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, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-23406
SOUTHERN MISSOURI BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1665523
(State or other jurisdiction of
incorporation (I.R.S. Employer
or organization) Identification No.)
531 Vine Street, Poplar Bluff, Missouri 63901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 785-1421
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section
12(g)of
the Act: Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES x NO_
Indicate by check mark whether disclosure of delinquent
filers pursuant to Item 405 of Regulation S-B is not contained
herein, and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or other information statements incorporated
by reference in Part III of this Form 10-KSB or any amendments to this
Form 10-KSB. YES NO x
The registrant's revenues for the fiscal year ended June 30, 1998 were
$12.2 million.
As of September 15, 1998, there were issued and outstanding 1,411,980
shares of the registrant's common stock. The aggregate market value of the
voting stock held by non-affiliates of the registrant on this date, computed
by reference to the average of the bid and asked price of such stock, was
$16.6 million (1,057,000 shares at $15.75). (The exclusion from such amount
of the market value of the shares owned by any person shall not be deemed an
admission by the registrant that such person is an affiliate of the registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB- Annual Report to Stockholders for the fiscal year
ended June 30, 1998.
Part III of Form 10-KSB - Portions of the Proxy Statement for the 1998
Annual Meeting of Stockholders.
Transitional Small Business Disclosure Format(check one) Yes No X
PART I
Item 1. Description of Business
General
Southern Missouri Bancorp, Inc. ("Company"), a Delaware corporation,
was incorporated on December 30, 1993 for the purpose of becoming the holding
company for Southern Missouri Savings Bank ("SMSB") upon completion of its
conversion from a state chartered mutual to a state chartered stock savings
bank ("Conversion"). The Company completed the Conversion on April 13, 1994
through the sale and issuance of 1,803,201 shares of common stock. The
Company's Common Stock is quoted on the National Association of Securities
Dealers Automated Quotations ("NASDAQ") National Market System under the
symbol "SMBC".
SMSB was chartered as a mutual Missouri savings and loan association
in 1887. On June 20, 1995, it converted to a federally chartered stock
savings bank and took the name Southern Missouri Savings Bank, FSB. On
February 17, 1998, SMSB converted from a federally chartered stock savings
bank to a Missouri chartered stock savings bank and changed its name to
Southern Missouri Bank and Trust Co. ("Bank") and ("Charter Conversion").
As a result of the Charter Conversion, the primary regulator of the
Bank changed from the Office of Thrift Supervision ("OTS") to the Missouri
Division of Finance ("Division"). The Bank's deposits continue to be
insured up to applicable limits by the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
Notwithstanding the Bank's conversion to a state savings bank, the Company
did not become a bank holding company regulated by the Federal Reserve
Board ("FRB") but remained an OTS-regulated savings and loan holding company
as a result of the Bank's election (under Section 10(l) of the Home Owners
Loan Act, as amended ("HOLA") to be treated as an OTS-regulated savings
association for purposes of regulation of the Company ("10(l) Election").
The principal business of the Bank consists of attracting retail
deposits from the general public and using such deposits along with wholesale
funding from the Federal Home Loan Bank of Des Moines ("FHLB") to invest
primarily in one- to four-family residential mortgage loans. To a lesser
extent, the Bank also originates mortgage loans on commercial real estate,
construction loans on residential and commercial properties and consumer
loans. The Bank also invests in mortgage-backed and related securities
("MBS"), obligations of state and political subdivisions, U.S. Government
Agency obligations and other permissible investments.
At June 30, 1998, the Company had total assets of $155.9 million, total
deposits of $109.4 million and stockholders' equity of $24.1 million. The
Company has not engaged in any significant activity other than holding the
stock of the Bank. Accordingly, the information set forth in this report,
including financial statements and related data, relates primarily to the
Bank and its subsidiaries. Additionally, the Company's revenues are derived
principally from interest earned on loans, investment securities and MBS and,
to a lesser extent, insurance commissions, banking service charges, loan late
charges and other fee income.
Forward Looking Statements
When used in this Form 10-KSB or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", or similar expressions
are intended to identify "forward-looking statements" within the meaning of
the Private Securities Litigation and Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made,
and to advise readers that various factors, including regional and national
economic conditions, substantial changes in levels of market interest rates,
credit and other risks of lending and investment activities and competitive
and regulatory factors, could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ
materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences
or unanticipated events or circumstances after the date of such statements.
Market Area
The Bank provides its customers with a full array of community banking
services and conducts its business from its headquarters in Poplar Bluff and
seven additional full service offices located in Poplar Bluff, Van Buren,
Dexter, Malden, Kennett, Doniphan and Ellington, Missouri. The Bank's primary
market area includes all or portions of Butler, Carter, Dunklin, Ripley,
Stoddard, and Wayne counties, with Poplar Bluff being the economic center of
the area. The Bank's market area has a population of approximately 175,000.
The largest employer in the Bank's primary market area is Briggs & Stratton,
who operates a small engine manufacturing facility and employs approximately
1,000 persons. Other major employers include Gates Rubber, Rowe Furniture,
Lucy Lee Hospital, John Pershing VA Hospital, Doctors Regional Hospital,
Poplar Bluff School District, and Arvin. The Bank's market area is primarily
rural in nature and relies heavily on agriculture, with products including
livestock, rice, timber, soybeans, wheat, melons, corn and cotton.
Regulatory Considerations
As reported in its prior Annual Reports, on December 21, 1994, the Bank
voluntarily entered into a Supervisory Agreement with the OTS, its former
primary federal regulator. As a result of the Charter Conversion, the OTS
terminated the Supervisory Agreement. However, the Bank remains subject to
increased SAIF assessments until January 1, 1999, due to its former regulatory
status. During 1998, the Bank recognized additional expense of $36,000, due
to these higher deposit insurance premiums. See "Regulation - The Bank -
Deposit Insurance."
Selected Consolidated Financial Information
This information is incorporated by reference from pages 3 and 4 of the
1998 Annual Report to Stockholders ("Annual Report") attached hereto as
Exhibit 13.
Yields Earned and Rates Paid
This information contained under the section captioned "Yields Earned
and Rates Paid" in the Annual Report is incorporated herein by reference.
Rate/Volume Analysis
This information is incorporated by reference from page 15 of the Annual
Report.
Average Balance, Interest and Average Yields and Rates
This information contained under the section captioned "Average Balance,
Interest and Average Yields and Rates" in the Annual Report is incorporated
herein by reference.
Lending Activities
General. The Bank's primary focus in lending activities is on the
origination of loans secured by mortgages on one- to four-family residences.
To a lesser extent, the Bank also originates mortgage loans on commercial
real estate, construction loans on residential and commercial properties and
consumer loans. The Bank has also occasionally purchased a limited amount of
loan participation interests originated by other lenders within the Bank's
market area and secured by properties generally located in the Bank's primary
market area.
The Executive Loan Committee of the Bank, comprised of the President and
one of the Senior Vice Presidents, has the responsibility for the supervision
of the loan portfolio with an overview provided by the full Board of
Directors. Loans may be approved by certain officers or either member ofthe
Executive Committee, depending on the circumstances and the size of the loan,
with all loans subject to ratification by the full Board of Directors. Loans
in excess of $250,000 require the approval of the Discount Committee, whose
members consist of three outside directors, prior to the closing of the loan.
In addition, foreclosure actions or the acceptance of deeds-in-lieu of
foreclosure are subject to prior approval by the Board of Directors.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related
entities, or the aggregate amount that the Bank could have invested in any
one real estate project, is based on the Bank's capital levels. See
"Regulation - Loans to One Borrower." At June 30, 1998, the maximum amount
which the Bank could loan to any one borrower and the borrower's related
entities was approximately $3.4 million. At June 30, 1998, the Bank had no
loans which exceeded this limit.
Loan Portfolio Analysis. The following table sets forth the composition
of the Bank's loan portfolio by type of loan and type of security as of the
dates indicated.
<TABLE>
CAPTION>
At June 30,
1998 1997 1996
Amount Percent Amount Percent Amount Percent
<S> (Dollars in thousands)
Type of Loan:
<C> <C> <C> <C> <C> <C>
Mortgage Loans:
One-to four-family $ 83,399 70.03% $ 77,895 72.27% $68,330 71.52%
Commercial real estate 22,530 18.92 18,293 16.97 16,584 17.36
Construction 2,708 2.27 3,822 3.55 4,283 4.48
Total mortgage loans $108,637 $100,010 $89,197
Other Loans:
Automobile loans 7,319 6.15 4,862 4.51 3,196 3.35
Second mortgage 1,081 .91 745 .69 689 .72
Mobile home 784 .65 1,265 1.17 1,328 1.39
Loans secured by deposits 671 .57 721 .67 753 .79
Commercial business 1,127 .95 2,383 2.21 3,538 3.70
Other 1,481 1.24 435 .40 291 .31
Total other loans 12,463 10,411 9,795
Total loans $121,100 101.69 $110,421 102.44 $98,992 103.62
Less:
Undisbursed loans in process $653 (.54) $1,838 (1.70) $2,610 (2.73)
Deferred fees and discounts 69 (.06) 93 (.08) 220 (.23)
Allowance for loan losses 1,295 (1.09) 707 (.66) 627 (.66)
Net loans receivable $119,083 100.00% $107,783 100.00% $95,535 100.00%
Type of Security:
Residential real estate
One- to four-family $ 82,874 69.59% $ 78,359 72.70% $69,368 72.61%
Multi-family 3,134 2.63 583 .54 2,663 2.79
Commercial real estate 20,865 17.52 20,246 18.78 15,612 16.34
Land 1,764 1.48 822 .76 1,554 1.63
Savings accounts 671 .57 721 .67 753 .79
Consumer and other 11,792 9.90 9,690 8.99 9,042 9.46
Total loans $121,100 101.69 $110,421 102.44 $98,992 103.62
Less:
Undisbursed loans in process $653 (.54) $1,838 (1.70) $2,610 (2.73)
Deferred fees and discounts 69 (.06) 93 (.08) 220 (.23)
Allowance for loan losses 1,295 (1.09) 707 ( .66) 627 (.66)
Net loans receivable $119,083 100.00% $107,783 100.00% $95,535 100.00%
</TABLE>
One- to Four-Family Residential Mortgage Lending. The Bank focuses its
lending efforts primarily on originating loans for the acquisition or
refinance of one- to four-family residences. These loans are originated as a
result of customer and real estate agent referrals, existing and walk-in
customers and from responses to the Bank's marketing campaign. At June 30,
1998, mortgage loans secured by one- to four-family residences totaled $83.4
million, or 70.0% of net loans receivable.
The Bank currently offers both fixed-rate and adjustable-rate mortgage
("ARM") loans. During the year ended June 30, 1998 the Bank originated $15.6
million of ARM loans and $5.1 million of fixed-rate real estate loans which
were secured by one- to four-family residences. Substantially all of the one-
to four-family residential mortgage originations are located within the Bank's
primary market area.
The Bank currently originates one- to four-family residential mortgage
loans in amounts up to 90% of the lower of the purchase price or appraised
value of residential property. Loans originated in excess of 80% do not
require private mortgage insurance. Historically, the residential mortgage
loans originated by the Bank have not complied with secondary market
standards; however, it's anticipated that most single-family mortgages
originated in the second quarter of fiscal 1999 and thereafter, will conform
to secondary market standards. The interest rates charged on these loans are
competitively priced based on local market conditions, the availability of
funding, and anticipated profit margins.
The Bank originates ARM loans, which adjust annually, after an initial
period of one, three or five years. Typically, originated ARM loans are
secured by owner occupied properties which reprice at a margin of 2.75% over
the 11th district cost of funds index (generally considered a "lagging" index
because it adjusts more slowly to changes in market interest rates than most
other indeces) or the monthly average yield on United States Treasury
securities adjusted to a constant maturity of one year. Generally, ARM loans
secured by non-owner occupied residential properties reprice at a margin of
3.50% to 3.75% over the 11th district cost of funds index. Most of the
Bank's residential ARM loan originations are subject to annual and lifetime
interest rate caps. Historically, the maximum annual interest rate
adjustment on ARMs has been limited to a 100 basis point adjustment while the
maximum lifetime adjustment has been limited to either 500 or 600 basis
points over the initial interest rate. Additionally, in order to entice
customers into an ARM, the Bank has offered ARMs with initial rates below
those, which would prevail under the foregoing computations, based on
market factors, funding costs and the rates and terms for similar loans offered
by the Bank's competitors. As a consequence of using interest rate caps,
discounted initial rates and a "lagging" loan index, the interest earned on
the Bank's ARMs will react differently to changing interest rates than the
Bank's cost of funds.
In underwriting one- to four-family residential real estate loans, the
Bank evaluates the borrower's ability to meet debt service requirements as
well as the value of the property securing the loan. Mortgage loans are
originated based on amortization or final maturities of up to 30 years.
During 1998, most properties securing real estate loans made by the Bank had
appraisals performed on them by independent fee appraisers approved and
qualified by the Board of Directors. The Bank generally requires borrowers
to obtain title insurance and fire, property and flood insurance (if
indicated) in an amount not less than the amount of the loan. Real estate
loans originated by the Bank generally contain a "due on sale" clause
allowing the Bank to declare the unpaid principal balance due and payable
upon the sale of the security property.
Multi-Family, Commercial Real Estate and Land Lending. The Bank
actively originates loans secured by multi-family, commercial real estate
(apartment buildings, strip shopping centers, retail establishments and other
businesses) and land located in the Bank's primary market area. At June 30,
1998, the Bank had $3.1 million, $17.6 million, and $1.8 million,
respectively, of multi-family, commercial real estate and land loans, which
represented 2.6%, 14.8%, and 1.5%, respectively, of net loans receivable.
Multi-family, commercial real estate and land loans originated by the
Bank generally are based on amortization schedules of up to 25 years with
monthly principal and interest payments. Generally, the interest rate
charged on these loans adjusts annually based upon the 11th district cost of
funds or the Bank's internal cost of funds plus a margin of 3.50% to 4.50%,
and are occasionally subject to annual and lifetime interest-rate adjustment
caps. Generally, multi-family, commercial real estate and land loans do not
exceed 75% of the lower of the appraised value or purchase price of the
secured property. Before credit is extended, the Bank analyzes the financial
condition of the borrower, the borrower's credit history, and the reliability
and predictability of the cash flow generated by the property and the value
of the property itself. Generally, personal guaranties are required from the
borrower in addition to the secured property as collateral for such loans. In
addition, personal financial statements generally are required to be
submitted to the Bank on at least an annual basis. The Bank also generally
requires appraisals on properties securing multi-family, commercial real
estate and land loans to be performed by a Board-approved independent
certified fee appraiser.
Generally loans secured by multi-family, commercial real estate and land
involve a greater degree of credit risk than one- to four-family residential
mortgage loans. These loans typically involve large balances to single
borrowers or groups of related borrowers. Because payments on loans secured
by commercial real estate and multi-family properties are often dependent on
the successful operation or management of the secured property, repayment of
such loans may be subject to adverse conditions in the real estate market or
the economy. If the cash flow from the project securing the Bank's loan is
reduced (for example, if leases are not obtained or renewed), the borrower's
ability to repay the loan may be impaired. See "Asset Quality."
Construction Lending. The Bank originates real estate loans secured by
property or land that is under construction or development. At June 30,
1998, the Bank had $2.7 million, or 2.3% of net loans receivable in
construction loans outstanding.
Construction loans originated by the Bank are generally secured by
permanent mortgage loans for the construction of owner occupied residential
real estate or to finance speculative construction secured by residential
real estate, land development or owner-operated commercial real estate. At
June 30, 1998, the Bank had $2.2 million in outstanding construction loans
secured by owner-occupied residential real estate and $552,000 in other
speculative construction secured by land or commercial real estate. During
construction, these loans typically require monthly interest-only payments
and have maturities ranging from 6 to 12 months. Once construction is
completed, permanent construction loans are converted to monthly payments
using amortization schedules up to 25 years.
Construction and land development lending generally affords the Bank
an opportunity to receive higher interest rates and fees with shorter terms
to maturity than those obtainable from residential lending. Nevertheless,
construction and land development lending is generally considered to involve
a higher level of credit risk than one- to four-family residential lending
due to (i) the concentration of principal among relatively few borrowers and
development projects, (ii) the increased difficulty at the time the loan is
made of accurately estimating building or development costs and the selling
price of the finished product, (iii) the increased difficulty and costs of
monitoring and disbursing funds for the loan, (iv) the higher degree of
sensitivity to increases in market rates of interest and changes in local
economic conditions, and (v) the increased difficulty of working out problem
loans. Due in part to these risk factors, the Bank may be required from
time to time to modify or extend the terms of some of these types of loans.
In an effort to reduce these risks, the application process includes a
submission to the Bank of accurate plans, specifications and costs of the
project to be constructed. These items are also used as a basis to
determine the appraised value of the subject property. Loan amounts are
approved based on the lesser of current appraised value and/or the cost of
construction.
Consumer and Commercial Business Lending. The Bank offers a variety of
secured consumer loans, including automobile, second mortgages, mobile homes,
guaranteed student loans and loans secured by deposits. The Bank also
originates secured and unsecured loans to individuals and commercial
businesses, as well as letters-of-credit and lines-of-credit. The Bank
originates substantially all of its consumer and commercial business loans
in its primary market area. Currently, all consumer loans are originated
on a direct basis, where credit is extended directly to the borrower.
Usually, consumer loans are originated with fixed rates for terms of up to
five years, while commercial business loans typically will be for one year
and may have either a fixed or adjustable interest rate.
At June 30, 1998, the Bank's consumer and commercial business loan
portfolio totaled $12.5 million, or 10.5% of net loans receivable. At
June 30, 1998, $12.3 million, or 98.8% of the consumer and business loan
portfolio had fixed rate loans while 1.2% had adjustable interest rates.
Consumer Lending. Automobile loans represent the largest component
(58.7% of installment loans) of the Bank's installment loan portfolio at
June 30, 1998, and totaled $7.3 million, or 6.2% of net loans receivable.
Typically, automobile loans are made for terms of up to 60 months for new
vehicles and up to 48 months for used vehicles. Loans secured by automobiles
have fixed rates and are generally made in amounts up to 80% of the purchase
price of the vehicle. The Bank has not engaged in indirect automobile
lending since the third quarter of fiscal 1998. At June 30, 1998, the
outstanding balance of indirect automobile loans was $295,000.
During prior periods, the Bank financed mobile homes for customers of
a local mobile home dealer. At June 30, 1998, the remaining balance of these
loans totaled $784,000. Of these loans, $80,000 were past due more than 90
days while the balance of loans past due 61 to 90 days was $71,000 and 30 to
60 days was $82,000. During 1998, the Bank realized net charge-offs of
$119,000 related to these mobile homes. In addition, it is likely that
additional charge-offs related to these mobile homes will be made in the
future; however, this likelihood was considered when the Bank evaluated the
adequacy of its allowance for loan losses.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed for consumer loans include employment stability, an
application, a determination of the applicant's payment history on other
debts, and an assessment of ability to meet existing and proposed
obligations. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the
value of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than do residential
mortgage loans, especially in the case of consumer loans, which are
unsecured or are secured by rapidly depreciable or mobile assets, such as
automobiles or mobile homes. In the event of repossession or default,
there may be no secondary source of repayment or the underlying value of the
collateral could be insufficient to repay the loan. In addition, consumer
loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be affected by adverse personal
circumstances. Furthermore, the application of various federal and state laws,
including bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans. The Bank's delinquency levels for these type of
loans indicate these risks. See "Asset Classification."
Commercial Business Lending. At June 30, 1998, the Bank also had $1.1
million in commercial business loans outstanding, or .95% of net loans
receivable. The Bank's commercial business lending activities encompass
loans with a variety of purposes and security, including loans to finance
accounts receivable, inventory and equipment.
Commercial business loan terms vary according to the type and value of
collateral, length of contract and creditworthiness of the borrower. The
Bank's commercial business loans are evaluated based on the loan application,
a determination of the applicant's payment history on other debts, business
stability and an assessment of ability to meet existing obligations and
payments on the proposed loan. Although creditworthiness of the applicant
is a primary consideration, the underwriting process also includes a
comparison of the value of the security, if any, in relation to the proposed
loan amount.
Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment from his or her employment and
other income, and which are secured by real property whose value tends to be
more easily ascertainable, commercial business loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment
from the cash flow of the borrower's business. As a result, the availability
of funds for the repayment of commercial business loans may be substantially
dependent on the success of the business itself. Further, the collateral
securing the loans may depreciate over time, may be difficult to appraise and
may fluctuate in value based on the success of the business.
Loan Maturity and Repricing
The following table sets forth certain information at June 30, 1998
regarding the dollar amount of loans maturing in the 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.
After After After
One Year 3 Years 5 Years
Within Through Through Through After
One Year 3 Years 5 Years 10 Years 10 Years Total
(In thousands)
One- to four-family $73,550 $1,541 $3,399 $3,849 $1,060 $ 83,399
Commercial real estate 20,209 79 1,866 376 -- 22,530
Construction 2,708 -- -- -- -- 2,708
Consumer 3,977 3,066 3,996 297 -- 11,336
Commercial business 879 137 111 -- -- 1,127
Total loan $101,323 $4,823 $9,372 $4,522 $1,060 $121,100
The following table sets forth the dollar amount of all loans due one year
after June 30, 1998, which have fixed interest rates and which have adjustable
interest rates.
Fixed Adjustable
Rates Rates
(In thousands)
One- to four-family $ 9,175 $ 74,224
Commercial real estate 703 21,827
Construction -- 2,708
Consumer 7,359 3,977
Commercial business 249 878
Total $17,486 $103,614
The following table sets forth scheduled contractual amortization of loans
at June 30, 1998 and June 30, 1997, 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.
<TABLE>
<CAPTION>
At June 30, 1998 At June 30, 1997
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 $ 96,467 $ 3,977 $ 879 $101,323 $ 87,829 $2,289 $1,935 $92,053
After one year
through three
years 1,620 3,066 137 4,823 2,234 2,388 275 4,897
After three years
through five years 5,265 3,996 111 9,372 2,817 2,622 93 5,532
After five years 5,285 297 -- 5,582 7,130 729 80 7,939
Total $108,637 $11,336 $1,127 $121,100 $100,010 $8,028 $2,383 $110,421
Interest rate terms
on amounts due
after one year:
Fixed $ 9,878 7,359 $249 $ 17,486 $14,534 $8,028 $1,748 $24,310
Adjust-
able 98,759 3,977 878 103,614 85,476 -- 635 86,111
</TABLE>
Originations, Purchases and Servicing of Loans and Mortgage-Backed Securities
Generally, real estate loans are originated by the Bank's staff of
salaried loan officers. Loan applications are taken and processed at each
of the Bank's full-service locations. The Bank has not participated in the
secondary market and does not service any loans for other entities.
While the Bank originates both adjustable-rate and fixed-rate loans, the
ability to originate loans is dependent upon the relative customer demand for
loans in its market. In 1998, the Bank originated $48.5 million of loans,
compared to $41.2 million and $54.3 million in 1997 and 1996, respectively.
The increase om 1998's originations was attributed to expanded product lines,
increased marketing, and price competitiveness.
From time to time, the Bank has purchased loan participations consistent
with its loan underwriting standards. In 1998, the Bank purchased one loan
for $171,000, which was secured by an income producing property. At June 30,
1998, loan participations totaled $1.9 million, or 1.6% of net loans
receivable. All of these participations were secured by properties located
in Missouri. At June 30, 1998, all of such participations were performing in
accordance to their respective terms.
In addition, the Bank has purchased MBS to complement lending activities
and provide balance sheet flexibility for liquidity and asset/liability
management. The Board believes that the lower yield carried by MBS is
somewhat offset by the lower level of credit risk and the lower level of
overhead required in connection with these assets, as compared to one- to
four-family, non-residential, multi-family and other types of loans. See
"- Mortgage-Backed and Related Securities."
The following table shows total mortgage loans originated, purchased,
sold and repaid during the periods indicated.
Year Ended June 30,
1998 1997 1996
(In thousands)
Total mortgage loans at
beginning of period $100,010 $ 89,197 $79,883
Loans originated:
One- to four-family 20,687 21,993 16,032
Multi-family and
commercial real estate 9,736 5,618 5,781
Construction loans 2,540 2,086 3,242
Total loans originated 32,963 29,697 25,055
Loans purchased:
Total loans purchased 171 -- --
Loans sold:
Total loans sold -- -- --
Mortgage loan principal repayments (24,391) (18,763) (15,620)
Foreclosures (116) (121) (121)
Net loan activity 8,627 10,813 9,314
Total mortgage loans at end of
period $108,637 $100,010 $89,197
Asset Quality
Delinquent Loans. Generally, when a borrower fails to make a required
payment on mortgage or installment loans the Bank begins the collection
process by mailing a computer generated notice to the customer. If the
delinquency is not cured promptly, the customer is contacted again by notice
or telephone. After an account secured by real estate becomes over 60 days
past due, the Bank will generally send a 30-day demand notice to the
customer, which if not cured, unless satisfactory arrangements have been
made, will lead to foreclosure. For consumer loans the Missouri Right-To-
Cure Statute is followed which requires issuance of specifically worded
notices at specific time intervals prior to repossession or further
collection efforts.
The following table sets forth the Bank's loan delinquencies by type and
by amount at June 30, 1998.
Loans Delinquent For:
Total Loans
90 Days and Delinquent 60
60-89 Days Over Days or More
Numbers Amounts Number Amounts Number Amounts
One- to four-family 16 $ 363 23 $ 842 39 $1,205
Construction loans 1 30 -- -- 1 30
Commercial real estate 1 96 7 348 8 444
Mobile home 7 71 11 80 18 151
Consumer 4 68 14 65 18 133
Totals 29 $628 55 $1,335 84 $1,963
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. Loans are
placed on non-accrual status when the collection of principal and/or interest
become doubtful, and as a result, previously accrued interest income on the
loan is taken out of current income. The Bank has no reserves for uncollected
interest and does not accrue interest on non-accrual loans. A loan may be
transferred back to accrual status once a satisfactory repayment history has
been restored. Foreclosed assets held for sale include assets acquired in
settlement of loans and are shown net of reserves.
At June 30, 1998, the Bank had 13 loans totaling $533,000 on which
interest was not being accrued in accordance with SFAS No. 114, as amended.
The Bank would have recorded interest income of $46,000, $124,000 and $47,000
on non-accrual loans during the years ended June 30, 1998, 1997 and 1996,
respectively, if such loans had been performing during such periods. See
page 29 of the Annual Report for a discussion of impaired loans. In
addition, the Bank had $804,000 in residential and consumer loans which were
still accruing interest that were 90 days or more past due. These loans are
in the process of collection and the Bank expects these loans to be brought
current. At June 30, 1998 the Bank had included $22,000 in income on these
loans.
The following table sets forth information with respect to the Bank's
non-performing assets as of the dates indicated. At the dates indicated, the
Bank had no restructured loans within the meaning of SFAS 15.
At June 30,
1998 1997 1996 1995 1994
(Dollars in thousands)
Nonaccruing loans:
One- to four-family $ 182 $ 922 $480 $ 700 $ 641
Commercial real estate 344 279 -- 14 47
Consumer 7 179 45 14 8
Commercial business -- -- 21 9 --
Total $ 533 $1,380 $546 $ 737 $ 696
Loans 90 days past due
accruing interest:
One- to four-family $ 661 $ -- $ -- $ -- $ --
Commercial real estate 3 -- -- -- --
Consumer 140 -- -- -- --
Commercial business -- -- -- -- --
Total $ 804 $ -- $ -- $ -- $ --
Total nonperforming loans $1,337 $1,380 $546 $ 737 $ 696
Foreclosed assets held for sale:
Real estate owned $ 172 $ 55 $ 60 $ 727 $ 778
Other nonperforming assets 12 -- -- -- --
Total nonperforming
assets $1,521 $1,435 $606 $1,464 $1,474
Total nonperforming loans
to net loans 1.12% 1.28% .57% .89% .93%
Total nonperforming loans
to total assets .86% .86% .34% .50% .49%
Total nonperforming assets
to total assets .98% .89% .38% .99% 1.04%
Asset Classification. Applicable regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, regulatory
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. When an insured
institution classifies problem assets as loss, it charges off the balances of
the asset. Assets, which do not currently expose the Bank to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses, may be designated as special mention. The Bank's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the FDIC and the Division, which can order
the establishment of additional loss allowances.
In connection with the filing of its periodic reports with the FDIC
and in accordance with its asset classification policy, the Bank regularly
reviews its loan portfolio to determine whether any loans require
classification in accordance with applicable regulations. On the basis of
management's review of the assets of the Company, at June 30, 1998,
classified assets totaled $5.5 million, or 3.55% of total assets as compared
to $1.4 million, or .86% of total assets at June 30, 1997. The significant
increase in classified assets was primarily the result of a $3.2 million and
$714,000 increase in classified assets secured by commercial real estate and
one- to four-family residences, respectively.
The largest classified commercial real estate relationship at June
30, 1998 totaled $2.6 million and was performing in accordance with its
terms. In addition, the Bank had classified three other lending
relationships secured primarily by commercial real estate, which in the
aggregate totaled $1.1 million. Each of these borrowing relationships was
classified due to concerns over whether the property securing the Bank's
loans generated sufficient cash flow to amortize the loan in accordance with
its terms.
Other Loans of Concern. In addition to the classified assets discussed
above, there was also an aggregate of $712,000 in net book value of loans
(19 one- to four-family residential loans, 1 construction loan and 11
consumer loans) with respect to which management has doubts as to the ability
of the borrowers to continue to comply with present loan repayment terms
which may ultimately result in the classification of such assets.
Real Estate Owned. Real estate properties acquired through
foreclosure or by deed in lieu of foreclosure are recorded at the lower of
cost or fair value, less estimated disposition costs. If fair value at the
date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time
of transfer. Management periodically updates real estate valuations and if
the value declines, a specific provision for losses on such property is
established by a charge to operations. At June 30, 1998, the Bank's balance
of real estate owned totaled $172,000 and included 17 properties secured
primarily by real estate lots.
Allowance for Loan Losses. The Bank's allowance for loan losses is
established through a provision for loan losses based on management's
evaluation of the risk inherent in the loan portfolio and changes in the
nature and volume of loan activity, including those loans which are being
specifically monitored. Such evaluation, which includes a review of loans
for which full collectibility may not be reasonably assured, considers among
other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an adequate provision for loan losses.
These provisions for loan losses are charged against earnings in the year
they are established. The Bank had an allowance for loan losses at June 30,
1998, of $1.3 million, which represented .85% of nonperforming assets as
compared to $706,000 or .49% of nonperforming assets at June 30, 1997. See
Note 3 of Notes to Consolidated Financial Statements contained in the Annual
Report.
Although management believes that it uses the best information available
to determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from assumptions used in making the final determination.
Future additions to the allowance will likely be the result of periodic loan,
property and collateral reviews and thus cannot be predicted with certainty
in advance.
The following table sets forth an analysis of the 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,
1998 1997 1996 1995 1994
(Dollars in thousands)
Allowance at beginning of period $ 706 $ 627 $572 $477 $261
Recoveries
One- to four-family 1 -- -- -- --
Consumer 42 -- -- -- --
Mobile homes 89 -- -- -- --
Total recoveries 132 -- -- -- --
Charge offs:
One- to four-family 6 -- -- -- 14
Consumer 116 162 5 -- --
Mobile homes 204 -- -- -- --
Total charge offs 326 162 5 -- 14
Net charge offs 194 162 5 -- 14
Provision for loan losses 783 241 60 95 230
Balance at end of period $1,295 $706 $627 $572 $477
Ratio of allowance to total
loans outstanding at the
end of the period 1.07% .64% .63% .67% .62%
Ratio of net charge offs
to average loans outstanding
during the period .17% .16% .01% -- .02%
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
At June 30,
1998 1997 1996 1995 1994
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Gross Loans Amount Gross Loans Amount Gross Loans Amount Gross Loans Amount Gross Loans
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family $ 372 70.03% $ 647 71.38% $562 72.77% $562 77.96% $467 80.23%
Construction 20 2.27 -- -- -- -- -- -- -- --
Commercial real estate 612 18.92 -- -- -- -- -- -- -- --
Consumer 126 8.87 59 9.56 65 9.89 10 5.99 10 5.90
Commercial business 17 .95 -- -- -- -- -- -- -- --
Mobile homes 127 .65 -- -- -- -- -- -- -- --
Unallocated 21 -- -- -- -- -- -- -- -- --
Total allowance
for loan losses $1,295 $ 706 $627 $572 $477
</TABLE>
Investment Activities
General. Under Missouri law, the Bank is permitted to invest in various
types of liquid assets, including U.S. and Missouri obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and savings institutions, banker's acceptances, repurchase agreements,
federal funds, commercial paper, investment grade corporate debt securities
and obligations of States and their political sub-divisions. Generally, the
investment policy of the Company is to invest funds among various categories
of investments and repricing characteristics based upon the Company's need
for liquidity, to provide collateral for borrowings and public unit deposits,
to help reach financial performance targets and to help maintain
asset/liability management objectives.
The Company's investment portfolio is managed in accordance with the
Bank's investment policy which was adopted by the Board of Directors of the
Bank and is implemented by members of the asset/liability management
committee which consists of the President, Chief Financial Officer and three
outside directors.
Investment purchases and/or sales must be authorized by the appropriate
party, depending on the aggregate size of the investment transaction, prior
to any investment transaction. The Board of Directors reviews all investment
transactions. Investment purchases are identified as either held-to-maturity
(HTM) or available-for-sale (AFS) at the time of purchase. For
information regarding the amortized cost and market values of the Company's
investments, see Note 2 of Notes to Consolidated Financial Statements
contained in the Annual Report.
The Company has 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 "HTM" 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 "AFS"
must be reported at fair value with unrealized gains and losses recorded as a
separate component of stockholders' equity. At June 30, 1998, AFS securities
totaled $23.5 while HTM totaled $4.6 million (excluding FHLB stock), see Note
2 of Notes to Consolidated Financial Statements contained in the Annual
Report.
Investment Securities. At June 30, 1998, the Company's investment
securities portfolio totaled $15.1 million, or 9.7% of total assets as
compared to $19.6 million, or 12.3% of total assets at June 30, 1997. The
reduction was due to $7.2 million in maturities and $2.6 million in sales,
which more than offset purchases of $5.0 million. At June 30, 1998, the
investment securities portfolio included $6.9 million in callable agency
bonds, $6.4 million in municipal bonds, $2.9 million of which is subject to
early redemption at the option of the issuer, $1.1 million in FHLB stock and
$600,000 in other agency securities. Based on contractual maturities, the
weighted average maturity of the investment securities portfolio at June 30,
1998, excluding FHLB stock, was 58.7 months.
Mortgage-Backed and Related Securities. At June 30, 1998, MBS totaled
$14.2 million, or 9.1%, of total assets as compared to $26.2 million, or
16.4% of total assets at June 30, 1997. The reduction was due to the
proceeds from the sales and maturities of MBS being reinvested into loans
receivable. During 1998, the Bank had net sales of $7.5 million in MBS and
maturities of $5.4 million, which more than offset purchases of $1.1 million.
At June 30, 1998, the MBS portfolio included $9.9 million in adjustable-rate
MBS, $2.6 million in collateralized mortgage obligations, which passed the
Federal Financial Institutions Examination Council's sensitivity test, and
$1.7 million in fixed-rate MBS.
Investment Securities Analysis
The following table sets forth the Company's investment securities
portfolio at carrying value (including securities classified HTM
and securities classified as AFS) at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
1998 1997 1996
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
agencies $ 7,597 50.47% $10,046 51.15% $8,023 37.64%
State and political
subdivisions 6,401 42.53 6,528 33.23 8,856 41.55
Corporate securities -- -- 1,548 7.88 2,915 13.68
FHLB stock 1,054 7.00 1,520 7.74 1,520 7.13
Total $15,052 100.00% $19,642 100.00% $21,314 100.00%
<FN>
<F1>
(1) The market value of the investment securities portfolio amounted to $15.2
million, $19.8 million and $21.3 million at June 30, 1998, 1997 and 1996,
respectively.
</FN>
</TABLE>
The following table sets forth the maturities and weighted average yields of
debt securities in the investment securities portfolio (including
securities classified HTM and securities classified as AFS) at June 30,
1998.
Securities Held to Maturity
June 30, 1998
Estimated Weighted
Book Market Average
Value Value Yield
(Dollars in Thousands)
U.S. government agencies:
Due within 1 year $ 600 $ 587 2.65%
Due after 1 year but within 5 years -- -- --
Due after 5 years but within 10 years -- -- --
Due after 10 years -- -- --
State and political subdivisions:
Due within 1 year 175 176 4.69
Due after 1 year but within 5 years 1,618 1,653 5.35
Due after 5 years but within 10 years 1,444 1,515 5.23
Due after 10 years 808 866 6.20
Total Held to Maturity $4,645 $4,797 5.11%
Securities Available for Sale
June 30,1998
Book/ Weighted
Amoritzed Estimated Average
Cost Market Value Yield
(Dollars in Thousands)
U.S. government agencies:
Due within 1 year -- -- --
Due after 1 year but within 5 years $6,990 $6,997 6.25%
Due after 5 years but within 10 years -- -- --
Due after 10 years -- -- --
State and political subdivisions:
Due within 1 year 210 210 4.31
Due after 1 year but within 5 years 1,597 1,635 7.11
Due after 5 years but within 10 years 295 307 5.71
Due after 10 years 195 203 6.13
Total Available for Sale $9,287 $9,352 6.34%
The following table sets forth certain information at June 30, 1998
regarding the dollar amount of MBS maturing in the Bank's portfolio
(including securities classified HTM and securities classified AFS) based on
their contractual terms to maturity, but does not include scheduled payments
or potential prepayments. MBS, which have adjustable rates, are shown as
maturing at their next repricing date.
At June 30,
1998
(In thousands)
Amounts due:
Within 1 year $12,617
After 1 year through 3 years 1,056
After 3 year through 5 years --
After 5 years 481
Total $14,154
The following table sets forth the dollar amount of all MBS due one year
after June 30, 1998, which have fixed interest rates and have floating or
adjustable rates.
At June 30,
1998
(In thousands)
Interest rate terms on
amounts due after 1 year:
Fixed $ 1,745
Adjustable 12,367
Pending 42
Total $14,154
The following table sets forth certain information with respect to each
security (other than U.S. Government and agency securities, which had an
aggregate book value in excess of 10% of the Bank's retained earnings at the
dates indicated.
At June 30,
1998 1997 1996
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
(In thousands)
FHLMC certificates $ 1,426 $ 1,426 $ 4,986 $ 4,989 $ 8,614 $ 8,616
GNMA certificates 6,326 6,326 11,770 11,770 10,644 10,644
FNMA certificates 3,846 3,846 6,391 6,391 12,323 12,325
Collateralized mortgage
Obligations 2,556 2,556 3,089 3,089 3,456 3,456
Total $14,154 $14,154 $26,236 $26,239 $35,037 $35,041
Deposit Activities and Other Sources of Funds
General. The Company's primary sources of funds are deposits,
borrowings, payment of principal and interest on loans and MBS, interest and
principal received on investment securities and other short-term investments,
and funds provided from operating results. Loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general market interest rates and
overall economic conditions.
Borrowings, including FHLB advances, have been used at times to provide
additional liquidity. Borrowings are used on an overnight or short-term
basis to compensate for periodic fluctuations in cash flows, and are used on
a longer term basis to fund loan growth and to help manage the Company's
sensitivity to fluctuating interest rates.
Deposits. The Bank offers a variety of deposit accounts, which have a
wide range of interest rates and terms as set forth in the following table.
Deposit account terms vary according to the minimum balance required, the
time periods funds must remain on deposit and the interest rate, among other
factors. Deposits are solicited from the Bank's primary market area and are
attracted and retained through competitive pricing, cross-selling,
advertisement and providing quality customer service.
The Bank will periodically promote a particular deposit product as part
of the Bank's overall marketing plan. Deposit products have been promoted
through various mediums, which include radio, and newspaper
advertisements. The emphasis of these campaigns is to increase consumer
awareness and market share of the Bank.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious.
Based on its experience, the Bank believes that its deposits are relatively
stable sources of funds. However, the ability of the Bank to attract and
maintain certificates of deposit, and the rates paid on these deposits, has
been and will continue to be significantly affected by market conditions.
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
(In thousands)
None Non-interest Bearing $ 2,590 2.37%
2.40% None Now Accounts $ 100 7,510 6.86
2.50 None Savings Accounts 50 7,319 6.69
3.44 None Money Market Deposit Accounts 1,000 8,250 7.54
Certificate of Deposit
4.13 91-day Fixed-term/Fixed-rate 500 494 .45
4.93 5 month Fixed-term/Fixed-rate 500 2,049 1.87
4.87 6 month Fixed-term/Fixed-rate 500 15,980 14.61
5.06 6 month IRA Fixed-term/Fixed-rate 500 56 .05
5.24 9 month Fixed-term/Fixed-rate 500 12,987 11.87
5.58 9 month IRA Fixed-term/Fixed-rate 500 9,250 8.45
5.14 11 month Fixed-term/Fixed-rate 500 2,019 1.85
5.42 12 month Fixed-term/Fixed-rate 500 24,119 22.05
5.20 12 month IRA Fixed-term/Fixed-rate 500 689 .63
5.01 15 month Fixed-term/Fixed-rate 500 963 .88
4.58 24 month Fixed-term/Fixed-rate 500 3,281 3.00
5.00 24 month IRA Fixed-term/Fixed-rate 500 152 .14
5.57 29 month Fixed-term/Fixed-rate 500 1,437 1.31
5.52 29 month IRA Fixed-term/Fixed-rate 500 417 .38
4.85 36 month Fixed-term/Fixed-rate 500 2,430 2.22
5.24 36 month IRA Fixed-term/Fixed-rate 500 4,084 3.73
5.16 48 month Fixed-term/Fixed-rate 500 280 .26
5.25 60 month Fixed-term/Fixed-rate 500 2,985 2.73
5.40 60 month IRA Fixed-term/Fixed-rate 500 1 .00
7.82 72 month Fixed-term/Fixed-rate 500 10 .01
8.08 96 month Fixed-term/Fixed-rate 500 58 .05
$109,410 100.00%
The following table indicates the amount of the Bank's jumbo
certificates of deposit by time remaining until maturity as of June 30, 1998.
Jumbo certificates of deposit require minimum deposits of $100,000 and rates
paid on such accounts are negotiable.
Maturity Period Amount
(In thousands)
Three months or less $ 4,515
Over three through six months 3,427
Over six through twelve months 2,761
Over 12 months 1,319
Total $12,022
Time Deposits by Rates
The following table sets forth the time deposits in the Bank
classified by rates at the dates indicated.
At June 30,
1998 1997 1996
(In thousands)
4.00 - 4.99% $ 8,850 $ 21,004 $ 24,741
5.00 - 5.99% 74,667 72,566 66,530
6.00 - 6.99% 120 123 5,139
7.00 - 7.99% 26 28 1,236
8.00 - 8.99% 59 68 63
9.00 - 9.99% 19 18 17
Total $83,741 $ 93,807 $ 97,726
The following table sets forth the amount and maturities of time
deposits at June 30, 1998.
Amount Due
Less Percent
Than of Total
One 1-2 2-3 3-4 After Certificate
Year Years Years Years 4 Years Total Accounts
(In thousands)
4.00 - 4.99% $ 6,532 $1,814 $ 503 $ 2 $ -- $8,851 10.58%
5.00 - 5.99% 67,349 1,200 5,202 656 260 74,667 89.16
6.00 - 6.99% -- 120 -- -- -- 120 .14
7.00 - 7.99% 7 4 10 -- 5 26 .03
8.00 - 8.99% -- -- -- -- 58 58 .07
9.00 - 9.99% 19 -- -- -- -- 19 .02
Total $73,907 $3,138 $5,715 $658 $323 $83,741 100.00%
Deposit Flow
The following table sets forth the savings flows at the Bank during the
period indicated.
<TABLE>
<CAPTION>
At June 30,
1998 1997 1996
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 $ 2,590 2.37% $ 1,420 $ 1,170 .99% $ 399 $ 771 .64%
NOW checking 7,510 6.86 (277) 7,787 6.56 521 7,266 6.05
Regular savings
accounts 7,319 6.69 (321) 7,640 6.44 659 6,981 5.81
Money market deposit 8,250 7.54 (51) 8,301 6.99 906 7,395 6.16
Fixed-rate certificates
which mature (1):
Within one year 73,907 67.55 (11,242) 85,149 71.73 2,584 82,565 68.72
Within three years 3,138 2.87 (4,410) 7,548 6.36 (6,834) 14,382 11.97
After three years 6,696 6.12 5,586 1,110 .93 332 778 .65
Total $109,410 100.00% $ (9,295) $118,705 100.00% $(1,433) $120,138 100.00%
<FN>
<F1>
(1) At June 30, 1998, 1997 and 1996 certificates in excess of $100,000
totaled $12.0 million, $19.9 million and $18.3 million, respectively.
</FN>
</TABLE>
The following table sets forth the savings activities of the Bank for the
periods indicated.
Year Ended June 30,
1998 1997 1996
(In thousands)
Beginning Balance $118,705 $120,138 $118,152
Net increase (decrease)
before interest credited (12,383) (4,977) (2,059)
Interest credited 3,088 3,544 4,045
Net increase (decrease)
in savings deposits (9,295) (1,433) 1,986
Ending balance $109,410 $118,705 $120,138
In the unlikely event the Bank is liquidated, depositors will be
entitled to payment of their deposit accounts prior to any payment being made
to the Company as the sole stockholder of the Bank. Substantially all of the
Bank's depositors are residents of the State of Missouri.
Borrowings. As a member of the FHLB of Des Moines, the Bank has the
ability to apply for FHLB advances. These advances are available under
various credit programs, each of which has its own maturity, interest rate
and repricing characteristics. Additionally, FHLB advances have prepayment
penalties as well as limitations on size or term. In order to utilize FHLB
advances, the Bank must be a member of the FHLB system, have sufficient
collateral to secure the requested advance and own stock in the FHLB equal to
5% of the amount borrowed. See "REGULATION - The Bank -- Federal Home Loan
Bank System."
Although deposits are the Bank's primary and preferred source of funds,
the Bank actively uses FHLB advances. The Bank's general policy has been to
utilize borrowings to meet short-term liquidity needs, or to provide a longer
- -term source of funding loan growth when other cheaper funding sources are
unavailable or to aide in asset/liability management. As of June 30, 1998,
$19.8 million of the Bank's $21.1 million in FHLB advances were for original
terms of ten years, subject to early redemption by the FHLB after an initial
period of one to three years. In order for the Bank to borrow these funds,
it has pledged $74.5 million of its residential loans to the FHLB and has
purchased $1.1 million in FHLB stock
The following table sets forth certain information regarding borrowings
by the Bank at the end of and during the periods indicated:
Year Ended June 30,
1998 1997
(Dollars in thousands)
Maximum amount of borrowings outstanding
at any month end:
FHLB advances $24,576 $14,544
Approximate average short-term borrowings
outstanding with respect to:
FHLB advances 2,700 13,067
Other long term borrowing 15,025 --
Weighted average rate paid on FHLB advances 5.41% 5.79%
Subsidiary Activities
The 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 Bank.
The activities of the subsidiary are not significant to the financial
condition or results of operations of the Bank.
Competition
The Bank faces strong competition, both in originating loans and in
attracting deposits, from a variety of entities which include some companies
which are subject to less regulatory oversight or regulation. Major
competitors of the Bank include other banks and thrifts, credit unions,
pension funds, mortgage bankers, and insurance companies. The competitive
nature of the industry is unlikely to change as larger percentages of both
available deposits and loans are shifted into debt and equity markets. The
Bank is one of 9 government-regulated financial institution's located in the
Bank's primary market area.
The Bank attracts its deposits through its branch network, primarily
from the communities in which those offices are located; therefore,
competition for those deposits is principally from other financial entities
located within those same communities. The Bank competes for these deposits
by offering a variety of competitively priced products, providing friendly
service, offering convenient business hours, and by being an active
participant in the success of each of these communities.
REGULATION
The Bank
General. As a state-chartered, federally insured savings bank,
the Bank is subject to extensive regulation. Lending activities and other
investments must comply with various statutory and regulatory requirements,
including prescribed minimum capital standards. The Bank is regularly
examined by the FDIC and the Division and files periodic reports concerning
the Bank's activities and financial condition with its regulators. The
Bank's relationship with depositors and borrowers also is regulated to a
great extent by both federal law and the laws of Missouri, especially in
such matters as the ownership of savings accounts and the form and content
of mortgage documents.
Federal and state banking laws and regulations govern all areas of the.
operation of the Bank, including reserves, loans, mortgages, capital,
issuance of securities, payment of dividends and establishment of branches.
Federal and state bank regulatory agencies also have the general authority
to limit the dividends paid by insured banks and bank holding companies if
such payments should be deemed to constitute an unsafe and unsound practice.
The respective primary federal regulators of the Company and the Bank have
authority to impose penalties, initiate civil and administrative actions and
take other steps intended to prevent banks from engaging in unsafe or unsound
practices.
State Regulation and Supervision. As a state-chartered savings bank,
the Bank is subject to applicable provisions of Missouri law and the
regulations of the Division adopted thereunder. Missouri law and regulations
govern the Bank's ability to take deposits and pay interest thereon, to make
loans on or invest in residential and other real estate, to make consumer
loans, to invest in securities, to offer various banking services to its
customers, and to establish branch offices. Under state law, savings banks
in Missouri also generally have all of the powers that federal mutual savings
banks have under federal laws and regulations. The Bank is subject to
periodic examination and reporting requirements by and of the Division.
Federal Securities Law. The stock of the Company is registered with
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As such, the Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.
The Company's stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Company may not be
resold without registration or unless sold in accordance with certain resale
restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-
month period.
Federal Reserve System. The FRB requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (checking, NOW and Super NOW checking accounts). At
June 30, 1998, the Bank was in compliance with these reserve requirements.
Savings Banks are authorized to borrow from the Federal Reserve Bank
"discount window," but FRB regulations require associations to exhaust other
reasonable alternative sources of funds, including FHLB borrowings, before
borrowing from the FRB.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Des Moines, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances)
in accordance with policies and procedures established by the board of
directors of the FHLB, which are subject to the oversight of the Federal
Housing Finance Board. All advances from the FHLB are required to be fully
secured by sufficient collateral as determined by the FHLB. In addition, all
long-term advances are required to provide funds for residential home
financing. As a member, the Bank is required to purchase and maintain stock
in the FHLB of Des Moines. At June 30, 1998, the Bank had $1.1 million in
FHLB stock, which was in compliance with this requirement. The Bank is paid
a quarterly dividend on this stock, the dividend averaged 7.0% in 1998.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low-and
moderately priced housing programs through direct loans or interest
subsidies on advances targeted for community investment and low-and
moderate-income housing projects. These contributions have affected
adversely the level of FHLB dividends paid and could continue to do so in
the future. These contributions could also have an adverse effect on the
value of FHLB stock in the future. A reduction in value of the Bank's FHLB
stock may result in a corresponding reduction in the Bank's capital.
Deposit Insurance. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of depository
institutions. The FDIC currently maintains two separate insurance funds: the
Bank Insurance Fund ("BIF") and the SAIF. As insurer of the Bank's deposits,
the FDIC has examination, supervisory and enforcement authority over the Bank.
The Bank's accounts are insured by the SAIF to the maximum extent
permitted by law. The Bank pays deposit insurance premiums based on a
risk-based assessment system established by the FDIC. Under applicable
regulations, institutions are assigned to one of three capital groups that
are based solely on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," and "undercapitalized" -- which are defined in
the same manner as the regulations establishing the prompt corrective action
system, as discussed below. These three groups are then divided into three
subgroups, which reflect varying levels of supervisory concern, from those,
which are considered to be healthy to those which are considered to be of
substantial supervisory concern. The matrix so created results in nine
assessment risk classifications, with rates that until September 30, 1996
ranged from 0.23% for well capitalized, financially sound institutions with
only a few minor weaknesses to 0.31% for undercapitalized institutions that
pose a substantial risk of loss to the SAIF unless effective corrective
action is taken.
Pursuant to the Deposit Insurance Funds Act ("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 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 .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.
In connection with the Bank's former regulatory status, the Bank's
assessment rate for deposit insurance was increased from .065% to .095%
beginning July 1, 1997. The increase has resulted in approximately $9,000
in additional costs per quarter for deposit insurance. The Bank is scheduled
to be assessed at .065% beginning on January 1, 1999. See "Item 1.
Description of Business -- Regulatory Considerations."
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 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 Bank.
Prompt Corrective Action. Under the Federal Deposit Insurance Act,
("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 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, has a Tier I risk-based
capital ratio of 4.0% or more, has 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%, has a Tier I risk-based capital ratio that is
less than 4.0% or has a leverage ratio that is less than 4.0% (3.0% under
certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, has a Tier I
risk-based capital ratio that is less than 3.0% or has a leverage ratio that
is less than 3.0%; and (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 cateory 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 FDIC 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, 1998, the Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the FDIC.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, 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; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). 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. If the FDIC determines that the
Bank fails to meet any standard prescribed by the Guidelines, the agency may
require the Bank to submit to the agency an acceptable plan to achieve
compliance with the standard. FDIC regulations establish deadlines for the
submission and review of such safety and soundness compliance plans.
Capital Requirements. The FDIC's minimum capital standards
applicable to FDIC-regulated banks and savings banks require the most
highly-rated institutions to meet a "Tier 1" leverage capital ratio of at
least 3% of total assets. Tier 1 (or "core capital") consists of common
stockholders' equity, noncumulative perpetual preferred stock and minority
interests in consolidated subsidiaries minus all intangible assets other than
limited amounts of purchased mortgage servicing rights and certain other
accounting adjustments. All other banks must have a Tier 1 leverage ratio
of at least 100-200 basis points above the 3% minimum. The FDIC capital
regulations establish a minimum leverage ratio of not less than 4% for banks
that are not the most highly rated or are anticipating or experiencing
significant growth.
The FDIC's capital regulations require higher capital levels for
banks which exhibit more than a moderate degree of risk or exhibit other
characteristics which necessitate that higher than minimum levels of capital
be maintained. Any insured bank with a Tier 1 capital to total assets ratio
of less than 2% is deemed to be operating in an unsafe and unsound condition
pursuant to Section 8(a) of the FDIA unless the insured bank enters into a
written agreement, to which the FDIC is a party, to correct its capital
deficiency. Insured banks operating with Tier 1 capital levels below 2%(and
which have not entered into a written agreement) are subject to an insurance
removal action. Insured banks operating with lower than the prescribed
minimum capital levels generally will not receive approval of applications
submitted to the FDIC. Also, inadequately capitalized state nonmember banks
will be subject to such administrative action as the FDIC deems necessary.
FDIC regulations also require that banks meet a risk-based capital
standard. The risk-based capital standard requires the maintenance of total
capital (which is defined as Tier 1 capital and Tier 2 or supplementary
capital) to risk weighted assets of 8% and Tier 1 capital to risk-weighted
assets of 4%. In determining the amount of risk-weighted assets, all assets,
plus certain off balance sheet items, are multiplied by a risk-weight of 0%
to 100%, based on the risks the FDIC believes are inherent in the type of
asset or item. The components of Tier 1 capital are equivalent to those
discussed above under the 3% leverage requirement. The components of
supplementary capital currently include cumulative perpetual preferred
stock, adjustable-rate perpetual preferred stock, mandatory convertible
securities, term subordinated debt, intermediate-term preferred stock and
allowance for possible loan and lease losses. Allowance for possible loan
and lease losses includable in supplementary capital is limited to a maximum
of 1.25% of risk-weighted assets. Overall, the amount of capital counted
toward supplementary capital cannot exceed 100% of Tier 1 capital. The FDIC
includes in its evaluation of a bank's capital adequacy an assessment of the
exposure to declines in the economic value of the bank's capital due to
changes in interest rates. However, no measurement framework for assessing
the level of a bank's interest rate risk exposure has been codified. In the
future, the FDIC will issue a proposed rule that would establish an explicit
minimum capital charge for interest rate risk, based on the level of a bank's
measured interest rate risk exposure.
An undercapitalized, significantly undercapitalized, or critically
undercapitalized institution is required to submit an acceptable capital
restoration plan to its appropriate federal banking agency. The plan must
specify (i) the steps the institution will take to become adequately
capitalized, (ii) the capital levels to be attained each year, (iii) how the
institution will comply with any regulatory sanctions then in effect against
the institution and (iv) the types and levels of activities in which the
institution will engage. The banking agency may not accept a capital
restoration plan unless the agency determines, among other things, that the
plan "is based on realistic assumptions, and is likely to succeed in
restoring the institution's capital" and "would not appreciably increase the
risk...to which the institution is exposed." Under the FDIA, a bank holding
company must guarantee that a subsidiary depository institution meet its
capital restoration plan, subject to certain limitations. The obligation of
a controlling bank holding company under the FDIA to fund a capital
restoration plan is limited to the lesser of 5.0% of an undercapitalized
subsidiary's assets and the amount required to meet regulatory capital
requirements.
The FDIA provides that the appropriate federal regulatory agency
must require an insured depository institution that is significantly
undercapitalized or is undercapitalized and either fails to submit an
acceptable capital restoration plan within the time period allowed or fails
in any material respect to implement a capital restoration plan accepted by
the appropriate federal banking agency to take one or more of the following
actions: (i) sell enough shares, including voting shares, to become adequately
capitalized; (ii) merge with (or be sold to) another institution (or holding
company), but only if grounds exist for appointing a conservator or receiver;
(iii) restrict certain transactions with banking affiliates as if the "sister
bank" requirements of Section 23A of the Federal Reserve Act ("FRA") did not
exist; (iv) otherwise restrict transactions with bank or non-bank affiliates;
(v) restrict interest rates that the institution pays on deposits to
"prevailing rates" in the institution's region; (vi) restrict asset growth or
reduce total assets; (vii) alter, reduce or terminate activities; (viii)
hold a new election of directors; (ix) dismiss any director or senior
executive officer who held office for more than 180 days immediately before
the institution became undercapitalized; (x) employ "qualified" senior
executive officers; (xi) cease accepting deposits from correspondent
depository institutions; (xii) divest certain non-depository affiliates which
pose a danger to the institution; (xiii) be divested by a parent holding
company; and (xiv) take any other action which the agency determines would
better carry out the purposes of the Prompt Corrective Action provisions. See
"-- Prompt Corrective Action."
The FDIC has adopted the Federal Financial Institutions Examination
Council's recommendation regarding the adoption of Statement of Financial
Accounting Standards("SFAS") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Specifically, the agencies determined that
net unrealized holding gains or losses on available for sale debt and equity
securities should not be included when calculating core and risk-based
capital ratios.
FDIC capital requirements are designated as the minimum acceptable
standards for banks whose overall financial condition is fundamentally sound,
which are well-managed and have no material or significant financial
weaknesses. The FDIC capital regulations state that, where the FDIC
determines that the financial history or condition, including off-balance
sheet risk, managerial resources and/or the future earnings prospects of a
bank are not adequate and/or a bank has a significant volume of assets
classified substandard, doubtful or loss or otherwise criticized, the FDIC
may determine that the minimum adequate amount of capital for that bank is
greater than the minimum standards established in the regulation.
The Bank's management believes that, under the current regulations, the
Bank will continue to meet its minimum capital requirements in the
foreseeable future. However, events beyond the control of the Bank, such as
a downturn in the economy in areas where the Bank has most of its loans,
could adversely affect future earnings and, consequently, the ability of the
Bank to meet its capital requirements.
The table below sets forth the Bank's capital position relative to its
FDIC capital requirements at June 30, 1998. The definitions of the terms
used in the table are those provided in the capital regulations issued by the
FDIC.
At June 30, 1998
Percent of Adjusted
Amount Total Assets(1)(2)
(Dollars in thousands)
Tier 1 (leverage) capital $21,167 13.7%
Tier 1 (leverage) capital requirement 6,196 4.0%
Excess $14,971 9.7%
Tier 1 risk adjusted capital $21,167 24.3%
Tier 1 risk adjusted capital requirement 3,485 4.0
Excess $17,682 20.3%
Total risk-based capital $22,257 25.5%
Total risk-based capital requirement 6,970 8.0
Excess $15,287 17.5%
(1) For the Tier 1 (leverage) capital and Missouri regulatory capital
calculations, percent of total average assets of $154.9 million. For
the Tier 1 risk-based capital and total risk-based capital calculations,
percent of total risk-weighted assets of $87.4 million.
(2) As a Missouri-chartered savings bank, the Bank is subject to the capital
requirements of the FDIC and the Division. The FDIC requires state-
chartered savings banks, including the Bank, to have a minimum leverage
ratio of Tier 1 capital to total assets of at least 3%, provided,
however, that all institutions, other than those (i) receiving the
highest rating during the examination process and (ii) not anticipating
any significant growth, are required to maintain a ratio of 1% to 2%
above the stated minimum, with an absolute total capital to risk-
weighted assets of at least 8%. The Bank has not been notified by the
FDIC of any leverage capital requirement specifically applicable to it.
Loans to One Borrower. As a result of the 10(1) Election made by the
Bank in connection with the Charter Conversion (see Item 1. Description of
Business--General"", the Bank remains subject to the loans to one borrower
regulations applicable to federal savings associations.
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 Bank's unimpaired capital and surplus, plus an additional 10% of
unimpared capital and surplus, if such loan is secured by readily-marketable
collateral, which is defined to include certain financial instruments and
bullion. Federal regulations 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, 1998, the Bank's
limit on loans to one borrower was $3.4 million. At June 30, 1998 the Bank's
largest aggregate amount of loans to one borrower was $2.6 million.
Activities and Investments of Insured State-Chartered Banks. The FDIA
generally limits the activities and equity investments of FDIC-insured, state
- -chartered banks to those that are permissible for national banks. Under
regulations dealing with equity investments, an insured state bank generally
may not directly or indirectly acquire or retain any equity investment of a
type, or in an amount, that is not permissible for a national bank. An
insured state bank is not prohibited from, among other things, (i) acquiring
or retaining a majority interest in a subsidiary, (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation or new construction of a
qualified housing project, provided that such limited partnership investments
may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of
the voting stock of a company that solely provides or reinsures directors',
trustees' and officers' liability insurance coverage or bankers' blanket bond
group insurance coverage for insured depository institutions, and (iv)
acquiring or retaining the voting shares of a depository institution if
certain requirements are met.
Subject to certain regulatory exceptions, FDIC regulations provide that
an insured state-chartered bank may not, directly, or indirectly through a
subsidiary, engage as "principal" in any activity that is not permissible for
a national bank unless the FDIC has determined that such activities would
pose no risk to the insurance fund of which it is a member and the bank is in
compliance with applicable regulatory capital requirements. Any insured
state-chartered bank directly or indirectly engaged in any activity that is
not permitted for a national bank or for which the FDIC has granted and
exception must cease the impermissible activity.
Affiliate Transactions. The Company and the Bank are legal entities
separate and distinct. Various legal limitations restrict the Bank from
lending or otherwise supplying funds to the Company (an "affiliate"),
generally limiting such transactions with the affiliate to 10% of the bank's
capital and surplus and limiting all such transactions to 20% of the bank's
capital and surplus. Such transactions, including extensions of credit,
sales of securities or assets and provision of services, also must be on
terms and conditions consistent with safe and sound banking practices,
including credit standards, that are substantially the same or at least as
favorable to the Bank as those prevailing at the time for transactions with
unaffiliated companies.
Federally insured banks are subject, with certain exceptions, to certain
restrictions on extensions of credit to their parent holding companies or
other affiliates, on investments in the stock or other securities of
affiliates and on the taking of such stock or securities as collateral from
any borrower. In addition, such banks are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or the
providing of any property or service.
Qualified Thrift Lender Test. As a result of the 10(l) Election made by
the Bank in connection with its conversion to a state savings bank (see Item
1. Description of Business -- General"), the Bank remains subject to the
qualified thrift lender ("QTL") test applicable to federal savings
associations.
All savings associations are required to meet a QTL test to avoid
certain restrictions on their operations. A savings institution that fails
to become or remain a QTL shall either convert to a national bank charter or
be subject to the following restrictions on its operations: (i) the Bank may
not make any new investment or engage in activities that would not be
permissible for national banks; (ii) the Bank 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 Bank shall be
ineligible to obtain new advances from any FHLB; and (iv) the payment of
dividends by the Bank 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 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 either an institution qualify as
a domestic building and loan association under the Internal Revenue Code or
that 65% of an institution's "portfolio assets" (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; direct or indirect obligations of the FDIC; and loans for educational
purposes, loans to small businesses and loans made through credit cards. In
addition, the following assets, among others, may be included in meeting the
test 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 loans; and stock issued by
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, 1998, the Bank was in compliance
with the QTL test.
Community Reinvestment Act. Banks are also subject to the provisions
of the Community Reinvestment Act of 1977 ("CRA"), which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a bank, to assess the bank's record in meeting the credit
needs of the community serviced by the bank, including low and moderate
income neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such assessment is required
of any bank which has applied, among other things, to establish a new branch
office that will accept deposits, relocate an existing office or merge or
consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. The Bank received a
"satisfactory" rating during its most recent CRA examination.
Dividends. Dividends from the Bank constitute the major source of
funds for dividends, which may be paid by the Company. The amount of
dividends payable by the Bank to the Company depends upon the Bank's earnings
and capital position, and is limited by federal and state laws, regulations
and policies.
The amount of dividends actually paid during any one period will be
strongly affected by the Bank's management policy of maintaining a strong
capital position. Federal law further provides that no insured depository
institution may make any capital distribution (which would include a cash
dividend) if, after making the distribution, the institution would be
"undercapitalized," as defined in the prompt corrective action regulations.
Moreover, the federal bank regulatory agencies also have the general
authority to limit the dividends paid by insured banks if such payments
should be deemed to constitute an unsafe and unsound practice.
The Company
General. As a result of the 10(l) Election made by the Bank inconnec-
tion with the charter conversion, the Company is a savings and loan holding
company regulated by the OTS (for as long as the Bank satisfies the QTL test)
rather than a bank holding company regulated by the FRB. Accordingly, the
Company is subject to OTS regulations and filing requirements.
Holding 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
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.
Holding Company Activities. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions under
the HOLA. 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 savings and loan
holding company.
Qualified Thrift Lender Test. The HOLA provides that any savings and
loan holding company that controls a savings association that fails the QTL
test, as explained under "-- The Bank -- Qualified Thrift Lender Test," must,
within one year after the date on which the Bank 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 Bank report their income on a calendar
year basis using the accrual method of accounting and are subject to federal
income taxation in the same manner as other corporations with some
exceptions, including particularly the 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 Bank or the Company.
Bad Debt Reserve. Historically, savings institutions, such as the
Bank used to be, 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 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 Bank's actual loss experience, or a
percentage equal to 8% of the 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 Bank's loss experience, the Bank generally
recognized a bad debt deduction equal to 8% of taxable income.
The thrift bad debt rules were revised by Congress in 1996. The new
rules eliminated 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 required that all institutions recapture
all or a portion of their bad debt reserves added since the base year (last
taxable year beginning before January 1, 1988). The Bank has no post-
1987 reserves subject to recapture. For taxable years beginning after
December 31, 1995, the 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. 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 Bank makes "nondividend
distributions" to the Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of
December 31, 1987 (or a lesser amount if the Bank's loan portfolio decreased
since December 31, 1987) and then from the supplemental reserve for losses
on loans ("Excess Distributions"), and an amount based on the Excess
Distributions will be included in the Bank's taxable income. Nondividend
distributions include distributions in excess of the 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 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 Bank's bad debt reserve. The amount of additional
taxable income created from 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 Bank makes a "nondividend distribution," then
approximately one and one-half times the Excess Distribution would be
includable in gross income for federal income tax purposes, assuming a 34%
corporate income tax rate (exclusive of state and local taxes). See
"REGULATION" for limits on the payment of dividends by the Bank. The 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 Internal Revenue 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 carry-overs. AMTI is increased by an amount equal to 75%
of the amount by which the 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 0.12% of the excess of AMTI
(with certain modification) over $2.0 million is imposed on corporations,
including the Bank, whether or not an Alternative Minimum Tax is paid.
Dividends-Received Deduction. The Company may exclude from its
income 100% of dividends received from the 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 Bank will not file a consolidated
tax return, except that if the Company or the Bank owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.
Missouri Taxation
Missouri-based savings banks, such as the Bank, are subject to a
special financial institutions tax, based on net income without regard to net
operating loss carryforwards, at the rate of 7% of net income. 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 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, the Bank
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 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 savings banks are not
subject to the regular state corporate income tax.
Audits
There have not been any IRS audits of the Company's Federal income tax
returns or audits of the Bank's state income tax returns filed 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, 1998, the Company had 54 full-time employees and 9
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 Bank's
offices as of June 30, 1998.
Building Net
Book Value Land Building
Year as of June Owned/ Owned/
Location Opened 30, 1998 Leased Leased
(Dollars in thousands)
Main Office
531 Vine Street
Poplar Bluff, Missouri 1966 $470 Owned Owned
Branch Offices
Highway 60
Van Buren, Missouri 1982 136 Owned Owned
1330 Highway 67
Poplar Bluff, Missouri 1976 -- Leased(1) Owned
Business 60 West
Dexter, Missouri 1979 222 Owned Owned
100 South Madison
Malden, Missouri 1974 -- Leased(2) Leased
308 First Street
Kennett, Missouri 1982 104 Owned Owned
116 Washington
Doniphan, Missouri 1976 -- Leased(3) Leased
Highway 106 & 2nd Street
Ellington, Missouri 1987 -- Leased(4) Leased
(1) Lease expires September 3, 1999 with a 5-year renewal option.
(2) Month-to-month lease.
(3) Month-to-month lease.
(4) Month-to-month lease.
Item 3. Legal Proceedings
In the opinion of management, the Bank is not a party to any pending
claims or lawsuits that are expected to have a material effect on the
Bank's financial condition or operations. Periodically, there have
been various claims and lawsuits involving the Bank mainly as a
defendant, such as claims to enforce liens, condemnation proceedings on
properties in which the Bank holds security interests, claims involving
the making and servicing of real property loans and other issues
incident to the Bank's business. Aside from such pending claims and
lawsuits, which are incident to the conduct of the Bank's ordinary
business, the 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 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, 1998.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information contained in the section captioned "Common Stock" in the
Annual Report is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
in the Annual Report is incorporated herein by reference.
Item 7. Financial Statements
Independent Auditors' Report*
(a) Consolidated Statements of Financial Condition as of
June 30, 1998 and 1997*
(b) Consolidated Statements of Income for the Years Ended
June 30, 1998, 1997 and 1996*
(c) Consolidated Statements of Stockholders' Equity For the Years
Ended June 30, 1998, 1997 and 1996*
(d) Consolidated Statements of Cash Flows For the Years Ended
June 30, 1998, 1997 and 1996*
(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 Bank.
Age at
June 30,
Name 1998 Position
Company Bank
Thadis R. Seifert 79 Chairman of the Board Director
Donald R. Crandell 64 President and Chief President and Chief
Executive Officer Executive Officer
Leonard W. Ehlers 79 Director Chairman of the Board
Samuel H. Smith 60 Secretary/Treasurer Director
Greg A. Steffens 31 Chief Financial Officer Chief Financial Officer
In addition to the above, the Bank's executive officer group includes:
Age at
June 30,
Name 1998 Position
James W. Tatum 72 Vice Chairman
Wilma F. Case 60 Senior Vice President and Chief Operations Officer
Kent Nichols 44 Senior Vice President and Chairman Loan Department
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.
Thadis R. Seifert served as Executive Vice President of the Bank from
1970 until 1985. He has been a director of the Bank since 1971. In 1997,
Mr. Seifert was elected as Chairman of the Company. Mr. Seifert also serves
as an advisory Board Member for the Poplar Bluff Municipl Utilites. He is
active in a variety of organizations, including the Kiwanis Club.
Donald R. Crandell joined the 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 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
is in 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.
Greg A. Steffens joined the Bank in 1998 and serves as the Chief
Financial Officer of the Bank and Company. From 1993 to 1998, Mr. Steffens
served as Chief Financial Officer of 1st Savings Bank and Sho-Me Financial
Corp. in Mount Vernon, Missouri. From 1989 to 1993, Mr. Steffens was
employed by the OTS as a thrift examiner. Mr. Steffens is a member of the
Rotary.
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 Bank for 29 years and has
served as Senior Vice President since 1992 and was appointed Chief Operations
Officer in 1995. Ms. Case is active in a variety of organizations and
currently serves as President of the American Cancer Society, as Director of
the Kiwanis Club and is a member of the Business and Professional Women's
Association and the Poplar Bluff Chamber of Commerce.
Kent Nichols has been affiliated with the Bank for 15 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.
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(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) 1998 Annual Report to Stockholders
(21) Subsidiaries of the Registrant
(23) Consent of Auditors
(27) Financial Data Schedule
(b) Report on Form 8-K
A Current Report on Form 8-K was filed on May 31,
1998 to report on increased allowance for loan losses.
* Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (33-73746), as amended.
** Incorporated by reference to the Registrant's 1994 annual
meeting proxy statement dated October 21, 1994.
*** Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for the year ended June 30, 1995.
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 30, 1998 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 30, 1998
Donald R. Crandell
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Thadis R. Seifert September 30, 1998
Thadis R. Seifert
Chairman of the Board
By: /s/Greg A. Steffens September 30, 1998
Greg A. Steffens
Chief Financial Officer
(Principal Financial and Accounting Officer)
By: /s/ Leonard W. Ehlers September 30, 1998
Leonard W. Ehlers
Director
By: /s/ Samuel H. Smith September 30, 1998
Samuel H. Smith
Director
By: /s/James W. Tatum September 30, 1998
James W. Tatum
Director
By: /s/ Ronnie D. Black September 30, 1998
Ronnie D. Black
Director
By: /s/ L. Douglas Bagby September 30, 1998
L. Douglas Bagby
Director
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 30, 1998 By:
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: September 30, 1998
Donald R. Crandell
President and Chief Executive Officer
(Principal Executive Officer)
By: September 30, 1998
Thadis R. Seifert
Chairman of the Board and Director
By: September 30, 1998
Greg A. Steffens
Chief Financial Officer
(Principal Financial and Accounting Officer)
By: September 30, 1998
Leonard W. Ehlers
Director
By: September 30, 1998
Samuel H. Smith
Director
By: September 30, 1998
James W. Tatum
Director
By: September 30, 1998
Ronnie D. Black
Director
By: September 30, 1998
L. Douglas Bagby
Director
Exhibit 11
Statement Regarding Computation of Per Share Earnings
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Year Ended June 30,
1998 1997 1996
Primary
Average shares outstanding 1,532,910 1,549,032 1,639,509
Net income $1,064,463 $1,054,687 $1,466,522
Earnings per share $ .69 $ .68 $ .89
Fully Diluted
Average shares outstanding 1,532,910 1,549,032 1,639,509
Net effect of dilutive stock
options - based on the treasury
stock method 51,563 38,072 40,481
Average diluted shares
outstanding 1,584,473 1,587,104 1,679,990
Net income $1,064,463 $1,054,687 $1,466,522
Earnings per share $ .67 $ .67 $ .87
Exhibit 21
Subsidiaries of the Registrant
Parent
Southern Missouri Bancorp, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
Southern Missouri Bank and Trust Co.100% Missouri
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 Bank and Trust
Co.
Exhibit 23
Consent of Independent Auditors
We have issued our report dated July 31, 1998, 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, 1998.
We hereby consent to the incorporation of 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.)
Kraft, Miles & Tatum, LLC
Poplar Bluff, Missouri
September 28, 1998
TABLE OF CONTENTS
Page
Letter to Stockholders 1
Business of the Company and the 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 5-15
Independent Auditors' Report 16
Consolidated Financial Statements:
Consolidated Statements of Financial Condition
as of June 30, 1998 and 1997 17
Consolidated Statements of Income for the
years ended June 30, 1998,1997 and 1996 18
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1998,1997 and 1996 19
Consolidated Statements of Cash Flows for the
years ended June 30, 1998, 1997 and 1996 20-21
Notes to Consolidated Financial Statements 22-41
Directors and Officers 42
Corporate Information 43
September 3, 1998
To Our Fellow Stockholders:
On behalf of the Board of Directors, Management, and Staff of
Southern Missouri Bancorp, Inc. and its wholly owned subsidiary,
Southern Missouri Bank and Trust, we are pleased to present the
results of the Company's performance for the year ended June 30,
1998.
This was our fourth full year of operation for Southern Missouri
Bancorp, Inc., following our initial public offering in April of
1994. Southern Missouri's positive trends for revenue growth
continued as both net interest income and noninterest income
increased for the fourth consecutive year. These increases in
revenue are indicative of the success of our Company's focus on
increasing loans receivable and generating higher levels of
noninterest income. Partially, as a result of these increased
revenues, Southern Missouri earned $.69 per share for the fiscal
year ended June 30, 1998, which reflects a slight increase over
the $.68 per share earned during the prior fiscal year. Earnings
per share increased for fiscal 1998, in spite of management and
the Board of Directors election to increase the reserve for loan
losses with the establishment of $783,000 in loss provisions as
compared to the $241,000 established during fiscal 1997.
Southern Missouri Bancorp had total assets of $155.9 million at
June 30, 1998 as compared to $160.4 million at June 30, 1997.
This slight reduction in assets was inconsistent with our
strategic plan for asset growth, but did contribute to the
improvement in our net interest rate spread. This reduction in
total assets was primarily the result of the Company's stock
repurchase program. During the year ended June 30, 1998,
Southern Missouri repurchased 159,000 shares of its own common
stock for $3.3 million, or $20.88 per common share. These stock
repurchase programs are intended to help increase Southern
Missouri's return on average equity. For the year ended June 30,
1998, Southern Missouri had a return on average equity of 4.06%
and a return on average assets of .67%.
During fiscal 1998, Southern Missouri continued to share its
financial returns with shareholders through the declaration and
payment of dividends. Since 1995, the Company has paid a
quarterly dividend of $.125 per common share.
As we turn our attention toward fiscal 1999, we intend to focus
on continuing to generate loan growth through loan originations
in our market area and attracting new depositors in our local
market. It is our pledge to remain committed to the growth and
performance goals of the Company and to generate value and
opportunity for the main groups that hold the keys to our
success: our customers, our staff, our shareholders, and our
communities.
Thank you for your investment in Southern Missouri Bancorp, and
for the confidence you have placed in our team here at Southern
Missouri. We look forward to a prosperous and bright future
together.
Sincerely,
Donald R. Crandell
President and Chief Executive Officer
BUSINESS OF THE COMPANY AND THE BANK
The Bank operates as a state-chartered stock savings bank,
originally chartered by the State of Missouri in 1887. The Bank
converted from a state-chartered stock savings and loan
association to a Federally-chartered stock savings bank effective
June 20, 1995. Then effective February 17, 1998 the Bank
converted its charter to a state-chartered stock savings bank.
The 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 Bank's primary business is the origination of mortgage loans
secured by one- to four-family residences. The 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. The 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 listed 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, 1998, there were approximately 400 stockholders of
record. This does not reflect the number of persons or entities
who hold stock in nominee or "street name."
Fiscal 1998 High Low Dividend Paid
First Quarter $ 18.375 $ 17.00 $ .125
Second Quarter 20.75 17.00 .125
Third Quarter 23.875 18.75 .125
Fourth Quarter 23.00 20.25 .125
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
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 Bank to pay dividends to the Company. For a discussion of
the restrictions on the Bank's ability to pay dividends, see Note
11 of Notes to Consolidated Financial Statements included
elsewhere in this report.
SELECTED CONSOLIDATED FINANCIAL CONDITION,
OPERATING AND OTHER DATA
<TABLE>
<CATION>
At June 30,
(In thousands)
FINANCIAL CONDITION DATA: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Total assets $155,947 $160,393 $159,848 $148,323 $141,824
Loans receivable, net 119,083 107,783 95,535 82,887 74,932
Mortgage-backed and related
securities 14,154 26,236 35,037 24,574 24,144
Cash, interest-bearing deposits
and investment securities 18,324 21,638 24,459 35,421 37,540
Deposits 109,410 118,705 120,138 118,152 114,127
Borrowings 21,069 13,535 11,550 1,314 412
Stockholders' equity 24,112 26,400 26,227 27,047 25,793
<CAPTION>
Year Ending June 30,
(In thousands)
OPERATING DATA: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Interest income $ 11,444 $ 11,408 $ 11,010 $ 9,640 $9,219
Interest expense 6,212 6,318 6,308 5,187 4,725
Net interest income 5,232 5,090 4,702 4,453 4,494
Provision for loan losses 783 241 60 95 230
Net interest income after
provision for loan losses 4,449 4,849 4,642 4,358 4,264
Noninterest income 797 618 639 455 571
Noninterest expense 3,660 3,972 3,161 3,112 2,731
Income before income taxes and
cumulative effect of change
in accounting principle 1,586 1,495 2,120 1,701 2,104
Income tax expense 522 440 653 454 626
Income before cumulative effect of
change in accounting principle 1,064 1,055 1,467 1,247 1,478
Cumulative effect of change in
accounting principle, income taxes - - - - 279
Net income $ 1,064 $ 1,055 $ 1,467 $ 1,247 $1,757
Basic earnings per common share $ .69 .68 .89 .74 *
Diluted earnings per common share $ .67 .67 .87 .73 *
Dividends per share $ .50 .50 .50 .40 -
<FN>
<F1>
*Not meaningful since the common stock was issued on
April 13,1994
</FN>
</TABLE>
<TABLE>
<CAPTION>
At June 30,
OTHER DATA: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Number of:
Real estate loans 3,035 3,040 3,053 3,082 3,278
Deposit accounts 12,762 12,542 12,626 12,837 12,917
Full service offices 8 8 8 8 8
</TABLE>
<TABLE>
<CAPTION>
KEY OPERATING RATIOS: At or For the Year Ended June 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Return on assets (net income
divided by average assets) .67% .65% .93% .86% 1.30%
Return on average equity (net
income divided by average equity) 4.06 4.09 5.48 4.68 13.34
Average equity to average assets 16.40 16.01 17.05 18.30 9.73
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities) 2.67 2.51 2.29 2.39 3.13
Net interest margin (net interest
income as a percentage of average
interest-earning assets) 3.39 3.25 3.09 3.16 3.44
Noninterest expense to average assets 2.29 2.46 2.01 2.14 2.02
Average interest-earning assets to
interest-bearing liabilities 117.76 118.32 119.42 121.09 108.59
Allowance for loan losses to total
loans at end of period 1.07 .64 .63 .67 .62
Allowance for loan losses to
nonperforming loans 243.01 51.19 114.94 77.66 68.53
Net charge offs to average out-
standing loans during the period .17 .16 .01 .00 .02
Ratio of nonperforming assets
to total assets .45 .89 .38 .99 1.04
Dividend payout ratio 72.29 73.06 52.17 46.98 N/A
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Southern Missouri Bancorp, Inc. (Southern Missouri or Company) is
a Delaware corporation organized on April 13, 1994, for the
principal purpose of becoming the holding company of Southern
Missouri Savings Bank (SMSB). SMSB converted from a Federally-
chartered stock savings bank to a state-chartered stock savings
bank effective February 17, 1998 and subsequently changed its
name to Southern Missouri Bank and Trust Co., (SMBT or the Bank).
The principal business of SMBT consists primarily of attracting
deposits from the general public and using such deposits along
with wholesale funding from the Federal Home Loan Bank of Des
Moines (FHLB) to finance mortgage loans secured by one-to four-
family residences and, to a lesser extent, consumer loans,
commercial real estate loans, and commercial business loans.
These funds have also been used to purchase investment
securities, mortgage-backed and related securities (MBS), U.S.
government and federal agency obligations and other permissible
securities.
The revenues of Southern Missouri are derived principally from
interest earned on loans and, to a lesser extent, from interest
earned on investment securities and MBS. Southern Missouri's
operations are significantly influenced by general economic
conditions including monetary and fiscal policies of the U.S.
government and Federal Reserve. Additionally, Southern Missouri
is subject to policies and regulations issued by financial
institution regulatory agencies, including the Federal Deposit
Insurance Corporation (FDIC), Office of Thrift Supervision (OTS)
and the Missouri Department of Finance. Each of these factors
may influence interest rates, loan demand, prepayment rates and
deposit flows. Interest rates available on competing investments
as well as general market interest rates influence Southern
Missouri's cost of funds. Lending activities are affected by the
demand for financing real estate and other types of loans, which
in turn is affected by the interest rates at which such financing
may be offered. Southern Missouri intends to continue to focus
on its lending programs for one- to four-family residential real
estate, commercial mortgage, business and consumer financing on
loans secured by properties or collateral located in Southeastern
Missouri.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the
matters discussed in the annual report may be deemed to be
"forward-looking statements" within the meaning of the federal
securities law. Such statements are subject to certain risks and
uncertainties, including changes in economic conditions in
Southern Missouri's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for
loans in Southern Missouri's market area and price competition
for loans and deposits. Actual strategies and results in future
periods may differ materially from those currently expected.
These forward-looking statements represent Southern Missouri's
judgment as of the date of this report. Southern Missouri
disclaims however, any intent or obligation to update these
forward-looking statements.
FINANCIAL CONDITION
Southern Missouri's total assets declined $4.5 million, or 2.8%,
to $155.9 million at June 30, 1998 as compared to $160.4 million
at June 30, 1997. The decline was primarily due to the
repurchase of $3.3 million of the Company's stock. Other changes
in the composition of the balance sheet included a $16.2 million
reduction in investment securities and MBS, which was partly used
to finance $11.3 million, or 10.5% growth in loans receivable.
Investment securities and MBS declined $16.2 million, or 36.5%
from $44.4 million at June 30, 1997 to $28.2 million at June 30,
1998. The reduction was attributed to sales and maturities of
$10.1 million and $12.2 million, respectively, which exceeded
purchases of $6.1 million.
Net loans receivable increased $11.3 million, or 10.5% to $119.1
million at June 30, 1998 from $107.8 million June 30, 1997. Loan
growth consisted primarily of a $5.1 million increase in loans
secured by one- to four-family residences and to a lesser degree,
increased commercial real estate loan balances of $4.0 million
and installment loan balances of $615,000. Southern Missouri
originated $36.9 million mortgage and installment loans during
fiscal 1998 as compared to originations of $32.5 million over the
same period of the prior year.
Allowance for loan losses increased $589,000 or 83.4% from
$706,000 at June 30, 1997 to $1,295,000 at June 30, 1998. The
allowance for loan losses at June 30, 1998 represented 1.07% and
96.99% of total loans and loans past due 90 days or more,
respectively, as compared to respective balances of .64% and
51.19% at June 30, 1997 (see provision for loan losses).
Deposits declined $9.3 million, or 7.9%, from $118.7 million at
June 30, 1997 to $109.4 million at June 30, 1998. The decline
was a result of a $10.1 million, or 10.7%, decline in
certificates of deposit, which was partially offset by a $772,000
increase in checking and savings accounts. The decline in the
balance of certificates of deposit was a result of public unit
certificates of deposit declining from $14.6 million at June 30,
1997 to $4.0 million at June 30, 1998.
FHLB advances increased $7.5 million, or 55.7%, from $13.5
million at June 30, 1997 to $21.1 million at June 30, 1998. The
outstanding advances have fixed interest rates with original
terms of up to fifteen years and some are subject to an early
call from the issuer. The advances have primarily been used to
finance deposit outflows and at June 30, 1998 maintained an
average cost which was 38 basis points higher than SMBT's overall
cost of deposits.
Stockholders' equity declined $2.3 million, or 8.7%, from $26.4
million at June 30, 1997 to $24.1 million at June 30, 1998. The
decline was primarily attributed to the repurchase of $3.3
million of the Company's common stock and the payment of $769,000
in cash dividends, which together exceeded the Company's net
income of $1.1 million.
RESULTS OF OPERATIONS
Southern Missouri's results of operations are primarily dependent
on the level of its net interest income, noninterest income, and
the control of operating expenses. Net interest income is
dependent primarily on the difference or spread between the
average yield earned on interest-earning assets and the average
rate paid on interest-bearing liabilities, as well as the
relative amounts of each such assets and liabilities. Southern
Missouri, like other financial institutions, is also subject to
interest-rate risk to the degree that its interest-earning assets
mature or reprice at different times, or on a varying basis, from
its interest-bearing liabilities.
Southern Missouri's noninterest income consists primarily of fees
charged on transaction and loan accounts, gains from the sale of
available-for-sale securities and real estate owned and
commissions earned on the sale of insurance products. Southern
Missouri's operating expenses include, among other costs,
employee compensation and benefits, occupancy expenses, legal and
professional fees, federal deposit insurance premiums and other
general and administrative expenses.
COMPARISON OF THE YEARS ENDED JUNE 30, 1998 AND 1997
Net Income. Southern Missouri's net income increased $10,000, or
.9%, from $1,055,000 for the year ended June 30, 1997 to
$1,065,000 for the year ended June 30, 1998. Fiscal 1997's
results included the adverse impact of a one-time, industry-wide
special assessment to recapitalize the Savings Association
Insurance Fund (SAIF). Exclusive of the one-time SAIF assessment
of $779,000, net income for fiscal 1997 would have approximated
$1,546,000, which would have exceeded fiscal 1998's net income by
$481,000, or 31.1%. This decline in adjusted net income was
primarily due to increased provisions for loan losses and
increased recurring noninterest expenses.
Net Interest Income. Net interest income increased by $143,000,
or 2.8%, to $5.2 million for the year ended June 30, 1998 as
compared to $5.1 million for the year ended June 30, 1997. The
increase was primarily due to a .16% increase in the average
interest rate spread, which was partially offset by a decline in
the ratio of average interest-earning assets to interest-bearing
liabilities.
Interest Income. Interest income increased $35,000, or .3%, to
$11.4 million for the year ended June 30, 1998 as compared to
$11.4 million for the year ended June 30, 1997. The slight
increase was primarily due to a .12% increase in the average
yield earned on interest-earning assets, which was mostly offset
by a $2.0 million, or 1.3%, decline in average interest-earning
assets.
Interest income on loans receivable increased $1.1 million, or
13.8%, to $9.2 million for the year ended June 30, 1998 as
compared to $8.1 million for the year ended June 30, 1997. The
increase was due to a $12.2 million increase in average loans
receivable and a .13% increase in average yield earned, from
7.84% during fiscal 1997 to 7.97% during fiscal 1998. Interest
income on investment and MBS securities, and other interest-
earning assets declined $1.1 million, or 32.1%, to $2.3 million
for the year ended June 30, 1998 as compared to $3.3 million for
the year ended June 30, 1997.
Interest Expense. Interest expense declined $107,000, or 1.7%,
to $6.2 million for the year ended June 30, 1998 as compared to
$6.3 million for the year ended June 30, 1997. The change was
primarily due to the average balance of interest-bearing
liabilities declining $1.1 million, or .8%, and the .04% decline
in the average rate paid on these same interest-bearing
liabilities, to 4.73% during fiscal 1998 from 4.77% during fiscal
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 Bank's loan portfolio.
For the year ended June 30, 1998, the Bank established a
provision for loan losses of $783,000 compared with $241,000 for
the year ended June 30, 1997. Substandard assets identified
under the Bank's internal classified assets policy increased from
$1.4 million as of June 30, 1997 to $5.5 million at June 30, 1998
due primarily to an increase in substandard assets secured by
commercial real estate. The largest classified commercial real
estate relationship as of June 30, 1998 totaled $2.6 million and
was current at that date and performing in accordance with its
terms. In addition, the Bank had three other lending
relationships with aggregate balances ranging from $299,000 to
$536,000 which were secured primarily by commercial real estate
that were also classified due to their underlying collateral
experiencing cash flow difficulties.
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 Bank's
loan portfolio, including types of loans and reviews of the
Bank's charge-off history and an analysis of the Bank's allowance
for loan losses. Management also considered the Bank has
continued to originate loans secured by commercial real estate.
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 Bank expects that these
trends in its lending activities will continue. While management
believes the allowance for losses at June 30, 1998 is adequate to
cover all losses inherent in the Bank's portfolio, there can be
no assurance that in the future the Bank's regulators will not
require further increases in the allowance or actual losses will
not exceed the allowance.
Noninterest Income. Noninterest income increased $179,000, or
29.0%, to $797,000 for the year ended June 30, 1998 as compared
to $618,000 for the year ended June 30, 1997. Contributing to
the increase was a $150,000 one-time gain from the termination of
a defined benefit plan, increased customer service charges of
$47,000 and a $31,000 increase in gains on sale of investment and
MBS securities which were partly offset by a $49,000 reduction in
insurance commissions and other income. Gains on sales of
securities and MBSs are not a stable source of income and no
assurance can be given that the Company will generate such gains
in the future.
Noninterest Expense. Noninterest expense decreased $312,000, or
7.9%; however, exclusive of the aforementioned SAIF special
assessment, noninterest expense increased $467,000, or 14.6% to
$3.7 million for the year ended June 30, 1998 as compared to $3.2
million for the year ended June 30, 1997. The increase was due
to a $280,000 rise in compensation and benefits expense, $125,000
decline in realized recoveries from the sale of foreclosed real
estate, increased occupancy costs of $95,000 and $31,000 in
increased legal and professional fees. These increased
expenditures were attributed to increased personnel, higher
benefit plan costs, higher data processing costs and costs
associated with SMBT's conversion to a bank charter. Offsetting
a portion of these increases was a $54,000 decline in deposit
insurance premiums.
Provision for Income Taxes. Provision for income taxes increased
$82,000, to $522,000 for the year ended June 30, 1998 as compared
to $440,000 for the year ended June 30, 1997. The increase was
primarily due to Southern Missouri's effective tax rate
increasing from 29.4% for fiscal 1997 to 32.9% for fiscal 1998.
This increase is primarily due to the smaller effect of tax
exempt income of state and municipal obligations.
COMPARISON OF THE YEARS ENDED JUNE 30, 1997 AND 1996
Net Income. Southern Missouri's net income decreased $412,000,
or 28.1%, from $1.5 million for the year ended June 30, 1996 to
$1.1 million for the year ended June 30, 1997. The decline was
attributed to increased noninterest expense, in particular the
one-time industry-wide special assessment to recapitalize the
SAIF, and lower noninterest income which was offset by increased
net interest income and lower income taxes.
Net Interest Income. Net interest income increased by $388,000,
to $5.1 million for the year ended June 30, 1997 as compared to
$4.7 million for the year ended June 30, 1996. The increase was
primarily due to a 22 basis point increase in the average
interest rate spread from 2.29% during fiscal 1996 to 2.51%
during fiscal 1997.
Interest Income. Interest income increased $398,000, or 3.6%, to
$11.4 million for the year ended June 30, 1997 as compared to
$11.0 million for the year ended June 30, 1996. The increase was
primarily attributed to the $4.5 million, or 2.9%, increase in
the average balance of interest-earning assets and the .04%
increase in the average yield earned on those same assets, from
7.24% during fiscal 1996 to 7.28% during fiscal 1997.
Interest income on loans receivable increased $1.0 million, or
14.9%, to $8.1 million for the year ended June 30, 1997 as
compared to $7.0 million for the year ended June 30, 1996. The
increase was primarily due to the $13.8 million, or 15.5%,
increase in the average balance of loans receivable which was
partially offset by a .04% decline in the average yield earned on
loans receivable, from 7.88% during fiscal 1996 to 7.84% during
fiscal 1997.
Interest Expense. Interest expense increased $10,000 to $6.3
million for the year ended June 30, 1997 as compared to $6.3
million for the year ended June 30, 1996. During fiscal 1997,
average interest-bearing liabilities increased $5.0 million, or
3.9%, to $132.4 million while the average cost of those interest-
bearing liabilities declined .18%, from 4.95% during fiscal 1996
to 4.77% during fiscal 1997.
Provision for Loan Losses. For the year ended June 30, 1997, the
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-performing loans at June 30, 1997 was $1.4 million compared
to $546,000 at June 30, 1996.
Nonperforming loans 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 Bank
has a dealer reserve account which was $63,000 at June 30, 1997
for these mobile home loans.
Noninterest Income. Noninterest income declined $21,000, or
3.3%, to $618,000 for the year ended June 30, 1997 as compared to
$639,000 for the year ended June 30, 1996. The decline was
attributed to an $83,000 decline in gains realized on sales of
investment securities and MBS which was partially offset by
increased insurance commissions and banking service charges of
$25,000 and $32,000, respectively.
Noninterest Expense. Noninterest expense increased $811,000, to
$4.0 million for the year ended June 30, 1997 as compared to $3.2
million for the year ended June 30, 1996. Exclusive of the
aforementioned SAIF special assessment of $779,000, noninterest
expense increased $32,000, or 1.0%, to $3.2 million when compared
to the same period of the prior year. Increased expenses were
primarily due to increased compensation and benefits, other
expenses and advertising of $102,000, $96,000, and $26,000,
respectively. Reduced expenses for deposit insurance premiums
and provisions for losses on foreclosed real estate of $112,000
and $92,000 mostly offset these increased expenses, respectively.
Provision for Income Taxes. Provision for income taxes decreased
$213,000, to $440,000 for the year ended June 30, 1997 as
compared to $653,000 for the year ended June 30, 1996. The
decrease was primarily due to reduced net income and Southern
Missouri's effective tax rate decreasing from 30.8% during fiscal
1996 to 29.4% during fiscal 1997.
REGULATORY MATTERS AND SUPERVISORY AGREEMENT
On February 17, 1998, the OTS approved the conversion of Southern
Missouri's financial institution subsidiary, Southern Missouri
Savings Bank, FSB, from a federally-chartered stock savings bank
to a Missouri-chartered stock savings bank. Due to this change
in charters, SMBT's primary regulator changed from the OTS to the
Missouri Division of Finance and the FDIC. Furthermore, the
operating restrictions placed on the Bank, pursuant to an OTS
Supervisory Agreement were lifted. However, SMBT remains subject
to increased SAIF deposit insurance premium assessments until
January 1, 1999, due to the Bank's former regulatory status.
During the year ended June 30, 1998, SMBT recognized additional
expense of $36,000, due to these higher deposit premiums.
ASSET/LIABILITY MANAGEMENT
The goal of Southern Missouri's asset/liability management
strategy is to manage the interest rate sensitivity of both
interest-earning assets and interest-bearing liabilities so as to
maximize net interest income without exposing the Bank's Net
Portfolio Value (NPV) to an excessive level of interest-rate
risk. The Bank has employed various strategies intended to
manage the potential effect that changing interest rates have on
future operating results. Historically, the primary
asset/liability management strategy had been to focus on matching
the repricing intervals of interest-bearing assets and interest-
bearing liabilities. This strategy has resulted in a manageable
exposure to interest-rate risk with modest asset and loan growth
rates.
The primary elements of Southern Missouri's current
asset/liability strategy includes (i) increasing loans receivable
through the origination of both fixed and adjustable-rate
residential loans, (ii) growth in loans secured by commercial
real estate, which typically provide higher yields, increased
credit risk and shorter repricing periods, (iii) expanding the
consumer loan portfolio, (iv) active solicitation of less rate-
sensitive deposits, (v) offering competitively priced short-term
certificates of deposit, and (vi) the use of FHLB advances to
help manage exposure to interest-rate risk. The degree to which
each segment of the strategy is achieved will affect Southern
Missouri's overall profitability and exposure to interest-rate
risk.
INTEREST RATE SENSITIVITY ANALYSIS
The following table sets forth as of June 30, 1998, management's
estimates of the projected changes in net portfolio value and net
interest income in the event of 1%, 2%, 3%, and 4% instantaneous
permanent increases or decreases in market interest rates.
NPV as % of
Change Net Portfolio PV of Assets
in Rates $ Amount $ Change % Change NPV Ratio Change
(Dollars in thousands)
+400 bp $ 16,124 (5,775) (26)% 11.09% -313 bp
+300 bp 18,785 (3,114) (14) 12.65 -157 bp
+200 bp 21,168 (731) (3) 13.97 -25 bp
+100 bp 21,950 51 0 14.35 13 bp
0 bp 21,899 - - 14.22 -
- -100 bp 21,525 (374) (2) 13.87 -35 bp
- -200 bp 21,434 (465) (2) 13.68 -54 bp
- -300 bp 21,324 (575) (3) 13.47 -75 bp
- -400 bp 20,615 (1,284) (6) 12.93 -129 bp
Computations in the table are based on prospective effects of
hypothetical changes in interest rates and are based on an
internally generated model using the actual maturity and
repricing schedules for SMBT's loans and deposits, adjusted by
management's assumptions for prepayment rates and deposit runoff.
Further, the computations do not consider any reactions that the
Bank may undertake in response to changes in interest rates.
These projected changes should not be relied upon as indicative
of actual results in any of the aforementioned interest rate
changes.
Management cannot accurately predict future interest rates or
their effect on the Bank's NPV and net interest income in the
future. Certain shortcomings are inherent in the method of
analysis presented in the computation of NPV and net interest
income. For example, although certain assets and liabilities may
have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also,
the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types of
assets and liabilities may lag behind changes in market interest
rates. Additionally, most of Southern Missouri's loans have
features, which restrict changes in interest rates on a short
term basis and over the life of the asset. Further, in the event
of a change in interest rates, prepayment and early withdrawal
levels would likely deviate significantly from those assumed in
calculating the foregoing table. Finally, the ability of many
borrowers to service their debt may decrease in the event of an
interest rate increase.
SMBT's Board of Directors is responsible for reviewing SMBT's
asset/liability and interest-rate risk management policy which
includes allowable limits for exposure to interest-rate risk.
The Board meets quarterly to review projected exposure to
interest-rate risk, as well as liquidity and capital
requirements.
LIQUIDITY AND CAPITAL RESOURCES
Southern Missouri's primary potential sources of funds include
deposit growth, FHLB advances, amortization and prepayment of
loan principal, investment maturities and sales, and on-going
operating results. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and loan
prepayment rates are significantly influenced by factors outside
of the Bank's control, including general economic conditions and
competition. Southern Missouri has relied on using FHLB advances
as a source for funding cash or liquidity needs.
Historically, the Bank was required by OTS regulations to
maintain minimum levels of specified liquid assets in order to
fund cash needs. The required percentage was 5% of net
withdrawable deposits and borrowings, which were payable on
demand or in one year or less. Under the Bank's current charter,
it is no longer subject to this requirement.
Southern Missouri uses its liquid assets as well as other funding
sources to meet ongoing commitments, to fund loan commitments, to
repay maturing certificates of deposit and FHLB advances, to make
investments, to fund other deposit withdrawals and to meet
operating expenses. At June 30, 1998, the Bank had outstanding
commitments to extend credit of $3.1 million (including $1.5
million on lines of credit). Management anticipates that current
funding sources will be adequate to meet foreseeable liquidity
needs.
Liquidity management is an ongoing responsibility of the
Company's management. The Company adjusts its investment in
liquid assets based upon a variety of factors including (i)
expected loan demand and deposit flows, (ii) anticipated
investment and FHLB advance maturities, (iii) the impact on
profitability, and (iv) asset/liability management objectives.
At June 30, 1998, the Company had $73.9 million in certificates
of deposit maturing within one year and $25.7 million in other
deposits without a specified maturity, as well as scheduled FHLB
advances maturing within one year of $1.0 million. Management
believes that most maturing interest-bearing liabilities will be
retained or replaced by new interest-bearing liabilities.
REGULATORY CAPITAL
Federally insured savings banks are required to maintain a
minimum level of regulatory capital. FDIC regulations
established capital requirements, including a leverage (or core
capital) requirement and a risk-based capital requirement. The
FDIC is also authorized to impose capital requirements in excess
of these standards on individual institutions on a case-by-case
basis.
At June 30, 1998, SMBT exceeded regulatory capital requirements
with core and risk-based capital of $21.1 million and $22.3
million, or 13.7% and 25.5% of adjusted total assets and risk-
based assets, respectively. These capital levels exceeded
minimum requirements of 4.0% and 8.0% for adjusted total assets
and risk-weighted assets, by approximately $15.0 million and
$15.3 million, respectively. Under regulatory guidelines, SMBT
was considered well-capitalized at June 30, 1998.
IMPACT OF INFLATION
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 historical dollars without
considering changes in the relative purchasing power of money
over time due to inflation. The primary impact of inflation on
the operations of the Company 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, changes in 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 maturity structure of the Company's assets and
liabilities are critical to the maintenance of acceptable
performance levels.
YEAR 2000 CONSIDERATION
Many existing computer programs and data processing systems use
only two digits to identify a year in the date field. These
programs were designed and developed without considering the
impact of the upcoming change in the century. If uncorrected,
many computer applications could fail or create erroneous results
by or at the Year 2000. The Year 2000 issue affects virtually
all companies and organizations.
The Company uses an in-house computer processing system and is in
the process of reviewing it and other data processing functions
as well as those of its software providers, vendors, suppliers,
and major customers to ascertain the degree to which each will be
impacted by Year 2000 failures. Initial testing of internal
systems and how they interact with those of vendors and suppliers
began June 30, 1998, and is scheduled to be completed by March
31, 1999. Upon completion of system testing the Bank will modify
its contingency plan to incorporate the results of this testing.
Management anticipates Year 2000 expenditures to be less than
$100,000 of which $16,000 had been expended as of June 30, 1998.
In addition the Bank expended $230,000 to upgrade its data
processing system from June 30, 1996 to September 30, 1997.
Incomplete or untimely compliance, however, may have a material
adverse effect on the Company, the dollar amount of which cannot
be accurately quantified at this time because of the inherent
variables and uncertainties involved.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Consolidated Financial Statements for a
discussion of the impact of recent accounting pronouncements.
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.
<TABLE>
<CAPTION>
Year Ended June 30,
1998 1997 1996
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(1) $104,417 $ 8,172 7.83% $ 90,387 $ 6,988 7.73% $ 80,275 $ 6,244 7.78%
Other
loans(1) 10,691 1,003 9.38 12,534 1,076 8.58 8,806 775 8.80
Total net
loans 115,108 9,175 7.97 102,921 8,064 7.84 89,081 7,019 7.88
Mortgage-
backed
and related
securities 19,344 1,172 6.06 31,296 2,050 6.55 30,690 1,976 6.44
Investment
securi-
ties(2) 16,078 947 5.89 18,473 1,159 6.27 27,935 1,821 6.52
Other interest-
earning
assets 4,049 150 3.70 3,934 135 3.43 4,461 194 4.35
Total
interest-
earning
assets(1) 154,579 11,444 7.40 156,624 11,408 7.28 152,167 11,010 7.24
Other non-
interest-
earning
assets 5,405 - 4,595 - 4,947 -
Total
assets $ 159,984 $ 11,444 $161,219 $11,408 $157,114 $ 11,010
Interest-bearing liabilities:
Passbook
accounts $ 7,487 $ 202 2.70 $ 7,221 $ 200 2.77 $ 6,783 $ 180 2.65
NOW
accounts 9,605 186 1.94 7,316 178 2.43 6,478 159 2.45
Money market
accounts 7,856 241 3.07 8,572 237 2.76 8,786 264 3.00
Certificates
of deposit 86,705 4,522 5.21 96,197 4,947 5.14 97,728 5,263 5.39
Total
deposits 111,653 5,151 4.61 119,306 5,562 4.66 119,775 5,866 4.90
FHLB
advances 19,617 1,061 5.41 13,067 756 5.79 7,645 442 5.78
Total interest-
bearing
liabili-
ties 131,270 6,212 4.73 132,373 6,318 4.77 127,420 6,308 4.95
Other
liabilities 2,483 - 3,035 2,904 -
Total
liabili-
ties 133,753 6,212 135,408 - 130,324 -
Stockholders'
equity 26,231 - 25,811 - 26,790 -
Total liabil-
ities and
stockhol-
ders'
equity $ 159,984 $ 6,212 $ 161,219 $ 6,318 $157,114 $ 6,308
Net interest
income - $ 5,232 - $ 5,090 - $ 4,702
Interest rate
spread (3) - - 2.67% - - 2.51% - - 2.29%
Net interest
margin (4) - - 3.39% - - 3.25% - - 3.09%
Ratio of average
interest-earn-
ing assets to
average
interest-bearing
liabilities 117.76% - - 118.32% - - 119.42% - -
<FN>
<F1>
(1) Calculated net of deferred loan fees, loan discounts and loans-in-process.
(2) Includes FHLB stock and related cash dividends.
(3) Net interest spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on average interest-earning assets represents net interest income
dividend by average interest-earning assets.
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,
1998 1998 1997 1996
Weighted-average yield on loan portfolio 7.98% 7.97% 7.84% 7.88%
Weighted-average yield on mortgage-backed
and related securities 6.00 6.06 6.55 6.44
Weighted-average yield on investment portfolio 5.99 5.89 6.27 6.52
Weighted-average yield on other
interest-earning assets 5.19 3.70 3.43 4.35
Weighted-average yield on all
interest-earning assets 7.56 7.40 7.28 7.24
Weighted-average rate paid on deposits 4.59 4.61 4.66 4.90
Weighted-average rate paid on FHLB
advances 4.97 5.41 5.79 5.78
Weighted-average rate paid on all
interest-bearing liabilities 4.65 4.73 4.77 4.95
Interest rate spread (spread between weighted
average rate on all interest-earning assets
and all interest-bearing liabilities) 2.91 2.67 2.51 2.29
Net interest margin (net interest income
as a percentage of average interest-
earning assets) - 3.39 3.25 3.09
The following table sets forth the effects of changing rates and
volumes on net interest income of the 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).
Years Ended June 30, Years Ended June 30,
1998 Compared to 1997 1997 Compared to 1996
Increase (Decrease) Increase(Decrease)
Due to Due to
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $134 $955 $ 22 $1,111 $(36) $1,088 $(6) $1,046
Mortgage-backed and
related securitie (153) (783) 58 (878) 34 39 1 74
Investment securities (72) (150) 10 (212) (70) (616) 24 (662)
Other interest-
earning deposits 11 4 0 15 (42) (23) 5 (60)
Total net change in
income on interest-
earning assets (80) 26 90 36 (114) 488 24 398
Interest-bearing
liabilities:
Deposits (60) (353) 2 (411) (282) (23) 1 (304)
FHLB advances (50) 379 (24) 305 1 312 1 314
Total net change in
expense on interest-
bearing liabilities (110) 26 (22) (106) (281) 289 2 10
Net change in net
interest income $ 30 $ 0 $112 $ 142 $167 $ 199 $22 $ 388
(1) Does not include interest on loans placed on nonaccrual status.
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, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended
June 30, 1998. 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, 1998 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting
principles.
Poplar Bluff, Missouri
July 31, 1998
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 AND 1997
ASSETS 1998 1997
Cash and cash equivalents $ 4,326,474 3,425,175
Certificates of deposit - 91,199
Investment and mortgage-backed and related
securities: (Note 2)
Available for sale - at estimated market
value (amortized cost $23,550,641 and
$39,571,322 at June 30, 1998 and 1997,
respectively) 23,506,508 39,577,474
Held to maturity - at amortized cost
(estimated market value $4,796,884 and
$4,904,989 at June 30, 1998 and 1997,
respectively) 4,645,407 4,780,845
Stock in Federal Home Loan Bank of
Des Moines 1,053,500 1,519,700
Loans receivable, net (Note 3) 119,083,215 107,782,977
Accrued interest receivable (Note 4) 907,778 1,079,967
Foreclosed real estate, net (Note 5) 171,721 54,838
Premises and equipment (Note 6) 1,883,064 1,682,075
Prepaid expenses and other assets 369,391 398,784
Total assets $ 155,947,058 160,393,034
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) $ 109,410,436 118,704,601
Advances from borrowers for
taxes and insurance 315,123 321,609
Advances from FHLB of Des Moines (Note 8) 21,068,905 13,535,321
Accounts payable and other liabilities 459,119 582,825
Accrued interest payable 581,590 848,435
Total liabilities 131,835,173 133,992,791
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 17,628,758 17,579,778
Retained earnings-substantially restricted 12,771,731 12,476,753
Treasury stock of 310,813 shares in 1998 and
169,898 shares in 1997, at cost (5,613,008) (2,680,183)
Unearned employee benefits (665,824) (993,528)
Unrealized gain (loss) on investment and mortgage-
backed securities available for sale (27,804) 2,966
Minimum pension liability (Note 9) - (3,575)
Total stockholders' equity 24,111,885 26,400,243
Total liabilities and
stockholders' equity $ 155,947,058 160,393,034
See accompanying notes to consolidated financial statements.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
1998 1997 1996
Interest income:
Loans receivable $ 9,175,090 8,064,447 7,018,869
Investment securities 946,447 1,159,386 1,820,703
Mortgage-backed and related
securities 1,172,281 2,049,764 1,976,216
Other interest-earning assets 150,030 134,871 194,646
Total interest income 11,443,848 11,408,468 11,010,434
Interest expense:
Deposits (Note 7) 5,150,691 5,562,266 5,866,482
Advances from FHLB 1,060,788 756,340 442,247
Total interest expense 6,211,479 6,318,606 6,308,729
Net interest income 5,232,369 5,089,862 4,701,705
Provision for loan losses (Note 3) 783,009 241,300 60,000
Net interest income after
provision for loan losses 4,449,360 4,848,562 4,641,705
Noninterest income:
Gain on sale of investment securities,
available for sale 9,205 58,462 75,632
Gain (loss) on sale of mortgage-backed
securities, available for sale 69,956 (10,386) (8,722)
Gain on sale of mortgage-backed securities,
held to maturity 242 - 63,748
Insurance commissions 302,246 333,519 308,634
Banking service charges 198,981 171,789 140,237
Net income on foreclosed real estate (16,509) (15,971) (17,945)
Loan late charges 68,845 49,103 52,611
Other 164,337 31,812 25,182
Total noninterest income 797,303 618,328 639,377
Noninterest expense:
General and administrative:
Compensation and benefits 2,457,458 2,177,532 2,075,615
Occupancy and equipment 401,141 306,218 302,126
SAIF special assessment - 779,184 -
SAIF deposit insurance premium 109,980 163,711 275,488
Provisions (credit) for losses on
foreclosed real estate (Note 5) (51,550) (176,533) (84,252)
Professional fees 191,583 160,522 149,940
Advertising 116,349 110,986 84,612
Postage and office supplies 133,666 115,580 117,917
Other 301,573 335,203 239,703
Total noninterest expense 3,660,200 3,972,403 3,161,149
Income before income taxes 1,586,463 1,494,487 2,119,933
Income taxes (Note 10)
Current 588,000 440,700 590,513
Deferred (66,000) (900) 62,898
522,000 439,800 653,411
Net income $ 1,064,463 1,054,687 1,466,522
Basic earnings per common share $ .69 .68 .89
Diluted earnings per common share $ .67 .67 .87
See accompanying notes to consolidated financial statements.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
</TABLE>
<TABLE>
Unrealized
Gain(Loss) on
Additional Unearned Securities Minimum Total
Common Paid-in Retained Treasury Employee Available Pension Stockholders'
Stock Capital Earnings Stock Benefits For Sale Liability Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1995 $ 18,032 17,325,586 11,491,096 - (1,663,056) (115,647) (9,035) 27,046,976
Change in un-
realized loss
on securities
available for
sale, net - - - - - 304,138) - (304,138)
Minimum pension
liability - - - - - - 2,730 2,730
Release of ESOP
Awards - 104,392 - - 204,044 - - 308,436
MRP expense, net - 20,000 - - 142,833 - - 162,833
Dividends paid
($.50 per share) - - (765,035) - - - - (765,035)
Purchase of treasury
Stock - - - (1,799,150) - - - (1,799,150)
Exercise of stock
Options - - - 108,120 - - - 108,120
Net income - - 1,466,522 - - - - 1,466,522
Balance at
June 30, 1996 18,032 17,449,978 12,192,583 (1,691,030) (1,316,179) (419,785) (6,305) 26,227,294
Change in un-
realized gain
(loss) on
securities
available for
sale, net - - - - - 422,751 - 422,751
Minimum pension
Liability - - - - - - 2,730 2,730
Release of ESOP
Awards - 104,800 - - 204,047 - - 308,847
MRP expense, net - 25,000 - - 118,604 - - 143,604
Dividends paid
($.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 (2,680,183) (993,528) 2,966 (3,575) 26,400,243
Change in un-
realized loss
on securities
available for
sale, net - - - - - (30,770) - (30,770)
Minimum pension
Liability - - - - - - 3,575 3,575
Release of ESOP
Awards - 195,480 - - 204,046 - - 399,526
MRP expense, net - 52,000 - - 123,658 - - 175,658
Dividends paid
($.50 per share) - - (769,485) - - - - (769,485)
Purchase of treasury
Stock - - - 3,314,645) - - - (3,314,645)
Exercise of stock
Options - (198,500) - 381,820 - - - 183,320
Net income - - 1,064,463 - - - - 1,064,463
Balance at
June 30, 1998 $ 18,032 17,628,758 12,771,731 (5,613,008) (665,824) (27,804) - 24,111,885
</TABLE>
See accompanying notes to consolidated financial statements.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
1998 1997 1996
Cash flows from operating activities:
Net income $ 1,064,463 1,054,687 1,466,522
Items not requiring (providing) cash:
Depreciation and amortization 217,895 188,521 156,377
MRP expense and ESOP expense 523,187 427,451 451,269
Gain on sale of investment
securities, available for sale (9,205) (58,462) (75,632)
(Gain) loss on sale of mortgage-backed
securities, available for sale (69,956) 10,386 8,722
Gain on sale of mortgage-backed
securities, held to maturity (242) - (63,748)
Provision for loan losses 783,009 241,300 60,000
FHLB stock dividend - - (30,000)
(Gain) loss on foreclosed real
estate, net (51,550) (176,533) (84,252)
Net amortization of deferred income,
premiums, and discounts 131,371 236,149 140,058
Changes in:
Accrued interest receivable 172,189 61,132 53,894
Prepaid expenses and other assets (17,494) 35,206 19,251
Accounts payable and other liabilities (123,706) (13,356) 58,165
Accrued interest payable (266,845) (133,374) 183,524
Net cash provided by
operating activities 2,353,116 1,873,107 2,344,150
Cash flows from investing activities:
Net increase in loans (12,170,696) (12,431,883) (11,827,066)
Proceeds from sales of investment
securities, available for sale 2,584,919 2,081,950 5,841,202
Proceeds from maturing investment
securities, available for sale 6,660,000 3,965,556 10,535,000
Proceeds from maturing investment
securities, held to maturity 25,000 - 3,600,000
Purchase of investment securities,
available for sale (4,993,594) (4,251,016) (7,457,104)
Purchase of investment securities,
held to maturity - - (500,000)
Proceeds from sales of mortgage-backed
securities, held to maturity 50,434 - 1,161,028
Proceeds from sales of mortgage-backed
securities, available for sale 7,493,339 6,475,469 8,087,727
Proceeds from maturing mortgage-backed
securities, available for sale 5,396,806 5,168,146 6,223,361
Proceeds from maturing mortgage-backed
securities, held to maturity 80,159 64,070 1,131,708
Purchase of mortgage-backed
securities, available for sale (1,107,089) (2,461,989) (27,239,834)
Proceeds from sales of certificates
of deposit 93,825 - -
Proceeds from maturing certificates
of deposit - 95,000 90,000
Proceeds from reduction of FHLB stock 466,200 - -
Purchase of premises and equipment (390,511) (428,079) (239,666)
Proceeds from sale of foreclosed
real estate 32,468 37,550 94,799
Net cash provided by (used in)
investing activities 4,221,260 (1,685,226) (10,498,845)
Cash flows from financing activities:
Net increase (decrease) in demand
deposits and savings accounts $ 771,880 2,485,172 (985,489)
Net (decrease) increase in
certificates of deposit (10,066,045) (3,918,637) 2,971,170
Net decrease in advances from
borrowers for taxes and insurance (6,486) (32,286) (118,951)
Net increase in advances from FHLB
of Des Moines 7,533,584 1,984,843 10,236,004
Dividends on common stock (769,485) (770,517) (765,035)
Exercise of stock options 178,120 21,000 108,120
Payments to acquire treasury stock (3,314,645) (1,010,153) (1,799,150)
Net cash (used in) provided by
financing activities (5,673,077) (1,240,578) 9,646,669
Increase (decrease) in cash
and cash equivalents 901,299 (1,052,697) 1,491,974
Cash and cash equivalents
at beginning of period 3,425,175 4,477,872 2,985,898
Cash and cash equivalents
at end of period $ 4,326,474 3,425,175 4,477,872
Supplemental disclosures of
cash flow information:
Noncash investing and
financing activities
Conversion of loans to
foreclosed real estate $ 116,371 121,050 124,279
Conversion of foreclosed
real estate to loans $ 6,950 152,150 680,839
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) $ 2,062,670 2,018,878 1,939,186
Income taxes $ 583,928 441,560 422,306
See accompanying notes to consolidated financial statements.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
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 Bank and Trust (the Bank) and the 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 Bank, and the 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 financial institution 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
subsidiary.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiary, the Bank, and the
Bank's wholly-owned subsidiary, S.M.S. Financial Services,
Inc. All significant intercompany accounts and transactions
have been eliminated.
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 $1,898,619, and $1,411,857 at June 30, 1998
and 1997, 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.
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.
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.
Loans are placed on nonaccrual status upon becoming 90 days
contractually past due as to principal or interest, and in
management's opinion full collection of interest is doubtful.
Interest income previously accrued but not collected at the
date a loan is placed on nonaccrual status is reversed against
interest income. Cash receipts on a nonaccrual loan are
applied to principal and interest in accordance with its
contractual terms unless full payment of principal is not
expected, in which case cash receipts, whether designated as
principal or interest, are applied as a reduction of the
carrying value of the loan. A non-accrual loan is generally
returned to accrual status when principal and interest
payments are current, full collectability of principal and
interest is reasonably assured and a consistent record of
performance has been demonstrated.
In accordance with SFAS No. 114, "Accounting by Creditor for
Impairment of a Loan," as amended the Company considers a loan
falling within its scope impaired when, based upon current
information and events, it is probable that it will be unable
to collect all amounts due, both principal and interest,
according to the contractual terms of the loan agreement.
SFAS No. 114 does not apply to large groups of smaller-balance
homogeneous loans that are collectively evaluated for
impairment, which, for the Company include small residential
real estate loans and consumer loans. Valuation allowances
are established for impaired loans for the difference between
the loan amount and fair value of collateral less estimated
selling costs. Impaired loans are placed on nonaccrual status
at the point they become contractually delinquent 90 days or
more and cash receipts are applied, and interest income
recognized, pursuant to the discussion above for nonaccrual
loans. Impairment losses are recognized through an increase
in the allowance for loan losses.
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
Basic income per share is computed using the weighted average
number of common shares outstanding during each year. Diluted
income per share includes the effect of all dilutive potential
common shares (primarily stock options) outstanding during
each year. All per share data has been restated to reflect
the adoption of SFAS No. 128.
The following paragraphs summarize the impact of new accounting
pronouncements:
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." The statement establishes standards
for reporting and display of comprehensive income and its
components in a full set of general purpose financial
statements. It does not address recognition or measurement
issues for comprehensive income and its components. Entities
are required to classify items of other comprehensive income
(including minimum pension liability adjustment and unrealized
gains and losses on securities available for sale) by their
nature in the financial statement and display the accumulated
balance of other comprehensive income separately in the equity
section of the statement of financial position. The statement
is effective for fiscal years beginning after December 15,
1997. Comparative financial statements for earlier periods
are required to reflect the provisions of this statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The
statement requires that public entities report certain
information about operating segments in the financial
statements. The statement also requires disclosures about
products and services, geographic areas and major customers.
The statement supersedes SFAS No. 14 and supersedes and amends
certain other accounting pronouncements. The statement is
effective for fiscal years beginning after December 15, 1997.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits."
This statement addresses disclosure only. It does not address
measurement or recognition. This statement amends SFAS No's.
87, 88 and 106. The statement is effective for fiscal years
beginning after December 15, 1997.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position
and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative (that is, gains
and losses) depends on the intended use of the derivative and
the resulting designation. This statement is effective for
all fiscal quarters of fiscal years beginning after June 15,
1999. SFAS No. 133 is not expected to have a material impact
on the financial position or results of operations of the
Company.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
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, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
U.S. government and federal
agency obligations $ 6,990,453 8,838 2,074 6,997,217
Obligations of states and
political subdivisions 2,296,754 58,441 - 2,355,195
Total investment securities 9,287,207 67,279 2,074 9,352,412
Mortgage-backed and related securities:
GNMA certificates 6,288,989 39,622 2,345 6,326,266
FNMA certificates 3,850,598 24,513 29,093 3,846,018
FHLMC certificates 1,412,755 18,687 5,357 1,426,085
Collateralized mortgage
obligations 2,711,092 - 155,365 2,555,727
Total mortgage-backed and
related securities 14,263,434 82,822 192,160 14,154,096
Total $ 23,550,641 150,101 194,234 23,506,508
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
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
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, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
U.S. government and federal
agency obligations $ 600,000 - 13,500 586,500
Obligations of states and
political subdivisions 4,045,407 164,977 - 4,210,384
Total $ 4,645,407 164,977 13,500 4,796,884
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
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, 1998
Available for Sale Held to Maturity
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
Due in one year or less $ 180,000 180,373 775,118 763,377
Due after one year
thru 5 years 7,620,597 7,667,222 1,617,627 1,667,746
Due after 5 years
thru 10 years 1,291,610 1,302,152 1,444,283 1,507,377
Due after 10 years 195,000 202,665 808,379 858,384
Total investment
Securities 9,287,207 9,352,412 4,645,407 4,796,884
Mortgage-backed and
related securities 14,263,434 14,154,096 - -
Total $ 23,550,641 23,503,508 4,645,407 4,796,884
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
Proceeds from sales of investment and mortgage-backed and
related securities and gross realized gains and losses are
summarized below.
June 30,
1998 1997 1996
Proceeds from sales:
Investment securities $ 2,584,919 2,081,950 5,841,202
Mortgage-backed and related
Securities 7,543,773 6,475,469 9,248,755
Gross realized gains:
Investment securities 12,427 58,462 86,947
Mortgage-backed and related
Securities 81,187 44,854 148,477
Gross realized losses:
Investment securities (3,222) - (11,315)
Mortgage-backed and related
Securities (10,989) (55,240) (93,451)
Included in the 1998 and 1996 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 $50,193 and $1,161,028, respectively, 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
$10,662,083 and $21,814,982 at June 30, 1998 and 1997,
respectively.
Adjustable rate mortgage loans included in mortgage-backed and
related securities at June 30, 1998 and 1997 amounted to
$9,780,955 and $13,639,675, respectively. All adjustable rate
mortgage-backed and related securities at June 30, 1998 and 1997
are recorded as available for sale.
NOTE 3: Loans Receivable, net
Loans receivable, net are summarized as follows:
June 30,
1998 1997
Real estate loans:
Conventional $ 83,398,800 77,895,000
Construction 2,707,601 3,822,259
Commercial 22,529,953 18,293,158
Loans secured by deposit accounts 671,123 721,403
Consumer loans 11,792,529 9,689,237
121,100,006 110,421,057
Loans in process (653,095) (1,837,746)
Deferred loan fees, net (61,240) (80,413)
Deferred gain on sale of real estate (7,234) (13,434)
Allowance for loan losses (1,295,222) (706,487)
$119,083,215 107,782,977
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
Adjustable-rate loans included in the loan portfolio amounted to
$95,429,990, and $86,111,104 at June 30, 1998 and 1997
respectively.
One-to four-family residential real estate loans amounted to
$81,257,000 and $78,359,000 at June 30, 1998 and 1997,
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,
1998 1997 1996
Balance, beginning of period $ 706,487 627,564 572,341
Loans charged-off (326,382) (162,377) (5,167)
Recoveries of loans previously
charged off 132,108 - 390
Net charge-offs (194,274) (162,377) (4,777)
Provision charged to expense 783,009 241,300 60,000
Balance, end of period $ 1,295,222 706,487 627,564
The Company ceased recognition of interest income on loans with a
book value of $533,000, $1,380,000 and $546,000 for June 30,
1998, 1997 and 1996, respectively. The average balance of
nonaccrual loans for the year ended June 30, 1998 was
approximately $1,180,000. Allowance for losses on nonaccrual
loans amounted to approximately $54,000 at June 30, 1998.
Interest income of approximately $15,000, $98,000 and $22,000 was
recognized on these loans for the years ended June 30, 1998, 1997
and 1996, respectively. Gross interest income would have been
approximately $46,000, $124,000 and $47,000 for the years ended
June 30, 1998, 1997 and 1996, respectively, if the interest
payments had been received in accordance with the original terms.
The Savings Bank is not committed to lend additional funds to
customers whose loans have been placed on nonaccrual.
Of the above nonaccrual loans at June 30, 1998, 1997, and 1996
$316,000, $-0-, and -0-, respectively, was considered to be
impaired. The average balance of impaired loans for the years
ended June 30, 1998, 1997, and 1996 was $297,000, $-0-, and -0-,
respectively. Interest income recognized on these loans for the
year ended June 30, 1998 was $4,700. Gross interest income on
these loans would have been $29,000 for the year ended June 30,
1998 if the interest payments had been received in accordance
with the original terms. Allowance for loan losses on all of the
impaired loans for 1998 was $32,000.
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, 1996 $ 455,734
Additions 175,900
Repayments (57,629)
Balance, June 30, 1997 574,005
Additions 86,956
Repayments (202,525)
Balance, June 30, 1998 $ 458,436
These loans were made on substantially the same terms as those
prevailing at the time for comparable transactions with
unaffiliated persons.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
NOTE 4: Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
June 30,
1998 1997
Investment securities $ 216,380 371,414
Mortgage-backed and related securities 83,443 172,435
Loans receivable 607,955 536,118
$ 907,778 1,079,967
NOTE 5: Foreclosed Real Estate
Foreclosed real estate consists of the following:
June 30,
1998 1997
Foreclosed real estate $ 171,721 390,135
Allowance for losses - (335,297)
$ 171,721 54,838
Activity in the allowance for losses for foreclosed real
estate is as follows:
June 30,
1998 1997 1996
Balance, beginning of period $ 335,297 335,297 419,109
Charge-offs and recoveries, net (283,747) 176,533 440
Provisions (credit) for losses on
foreclosed real estate (51,550) (176,533) (84,252)
Balance, end of period $ 0 335,297 335,297
NOTE 6: Premises and Equipment
Following is a summary of premises and equipment:
June 30,
1998 1997
Land $ 342,042 342,042
Buildings and improvements 2,175,325 2,227,863
Furniture, fixtures, and equipment 1,297,611 1,395,624
Automobiles 62,821 58,246
3,877,799 4,023,775
Less accumulated depreciation (1,994,735) (2,341,700)
1,883,064 1,682,075
Depreciation expense for the years ended June 30, 1998, 1997
and 1996 was $189,522, $157,252 and $123,160, respectively.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
NOTE 7: Deposits
Deposits are summarized as follows:
June 30,
1998 1997
Non-interest bearing accounts $ 2,590,177 1,170,071
NOW accounts 7,510,236 7,786,764
Money market deposit accounts 8,250,437 8,300,850
Savings accounts 7,318,578 7,639,863
Total transactions accounts 25,669,428 24,897,548
Certificates:
4.00 - 4.99% 8,850,236 21,003,577
5.00 - 5.99% 74,667,090 72,566,220
6.00 - 6.99% 120,183 123,112
7.00 - 7.99% 25,949 28,339
8.00 - 8.99% 58,372 67,455
9.00 - 9.99% 19,178 18,350
Total certificates, 5.16%
and 5.13%, respectively 83,741,008 93,807,053
Total deposits $ 109,410,436 118,704,601
Weighted-average rates - deposits 4.59% 4.62%
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was $12,021,623 and $19,892,987 at June
30, 1998 and 1997, respectively.
Certificate maturities at June 30, 1998 are summarized as
follows:
July 1, 1998 to June 30, 1999 $ 73,907,218
July 1, 1999 to June 30, 2000 3,138,413
July 1, 2000 to June 30, 2001 5,715,049
July 1, 2001 to June 30, 2002 657,514
July 1, 2002 to June 30, 2003 310,548
Thereafter 12,266
$ 83,741,008
Interest expense on deposits is summarized as follows:
Year Ended June 30,
1998 1997 1996
NOW accounts $ 186,254 178,055 159,335
Money market deposit accounts 240,803 236,953 259,926
Savings accounts 202,143 199,583 178,847
Certificates of deposit 4,521,491 4,947,675 5,268,374
$ 5,150,691 5,562,266 5,866,482
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
NOTE 8: Advances from Federal Home Loan Bank of Des
Moines
Advances from Federal Home Loan Bank of Des Moines are summarized
as follows:
Callable or
Quarterly Interest 1998 1997
Maturity Thereafter Rate
7-31-97 - 5.70 $ - 13,250,000
8-27-08 - 5.97 159,238 169,006
9-08-08 - 5.80 109,667 116,315
1-22-08 1-22-99 4.79 16,800,000 -
2-06-08 2-06-01 5.17 3,000,000 -
7-03-98 - 5.69 1,000,000 -
$ 21,068,905 13,535,321
Weighted average rate 4.97% 5.71%
Advances from Federal Home Loan Bank of Des Moines are secured by
FHLB stock and single-family mortgage loans of $31,603,000.
Schedule principal maturities of advances from Federal Home Loan
Bank of Des Moines over the next five years are as follows:
July 1, 1998 to June 30, 1999 $ 1,017,849
July 1, 1999 to June 30, 2000 19,166
July 1, 2000 to June 30, 2001 20,852
July 1, 2001 to June 30, 2002 22,853
July 1, 2002 to June 30, 2003 24,457
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 1998, 1997 and 1996 there were no
contributions made to the plan.
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 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. Effective July 1, 1998 the
loan terms were modified and principal payments were
extended an additional four 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 1998, 1997 and 1996
was $399,526, $308,847, and $308,436, respectively.
The number of ESOP shares at June 30, 1998 were as
follows:
Allocated shares 85,096
Unreleased shares 51,011
Total ESOP shares 136,107
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
The fair value of unreleased ESOP shares at June 30, 1998 was
$1,122,242.
The Board of Directors of the 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 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. During 1994
the Bank granted 17,825 shares of common stock to non-employee
directors and 45,593 shares to officers and key employees.
During 1998 the Bank granted 1,500 shares to a new executive
officer. The market value of the common stock at the grant
date was $19.875. The shares granted are in the form of
restricted stock payable at the rate of 20% of such shares per
year. 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 1998, 1997 and 1996 was $123,658,
$118,604 and $142,833, respectively.
The Board of Directors has also adopted a stock option plan.
The purpose of the plan is to provide additional incentive to
certain directors, officers and key employees of the Bank. In
connection with conversion to stock form in April 1994, the
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 of which 2,000 shares have
been forfeited. The stock options were granted at $10 per
share which was equal to the market value at the date of grant.
During 1998 10,000 additional shares were granted at $19.75 and
15,000 shares were granted at $19.875 which was equal to the
market value at the date of the grants. All options are 100%
vested at the grant date and options expire ten years from the
date of the grant. In addition 29,491 shares are unallocated.
Changes in options outstanding were as follows:
Number of Weighted Average
Shares Exercise Price
Balance at June 30, 1995 124,049 $10.00
Granted - -
Exercised 10,812 10.00
Balance at June 30, 1996 113,237 10.00
Granted - -
Exercised 2,100 10.00
Balance at June 30, 1997 111,137 10.00
Granted 25,000 19.83
Exercised 17,812 10.00
Balance at June 30, 1998 118,325 12.08
The Company has estimated the fair value of awards granted
under its stock option plan during 1998 utilizing the Black-
Scholes pricing model.
For the options granted in 1998 the Company has applied
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, no compensation
expense has been recognized for its stock-based compensation
plans. Had compensation cost for the Company's stock option
plan been determined based upon the fair value at the grant
date for awards under these plans consistent with the
methodology prescribed under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and
diluted earnings per share would have been reduced by
approximately $111,000, or $.07 per share in 1998.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
Following is a summary of the fair values of options granted
using the Black-Scholes pricing model.
1998
Fair value at grant date $ 167,900
Assumptions:
Expected dividend yield 5.00%
Expected volatility 38.00%
Risk-free interest rate 5.67%
Weighted-average expected life 5 years
The Bank adopted a directors' retirement plan. The directors'
retirement plan provides that each non-employee director
(participant) shall receive, upon termination of service on the
Board on or after age 60, other than termination for cause, a
benefit in equal annual installments over a five year period.
The benefit will be based upon the product of the participant's
vesting percentage and the total Board fees paid to the
participant during the calendar year preceding termination of
service on the Board. The vesting percentage shall be determined
based upon the participant's years of service on the Board,
whether before or after the reorganization date, according to the
following schedule:
Full Years of Service Non-Employee Director's
on the Board Vested Percentage
Less than 5 0%
5 to 9 50%
10 to 14 75%
15 or more 100%
In the event that the participant dies before collecting any or
all of the benefits, the 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, 1998, 1997 and 1996:
1998 1997 1996
Actuarial present value of benefit obligations:
Vested accumulated benefits $ 175,652 169,458 156,830
Nonvested accumulated benefits 13,228 15,478 13,689
Total accumulated benefits 188,880 184,936 170,519
Unrecognized prior service cost
being recognized over four years 0 29,643 60,131
Unrecognized net obligation being
recognized over four years 0 3,575 6,305
Adjustment to recognize minimum liability 0 (33,218) (66,436)
(Under) over accrual 0 (2,175) 1,340
Accrued pension cost $ 188,880 182,761 171,859
Net pension cost includes the following components:
Service costs - benefits earned
during the year $ 1,319 2,783 2,783
Interest cost on benefit obligation 2,625 11,634 10,659
Amortization of prior service cost
and net obligation 33,218 33,218 33,218
(Under) over accrual - (2,175) 1,340
Net pension cost $ 37,162 45,460 48,000
A discount rate of 7% was used in determining net pension cost.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
NOTE 10: Income Taxes
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 Bank's tax bad debt
reserves were less than its base year level and other conditions
were met, the Bank did not have any recapture. Provisions of the
Act repealed the percentage of taxable income method for the Bank
effective July 1, 1996. The Bank is permitted to make additions
to the tax bad debt reserve using the experience method.
SFAS No. 109 requires the Bank to establish a deferred tax
liability for the tax bad debt reserves over the base year
amounts. The 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:
1998 1997
Deferred tax assets:
Provision for losses on loans
and foreclosed real estate $ 408,314 354,224
Accrued compensation and benefits 113,834 83,635
Base year tax bad debt reserve at 12/31/87
in excess of current tax bad debt reserve 110,897 11,482
Unrealized loss on available for sale
Securities 16,329 -
Gross deferred tax assets 649,374 449,341
Valuation allowance (110,897) (11,482)
Total deferred tax assets 538,477 437,859
Deferred tax liabilities:
FHLB stock dividends 166,566 166,566
Purchase accounting adjustments 58,224 62,150
Premises and equipment, tax vs book
accumulated depreciation 50,407 28,192
Unrealized gain on available for sale
Securities - 3,187
Total deferred tax liabilities 275,197 260,095
Net deferred tax assets $ 263,280 177,764
The valuation allowance increased by $99,415 during the year
ended June 30, 1998.
Income taxes are summarized as follows:
Year Ended June 30,
1998 1997 1996
Current:
Federal $ 548,500 358,000 496,658
State 39,500 82,700 93,855
588,000 440,700 590,513
Deferred:
Federal (65,000) (900) 60,898
State (1,000) - 2,000
(66,000) (900) 62,898
$ 522,000 439,800 653,411
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
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,
1998 1997 1996
Tax at statutory Federal rate $ 539,397 508,125 720,777
Increase (reduction) in taxes
resulting from:
Nontaxable municipal income (98,135) (121,946) (150,428)
State tax, net of Federal benefit 26,070 54,582 63,264
Nondeductible ESOP expenses 66,463 35,632 38,625
Other, net (11,795) (36,593) (18,827)
Actual provision $ 522,000 439,800 653,411
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,
1998 1997 1996
FHLB stock dividend $ - - 10,200
Accrued income and expense (30,199) (16,820) (10,302)
Purchase accounting adjustments (3,926) (3,922) 31,554
Provision for losses on loans
and foreclosed real estate (54,090) 9,134 15,664
Premises and equipment, tax vs
book accumulated depreciation 22,215 10,708 15,782
$ (66,000) (900) 62,898
NOTE 11: Stockholders' Equity and Regulatory Capital
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can result in certain mandatory -
and possibly additional discretionary - actions by regulators
that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total capital and Tier I risk-
based capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to
average total assets (as defined). Management believes, as of
June 30, 1998, that the Bank meets all capital adequacy
requirements to which it is subject.
As of June 30, 1998, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as
well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the
Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management
believes have changed the Bank's category.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
The following table summarizes the Bank's actual and required
regulatory capital as of June 30, 1998 and 1997:
To Be Well
Capitalized
Under Prompt
Corrective
For Capital Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
As of June 30, 1998:
Total Capital (to
Risk-Weighted Assets) $22,257 25.5% $6,970 38.0% $8,712 >10.0%
Tier I Capital (to
Risk-Weighted Assets) 21,167 24.3% 3,485 34.0% 5,227 >6.0%
Tier I Capital (to
Average Assets) 21,167 13.7% 6,196 34.0% 4,356 >5.0%
As of June 30, 1997:
Total Capital (to
Risk-Weighted Assets) 21,253 25.6% 6,722 38.0% 8,402 >10.0%
Tier I Capital (to
Risk-Weighted Assets) 20,816 24.8% 3,360 34.0% 5,041 >6.0%
Tier I Capital (to
Average Assets) 20,816 13.4% 4,680 34.0% 7,798 >5.0%
The Bank's ability to pay dividends on its common stock to the
Company is restricted to maintain adequate capital as shown in
the above table.
NOTE 12: Commitments and Contingencies
In the ordinary course of business, the Bank has various
outstanding commitments and contingent liabilities that are not
reflected in the accompanying consolidated financial statements.
The 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.
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,
1998 1997
Commitments to extend credit $ 3,132,428 2,081,671
Standby letters of credit $ 40,710 126,370
At June 30, 1998, total commitments to originate fixed rate
loans were $270,000 at interest rates ranging from 7.5% to
8.5%. 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.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
The Company grants collateralized commercial, real estate, and
consumer loans to customers in southeast Missouri. Although the
Company has a diversified portfolio, loans aggregating
$84,391,000 at June 30, 1998, are secured by single and
multifamily residential real estate in the Company's primary
lending area.
NOTE 14: Earnings Per Share
The following table sets forth the computations of basic and
diluted earnings per common share for the year ended June 30:
1998 1997 1996
Numerator - net income $ 1,064,463 1,054,687 1,466,522
Denominators
Denominator for basic earnings
per share -
Weighted average shares
Outstanding 1,532,910 1,549,032 1,639,509
Common equivalent shares
due to stock options
under treasury stock
method 51,563 38,072 40,481
Denominator for diluted
earnings per share 1,584,473 1,587,104 1,679,990
Basic earnings per
common share $ .69 .68 .89
Diluted earnings per
common share $ .67 .67 .87
NOTE 15: Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company's
financial instruments at June 30, 1998 and 1997, are summarized
as follows:
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Non-trading instruments and
nonderivatives:
Cash and cash equivalents $ 4,326,474 4,326,474 3,425,175 3,425,175
Certificates of deposits - - 91,199 91,199
Investment and mortgage-backed
and related securities:
Available for sale 23,506,508 23,506,508 39,577,474 39,577,474
Held to maturity 4,645,407 4,796,884 4,780,845 4,904,989
Stock in FHLB of Des Moines 1,053,500 1,053,500 1,519,700 1,519,700
Loans receivable, net 119,083,215 120,374,197 107,782,977 108,874,000
Accrued interest receivable 907,778 907,778 1,079,967 1,079,967
Deposits 109,410,436 109,379,862 118,704,601 118,228,000
Advances from FHLB of
Des Moines 21,068,905 21,010,601 13,535,321 13,489,000
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.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
Stock in FHLB of Des Moines is valued at cost, which represents
redemption value and approximates fair value.
Fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same
remaining maturities. Loans with similar characteristics are
aggregated for purposes of the calculations.
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 estimated using a
discounted cash flow calculation that applies the rates currently
offered for deposits of similar remaining 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.
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 1998 1997
Cash $ 266,599 785,511
Investment securities -
available for sale 2,087,247 3,766,328
ESOP note receivable 510,114 714,160
Accrued interest receivable 62,026 106,016
Other assets 77,165 27,821
Equity in net assets of the Bank 21,144,543 21,031,774
Total assets $ 24,147,694 26,431,610
Liabilities and Stockholders' Equity
Accrued expenses and other
Liabilities $ 35,809 31,367
Total liabilities 35,809 31,367
Stockholders' equity 24,111,885 26,400,243
Total liabilities and
stockholders' equity $ 24,147,694 26,431,610
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
STATEMENTS OF INCOME
Year Ended June 30,
1998 1997 1996
Interest income $ 279,740 376,383 434,458
Dividend from Bank 1,447,206 400,000 300,000
1,726,946 776,383 734,458
Operating expenses 202,714 167,246 154,690
Income before income taxes
and equity in undistributed
income of the Bank 1,524,232 609,137 579,768
Income taxes 7,500 48,161 62,493
Income before equity in
undistributed
income of the Bank 1,516,732 560,976 517,275
Equity in undistributed
income of the Bank (452,269) 493,711 949,247
Net income $ 1,064,463 1,054,687 1,466,522
STATEMENTS OF CASH FLOWS
Year Ended June 30,
1998 1997 1996
Cash flows from operating
activities:
Net income $ 1,064,463 1,054,687 1,466,522
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
Income of the Bank 452,269 (493,711) (949,247)
Amortization of premiums
(discounts) on investment
securities 29,900 33,012 93,996
Other adjustments, net 11,420 8,747 36,584
Net cash provided by
operating activities 1,558,052 602,735 647,855
Cash flows from investing
activities:
Principal collected on
loan to ESOP 204,046 204,046 204,045
Purchase of investment
securities, available
for sale - - (2,075,386)
Proceeds from maturities of
investment securities,
available for sale 1,625,000 870,000 2,950,000
Purchase of fixed assets - - (10,375)
Net cash provided by
investing activities 1,829,046 1,074,046 1,068,284
Cash flows from financing
activities:
Dividends on common stock (769,485) (770,517) (765,035)
Exercise of stock options 178,120 21,000 108,120
Payments to acquire treasury
Stock (3,314,645) (1,010,153) (1,799,150)
Net cash used in
financing activities (3,906,010) (1,759,670) (2,456,065)
Net decrease in cash and
cash equivalents (518,912) (82,889) (739,926)
Cash and cash equivalents
at beginning of period 785,511 868,400 1,608,326
Cash and cash equivalents
at end of period $ 266,599 785,511 868,400
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 and 1996
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
1998: Quarter Quarter Quarter Quarter
Interest income $ 2,876 2,897 2,842 2,829
Interest expense 1,607 1,589 1,514 1,502
Net interest income 1,269 1,308 1,328 1,327
Provision for loan losses 23 114 263 383
Noninterest income 173 179 161 284
Noninterest expense 867 902 987 904
Income before income
taxes 552 471 239 324
Income taxes 195 178 76 73
Net income $ 357 293 163 251
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
DIRECTORS AND OFFICERS
SOUTHERN MISSOURI BANCORP
DIRECTORS:
Thadis R. Seifert
Chairman of the Board
Retired former executive vice president
of Savings Bank
Leonard M. Ehlers
Vice-Chairman
Retired court reporter of the 36th
Judicial Circuit
Donald R. Crandell
President
Chief Executive Officer
Samuel H. Smith
Engineer and majority owner of
S.H. Smith and Company, Inc.
James W. Tatum
Retired certified public accountant
Ron Black
Executive Director General Association
of General Baptist
Douglas Bagby
General Manager Municipal Utilities of
City of Poplar Bluff
OFFICERS:
Donald R. Crandell
President
Chief Executive Officer
Greg Steffens
Vice President
Chief Financial Officer
SOUTHERN MISSOURI BANK AND TRUST
DIRECTORS:
Leonard W. Ehlers
Chairman of the Board
Retired court reporter of the 36th
Judicial Circuit
James W. Tatum
Vice Chairman
Retired certified public accountant
Donald R. Crandell
President
Chief Executive Officer
Thadis R. Seifert
Retired former executive vice president
of Savings Bank
Samuel H. Smith
Engineer and majority owner of
S.H. Smith and Company, Inc.
Ron Black
Executive Director General Association
of General Baptists
Douglas Bagby
General Manager Municipal Utilities of
City of Poplar Bluff
OFFICERS:
Donald R. Crandell
President
Chief Executive Officer
Wilma Case
Senior Vice President
Chief Operations Officer
Kent Nichols
Senior Vice President
Chairman Loan Department
Greg Steffens
Vice President
Chief Financial Officer
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, LLC Nasdaq Stock Market
Poplar Bluff, Missouri 63901 Nasdaq Symbol: SMBC
SPECIAL COUNSEL
Breyer & Aguggia, LLP
Washington, D.C.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held Monday, October
19, 1998, at 9:00 a.m., Central Time, at the 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.
[ARTICLE] 9
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-END] JUN-30-1998
[CASH] 2,427,855
[INT-BEARING-DEPOSITS] 1,898,619
[FED-FUNDS-SOLD] 0
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 23,506,508
[INVESTMENTS-CARRYING] 4,645,407
[INVESTMENTS-MARKET] 4,796,884
[LOANS] 119,083,215
[ALLOWANCE] 1,295,222
[TOTAL-ASSETS] 155,947,058
[DEPOSITS] 109,410,436
[SHORT-TERM] 1,000,000
[LIABILITIES-OTHER] 1,355,832
[LONG-TERM] 20,068,905
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 17,646,790
[OTHER-SE] 6,465,095
[TOTAL-LIABILITIES-AND-EQUITY] 155,947,058
[INTEREST-LOAN] 9,175,090
[INTEREST-INVEST] 2,118,728
[INTEREST-OTHER] 150,030
[INTEREST-TOTAL] 11,443,848
[INTEREST-DEPOSIT] 5,150,691
[INTEREST-EXPENSE] 6,211,479
[INTEREST-INCOME-NET] 5,232,369
[LOAN-LOSSES] 783,000
[SECURITIES-GAINS] 79,403
[EXPENSE-OTHER] 3,660,200
[INCOME-PRETAX] 1,584,463
[INCOME-PRE-EXTRAORDINARY] 1,586,463
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,064,463
[EPS-PRIMARY] .69
[EPS-DILUTED] .67
[YIELD-ACTUAL] 7.56
[LOANS-NON] 533,000
[LOANS-PAST] 804,000
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 5,531,000
[ALLOWANCE-OPEN] 706,487
[CHARGE-OFFS] 326,382
[RECOVERIES] 132,108
[ALLOWANCE-CLOSE] 1,295,222
[ALLOWANCE-DOMESTIC] 1,295,222
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 21,000
</TABLE>
