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, 1997 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
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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, 1997 were
$12,026,796.
As of September 15, 1997, there were issued and outstanding 1,613,163
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 15, 1997, the aggregate
value of the Common Stock outstanding held by nonaffiliates of the registrant
was $29,036,934 (1,613,163 shares at $18.00 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, 1997 ("Annual Report") (Parts I and II).
2. Portions of Registrant's Definitive Proxy Statement for the 1997
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,
FSB ("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, 1997, the Company had total assets of $160.4 million,
total deposits of $118.7 million and stockholders' equity of $26.4 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.
Risk Factors
Supervisory Agreement. On December 21, 1994, the Savings Bank
voluntarily entered into a Supervisory Agreement with the OTS, its primary
federal regulator. 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. In an effort to comply
with the Supervisory Agreement, the Savings Bank has hired a Chief Financial
Officer who serves primarily as a senior investment 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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In connection with the Savings Bank's most recent regulatory
examination conducted during the fourth quarter of 1996, OTS examiners noted
the Savings Bank's noncompliance with the Supervisory Agreement. Accordingly,
additional actions, primarily relating to the Savings Bank's internal
operations and lending activities, have been imposed by the OTS on the Savings
Bank's management to achieve compliance and improve the operations of the
Savings Bank. As a result of the most recent OTS examination and existing
Supervisory Agreement, certain growth restrictions have been placed on the
Savings Bank. In particular, the Savings Bank may not increase its total assets
during any quarter in excess of the amount credited on deposit liabilities
during the quarter. Additionally, as a result of the Savings Bank's current
regulatory status, the Savings Bank will no longer be eligible for the lowest
assessment rate for deposit insurance. Instead, the assessment rate is expected
to increase from .065% to .095% of deposits beginning July 1, 1997. This will
result in approximately $9,000 in additional costs per quarter for deposit
insurance.
During the third quarter of fiscal 1997, the Savings Bank exceeded the
growth restrictions imposed by the Supervisory Agreement and, as a result, may
be subject to sanction for violation of the Supervisory Agreement. The Savings
Bank sought an exemption from compliance with the terms of the Supervisory
Agreement for its growth during the third quarter and the request was denied.
If the OTS determines that a material violation has occurred the OTS may impose
the sanctions discussed below. The Savings Bank achieved compliance with the
growth limitations during the fourth quarter and has requested a waiver of
these growth limitations for future periods.
A savings association engaging in unsafe and unsound practices is
subject to a variety of regulatory enforcement actions. Management believes
that the growth restrictions have not, to date, had an adverse effect on the
Savings Bank's results of operations. In the future, the continued existence of
growth restrictions could have a material adverse effect on the operations of
the Savings Bank, and, consequently, on the operations of the Company. Failure
to achieve compliance with the Supervisory Agreement could lead to further
regulatory enforcement actions, including the assessment of civil money
penalties against the Savings Bank and/or its officers and directors. To the
Savings Bank's knowledge, no such actions have been initiated. The Supervisory
Agreement will remain in effect until it is terminated by the OTS.
Selected Consolidated Financial Information
This information is incorporated by reference from pages 3 and 4 of the
1997 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).
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Years Ended June 30, Years Ended June 30,
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------- ----------------------
Rate/ Rate/
Vol- Vol- Vol-
Rate Volume ume Net Rate ume ume Net
---- ------ ----- --- ---- ---- ----- ---
(Dollars in thousands)
Interest-earning assets:
Loans receivable(1)....... $(36) $1,088 $(6) $1,046 $451 $708 $55 $1,214
Mortgage-backed and
related securities....... 34 39 1 74 (68) 372 (15) 289
Investment securities..... (70) (616) 24 (662) 89 (252) (11) (174)
Other interest-earning
deposits................. (42) (23) 5 (60) 33 6 1 40
---- ------ ---- ------ ---- ---- --- ------
Total net change in
income on interest
-earning assets........... (114) 488 24 398 505 834 30 1,369
---- ------ ---- ------ ---- ---- --- ------
Interest-bearing liabilities:
Deposits................. (282) (23) 1 (304) 513 184 19 716
FHLB advances and other
borrowings.............. 1 312 1 314 (1) 414 (8) 405
Total net change in expense
on interest-bearing
liabilities............... (281) 289 2 10 512 598 11 1,121
---- ------ --- ------ ---- ---- --- ------
Net change in net interest
income....................$ 167 $ 199 $22 $ 388 $ (7) $236 $19 $ 248
===== ====== === ====== ==== ==== === ======
(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
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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, 1997, the change in the Savings Bank's NPV as a percent of the
present value of its assets was negative 2.36% in the event of a 200 basis
point increase in interest rates. The interest rate risk rule did not have a
significant effect on risk based capital at June 30, 1997.
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, 1997.
NPV as % of
Net Portfolio PV of Assets
Change
in Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
(Dollars in thousands)
+400 bp $13,510 $(10,375) (43)% 9.23% (582) bp
+300 bp 16,650 (7,235) (30) 11.10 (395) bp
+200 bp 19,455 (4,430) (19) 12.69 (236) bp
+100 bp 21,927 (1,957) (8) 14.03 (101) bp
0 bp 23,885 15.04
-100 bp 25,246 1,361 6 15.72 67 bp
-200 bp 26,308 2,424 10 16.21 117 bp
-300 bp 27,455 3,571 15 16.75 170 bp
-400 bp 28,878 4,993 21 17.40 236 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, 1997, the Savings Bank's net loans receivable totaled
approximately $107.8 million representing approximately 67.2% of total assets.
Since 1983, the Savings Bank has originated primarily adjustable rate mortgage
("ARM") loan products. At June 30, 1997, ARM loans accounted for $86.1 million,
or 79.9% 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,
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
Type of Loan:
- ------------
Mortgage
Loans:
Conven-
tional.... $ 77,895 72.27% $68,330 71.52% $60,521 73.02%
Commer-
cial...... 18,293 16.97 16,584 17.36 14,775 17.82
Constr-
uction.... 3,822 3.55 4,283 4.48 4,587 5.53
-------- ------ ------- ------ ------- ------
Total
mort-
gage
loans..... $100,010 $89,197 $79,883
======== ======= =======
Other Loans:
Loans
secured
by
deposit
accounts.. $ 721 .67 $ 753 .79 $ 726 .88
Home
equity
and
second
mortgage
loans..... 745 .69 689 .72 493 .59
Auto-
mobile
loans...... 4,862 4.51 3,196 3.35 1,252 1.51
Other...... 4,083 3.78 5,157 5.40 2,616 3.16
Total
other
loans..... 10,411 9,795 5,087
-------- ------ ------- ------ ------- ------
Total
loans..... $110,421 102.44 $98,992 103.62 $84,970 102.51
======== ------ ======= ------ ======= ------
Less:
Undis-
bursed
loans
in
process... $ 1,838 (1.70) $ 2,610 (2.73) $ 1,260 (1.52)
Unearned
dis-
counts
on
loans
origin-
ated
and
purch-
ased...... -- -- -- -- 4 --
Deferred
gain
on
sale
of
other
real
estate.... 13 (.01) 131 (.14) 172 (.21)
Unamortized
loan
origin-
ation
fees,
net or
direct
costs..... 80 (.07) 89 (.09) 75 (.09)
Allowance
for
loan
losses.... 707 (.66) 627 (.66) 572 (.69)
-------- ----- ------- ----- ------- -----
Total
loans
receiv-
able,
net....... $107,783 100.00% $95,535 100.00% $82,887 100.00%
======== ====== ======= ====== ======= ======
Type of Security:
- ----------------
Residential
real estate
One- to
four-
family... $ 78,359 72.70% $69,368 72.61% $62,626 75.56%
Other
dwell-
ings..... 583 .54 2,663 2.79 3,616 4.36
Commercial
real
estate..... 20,246 18.78 15,612 16.34 12,666 15.28
Land........ 822 .76 1,554 1.63 975 1.17
Savings
accounts... 721 .67 753 .79 726 .88
Consumer
and other.. 9,690 8.99 9,042 9.46 4,361 5.26
-------- ----- ------- ----- ------- -----
Total
loans...... $110,421 102.44 $98,992 103.62 $84,970 102.51
======== ======= =======
(table continued on following page)
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At June 30,
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
Less:
Due to
borro-
wers on
constr-
uction
loans.... $ 1,838 (1.70) $ 2,610 (2.73) $ 1,260 (1.52)
Unamort-
ized
loan
fees..... 80 ( .07) 89 (.09) 75 (.09)
Unearned
discount
on loans
purch-
ased..... -- -- -- 4 --
Deferred
gain on
sale of
other
real
estate... 13 ( .01) 131 (.14) 172 (.21)
Allowance
for poss-
ible loan
losses 707 ( .66) 627 (.66) 572 (.69)
-------- ------ ------- ------ ------- ------
Total
loans
receiv-
able,
net....... $107,783 100.00% $95,535 100.00% $82,887 100.00%
======== ====== ======= ====== ======= ======
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, 1997, approximately $78.4
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 federally 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, 1997, the Savings Bank had
$10.7 million of long-term, fixed-rate mortgage loans in its portfolio or 9.9%
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, 1997, 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
375 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, 1997, the
initial interest rate being offered on the Savings Bank's ARMs ranged from 7.5%
to 8.5% 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
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Savings Bank enforces these due-on-sale clauses to the extent permitted by law.
Thus, average loan maturity, which the Savings Bank estimates is between seven
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 2,960 real estate mortgage loans have prepaid as of June 30, 1997 with
an average estimated life of approximately 8.5 years. On all loans originated
by the Savings Bank, a total of 1,668 estate mortgage loans have prepaid during
the past three fiscal years and these loans had an average estimated life of
8.5 to 9.0 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 to 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, 1997, the maximum loan-to-value ratio on loans to
borrowers was 90%.
At June 30, 1997, the Savings Bank had $3.8 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.
Multi-Family Residential Loans. At June 30, 1997, approximately
$583,000, or .54% 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 $21.1 million or 19.5% of the loan
portfolio at June 30, 1997. Commercial real estate loans amounted to
approximately $20.2 million or 18.8% of the loan portfolio at that date, as
compared to $15.6 million or 16.3% of the loan portfolio at June 30, 1996. 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 1997, 1996 and 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 $822,000 or .76% 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, 1997,
commercial real estate loans outstanding ranged in principal balance from
approximately $25,000 to $1.9 million, with an average balance of approximately
$212,000. At June 30, 1997, the Savings Bank's largest commercial real estate
loan was a $1.9 million loan secured by a forge and dye operation located in
Doniphan, 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 ten loans in excess of $500,000
(that amounted to $9.0 million in the aggregate at June 30, 1997). At June 30,
1997, the Savings Bank also had two other commercial loans that were
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each in excess of $500,000 that had been originated prior to the Supervisory
Agreement and at June 30, 1997 totaled approximately $2.5 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, 1997, the Savings Bank's consumer loans
totaled approximately $10.4 million, or 9.6% 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, 1997, such loans amounted to $1.2 million. 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. Of these loans, $155,000
are past due over 90 days and are on nonaccrual. There is a total of $64,000
past due 61 to 90 days and $165,000 past due 30 to 60 days. Management has
assigned an officer to these loans in an effort to reduce the level of past due
loans. In June 1997, the Savings Bank charged to the dealer's reserve account
$146,000 for mobile homes that had been repossessed by the dealer. Also in June
1997, the Savings Bank charged off $126,000 in loans that were severely past
due. The dealer is cooperating with the Savings Bank in bringing the mobile
homes to his lot, refurbishing them and then reselling them. The mobile homes
that were charged to the dealer's reserve account will be credited back
whenever he resells them. Reserves for losses maintained by the dealers at June
30, 1997 totaled $63,000.
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
8
<PAGE>
<PAGE>
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 "-- Non-Performing Assets and Delinquencies." At June 30, 1997,
$179,000 of the Savings Bank's consumer loan portfolio was 90 days or more past
due.
9
<PAGE>
<PAGE>
<TABLE>
Loan Maturity and Repricing
The following table sets forth certain information at June 30, 1997 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 After 5 Years Beyond
One Year Through 3 Years Through 5 Years Through 10 Years 10 Years Total
-------- --------------- --------------- ---------------- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate
mortgage...... $66,899 $1,656 $2,527 $5,388 $1,425 $77,895
Commercial
real estate... 17,108 578 290 127 190 18,293
Construction
(net of
undisbursed
proceeds).... 3,822 -- -- -- -- 3,822
Consumer....... 2,289 2,388 2,622 706 23 8,028
Commercial..... 1,935 275 93 80 -- 2,383
------- ------- -------- -------- -------- --------
Total loans.. $92,053 $4,897 $5,532 $6,301 $1,638 $110,421
======= ====== ====== ====== ====== ========
</TABLE>
<TABLE>
The following table sets forth the dollar amount of all loans due one year after June 30, 1997, which
have fixed interest rates and which do not reprice within one year.
Fixed
Rates
-------
(In thousands)
<S> <C>
Real estate mortgage.......... $10,676
Commercial real estate........ 1,952
Construction.................. --
Consumer...................... 8,028
Commercial.................... 1,748
-------
Total.................... $22,404
=======
10
</TABLE>
<PAGE>
<PAGE>
<TABLE>
The following table sets forth scheduled contractual amortization of loans at June 30, 1997 and June
30, 1996, 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, 1997 At June 30, 1996
-------------------------------------- ---------------------------------------
Commercial Commercial
Mortgage Consumer Business Total Mortgage Consumer Business Total
Loans Loans Loans Loans Loans Loans Loans Loans
------- ------- ------- ----- -------- -------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts
due:
Within one
year....... $ 87,829 $ 2,289 $ 1,935 $ 92,053 $74,009 $1,881 $2,508 $78,398
After
one year
through
three
years...... 2,234 2,388 275 4,897 3,430 1,785 329 5,544
After three
years
through
five years. 2,817 2,622 93 5,532 2,103 1,733 308 4,144
After five
years...... 7,130 729 80 7,939 9,655 907 344 10,906
-------- ------- ------- -------- ------- ------ ------ -------
Total.... $100,010 $ 8,028 $ 2,383 $110,421 $89,197 $6,306 $3,489 $98,992
======== ======= ======= ======== ======= ====== ====== =======
Interest rate
terms on
amounts due
after one
year:
Fixed...... $14,534 $8,028 $1,748 $24,310 $18,889 $6,306 $1,206 $26,401
Adjustable. 85,476 -- 635 86,111 70,308 -- 2,283 72,591
11
</TABLE>
<PAGE>
<PAGE>
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 residential 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
$100,000. The Savings Bank's President, Donald R. Crandell, or Senior Vice
President, Kent Nichols, may approve a loan of between $100,000 and $150,000
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 $2.1 million at June 30, 1997 including $1.8
million of commitments for construction loans. 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.
12
<PAGE>
<PAGE>
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
Year Ended June 30,
---------------------------
1997 1996 1995
------ ---- ------
(In thousands)
Total mortgage loans at beginning
of period................................. $ 89,197 $79,883 $72,400
-------- ------- -------
Loans originated:
One- to four- family residential........... 21,993 16,032 13,489
Multi-family residential and
commercial real estate.................... 5,618 5,781 2,671
Construction loans......................... 2,086 3,242 4,113
-------- ------- -------
Total loans originated................... 29,697 25,055 20,273
Loans purchased:
Total loans purchased..................... -- -- --
Loans sold:
Total loans sold........................ -- -- --
Mortgage loan principal repayments.......... (18,763) (15,620) (12,770)
Foreclosures................................ (121) (121) (20)
-------- ------- -------
Net loan activity........................... 10,813 9,314 7,483
-------- ------- -------
Total mortgage loans
at end of period........................... $100,010 $89,197 $79,883
======== ======= =======
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 $80,000 of net deferred loan
fees at June 30, 1997.
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.
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.
13
<PAGE>
<PAGE>
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 $26,000, $25,000 and $32,000 on non-accrual loans during the
years ended June 30, 1997, 1996 and 1995, 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, 1997, 1996 and 1995.
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,
-----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on
a nonaccrual basis:
Real estate -
Residential............ $ 922 $480 $ 700 $ 641 $ 907
Commercial............. 279 -- 14 47 413
Consumer................ 179 45 14 8 9
Commercial.............. -- 21 9 -- --
------ ---- ------ ------ ------
Total............... $1,380 $546 $ 737 $ 696 $1,329
====== ==== ====== ====== ======
Total of nonaccrual and
90 days past due loans. $1,380 $546 $ 737 $ 696 $1,329
====== ==== ====== ====== ======
Real estate owned......... 55 60 $ 727 $ 778 $1,128
Other non-performing
assets................... -- -- -- -- --
------ ---- ------ ------ ------
Total nonperforming
assets................. $1,435 $606 $1,464 $1,474 $2,457
====== ==== ====== ====== ======
Total loans delinquent
90 days or more to
net loans............... 1.28% .57% .89% .93% 1.85%
Total loans delinquent
90 days or more to
total assets............ .86 .34 .50 .49 .99
Total nonperforming
assets to total assets.. .89 .38 .99 1.04 1.82
Nonaccrual residential real estate loans consist of 53 loans in the
Savings Bank's market area that range in balances from $3,000 to $78,000. On a
majority of these loans the borrowers are communicating and cooperating with
the Savings Bank and are making payments, but are unable to bring their loans
to a current status. Management anticipates no significant losses on these
loans. See "-- One- to Four-Family Loans."
Nonaccrual consumer loans have increased principally due to an increase in
nonperforming mobile home loans of $155,000. These loans are made by a local
dealer and underwritten by the Savings Bank. Management has assigned one
officer to these loans in an effort to reduce the level of nonperforming loans.
Reserves for losses
14
<PAGE>
<PAGE>
maintained by the dealer at June 30, 1997 totaled $63,000. Management believes
that all losses on these loans have been recognized as of June 30, 1997, and
anticipates no significant losses on these loans in the future. See "--
Consumer and Other Loans."
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: 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, 1997 and 1996 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,
----------------------
1997 1996
---- ----
(In thousands)
Loss............................. $ -- $ --
Doubtful......................... -- --
Substandard assets............... 1,377 560
Special mention.................. -- --
------ -----
Total classified assets....... $1,377 $ 560
====== =====
General loss allowances.......... $ 707 $ 627
Specific loss allowances......... 335 335
------ -----
Total allowances.............. $1,042 $ 962
====== =====
Charge-offs...................... $(162) $ (5)
===== =====
Substandard assets have increased principally due to an increase in
nonperforming mobile home loans and residential real estate loans. For a
discussion of the increase in these loans, see "-- Consumer and Other Loans"
and "Non-Performing Assets and Delinquencies."
The following is a discussion of the Savings Bank's substandard loans
of special concern:
At June 30, 1997 the Savings Bank had an aggregate of $277,000 of loans
to a borrower that were secured by commercial property. As of that date, these
loans were 90 to 120 days past due and were on nonaccrual status. Management
believes that the value of the property is sufficient, and no loss is
anticipated.
15
<PAGE>
<PAGE>
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, 1997, the
Savings Bank's real estate owned was $55,000 and included 17 properties.
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 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, 1997, 1996 and 1995 of $706,000, $627,000 and $572,000,
respectively. Management believes that loan loss reserves were adequate at June
30, 1997. 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,
-----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
Allowance at beginning
of period................ $627 $572 $477 $261 $274
Provision for loan losses. 241 60 95 230 26
Recoveries................ -- -- -- -- --
Charge offs:
Residential real estate.. -- -- -- 14 24
Consumer................. 162 5 -- -- 15
---- ---- ---- ---- ----
Total charge offs...... 162 5 -- 14 39
---- ---- ---- ---- ----
Net charge offs........ 162 5 -- 14 39
---- ---- ---- ---- ----
Balance at end of
period............... $706 $627 $572 $477 $261
==== ==== ==== ==== ====
Ratio of allowance to
total loans outstanding
at the end of the period. .64% .63% .67% .62% .36%
Ratio of net charge offs
to average loans out-
standing during the
period................... .16% .01% -- .02% .05%
16
<PAGE>
<PAGE>
<TABLE>
The following table sets forth the breakdown of the allowance for loan losses by loan category for the
periods indicated.
At June 30,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent
of Loans of Loans of Loans Percent Percent
in Each in Each in Each of Loans of Loans
Category Category Category in Each in Each
to to to Category Category
Total Total Total Total Total
Gross Gross Gross Gross Gross
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
mortgage........... $647 71.38% $562 72.77% $562 77.96% $467 80.23% $251 82.49%
Consumer............ 59 9.56 65 9.89 10 5.99 10 5.90 10 4.64
Unallocated......... -- -- -- -- -- -- -- -- -- --
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
Total allowance
for loan losses.. $706 $627 $572 $ 477 $261
==== ==== ==== ===== ====
17
</TABLE>
<PAGE>
<PAGE>
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 -- Federal Regulation of Savings Banks -- 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" 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, 1997, the Savings Bank's regulatory
liquidity was 9.9% 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 act 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. At June 30, 1997, the Savings Bank's securities investment
portfolio totaled $19.6 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, 1997, its
investments included bonds in Associates Corp., Sears Roebuck & Co., Ford Motor
Company, Salomon, Inc., Bell Atlantic, and Phillip Morris. At June 30, 1997,
such bonds ranged in maturity from 1997 to 1998 at interest rates of 5.65% to
6.80%.
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, 1997, the Savings Bank had $6.5 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, 1997, investments and mortgage-backed and related
securities totaling $39.5 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.
18
<PAGE>
<PAGE>
<TABLE>
Investment Securities Analysis
The following table sets forth the Company'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,
------------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ ------------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value(1) Portfolio Value(1) Portfolio Value(1) Portfolio
-------- ---------- -------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government treasury
and obligations of U.S.
government agencies.......$10,046 51.15% $ 8,023 37.64% $13,737 40.82%
Obligations of states and
political subdivisions.... 6,528 33.23 8,856 41.55 13,562 40.30
Corporate securities....... 1,548 7.88 2,915 13.68 4,860 14.45
Capital Stock - Federal
Home Loan Bank of Des
Moines.................... 1,520 7.74 1,520 7.13 1,490 4.43
------- ------ ------- ------ ------- ------
Total......................$19,642 100.00% $21,314 100.00% $33,649 100.00%
======= ======= ======= ======= ======= =======
- ----------------------
(1) The market value of the Company's investment securities portfolio amounted to $19.8 million, $21.3
million and $33.9 million at June 30, 1997, 1996 and 1995, respectively.
19
</TABLE>
<PAGE>
<PAGE>
The following table sets forth the maturities and weighted average
yields of the debt securities in the Company's investment securities portfolio
(including securities classified held to maturity and securities classified as
available for sale) at June 30, 1997.
Securities Held to Maturity
June 30, 1997
----------------------------------
Estimated Weighted
Book Market Average
Value Value Yield
------- ------- -----
(Dollars in Thousands)
U.S. government treasury and
obligations of U.S.
government agencies:
Due within 1 year $ -- $ -- --
Due after 1 year but within 5 years 600 577 6.00%
Due after 5 years but within 10 years -- -- --
Due after 10 years -- -- --
------- ------- ----
600 577 6.00
------- ------- ----
Obligations of states and political
subdivisions:
Due within 1 year -- -- --
Due after 1 year but within 5 years 1,795 1,841 5.37
Due after 5 years but within 10 years 1,444 1,496 5.33
Due after 10 years 811 858 5.55
------- ------- ----
4,050 4,195 5.39
------- ------- ----
Total Held to Maturity $ 4,650 $ 4,772 5.47%
======= ======= ====
Securities Available for Sale
June 30, 1997
----------------------------------
Book/ Weighted
Amortized Estimated Average
Cost Market Value Yield
---- ------------ -----
(Dollars in Thousands)
U.S. government treasury and
obligations of U.S.
government agencies:
Due within 1 year $ 999 $ 996 5.12%
Due after 1 year but within 5 years 2,996 2,997 6.98
Due after 5 years but within 10 years 4,578 4,501 6.99
Due after 10 years 985 953 6.63
------- ------- ----
9,558 9,447 6.75
------- ------- ----
Obligations of states and political
subdivisions:
Due within 1 year 55 55 5.84
Due after 1 year but within 5 years 520 520 4.48
Due after 5 years but within 10 years 530 534 5.45
Due after 10 years 1,278 1,368 5.25
-------- -------- ----
2,383 2,477 5.14
-------- -------- ----
Corporate Securities
Due within 1 year 1,049 1,051 6.54
Due after 1 year but within 5 years 501 497 5.45
Due after 5 years but within 10 years -- -- --
Due after 10 years -- -- --
-------- -------- ----
1,550 1,548 6.19
-------- -------- ----
Total Available for Sale $13,491 $13,472 6.40%
======= ======= ====
20
<PAGE>
<PAGE>
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, 1997, the Savings Bank had $26.2 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, 1997, the
Savings Bank had CMOs with both a carrying value and an estimated market value
of $3.1 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, 1997
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,
1997
----
(In thousands)
Amounts due:
Within 1 year.................. $ 53
After 1 year through 3 years... 1,254
After 3 year through 5 years... 2,251
After 5 years.................. 22,652
-------
Total........................ $26,210
=======
The following table sets forth the dollar amount of all mortgage-backed
and related securities due one year after June 30, 1997, which have fixed
interest rates and have floating or adjustable rates.
At June 30,
1997
----
(In thousands)
Interest rate terms on
amounts due after 1 year:
Fixed.......................... $10,477
Adjustable..................... 15,680
-------
Total......................... $26,157
=======
21
<PAGE>
<PAGE>
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,
----------------------------------------------------------
1997 1996 1995
----------------------------------------------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
-------- ------ -------- ------ -------- ------
(In thousands)
FHLMC
Certi-
ficates... $ 4,986 $ 4,989 $ 8,614 $ 8,616 $ 8,695 $ 8,858
GNMA
Certi-
ficates... 11,770 11,770 10,644 10,644 2,377 2,463
FNMA
Certi-
ficates... 6,391 6,391 12,323 12,325 6,068 6,077
Collat-
eralized
mortgage
obliga-
tions..... 3,089 3,089 3,456 3,456 7,433 7,433
------- ------- ------- ------- ------- -------
Total.... $26,236 $26,239 $35,037 $35,041 $24,573 $24,831
======= ======= ======= ======= ======= =======
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 decreasing slightly, net of interest credited,
despite withdrawals as depositors sought increased yields on alternative
investments in the marketplace.
22
<PAGE>
<PAGE>
<TABLE>
The following table sets forth information concerning the Savings Bank's time deposits and other
interest-bearing deposits at June 30, 1997.
Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- ---- ---- -------- ------ ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
2.55% None Now Accounts $ 100 $ 8,957 7.55%
2.75 None Savings Accounts 50 7,640 6.44
2.67 None Money Market Deposit Accounts 1,000 8,301 6.99
Certificate of Deposit
----------------------
5.25 90-day Fixed-term/Fixed-rate 500 100 .08
4.13 91-day Fixed-term/Fixed-rate 500 683 .58
5.19 5 month Fixed-term/Fixed-rate 500 7,888 6.64
4.95 6 month Fixed-term/Fixed-rate 500 10,988 9.26
4.94 6 month IRA Fixed-term/Fixed-rate 500 27 .02
5.23 9 month Fixed-term/Fixed-rate 500 26,912 22.67
5.75 9 month IRA Fixed-term/Fixed-rate 500 8,557 7.21
5.15 11 month Fixed-term/Fixed-rate 500 3,540 2.98
5.27 12 month Fixed-term/Fixed-rate 500 15,983 13.46
4.75 12 month IRA Fixed-term/Fixed-rate 500 220 .19
5.01 15 month Fixed-term/Fixed-rate 500 1,899 1.60
4.51 24 month Fixed-term/Fixed-rate 500 4,023 3.39
5.00 24 month IRA Fixed-term/Fixed-rate 500 249 .21
4.73 36 month Fixed-term/Fixed-rate 500 2,788 2.35
5.25 36 month IRA Fixed-term/Fixed-rate 500 5,135 4.33
5.02 48 month Fixed-term/Fixed-rate 500 464 .39
5.81 60 month Fixed-term/Fixed-rate 500 4,270 3.60
7.80 72 month Fixed-term/Fixed-rate 500 14 .01
8.08 96 month Fixed-term/Fixed-rate 500 67 .05
-------- ------
$118,705 100.00%
======== ======
</TABLE>
<TABLE>
The following table indicates the amount of the Savings Bank's jumbo certificates of deposit by time
remaining until maturity as of June 30, 1997. Jumbo certificates of deposit require minimum deposits of
$100,000 and rates paid on such accounts are negotiable.
Jumbo
Certificates
Maturity Period of Deposits
- --------------- ------------
(In thousands)
<S> <C>
Three months or less............ $ 1,914
Over three through six months... 9,345
Over six through twelve months.. 8,117
Over 12 months................. 517
-------
Total...................... $19,893
=======
23
</TABLE>
<PAGE>
<PAGE>
<TABLE>
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,
--------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
2.00 - 2.99%.............. $ -- $ -- $ 276
3.00 - 3.99%.............. -- -- 2,584
4.00 - 4.99%.............. 21,004 24,741 33,389
5.00 - 5.99%.............. 72,566 66,530 15,438
6.00 - 6.99%.............. 123 5,139 41,241
7.00 - 7.99%.............. 28 1,236 1,545
8.00 - 8.99%.............. 68 63 267
9.00 - 9.99%.............. 18 17 15
------- ------- -------
Total.................. $93,807 $97,726 $94,755
======= ======= =======
</TABLE>
<TABLE>
The following table sets forth the amount and maturities of time deposits at June 30, 1997.
Amount Due
-----------------------------------------------------------------
Percent
of Total
Less Than 1-2 2-3 3-4 After Certificate
One Year Years Years Years 4 Years Total Accounts
-------- ----- ----- ----- ------- ----- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
4.00 - 4.99%............ $17,001 $2,972 $1,031 $ -- $ -- $21,004 22.39%
5.00 - 5.99%............ 68,111 2,919 503 460 573 72,566 77.36
6.00 - 6.99%............ 10 -- 113 -- -- 123 .13
7.00 - 7.99%............ 9 5 5 9 -- 28 .03
8.00 - 8.99%............ -- -- -- -- 68 68 .07
9.00 - 9.99%............ 18 -- -- -- -- 18 .02
------- ------ ------ ---- ---- ------- ------
Total................ $85,149 $5,896 $1,652 $469 $641 $93,807 100.00%
======= ====== ====== ==== ==== ======= ======
24
</TABLE>
<PAGE>
<PAGE>
<TABLE>
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,
-----------------------------------------------------------------------------
1997 1996 1995
---------------------------- ---------------------------- ---------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------ ----- ---------- ------ ----- ---------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing...... $ 1,170 .99% $ 399 $ 771 .64% $ (235) $ 1,006 .85%
NOW checking............. 7,787 6.56 521 7,266 6.05 1,031 6,235 5.28
Regular savings accounts. 7,640 6.44 659 6,981 5.81 (26) 7,007 5.93
Money market deposit..... 8,301 6.99 906 7,395 6.16 (1,754) 9,149 7.74
Fixed-rate certificates
which mature (1):
Within one year........ 85,149 71.73 2,584 82,565 68.72 5,750 76,815 65.01
Within three years..... 7,548 6.36 (6,834) 14,382 11.97 (1,397) 15,779 13.36
After three years...... 1,110 .93 332 778 .65 (1,383) 2,161 1.83
Less: Premium on
deposits
acquired............ -- -- -- -- -- -- -- --
-------- ------ ------- -------- ------ ------- -------- ------
Total............... $118,705 100.00% $(1,433) $120,138 100.00% $ 1,986 $118,152 100.00%
======== ====== ======= ======== ====== ======= ======== ======
- ----------
(1) At June 30, 1997, 1996 and 1995 jumbo certificates (in thousands) amounted to $19,893, $18,298 and
$11,319, respectively, and IRAs (in thousands) equalled $14,188, $13,841 and $13,710 at those dates,
respectively.
25
</TABLE>
<PAGE>
<PAGE>
The following table sets forth the savings activities of the Savings
Bank for the periods indicated.
Year Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Beginning Balance..........$120,138 $118,152 $114,127
-------- -------- --------
Net increase (decrease)
before interest credited.. (4,977) (2,059) 577
Interest credited.......... 3,544 4,045 3,448
-------- -------- --------
Net increase (decrease)
in savings deposits...... (1,433) 1,986 4,025
-------- -------- --------
Ending balance.............$118,705 $120,138 $118,152
======== ======== ========
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, 1997, the Savings Bank had $13.5 million borrowed for
short-term purposes, due July 31, 1997. 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, 1997,
the Savings Bank also had $266,000 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.
26
<PAGE>
<PAGE>
The following table sets forth certain information regarding borrowings
by the Savings Bank at the end of and during the periods indicated:
Year Ended June 30,
---------------------
1997 1996
-------- -------
(Dollars in thousands)
Maximum amount of borrowings outstanding
at any month end:
FHLB advances................................ $14,544 $11,559
Approximate average short-term borrowings
outstanding with respect to:
FHLB advances................................ 13,067 7,645
Other long term borrowings................... -- --
Approximate weighted average rate paid on:(1)
FHLB advances................................ 5.79% 5.78%
- ---------------
(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, 1997 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 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.
27
<PAGE>
<PAGE>
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 Banks
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, 1997.
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
28
<PAGE>
<PAGE>
and the SAIF. As insurer of deposits, the FDIC has examination, supervisory
and enforcement authority over all savings associations.
The Savings Bank's deposit accounts are insured by the FDIC under the
SAIF to the maximum extent permitted by law. The Savings Bank 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" or "undercapitalized"), which are defined in the same
manner as the regulations establishing the prompt corrective action system
under the FDIA as discussed below. The matrix so created results in nine
assessment risk classifications, with rates that until September 30, 1996
ranged from 0.23% for well capitalized, financially sound institutions with
only a few minor weaknesses to 0.31% for undercapitalized institutions that
pose a substantial risk of loss to the SAIF unless effective corrective action
is taken. The Savings Bank's assessments expensed for the year ended June 30,
1997 equaled $943,000 (including the FDIC SAIF assessment of $779,000).
Pursuant to the Deposit Insurance Fund ("DIF") Act, which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio. In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Savings Bank, paying 0%.
This assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of 0.065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately .013% until the earlier of December
31, 1999 or the date upon which the last savings association ceases to exist,
after which time the assessment will be the same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Savings Bank.
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
29
<PAGE>
<PAGE>
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, 1997, 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, within one year of the date
on which a savings
30
<PAGE>
<PAGE>
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, 1997, the qualified thrift investments of the Savings
Bank were approximately 80.8% 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 Banks -- 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
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such as cumulative perpetual 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.
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The following table presents the Savings Bank's capital levels as of
June 30, 1997.
At June 30, 1997
------------------------
Percent of
Amount Assets
------ ----------
(Dollars in thousands)
Tangible capital.....................$20,816 13.35%
Minimum required
tangible capital.................... 2,340 1.50
------- -----
Excess...............................$18,476 11.85%
======= =====
Core capital.........................$20,816 13.35%
Minimum required core
capital............................. 4,680 4.00
------- -----
Excess...............................$16,136 9.35%
======= =====
Risk-based capital...................$21,253 25.62%
Minimum risk-based
capital requirement(1).............. 6,722 5.00
-------- ------
Excess...............................$14,531 20.62%
======= =====
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
certain financial instruments and bullion. The OTS by regulation has amended
the loans
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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, 1997, the Savings
Bank's limit on loans to one borrower was $3.2 million. At June 30, 1997, the
Savings Bank's largest aggregate amount of loans to one borrower was $2.3
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
approval, from acquiring more than 5% of the voting stock of any
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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 Banks -- 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. Historically, savings institutions such as the
Savings Bank which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Savings Bank's
deductions with respect to "qualifying real property loans," which are
generally loans secured by certain interest in real property, were 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 non-qualifying reserve. Due to the Savings Bank's loss experience, the
Savings Bank generally recognized a bad debt deduction equal to 8% of taxable
income.
In August 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection Act
of 1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base
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year (last taxable year beginning before January 1, 1988). The Savings Bank has
previously recorded a deferred tax liability equal to the bad debt recapture
and as such the new rules will have no effect on the net income or federal
income tax expense. For taxable years beginning after December 31, 1995, the
Savings Bank's bad debt deduction will be determined under the experience
method using a formula based on actual bad debt experience over a period of
years or, if the Savings Bank is a "large" association (assets in excess of
$500 million) on the basis of net charge-offs during the taxable year. The new
rules allow an institution to suspend bad debt reserve recapture for the 1996
and 1997 tax years if the institution's lending activity for those years is
equal to or greater than the institutions average mortgage lending activity for
the six taxable years preceding 1996 adjusted for inflation. For this purpose,
only home purchase or home improvement loans are included and the institution
can elect to have the tax years with the highest and lowest lending activity
removed from the average calculation. If an institution is permitted to
postpone the reserve recapture, it must begin its six year recapture no later
than the 1998 tax year. The unrecaptured base year reserves will not be subject
to recapture as long as the institution continues to carry on the business of
banking. In addition, the balance of the pre-1988 bad debt reserves continue to
be subject to provisions of present law referred to below that require
recapture in the case of certain excess distributions to shareholders.
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 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
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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 carry forwards, 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.
Personnel
As of June 30, 1997, the Company had 52 full-time employees and eight
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, 1997.
Building Net
Book Value Land Building
Year as of June Owned/ Owned/
Location Opened 30, 1997 Leased Leased
- -------- ------ -------------- ------ --------
(Dollars in thousands)
Main Office
- -----------
531 Vine Street
Poplar Bluff, Missouri 1966 $484 Owned Owned
Branch Offices
- --------------
Highway 60
Van Buren, Missouri 1982 145 Owned Owned
1330 Highway 67
Poplar Bluff, Missouri 1976 -- Leased(1) Owned
(table continued on following page)
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Building Net
Book Value Land Building
Year as of June Owned/ Owned/
Location Opened 30, 1997 Leased Leased
- -------- ------ -------------- ------ ------
Business 60 West
Dexter, Missouri 1979 $186 Owned Owned
100 South Madison
Malden, Missouri 1974 -- Leased(2) Leased
308 First Street
Kennett, Missouri 1982 97 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 is month-to-month.
(4) Lease is month-to-month.
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, 1997.
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.
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Item 7. Financial Statements
- -----------------------------
Independent Auditors Report*
(a) Consolidated Statements of Financial Condition as of June 30, 1997
and 1996*
(b) Consolidated Statements of Income for the Years Ended June
30, 1997, 1996 and 1995*
(c) Consolidated Statements of Stockholders' Equity For the Years Ended
June 30, 1997, 1996 and 1995*
(d) Consolidated Statements of Cash Flows For the Years Ended June 30,
1997, 1996 and 1995*
(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.
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 1997 Position
- ---- ------- -------------------------------
Company Savings Bank
-------------------------------
Robert A. Seifert 76 Chairman of Director
the Board
Donald R. Crandell 63 President President
and Chief and Chief
Executive Executive
Officer Officer
Leonard W. Ehlers 78 Director Chairman of
the Board
Samuel H. Smith 59 Secretary/ Director
Treasurer
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In addition to the above, the Savings Bank's executive officers group
includes:
Age at
June 30,
Name 1997 Position
- ---- ------- --------
James W. Tatum 71 Vice Chairman
Wilma F. Case 58 Senior Vice President and Chief
Operations Officer
Kent Nichols 43 Senior Vice President and Chairman
Loan Department
Wilma J. Pratte 62 Secretary
Robert Stanley Jones 45 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.
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 28 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.
40
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<PAGE>
Kent Nichols has been affiliated with the Savings Bank for 14 years,
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 34 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.
(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***
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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***
(11) Statement Regarding Computation of Per Share Earnings
(13) 1997 Annual Report to Stockholders
(21) Subsidiaries of the Registrant
(23) Consent of Auditors
(27) Financial Data Schedule
(b) Report on Form 8-K
No Forms 8-K were filed during the quarter ended June 30,
1997.
- ---------------------
* 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.
42
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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 24, 1997 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 24, 1997
-------------------------------------------
Donald R. Crandell
President and Chief Executive Officer
(Principal Executive and Financial Officer)
By: /s/ Robert A. Seifert September 24, 1997
-------------------------------------------
Robert A. Seifert
President and Director
(Principal Accounting Officer)
By: /s/ Leonard W. Ehlers September 24, 1997
-------------------------------------------
Leonard W. Ehlers
Director
By: /s/ Thadis R. Seifert September 24, 1997
-------------------------------------------
Thadis R. Seifert
Director
By: /s/ Samuel H. Smith September 24, 1997
-------------------------------------------
Samuel H. Smith
Director
By: /s/ James W. Tatum September 24, 1997
--------------------------------------------
James W. Tatum
Director
<PAGE>
<PAGE>
Exhibit 11
Statement Regarding Computation of Per Share Earnings
<PAGE>
<PAGE>
Exhibit 11
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Year Ended June 30,
1997 1996 1995
-------- -------- -------
Primary:
Average shares outstanding...... 1,560,534 1,597,163 1,680,773
Net effect of dilutive stock
options -- based on the
treasury stock method using
average market price........... 38,326 41,059 38,757
--------- --------- ---------
Totals.................... 1,598,860 1,638,222 1,719,530
========= ========= =========
Net income........................$1,054,687 1,466,522 1,247,457
========= ========= =========
Per share amount..................$ .66 $ .90 .73
========= ========= =========
Fully diluted:
Average shares outstanding........ 1,560,534 1,597,163 1,680,773
Net effect of dilutive stock
options -- based on the
treasury stock method using
quarter end market price or
average market price which-
ever is greater.................. 48,444 41,886 40,592
--------- --------- ---------
Totals..................... 1,608,978 1,639,049 1,721,365
========= ========= =========
Net income........................$1,054,687 1,466,522 1,247,457
========= ========= =========
Per share amount..................$ .66 .89 .72
========= ========= =========
<PAGE>
<PAGE>
Exhibit 13
1997 Annual Report to Stockholders
<PAGE>
<PAGE>
[Logo] SOUTHERN MISSOURI BANCORP, INC.
1997 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
Letter to Stockholders 1
Business of the Company and the Savings Bank 2
Common Stock 2
Selected Consolidated Financial Condition,
Operating and Other Data 3-4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-14
Independent Auditors' Report 15
Consolidated Financial Statements:
Consolidated Statements of Financial Condition
as of June 30, 1997 and 1996 16
Consolidated Statements of Income for the
years ended June 30, 1997, 1996 and 1995 17
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1997, 1996 and 1995 18
Consolidated Statements of Cash Flows for the
years ended June 30, 1997, 1996 and 1995 19-20
Notes to Consolidated Financial Statements 21-46
Directors and Officers 47
Corporate Information 48
<PAGE>
<PAGE>
[Letterhead of Southern Missouri Bancorp, Inc.]
September 1, 1997
A MESSAGE TO OUR STOCKHOLDERS:
On behalf of the Board of Directors, Officers and Employees of Southern
Missouri Bancorp, Inc. and its wholly owned subsidiary Southern Missouri
Savings Bank, we are pleased to submit our Annual Report.
During the fiscal year ending June 30, 1997, the Company's stock traded as high
as $18.00 per share and as low as $13.50 per share. Our return on average
assets was 0.65%, with a return on average equity of 4.09%. Net income for the
year ended June 30, 1997 was $1.05 million with earnings per share of $0.66.
These numbers reflect an added expense for the fiscal year of $490,000 net of
income tax, which was a one-time industry-wide special assessment by the
Federal Deposit Insurance Corporation to recapitalize the Savings Association
Insurance Fund. Without this special assessment, earnings for the fiscal year
would have been approximately $1.55 million or $0.97 per share. The return on
average assets would have been .96%, with an estimated return on equity of
5.99%.
The total assets as of June 30, 1997 were $160.4 million as compared to $159.8
million as of June 30, 1996. Loan volume continues to be strong with a 12.8%
increase of outstanding loans in 1997.
The Company has continuously paid a quarterly dividend since becoming a public
company in 1994. The dividend has remained steady at $0.125 per share each
quarter.
The Board of Directors and Management remain firm in our pledge to continue to
be a community oriented financial institution providing affordable financial
services and products to the citizens of this area. All of us at Southern
Missouri Bancorp, Inc. appreciate your taking stock in our future and look
forward to a long lasting and profitable relationship.
Very truly yours,
/s/Donald R. Crandell
Donald R. Crandell
President and Chief Executive Officer
1
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BUSINESS OF THE COMPANY AND 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 the
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.
COMMON STOCK
The common stock of the Company is traded in the over-the-counter market and
quoted on the Nasdaq Stock Market 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, 1997, there were
approximately 438 stockholders of record. This does not reflect the number of
persons or entities who hold stock in nominee or "street name."
Fiscal 1997 High Low Dividend Paid
----------- ---- --- -------------
First Quarter $ 14.75 $ 13.50 $ .125
Second Quarter 15.00 14.00 .125
Third Quarter 17.25 14.25 .125
Fourth Quarter 18.00 15.50 .125
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
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.
2
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SELECTED CONSOLIDATED FINANCIAL CONDITION,
OPERATING AND OTHER DATA
At June 30,
----------------------------------------------------
(In thousands)
FINANCIAL CONDITION DATA: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total assets $160,393 $159,848 $148,323 $141,824 $134,818
Loans receivable, net 107,783 95,535 82,887 74,932 71,742
Mortgage-backed and
related securities 26,236 35,037 24,574 24,144 25,926
Cash, interest-bearing
deposits and
investment securities 21,638 24,459 35,421 37,540 33,463
Deposits 118,705 120,138 118,152 114,127 124,117
Borrowings 13,535 11,550 1,314 412 185
Stockholders' equity 26,400 26,227 27,047 25,793 9,207
Year Ending June 30,
----------------------------------------------------
(In thousands)
OPERATING DATA: 1997 1996 1995 1994 1993
- -------------- ---- ---- ---- ---- ----
Interest income $ 11,408 $ 11,010 $ 9,640 $ 9,219 $ 10,322
Interest expense 6,318 6,308 5,187 4,725 5,458
------ ------- ------- ------- -------
Net interest income 5,090 4,702 4,453 4,494 4,864
Provision for loan
losses 241 60 95 230 26
------ ------- ------- ------- -------
Net interest income
after provision for
loan losses 4,849 4,642 4,358 4,264 4,838
Noninterest income 618 639 455 571 554
Noninterest expense 3,972 3,161 3,112 2,731 2,328
------ ------- ------- ------- -------
Income before income
taxes and cumulative
effect of change in
accounting principle 1,495 2,120 1,701 2,104 3,064
Income tax expense 440 653 454 626 930
------ ------- ------- ------- -------
Income before
cumulative effect of
change in accounting
principle 1,055 1,467 1,247 1,478 2,134
Cumulative effect of
change in accounting
principle, income taxes - - - 279 -
------- ------- ------- ------- ------
Net income $ 1,055 $ 1,467 $ 1,247 $ 1,757 $ 2,134
======= ======= ======= ======= =======
3
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At June 30,
---------------------------------------------------
OTHER DATA: 1997 1996 1995 1994 1993
- ---------- ---- ---- ---- ---- ----
Number of:
Real estate loans 3,040 3,053 3,082 3,278 3,381
Deposit accounts 12,542 12,626 12,837 12,917 14,141
Full service offices 8 8 8 8 8
KEY OPERATING RATIOS: At or For the Year Ended June 30,
- -------------------- ----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Return on assets (net
income divided by
average assets) 0.65% 0.93% 0.86% 1.30% 1.59%
Return on average equity
(net income divided by
average equity) 4.09 5.48 4.68 13.34 26.48
Average equity to
average assets 16.01 17.05 18.30 9.73 6.00
Interest rate spread
(spread between
weighted average
rate on all
interest-earning
assets and all
interest-bearing
liabilities) 2.51 2.29 2.39 3.13 3.61
Net interest margin
(net interest
income as a
percentage of
average interest-
earning assets) 3.25 3.09 3.16 3.44 3.77
Noninterest expense
to average assets 2.46 2.01 2.14 2.02 1.73
Average interest-
earning assets to
interest-bearing
liabilities 118.32 119.42 121.09 108.59 103.91
Allowance for loan
losses to total
loans at end of
period .64 .63 .67 .62 .36
Allowance for loan
losses to
nonperforming loans 51.19 114.94 77.66 68.53 19.64
Net charge offs to
average out-
standing loans
during the period .16 .01 .00 .02 .05
Ratio of nonperforming
assets to total assets .89 .38 .99 1.04 1.82
Dividend payout ratio .65 .52 .47 N/A N/A
4
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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. 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.
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.
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 Savings Bank need additional
funds.
5
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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, 1997, was approximately 9.9%.
The Savings Bank has $85.1 million in certificates due within one year and
$24.9 million in other deposits without specific maturity at June 30, 1997.
Management estimates that most of the deposits will be retained or replaced by
new deposits.
Total assets increased slightly from $159.8 million at June 30, 1996 to $160.4
million at June 30, 1997. Cash flows from sales, maturities and prepayments of
securities available for sale, and advances from the FHLB of Des Moines were
used to originate loans, purchase securities available for sale and fund
deposits. The Savings Bank intends to borrow from the FHLB when the cost of
such funds is less than the cost of retail deposits. Accrued interest
receivable decreased due to the reduction of securities available for sale,
partially offset by an increase in interest receivable on loans. Premises and
equipment increased principally due to the remodeling of the main banking
facility, an automatic teller machine added to the Van Buren, Missouri branch,
and upgrading the electronic data processing equipment. Prepaid expenses and
other assets decreased principally due to a reduction of deferred income tax
benefits from unrealized losses on securities available for sale. Accrued
interest payable decreased due to a decrease in certificates of deposits and
lower interest rates. Additional paid-in capital and common stock acquired by
the Employee Stock Ownership Plan (ESOP) and Management Recognition Plan (MRP)
changed as a result of the recognition of shares committed to be released for
the ESOP and MRP. Unrealized loss on investment securities and mortgage-backed
and related securities available for sale, net of income tax changed from a
loss of $420,000 at June 30, 1996 to a net unrealized gain of $3,000 at June
30, 1997. The balance is expected to fluctuate in the future based on changes
in interest rates as well as the amount and maturities of securities and
mortgage-backed securities (MBSs) available for sale.
Commitments to originate mortgage loans are legally binding agreements to lend
to the Savings Bank's customers. Commitments at June 30, 1997 to originate
mortgage loans and fund loans in process and letters of credit were
approximately $4.0 million. Loan commitments normally expire in 180 days or
less.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEAR ENDED JUNE 30, 1997 AND
1996
Net Income. Net income for the year ended June 30, 1997 was $1.1 million or
$.66 per share compared with $1.5 million or $.90 per share for 1996. The
decrease was due to higher noninterest expense, in particular the SAIF special
assessment, slightly lower noninterest income, offset by higher net interest
income and lower income taxes.
6
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Net Interest Income. Net interest income increased by $388,000 from $4.7
million in 1996 to $5.1 million in 1997. The increase was due to a higher
interest rate spread (difference between weighted-average rate on all
interest-bearing assets and all interest-bearing liabilities) and
interest-earning assets increased by $4.5 million. The interest rate spread
increased from 2.29% in 1996 to 2.51% in 1997.
Interest Income. Interest income was $11.4 million in 1997 compared with $11.0
million for 1996. The weighted-average yield on interest-earning assets
increased slightly from 7.24% in 1996 to 7.28% for 1997. The increase in the
weighted-average rate was accompanied by an increase in average
interest-earning assets from $152.2 million in 1996 to $156.6 million in 1997.
Interest on loans receivable increased from $7.0 million in 1996 to $8.1
million in 1997 as a result of higher average loans for 1997. The
weighted-average rates on loans decreased slightly in 1997 as compared to 1996.
Interest on MBSs increased due to a higher average balance and a slightly
higher weighted-average rate. Interest on investment securities decreased due
to a lower average balance accompanied by a decrease in the average rate.
Interest on other interest-earning assets decreased as a result of a lower
average balance and lower rates earned on overnight funds. Components of
interest income vary from time to time based on the availability and interest
rates of loans, investments and MBSs and other
interest bearing assets.
Interest Expense. Interest expense increased slightly due to higher average
balances offset by lower weighted average rates. While average deposits
decreased slightly for 1997 as compared to 1996, average balances for FHLB
advances increased $5.4 million in 1997 over the 1996 averages. The
weighted-average rate on interest-bearing liabilities decreased from 4.95% for
1996 to 4.77% for 1997.
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.
For the year ended June 30, 1997, the Savings Bank established a provision for
loan losses of $241,000 compared with $60,000 for the year ended June 30, 1996.
The book value of non-accrual loans at June 30, 1997 was $1.4 million compared
to $546,000 at June 30, 1996.
Nonaccrual loans have increased principally due to an increase in nonperforming
mobile home loans of approximately $155,000 and a nonperforming commercial real
estate loan of $277,000. The Savings Bank has a dealer reserve account which
was $63,000 at June 30, 1997 for these mobile home loans. Management believes
the commercial real estate loan is well secured, and no loss is anticipated.
Also in response to a recent OTS examination, collection duties were reassigned
to other officers. However,
7
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<PAGE>
decentralized collection efforts of the Savings Bank were not as effective as
the former method. Management has subsequently assigned collection to one
officer in an effort to reduce the level of nonperforming loans.
The above provisions were 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, 1997 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 decreased from $639,000 in 1996 to
$618,000 in 1997. The Savings Bank realized net gains on sales of securities
and MBSs of $48,000 in 1997, compared to $131,000 in 1996. 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 $309,000 for 1996 to $334,000 for 1997. Banking
service charges increased from $140,000 for 1996 to $172,000 for 1997.
Noninterest Expense. Noninterest expense increased from $3.2 million for 1996
to $4.0 million for 1997. Compensation and benefits increased from $2.1 million
for 1996 to $2.2 million for 1997. Compensation and benefits increased due to
salary increases and the hiring of additional employees during the year. This
was partially offset with the termination of the defined benefit pension plan
late in 1996 and lower bonuses in 1997.
The SAIF special assessment recognized during 1997 is a result of legislation
enacted September 30, 1996 to recapitalize the Savings Association Insurance
Fund. The Savings Bank was assessed .657% of deposits at March 31, 1995. The
assessment of $779,000 was paid on November 28, 1996. SAIF deposit insurance
premium decreased from $275,000 for 1996 to $164,000 for 1997 as a result of a
substantially lower assessment rate effective January 1, 1997.
Provision for losses on foreclosed real estate was a net credit of $84,000 for
1996 compared to a net credit of $177,000 for 1997 as a result of recognition
of gain on sales of foreclosed real estate. Professional fees, which includes
supervisory examination fees, increased from $150,000 for 1996 to $161,000 for
1997. Advertising expenses increased from $85,000 for 1996 to $111,000 for 1997
as a result of an increased advertising budget. Other expenses increased by
$96,000 for 1997 over 1996 principally due to an
8
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<PAGE>
increase in insurance, automatic teller machine fees and other miscellaneous
expenses.
Income Taxes. Income taxes decreased due to lower earnings before income
taxes.
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 $.73 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 $4.5
million for 1995 to $4.7 million in 1996. The Savings Bank increased its
interest-bearing assets and interest-bearing liabilities by approximately $11.0
million in 1996. Although the interest rate spread decreased from 2.39% for
1995 to 2.29% for 1996, the Savings Bank earned an interest rate spread on the
$11.0 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 a 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.
9
<PAGE>
<PAGE>
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.
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 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 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 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.
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
10
<PAGE>
<PAGE>
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 OTS, its primary federal regulator. 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. In an effort to comply with the Supervisory Agreement,
the Savings Bank has hired a Chief Financial Officer who serves primarily as a
senior investment 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.
In connection with the Savings Bank's most recent regulatory examination
conducted during the fourth quarter of 1996, OTS examiners noted the Savings
Bank's noncompliance with the Supervisory Agreement. Accordingly, additional
actions, primarily relating to the Savings Bank's internal operations and
lending activities, have been imposed by the OTS on the Savings Bank's
management to achieve compliance and improve the operations of the Savings
Bank. As a result of the most recent OTS examination and existing Supervisory
Agreement, certain growth restrictions have been placed on the Savings Bank. In
particular, the Savings Bank may not increase its total assets during any
quarter in excess of the amount credited on deposit liabilities during the
quarter. Additionally, as a result of the Savings Bank's current regulatory
status, the Savings Bank will no longer be eligible for the lowest assessment
rate for deposit insurance. Instead, the assessment rate is expected to
increase from .065% to .095% of deposits beginning July 1, 1997. This will
result in approximately $9,000 in additional costs per quarter for deposit
insurance.
During the third quarter of fiscal 1997, the Savings Bank exceeded the growth
restriction imposed by the Supervisory Agreement and, as a result, may be
subject to sanction for violation of the Supervisory Agreement. The Savings
Bank sought an exemption from compliance with the terms of the Supervisory
Agreement for its growth during the third quarter and the request was denied.
If the OTS determines that a material violation has occurred the OTS may impose
the sanctions discussed below. The Savings Bank achieved
11
<PAGE>
<PAGE>
compliance with the growth limitations during the fourth quarter and has
requested a waiver of these growth limitations for future periods.
A savings association engaging in unsafe and unsound practices is subject to a
variety of regulatory enforcement actions. Management believes that the growth
restrictions have not to date had an adverse effect on the Savings Bank's
operations. In the future, the continued existence of growth restrictions could
have a material adverse effect on the operations of the Savings Bank, and,
consequently, on the operations of the Company. Failure to achieve compliance
with the Supervisory Agreement could lead to further regulatory enforcement
actions, including the assessment of civil money penalties against the Savings
Bank and/or its officers and directors. To the Savings Bank's knowledge, no
such actions have been initiated. The Supervisory Agreement will remain in
effect until it is terminated by the OTS.
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.
12
<PAGE>
<PAGE>
<TABLE>
Year Ended June 30,
--------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- ------------------------------- ------------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
------- --------- ----- --------- --------- ------ ------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-
earning
assets:
Mortgage
loans $ 90,387 $ 6,988 7.73% $ 80,275 $ 6,244 7.78% $ 74,564 $ 5,412 7.26%
Other
loans 12,534 1,076 8.58 8,806 775 8.80 4,824 393 8.15
------- ------ ------- ------- ------- -------
Total
net
loans 102,921 8,064 7.84 89,081 7,019 7.88 79,388 5,805 7.31
Mortgage-
backed
and
related
securities 31,296 2,050 6.55 30,690 1,976 6.44 25,157 1,688 6.71
Investment
securities 18,473 1,159 6.27 27,935 1,821 6.52 31,964 1,995 6.24
Other
interest-
earning
assets 3,934 135 3.43 4,461 194 4.35 4,291 153 3.57
------- ------ ------- ------- ------- -------
Total
interest-
earning
assets 156,624 11,408 7.28 152,167 11,010 7.24 140,800 9,641 6.85
Non-interest-
earning
assets:
Office
properties
and equip-
ment, net 1,603 - 1,307 - 1,340 -
Real estate,
net 118 - 676 - 736 -
Other
noninterest-
earning
assets 2,874 - 2,964 - 2,566 -
------- ------ ------- ------- ------- ------
Total
assets $161,219 $11,408 $157,114 $ 11,010 $145,442 $ 9,641
======= ====== ======= ======= ======= =======
Interest-
bearing
liabilities:
Passbook
accounts $ 7,221 $ 200 2.77 $ 6,783 $ 180 2.65 $ 7,670 $ 212 2.77
NOW
accounts 7,316 178 2.43 6,478 159 2.45 6,257 154 2.46
Money
market
accounts 8,572 237 2.76 8,786 264 3.00 10,737 327 3.05
Certifi-
cates of
deposit 96,197 4,947 5.14 97,728 5,263 5.39 90,986 4,457 4.90
------- ------ ------- ------- ------- -------
Total
deposits 119,306 5,562 4.66 119,775 5,866 4.90 115,650 5,150 4.45
Other
interest-
bearing
liabilities 13,067 756 5.79 7,645 442 5.78 627 37 5.90
------- ------ ------- -------- ------- -------
Total
interest-
bearing
liabili-
ties 132,373 6,318 4.77 127,420 6,308 4.95 116,277 5,187 4.46
Noninterest-
bearing
liabilities:
Noninterest-
bearing
deposits 806 - 735 - 609 -
Other
liabilities 2,229 - 2,169 - 1,935 -
------- ------ ------- ------- ------- ------
Total
liabili-
ties 35,408 130,324 - 118,821 5,187
Stockholders'
equity 25,811 - 26,790 - 26,621 -
------- ------ ------- ------- ------- ------
Total
liabili-
ties and
stock-
holders'
equity $161,219 $ 6,318 $157,114 $ 6,308 $145,442 $ 5,187
======= ====== ======= ======= ======= =======
Net interest
income - $ 5,090 - - $ 4,702 - - $ 4,454 -
Interest rate
spread - - 2.51% - - 2.29% - - 2.39%
Net interest
margin - - 3.25% - - 3.09% - - 3.16%
Ratio of
average
interest-
earning
assets to
average
interest-
bearing
liabilities 118.32% - - 119.42% - - 121.09% - -
</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,
------ -----------------------
1997 1997 1996 1995
---- ---- ---- ----
Weighted-average yield on loan portfolio 7.72% 7.84% 7.88% 7.31%
Weighted-average yield on mortgage-backed
and related securities 6.53 6.55 6.44 6.71
Weighted-average yield on investment
portfolio 6.16 6.27 6.52 6.24
Weighted-average yield on other
interest-earning assets 3.55 3.43 4.35 3.57
Weighted-average yield on all
interest-earning assets 7.29 7.28 7.24 6.85
Weighted-average rate paid on deposits 4.62 4.66 4.90 4.45
Weighted-average rate paid on FHLB
advances and other borrowings 5.71 5.79 5.78 5.90
Weighted-average rate paid on all
interest-bearing liabilities 4.73 4.77 4.95 4.46
Interest rate spread (spread between
weighted average rate on all
interest-earning assets and all
interest-bearing liabilities) 2.56 2.51 2.29 2.39
Net interest margin (net interest income
as a percentage of average interest-
earning assets) - 3.25 3.09 3.16
14
<PAGE>
<PAGE>
[Letterhead of 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, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended June 30,
1997. 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 audit 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997 in conformity with generally accepted accounting
principles.
/s/Kraft, Miles & Tatum
Kraft, Miles & Tatum
Poplar Bluff, Missouri
August 12, 1997
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1997 AND 1996
ASSETS 1997 1996
------ ---- ----
Cash and cash equivalents $ 3,425,175 4,477,872
Certificates of deposit 91,199 186,512
Investment and mortgage-backed and
related securities: (Note 2)
Available for sale - at estimated
market value (amortized cost
$39,571,322 and $50,615,727 at
June 30, 1997 and 1996,
respectively) 39,577,474 49,980,348
Held to maturity - at amortized cost
(estimated market value $4,904,989
and $4,888,427 at June 30, 1997 and
1996, respectively) 4,780,845 4,851,454
Stock in Federal Home Loan Bank of
Des Moines 1,519,700 1,519,700
Loans receivable, net (Note 3) 107,782,977 95,534,657
Accrued interest receivable (Note 4) 1,079,967 1,141,099
Foreclosed real estate, net (Note 5) 54,838 60,133
Premises and equipment (Note 6) 1,682,075 1,411,247
Prepaid expenses and other assets 398,784 684,701
----------- -----------
Total assets $ 160,393,034 159,847,723
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits (Note 7) $ 118,704,601 120,138,066
Advances from borrowers for taxes
and insurance 321,609 353,895
Advances from FHLB of Des Moines
(Note 8) 13,535,321 11,550,478
Accounts payable and other liabilities 582,825 596,181
Accrued interest payable 848,435 981,809
----------- -----------
Total liabilities 133,992,791 133,620,429
----------- -----------
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 18,032 18,032
Additional paid-in capital 17,579,778 17,449,978
Retained earnings-substantially
restricted 12,476,753 12,192,583
Treasury stock of 169,898 shares in
1997 and 102,188 shares in 1996, at
cost (2,680,183) (1,691,030)
Common stock acquired by ESOP (714,160) (918,207)
Common stock acquired by MRP (279,368) (397,972)
Unrealized gain (loss) on investment
and mortgage-backed securities
available for sale 2,966 (419,785)
Minimum pension liability (Note 9) (3,575) (6,305)
----------- -----------
Total stockholders' equity 26,400,243 26,227,294
----------- -----------
Total liabilities and
stockholders' equity $ 160,393,034 159,847,723
=========== ===========
See accompanying notes to consolidated financial statements.
16
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
Interest income:
Loans receivable $ 8,064,447 7,018,869 5,805,021
Investment securities 1,159,386 1,820,703 1,994,815
Mortgage-backed and
related securities 2,049,764 1,976,216 1,687,766
Other interest-earning
assets 134,871 194,646 153,336
---------- ---------- ----------
Total interest
income 11,408,468 11,010,434 9,640,938
---------- ---------- ----------
Interest expense:
Deposits (Note 7) 5,562,266 5,866,482 5,149,849
Other borrowings - - 1,380
Advances from FHLB 756,340 442,247 36,053
---------- ---------- ----------
Total interest
expense 6,318,606 6,308,729 5,187,282
---------- ---------- ----------
Net interest
income 5,089,862 4,701,705 4,453,656
Provision for loan losses
(Note 3) 241,300 60,000 95,000
---------- ---------- ----------
Net interest
income after
provision for
loan losses 4,848,562 4,641,705 4,358,656
---------- ---------- ----------
Noninterest income:
Gain on sale of
investment securities,
available for sale 58,462 75,632 85,172
Loss on sale of mortgage-
backed securities,
available for sale (10,386) (8,722) (74,295)
Gain on sale of mortgage-
backed securities,
held to maturity - 63,748 -
Insurance commissions 333,519 308,634 290,834
Banking service charges 171,789 140,237 121,110
Net income on foreclosed
real estate (15,971) (17,945) (29,889)
Loan late charges 49,103 52,611 34,755
Other 31,812 25,182 27,623
---------- ---------- ----------
Total non-
interest
income 618,328 639,377 455,310
---------- ---------- ----------
Noninterest expense:
General and
administrative:
Compensation and
benefits 2,177,532 2,075,615 1,920,641
Occupancy and
equipment 306,218 302,126 314,309
SAIF special assessment 779,184 - -
SAIF deposit insurance
premium 163,711 275,488 275,441
Provisions for losses
on foreclosed
real estate (Note 5) (176,533) (84,252) (58,574)
Professional fees 160,522 149,940 181,945
Advertising 110,986 84,612 94,665
Postage and office
supplies 115,580 117,917 112,206
Other 335,203 239,703 271,572
---------- ---------- ----------
Total
noninterest
expense 3,972,403 3,161,149 3,112,205
---------- ---------- ----------
Income before income taxes 1,494,487 2,119,933 1,701,761
---------- ---------- ----------
Income taxes (Note 10)
Current 440,700 590,513 470,858
Deferred (900) 62,898 (16,554)
---------- ---------- ----------
439,800 653,411 454,304
---------- ---------- ----------
Net income $ 1,054,687 1,466,522 1,247,457
========== ========== ==========
Net income per common share $ .66 .90 .73
========== ========== ==========
See accompanying notes to consolidated financial statements.
17
<PAGE>
<PAGE>
<TABLE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Unrealized
Common Common Gain (Loss) on Total
Additional Stock Stock Securities Minimum Stock-
Common Paid-in Retained Acquired Acquired Treasury Available Pension holders'
Stock Capital Earnings by ESOP by MRP Stock For Sale Liability Equity
------ --------- ---------- ---------- -------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Change in
unrealized gain
(loss) on
securities
available for
sale, net - - - - - - 422,751 - 422,751
Minimum pension
liability - - - - - - - 2,730 2,730
Amortization of
ESOP awards - 104,800 - 204,047 - - - - 308,847
MRP expense - - - - 118,604 - - - 118,604
Tax benefit of MRP - 25,000 - - - - - - 25,000
Dividends declared
($.50 per share) - - (770,517) - - - - - (770,517)
Purchase of treasury
stock - - - - - (1,010,153) - - (1,010,153)
Exercise of stock
options - - - - - 21,000 - - 21,000
Net income - - 1,054,687 - - - - - 1,054,687
------ ---------- ---------- --------- ------- --------- ------- ----- ----------
Balance at June
30, 1997 $ 18,032 17,579,778 12,476,753 (714,160)(279,368)(2,680,183) 2,966 (3,575) 26,400,243
====== ========== ========== ========= ======= ========= ======= ===== ==========
See accompanying notes to consolidated financial statements.
18
</TABLE>
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 1,054,687 1,466,522 1,247,457
Items not requiring (providing) cash:
Depreciation and amortization 188,521 156,377 205,507
MRP expense and ESOP expense 427,451 451,269 486,878
Gain on sale of investment
securities, available for sale (58,462) (75,632) (85,172)
Loss on sale of mortgage-backed
securities, available for sale 10,386 8,722 74,295
Gain on sale of mortgage-backed
securities, held to maturity - (63,748) -
Provision for loan losses 241,300 60,000 95,000
FHLB stock dividend - (30,000) -
(Gain) loss on foreclosed real
estate, net (176,533) (84,252) (58,574)
Net amortization of deferred income,
premiums, and discounts 236,149 140,058 53,457
Changes in:
Accrued interest receivable 61,132 53,894 (129,527)
Prepaid expenses and other assets 35,206 19,251 (37,504)
Accounts payable and other liabilities (13,356) 58,165 (294,149)
Accrued interest payable (133,374) 183,524 559,573
---------- ---------- ---------
Net cash provided by
operating activities 1,873,107 2,344,150 2,117,241
---------- ---------- ---------
Cash flows from investing activities:
Net increase in loans (12,431,883)(11,827,066) (7,923,565)
Proceeds from sales of investment
securities, available for sale 2,081,950 5,841,202 2,792,770
Proceeds from maturing investment
securities, available for sale 3,965,556 10,535,000 3,525,419
Proceeds from maturing investment
securities, held to maturity - 3,600,000 4,530,672
Purchase of investment securities,
available for sale (4,251,016)(72,457,104) (2,996,506)
Purchase of investment securities,
held to maturity - (500,000) (8,194,729)
Proceeds from sales of mortgage-backed
securities, held to maturity - 1,161,028 -
Proceeds from sales of mortgage-backed
securities, available for sale 6,475,469 8,087,727 369,256
Proceeds from maturing mortgage-backed
securities, available for sale 5,168,146 6,223,361 712,350
Proceeds from maturing mortgage-backed
securities, held to maturity 64,070 1,131,708 2,452,546
Purchase of mortgage-backed
securities, available for sale (2,461,989)(27,239,834) -
Purchase of mortgage-backed
securities, held to maturity - - (3,660,481)
Purchase of certificates of deposit
of other financial institutions - - (500,000)
Proceeds from maturing certificates
of deposit 95,000 90,000 590,000
Purchase of premises and equipment (428,079) (239,666) (232,241)
Proceeds from sale of foreclosed
real estate 37,550 94,799 14,775
---------- ---------- ---------
Net cash used in
investing activities (1,685,226)(10,498,845) (8,519,734)
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
19
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
Cash flows from financing activities:
Net increase (decrease) in demand
deposits and savings accounts $ 2,485,172 (985,489) (5,591,614)
Net (decrease) increase in
certificates of deposit (3,918,637) 2,971,170 9,617,176
Net decrease in advances from
borrowers for taxes and insurance (32,286) (118,951) (48,830)
Repayment of other borrowings - - (84,250)
Net increase in advances from FHLB
of Des Moines 1,984,843 10,236,004 987,076
Dividends on common stock (770,517) (765,035) (586,040)
Exercise of stock options 21,000 108,120 -
Payments to acquire treasury stock (1,010,153) (1,799,150) -
---------- ---------- ----------
Net cash (used in) provided by
financing activities (1,240,578) 9,646,669 4,293,518
---------- ---------- ----------
(Decrease) increase in cash
and cash equivalents (1,052,697) 1,491,974 (2,108,975)
Cash and cash equivalents
at beginning of period 4,477,872 2,985,898 5,094,873
---------- ---------- ----------
Cash and cash equivalents
at end of period $ 3,425,175 4,477,872 2,985,898
========== ========== ==========
Supplemental disclosures of
cash flow information:
Noncash investing and
- ---------------------
financing activities
--------------------
Conversion of loans to
foreclosed real estate $ 121,050 124,279 46,105
Conversion of foreclosed
real estate to loans $ 152,150 680,839 81,725
Transfer of investment and mortgage-
backed and related securities from
held to maturity to available for
sale - 23,041,000 -
Unrealized loss at transfer date - 227,000 -
Cash paid during the period for
- -------------------------------
Interest (net of interest credited) $ 2,018,878 1,939,186 1,739,282
Income taxes $ 441,560 422,306 563,369
See accompanying notes to consolidated financial statements.
20
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
NOTE 1: Organization and Summary of Significant Accounting Policies
Organization
------------
Southern Missouri Bancorp, Inc., a Delaware corporation (the Company) was
organized in 1994 and is the parent company of Southern Missouri Savings
Bank (the Savings Bank) and the Savings Bank's wholly-owned subsidiary
S.M.S. Financial Services, Inc. Substantially all of the Company's
consolidated revenues are derived from the operations of the Savings Bank,
and the Savings Bank represented substantially all of the Company's
consolidated assets and liabilities.
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.
21
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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
$1,411,857, and $2,541,950 at June 30, 1997 and 1996, respectively.
Investment and Mortgage-Backed and Related Securities
-----------------------------------------------------
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). No securities have been classified as trading securities.
In accordance with an interpretation of SFAS 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.
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.
22
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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 90 days or more. 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, 1997
or 1996.
23
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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
------------
The Company and its subsidiary file consolidated income tax returns.
Deferred income taxes are provided on temporary differences between the
financial reporting bases and income tax bases of the Company's assets and
liabilities.
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 weighted-average shares outstanding during the years
ended June 30, 1997, 1996 and 1995 were 1,598,860, 1,638,222 and
1,719,530, respectively.
24
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
NOTE 1: Organization and Summary of Significant Accounting Policies
(Continued)
The following paragraphs summarize the impact of new accounting pronouncements:
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The
Statement focuses on the issues of accounting for transfers and servicing
of financial assets, extinguishments of liabilities and financial assets
subject to prepayment. In December 1996, the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of SFAS Statement
No. 125." SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring generally
after December 31, 1996, and for certain transactions after December 31,
1997. The provisions of SFAS No. 125 for financial assets subject to
prepayment is effective for financial assets held on or acquired after
January 1, 1997. SFAS No. 125 is not expected to have a material impact on
the financial position or results of operations of the Company.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" and
SFAS No. 129, "Disclosure of Information about Capital Structure." The
Statements supersede APB Opinion No. 15, amend certain other accounting
pronouncements, and modify the presentation of earnings per share. The
Statements are effective for financial statements for both interim periods
and years ending after December 15, 1997.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 suggests 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. However, SFAS No. 123 also
allows an institution to use the intrinsic value based method under APB
Opinion No. 25. 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
which begin after December 15, 1995. Pro forma disclosures required by
this Statement shall include the effects of all awards granted in fiscal
years that begin after December 31, 1994. The Company will continue to
recognize compensation expense for stock-based employee compensation plans
under APB Opinion No. 25. The disclosure requirements under SFAS No. 123
are not applicable since the Company's stock-based employee compensation
plans were granted on April 13, 1994.
25
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
NOTE 2: Investment and Mortgage-Backed and Related Securities
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, 1997
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Investment securities:
U.S. government and
federal agency
obligations $ 9,558,290 8,753 120,623 9,446,420
Corporate securities 1,549,812 2,567 4,264 1,548,115
Obligations of states
and political
subdivisions 2,382,809 95,186 639 2,477,356
---------- ------- ------- ----------
Total investment
securities 13,490,911 106,506 125,526 13,471,891
---------- ------- ------- ----------
Mortgage-backed and related
securities:
GNMA certificates 11,614,442 155,490 - 11,769,932
FNMA certificates 6,379,872 42,321 31,454 6,390,739
FHLMC certificates 4,820,668 60,418 25,521 4,855,565
Collateralized mortgage
obligations 3,265,429 - 176,082 3,089,347
---------- ------- ------- ----------
Total mortgage-backed
and related
securities 26,080,411 258,229 233,057 26,105,583
---------- ------- ------- ----------
Total $ 39,571,322 364,735 358,583 39,577,474
========== ======= ======= ==========
June 30, 1996
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Investment securities:
U.S. government and
federal 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
========== ======= ========== ==========
26
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
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, 1997
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Investment securities:
U.S. government and
federal agency
obligations $ 600,000 - 23,266 576,734
Obligations of states
and political
subdivisions 4,050,121 144,697 - 4,194,818
--------- ------- ------ ---------
Total investment
securities 4,650,121 144,697 23,266 4,771,552
--------- ------- ------ ---------
Mortgage-backed securities:
FHLMC certificates 130,724 2,713 - 133,437
--------- ------- ------ ---------
Total mortgage-
backed
securities 130,724 2,713 - 133,437
--------- ------- ------ ---------
Total $ 4,780,845 147,410 23,266 4,904,989
========= ======= ====== =========
June 30, 1996
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----------- ----------- ---------
Investment securities:
U.S. government and
federal 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
========== ========= ========== ==========
27
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
The amortized cost and estimated market value of investment and
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, 1997
------------------------------------------------
Available for Sale Held to Maturity
----------------------- ----------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---------- --------- --------- ----------
Due in one year or less $ 2,103,071 2,102,743 - -
Due after one year
thru 5 years 4,017,251 4,014,356 2,394,642 2,417,947
Due after 5 years
thru 10 years 5,107,697 5,034,785 1,444,040 1,495,349
Due after 10 years 2,262,892 2,320,007 811,439 858,256
---------- ---------- --------- ---------
Total investment
securities 13,490,911 13,471,891 4,650,121 4,771,552
---------- ---------- --------- ---------
Mortgage-backed and
related securities 26,080,411 26,105,583 130,724 133,437
---------- ---------- --------- ---------
Total $ 39,571,322 39,577,474 4,780,845 4,904,989
========== ========== ========= =========
Proceeds from sales of investment and mortgage-backed and related
securities and gross realized gains and losses are summarized below.
June 30,
----------------------------------------
1997 1996 1995
---- ---- ----
Proceeds from sales:
Investment securities $ 2,081,950 5,841,202 2,792,770
Mortgage-backed and related
securities 6,475,469 9,248,755 369,256
Gross realized gains:
Investment securities 58,462 86,947 85,172
Mortgage-backed and related
securities 44,854 148,477 -
Gross realized losses:
Investment securities - (11,315) -
Mortgage-backed and related
securities (55,240) (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 met the
condition described under paragraph 11b of SFAS No. 115 and 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 $21,814,982 and
$17,900,762 at June 30, 1997 and 1996, respectively.
Adjustable rate mortgage loans included in mortgage-backed and related
securities at June 30, 1997 and 1996 amounted to $13,639,675 and
$21,733,920, respectively. All adjustable rate mortgage-backed and related
securities at June 30, 1997 and 1996 are recorded as available for sale.
28
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 3: Loans Receivable, net
Loans receivable, net are summarized as follows:
June 30,
-----------------------------------
1997 1996
---- ----
Real estate loans:
Conventional $ 77,895,000 68,330,068
Construction 3,822,259 4,283,294
Commercial 18,293,158 16,583,759
Loans secured by deposit accounts 721,403 752,514
Consumer loans 9,689,237 9,042,171
----------- ----------
110,421,057 98,991,806
Loans in process (1,837,746) (2,609,546)
Deferred loan fees, net (80,413) (89,341)
Deferred gain on sale of real estate (13,434) (130,698)
Allowance for loan losses (706,487) (627,564)
----------- ----------
$ 107,782,977 95,534,657
=========== ==========
Adjustable-rate loans included in the loan portfolio amounted to
$86,111,104, and $74,040,220 at June 30, 1997 and 1996, respectively.
One-to four-family residential real estate loans amounted to $78,359,000
and $69,368,000 at June 30, 1997 and 1996, 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,
----------------------------------------
1997 1996 1995
---- ---- ----
Balance, beginning of period $ 627,564 572,341 477,341
------- ------- -------
Loans charged-off (162,377) (5,167) -
Recoveries of loans
previously charged off - 390 -
------- ------- ------
Net charge-offs (162,377) (4,777) -
------- ------- ------
Provision charged to expense 241,300 60,000 95,000
------- ------- -------
Balance, end of period $ 706,487 627,564 572,341
======= ======= =======
The Company ceased recognition of interest income on loans with a book
value of $1,380,000, $546,000 and $737,000 for June 30, 1997, 1996 and
1995, respectively. The average balance of nonaccrual loans for the year
ended June 30, 1997 was approximately $1,200,000. Allowance for losses on
nonaccrual loans amounted to approximately $67,000 at June 30, 1997.
Interest income of approximately $98,000, $22,000 and $27,000 was
recognized on these loans for the years ended June 30, 1997, 1996 and
1995, respectively. Gross interest income would have been approximately
$124,000, $47,000 and $59,000 for the years ended June 30, 1997, 1996 and
1995, respectively, if the interest payments had been received in
accordance with the original terms.
29
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
Following is a summary of loans to directors, executive officers and loans
to corporations in which executive officers and directors have a
substantial interest:
Balance, June 30, 1995 $ 465,922
Additions 244,577
Repayments (254,765)
--------
Balance, June 30, 1996 455,734
Additions 175,900
Repayments (57,629)
--------
Balance, June 30, 1997 $ 574,005
========
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,
--------------------------
1997 1996
---- ----
Investment securities $ 371,414 421,536
Mortgage-backed and related
securities 172,435 239,801
Loans receivable 536,118 479,762
--------- ---------
$ 1,079,967 1,141,099
========= =========
NOTE 5: Foreclosed Real Estate
Foreclosed real estate consists of the following:
June 30,
--------------------------
1997 1996
---- ----
Foreclosed real estate $ 390,135 395,430
Allowance for losses (335,297) (335,297)
-------- ---------
$ 54,838 60,133
======== =========
Activity in the allowance for losses for foreclosed real estate is as follows:
June 30,
------------------------------------------
1997 1996 1995
---- ---- ----
Balance, beginning of period $ 335,297 419,109 444,798
Charge-offs and recoveries,
net 176,533 440 32,885
Provisions for losses on
foreclosed real estate (176,533) (84,252) (58,574)
-------- --------- ---------
Balance, end of period $ 335,297 335,297 419,109
======== ========= =========
30
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
NOTE 6: Premises and Equipment
Following is a summary of premises and equipment:
June 30,
--------------------------
1997 1996
---- ----
Land $ 342,042 342,042
Buildings and improvements 2,227,863 1,992,331
Furniture, fixtures, and equipment 1,395,624 1,203,077
Automobiles 58,246 58,246
---------- ----------
4,023,775 3,595,696
Less accumulated depreciation (2,341,700) (2,184,449)
---------- ----------
$ 1,682,075 1,411,247
========== ==========
Depreciation expense for the years ended June 30, 1997, 1996 and 1995 was
$157,252, $123,160 and $127,806, respectively.
NOTE 7: Deposits
Deposits are summarized as follows:
June 30,
--------------------------
1997 1996
---- ----
Non-interest bearing NOW accounts $ 1,170,071 770,735
NOW accounts 2.55% 7,786,764 7,266,140
Money market deposit accounts 2.67% 8,300,850 7,394,864
Savings accounts 2.75% 7,639,863 6,980,637
----------- -----------
Total transactions accounts 24,897,548 22,412,376
----------- -----------
Certificates:
4.00 - 4.99% 21,003,577 24,741,332
5.00 - 5.99% 72,566,220 66,529,484
6.00 - 6.99% 123,112 5,138,828
7.00 - 7.99% 28,339 1,236,070
8.00 - 8.99% 67,455 63,289
9.00 - 9.99% 18,350 16,687
----------- -----------
Total certificates, 5.13%
and 5.21%, respectively 93,807,053 97,725,690
----------- -----------
Total deposits $ 118,704,601 120,138,066
=========== ===========
Weighted-average rates - deposits 4.62% 4.72%
=========== ===========
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $19,892,987 and $18,297,762 at June 30, 1997 and 1996,
respectively.
Certificate maturities at June 30, 1997 are summarized as follows:
July 1, 1997 to June 30, 1998 $ 85,148,881
July 1, 1998 to June 30, 1999 5,896,767
July 1, 1999 to June 30, 2000 1,651,694
July 1, 2000 to June 30, 2001 469,019
July 1, 2001 to June 30, 2002 573,237
Thereafter 67,455
----------
$ 93,807,053
==========
31
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
Interest expense on deposits is summarized as follows:
Year Ended June 30,
-------------------------------------------
1997 1996 1995
---- ---- ----
NOW accounts $ 178,055 159,335 154,393
Money market deposit
accounts 236,953 259,926 326,907
Savings accounts 199,583 178,847 210,717
Certificates of deposit 4,947,675 5,268,374 4,457,832
---------- ---------- ----------
$ 5,562,266 5,866,482 5,149,849
========== ========== ==========
NOTE 8: Advances from FHLB of Des Moines
Advances from Federal Home Loan Bank of Des Moines are summarized as
follows:
June 30,
---------------------------------
1997 1996
---- ----
FHLB advances, due at
various dates through
2008, with interest
rates from 5.70% to 5.97%
and a weighted average
rate of 5.71% at June 30,
1997, and from 5.52% to
5.97% and a weighted
average rate of 5.68% at
June 30, 1996. $ 13,535,321 11,550,478
========== ==========
Advances from FHLB of Des Moines are secured by FHLB stock and
single-family mortgage loans of $20,303,000. Principal maturities of
advances from FHLB of Des Moines over the next five years are as follows:
July 1, 1996 to June 30, 1998 $ 13,267,381
July 1, 1997 to June 30, 1999 18,435
July 1, 1998 to June 30, 2000 19,553
July 1, 1999 to June 30, 2001 20,738
July 1, 2000 to June 30, 2002 21,996
NOTE 9: Employee Benefits
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
1997 and 1996 there were no contributions made to the plan.
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.
32
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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.
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. The ESOP expense for 1997, 1996 and 1995
was $308,847, $308,436, and $242,021, respectively.
The number of ESOP shares at June 30, 1997 were as follows:
Allocated shares 71,416
Unreleased shares 71,416
--------
Total ESOP shares 142,832
========
The fair value of unreleased ESOP shares at June 30, 1997 was $1,249,780.
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 Savings Bank contributed 53,590 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 46,193 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 1997, 1996 and 1995 was $118,604, $142,833 and $142,832, respectively.
33
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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, 1994 126,049
Granted -
Exercised -
-------
Balance at June 30, 1995 126,049
Granted -
Exercised 10,812
-------
Balance at June 30, 1996 115,237
Granted -
Exercised 2,100
-------
Balance at June 30, 1997 113,137
=======
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%
34
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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,
1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Actuarial present value of benefit
obligations:
Vested accumulated benefits $ 169,458 156,830 144,166
Nonvested accumulated benefits 15,478 13,689 12,911
------- ------- -------
Total accumulated benefits 184,936 170,519 157,077
Unrecognized prior service cost
being recognized over four years 29,643 60,131 90,619
Unrecognized net obligation being
recognized over four years 3,575 6,305 9,035
Adjustment to recognize minimum
liability (33,218) (66,436) (99,654)
(Under) over accrual (2,175) 1,340 835
------- ------- -------
Accrued pension cost $ 182,761 171,859 157,912
======= ======= =======
Net pension cost includes the following
components:
Service costs - benefits earned
during the year $ 2,783 2,783 3,928
Interest cost on benefit obligation 11,634 10,659 10,019
Amortization of prior service cost
and net obligation 33,218 33,218 33,218
(Under) over accrual (2,175) 1,340 835
------- ------- -------
Net pension cost $ 45,460 48,000 48,000
======= ======= =======
A discount rate of 7% was used in determining net pension cost.
35
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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.
On August 20, 1996 the Small Business Job Protection Act of 1996 was
signed into law. Under the Act, tax bad debt reserves in excess of the
base year level (June 30, 1988) are subject to recapture and payable in
equal amounts over six years in tax years beginning July 1, 1996. Since
the Savings Bank's tax bad debt reserves were less than its base year
level and other conditions were met, the Savings Bank did not have any
recapture. Provisions of the Act repealed the percentage of taxable income
method for the Savings Bank effective July 1, 1996.
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. If these tax bad debt reserves are used for other than loan
losses, the amount will be subject to Federal income taxes at the then
prevailing corporate rate.
The components of net deferred tax assets are summarized as follows:
1997 1996
---- ----
Deferred tax assets:
Provision for losses on loans
and foreclosed real estate $ 354,224 363,358
Accrued compensation and benefits 83,635 66,815
Base year tax bad debt reserve at 12/31/87
in excess of current tax bad debt reserve 11,482 88,273
Unrealized loss on available for sale
securities - 218,583
------- -------
Gross deferred tax assets 449,341 737,029
Valuation allowance (11,482) (88,273)
------- -------
Total deferred tax assets 437,859 648,756
------- -------
Deferred tax liabilities:
FHLB stock dividends 166,566 166,566
Purchase accounting adjustments 62,150 66,072
Premises and equipment, tax vs book
accumulated depreciation 28,192 17,484
Unrealized gain on available for sale
securities 3,187 -
------- -------
Total deferred tax liabilities 260,095 250,122
------- -------
Net deferred tax assets $ 177,764 398,634
======= =======
The valuation allowance decreased by $76,791 during the year ended June
30, 1997.
36
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
Income taxes are summarized as follows:
Year Ended June 30,
--------------------------------
1997 1996 1995
---- ---- ----
Current:
Federal $ 358,000 496,658 434,411
State 82,700 93,855 36,447
------- ------- -------
440,700 590,513 470,858
------- ------- -------
Deferred:
Federal (900) 60,898 (11,354)
State - 2,000 (5,200)
------- ------- -------
(900) 62,898 (16,554)
------- ------- -------
$ 439,800 653,411 454,304
======= ======= =======
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,
--------------------------------
1997 1996 1995
---- ---- ----
Tax at statutory Federal rate $ 508,125 720,777 578,599
Increase (reduction) in taxes
resulting from:
Nontaxable municipal income (121,946) (150,428) (152,203)
State tax, net of Federal benefit 54,582 63,264 20,623
Nondeductible ESOP expenses 35,632 38,625 14,051
Other, net (36,593) (18,827) (6,766)
------- ------- -------
Actual provision $ 439,800 653,411 454,304
======= ======= =======
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,
--------------------------------
1997 1996 1995
---- ---- ----
FHLB stock dividend $ - 10,200 -
Accrued income and expense (16,820) (10,302) (5,519)
Purchase accounting adjustments (3,922) 31,554 11,979
Provision for losses on loans
and foreclosed real estate 9,134 15,664 (24,716)
Premises and equipment, tax vs
book accumulated depreciation 10,708 15,782 1,702
------- ------- -------
$ (900) 62,898 (16,554)
======= ======= =======
State income tax for 1995 reflects credits of $72,536 as a result of
settling litigation with the State of Missouri. All remaining credits were
utilized in 1995.
37
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 11: Stockholders' Equity and Regulatory Capital
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the regulations promulgated thereunder established certain
minimum levels of regulatory capital for savings institutions subject to
OTS supervision. The Savings Bank must follow specific capital guidelines
established by the OTS which involve quantitative measures of the Savings
Bank's assets, liabilities and certain off-balance sheet items. An
institution that fails to comply with its regulatory capital requirements
must obtain OTS approval of a capital plan and can be subject to a capital
directive and certain restrictions on its operations. At June 30, 1997 the
Savings Bank's regulatory capital requirements were:
. Tangible and core capital of 1.5 percent and 4 percent,
respectively, consisting principally of stockholders' equity, but
excluding most intangible assets such as goodwill and any net
unrealized holding gains or losses on debt securities available
for sale.
. Risk-based capital consisting of core capital plus, subject to
certain limitations, the portion of the general valuation
allowances related to loans receivable, equal to 8 percent of the
value of risk-weighted assets.
At June 30, 1997, the Savings Bank was classified as "well capitalized"
under the prompt corrective action (PCA) regulations adopted by the OTS
pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA). To be categorized as "well capitalized", the Savings Bank
must maintain minimum core capital, Tier 1 risk-based capital and
risk-based capital ratios as set forth in the table below. The Savings
Bank's capital amounts and classifications are subject to review by
federal regulators. There are no conditions or events since June 30, 1997,
that management believes have changed the Savings Bank's PCA category.
38
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
The following table summarizes the Savings Bank's actual and required
regulatory capital as of June 30, 1997 and 1996:
Tier 1
Tangible Core Risk-Based Risk-Based
Capital Capital Capital Capital
-------- ------- ---------- ----------
(Dollars in Thousands)
June 30, 1997:
Actual capital:
Amount $ 20,816 20,816 20,816 21,253
Ratio 13.35% 13.35% 24.78% 25.62%
Minimum required capital:
Amount $ 2,340 4,680 3,360 6,722
Ratio 1.50% 4.00% 4.00% 8.00%
Minimum PCA well-
capitalized capital:
Amount N/A $ 7,798 5,041 8,402
Ratio N/A 5.00% 6.00% 10.00%
June 30, 1996:
Actual capital:
Amount $ 19,620 19,620 19,620 20,247
Ratio 12.67% 12.67% 25.65% 26.47%
Minimum required capital:
Amount $ 2,324 2,324 3,059 6,119
Ratio 1.50% 4.00% 4.00% 8.00%
Minimim PCA well-
capitalized capital:
Amount N/A $ 3,873 4,589 7,649
Ratio N/A 5.00% 6.00% 10.00%
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.
39
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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,
---------------------------
1997 1996
---- ----
Commitments to extend credit $ 2,081,671 4,045,907
Standby letters of credit $ 126,370 126,370
At June 30, 1997, total commitments to originate fixed rate loans were
$252,367 at interest rates ranging from 7.5% to 9.5%. 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 $77,895,000 at June 30, 1997, are
secured by single and multifamily residential real estate in the Company's
primary lending area.
40
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
NOTE 14: Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company's financial
instruments at June 30, 1997 and 1996, are summarized as follows:
------------------------------------------
1997 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Non-trading instruments and
nonderivatives:
Cash and cash
equivalents $ 3,425,175 3,425,175 4,477,872 4,477,872
Certificates of deposits 91,199 91,199 186,512 186,512
Investment and mortgage-
backed and related
securities:
Available for
sale 39,577,474 39,577,474 49,980,348 49,980,348
Held to maturity 4,780,845 4,904,989 4,851,454 4,888,427
Stock in FHLB of Des
Moines 1,519,700 1,519,700 1,519,700 1,519,700
Loans receivable, net 107,782,977 108,874,000 95,534,657 96,466,000
Accrued interest
receivable 1,079,967 1,079,967 1,141,099 1,141,099
Deposits 118,704,601 118,228,000 120,138,066 119,940,000
Advances from FHLB of
Des Moines 13,535,321 13,489,000 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.
41
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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.
42
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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 1997 1996
- ------ ------ ------
Cash and cash equivalents $ 785,511 868,400
Investment securities - available for sale 3,766,328 4,616,518
ESOP note receivable 714,160 918,206
Accrued interest receivable 106,016 115,991
Income taxes receivable 16,626 10,285
Fixed assets 7,435 9,510
Prepaid expenses 3,760 9,445
Equity in net assets of the
Savings Bank 21,031,774 19,694,993
---------- ----------
Total assets $ 26,431,610 26,243,348
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued expense $ 31,367 16,054
---------- ----------
Total liabilities 31,367 16,054
---------- ----------
Stockholders' equity 26,400,243 26,227,294
---------- ----------
Total liabilities and
stockholders' equity $ 26,431,610 26,243,348
========== ==========
STATEMENTS OF INCOME
Year Ended June 30,
-------------------------------------
1997 1996 1995
----- ------ ------
Interest income $ 376,383 434,458 411,176
Dividend from Savings Bank 400,000 300,000 722,240
--------- --------- ---------
776,383 734,458 1,133,416
Operating expenses 167,246 154,690 179,453
--------- --------- ---------
Income before income taxes and
equity in undistributed income of
the Savings Bank 609,137 579,768 953,963
Income taxes 48,161 62,493 43,596
--------- --------- ---------
Income before equity in undistributed
income of the Savings Bank 560,976 517,275 910,367
Equity in undistributed income of
the Savings Bank 493,711 949,247 337,090
--------- --------- ---------
Net income $ 1,054,687 1,466,522 1,247,457
========= ========= =========
43
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
STATEMENTS OF CASH FLOWS
Year Ended June 30,
-----------------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 1,054,687 1,466,522 1,247,457
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 2,075 865 -
Equity in undistributed income
of the Savings Bank (493,711) (949,247) (337,090)
Amortization of premiums (discounts)
on investment securities 33,012 93,996 128,855
Decrease (increase) in accrued
interest receivable 9,975 17,831 (11,208)
Decrease (increase) in prepaid
expenses 5,685 2,211 (11,656)
Decrease (increase) in income taxes
receivable (6,341) 8,493 (35,279)
(Decrease) increase in accrued
expenses (2,647) 7,184 6,540
Decrease in dividends payable - - (135,240)
--------- ---------- ----------
Net cash provided by
operating activities 602,735 647,855 852,379
---------- ---------- ----------
Cash flows from investing activities:
Principal collected on loan to
ESOP 204,046 204,045 306,069
Purchase of investment securities,
available for sale - (2,075,386) -
Proceeds from maturities of
investment securities, available
for sale 870,000 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 in)
investing
activities 1,074,046 1,068,284 (1,674,570)
---------- ---------- ----------
Cash flows from financing activities:
Dividends on common stock (770,517) (765,035) (586,040)
Exercise of stock options 21,000 108,120 -
Payments to acquire treasury stock (1,010,153) (1,799,150) -
---------- ---------- ---------
Net cash used in
financing
activities (1,759,670) (2,456,065) (586,040)
---------- ---------- ----------
Net decrease in cash and cash
equivalents (82,889) (739,926) (1,408,231)
Cash and cash equivalents at beginning
of period 868,400 1,608,326 3,016,557
---------- ---------- ----------
Cash and cash equivalents at end
of period $ 785,511 868,400 1,608,326
========== ========== ==========
44
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<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 and 1995
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
1997: Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income $ 2,876 2,822 2,821 2,889
Interest expense 1,582 1,538 1,607 1,591
------- ------- ------- -------
Net interest income 1,294 1,284 1,214 1,298
Provision for loan losses 18 22 23 178
Noninterest income 144 150 165 159
Noninterest expense 1,615 806 754 797
------- ------- ------- -------
Income (loss) before income taxes (195) 606 602 482
Income taxes (97) 181 187 169
------- ------- ------- -------
Net income (loss) $ (98) 425 415 313
======= ======= ======= =======
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 1,581
------- ------- ------- -------
Net interest income 1,086 1,109 1,261 1,246
Provision for loan losses 15 15 15 15
Noninterest income 134 145 212 148
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
======= ======= ======= =======
NOTE 18: SUPERVISORY AGREEMENT
On December 21, 1994, the Savings Bank voluntarily entered into a Supervisory
Agreement with the OTS, its primary federal regulator. 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. In an effort to comply with the Supervisory Agreement,
the Savings Bank has hired a Chief Financial Officer who serves primarily as a
senior investment 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.
45
<PAGE>
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
In connection with the Savings Bank's most recent regulatory examination
conducted during the fourth quarter of 1996, OTS examiners noted the Savings
Bank's noncompliance with the Supervisory Agreement. Accordingly, additional
actions, primarily relating to the Savings Bank's internal operations and
lending activities, have been imposed by the OTS on the Savings Bank's
management to achieve compliance and improve the operations of the Savings
Bank. As a result of the most recent OTS examination and existing Supervisory
Agreement, certain growth restrictions have been placed on the Savings Bank. In
particular, the Savings Bank may not increase its total assets during any
quarter in excess of the amount credited on deposit liabilities during the
quarter. Additionally, as a result of the Savings Bank's current regulatory
status, the Savings Bank will no longer be eligible for the lowest assessment
rate for deposit insurance. Instead, the assessment rate is expected to
increase from .065% to .095% of deposits beginning July 1, 1997. This will
result in approximately $9,000 in additional costs per quarter for deposit
insurance.
During the third quarter of fiscal 1997, the Savings Bank exceeded the growth
restriction imposed by the Supervisory Agreement and, as a result, may be
subject to sanction for violation of the Supervisory Agreement. The Savings
Bank sought an exemption from compliance with the terms of the Supervisory
Agreement for its growth during the third quarter and the request was denied.
If the OTS determines that a material violation has occurred the OTS may impose
the sanctions discussed below. The Savings Bank achieved compliance with the
growth limitations during the fourth quarter and has requested a waiver of
these growth limitations for future periods.
A Savings association engaging in unsafe and unsound practices is subject to a
variety of regulatory enforcement actions. Management believes that the growth
restrictions have not to date had an adverse effect on the Savings Bank's
operations. In the future, the continued existence of growth restrictions could
have a material adverse effect on the operations of the Savings Bank, and,
consequently, on the operations of the Company. Failure to achieve compliance
with the Supervisory Agreement could lead to further regulatory enforcement
actions, including the assessment of civil money penalties against the Savings
Bank and/or its officers and directors. To the Savings Bank's knowledge, no
such actions have been initiated. The Supervisory Agreement will remain in
effect until it is terminated by the OTS.
46
<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
Retired certified public Ron Black
accountant Stewardship Director General Association
of General Baptists
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
Chaiman Loan Department
Wilma Pratte
Secretary
Robert Stanley Jones
Vice President
Chief Financial Officer
47
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 Stock Market
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 27, 1997, 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.
48
<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 12, 1997, 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, 1997. 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 26, 1997
<PAGE>
<PAGE>
Exhibit 27
Financial Data Schedule
This schedule contains financial information extracted from the consolidated
financial statements of Southern Missouri Bancorp, Inc. for the year ended June
30, 1997 and is qualified in its entirety by reference to such financial
statements.
Financial Data
as of or for the year
Item Number ended June 30, 1997 Item Description
- ----------- ------------------- ----------------
9-03 (1) $3,425,175 Cash and due from Banks
9-03 (2) 1,411,857 Interest-bearing deposits
9-03 (3) -- Federal funds sold -
purchased securities for
resale
9-03 (4) -- Trading account assets
9-03 (6) 39,577,474 Investment and mortgage
backed securities held for
sale
9-03 (6) 4,780,845 Investment and mortgage
backed securities held to
maturity - carrying value
9-03 (6) 4,904,989 Investment and mortgage
backed securities held to
maturity - market value
9-03 (7) 107,782,977 Loans
9-03 (7)(2) 706,487 Allowance for losses
9-03 (11) 160,393,034 Total assets
9-03 (12) 118,704,601 Deposits
9-03 (13) 13,535,321 Short-term borrowings
9-03 (15) 1,752,869 Other liabilities
9-03 (16) -- Long-term debt
9-03 (19) NA Preferred stock - mandatory
redemption
9-03 (20) -- Preferred stock - no
mandatory redemption
9-03 (21) 18,032 Common stocks
9-03 (22) 26,382,211 Other stockholders' equity
9-03 (23) 160,393,034 Total liabilities and
stockholders' equity
9-04 (1) 8,064,447 Interest and fees on loans
9-04 (2) 3,209,150 Interest and dividends on
investments
9-04 (4) 134,871 Other interest income
9-04 (5) 11,408,468 Total interest income
9-04 (6) 5,562,266 Interest on deposits
9-04 (9) 6,318,606 Total interest expense
9-04 (10) 5,089,862 Net interest income
9-04 (11) 241,300 Provision for loan losses
9-04 (13)(h) 48,076 Investment securities
gains/(losses)
9-04 (14) 3,972,403 Other expenses
9-04 (15) 1,494,487 Income/loss before income tax
9-04 (17) NA Income/loss before
extraordinary items
9-04 (18) NA Extraordinary items, less tax
9-04 (19) NA Cumulative change in
accounting principles
9-04 (20) 1,054,687 Net income or loss
9-04 (21) 0.66 Earnings per share - primary
9-04 (21) 0.66 Earnings per share - fully
diluted
I.B. 5 7.28 Net yield - interest earning
assets - actual
III.C.1. (a) 1,380,000 Loans on non-accrual
<PAGE>
<PAGE>
III.C.1. (b) -- Accruing loans past due 90
days or more
III.C.2. (c) -- Troubled debt restructuring
III.C.2 277,000 Potential problem loans
IV.A.1 627,564 Allowance for loan loss -
beginning of period
IV.A.2 162,377 Total chargeoffs
IV.A.3 -- Total recoveries
IV.A.4 706,487 Allowance for loan loss - end
of period
IV.B.1 706,487 Loan loss allowance allocated
to domestic loans
IV.B.2 -- Loan loss allowance allocated
to foreign loans
IV.B.3 -- Loan loss allowance -
unallocated
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 3425175
<INT-BEARING-DEPOSITS> 1411857
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39577474
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<INVESTMENTS-MARKET> 4904989
<LOANS> 107782977
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<TOTAL-ASSETS> 160393034
<DEPOSITS> 118704601
<SHORT-TERM> 13535321
<LIABILITIES-OTHER> 1752869
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0
0
<COMMON> 18032
<OTHER-SE> 26382211
<TOTAL-LIABILITIES-AND-EQUITY> 160393034
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<EXPENSE-OTHER> 3972403
<INCOME-PRETAX> 1494487
<INCOME-PRE-EXTRAORDINARY> 1054687
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1054687
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 7.28
<LOANS-NON> 1380000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 277000
<ALLOWANCE-OPEN> 627564
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