed monthly as to the status of all
mortgage and non-mortgage loans that are delinquent 60 days or more, as well
as the status on all loans currently in foreclosure or owned by the Savings
Bank through foreclosure.
The table below sets forth the amounts and categories of non-performing
assets in the Savings Bank's loan portfolio at the dates indicated. All loans
are placed on non-accrual status after 90 days or prior to that period, when
the Savings Bank determines there is little if any likelihood they will be
repaid. The loans are fully reserved at that time, through appropriate loss
reserves are kept on the books as long as some principal is being repaid. The
Savings Bank has no reserves for uncollected interest and does not accrue
interest on the non-accrual loans. The Savings Bank would have recorded
interest income of $25,000, $32,000 and $24,000 on non-accrual loans during
the years ended June 30, 1996, 1995 and 1994, respectively, if such loans had
been performing during such periods. The Savings Bank did not recognize
interest income on loans after being placed on a non-accrual basis during the
years ended June 30, 1996, 1995 and 1994.
The following table sets forth information with respect to the Savings
Bank's non-performing assets as of the dates indicated. At the dates
indicated, the Savings Bank had no restructured loans within the meaning of
SFAS 15.
At June 30,
1996 1995 1994 1993 1992
(Dollars in thousands)
Loans accounted for on
a nonaccrual basis:
Real estate -
Residential $480 $ 700 $ 641 $ 907 $1,111
Commercial -- 14 47 413 501
Consumer 45 14 8 9 25
Commercial 21 9 -- -- --
Total $546 $ 737 $ 696 $1,329 $1,637
Total of nonaccrual
and 90 days past
due loans $546 $ 737 $ 696 $1,329 $1,637
Real estate owned 60 $ 727 $ 778 $1,128 $1,731
Other non-performing
assets -- -- -- -- --
Total nonperforming
assets $606 $ 1,464 $ 1,474 $2,457 $3,368
Total loans delinquent
90 days or more to
net loans .57% .89% .93% 1.85% 2.25%
Total loans delinquent
90 days or more to
total assets .34 .50 .49 .99 1.22
Total nonperforming
assets to total
assets .38 .99 1.04 1.82 2.52
Asset Classification. The OTS has adopted various changes in its
regulations regarding problem assets of savings institutions. These
regulations require that each insured institution review and classify its
assets on a regular basis. In addition, in connection with examinations of
insured institutions, OTS examiners have authority to identify problem assets
and, if appropriate, require them to be classified. There are three
classifications for problem assets:
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substandard, doubtful and loss. Substandard assets must have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation
in full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified
loss is considered uncollectible and of such little value that continuance as
an asset of the institution is not warranted. Assets classified as
substandard or doubtful require the institution to establish general
allowances for these asset losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss or charge off such amount. A portion of general loss
allowances established to cover possible losses related to assets classified
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses
generally do not qualify as regulatory capital. Assets that do not currently
expose the insured institution to sufficient risk to warrant classification in
one of the aforementioned categories but possess weaknesses are designated
"special mention" and monitored by the Savings Bank.
At June 30, 1996 and 1995 the aggregate amounts of the Savings Bank's
classified assets as determined by the Savings Bank, and of the Savings Bank's
general and specific loss allowances and charge-offs for the period then
ended, were as follows:
At June 30,
1996 1995
(In thousands)
Loss $ -- $ --
Doubtful -- 5
Substandard assets 560 1,529
Special mention -- --
Total classified assets $ 560 $1,534
General loss allowances $ 627 $ 572
Specific loss allowances 335 419
Total allowances $ 962 $ 991
Charge-offs $ (5) $ (33)
The following is a discussion of the Savings Bank's substandard loans of
special concern:
At June 30, 1996 the Savings Bank had an aggregate of $431,000 of loans
to a borrower that were secured by commercial property. As of that date,
none of these loans were 30 to 60 days delinquent. The commercial real estate
property is currently profitable, and the borrower's personal cash flow
problem has improved over the past 12 months subsequent to June 30, 1996.
Real Estate Owned. Real estate acquired by the Savings Bank as a result
of foreclosure or by deed in lieu of foreclosure is classified as real estate
owned until it is sold. When property is acquired, the unpaid principal
balance of the related loan plus foreclosure costs are compared to the
property's appraised value. The property is then directly written down to the
lower of cost or fair value less estimated selling costs with any adjustments
made through the establishment of a specific reserve. At June 30, 1996, the
Savings Bank's real estate owned was $60,000 and included 16 properties in
loan amounts ranging from $1,000 to $15,000.
Allowance for Loan Losses
The Savings Bank's management evaluates the need to establish reserves
for losses on loans based on estimated losses on specific loans when a finding
is made that a decline in value has occurred. Such evaluation includes a
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review of all loans for which full collectibility may not be reasonably
assured and considers, among other matters, the estimated market value of the
underlying collateral of problem loans, prior loss experience, economic
conditions and overall portfolio quality. These provisions for losses are
charged against earnings in the year they are established. The Savings Bank
had allowance for loan losses at June 30, 1996, 1995 and 1994 of approximately
$627,000, $572,000 and $477,000, respectively. Management believes that loan
loss reserves were adequate at June 30, 1996. However, if the underlying
facts and circumstances of the loan portfolio change in the future, the
adequacy of the allowance for loan losses will be addressed and, if need be,
adjusted accordingly.
There has been a greater level of scrutiny by regulatory authorities of
the loan portfolios of financial institutions nationwide, undertaken as part
of the examination of the institution by the FDIC, OTS, or other federal
regulators. Results of recent examinations indicate that these regulators may
be applying more conservative criteria in evaluating real estate values,
requiring significantly increased provisions for potential loan losses. While
the Savings Bank believes it has established its existing allowance for loan
losses in accordance with GAAP, there can be no assurance that regulators, in
reviewing the Savings Bank's loan portfolio, will not request the Savings Bank
to significantly increase its allowance for loan losses. Any material
increase in reserves may adversely affect the Savings Bank's financial
condition and earnings.
The following table sets forth an analysis of the Savings Bank's
allowance for loan losses for the periods indicated. Where specific loan loss
reserves have been established, any difference between the loss reserve and
the amount of loss realized has been charged or credited to current income.
Year Ended June 30,
1996 1995 1994 1993 1992
(Dollars in thousands)
Allowance at beginning
of period $572 $477 $261 $274 $287
Provision for loan losses 60 95 230 26 7
Recoveries -- -- -- -- --
Charge offs:
Residential real estate -- -- 14 24 19
Consumer 5 -- -- 15 1
Total charge offs 5 -- 14 39 20
Net charge offs 5 -- 14 39 20
Balance at end of
period $627 $572 $477 $261 $274
Ratio of allowance to total
loans outstanding at the
end of the period .63% .67% .62% .36% .38%
Ratio of net charge offs
to average loans outstanding
during the period .01% -- .02% .05% .03%
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The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
At June 30,
1996 1995 1994
Percent Percent Percent
of Loans of Loans of Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Gross Loans Amount Gross Loans Amount Gross Loans
(Dollars in thousands)
Residential
mortgage $562 72.77% $562 77.96% $ 467 80.23%
Consumer 65 9.89 10 5.99 10 5.90
Unallocated -- -- -- -- -- --
Total
allowance
for loan
losses $627 $572 $ 477
At June 30,
1993 1992
Percent Percent
of Loans of Loans
in Each in Each
Category Category
to Total to Total
Amount Gross Loans Amount Gross Loans
(Dollars in thousands)
Residential
mortgage $251 82.49% $249 83.20%
Consumer 10 4.64 25 3.83
Unallocated -- -- -- --
Total
allowance
for loan
losses $261 $274
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Investment Activities
The Savings Bank has authority to invest in various types of liquid
assets, including United States Treasury obligations, securities of various
Federal agencies and of state and municipal governments, deposits at the
FHLB-Des Moines, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various
restrictions, such savings institutions may also invest a portion of their
assets in commercial paper, corporate debt securities and mutual funds, the
assets of which conform to the investments that federally chartered savings
institutions are otherwise authorized to make directly. Savings institutions
are also required to maintain minimum levels of liquid assets which vary from
time to time. See "REGULATION OF SOUTHERN MISSOURI -- Federal Home Loan Bank
System." The Savings Bank may decide to increase its liquidity above the
required levels depending upon the availability of funds and comparative
yields on investments in relation to return on loans.
The Savings Bank is required under federal regulations to maintain a
minimum amount of liquid assets and is also permitted to make certain other
security investments. See "REGULATION OF SOUTHERN MISSOURI" herein and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources" in the Annual Report. The
balance of the Savings Bank's investments in short-term securities in excess
of regulatory requirements reflects management's response to the significantly
increasing percentage of deposits with short maturities. At June 30, 1996,
the Savings Bank's regulatory liquidity was 10.0% which is in excess of the
required 5%. It is the intention of management to hold securities with short
maturities in the Savings Bank's investment portfolio in order to enable the
Savings Bank to match more closely the interest-rate sensitivities of its
assets and liabilities.
Investment decisions are made by the Investment Officer and Chief
Executive Officer, who acts within policies established by the Board of
Directors, and are reported monthly to the Board. Those investments include
corporate securities, federally insured certificates of deposit, FHLB term
time obligations, bankers acceptances, treasury obligations and U.S.
Government agencies. Securities are purchased for investment purposes and are
determined to be either held until maturity or available for sale at the time
of purchase. The goals of the Savings Bank's investment policy are to obtain
the highest yield consistent with maintaining flexibility through
diversification of investments. In addition, as a result of the concern with
interest rate risk exposure, there recently has been a focus on
intermediate-term investments. At June 30, 1996, the Savings Bank's
securities investment portfolio totaled $21.3 million and consisted primarily
of federal agency obligations securities, corporate bonds, and municipal
bonds. For further information concerning the Savings Bank's investment
securities portfolio, see Note 2 of the Notes to the Consolidated Financial
Statements contained in the Annual Report.
The Savings Bank invests in various corporate bonds, rated BAA or better,
generally in amounts up to $1.0 million. At June 30, 1996, its investments
included bonds in GMAC, Associates Corp., Sears Roebuck & Co., Ford Motor
Company, Salaman, Inc., Bell Atlantic, CIT Group Holdings, and Phillip Morris.
At June 30, 1996, such bonds ranged in maturity from 1996 to 1998 at interest
rates of 5.5% to 8.3%.
As part of its investment activities, the Savings Bank also purchases
state and local municipal obligations. It has purchased non-rated municipal
obligations of local and surrounding areas within the State of Missouri and
rated obligations of municipalities located outside of its market area. At
June 30, 1996, the Savings Bank had $8.9 million outstanding in obligations of
states and political subdivisions.
On June 30, 1994, the Company adopted Financial Accounting Standards
Board Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which allows debt securities to be classified as "held to
maturity" and reported at amortized cost only if the reporting entity has the
positive intent and ability to hold these securities to maturity. Securities
classified as "available for sale" must be reported at fair value with
unrealized gains and losses recorded as a separate component of stockholders'
equity. At June 30, 1996, investments and mortgage-backed and related
securities totaling $50.6 million (book value) were classified as available
for sale. See Notes 1 and 2 of Notes to Consolidated Financial Statements
contained in the Annual Report.
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Investment Securities Analysis
The following table sets forth the Savings Bank's investment securities
portfolio at carrying value (including securities classified held to maturity
and securities classified as available for sale) at the dates indicated.
At June 30,
1996 1995
Carrying Percent of Carrying Percent of
Value(1) Portfolio Value(1) Portfolio
(Dollars in thousands)
U.S. government treasury and
obligations of U.S. government
agencies $8,023 37.64% $13,737 40.82%
Obligations of states and
political subdivisions 8,856 41.55 13,562 40.30
Corporate securities 2,915 13.68 4,860 14.45
Capital Stock - Federal Home
Loan Bank of Des Moines 1,520 7.13 1,490 4.43
Total $21,314 100.00% $33,649 100.00%
At June 30,
1994
Carrying Percent of
Value(1) Portfolio
(Dollars in thousands)
U.S. government treasury and
obligations of U.S. government
agencies $13,712 40.85%
Obligations of states and
political subdivisions 13,348 39.76
Corporate securities 5,018 14.95
Capital Stock - Federal Home
Loan Bank of Des Moines 1,490 4.44
Total $33,568 100.00%
(1) The market value of the Savings Bank's investment securities portfolio
amounted to $21.3 million, $33.9 million and $33.5 million at June 30,
1996, 1995 and 1994,
respectively.
The following table sets forth the maturities and weighted average yields
of the debt securities in the Savings Bank's investment securities portfolio
(including securities classified held to maturity and securities classified as
available for sale) at June 30, 1996.
Less Than One to Five to
One Year Five Years Ten Years
Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
U.S. government treasury and
obligations of U.S.
government agencies $ 557 7.68% $1,885 5.70% $4,663 7.11%
Obligations of states and
political subdivisions 36 3.85 1,756 5.55 4,205 5.87
Corporate Securities 1,368 8.07 1,547 6.20 -- --
Total $1,961 7.88 $5,188 5.80 $8,868 6.52
Over
Ten Years Total
Amount Yield Amount Yield
(Dollars in thousands)
U.S. government treasury and
obligations of U.S.
government agencies $ 918 6.88% $ 8,023 6.80%
Obligations of states and
political subdivisions 2,859 6.98 8,856 6.16
Corporate Securities -- -- 2,915 7.07
Total $3,777 6.96 $19,794 6.55
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Mortgage-Backed and Related Securities. To supplement lending activities
in periods of deposit growth and/or declining loan demand, the Savings Bank
has invested in residential mortgage-backed and related securities. Although
such securities are either held to maturity or available for sale, they can
serve as collateral for borrowings and, through repayments, as a source of
liquidity. For information regarding the carrying and market values of the
Savings Bank's mortgage-backed securities portfolio, see Note 2 of the Notes
to Consolidated Financial Statements contained in the Annual Report. The
Savings Bank invests in securities guaranteed by the Federal Home Loan
Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA") and the Government National Mortgage Association ("GNMA") and also
invests in CMOs.
As of June 30, 1996, the Savings Bank had $35.0 million of
mortgage-backed and related securities purchased as investments to supplement
the Savings Bank's mortgage lending activities. The Savings Bank has invested
in CMOs which are securities issued by special purpose entities generally
collateralized by pools of mortgage-backed securities. The cash flows from
such pools are segmented and paid in accordance with predetermined priority to
various classes of securities issued by the entity. As a result of
supervisory criticism, the Savings Bank has discontinued its investment in
CMOs and is closely monitoring its portfolio. See "-- Supervisory Agreement."
In connection with the OTS examination and subsequent to June 30, 1994, the
Savings Bank sold one CMO at a loss of $74,300 due to a reclassification under
OTS policies as a high risk. The Savings Bank's CMOs are collateralized by
federal agency securities with weighted average lives of 9.1 years. As of
June 30, 1996, the Savings Bank had CMOs with both a carrying value and an
estimated market value of $3.5 million. The Savings Bank does not invest in
interest only, principal only, or similar types of CMOs.
The Savings Bank has incorporated into its investment policy the
regulatory requirements set forth in the OTS TB 52, which deals with the
selection of securities dealers, securities policies, unsuitable investment
practices and mortgage derivative products.
The following table sets forth certain information at June 30, 1996
regarding the dollar amount of mortgage-backed and related securities maturing
in the Savings Bank's portfolio (including securities classified held to
maturity and securities classified available for sale) based on their
contractual terms to maturity, but does not include scheduled payments or
potential prepayments. Mortgage loans which have adjustable rates are shown
as maturing at their next repricing date. Loan balances do not include
undisbursed loan proceeds, unearned discounts, unearned income and allowance
for loan losses.
At June 30,
1996
(In thousands)
Amounts due:
Within 1 year $ 764
After 1 year through 3 years 2,663
After 3 year through 5 years 4,331
After 5 years 27,801
Total $35,559
The following table sets forth the dollar amount of all mortgage-backed
and related securities due one year after June 30, 1996, which have fixed
interest rates and have floating or adjustable rates.
At June 30,
1996
(In thousands)
Interest rate terms on
amounts due after 1 year:
Fixed $13,091
Adjustable 21,704
Total $34,795
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The following table sets forth certain information with respect to each
security (other than U.S. Government and agency securities and mutual funds
which invest exclusively in such securities) which had an aggregate book value
in excess of 10% of the Savings Bank's retained earnings at the dates
indicated.
At June 30,
1996 1995 1994
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
(In thousands)
FHLMC Certificates $ 8,614 $ 8,616 $ 8,695 $ 8,858 $ 6,672 $ 6,569
GNMA Certificates 10,644 10,644 2,377 2,463 2,654 2,674
FNMA Certificates 12,323 12,325 6,068 6,077 6,652 6,613
Collateralized
mortgage
obligations 3,456 3,456 7,433 7,433 8,166 8,166
Total $35,037 $35,041 $24,573 $24,831 $24,144 $24,022
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major source of the
Savings Bank's funds for lending and other investment purposes. Loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates and money market conditions. Borrowings may be used on a short-term
basis to compensate for reductions in the availability of funds from other
sources. They may also be used on a longer term basis for general business
purposes.
Deposit Accounts. Deposits are attracted from within the Savings Bank's
primary market area through the offering of a broad selection of deposit
instruments, including negotiable order of withdrawal ("NOW") accounts, money
market accounts, regular savings accounts, certificates of deposit and
retirement savings plans. Deposit account terms vary according to the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate, among other factors. In determining the terms of its deposit
accounts, the Savings Bank considers the rates offered by its competition,
profitability to the Savings Bank, matching deposit and loan products and its
customer preferences and concerns. The Savings Bank generally reviews its
deposit mix and pricing weekly, and adjusts it as necessitated by liquidity
needs, the gap position and competition. Management believes deposits have
remained relatively stable to increasing slightly, net of interest credited,
despite withdrawals as depositors sought increased yields on alternative
investments in the marketplace.
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The following table sets forth information concerning the Savings Bank's
time deposits and other interest-bearing deposits at June 30, 1996.
Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
(In thousands)
2.55% None Now Accounts $100 $ 8,037 6.69%
2.75 None Savings Accounts 50 6,981 5.81
2.67 None Money Market Deposit Accounts 1,000 7,395 6.16
Certificate of Deposit
4.13 91-day Fixed-term/Fixed-rate 500 1,837 1.53
5.64 5 month Fixed-term/Fixed-rate 500 3,935 3.28
5.17 6 month Fixed-term/Fixed-rate 500 23,432 19.50
4.93 6 month IRA Fixed-term/Fixed-rate 500 27 .02
5.26 9 month Fixed-term/Fixed-rate 500 26,984 22.46
6.17 9 month IRA Fixed-term/Fixed-rate 500 7,223 6.01
5.18 11 month Fixed-term/Fixed-rate 500 3,702 3.08
4.64 12 month Fixed-term/Fixed-rate 500 6,587 5.48
4.75 12 month IRA Fixed-term/Fixed-rate 500 378 .32
5.20 15 month Fixed-term/Fixed-rate 500 1,887 1.58
4.41 24 month Fixed-term/Fixed-rate 500 5,068 4.22
5.00 24 month IRA Fixed-term/Fixed-rate 500 265 .22
4.48 36 month Fixed-term/Fixed-rate 500 3,588 2.98
5.25 36 month IRA Fixed-term/Fixed-rate 500 5,947 4.95
5.02 48 month Fixed-term/Fixed-rate 500 711 .59
5.81 60 month Fixed-term/Fixed-rate 500 6,074 5.06
7.79 72 month Fixed-term/Fixed-rate 500 17 .01
8.08 96 month Fixed-term/Fixed-rate 500 63 .05
$120,138 100.00%
The following table indicates the amount of the Savings Bank's jumbo
certificates of deposit by time remaining until maturity as of June 30, 1996.
Jumbo certificates of deposit require minimum deposits of $100,000 and rates
paid on such accounts are negotiable.
Certificates
Maturity Period of Deposits
(In thousands)
Three months or less $ 8,458
Over three through six months 6,053
Over six through twelve months 2,714
Over 12 months 1,073
Total $18,298
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Time Deposits by Rates
The following table sets forth the time deposits in the Savings Bank
classified by rates at the dates indicated.
At June 30,
1996 1995 1994
(In thousands)
2.00 - 2.99% $ -- $ 276 $ 1,141
3.00 - 3.99% -- 2,584 41,867
4.00 - 4.99% 24,741 33,389 18,323
5.00 - 5.99% 66,530 15,438 9,807
6.00 - 6.99% 5,139 41,241 8,827
7.00 - 7.99% 1,236 1,545 4,557
8.00 - 8.99% 63 267 601
9.00 - 9.99% 17 15 14
Total $97,726 $ 94,755 $85,137
The following table sets forth the amount and maturities of time deposits
at June 30, 1996.
Less Than 1-2 2-3 3-4 After
One Year Years Years Years 4 Years
(In thousands)
2.00 - 2.99% $ -- $ -- $ -- $ -- $ --
3.00 - 3.99% -- -- -- -- --
4.00 - 4.99% 19,579 4,343 819 -- --
5.00 - 5.99% 56,612 6,140 3,067 294 417
6.00 - 6.99% 5,139 -- -- -- --
7.00 - 7.99% 1,218 8 5 5 --
8.00 - 8.99% -- -- -- -- 63
9.00 - 9.99% 17 -- -- -- --
Total $82,565 $10,491 $3,891 $299 $480
Amount Due
Percent
of Total
Certificate
Total Accounts
(In thousands)
2.00 - 2.99% $ -- --%
3.00 - 3.99% -- --
4.00 - 4.99% 24,741 25.32
5.00 - 5.99% 66,530 68.08
6.00 - 6.99% 5,139 5.26
7.00 - 7.99% 1,236 1.26
8.00 - 8.99% 63 .06
9.00 - 9.99% 17 .02
Total $97,726 100.00%
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Deposit Flow
The following table sets forth the balances of savings deposits in the
various types of savings accounts offered by the Savings Bank at the dates
indicated.
At June 30,
1996 1995
Percent Percent
of Increase of Increase
Amount Total (Decrease) Amount Total (Decrease)
(Dollars in thousands)
Noninterest bearing $ 771 .64% $ (235) $ 1,006 .85% $ 58
NOW checking 7,266 6.05 1,031 6,235 5.28 252
Regular savings
accounts 6,981 5.81 (26) 7,007 5.93 (2,225)
Money market deposit 7,395 6.16 (1,754) 9,149 7.74 (3,678)
Fixed-rate
certificates which
mature (1):
Within one year 82,565 68.72 5,750 76,815 65.01 13,006
Within three years 14,382 11.97 (1,397) 15,779 13.36 (1,728)
After three years 778 .65 (1,383) 2,161 1.83 (1,660)
Less: Premium on
deposits
acquired -- -- -- -- -- --
Total $120,138 100.00% $1,986 $118,152 100.00% $4,025
At June 30,
1994
Percent
of
Amount Total
(Dollars in thousands)
Noninterest bearing $ 948 .83%
NOW checking 5,983 5.24
Regular savings
accounts 9,232 8.09
Money market deposit 12,827 11.24
Fixed-rate
certificates which
mature (1):
Within one year 63,809 55.91
Within three years 17,507 15.34
After three years 3,821 3.35
Less: Premium on
deposits
acquired -- --
Total $114,127 100.00%
________
(1) At June 30, 1996, 1995, and 1994 jumbo certificates (in thousands)
amounted to $18,298, $11,319 and $5,678, respectively, and IRAs (in thousands)
equalled $13,841, $13,710 and $14,273 at those dates, respectively.
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The following table sets forth the savings activities of the Savings Bank
for the periods indicated.
Year Ended June 30,
1996 1995 1994
(In thousands)
Beginning Balance $118,152 $114,127 $124,117
Net increase
(decrease)
before interest
credited (2,059) 577 (13,078)
Interest credited 4,045 3,448 3,088
Net increase
(decrease)
in savings deposits 1,986 4,025 (9,990)
Ending balance $120,138 $118,152 $114,127
In the unlikely event the Savings Bank is liquidated, depositors will be
entitled to payment of their deposit accounts prior to any payment being made
to the stockholders of the Savings Bank. Substantially all of the Savings
Bank's depositors are residents of the State of Missouri.
Borrowings. Savings deposits are the primary source of funds for the
Savings Bank's lending and investment activities and for its general business
purposes. The Savings Bank may rely upon advances from the FHLB-Des Moines to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. At June 30, 1996, the Savings Bank had $11.3 million borrowed
for short-term purposes, due October through December, 1996. The FHLB-Des
Moines has served as the Savings Bank's primary borrowing source. Advances
from the FHLB-Des Moines are typically secured by the Savings Bank's first
mortgage loans. At June 30, 1996, the Savings Bank also had $300,000 of
borrowings from the FHLB-Des Moines at a weighted average interest rate of
5.9% which mature in 2008. Such advances were obtained in connection with a
matched borrowing program which enables the Savings Bank to originate 15-year
fixed rate loans without any significant increase in interest rate risk.
Under the program, advances may not be prepaid within the first year, but may
be prepaid at any time after one year without penalty.
The FHLB-Des Moines functions as a central reserve bank providing credit
for savings and loan associations and certain other member financial
institutions. As a member, the Savings Bank is required to own capital stock
in the FHLB-Des Moines and is authorized to apply for advances on the security
of such stock and certain of its mortgage loans and other assets (principally
securities which are obligations of, or guaranteed by, the United States)
provided certain standards related to creditworthiness have been met.
Advances are made pursuant to several different programs. Each credit program
has its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based either on a fixed percentage
of an institution's retained earnings or on the FHLB's assessment of the
institution's creditworthiness. The FHLB-Des Moines determines specific lines
of credit for each member institution.
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The following table sets forth certain information regarding borrowings
by the Savings Bank at the end of and during the periods indicated:
At June 30,
1996 1995
Weighted average rate paid on:
Other long term borrowings -- 6.47%
Year Ended June 30,
1996 1995
(Dollars in thousands)
Maximum amount of borrowings outstanding
at any month end:
FHLB advances $11,559 $4,320
Approximate average short-term borrowings
outstanding with respect to:
FHLB advances 7,645 285
Other long term borrowings -- --
Approximate weighted average rate
paid on:(1)
FHLB advances 5.78% 5.90%
_______________
(1) Computed using the weighted rates of each individual transaction.
Subsidiary Activities
The Savings Bank may invest up to 3% of their assets in service
corporations, provided that at least one-half of any amount in excess of 1% is
used primarily for community, inner-city and community development projects.
The Savings Bank's investment in its service corporation at June 30, 1996 did
not exceed the limits applicable to federal savings and loan associations.
The Savings Bank has one subsidiary, SMS Financial Services, Inc., which
is a full-service insurance agency selling various types of insurance to
individuals and businesses. It also leases computer equipment to the Savings
Bank. The activities of the subsidiary are not significant to the financial
condition or results of operations of the Savings Bank.
Competition
The Savings Bank has been, and continues to be, a community-oriented
savings institution offering a variety of financial resources to meet the
needs of Carter, Reynolds, Butler, Stoddard, Ripley and Dunklin counties,
Missouri. The Savings Bank's deposit gathering and lending activities are
concentrated in these market areas. The Savings Bank's offices are located in
Poplar Bluff, Van Buren, Dexter, Malden, Kennett, Doniphan and Ellington,
Missouri.
The Savings Bank is one of 20 banks and thrifts located in the primary
market area. The Savings Bank faces strong competition in the attraction of
savings deposits and in the origination of loans. Its most direct competition
for savings deposits and loans has historically come from other thrift
institutions and from commercial banks located in its primary market area,
some with a state-wide or regional presence and some of which have greater
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resources than the Savings Bank. Additionally, the Savings Bank faces
significant competition from the FHA and Farm Credit System and other
financial entities in lending. The Savings Bank also competes with securities
firms, credit unions, money market funds and mutual funds in raising deposits.
Management considers the Savings Bank's reputation for financial strength
and customer service as its major competitive advantage in attracting and
retaining customers in its market area. The Savings Bank also believes it
benefits from its community orientation as well as its relatively stable core
deposit base.
REGULATION
General
The Savings Bank is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer
of its deposits. The activities of federal savings institutions are governed
by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDIA") and the regulations
issued by the OTS and the FDIC to implement these statutes. These laws and
regulations delineate the nature and extent of the activities in which federal
savings associations may engage. Lending activities and other investments
must comply with various statutory and regulatory capital requirements. In
addition, the Savings Bank's relationship with its depositors and borrowers is
also regulated to a great extent, especially in such matters as the ownership
of deposit accounts and the form and content of the Savings Bank's mortgage
documents. The Savings Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as
mergers with, or acquisitions of, other financial institutions. There are
periodic examinations by the OTS and the FDIC to review the Savings Bank's
compliance with various regulatory requirements. The regulatory structure
also gives the regulatory authorities extensive discretion in connection with
their supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or Congress, could have
a material adverse impact on the Company, the Savings Bank and their
operations. The Company, as a savings and loan holding company, is also
required to file certain reports with, and otherwise comply with the rules and
regulations of, the OTS.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the
Treasury. The OTS generally possesses the supervisory and regulatory duties
and responsibilities formerly vested in the FHLBB. Among other functions, the
OTS issues and enforces regulations affecting federally insured savings
associations and regularly examines these institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs,
is under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner.
The Savings Bank, as a member of the FHLB-Des Moines, is required to
acquire and hold shares of capital stock in the FHLB-Des Moines in an amount
equal to the greater of (i) 1.0% of the aggregate outstanding principal amount
of residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each year, or (ii) 1/20 of its advances (borrowings) from
the FHLB-Des Moines. The Savings Bank is in compliance with this requirement
with an investment in FHLB-Des Moines stock of $1.5 million at June 30, 1996.
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Among other benefits, the FHLB provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It
makes advances to members in accordance with policies and procedures
established by the FHFB and the Board of Directors of the FHLB-Des Moines.
Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency established originally to insure the deposits, up to prescribed
statutory limits, of federally insured banks and to preserve the safety and
soundness of the banking industry. In 1989 the FDIC also became the insurer,
up to the prescribed limits, of the deposit accounts held at federally insured
savings associations and established two separate insurance funds: the BIF and
the SAIF. As insurer of deposits, the FDIC has examination, supervisory and
enforcement authority over all savings associations.
The Savings Bank's accounts are insured by the SAIF. The FDIC insures
deposits at the Savings Bank to the maximum extent permitted by law. The
Savings Bank currently pays deposit insurance premiums to the FDIC based on a
risk-based assessment system established by the FDIC for all SAIF-member
institutions. Under applicable regulations, institutions are assigned to one
of three capital groups that are based solely on the level of an institution's
capital -- "well capitalized," "adequately capitalized," and
"undercapitalized" -- which are defined in the same manner as the regulations
establishing the prompt corrective action system, as discussed below. These
three groups are then divided into three subgroups which reflect varying
levels of supervisory concern, from those which are considered to be healthy
to those which are considered to be of substantial supervisory concern. The
matrix so created results in nine assessment risk classifications, with rates
currently ranging from .23% for well capitalized, financially sound
institutions with only a few minor weaknesses to .31% for undercapitalized
institutions that pose a substantial risk of loss to the SAIF unless effective
corrective action is taken. Until the second half of 1995, the same matrix
applied to BIF-member institutions. The FDIC is authorized to raise
assessment rates in certain circumstances. The Savings Bank's assessments
expensed for the year ended June 30, 1996, totalled $275,000.
Effective January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well-capitalized, well-managed financial institutions
that are members of the BIF. Under the new assessment schedule, rates were
reduced to a range of 0 to 27 basis points, with approximately 92% of BIF
members paying the statutory minimum annual assessment rate of $2,000. With
respect to SAIF member institutions, the FDIC has retained the existing rate
schedule of 23 to 31 basis points. See "-- Proposed Federal Legislation."
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances that could
result in termination of the deposit insurance of the Savings Bank.
Liquidity Requirements. Under OTS regulations, each savings institution
is required to maintain an average daily balance of liquid assets (cash,
certain time deposits and savings accounts, bankers' acceptances, and
specified U.S. Government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage (currently 5.0%) of its net withdrawable accounts plus short-term
borrowings. OTS regulations also require each savings institution to maintain
an average daily balance of short-term liquid assets at a specified percentage
(currently 1.0%) of the total of its net withdrawable savings accounts and
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet liquidity requirements.
Prompt Corrective Action. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions
that it regulates. The federal banking agencies have promulgated
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substantially similar regulations to implement this system of prompt
corrective action. Under the regulations, an institution shall be deemed to
be (i) "well capitalized" if it has a total risk-based capital ratio of 10.0%
or more, has a Tier I risk-based capital ratio of 6.0% or more, has a leverage
ratio of 5.0% or more and is not subject to specified requirements to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a
Tier I risk-based capital ratio of 4.0% or more and a leverage ratio of 4.0%
or more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized;" (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that
is less than 4.0% or a leverage ratio that is less than 4.0% (3.0% under
certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a leverage ratio that is less than
3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has
received in its most recent examination, and has not corrected, a less than
satisfactory rating for asset quality, management, earnings or liquidity.
(The OTS may not, however, reclassify a significantly undercapitalized
institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.
At June 30, 1996, the Savings Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The FDIA requires the federal
banking regulatory agencies to prescribe, by regulation, standards for all
insured depository institutions relating to: (i) internal controls,
information systems and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and
(vi) compensation, fees and benefits. The federal banking agencies adopted
regulations and Interagency Guidelines Prescribing Standards for Safety and
Soundness ("Guidelines") to implement safety and soundness standards required
by the FDIA. The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The agencies also
proposed asset quality and earnings standards which, if adopted in final,
would be added to the Guidelines. If the OTS determines that the Savings Bank
fails to meet any standard prescribed by the Guidelines, the agency may
require the Savings Bank to submit to the agency an acceptable plan to achieve
compliance with the standard, as required by the FDIA. OTS regulations
establish deadlines for the submission and review of such safety and soundness
compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either become a national bank or be subject to the following
restrictions on its operations: (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be
able to establish a branch office; (iii) the association shall be ineligible
to obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the rules regarding the statutory and
regulatory dividend restrictions applicable to national banks. Also,
beginning three years after the date on which the savings institution ceases
to be a QTL, the savings institution would be prohibited from retaining any
investment or engaging in any activity not permissible for a national bank and
would be required to repay any outstanding advances to any FHLB. In addition,
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within one year of the date on which a savings association controlled by a
company ceases to be a QTL, the company must register as a bank holding
company and become subject to the rules applicable to such companies. A
savings institution may requalify as a QTL if it thereafter complies with the
QTL test.
Currently, the QTL test requires that 65% of an institution's "portfolio
assets" (as defined) consist of certain housing and consumer-related assets on
a monthly average basis in nine out of every 12 months. Assets that qualify
without limit for inclusion as part of the 65% requirement are loans made to
purchase, refinance, construct, improve or repair domestic residential housing
and manufactured housing; home equity loans; mortgage-backed securities (where
the mortgages are secured by domestic residential housing or manufactured
housing); FHLB stock; and direct or indirect obligations of the FDIC. In
addition, the following assets, among others, may be included in meeting the
test subject to an overall limit of 20% of the savings institution's portfolio
assets: 50% of residential mortgage loans originated and sold within 90 days
of origination; 100% of consumer and educational loans (limited to 10% of
total portfolio assets); and stock issued by the FHLMC or FNMA. Portfolio
assets consist of total assets minus the sum of (i) goodwill and other
intangible assets, (ii) property used by the savings institution to conduct
its business, and (iii) liquid assets up to 20% of the institution's total
assets. At June 30, 1996, the qualified thrift investments of the Savings
Bank were approximately 74.5% of its portfolio assets.
Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements. The Company is not subject to
any minimum capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion
of certain assets from capital and to account appropriately for the
investments in and assets of both includable and nonincludable subsidiaries.
Institutions that fail to meet the core capital requirement would be required
to file with the OTS a capital plan that details the steps they will take to
reach compliance. In addition, the OTS's prompt corrective action regulation
provides that a savings institution that has a leverage ratio of less than 4%
(3% for institutions receiving the highest CAMEL examination rating) will be
deemed to be "undercapitalized" and may be subject to certain restrictions.
See "-- Federal Regulation of Savings Associations -- Prompt Corrective
Action."
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations
rated a composite one (the highest rating) under the CAMEL rating system for
savings associations will be permitted to operate at or near the regulatory
minimum leverage ratio of 3%. All other savings associations will be required
to maintain a minimum leverage ratio of 4% to 5%. The OTS will assess each
individual savings association through the supervisory process on a
case-by-case basis to determine the applicable requirement. No assurance can
be given as to the final form of any such regulation, the date of its
effectiveness or the requirement applicable to the Savings Bank.
Savings associations also must maintain "tangible capital" not less than
1.5% of the Savings Bank's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets" other than
purchased mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to
at least 8% of risk-weighted assets. Total risk-based capital consists of the
sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes (i) permanent capital instruments such as cumulative perpetual
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preferred stock, perpetual subordinated debt and mandatory convertible
subordinated debt, (ii) maturing capital instruments such as subordinated
debt, intermediate-term preferred stock and mandatory convertible subordinated
debt, subject to an amortization schedule, and (iii) general valuation loan
and lease loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities
that are backed by the full faith and credit of the U.S. Government to 100%
for repossessed assets or assets more than 90 days past due. Qualifying
residential mortgage loans (including multi-family mortgage loans) are
assigned a 50% risk weight. Consumer, commercial, home equity and residential
construction loans are assigned a 100% risk weight, as are nonqualifying
residential mortgage loans and that portion of land loans and nonresidential
construction loans that do not exceed an 80% loan-to-value ratio. The book
value of assets in each category is multiplied by the weighing factor (from 0%
to 100%) assigned to that category. These products are then totalled to
arrive at total risk-weighted assets. Off-balance sheet items are included in
risk-weighted assets by converting them to an approximate balance sheet
"credit equivalent amount" based on a conversion schedule. These credit
equivalent amounts are then assigned to risk categories in the same manner as
balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
the association's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings association whose measured interest rate risk
exposure exceeds 2% must deduct an interest rate risk component in calculating
its total capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the association's assets. That dollar amount is deducted
from an association's total capital in calculating compliance with its
risk-based capital requirement. Under the rule, there is a two quarter lag
between the reporting date of an institution's financial data and the
effective date for the new capital requirement based on that data. A savings
association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not subject to the interest rate risk component,
unless the OTS determines otherwise. The rule also provides that the Director
of the OTS may waive or defer an association's interest rate risk component on
a case-by-case basis. Under certain circumstances, a savings association may
request an adjustment to its interest rate risk component if it believes that
the OTS-calculated interest rate risk component overstates its interest rate
risk exposure. In addition, certain "well-capitalized" institutions may
obtain authorization to use their own interest rate risk model to calculate
their interest rate risk component in lieu of the OTS-calculated amount. The
OTS has postponed the date that the component will first be deducted from an
institution's total capital until savings associations become familiar with
the process for requesting an adjustment to its interest rate risk component.
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The following table presents the Savings Bank's capital levels as of June
30, 1996.
At June 30, 1996
Percent of
Amount Assets
(Dollars in thousands)
Tangible capital $19,620 12.67%
Minimum required
tangible capital 2,324 1.50
Excess $17,296 11.17%
Core capital $19,620 12.67%
Minimum required core
capital 4,648 3.00%
Excess $14,972 9.67%
Risk-based capital $20,248 26.47%
Minimum risk-based
capital requirement(1) 6,119 8.00
Excess $14,129 18.47%
Limitations On Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Savings Bank to give the
OTS 30 days' advance notice of any proposed declaration of dividends, and the
OTS has the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.
A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution).
Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus
one-half its surplus capital ratio (i.e., the amount of capital in excess of
its fully phased-in requirement) at the beginning of the calendar year or the
amount authorized for a Tier 2 association. Capital distributions in excess
of such amount require advance notice to the OTS. A Tier 2 savings
association has capital equal to or in excess of its minimum capital
requirement but below its fully phased-in capital requirement (both before and
after the proposed capital distribution). Such an association may make
(without application) capital distributions up to an amount equal to 75% of
its net income during the previous four quarters depending on how close the
association is to meeting its fully phased-in capital requirement. Capital
distributions exceeding this amount require prior OTS approval. Tier 3
associations are savings associations with capital below the minimum capital
requirement (either before or after the proposed capital distribution). Tier
3 associations may not make any capital distributions without prior approval
from the OTS.
The Savings Bank is currently meeting the criteria to be designated a
Tier 1 association and, consequently, could at its option (after prior notice
to, and no objection made by, the OTS) distribute up to 100% of its net income
during the calendar year plus 50% of its surplus capital ratio at the
beginning of the calendar year less any distributions previously paid during
the year.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Savings Bank's unimpaired capital and
surplus, plus an additional 10% of unimpaired capital and surplus, if such
loan is secured by readily-marketable collateral, which is defined to include
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certain financial instruments and bullion. The OTS by regulation has amended
the loans to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower
in additional amounts under circumstances limited essentially to loans to
develop or complete residential housing units. At June 30, 1996, the Savings
Bank's limit on loans to one borrower was $2.94 million. At June 30, 1996,
the Savings Bank's largest aggregate amount of loans to one borrower was $1.86
million.
Activities of Associations and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide
the information each agency may, by regulation, require. Savings associations
also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The
FDIC also may determine by regulation or order that any specific activity
poses a serious threat to the SAIF. If so, it may require that no SAIF member
engage in that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to
which the insured association or its subsidiaries may engage in certain
covered transactions with an affiliate to an amount equal to 10% of such
institution's capital and surplus and place an aggregate limit on all such
transactions with affiliates to an amount equal to 20% of such capital and
surplus, and (ii) require that all such transactions be on terms substantially
the same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction" includes the
making of loans, the purchase of assets, the issuance of a guarantee and
similar types of transactions.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank
holding companies; (ii) a savings association may not purchase or invest in
securities issued by an affiliate (other than securities of a subsidiary); and
(iii) the OTS may, for reasons of safety and soundness, impose more stringent
restrictions on savings associations but may not exempt transactions from or
otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may
be granted only by the Federal Reserve Board, as is currently the case with
respect to all FDIC-insured banks. The Savings Bank has not been
significantly affected by the rules regarding transactions with affiliates.
The Savings Bank's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such
persons, is currently governed by Sections 22(g) and 22(h) of the Federal
Reserve Act, and Regulation O thereunder. Among other things, these
regulations require that such loans be made on terms and conditions
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment. Regulation O also places
individual and aggregate limits on the amount of loans the Savings Bank may
make to such persons based, in part, on the Savings Bank's capital position,
and requires certain board approval procedures to be followed. The OTS
regulations, with certain minor variances, apply Regulation O to savings
institutions.
Savings and Loan Company Regulations
Company Acquisitions. The HOLA and OTS regulations issued thereunder
generally prohibit a savings and loan holding company, without prior OTS
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approval, from acquiring more than 5% of the voting stock of any other savings
association or savings and loan holding company or controlling the assets
thereof. They also prohibit, among other things, any director or officer of a
savings and loan holding company, or any individual who owns or controls more
than 25% of the voting shares of such holding company, from acquiring control
of any savings association not a subsidiary of such savings and loan holding
company, unless the acquisition is approved by the OTS.
Company Activities. As a unitary savings and loan holding company, the
Company generally is not subject to activity restrictions. If the Company
acquires control of another savings association as a separate subsidiary other
than in a supervisory acquisition, it would become a multiple savings and loan
holding company. There generally are more restrictions on the activities of a
multiple savings and loan holding company than on those of a unitary savings
and loan holding company. The HOLA provides that, among other things, no
multiple savings and loan holding company or subsidiary thereof which is not
an insured association shall commence or continue for more than two years
after becoming a multiple savings and loan association holding company or
subsidiary thereof, any business activity other than: (i) furnishing or
performing management services for a subsidiary insured institution, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary insured institution,
(iv) holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by regulation as of March 5, 1987 to be engaged
in by multiple holding companies or (vii) those activities authorized by the
Federal Reserve Board as permissible for bank holding companies, unless the
OTS by regulation, prohibits or limits such activities for savings and loan
holding companies. Those activities described in (vii) above also must be
approved by the OTS prior to being engaged in by a multiple holding company.
Qualified Thrift Lender Test. The HOLA requires any savings and loan
holding company that controls a savings association that fails the QTL test,
as explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding
company subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Company and the Savings Bank report their income on a
fiscal year basis using the accrual method of accounting and will be subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Savings Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as
a summary and does not purport to be a comprehensive description of the tax
rules applicable to the Savings Bank or the Company.
Tax Bad Debt Reserves. For taxable years beginning prior to January 1,
1996, savings institutions such as the Savings Bank which met certain
definitional tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") were permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, have been deducted in arriving at their taxable
income. The Savings Bank's deduction with respect to "qualifying loans,"
which are generally loans secured by certain interests in real property, may
have been computed using an amount based on the Savings Bank's actual loss
experience, or a percentage equal to 8% of the Savings Bank's taxable income,
computed with certain modifications and reduced by the amount of any permitted
additions to the nonqualifying reserve. The Savings Bank's deduction with
respect to nonqualifying loans was computed under the experience method, which
essentially allows a deduction based on the Savings Bank's actual loss
experience over a period of several years. Each year the Savings Bank
selected the most favorable way to calculate the deduction attributable to an
addition to the tax bad debt reserve. The Savings Bank used the percentage
method bad debt deduction for the taxable years ended December 31, 1995, 1994
and 1993.
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Recently enacted legislation repealed the reserve method of accounting
for bad debt reserves for tax years beginning after December 31, 1995. As
result, savings associations will no longer be able to calculate their
deduction for bad debts using the percentage-of-taxable-income method.
Instead, savings associations will be required to compute their deduction
based on specific charge-offs during the taxable year or, if the savings
association or its controlled group had assets of less than $500 million,
based on actual loss experience over a period of years. This legislation also
requires savings associations to recapture into income over a six-year period
their post-1987 additions to their bad debt tax reserves, thereby generating
additional tax liability. The recapture may be suspended for up to two years
if, during those years, the institution satisfies a residential loan
requirement. At June 30, 1996, the Savings Bank did not have any post-1987
reserves. Additionally, the Savings Bank has sufficient qualifiying loans in
order for it not to have to recapture any of the 1987 reserve.
Under prior law, if the Savings Bank failed to satisfy the qualifying
thrift definitional tests in any taxable year, it would be unable to make
additions to its bad debt reserve. Instead, the Savings Bank would be
required to deduct bad debts as they occur and would additionally be required
to recapture its bad debt reserve deductions ratably over a multi-year period.
At June 30, 1996, the Savings Bank's total bad debt reserve for tax purposes
was approximately $1.5 million. Among other things, the qualifying thrift
definitional tests required the Savings Bank to hold at least 60% of its
assets as "qualifying assets." Qualifying assets generally include cash,
obligations of the United States or any agency or instrumentality thereof,
certain obligations of a state or political subdivision thereof, loans secured
by interests in improved residential real property or by savings accounts,
student loans and property used by the Savings Bank in the conduct of its
banking business. Under current law, a savings association will not be
required to recapture its pre-1988 bad debt reserves if it ceases to meet the
qualifying thrift definitional tests.
Distributions. To the extent that the Savings Bank makes "nondividend
distributions" to the Company that are considered as made: (i) from the
reserve for losses on qualifying real property loans, to the extent the
reserve for such losses exceeds the amount that would have been allowed under
the experience method; or (ii) from the supplemental reserve for losses on
loans ("Excess Distributions"), then an amount based on the amount distributed
will be included in the Savings Bank's taxable income. Nondividend
distributions include distributions in excess of the Savings Bank's current
and accumulated earnings and profits, distributions in redemption of stock,
and distributions in partial or complete liquidation. However, dividends paid
out of the Savings Bank's current or accumulated earnings and profits, as
calculated for federal income tax purposes, will not be considered to result
in a distribution from the Savings Bank's bad debt reserve. Thus, any
dividends to the Company that would reduce amounts appropriated to the Savings
Bank's bad debt reserve and deducted for federal income tax purposes would
create a tax liability for the Savings Bank. The amount of additional taxable
income attributable to an Excess Distribution is an amount that, when reduced
by the tax attributable to the income, is equal to the amount of the
distribution. Thus, if, the Savings Bank makes a "nondividend distribution,"
then approximately one and one-half times the amount so used would be
includable in gross income for federal income tax purposes, assuming a 35%
corporate income tax rate (exclusive of state and local taxes). See
"REGULATION" for limits on the payment of dividends by the Savings Bank. The
Savings Bank does not intend to pay dividends that would result in a recapture
of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Savings Bank's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable
years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of .12% of the excess of AMTI (with certain modification)
over $2.0 million is imposed on corporations, including the Savings Bank,
whether or not an Alternative Minimum Tax ("AMT") is paid.
Dividends-Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Savings Bank as a member
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of the same affiliated group of corporations. The corporate
dividends-received deduction is generally 70% in the case of dividends
received from unaffiliated corporations with which the Company and the Savings
Bank will not file a consolidated tax return, except that if the Company or
the Savings Bank owns more than 20% of the stock of a corporation distributing
a dividend, then 80% of any dividends received may be deducted.
Other Federal Tax Matters. Other recent changes in the federal tax
system could also affect the business of the Savings Bank. These changes
include limitations on the deduction of personal interest paid or accrued by
individual taxpayers, limitations on the deductibility of losses attributable
to investment in certain passive activities and limitations on the
deductibility of contributions to individual retirement accounts. The Savings
Bank does not believe these changes will have a material effect on its
operations.
Missouri Taxation
Missouri-based thrift institutions, such as the Savings Bank, are subject
to a special financial institutions tax, based on net income without regard to
net operating loss carryforwards, at the rate of 7% of net income. This tax
is in lieu of certain other state taxes on thrift institutions, on their
property, capital or income, except taxes on tangible personal property owned
by the Savings Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales taxes and use taxes. In addition, Southern
Missouri is entitled to credit against this tax all taxes paid to the State of
Missouri or any political subdivision except taxes on tangible personal
property owned by the Savings Bank and held for lease or rental to others and
on real estate, contributions paid pursuant to the Unemployment Compensation
Law of Missouri, social security taxes, sales and use taxes, and taxes imposed
by the Missouri Financial Institutions Tax Law. Missouri thrift institutions
are not subject to the regular state corporate income tax.
There have not been any IRS audits of the Savings Bank's Federal income
tax returns or audits of the Savings Bank's state income tax returns during
the past five years.
For additional information regarding taxation, see Note 10 of Notes to
Consolidated Financial Statements contained in the Annual Report.
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Personnel
As of June 30, 1996, the Company had 44 full-time employees and 10
part-time employees. The Company believes that employees play a vital role in
the success of a service company and that the Company's relationship with its
employees is good. The employees are not represented by a collective
bargaining unit.
Item 2. Description of Properties
The following table sets forth certain information regarding the Savings
Bank's offices as of June 30, 1996.
Building Net
Book Value Land Building
Year as of June Owned/ Owned/
Location Opened 30, 1996 Leased Leased
(Dollars in thousands)
Main Office
531 Vine Street
Poplar Bluff, Missouri 1966 $301 Owned Owned
Branch Offices
Highway 60
Van Buren, Missouri 1982 125 Owned Owned
1330 Highway 67
Poplar Bluff, Missouri 1976 -- Leased(1) Owned
Business 60 West
Dexter, Missouri 1979 196 Owned Owned
100 South Madison
Malden, Missouri 1974 -- Leased(2) Leased
308 First Street
Kennett, Missouri 1982 84 Owned Owned
116 Washington
Doniphan, Missouri 1976 -- Leased(3) Leased
Highway 106 & 2nd Street
Ellington, Missouri 1987 -- Leased(4) Leased
(1) Lease expires on September 3, 1999 and has one 5-year option remaining.
(2) Lease is month-to-month.
(3) Lease expires on October 15, 1996.
(4) Lease is month-to-month.
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Item 3. Legal Proceedings
In the opinion of management, the Savings Bank is not a party to any
pending claims or lawsuits that are expected to have a material effect on the
Savings Bank's financial condition or operations. Periodically, there have
been various claims and lawsuits involving the Savings Bank mainly as a
defendant, such as claims to enforce liens, condemnation proceedings on
properties in which the Savings Bank holds security interests, claims
involving the making and servicing of real property loans and other issues
incident to the Savings Bank's business. Aside from such pending claims and
lawsuits which are incident to the conduct of the Savings Bank's ordinary
business, the Savings Bank is not a party to any material pending legal
proceedings that would have a material effect on the financial condition or
operations of the Savings Bank.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended June 30, 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information contained in the section captioned "Common Stock" in
the Annual Report is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Annual Report is incorporated herein by reference.
Item 7. Financial Statements
Independent Auditors Report*
(a) Consolidated Statements of Financial Condition as of June 30,
1996 and 1995
(b) Consolidated Statements of Income for the Years Ended June 30,
1996, 1995 and 1994
(c) Consolidated Statements of Stockholders' Equity For the Years
Ended June 30, 1996, 1995 and 1994
(d) Consolidated Statements of Cash Flows For the Years Ended June
30, 1996, 1995 and 1994
(e) Notes to Consolidated Financial Statements
* Contained in the Annual Report filed as an exhibit hereto and
incorporated herein by reference. All schedules have been omitted
as the required information is either inapplicable or contained in
the Consolidated Financial Statements or related Notes contained in
the Annual Report.
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
No disagreement with the Company's independent accountants on
accounting and financial disclosure has occurred during the two most recent
fiscal years.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
The information contained under the section captioned "Proposal I --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
The following table sets forth certain information with respect to
the executive officers of the Company and the Savings Bank.
Age at
June 30,
Name 1996 Position
Company Savings Bank
Robert A. Seifert 75 Chairman of the Board Director
Donald R. Crandell 62 President and Chief President and Chief
Executive Officer Executive Officer
Leonard W. Ehlers 77 Director Chairman of the Board
Samuel H. Smith 58 Secretary/Treasurer Director
In addition to the above, the Savings Bank's executive officers group
includes:
Age at
June 30,
Name 1996 Position
James W. Tatum 70 Vice Chairman
Wilma F. Case 57 Senior Vice President and Chief Operations
Officer
Kent Nichols 58 Senior Vice President and Chairman Loan
Department
Wilma J. Pratte 61 Secretary
Robert Stanley Jones 44 Vice President and Chief Financial Officer
The principal occupation of each executive officer of the Company is set
forth below. All of the officers listed above have held positions with or
been employed by the Company for five years unless otherwise stated. All
executive officers reside in Poplar Bluff, Missouri. There are no family
relationships among or between the executive officers, unless otherwise
stated.
Robert A. Seifert served as President of the Savings Bank from 1960 until
1995. He has been a director of the Savings Bank since 1960. Mr. Seifert was
the Butler County Recorder of Deeds in Poplar Bluff until his retirement in
1990. He is active in a variety of organizations, including the American Red
Cross, the United Gospel Rescue Mission, the Poplar Bluff Museum Board and
also serves as Treasurer of the Butler County Historical Society and as an
Advisory Member of the Southeast Missouri Mental Health Commission. Mr.
Seifert is the brother of Thadis R. Seifert.
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Donald R. Crandell joined the Savings Bank in 1985 and served as
Executive Vice President and Chief Executive Officer from 1986 to 1995. In
November 1994 he became President of the Savings Bank and also continues to
serve as Chief Executive Officer. From 1973 to 1985, Mr. Crandell served as
Executive Vice President of First National Bank of Salem, Missouri. Mr.
Crandell is past President and a Board Member of the Poplar Bluff Chamber of
Commerce and the Kiwanis Club.
Leonard W. Ehlers served as the Official Court Reporter of the 36th
Judicial Circuit and was the owner of Ehlers Reporting Service for over 39
years until his retirement in 1984. Mr. Ehlers is a Board Member of the
Willhaven Residential Complex, Inc. and the United Gospel Rescue Mission.
Samuel H. Smith is President, Chief Executive Office and a majority
stockholder of S H Smith and Company, Inc., an engineering consulting firm in
Poplar Bluff, Missouri. He is a member of the Board of Trustees of the Poplar
Bluff Public Library; a member of the Board of Directors of the Poplar Bluff
Museum; a Board member of the Poplar Bluff Downtown Development Committee; a
Haitism Volunteer of the Engineering Ministries, Ltd; and a Board Member of
the Poplar Bluff Historical Commission.
James W. Tatum was a member and a Partner of Kraft, Miles & Tatum, CPA's,
an accounting firm, for over 40 years until his retirement in 1989. He is a
past member of the Kiwanis Club and the Poplar Bluff Chamber of Commerce, the
American Institute of CPA's and the Missouri Society of CPA's.
Wilma F. Case has been affiliated with the Savings Bank for 27 years and
has served as Senior Vice President since 1992 and was appointed Chief
Operations Officer in 1995. Ms. Case is active in a variety of organizations
and currently serves as President of the American Cancer Society, as Director
of the Kiwanis Club and is a member of the Business and Professional Women's
Association and the Poplar Bluff Chamber of Commerce.
Kent Nichols has been affiliated with the Savings Bank for 13 years and
has served as Senior Vice President since 1994 and was appointed Chairman of
the Loan Department in 1995. Mr. Nichols is active in the Kiwanis Club.
Wilma J. Pratte has been affiliated with the Savings Bank for 33 years
and has served as Secretary since 1994. Mrs. Pratte served as Assistant
Treasurer of the Savings Bank for 24 years.
Robert Stanley Jones was hired in 1995 as the investment officer of the
Savings Bank. In 1996 he was appointed as the Chief Financial Officer of the
Savings Bank. He is a member of the Lion's Club.
Item 10. Executive Compensation
The information contained under the section captioned "Proposal I --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Security Ownership of Certain Beneficial Owners and Management"
of the Proxy Statement.
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(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the sections captioned "Voting Securities and
Security Ownership of Certain Beneficial Owners and Management"
and "Proposal I - Election of Directors" of the Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including any
pledge by any person of securities of the Company, the operation
of which may at a subsequent date result in a change in control
of the Company.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference
to the section captioned "Proposal I -- Election of Directors -- Certain
Transactions."
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
(3)(a) Certificate of Incorporation of the Registrant*
(3)(b) Bylaws of the Registrant*
10(a) Registrant's 1994 Stock Option Plan**
10(b) Southern Missouri Savings Bank, FSB Management Recognition
and Development Plans**
10(c) Employment Agreement with Donald R. Crandell***
10(d) Director's Retirement Agreements***
(i) Robert A. Seifert
(ii) Thadis R. Seifert
(iv) Leonard W. Ehlers
(v) James W. Tatum
(vi) Samuel H. Smith
10(e) Tax Sharing Agreement***
13 1996 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Auditors
(b) Report on Form 8-K
No Forms 8-K were filed during the quarter ended June 30, 1996.
Filed as an exhibit to the registrant's Registration Statement on Form S-1
(33-73746).
** Filed as an exhibit to the registrant's 1994 annual meeting proxy
statement dated October 21, 1994.
*** Filed as an exhibit to the registrant's Annual Report on Form 10-KSB for
the year ended June 30, 1995.
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SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOUTHERN MISSOURI BANCORP, INC.
Date: September 27, 1996 By: /s/ Donald R. Crandell
_________________________________
Donald R. Crandell
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Donald R. Crandell September 27, 1996
___________________________________________
Donald R. Crandell
President and Chief Executive Officer
(Principal Executive and Financial Officer)
By: /s/ Robert A. Seifert September 27, 1996
___________________________________________
Robert A. Seifert
President and Director
(Principal Accounting Officer)
By: /s/ Leonard W. Ehlers September 27, 1996
___________________________________________
Leonard W. Ehlers
Director
By: /s/ Thadis R. Seifert September 27, 1996
___________________________________________
Thadis R. Seifert
Director
By: /s/ Samuel H. Smith September 27, 1996
___________________________________________
Samuel H. Smith
Director
By: /s/ James W. Tatum September 27, 1996
___________________________________________
James W. Tatum
Director
PAGE
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Exhibit 13
1996 Annual Report to Stockholders
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC.
1996 Annual Report to Stockholders
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
Letter to Stockholders 1-2
Business of the Company and the Savings Bank 3
Common Stock 4
Selected Consolidated Financial Condition,
Operating and Other Data 5-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-16
Independent Auditors' Report 17
Consolidated Financial Statements:
Consolidated Statements of Financial Condition
as of June 30, 1996 and 1995 18
Consolidated Statements of Income for the
years ended June 30, 1996, 1995 and 1994 19
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1996, 1995 and 1994 20
Consolidated Statements of Cash Flows for the
years ended June 30, 1996, 1995 and 1994 21-22
Notes to Consolidated Financial Statements 23-48
Directors and Officers 49
Corporate Information 50
<PAGE>
<PAGE>
September 1, 1996
A MESSAGE TO OUR STOCKHOLDERS:
On April 13, 1994, Southern Missouri Savings Bank successfully completed its
conversion from a mutual to a stock institution. As a result of the
conversion, Southern Missouri Bancorp, Inc. was formed as the Savings Bank's
holding company. Effective June 20, 1995, the Savings Bank converted from a
state-chartered stock savings and loan association to a Federally-chartered
stock savings bank.
Since the initial offering price of $10.00 per share, the common stock has
reached a high of $17.50 and closed on June 30, 1996 at $14.125 per share.
The common stock is listed on the Nasdaq National Market under the symbol
"SMBC".
Net income for the year ended June 30, 1996 was $1.47 million compared with
$1.25 million for 1995, an increase of 17.6%. The earnings per share for 1996
were $0.90. The return on assets for the year ended June 30, 1996 was 0.93%
with a return on equity of 5.48%.
The total assets as of June 30, 1996 were $159.8 million as compared to $148.3
million as of June 30, 1995 an increase of 7.8%. Loan volume continues to be
strong with a 15.3% increase of outstanding loans in 1996.
The ratio of nonperforming assets to total assets has decreased from 0.99% to
0.38% for the respective fiscal years of 1995 and 1996. The year 1996 was the
fifth year of a trend of decreasing ratios for nonperforming assets. The net
charge-offs for 1996 was 0.01% of total loans. The foreclosed real estate
account has been reduced from $727,510 to $60,133 during these periods.
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The Board has approved a $300,000 expenditure for upgrading of the Savings
Bank's electronic data processing equipment and programs. This should be
completed by the end of fiscal year 1997. A commitment was made in fiscal
year 1997 to purchase automatic teller machines to be located in each Southern
Missouri Savings Bank community.
Remodeling programs for the Kennett and Poplar Bluff branch offices were
completed in fiscal year 1996. The main office is undergoing an extensive
remodeling program that should be completed in the second quarter of fiscal
year 1997.
Two major forces continue to guide the Savings Bank's daily activities. The
first is a strong commitment to quality service and the second is to promote
and support the communities which we serve. With the commitment of the Board,
officers, and staff, we look forward to continued growth and financial
strength.
All of us at the Savings Bank appreciate your loyalty and continued support
and look forward to the future with great enthusiasm and excitement.
Very truly yours,
/s/Donald R. Crandell
Donald R. Crandell
President and Chief Executive Officer
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BUSINESS OF THE COMPANY AND THE SAVINGS BANK
On April 13, 1994, Southern Missouri Savings Bank completed its conversion
from mutual to stock form and became a wholly-owned subsidiary of a newly
formed Delaware holding company, Southern Missouri Bancorp, Inc. The Company
issued 1,785,375 shares of common stock at $10 per share in conjunction with
the offering and an additional 17,826 shares of common stock were granted to
the Savings Bank's Management Recognition Plan (MRP). Net proceeds from the
sale of common stock in the offering were $15,160,161 after deduction of
conversion costs of $729,369, and unearned compensation related to shares
issued to the Employee Stock Ownership Plan (ESOP) and MRP. The Company
retained 50% of the net conversion proceeds, less the funds used to originate
a loan to the Savings Bank's ESOP for the purchase of shares of common stock,
and used the balance of the net proceeds to purchase all of the stock of the
Savings Bank in the conversion.
The Company has no significant assets other than common stock of the Savings
Bank, the loan to the ESOP, and the net proceeds retained by the Company
following the conversion. The Company's principal business is the business of
the Savings Bank.
The Savings Bank operates as a Federally-chartered stock savings bank,
originally chartered by the State of Missouri in 1887. The Savings Bank
converted from a state-chartered stock savings and loan association to a
Federally-chartered stock savings bank effective June 20, 1995. The Savings
Bank's deposit accounts are insured up to a maximum of $100,000 by the Savings
Association Insurance Fund (SAIF), which is administered by the Federal
Deposit Insurance Corporation (FDIC).
The Savings Bank's primary business is the origination of mortgage loans
secured by one-to four-family residences. The Savings Bank conducts its
business through its home office located in Poplar Bluff and seven full
service branch facilities in Poplar Bluff, Van Buren, Dexter, Malden, Kennett,
Doniphan, and Ellington, Missouri. Lending activities are funded through
attraction of deposit accounts, consisting of certificate accounts with terms
of 60 months or less, passbook accounts and money-market deposit accounts and
advances from the Federal Home Loan Bank of Des Moines. To a lesser extent,
the Savings Bank also originates mortgage loans on commercial real estate,
construction loans on single-family residences and commercial properties,
consumer loans, and loans secured by deposit accounts.
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COMMON STOCK
The common stock of the Company is traded in the over-the-counter market and
quoted on the Nasdaq National Market System under the symbol "SMBC".
The following table sets forth per share market price and dividend information
for the Company's common stock. As of September 1, 1996, there were
approximately 464 stockholders of record. This does not reflect the number of
persons or entities who hold stock in nominee or "street name."
Fiscal 1996 High Low Dividend Paid
First Quarter $17.25 $14.75 $ .125
Second Quarter 17.50 15.00 .125
Third Quarter 15.50 13.50 .125
Fourth Quarter 14.75 13.50 .125
Fiscal 1995 High Low Dividend Paid
First Quarter $12.625 $10.875 $ .075
Second Quarter 12.00 8.500 .075
Third Quarter 13.50 9.875 .125
Fourth Quarter 15.50 12.750 .125
Any future dividend declarations and payments are subject to the discretion of
the Board of Directors of the Company. The ability of the Company to pay
dividends depends primarily on the ability of the Savings Bank to pay
dividends to the Company. For a discussion of the restrictions on the Savings
Bank's ability to pay dividends, see Note 15 of Notes to Consolidated
Financial Statements included elsewhere in this report.
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SELECTED CONSOLIDATED FINANCIAL CONDITION,
OPERATING AND OTHER DATA
At June 30,
(In thousands)
FINANCIAL CONDITION DATA: 1996 1995 1994 1993 1992
Total assets $159,848 $148,323 $141,824 $134,818 $133,850
Loans receivable, net 95,535 82,887 74,932 71,742 72,600
Mortgage-backed and
related securities 35,037 24,574 24,144 25,926 26,938
Cash, interest-bearing deposits
and investment securities 24,459 35,421 37,540 33,463 29,907
Deposits 120,138 118,152 114,127 124,117 125,147
Borrowings 11,550 1,314 412 185 145
Stockholders' equity 26,227 27,047 25,793 9,207 7,073
Year Ending June 30,
(In thousands)
OPERATING DATA: 1996 1995 1994 1993 1992
Interest income $ 11,010 $ 9,640$ 9,219$ 10,322 $ 11,251
Interest expense 6,308 5,187 4,725 5,458 7,361
Net interest income 4,702 4,453 4,494 4,864 3,890
Provision for loan losses 60 95 230 26 8
Net interest income after
provision for loan losses 4,642 4,358 4,264 4,838 3,882
Noninterest income 639 455 571 554 674
Noninterest expense 3,161 3,112 2,731 2,328 2,260
Income before income taxes and
cumulative effect of change
in accounting principle 2,120 1,701 2,104 3,064 2,296
Income tax expense 653 454 626 930 511
Income before cumulative effect of
change in accounting principle 1,467 1,247 1,478 2,134 1,785
Cumulative effect of change
in accounting principle,
income taxes - - 279 - -
Net income $ 1,467 $ 1,247$ 1,757$ 2,134 $ 1,785
5
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At June 30,
OTHER DATA: 1996 1995 1994 1993 1992
Number of:
Real estate loans 3,053 3,082 3,278 3,381 3,538
Deposit accounts 12,626 12,837 12,917 14,141 15,248
Full service offices 8 8 8 8 8
KEY OPERATING RATIOS: At or For the Year Ended June 30,
1996 1995 1994 1993 1992
Return on assets (net income
divided by average assets) 0.93% 0.86% 1.30% 1.59% 1.36%
Return on average equity (net
income divided by average equity) 5.48 4.68 13.34 26.48 29.25
Average equity to average assets 17.05 18.30 9.73 6.00 4.65
Interest rate spread (spread
between weighted average rate
on all interest-earning assets
and all interest-bearing
liabilities) 2.29 2.39 3.13 3.61 2.95
Net interest margin (net interest
income as a percentage of average
interest-earning assets) 3.09 3.16 3.44 3.77 3.10
Noninterest expense to average
assets 2.01 2.14 2.02 1.73 1.72
Average interest-earning assets to
interest-bearing liabilities 119.42 121.09 108.59 103.91 102.52
Allowance for loan losses to total
loans at end of period .63 .67 .62 .36 .38
Allowance for loan losses to
nonperforming loans 114.94 77.66 68.53 19.64 16.74
Net charge offs to average out-
standing loans during the period .01 .00 .02 .05 .03
Ratio of nonperforming assets
to total assets .38 .99 1.04 1.82 2.52
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The business of the Savings Bank consists primarily of attracting deposits
from the general public and using such deposits to originate mortgage loans
secured by one-to four-family residences and, to a lesser extent, commercial
real estate loans and loans secured by deposit accounts. The Savings Bank's
revenues are derived principally from interest earned on loans and, to a
lesser extent, from interest earned on investments. The operations of the
Savings Bank are influenced significantly by general economic conditions and
by policies of financial institution regulatory agencies, including the Office
of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation
(FDIC). The Savings Bank's cost of funds is influenced by interest rates on
competing investments and general market interest rates. Lending activities
are affected by the demand for financing of real estate and other types of
loans, which in turn is affected by the interest rates at which such financing
may be offered.
The Savings Bank's net interest income is dependent primarily upon the
difference or spread between the average yield earned on loans and investments
and the average rate paid on deposits, as well as the relative amounts of such
assets and liabilities. The Savings Bank, as other thrift institutions, is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different times, or on a different basis,
than its interest-earning assets.
ASSET/LIABILITY MANAGEMENT
Key components of a successful asset/liability management strategy are the
monitoring and managing of interest rate sensitivity of both the
interest-earning asset and interest-bearing liability portfolios.
In accordance with a recent interpretation of Statement of Financial Standards
No. 115 the Company transferred $23,041,000 of investment and mortgage backed
and related securities in December 1995 from the held to maturity
classification to the available for sale classification. The transfer under
this one-time opportunity was made in order to increase investment management
flexibility.
The Savings Bank has employed various strategies intended to minimize the
adverse effect of interest rate risk on future operations by providing a
better match between the interest rate sensitivity of its assets and
liabilities. In particular, the Savings Bank's strategies are intended to
stabilize net interest income for the long-term by protecting its interest
rate spread against increases in interest rates. Such strategies include the
origination for its portfolio of one-year, adjustable-rate mortgage loans
(AMLs) secured by one-to four-family residential real estate and the
origination of other types of adjustable-rate and short-term loans with
greater interest rate sensitivities than long-term, fixed-rate residential
mortgage loans.
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Asset/liability management in the form of structuring cash instruments
provides greater flexibility to adjust exposure to interest rates. During
periods of high interest rates, management believes it is prudent to offer
competitive rates on short-term deposits and less competitive rates for
long-term liabilities.
This posture allows the Savings Bank to benefit quickly from declines in
interest rates. Likewise, offering more competitive rates on long-term
deposits during the low interest rate periods allows the Savings Bank to
extend the repricing and/or maturity of its liabilities thus reducing its
exposure to rising interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Savings Bank's principal sources of funds are cash receipts from deposits,
loan repayments by borrowers, advances from the Federal Home Loan Bank (FHLB)
of Des Moines and net earnings. The Savings Bank has an agreement with the
FHLB of Des Moines to provide cash advances, should the need for additional
funds be required.
For regulatory purposes, liquidity is measured as a ratio of cash and certain
investments to withdrawable deposits and short-term borrowings. The present
minimum level of liquidity required by regulation is 5%. The Savings Bank's
liquidity ratio at June 30, 1996, was approximately 10%.
The Savings Bank has $82.6 million in certificates due within one year and
$22.4 million in other deposits without specific maturity at June 30, 1996.
Management estimates that most of the deposits will be retained or replaced by
new deposits.
Total assets increased from $148.3 million at June 30, 1995 to $159.8 million
at June 30, 1996 as a result of strong loan demand. Cash flows from sales,
maturities and prepayments of securities available for sale, deposits, and
advances from the FHLB of Des Moines were used to originate loans and purchase
securities available for sale. The Savings Bank intends to borrow from the
FHLB when the cost of such funds is less than the cost of retail deposits.
Stock in the FHLB of Des Moines increased due to receiving a stock dividend in
1996. Accrued interest receivable decreased due to the timing of interest
receipts on securities, partially offset by an increase in interest receivable
on loans. Foreclosed real estate, net, decreased due to sale of certain
properties. Premises and equipment increased principally due to upgrading the
electronic data processing equipment and the addition of an automatic teller
machine at the Poplar Bluff branch. Income taxes payable increased due to
state taxes. In prior years the Savings Bank did not owe state taxes due to
the availability of state tax credits. Accrued interest payable increased due
to the timing of interest payments on a promotional nine-month certificate as
well as a higher outstanding balance of certificates of deposits at June 30,
1996 versus 1995. Interest on the nine month certificate of deposit is paid
at maturity, unlike most of the Savings Bank's certificates of deposit, on
which interest is paid periodically.
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Commitments to originate mortgage loans are legally binding agreements to lend
to the Savings's Bank's customers. Commitments at June 30, 1996 to originate
mortgage loans and fund loans in process and letters of credit were
approximately $6.8 million. Loan commitments normally expire in 180 days or
less.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEAR ENDED JUNE 30, 1996 AND
1995
Net Income. Net income for the year ended June 30, 1996 was $1.5 million or
$.90 per share compared with $1.2 million or $.77 per share for 1995. The
increase was due to a higher net interest income, higher noninterest income,
offset by slightly higher noninterest expense and higher income taxes.
Net Interest Income. Net interest income increased by $248,000 from $4.45
million for 1995 to $4.70 million in 1996. The Savings Bank increased its
interest bearing assets and interest bearing liabilities by approximately $11
million in 1996. Although the interest rate spread decrease from 2.39% for
1995 to 2.29% for 1996, the Savings Bank earned an interest rate spread on the
$11 million.
Interest Income. Interest income for 1996 was $11.0 million compared with
$9.6 million for 1995. The weighted-average yield on interest-earning assets
increased from 6.85% for 1995 to 7.24% for 1996. The increase in the
weighted-average rate was accompanied by an increase in average
interest-earning assets from $140.8 million for 1995 to $152.2 million for
1996.
Interest on loans receivable increased from $5.8 million in 1995 to $7.0
million in 1996 as a result of higher average loans outstanding for 1996 and a
higher average interest rate. Interest on mortgage-backed securities
increased due to a higher average balance, offset by a lower weighted-average
rate. Interest on investment securities decreased due to lower average
balance, offset by an increase in the average rate. Interest on other
interest-earning assets increased as a result of higher interest rates on
overnight funds, and a slightly higher average balance.
Interest Expense. Interest expense increased due to higher average balances
and interest rates. Average balances for deposits and FHLB advances increased
by $4.1 million and $7.0 million, respectively, in 1996 over the 1995
averages. The weighted-average rate on interest-bearing liabilities increased
from 4.46% for 1995 to 4.95% for 1996.
Provision for Loan Losses. Provision for loan losses are charged to earnings
to bring the total allowance for loan losses to a level considered adequate by
management to provide for loan losses based on prior loss experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral
and current economic conditions. Management also considers other factors
relating to the collectibility of the Savings Bank's loan portfolio.
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For the year ended June 30, 1996, the Savings Bank established a provision for
loan losses of $60,000 compared with $95,000 for the year ended June 30, 1995.
The book value of non-accrual loans at June 30, 1996 was $546,000 compared to
$737,000 at June 30, 1995.
These provisions are made based on management's analysis of the various
factors which affect the loan portfolio and management's desire to hold the
allowance at a level considered adequate. Management performed a detailed
analysis of the Savings Bank's loan portfolio, including types of loans and
reviews of the Savings Bank's charge-off history and an analysis of the
Savings Bank's allowance for loan losses. Management also considered that the
Savings Bank has continued to originate a significant amount of multi-family,
construction, commercial real estate, and commercial business loans (such as
loans secured by business equipment, farm equipment, and inventory). Such
loans bear an inherently higher level of credit risk than one-to four-family
residential real estate loans. Subject to market conditions, management of
the Savings Bank expects that these trends in its lending activities will
continue. While management believes the allowance for losses at June 30,
1996 is adequate to cover all losses inherent in the Savings Bank's portfolio,
there can be no assurance that in the future the Savings Bank's regulators
will not require further increases in the allowance or actual losses will not
exceed the allowance.
Noninterest Income. Noninterest income increased from $455,000 for 1995 to
$639,000 for 1996. The Savings Bank realized net gains on sales of securities
and mortgage backed securities (MBSs) of $131,000 in 1996, compared to $11,000
in 1995. Gains on sales of securities and MBSs are not a stable source of
income and no assurance can be given that the Savings Bank will generate such
gains in the future. Commissions on insurance increased from $291,000 for
1995 to $309,000 for 1996. Banking service charges increased from $121,000
for 1995 to $140,000 for 1996.
Net loss from foreclosed real estate was $30,000 for 1995 and $18,000 for
1996. Substantially all foreclosed real estate has been sold by the Savings
Bank.
Noninterest Expense. Noninterest expense increased from $3.1 million for 1995
to $3.2 million for 1996. Compensation and benefits increased from $1.9
million for 1995 to $2.1 million for 1996. Compensation and benefits
increased due to salary increases and the hiring of additional employees
during the year. Stock benefit plans established in connection with the
conversion were in effect for the full year ended June 30, 1995 and 1996. In
addition, under generally accepted accounting principles, expense of the
Employee Stock Ownership Plan (ESOP) is affected by changes in the market
price of the Company's stock, which increased expense $66,000 in 1996 over
1995. ESOP expense will fluctuate in the future based on changes in the
market price of the Company's stock.
Occupancy and equipment expense decreased from $314,000 for 1995 to $302,000
for 1996 as result of lower repairs. Provision for losses on foreclosed real
estate was a net credit of $59,000 for 1995 compared to a net credit of 84,000
for 1996 as a result of recognition of gain on sales of foreclosed real
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estate. Professional fees, which includes supervisory examination fees,
decreased from $182,000 for 1995 to $150,000 for 1996. Other expenses
decreased due principally to a decrease in dues and subscriptions, annual
report printing, and other miscellaneous expenses.
Income Taxes. Income taxes increased due to higher earnings before income
taxes as well as a higher effective tax rate. The effective tax rate
increased in 1996 as a result of higher state taxes, and relatively smaller
effect of tax exempt income of state and municipal obligations. State taxes
in years prior to 1996 were lower due to the availability of state tax credits
and other non-recurring items. See Note 10 of Notes to Consolidated Financial
Statements.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEAR ENDED JUNE 30, 1995 AND
1994
Net Income. Net income for the year ended June 30, 1995 was $1.2 million
compared with $1.8 million for 1994. The decrease was due to a lower interest
rate spread (difference between weighted- average rate on all interest-bearing
assets and all interest- bearing liabilities), lower noninterest income,
higher noninterest expense, and the effect of the change in accounting for
income taxes in 1994.
Net Interest Income. Net interest income decreased by $40,000 from $4.49
million for 1994 to $4.45 million in 1995. The interest rate spread decreased
from 3.13% for 1994 to 2.39% for 1995. The decrease in interest rate spread
was offset, in part, by an increase in average interest-earning assets. The
increase in weighted-average rate on interest-bearing liabilities was offset,
in part, by a decrease in average liabilities.
Interest Income. Interest income for 1995 was $9.6 million compared with $9.2
million for 1994. The weighted-average yield on interest-earning assets
decreased from 7.06% for 1994 to 6.85% for 1995. The decrease in
weighted-average rate was offset, in part, by an increase in average
interest-earning assets from $130.5 million for 1994 to $140.8 million for
1995.
Interest on loans receivable increased from $5.6 million in 1994 to $5.8
million in 1995 as a result of higher average loans outstanding for 1995,
offset by a decline in average interest rate. Interest on mortgage-backed
securities increased due to higher interest rates and average balance.
Interest on investment securities decreased slightly due to a lower
weighted-average rate, offset by a higher balance. Interest on other
interest-earning assets increased as a result of substantially higher interest
rates on overnight funds.
Interest Expense. Interest expense increased due to higher interest rates.
The weighted-average rate on interest-bearing liabilities increased from 3.93%
for 1994 to 4.46% for 1995. The increase in weighted-average rate on
interest-bearing liabilities was offset, in part, by a decrease in average
liabilities.
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Provision for Loan Losses. Provisions for loan losses are charged to earnings
to bring the total allowance for loan losses to a level considered adequate by
management to provide for loan losses based on prior loss experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral
and current economic conditions. Management also considers other factors
relating to the collectibility of the Savings Bank's loan portfolio.
For the year ended June 30, 1995, the Savings Bank established a provision for
loan losses of $95,000 compared with $230,000 for the year ended June 30,
1994. The book value of non-accrual loans at June 30, 1995 was $737,000
compared to $696,000 at June 30, 1994.
Noninterest Income. Noninterest income decreased from $571,000 for 1994 to
$455,000 for 1995. The Savings Bank realized net gains on sales of securities
and mortgage backed securities (MBSs) of $11,000 in 1995, compared to $48,000
in 1994. Gains on sales of securities and MBSs are not a stable source of
income and no assurance can be given that the Savings Bank will generate such
gains in the future. Commissions on insurance increased from $271,000 for
1994 to $291,000 for 1995. Banking service charges decreased from $137,000
for 1994 to $121,000 for 1995.
Net income of foreclosed real estate decreased from income of $28,000 for 1994
to a loss of $30,000 for 1995. The Savings Bank sold several apartment
complexes during 1994. The intangible tax refund was $19,000 for 1994, which
was the last installment for the Savings Bank.
Noninterest Expense. Noninterest expense increased from $2.7 million for 1994
to $3.1 million for 1995. Compensation and benefits increased from $1.6
million for 1994 to $1.9 million for 1995 due to several factors. Stock
benefit plans established in connection with the conversion were in effect for
the full year ended June 30, 1995 compared with approximately one quarter of
the prior year. In addition, under generally accepted accounting principles,
expense of the Employee Stock Ownership Plan is affected by changes in the
market price of the Company's stock, which increased substantially during the
year. ESOP expense will fluctuate in the future based on changes in the
market price of the Company's stock. Compensation and benefits were also
affected by salary increases and the employment of additional employees during
the year. Occupancy and equipment expense increased from $286,000 for 1994 to
$314,000 for 1995 as a result of higher property taxes, repairs and computer
expenses. Provision for losses on foreclosed real estate was $16,000 for 1994
and a net credit of $59,000 for 1995 as a result of recognition of gains on
sales of foreclosed real estate.
Professional fees, which include supervisory examination fees, increased from
$103,000 for 1994 to $182,000 for 1995 as a result of operating as a public
company, assistance in operations of stock benefit plans, and legal assistance
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in certain supervisory matters. Other expenses increased due principally to
costs associated with operating as a public company, including the Delaware
franchise fee, Nasdaq fees, annual report printing, and registrar fees.
Income Taxes. Income taxes decreased due to lower earnings before income
taxes and cumulative effect of change in accounting principle, as well as a
lower effective tax rate. The effective tax rate was lower in 1995 due to the
full year effect of tax exempt income of state and municipal obligations
purchased late in the year ended June 30, 1994, offset by state taxes. The
Savings Bank has not had a state tax liability in recent years because of
refund claims of state taxes previously paid. See Note 10 of Notes to
Consolidated Financial Statements.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary impact of
inflation on the operations of the Savings Bank is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates, generally, have a more significant impact on a
financial institution's performance than does inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services. In the current interest rate environment, liquidity
and the maturity structure of the Savings Bank's assets and liabilities are
critical to the maintenance of acceptable performance levels.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Consolidated Financial Statements for a discussion of
the impact of recent accounting pronouncements.
SUPERVISORY AGREEMENT
On December 21, 1994, the Savings Bank voluntarily entered into a Supervisory
Agreement with the Office of Thrift Supervision (OTS) as a result of its
latest OTS examination. The Supervisory Agreement generally concerns the
Savings Bank's investment portfolio and more specifically focuses on the
reporting, monitoring and assessment of interest rate risk in connection with
the Savings Bank's portfolio of collateralized mortgage obligations (CMOs).
As part of the Supervisory Agreement, the Savings Bank hired a Chief Financial
Officer. In addition, the Savings Bank revised its Investment Policy to
conform more closely to the OTS's policy on securities activities and
implemented additional procedures to review the Savings Bank's investment
activities and monitor its interest rate risk management.
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AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES
The following table sets forth certain information relating to the Company's
average interest-earning assets and interest-bearing liabilities and reflects
the average yield on assets and the average cost of liabilities for the
periods indicated. Such yields and costs are derived by dividing income or
expense by the average month-end balance of assets or liabilities,
respectively, for the periods indicated. During the periods indicated,
nonaccrual loans are included in the net loan category.
The table also presents information for the periods indicated with respect to
the difference between the weighted-average yield earned on interest-earning
assets and the weighted-average rate paid on interest-bearing liabilities, or
"interest rate spread," which financial institutions have traditionally used
as an indicator of profitability. Another indicator of an institution's net
interest income is its "net yield on interest-earning assets," which is its
net interest income divided by the average balance of interest-earning assets.
Net interest income is affected by the interest rate spread and by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets approximate or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income.
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<TABLE>
Year Ended June 30,
1996 1995 1994
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans $ 80,275 $ 6,244 7.78% $ 74,564 $ 5,412 7.26% $ 69,040 $ 5,312 7.69%
Other loans 8,806 775 8.80 4,824 393 8.15 3,616 283 7.82
Total net loans 89,081 7,019 7.88 79,388 5,805 7.31 72,656 5,595 7.70
Mortgage-backed and
related securities 30,690 1,976 6.44 25,157 1,688 6.71 23,477 1,454 6.19
Investment securities 27,935 1,821 6.52 31,964 1,995 6.24 29,618 2,061 6.96
Other interest-earning
assets 4,461 194 4.35 4,291 153 3.57 4,740 109 2.30
Total interest-
earning assets 152,167 11,010 7.24 140,800 9,641 6.85 130,491 9,219 7.06
Noninterest-earning assets:
Office properties and
equipment, net 1,307 -- 1,340 -- 1,194 --
Real estate, net 676 -- 736 -- 930 --
Other noninterest-
earning assets 2,964 -- 2,566 -- 2,816 --
Total assets $157,114 $ 11,010 $145,442 $ 9,641 $135,431 $ 9,219
Interest-bearing
liabilities:
Passbook accounts $ 6,783 $ 180 2.65 $ 7,670 $ 212 2.77 $ 9,654 $ 264 2.73
NOW accounts 6,478 159 2.45 6,257 154 2.46 6,106 152 2.49
Money market accounts 8,786 264 3.00 10,737 327 3.05 13,533 400 2.96
Certificates of deposit 97,728 5,263 5.39 90,986 4,457 4.90 90,430 3,881 4.29
Total deposits 119,775 5,866 4.90 115,650 5,150 4.45 119,723 4,697 3.92
Other interest-bearing
liabilities 7,645 442 5.78 627 37 5.90 444 28 6.31
Total interest-
bearing
liabilities 127,420 6,308 4.95 116,277 5,187 4.46 120,167 4,725 3.93
Noninterest-bearing
liabilities:
Noninterest-bearing
deposits 735 -- 609 -- 549 --
Other liabilities 2,169 -- 1,935 -- 1,536 --
Total liabilities 130,324 -- 118,821 5,187 122,252 4,725
Stockholders' equity 26,790 -- 26,621 -- 13,179 --
Total liabilities
and stockholders'
equity $157,114 $ 6,308 $145,442 $ 5,187 $135,431 $ 4,725
Net interest income -- $ 4,702 -- -- $ 4,454 -- -- $ 4,494 --
Interest rate spread -- -- 2.29% -- -- 2.39% -- 3.13%
Net interest margin -- -- 3.09% -- -- 3.16% -- 3.44%
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 119.42% -- -- 121.09% -- -- 108.59% -- --
15
</TABLE>
PAGE
<PAGE>
YIELDS EARNED AND RATES PAID:
The following table sets forth for the periods and at the dates indicated, the
weighted average yields earned on the Company's assets, the weighted average
interest rates paid on the Company's liabilities, together with the net yield
on interest-earning assets.
At
June 30, Year Ended June 30,
1996 1996 1995 1994
Weighted-average yield
on loan portfolio 7.85% 7.88% 7.31% 7.70%
Weighted-average yield on
mortgage-backed and
related securities 6.23 6.44 6.71 6.19
Weighted-average yield on
investment portfolio 6.56 6.52 6.24 6.96
Weighted-average yield on other
interest-earning assets 4.82 4.35 3.57 2.30
Weighted-average yield on all
interest-earning assets 7.28 7.24 6.85 7.06
Weighted-average rate
paid on deposits 4.72 4.90 4.45 3.92
Weighted-average rate paid on FHLB
advances and other borrowings 5.68 5.78 5.90 6.31
Weighted-average rate paid on all
interest-bearing liabilities 4.80 4.95 4.46 3.93
Interest rate spread (spread
between weighted average rate
on all interest-earning assets
and all interest-bearing
liabilities) 2.48 2.29 2.39 3.13
Net interest margin (net interest
income as a percentage of average
interest- earning assets) -- 3.09 3.16 3.44
16
PAGE
<PAGE>
[Logo for Kraft, Miles & Tatum]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Southern Missouri Bancorp, Inc.
Poplar Bluff, Missouri
We have audited the accompanying consolidated statements of financial
condition of Southern Missouri Bancorp, Inc. and Subsidiary (Company) as of
June 30, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Southern
Missouri Bancorp, Inc. and Subsidiary as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1996 in conformity with generally accepted
accounting principles.
As discussed in Notes 1, 2, 9 and 10 to the consolidated financial statements,
the Company changed its method of accounting for its employee stock ownership
plan in 1995 and investment and mortgage-backed and related securities and
income taxes in 1994.
/s/Kraft, Miles & Tatum
Poplar Bluff, Missouri KRAFT, MILES & TATUM
August 16, 1996
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 AND 1995
ASSETS 1996 1995
Cash and cash equivalents $ 4,477,872 2,985,898
Certificates of deposit 186,512 276,741
Investment and mortgage-backed and related
securities: (Note 2)
Available for sale - at estimated market
value (amortized cost $50,615,727 and
$17,938,084 at June 30, 1996 and 1995,
respectively) 49,980,348 17,762,860
Held to maturity - at amortized cost
(estimated market value $4,888,427 and
$39,442,358 at June 30, 1996 and 1995,
respectively) 4,851,454 38,969,530
Total investment and mortgage-
backed and related securities 54,831,802 56,732,390
Stock in Federal Home Loan Bank of Des Moines 1,519,700 1,489,700
Loans receivable, net (Note 3) 95,534,657 82,886,563
Accrued interest receivable (Note 4) 1,141,099 1,194,993
Foreclosed real estate, net (Note 5) 60,133 727,518
Premises and equipment (Note 6) 1,411,247 1,294,741
Prepaid expenses and other assets 684,701 734,438
Total assets $ 159,847,723 148,322,982
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) $ 120,138,066 118,152,385
Advances from borrowers for
taxes and insurance 353,895 472,846
Advances from FHLB of Des Moines (Note 8) 11,550,478 1,314,474
Income taxes payable (Note 10) 136,210 8,243
Accounts payable and other liabilities 459,971 529,773
Accrued interest payable 981,809 798,285
Total liabilities 133,620,429 121,276,006
Commitments and contingencies (Note 12)
Preferred stock, $.01 par value; 500,000 shares
authorized; none issued and outstanding -- --
Common stock, $.01 par value; 3,000,000 shares
authorized; 1,803,201 shares issued and
outstanding 18,032 18,032
Additional paid-in capital 17,449,978 17,325,586
Retained earnings-substantially restricted 12,192,583 11,491,096
Treasury stock of 102,188 shares
in 1996, at cost (1,691,030) --
Common stock acquired by ESOP (918,207) (1,122,251)
Common stock acquired by MRP (397,972) (540,805)
Unrealized loss on investment and mortgage-
backed securities available for sale (419,785) (115,647)
Minimum pension liability (Note 9) (6,305) (9,035)
Total stockholders' equity 26,227,294 27,046,976
Total liabilities and
stockholders' equity $ 159,847,723 148,322,982
See accompanying notes to consolidated financial statements.
18
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
Interest income:
Loans receivable $ 7,018,869 5,805,021 5,594,541
Investment securities 1,820,703 1,994,815 2,060,986
Mortgage-backed and related
securities 1,976,216 1,687,766 1,454,257
Other interest-earning assets 194,646 153,336 109,007
Total interest income 11,010,434 9,640,938 9,218,791
Interest expense:
Deposits (Note 7) 5,866,482 5,149,849 4,697,294
Other borrowings - 1,380 8,277
Advances from FHLB 442,247 36,053 19,301
Total interest expense 6,308,729 5,187,282 4,724,872
Net interest income 4,701,705 4,453,656 4,493,919
Provision for loan losses (Note 3) 60,000 95,000 229,706
Net interest income after
provision for loan losses 4,641,705 4,358,656 4,264,213
Noninterest income:
Gain on sale of investment
securities, available for sale 75,632 85,172 --
Loss on sale of mortgage-backed
securities, available for sale (8,722) (74,295) --
Gain on sale of mortgage-backed
securities, held to maturity 63,748 -- --
Gain on sale of investment securities -- -- 22,875
Gain on sale of mortgage
backed securities -- -- 24,956
Insurance commissions 308,634 290,834 270,727
Banking service charges 140,237 121,110 136,609
Net income on foreclosed real estate (17,945) (29,889) 27,760
Intangible tax refund -- -- 19,109
Loan late charges 52,611 34,755 39,985
Other 25,182 27,623 29,622
Total noninterest income 639,377 455,310 571,643
Noninterest expense:
General and administrative:
Compensation and benefits 2,075,615 1,920,641 1,623,661
Occupancy and equipment 302,126 314,309 285,607
SAIF deposit insurance premium 275,488 275,441 281,260
Provisions for losses on fore-
closed real estate (Note 5) (84,252) (58,574) 15,546
Professional fees 149,940 181,945 103,349
Advertising 84,612 94,665 92,675
Postage and office supplies 117,917 112,206 102,711
Other 239,703 271,572 226,440
Total noninterest expense 3,161,149 3,112,205 2,731,249
Income before income taxes
and cumulative effect of
change in accounting principle 2,119,933 1,701,761 2,104,607
Income taxes (Note 10)
Current 590,513 470,858 662,121
Deferred 62,898 (16,554) (36,000)
653,411 454,304 626,121
Income before cumulative effect
of change in accounting principle 1,466,522 1,247,457 1,478,486
Cumulative effect of change
in accounting principle:
Income taxes (Note 10) - - 279,000
Net income $ 1,466,522 1,247,457 1,757,486
Net income per common share $ .90 .77 *
* Not meaningful since the common stock was issued on April 13, 1994.
See accompanying notes to consolidated financial statements.
19
PAGE
<PAGE>
<TABLE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Unrealized
Common Common Loss on
Additional Stock Stock Securities Minimum Total
Common Paid-in Retained Acquired Acquired Treasury Available Pension Stockholders'
Stock Capital Earnings by ESOP by MRP Stock For Sale Liability Equity
Balance at
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1993 $ - - 9,207,433 - - - - - 9,207,433
Issuance of
common stock 18,032 17,284,609 - - - - - - 17,302,641
Unrealized
loss on
securities
available for
sale, net - - - - - - (227,484) - (227,484)
Common stock
acquired
by ESOP - - - (1,428,320) - - - - (1,428,320)
Common stock
acquired
by MRP - - - - (714,160) - - - (714,160)
MRP expense - - - - 30,523 - - - 30,523
Dividends
declared
($.075 per share) - - (135,240) - - - - - (135,240)
Net income - - 1,757,486 - - - - - 1,757,486
Balance at
June 30,
1994 18,032 17,284,609 10,829,679 (1,428,320) (683,637) - (227,484) - 25,792,879
Change in
unrealized
loss on
securities
available
for sale, net - - - - - - 111,837 - 111,837
Minimum pension
liability - - - - - - - (9,035) (9,035)
Amortization
of ESOP awards - 37,977 - 306,069 - - - - 344,046
MRP expense - - - - 142,832 - - - 142,832
Tax benefit
of MRP - 3,000 - - - - - - 3,000
Dividends
declared
($.325 per share) - - (586,040) - - - - - (586,040)
Net income - - 1,247,457 - - - - - 1,247,457
Balance at
June 30,
1995 18,032 17,325,586 11,491,096 (1,122,251) (540,805) - (115,647) (9,035) 27,046,976
Change in
unrealized
loss on
securities
available
for sale, net - - - - - - (304,138) - (304,138)
Minimum pension
liability - - - - - - - 2,730 2,730
Amortization
of ESOP awards - 104,392 - 204,044 - - - - 308,436
MRP expense - - - - 142,833 - - - 142,833
Tax benefit
of MRP - 20,000 - - - - - - 20,000
Dividends
declared
($.50 per share) - - (765,035) - - - - - (765,035)
Purchase of
treasury stock - - - - - (1,799,150) - - (1,799,150)
Exercise of
stock options - - - - - 108,120 - - 108,120
Net income - - 1,466,522 - - - - - 1,466,522
Balance at
June 30,
1996 $ 18,032 17,449,978 12,192,583 (918,207) (397,972) (1,691,030) (419,785) (6,305) 26,227,294
See accompanying notes to consolidated financial statements.
20
</TABLE>
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
Cash flows from operating activities:
Net income $ 1,466,522 1,247,457 1,757,486
Items not requiring (providing) cash:
Depreciation and amortization 156,376 205,507 208,733
MRP expense and ESOP expense 451,270 486,878 30,523
Gain on sale of investment
securities, available for sale (75,632) (85,172) -
Loss on sale of mortgage-backed
securities, available for sale 8,722 74,295 -
Gain on sale of mortgage-backed
securities, held to maturity (63,748) - -
Gain on sale of investment
securities - - (22,875)
Gain on sale of mortgage-
backed securities- - (24,956)
Provision for loan losses 60,000 95,000 229,706
FHLB stock dividend (30,000) - -
(Gain) loss on foreclosed
real estate, net (84,252) (58,574) 15,546
Net amortization of deferred income,
premiums, and discounts 140,058 53,457 (102,832)
Changes in:
Accrued interest receivable 53,894 (129,527) (93,298)
Prepaid expenses and other assets 19,251 (37,504) (356,256)
Accounts payable and
other liabilities (69,802) (220,295) 337,622
Income taxes payable 127,967 (73,854) (69,625)
Accrued interest payable 183,524 559,573 (55,201)
Net cash provided by
operating activities 2,344,150 2,117,241 1,854,573
Cash flows from investing activities:
Net increase in loans (11,827,066) (7,923,565) (2,971,000)
Proceeds from sales of investment
securities - - 522,875
Proceeds from sales of investment
securities, available for sale 5,841,202 2,792,770 -
Proceeds from maturing investment
securities, available for sale 10,535,000 3,525,419 -
Proceeds from maturing investment
securities, held to maturity 3,600,000 4,530,672 2,742,492
Purchase of investment securities,
available for sale (7,457,104) (2,996,506) -
Purchase of investment securities,
held to maturity (500,000) (8,194,729) (9,468,772)
Proceeds from sales of mortgage-
backed securities - - 779,250
Proceeds from sales of mortgage-
backed securities, held to
maturity 1,161,028 - -
Proceeds from sales of mortgage-
backed securities, available
for sale 8,087,727 369,256 -
Proceeds from maturing mortgage-
backed securities, available
for sale 6,223,361 712,350 -
Proceeds from maturing mortgage-
backed securities, held to
maturity 1,131,708 2,452,546 9,407,895
Purchase of mortgage-backed
securities, available for sale (27,239,834) - -
Purchase of mortgage-backed
securities, held to maturity - (3,660,481) (8,837,448)
Purchase of certificates of deposit
of other financial institutions - (500,000) -
Proceeds from maturing certificates
of deposit 90,000 590,000 -
Purchase of premises and equipment (239,666) (232,241) (138,520)
Proceeds from sale of foreclosed
real estate 94,799 14,775 69,555
Net cash used in
investing activities (10,498,845) ( 8,519,734) (7,893,673)
See accompanying notes to consolidated financial statements.
21
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
Cash flows from financing activities:
Net (decrease) increase in demand
deposits and savings accounts $ (985,489) (5,591,614) 150,077
Net increase (decrease) in
certificates of deposit 2,971,170 9,617,176 (10,140,042)
Net decrease in advances from
borrowers for taxes and
insurance (118,951) (48,830) (29,491)
Repayment of other borrowings - (84,250) (100,250)
Proceeds from advances from FHLB
of Des Moines 15,250,000 5,000,000 336,436
Repayment of advances from FHLB
of Des Moines (5,013,996) (4,012,924) (9,038)
Proceeds from sale of common
stock - - 15,160,161
Dividends on common stock (765,035) (586,040) (135,240)
Exercise of stock options 108,120 - -
Payments to acquire
treasury stock (1,799,150) - -
Net cash provided by
financing activities 9,646,669 4,293,518 5,232,613
Increase (decrease) in cash
and cash equivalents 1,491,974 (2,108,975) (806,487)
Cash and cash equivalents
at beginning of period 2,985,898 5,094,873 5,901,360
Cash and cash equivalents
at end of period $ 4,477,872 2,985,898 5,094,873
Supplemental disclosures of
cash flow information:
Noncash investing and
financing activities
Conversion of loans to
foreclosed real estate $ 124,279 46,105 237,743
Conversion of foreclosed
real estate to loans $ 680,839 81,725 448,550
Cash paid during the period for
Interest (net of
interest credited) $ 1,939,186 1,739,282 1,685,595
Income taxes $ 422,306 563,369 661,000
See accompanying notes to consolidated financial statements.
22
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 1: Organization and Summary of Significant Accounting Policies
Organization
On April 13, 1994, Southern Missouri Savings Bank (the Savings Bank) completed
its conversion from mutual to stock form and became the wholly-owned
subsidiary of a newly formed Delaware holding company, Southern Missouri
Bancorp, Inc. (Company).
The Company has no significant assets other than common stock of the Savings
Bank, the loan to the ESOP, and net proceeds retained by the Company following
conversion. The Company's principal business is the business of the Savings
Bank. The Savings Bank converted from a state-chartered savings and loan
association to a Federally-chartered savings bank effective June 20, 1995.
Basis of Financial Statement Presentation
The financial statements of the Company have been prepared in conformity with
generally accepted accounting principles and general practices within the
savings and loan industry. In the normal course of business, the Company
encounters two significant types of risk; economic and regulatory. Economic
risk is comprised of interest rate risk, credit risk, and market risk. The
Company is subject to interest rate risk to the degree that its interest-
bearing liabilities reprice on a different basis than its interest-earning
assets. Credit risk is the risk of default on the Company's loan portfolio
that results from the borrowers' inability or unwillingness to make
contractually required payments. Market risk reflects changes in the value of
collateral underlying loans receivable and the value of the Company's
investment in real estate.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates. The determination of the
provision for loan losses and the valuation of real estate are based on
estimates that are particularly susceptible to changes in the economic
environment and market conditions. These balances may be adjusted in the
future based on such changes, or based on requirements of regulatory examiners
of the Company's subsidiaries.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiary, the Savings Bank, and the Savings Bank's wholly-owned
subsidiary, S.M.S. Financial Services, Inc. All significant intercompany
accounts and transactions have been eliminated.
23
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 1: Organization and Summary of Significant Accounting Policies
(Continued)
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from depository institutions and interest-bearing deposits in other
depository institutions with original maturities of three months or less.
Interest bearing deposits in other depository institutions were $2,541,950,
and $1,204,966 at June 30, 1996 and 1995, respectively.
Investment and Mortgage-Backed and Related Securities
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective June 30, 1994. Under the Statement, debt securities that the
Company has the positive intent and ability to hold to maturity are classified
as "held to maturity" securities and reported at amortized cost. Debt and
equity securities that are bought and held principally for the purpose of
selling in the near term are classified as "trading" securities and reported
at fair value, with unrealized gains and losses included in earnings. Debt
and equity securities not classified as either held to maturity or trading
securities are classified as "available for sale" securities and reported at
fair value with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity (net of deferred tax
effects). Transfers of securities between classifications will be accounted
for at fair value. No securities have been classified as trading securities.
In accordance with a recent interpretation of SFAS 115 the Company transferred
$23,041,000 of investment and mortgage backed and related securities in
December 1995 from the held to maturity classification to the available for
sale classification. The transfer under this one-time opportunity was made in
order to increase investment management flexibility.
Prior to adoption of SFAS No. 115, securities were classified as held for
investment.
Premiums and discounts on debt securities are amortized or accreted as
adjustments to income over the estimated life of the security using the level
yield method. Gain or loss on the sale of securities is based on the specific
identification method. The fair value of securities is based on quoted market
prices or dealer quotes. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
The Company does not invest in collateralized mortgage obligations that are
considered high risk.
24
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 1: Organization and Summary of Significant Accounting Policies
(Continued)
Loans Receivable, Net
Loans receivable, net are stated at unpaid principal balances, less the
allowance for loan losses, net deferred loan origination fees, deferred gain
on real estate and unearned discounts.
Discounts on mortgage loans are amortized to income using the interest method
over the remaining period to contractual maturity adjusted for prepayments.
Discounts on consumer loans are recognized over the lives of the loans using
the interest method.
The allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
Uncollectible interest on loans that are contractually past due 90 days or
more is charged-off. Income is subsequently recognized only to the extent
that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.
Effective July 1, 1995, the Company adopted the provisions of SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." Specific valuation allowances are established for impaired
loans for the difference between the loan amount and the fair value of
collateral less estimated selling costs. The Company considers a loan to be
impaired when, based on current information and events, it is probable that
the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement on a timely basis. The types of loans
for which impairment is measured under SFAS No. 114 and 118 include nonaccrual
income property loans (excluding those loans included in the homogenous
portfolio which are collectively reviewed for impairment), large, nonaccrual
single family loans and troubled debt restructurings. Such loans are placed
on nonaccrual status at the point they become contractually delinquent more
than 90 days. Impairment losses are recognized through an increase in the
allowance for loan losses. There were no impaired loans under SFAS No. 114
and 118 at June 30, 1996.
25
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 1: Organization and Summary of Significant Accounting Policies
(Continued)
Loan Origination Fees
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income using the
interest method over the contractual life of the loans.
Foreclosed Real Estate
Real estate acquired by foreclosure or by deed in lieu of foreclosure is
initially recorded at the lower of cost or fair value less estimated selling
costs. Costs for development and improvement of the property are capitalized.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its estimated fair value, less estimated selling costs.
Loans to facilitate the sale of real estate acquired in foreclosure are
discounted if made at less than market rates. Discounts are amortized over
the fixed interest period of each loan using the interest method.
Income Taxes
Effective July 1, 1993 the Company changed its method of accounting for income
taxes to conform with SFAS No. 109. See Note 10.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
include expenditures for major betterments and renewals. Maintenance,
repairs, and minor renewals are expensed as incurred. When property is
retired or sold, the retired asset and related accumulated depreciation are
removed from the accounts and the resulting gain or loss taken into income.
Depreciation is computed by use of straight-line and accelerated methods over
the estimated useful lives of the assets. Estimated lives are generally
twenty to fifty years for premises, and five to seven years for equipment.
Earnings Per Share
Earnings per share are based upon the weighted-average shares outstanding.
ESOP shares that have been committed to be released are considered
outstanding. The presentation of net earnings per common share for 1994 is
not meaningful since the common stock was issued on April 13, 1994.
26
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 1: Organization and Summary of Significant Accounting Policies
(Continued)
Business Combinations
The Savings Bank acquired two savings and loan associations in business
combinations accounted for by the purchase method of accounting. Assets and
liabilities acquired were recorded at their estimated fair values at the date
of acquisition. Discounts resulting from fair value adjustments are amortized
by the interest method over the remaining lives of the related assets,
adjusted for expected prepayments.
The following paragraphs summarize the impact of new accounting
pronouncements:
In May 1995, FASB issued SFAS no. 122, "Accounting for Mortgage Servicing
Rights." SFAS No. 122 eliminates distinctions between servicing rights that
were purchased and those that were retained upon the sale of loans. The
statement requires mortgage services to recognize as separate assets rights to
service loans, no matter how the rights were acquired. Institutions who sell
loans and retain the servicing rights will be required to allocate the total
cost of the loans to servicing rights and loans based on their relative fair
values if that value can be estimated. SFAS No. 122 is effective for fiscal
years beginning after December 15, 1995.
Further, SFAS No. 122 requires that all capitalized mortgage servicing rights
be periodically evaluated for impairment based upon the current fair value of
these rights. Management believes that the implementation of this statement
will have a minimal effect on the Company since the Company does not presently
service loans for others.
In October, 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires that compensation cost for stock-based
employee compensation plans be measured at the grant date based on the fair
value of the award and recognized over the service period, which is usually
the vesting period. Stock-based employee compensation plans include stock
purchase plans, stock options, restricted stock and stock appreciation rights.
Employee stock ownership plans are not covered by this Statement. SFAS No.
123 is effective for transactions entered into in fiscal years that begin
after December 15, 1995, with earlier application permitted. SFAS No. 123 is
not expected to materially affect the Company's financial position or results
of operations.
27
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 2: Investment and Mortgage-Backed and Related Securities
The Company adopted SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities" at June 30, 1994 (See Note 1).
Available for Sale - The amortized cost, gross unrealized gains, gross
unrealized losses and estimated market value of securities available for sale
consisted of the following:
June 30, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
U.S. government and fed-
eral agency obligations $ 7,650,697 18,858 246,437 7,423,118
Corporate securities 2,896,630 27,067 8,075 2,915,622
Obligations of states and
political subdivisions 4,705,308 111,171 16,630 4,799,849
Total investment
securities 15,252,635 157,096 271,142 15,138,589
Mortgage-backed and
related securities:
GNMA certificates 10,740,300 39,386 135,231 10,644,455
FNMA certificates 12,427,572 23,964 175,542 12,275,994
FHLMC certificates 8,547,444 39,982 122,476 8,464,950
Collateralized mortgage
obligations 3,647,776 - 191,416 3,456,360
Total mortgage-backed
and related securities 35,363,092 103,332 624,665 34,841,759
Total $50,615,727 260,428 895,807 49,980,348
June 30, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
U.S. government and fed-
eral agency obligations $ 3,324,213 77,727 - 3,401,940
Corporate securities 3,077,085 38,085 - 3,115,170
Obligations of states and
political subdivisions 736,795 1,949 462 738,282
Total investment
securities 7,138,093 117,761 462 7,255,392
Mortgage-backed and
related securities:
FNMA certificates 3,095,169 29,744 50,591 3,074,322
Collateralized mortgage
obligations 7,704,822 11,992 283,668 7,433,146
Total mortgage-backed
and related securities 10,799,991 41,736 334,259 10,507,468
Total $17,938,084 159,497 334,721 17,762,860
28
<PAGE> <PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994
Held to Maturity - The amortized costs, gross unrealized gains, gross
unrealized losses and estimated market value of securities held to maturity
consisted of the following:
June 30, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
U.S. government and fed-
eral agency obligations $ 600,000 - 34,020 565,980
Obligations of states and
political subdivisions 4,055,830 71,412 4,455 4,122,787
Total investment
securities 4,655,830 71,412 38,475 4,688,767
Mortgage-backed securities:
FHLMC certificates 148,689 2,727 70 151,346
FNMA certificates 46,935 1,379 - 48,314
Total mortgage-backed
securities 195,624 4,106 70 199,660
Total $ 4,851,454 75,518 38,545 4,888,427
June 30, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
U.S. government and fed-
eral agency obligations $10,334,689 172,951 56,345 10,451,295
Corporate securities 1,745,108 9,535 22,234 1,732,409
Obligations of states and
political subdivisions 12,823,678 146,591 35,488 12,934,781
Total investment
securities 24,903,475 329,077 114,067 25,118,485
Mortgage-backed securities:
FHLMC certificates 8,694,829 223,489 60,184 8,858,134
GNMA certificates 2,377,292 86,285 755 2,462,822
FNMA certificates 2,993,934 24,942 15,959 3,002,917
Total mortgage-backed
securities 14,066,055 334,716 76,898 14,323,873
Total $38,969,530 663,793 190,965 39,442,358
29
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994
The amortized cost and estimated market value of investment an mortgage-backed
and related securities by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
June 30, 1996
Available for Sale Held to Maturity
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
Due in one year or less $ 1,938,225 1,960,554 - -
Due after one year
thru 5 years 3,926,385 3,914,943 1,273,506 1,244,347
Due after 5 years
thru 10 years 6,420,814 6,300,184 2,567,833 2,614,944
Due after 10 years 2,967,211 2,962,908 814,491 829,476
Total investment
securities 15,252,635 15,138,589 4,655,830 4,688,767
Mortgage-backed and
related securities 35,363,092 34,841,759 195,624 199,660
Total $50,615,727 49,980,348 4,851,454 4,888,427
Proceeds from sales of investment and mortgage-backed and related securities
and gross realized gains and losses are summarized below.
June 30,
1996 1995 1994
Proceeds from sales:
Investment securities $ 5,841,202 2,792,770 522,875
Mortgage-backed and related
securities 9,248,755 369,256 779,250
Gross realized gains:
Investment securities 86,947 85,172 22,875
Mortgage-backed and related
securities 148,477 - 24,956
Gross realized losses:
Investment securities (11,315) - -
Mortgage-backed and related
securities (93,451) (74,295) -
Included in the gross realized gains on mortgage-backed and related
securities are sales of small balance pools of mortgage-backed securities held
to maturity that had an amortized cost of $1,161,028 which are permitted to be
sold prior to maturity.
The amortized cost of investment and mortgage-backed securities pledged as
collateral to secure public deposits amounted to $17,900,762 and $8,001,341 at
June 30, 1996 and 1995, respectively.
Adjustable rate mortgage loans included in mortgage-backed and related
securities at June 30, 1996 and 1995 amounted to $21,733,920 and $10,507,468,
respectively. All adjustable rate mortgage-backed and related securities at
June 30, 1996 and 1995 are recorded as available for sale.
30
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994
NOTE 3: Loans Receivable, net
Loans receivable, net are summarized as follows:
June 30,
1996 1995
Real estate loans:
Conventional $ 68,330,068 60,520,660
Construction 4,283,294 4,587,058
Commercial 16,583,759 14,775,402
Loans secured by deposit accounts 752,514 726,435
Consumer and other loans 9,042,171 4,360,813
98,991,806 84,970,368
Loans in process (2,609,546) (1,259,661)
Unearned discounts on purchased
real estate loans - (4,339)
Deferred loan fees, net (89,341) (75,060)
Deferred gain on sale of real estate (130,698) (172,404)
Allowance for loan losses (627,564) (572,341)
$ 95,534,657 82,886,563
Adjustable-rate loans included in the loan portfolio amounted to $74,040,220,
and $64,829,077 at June 30, 1996 and 1995, respectively.
One-to four-family residential real estate loans amounted to $69,368,000 and
$62,626,000 at June 30, 1996 and 1995, respectively.
Real estate construction loans are secured principally by single and
multi-family dwelling units.
Commercial real estate loans are secured principally by motels, medical
centers, churches and fast food restaurants.
Following is a summary of activity in the allowance for loan losses:
June 30,
1996 1995 1994
Balance, beginning of period $ 572,341 477,341 261,341
Loans charged-off (5,167) - (13,706)
Recoveries of loans previously
charged off 390 - -
Net charge-offs (4,777) - (13,706)
Provision charged to expense 60,000 95,000 229,706
Balance, end of period $ 627,564 572,341 477,341
The Company ceased recognition of interest income on loans with a book value
of $546,000, $737,000 and $696,000 for June 30, 1996, 1995 and 1994,
respectively. The average balance of nonaccrual loans for the year ended June
30, 1996 was approximately $699,000. Allowance for losses on nonaccrual loans
amounted to approximately $27,000 at June 30, 1996. Interest income of
approximately $22,000, $27,000 and $34,000 was recognized on these loans for
the years ended June 30, 1996, 1995 and 1994, respectively. Gross interest
income would have been approximately $47,000, $59,000 and $58,000 for the
years ended June 30, 1996, 1995 and 1994, respectively, if the interest
payments had been received in accordance with the original terms.
31
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
Following is a summary of loans to directors, executive officers and loans to
corporations in which executive officers and directors have substantial
benefit interest:
Balance, June 30, 1994 $ 436,388
Additions 133,500
Repayments (103,966)
Balance, June 30, 1995 465,922
Additions 244,577
Repayments (254,765)
Balance, June 30, 1996 $ 455,734
These loans were made on substantially the same terms as those prevailing at
the time for comparable transactions with unaffiliated persons.
NOTE 4: Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
June 30,
1996 1995
Investment securities $ 421,536 640,542
Mortgage-backed and related securities 239,801 178,591
Loans receivable 479,762 375,860
$ 1,141,099 1,194,993
NOTE 5: Foreclosed Real Estate
Foreclosed real estate consists of the following:
June 30,
1996 1995
Foreclosed real estate $ 395,430 1,146,627
Allowance for losses (335,297) (419,109)
$ 60,133 727,518
Activity in the allowance for losses for foreclosed real estate is
as follows:
June 30,
1996 1995 1994
Balance, beginning of period $ 419,109 444,798 584,852
Charge-offs and recoveries, net 440 32,885 (155,600)
Provisions for losses on
foreclosed real estate (84,252) (58,574) 15,546
Balance, end of period $ 335,297 419,109 444,798
32
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 6: Premises and Equipment
Following is a summary of premises and equipment:
June 30,
1996 1995
Land $ 342,042 342,042
Buildings and improvements 1,992,331 1,934,003
Furniture, fixtures, and equipment 1,203,077 1,035,739
Automobiles 58,246 44,246
3,595,696 3,356,030
Less accumulated depreciation (2,184,449) (2,061,289)
$ 1,411,247 1,294,741
Depreciation expense for the years ended June 30, 1996, 1995 and 1994 was
$123,160, $127,806 and $131,025, respectively.
NOTE 7: Deposits
Deposits are summarized as follows:
June 30,
1996 1995
Non-interest bearing NOW accounts $ 770,735 1,006,013
NOW accounts 2.55% 7,266,140 6,234,761
Money market deposit accounts, 2.67%
and 2.80%, respectively 7,394,864 9,149,624
Savings accounts 2.75% 6,980,637 7,007,467
Total transactions accounts 22,412,376 23,397,865
Certificates:
2.00 - 2.99% -0- 275,890
3.00 - 3.99% -0- 2,583,873
4.00 - 4.99% 24,741,332 33,389,500
5.00 - 5.99% 66,529,484 15,437,939
6.00 - 6.99% 5,138,828 41,240,629
7.00 - 7.99% 1,236,070 1,544,949
8.00 - 8.99% 63,289 266,569
9.00 - 9.99% 16,687 15,171
Total certificates, 5.21%
and 5.48%, respectively 97,725,690 94,754,520
Total deposits $ 120,138,066 118,152,385
Weighted-average rates - deposits 4.72% 4.95%
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $18,297,762 and $11,318,791 at June 30, 1996 and 1995,
respectively.
Certificate maturities at June 30, 1996 are summarized as follows:
July 1, 1996 to June 30, 1997 $ 82,565,195
July 1, 1997 to June 30, 1998 10,491,550
July 1, 1998 to June 30, 1999 3,890,662
July 1, 1999 to June 30, 2000 293,475
July 1, 2000 to June 30, 2001 421,520
Thereafter 63,288
$ 97,725,690
33
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
Interest expense on deposits is summarized as follows:
Year Ended June 30,
1996 1995 1994
NOW accounts $ 159,335 154,393 151,948
Money market deposit
accounts 259,926 326,907 398,740
Savings accounts 178,847 210,717 265,222
Certificates of deposit 5,268,374 4,457,832 3,881,384
$ 5,866,482 5,149,849 4,697,294
NOTE 8: Advances from FHLB of Des Moines
Advances from Federal Home Loan Bank of Des Moines are summarized
as follows:
June 30,
1996 1995
FHLB advances, due at various
dates through 2008, with interest
rates from 5.52% to 5.97% and a
weighted average rate of 5.68%
at June 30, 1996, and from 5.80%
to 6.65% and a weighted average
rate of 6.47% at June 30, 1995. $ 11,550,478 1,314,474
Advances from FHLB of Des Moines are secured by FHLB stock and single-family
mortgage loans of $17,326,000. Principal maturities of advances from FHLB of
Des Moines over the next five years are as follows:
July 1, 1996 to June 30, 1997 $ 11,265,158
July 1, 1997 to June 30, 1998 18,560
July 1, 1998 to June 30, 1999 19,685
July 1, 1999 to June 30, 2000 20,879
July 1, 2000 to June 30, 2001 22,145
NOTE 9: Employee Benefits
The Savings Bank had a defined benefit pension plan covering substantially all
of its employees. The Board of Directors of the Savings Bank terminated the
defined benefit plan effective April 30, 1996. In relation to the
termination, the Savings Bank will distribute the participants' vested
benefits by purchasing nonparticipating annuity contracts or provide lump sum
cash distributions. The excess of plan assets over the distribution of vested
benefits will be applied to purchase additional retirement benefits for
participants. Defined benefits were not provided under any successor plan.
34
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
As a result of this termination the Savings Bank recognized a loss of $28,487
for 1996, determined as follows:
Before Effect of After
Termination Termination Termination
Assets and obligations:
Accumulated benefit obligation $ (616,901) 616,901 0
Effects of projected future
compensation levels (204,108) 204,108 0
Projected benefit obligation (821,009) 821,009 0
Plan assets at fair value 807,104 (807,104) 0
Items not yet recognized in
earnings:
Unrecognized net assets
at transition (140,897) 140,897 0
Unrecognized net loss subsequent
to transition 255,305 (255,305) 0
Unrecognized prior service cost
(gains from plan amendment) (72,016) 72,016 0
Pension asset (liability)
included in other assets and
accounts payable and accrued
expenses, respectively $ 28,487 (28,487) 0
Net pension cost for 1996, 1995 and 1994 included the following components:
1996 1995 1994
Service cost - benefit earned
during the period $ 67,340 27,982 53,910
Interest cost on projected
benefit obligation 62,184 57,250 59,355
Net (income) loss on plan assets (56,497) (58,916) (57,880)
Net amortization and deferral (11,635) (10,637) (8,925)
Net periodic pension cost $ 61,392 15,679 46,460
Assumptions used to develop the net periodic pension cost were:
1996 1995 1994
Discount rate 6.65% 6.65% 6.65%
Expected long-term rate of
return on assets 7.00 7.00 7.00
Rate of increase in
compensation levels 4.00 4.00 4.00
On July 1, 1995 the Savings Bank adopted a 401(k) profit sharing plan that
covers substantially all eligible employees. Contributions to the plan are at
the discretion of the Board of Directors of the Savings Bank. During 1996
there were no contributions made to the plan.
35
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
In connection with the conversion from mutual to stock form, the Savings
Bank established a tax-qualified employee stock ownership plan (ESOP). The
plan covers substantially all employees who have attained the age of 21 and
completed one year of service. The ESOP purchased 142,832 shares of the
Company's common stock at $10 per share with funds loaned by the Company.
The Savings Bank makes contributions to the ESOP equal to the ESOP's debt
service less dividends on unallocated ESOP shares used to repay the ESOP Loan.
Dividends on allocated ESOP shares are paid to participants of the ESOP. The
ESOP shares are pledged as collateral on the ESOP loan.
Shares are released from collateral and allocated to participants based on
pro-rata compensation as the loan is repaid over seven years. Benefits are
vested over five years. Forfeitures are allocated on the same basis as other
contributions. Benefits are payable upon a participant's retirement, death,
disability or separation of service. The purchase of the shares of the ESOP
has been recorded in the consolidated financial statements through a credit to
common stock and additional paid-in capital with a corresponding charge to a
contra equity account for the unreleased shares. Effective July 1, 1994, the
Savings Bank adopted SOP 93-6.
As shares are committed to be released from collateral, the Savings Bank
reports compensation expense equal to the average fair value of the ESOP
shares committed to be released. Prior to July 1, 1994, compensation expense
was equal to the cost of ESOP shares committed to be released in accordance
with Emerging Issues Task Force No. 89-8. The ESOP expense for 1996, 1995 and
1994 was $308,436, $242,023, and $102,023, respectively.
The number of ESOP shares at June 30, 1996 were as follows:
Allocated shares 51,011
Unreleased shares 91,821
Total ESOP shares 142,832
The fair value of unreleased ESOP shares at June 30, 1996 was $1,296,972.
36
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
In connection with the conversion, the Board of Directors of the Savings Bank
adopted a management recognition plan (MRP) for the benefit of non-employee
directors and two MRPs for officers and key employees (who may also be
directors), the objective of which is to enable the Savings Bank to retain
personnel of experience and ability in key positions of responsibility. In
connection with the conversion to stock form, the Savings Bank contributed
46,165 shares to the MRP. Subsequent to the reorganization an additional
17,826 shares were purchased from the Company by the MRP. The Savings Bank has
granted 17,854 shares of common stock to non-employee directors and 53,562
shares to officers and key employees. The shares granted are in the form of
restricted stock payable at the rate of 20% of such shares per year following
completion of the conversion. Compensation expense in the amount of the fair
market value of the common stock at the date of grant will be recognized pro
rata over the five years during which the shares are payable.
The Board of Directors can terminate the MRPs at any time, and if it does so,
any shares not allocated will revert to the Company. The MRP expense for
1996, 1995 and 1994 was $142,833, $142,832 and $30,523, respectively.
The Board of Directors adopted a stock option plan in connection with the
conversion. The purpose of the plan is to provide additional incentive to
certain directors, officers and key employees of the Savings Bank. The
Savings Bank has granted non-incentive options for 53,560 shares to
non-employee directors and incentive options for 72,489 shares to certain
officers and key personnel and the remaining 52,491 shares are unallocated.
The stock options were granted at $10 per share which was equal to the market
value at the date of grant. All options expire in April 2004.
Changes in options outstanding were as follows:
Number of
Shares
Balance at June 30, 1993 -
Granted 126,049
Exercised -
Balance at June 30, 1994 126,049
Granted -
Exercised -
Balance at June 30, 1995 126,049
Granted -
Exercised 10,812
Balance at June 30, 1996 115,237
37
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
The Savings Bank adopted a directors' retirement plan. The directors'
retirement plan provides that each non-employee director (participant) shall
receive upon termination of service on the Board on or after age 60, other
than termination for cause, a benefit in equal annual installments over a five
year period. The benefit will be based upon the product of the participant's
vesting percentage and the total Board fees paid to the participant during the
calendar year preceding termination of service on the Board.
The vesting percentage shall be determined based upon the participant's years
of service on the Board, whether before or after the reorganization date,
according to the following schedule:
Full Years of Service Non-Employee Director's
on the Board Vested Percentage
Less than 5 0%
5 to 9 50%
10 to 14 75%
15 or more 100%
In the event that the participant dies before collecting any or all of the
benefits, the Savings Bank shall pay the participant's beneficiary. No
benefits shall be payable to anyone other than the beneficiary, and shall
terminate on the death of the beneficiary.
The following table sets forth the directors' retirement plan's funded status
and amounts recognized in the financial statements at June 30, 1996 and 1995:
1996 1995
Actuarial present value of
benefit obligations:
Vested accumulated benefits $ 156,830 144,166
Nonvested accumulated benefits 13,689 12,911
Total accumulated benefits 170,519 157,077
Unrecognized prior service cost
being recognized over four years 60,131 90,619
Unrecognized net obligation being
recognized over four years 6,305 9,035
Adjustment to recognize minimum liability (66,436) (99,654)
Overaccrual 1,340 835
Accrued pension cost $ 171,859 157,912
Net pension cost includes the following components:
Service costs - benefits earned
during the year $ 2,783 3,928
Interest cost on benefit obligation 10,659 10,019
Amortization of prior service cost
and net obligation 33,218 33,218
Overaccrual 1,340 835
Net pension cost $ 48,000 48,000
A discount rate of 7% was used in determining net pension cost.
The disclosures required under SFAS No. 87 for the directors' retirement plan
were not available at June 30, 1994. The directors' retirement plan expense
for 1994 was $10,258.
38
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 10: Income Taxes
The Company and its subsidiary file consolidated Federal income tax
returns. If certain conditions are met in determining taxable income, the
Company is allowed a special bad-debt deduction based on a percentage of
taxable income (presently 8 percent) or on specified experience formulas.
Effective July 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Evaluation allowances are established when necessary to reduce deferred tax
assets to the amount that will more likely than not be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the net
change in the deferred tax assets and liabilities.
The cumulative effect of the change in accounting principle on years prior to
July 1, 1993, of $279,000 is included as a credit in net earnings for the year
ended June 30, 1994.
SFAS No. 109 requires the Savings Bank to establish a deferred tax liability
for the tax bad debt reserves over the base year amounts. The Savings Bank's
base year tax bad debt reserves are $1,798,626. The estimated deferred tax
liability on such amount is approximately $611,000, which has not been
recorded in the accompanying consolidated financial statements.
As of June 30, 1996 tax bad debt reserves of $1,539,000 exist, on which no
federal income taxes have been provided for tax return purposes. Legislation
was enacted in August 1996 which repeals the percentage of taxable income
method, effective July 1, 1996 for the Savings Bank. The legislation is not
expected to have a significant effect on the financial position or results of
operations of the Savings Bank.
39
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, 1994 and 1993
The components of net deferred tax assets are summarized as follows:
1996 1995
Deferred tax assets:
Provision for losses on loans
and foreclosed real estate $ 363,358 379,022
Accrued compensation and benefits 66,815 77,117
Base year tax bad debt reserve at 12/31/87
in excess of current tax bad debt reserve 88,273 94,393
Unrealized loss on available for sale
securities 218,583 59,576
Gross deferred tax assets 737,029 610,108
Valuation allowance (88,273) (94,393)
Total deferred tax assets 648,756 515,715
Deferred tax liabilities:
FHLB stock dividends 166,566 156,366
Purchase accounting adjustments 66,072 34,518
Premises and equipment, tax vs book
accumulated depreciation 17,484 1,702
Total deferred tax liabilities 250,122 192,586
Net deferred tax assets $ 398,634 323,129
The valuation allowance decreased by $6,120 during the year ended June 30,
1996.
Income taxes are summarized as follows:
Year Ended June 30,
1996 1995 1994
Current:
Federal $ 496,658 434,411 662,121
State 93,855 36,447 -
590,513 470,858 662,121
Deferred:
Federal 60,898 (11,354) (36,000)
State 2,000 (5,200) -
62,898 (16,554) (36,000)
$ 653,411 454,304 626,121
The provision for income taxes varies from the amount of income tax determined
by applying the statutory Federal income tax rate to income before income
taxes as a result of the following differences:
Year Ended June 30,
1996 1995 1994
Tax at statutory Federal rate $ 720,777 578,599 715,566
Increase (reduction) in taxes
resulting from:
Nontaxable municipal income (150,428) (152,203) (89,445)
State tax, net of Federal benefit 63,264 20,623 -
Nondeductible ESOP expenses 38,625 14,051 -
Other, net (18,827) (6,766) -
Actual provision $ 653,411 454,304 626,121
40
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
Deferred income tax expense represents the tax effects of reporting income and
expense in different periods for financial reporting purposes than tax
purposes as follows:
Year Ended June 30,
1996 1995 1994
FHLB stock dividend $ 10,200 - -
Accrued income and expense (10,302) (5,519) (33,736)
Purchase accounting adjustments 31,554 11,979 27,958
Provision for losses on loans
and foreclosed real estate 15,664 (24,716) (30,222)
Premises and equipment, tax vs
book accumulated depreciation 15,782 1,702 -
$ 62,898 (16,554) (36,000)
State income tax for 1995 and 1994 reflects credits of $72,536 and
$118,490, respectively as a result of settling litigation with the State of
Missouri. All remaining credits were utilized in 1995.
NOTE 11: Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
of 1989
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) requires that savings institutions maintain "core capital" of at
least 3% of adjusted total assets. Under proposals currently being evaluated
by the Office of Thrift Supervision (OTS), a savings institution's core
capital requirement could be increased to between 4% and 5% of adjusted total
assets. Core capital is defined to include stockholders' equity among other
components. Savings institutions also must maintain "tangible capital" of not
less than 1.5% of the Savings Bank's adjusted total assets. "Tangible
capital" is defined, generally as core capital minus any "intangible assets."
In addition to requiring compliance with the core and tangible capital
standards, FIRREA and the OTS regulation also require that savings
institutions satisfy a risk-based capital standard. The minimum level of such
capital is based on a credit risk component and is calculated by multiplying
the value of each asset (including off-balance sheet commitments) by one of
four risk factors. The four risk categories range from zero for cash to 100%
for certain delinquent loans and repossessed property. Savings institutions
must maintain an 8.0% risk-based capital level.
Beginning June 30, 1995, savings institutions are required to reflect an
interest rate risk component in their risk-based capital requirements.
Savings institutions with less than $300 million in assets and a risk-based
capital ratio of 12% or more will not be subject to the interest rate risk
requirement.
41
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
The following table presents the Savings Bank's capital position relative to
its regulatory capital requirements under FIRREA at June 30, 1996:
Regulatory Capital
Tangible Core Risk-Based
Capital Capital Capital
Stockholders' equity per consol-
idated financial statements $ 26,227,294 26,227,294 26,227,294
Stockholders' equity of Southern
Missouri Bancorp, Inc. not
available for regulatory
capital purposes 6,532,301 6,532,301 6,532,301
GAAP capital 19,694,993 19,694,993 19,694,993
General valuation allowances - - 627,564
Non-includable unrealized loss
on investment and mortgage-
backed and related securities
available for sale 424,307 424,307 424,307
Non-includable deferred tax assets (411,583) (411,583) (411,583)
Non-includable intangible assets (87,306) (87,306) (87,306)
Regulatory capital 19,620,411 19,620,411 20,247,975
Regulatory capital requirement 2,324,000 4,648,000 6,119,000
Regulatory capital-excess $ 17,296,411 14,972,411 14,128,975
Regulatory capital ratio 12.67% 12.67% 26.47%
Regulatory capital requirement (1.50) (3.00) (8.00)
Regulatory capital excess 11.17% 9.67% 18.47%
NOTE 12: Commitments and Contingencies
In the ordinary course of business, the Savings Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. The Savings Bank is involved
in litigation and investigations of a routine nature which are being defended
and handled in the ordinary course of business. These matters are not
considered significant to the Company's financial condition or results of
operations.
Proposals recently have been introduced in the U.S. Congress that, if adopted,
would overhaul the savings association industry. The most significant of
these proposals would recapitalize the SAIF through a one-time special
assessment of approximately 80 basis points on the annual amount of deposits
held by the institution. Should the Savings Bank be required to pay such
special assessment, the Saving's Bank capital will be reduced by approximately
$634,000, based on deposits of $120.1 million as of June 30, 1996 and a tax
rate of 34%. In the event the assessment is not deductible for tax purposes,
capital would be reduced by approximately $961,000. Management cannot predict
whether the special assessment proposal will be enacted, or, if enacted, the
amount of any one-time fee or the date to be used for determining deposits on
which the assessment will be based.
42
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 13: Off-Balance-Sheet and Credit Risk
The Company's consolidated financial statements do not reflect various
financial instruments to extend credit to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying degrees,
elements of credit and interest-rate risk in excess of the amount recognized
in the statement of financial condition. A summary of the Company's
commitments to extend credit and standby letters of credit is as follows:
Contract or Notional Amount
June 30,
1996 1995
Commitments to extend credit $ 4,045,907 3,905,257
Standby letters of credit $ 126,370 5,250
At June 30, 1996, total commitments to originate fixed rate loans were
$629,000 at interest rates ranging from 7% to 10%. Commitments to extend
credit and standby letters of credit include exposure to some credit loss in
the event of nonperformance of the customer. The Company's policies for
credit commitments and financial guarantees are the same as those for
extension of credit that are recorded in the statement of financial condition.
The commitments extend over varying periods of time with the majority being
disbursed within a thirty-day period.
The Company grants collateralized commercial, real estate, and consumer loans
to customers in southeast Missouri. Although the Company has a diversified
portfolio, loans aggregating $69,368,000 at June 30, 1996, are secured by
single and multifamily residential real estate in the Company's primary
lending area.
43
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 14: Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company's financial
instruments at June 30, 1996, are summarized as follows:
Carrying Fair
Amount Value
Non-trading instruments and
nonderivatives:
Cash and cash equivalents $ 4,477,872 4,477,872
Certificates of deposits 186,512 186,512
Investment and mortgage-backed
and related securities:
Available for sale 49,980,348 49,980,348
Held to maturity 4,851,454 4,888,427
Stock in FHLB of Des Moines 1,519,700 1,519,700
Loans receivable, net 95,534,657 96,466,000
Accrued interest receivable 1,141,099 1,141,099
Deposits 120,138,066 119,940,000
Advances from FHLB of Des Moines 11,550,478 11,505,000
The following methods and assumptions were used in estimating the fair values
of financial instruments:
Cash and cash equivalents and certificates of deposit are valued at their
carrying amounts due to the relatively short period to maturity of the
instruments.
Fair values of securities and mortgage-backed and related securities are based
on quoted market prices or, if unavailable, quoted market prices of similar
securities.
Stock in FHLB of Des Moines is valued at cost, which represents redemption
value and approximates fair value.
Fair values are computed for each loan category using market spreads to
treasury securities for similar existing loans in the portfolio and
management's estimates of prepayments.
Deposits with no defined maturities, such as NOW accounts, savings accounts
and money market deposit accounts, are valued at the amount payable on demand
at the reporting date.
The fair value of certificates of deposit is computed at fixed spreads to
treasury securities with similar maturities.
Fair value of advances from the FHLB of Des Moines is estimated by discounting
maturities using an estimate of the current market for similar instruments.
The carrying amounts of accrued interest approximates their fair value.
44
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 15: Mutual to Stock Conversion
On April 13, 1994, Southern Missouri Savings Bank completed its conversion
from mutual to stock form and became the wholly-owned subsidiary of a newly
formed Delaware holding company, Southern Missouri Bancorp, Inc. The Company
issued 1,785,375 shares of common stock at $10 per share in conjunction with
the offering and an additional 17,826 shares of common stock were granted to
the Savings Bank's Management Recognition Plan. Net proceeds from the sale of
common stock in the offering were $15,160,161 after deduction of conversion
costs of $729,369, and unearned compensation related to shares issued to the
Employee Stock Ownership Plan and MRP. The Company retained 50% of the net
conversion proceeds, less the funds used to originate a loan to the Savings
Bank's ESOP for the purchase of shares of common stock, and used the balance
of the net proceeds to purchase all of the stock of the Savings Bank in the
conversion.
Deposit account holders and borrowers do not have voting rights in the Savings
Bank. Voting rights are vested exclusively with the stockholders of the
holding company. Deposit account holders will continue to be insured by the
SAIF. A liquidation account was established at the time of conversion in an
amount equal to the capital of the Savings Bank as of the date of the latest
balance sheet contained in the final prospectus. Each eligible account holder
and supplemental eligible account holder is entitled to a proportionate share
of this account in the event of a complete liquidation of the Savings Bank,
and only in such event. This share will be reduced if the account holder's or
supplemental eligible account holder's deposit balance falls below the amounts
on the date of record and will cease to exist if the account is closed. The
liquidation account will never be increased despite any increase in the
related deposit balance.
An OTS regulation restricts the stock savings bank's ability to make capital
distributions, including paying dividends. The regulation provides that an
institution meeting its capital requirements, both before and after its
proposed capital distribution, may generally distribute the greater of (1) 75%
of its net earnings for the prior four quarters or (2) 100% of its net
earnings to date during the calendar year, plus the amount that would reduce
by one-half its surplus capital ratio (defined as the percentage by which the
institution's capital-to-asset ratio exceeds the ratio of its capital
requirements to its assets) at the beginning of the calendar year without
prior supervisory approval. The regulation provides more significant
restrictions on payment of dividends in the event that the capital
requirements are not met.
The conversion and formation of the holding company was accounted for in a
manner similar to a pooling of interest. No goodwill or other intangibles
were recorded as a result of the transaction.
45
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 16: Condensed Parent Company Only Financial Statements
The following condensed statements of financial condition and condensed
statements of income and cash flows for Southern Missouri Bancorp, Inc. should
be read in conjunction with the consolidated financial statements and the
notes thereto.
STATEMENTS OF FINANCIAL CONDITION
At June 30,
Assets 1996 1995
Cash and cash equivalents $ 868,400 1,608,326
Investment securities - available for sale 4,616,518 -
Investment securities - held to maturity - 5,578,275
ESOP note receivable 918,206 1,122,251
Accrued interest receivable 115,991 133,822
Income taxes receivable 10,285 18,779
Fixed assets 9,510 -
Prepaid expenses 9,445 11,656
Equity in net assets of the
Savings Bank 19,694,993 18,580,407
Total assets $ 26,243,348 27,053,516
Liabilities and Stockholders' Equity
Accrued expense $ 16,054 6,540
Total liabilities 16,054 6,540
Stockholders' equity 26,227,294 27,046,976
Total liabilities and
stockholders' equity $ 26,243,348 27,053,516
STATEMENTS OF INCOME
Year Ended June 30,
1996 1995
Interest income $ 434,458 411,176
Dividend from Savings Bank 300,000 722,240
734,458 1,133,416
Operating expenses 154,690 179,453
Income before income taxes and
equity in undistributed income of
the Savings Bank 579,768 953,963
Income taxes 62,493 43,596
Income before equity in undistributed
income of the Savings Bank 517,275 910,367
Equity in undistributed income of
the Savings Bank 949,247 337,090
Net income $ 1,466,522 1,247,457
46
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
STATEMENTS OF CASH FLOWS
Year Ended June 30,
1996 1995
Cash flows from operating activities:
Net income $ 1,466,522 1,247,457
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 865 -
Equity in undistributed income
of the Savings Bank (949,247) (337,090)
Amortization of premiums (discounts)
on investment securities 93,996 128,855
Decrease (increase) in accrued
interest receivable 17,831 (11,208)
Decrease (increase) in prepaid expenses 2,211 (11,656)
Decrease (increase) in income taxes receivable 8,493 (35,279)
Decrease in dividends payable - (135,240)
Increase in accrued expenses 7,184 6,540
Net cash provided by
operating activities 647,855 852,379
Cash flows from investing activities:
Principal collected on loan to ESOP 204,045 306,069
Purchase of investment securities,
available for sale (2,075,386) -
Proceeds from maturities of investment
securities, available for sale 2,950,000 -
Purchase of investment securities,
held to maturity - (2,480,639)
Proceeds from maturities of investment
securities, held to maturity - 500,000
Purchase of fixed assets (10,375) -
Net cash provided by (used for)
investing activities 1,068,284 (1,674,570)
Cash flows from financing activities:
Dividends on common stock (765,035) (586,040)
Exercise of stock options 108,120 -
Payments to acquire treasury stock (1,799,150) -
Net cash used in
financing activities (2,456,065) (586,040)
Net decrease in cash and cash equivalents (739,926) (1,408,231)
Cash and cash equivalents at beginning
of period 1,608,326 3,016,557
Cash and cash equivalents at end of period $ 868,400 1,608,326
47
PAGE
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
NOTE 17: Quarterly Financial Data (Unaudited)
Quarterly operating data for the years ended June 30 is summarized as follows
(in thousands):
First Second Third Fourth
1996: Quarter Quarter Quarter Quarter
Interest income $ 2,613 2,687 2,883 2,827
Interest expense 1,527 1,578 1,622 1,582
Net interest income 1,086 1,109 1,261 1,245
Provision for loan losses 15 15 15 15
Noninterest income 134 145 212 149
Noninterest expense 800 825 793 743
Income before income taxes 405 414 665 636
Income taxes 103 111 211 228
Net income $ 302 303 454 408
First Second Third Fourth
1995: Quarter Quarter Quarter Quarter
Interest income $ 2,312 2,422 2,410 2,497
Interest expense 1,184 1,236 1,325 1,442
Net interest income 1,128 1,186 1,085 1,055
Provision for loan losses - 5 15 75
Noninterest income 120 115 97 123
Noninterest expense 773 759 824 756
Income before income taxes 475 537 343 347
Income taxes 140 148 97 70
Net income $ 335 389 246 277
NOTE 18: SUPERVISORY AGREEMENT
On December 21, 1994, the Savings Bank voluntarily entered into a Supervisory
Agreement with the OTS as a result of its latest OTS examination. The
Supervisory Agreement generally concerns the Savings Bank's investment
portfolio and more specifically focuses on the reporting, monitoring and
assessment of interest rate risk in connection with the Savings Bank's
portfolio of collateralized mortgage obligations (CMOs). As part of the
Supervisory Agreement, the Savings Bank hired a Chief Financial Officer. In
addition, the Savings Bank revised its Investment Policy to conform more
closely to the OTS's policy on securities activities and implemented
additional procedures to review the investment activities and monitor
interest rate risk management.
48
PAGE
<PAGE>
DIRECTORS AND OFFICERS
SOUTHERN MISSOURI BANCORP SOUTHERN MISSOURI SAVINGS BANK
DIRECTORS: DIRECTORS:
Robert A. Seifert Leonard W. Ehlers
Chairman of the Board Chairman of the Board
Retired Butler County Retired court reporter of
Recorder of Deeds the 36th Judicial Circuit
Donald R. Crandell James W. Tatum
President, Vice-Chairman
Chief Executive Officer Retired certified public accountant
Chief Financial Officer
Donald R. Crandell
Leonard W. Ehlers President,
Retired court reporter of Chief Executive Officer
the 36th Judicial Circuit
Robert A. Seifert
Thadis R. Seifert Retired Butler County Recorder of Deeds
Retired former executive
vice president of Savings Thadis R. Seifert
Bank Retired former executive vice
president of Savings Bank
Samuel H. Smith
Engineer and majority owner of Samuel H. Smith
S.H. Smith and Company, Inc. Engineer and majority owner of
S.H. Smith and Company, Inc.
James W. Tatum Ron Black
Retired certified public Stewardship Director General Association
accountant of General Baptist
Douglas Bagby
General Manager Municipal Utilities of
City of Poplar Bluff
OFFICERS: OFFICERS:
Donald R. Crandell Donald R. Crandell
President, President,
Chief Executive Officer Chief Executive Officer
Chief Financial Officer
Wilma Case
Samuel H. Smith Senior Vice President
Secretary Chief Operations Officer
Kent Nichols
Senior Vice President
Chairman Loan Department
Wilma Pratte
Secretary
Robert Stanley Jones
Vice President
Chief Financial Officer
49
PAGE
<PAGE>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS TRANSFER AGENT
531 Vine Street Registrar and Transfer Company
Poplar Bluff, Missouri 63901 10 Commerce Drive
Cranford, New Jersey 07016
INDEPENDENT AUDITORS COMMON STOCK
Kraft, Miles and Tatum Nasdaq National Market System
Poplar Bluff, Missouri 63901 Nasdaq Symbol: SMBC
SPECIAL COUNSEL
Breyer & Aguggia
Washington, D.C.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held Monday, October 28, 1996, at
9:00 a.m., Central Time, at Greater Poplar Bluff Area Chamber of Commerce
Building, 1111 West Pine, Poplar Bluff, Missouri 63901.
FORM 10-KSB
A copy of Form 10-KSB, including financial statement schedules as filed with
the Securities and Exchange Commission will be furnished without charge to
stockholders as of the record date upon written request to the Secretary,
Southern Missouri Bancorp, Inc., 531 Vine Street, Poplar Bluff, Missouri
63901.
50
<PAGE>
<PAGE> <PAGE>
Exhibit 21
Subsidiaries of the Registrant
Parent
Southern Missouri Bancorp, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
Southern Missouri Savings Bank, FSB 100% United States
SMS Financial Services, Inc. (b) 100% Missouri
(a) The operation of the Company's wholly owned subsidiaries are included in
the Company's Financial Statements contained in Item 7 hereof.
(b) Wholly-owned subsidiary of Southern Missouri Savings Bank, FSB.
<PAGE>
<PAGE>
Exhibit 23
Consent of Auditors
<PAGE>
<PAGE>
[Kraft, Miles & Tatum Letterhead]
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated August 16, 1996, accompanying the
Consolidated Financial Statements incorporated by reference in the Annual
Report of Southern Missouri Bancorp, Inc. on Form 10-KSB for the year ending
June 30, 1996. We hereby consent to the incorporation by reference of said
reports in the Registration Statement of Southern Missouri Bancorp, Inc. on
Form S-8 (File No. 333-2320, effective March 13, 1996).
/s/Kraft, Miles & Tatum
KRAFT, MILES & TATUM
Poplar Bluff, Missouri
September 27, 1996
<PAGE>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
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<TOTAL-ASSETS> 159847723
<DEPOSITS> 120138066
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<LIABILITIES-OTHER> 1931885
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<COMMON> 18032
<OTHER-SE> 26209262
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<LOANS-NON> 546000
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<LOANS-PROBLEM> 431000
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