UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23406
Southern Missouri Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 43-1665523
(State or jurisdiction of incorporation) (IRS employer id. no.)
531 Vine Street Poplar Bluff, MO 63901
(Address of principal executive offices) (Zip code)
(573) 785-1421
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Class Outstanding at November 3, 1998
Common Stock, Par Value $.01 1,375,278 Shares
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
INDEX
PART I. Financial Information (Unaudited) PAGE NO.
Item 1. Consolidated Financial Statements (Unaudited)
- Consolidated Statements of Financial Condition 3
- Consolidated Statements of Income and
Comprehensive Income 4
- Consolidated Statements of Cash Flows 5-6
- Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II. OTHER INFORMATION 13
Item 1. Legal Proceeding 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security-Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14-15
- Signature Page 16
PART I Item 1. Financial Information
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1998 AND JUNE 30, 1998
(UNAUDITED)
ASSETS
September 30, June 30,
1998 1998
Cash and due from banks $ 1,922,300 $ 2,462,679
Interest bearing deposits in other
financial institutions 5,610,064 1,863,795
Cash and cash equivalents 7,532,364 4,326,474
Available-for-sale investment securities 8,368,739 9,352,412
Held-to-maturity investment securities 4,642,449 4,645,407
Mortgage-backed securities,
available-for-sale 15,036,943 14,154,096
Loans receivable, net 116,180,688 119,083,215
Foreclosed assets held for sale 273,616 171,721
Premises and equipment 1,872,660 1,883,064
Accrued interest receivable:
Loans 607,759 607,955
Investments 270,074 299,823
Federal Home Loan Bank stock 1,091,000 1,053,500
Prepaid expenses and other assets 317,195 369,391
Total Assets $156,193,487 $155,947,058
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 111,789,845 $ 109,410,436
Federal Home Loan Bank advances 19,800,000 21,068,905
Accrued interest payable 754,298 581,590
Advances from borrowers for
taxes and insurance 384,048 315,123
Accrued expenses and other liabilities 640,475 459,119
Total Liabilities 133,368,666 131,835,173
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
500,000 shares authorized;
none issued and outstanding - -
Common stock, $.01 par value;
4,000,000 shares authorized;
1,803,201 shares issued 18,032 18,032
Additional paid-in capital 17,668,935 17,628,758
Accumulated other comprehensive income 21,616 (27,804)
Retained earnings, substantially
restricted 12,939,364 12,771,731
Unearned ESOP shares (484,314) (510,114)
Unearned MRP shares (131,710) (155,710)
Treasury stock, at cost;
383,023 and 310,813 shares at
September 30, 1998 and June 30, 1998,
respectively (7,207,102) (5,613,008)
Total stockholders' equity 22,824,821 24,111,885
Total Liabilities and
Stockholders' Equity $156,193,487 $155,947,058
See Notes to Consolidated Financial Statements
SOUTHERN MISSOURI BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
Three-months ended
September 30,
INTEREST INCOME: 1998 1997
Loans receivable $2,372,957 $2,196,470
Investment securities 203,562 255,298
Mortgage-backed and related securities 209,114 395,123
Other interest-earning assets 41,598 28,844
Total interest income 2,827,231 2,875,735
INTEREST EXPENSE:
Deposits 1,285,789 1,374,213
Federal Home Loan Bank advances 256,305 232,724
Total interest expense 1,542,094 1,606,937
NET INTEREST INCOME 1,285,137 1,268,798
PROVISION FOR LOAN LOSSES 10,000 22,500
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,275,137 1,246,298
NONINTEREST INCOME:
Service charges 59,555 48,876
Gains (losses) on investment and mortgage-
backed securities, available-for-sale (625) 31,612
Insurance commissions 79,098 71,594
Income (expense) on foreclosed assets (4,373) (8,443)
Late charges and other fees 18,153 12,853
Other income 5,952 8,414
Total noninterest income 157,760 164,906
NONINTEREST EXPENSE:
Compensation and benefits 567,465 589,907
Occupancy and equipment, net 109,029 79,742
SAIF deposit insurance premiums 24,504 29,063
Professional fees 32,693 37,092
Advertising 26,745 31,786
Postage and office supplies 35,996 26,091
Other 84,349 65,409
Total noninterest expense 880,781 859,090
INCOME BEFORE INCOME TAXES 552,116 552,114
PROVISION FOR INCOME TAXES 194,622 194,963
NET INCOME 357,494 357,151
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains on AFS investment and
mortgage-backed securities 49,026 81,742
Reclassification adjustment for (gains)
losses included in net income 394 (19,915)
Other comprehensive income 49,420 61,827
COMPREHENSIVE INCOME $ 406,914 $ 418,978
Basic earnings per common share $ 0.26 $ 0.23
Diluted earnings per common share $ 0.25 $ 0.22
Dividends per common share $ 0.125 $ 0.125
See Notes to Consolidated Financial Statements
PART I: FINANCIAL INFORMATION
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIRY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three-months ended
September 30,
1998 1997
Cash Flows From Operating Activities:
Net income $ 357,494 $ 357,151
Items not requiring (providing) cash:
Depreciation and amortization 57,062 51,753
MRP expense and ESOP expense 81,050 119,786
Loss (gain) on sale of available-for-sale
securities 625 (31,612)
Provision for loan losses 10,000 22,500
(Gain) loss on foreclosed real estate, net 69 7,889
Net amortization of deferred income,
premiums, and discounts 16,869 33,031
Changes in:
Accrued interest receivable 29,945 118,762
Prepaid expenses and other assets 5,259 39,401
Accounts payable and other liabilities 6,536 108,166
Accrued expense and other liabilities 354,064 104,114
Net cash provided by operating activities 918,973 930,941
Cash flows from investing activities:
Net decrease (increase) in loans 2,817,285 (4,207,183)
Proceeds from sales of available-for-sale
investment securities 999,375 -
Proceeds from sales of available-for-sale
mortgage-backed securities - 2,303,652
Proceeds from maturing available-for-sale
investment securities - 1,680,000
Proceeds from maturing available-for-sale
mortgage-backed securities 1,171,264 1,328,063
Proceeds from maturing held-to-maturity
mortgage-backed securities - 16,848
Purchase of Federal Home Loan Bank stock (37,500) -
Purchase of available-for-sale securities (2,022,500) -
Purchase of premises and equipment (46,658) (121,384)
Proceeds from sale of foreclosed
real estate 1,250 -
Net cash provided by investing activities 2,882,516 999,996
Cash flows from financing activities:
Net increase(decrease)in certificates
of deposit 946,202 (1,769,137)
Net increase in demand, NOW and
Saving accounts 1,433,207 358,985
Net increase in advances from borrowers
for taxes and insurance 68,925 93,486
Proceeds from Federal Home Loan Bank advances 5,500,000 4,000,000
Repayments of Federal Home Loan Bank advances (6,768,905) (3,983)
Cash dividends paid (180,934) (194,589)
Exercise of stock options 20,000 -
Purchase of treasury stock (1,614,094) (368,080)
Net cash (used in) provided by
financing activities (595,599) 2,116,682
Increase in cash and cash equivalents 3,205,890 4,047,619
Cash and cash equivalents at beginning
of period 4,326,474 3,425,175
Cash and cash equivalents at end of period $7,532,364 $7,472,794
See Notes to Consolidated Financial Statements
PART I: FINANCIAL INFORMATION
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIRY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(UNAUDITED)
Three-months ended
September 30,
1998 1997
Supplemental disclosures of
Cash flow information:
Noncash investing and financing activities:
Conversion of loans to foreclosed real estate $ 176,973 $ 32,670
Conversion of foreclosed real estate to loans $ 94,500 $ 9,000
Cash paid during the period for:
Interest (net of interest credited) $ 329,662 $ 404,847
Income taxes $ - $ 50,000
See Notes to Consolidated Financial Statements
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Rule 10-01 of Securities and Exchange Commission ("SEC") Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all material adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended September
30, 1998 is not necessarily indicative of the results that may be expected for
the entire fiscal year. For additional information, refer to the Company's
June 30, 1998 Form 10-KSB, which was filed with the SEC and the Company's
annual report, which contains the audited financial statements for the fiscal
years ended June 30, 1998 and 1997.
Note 2: Holding Company Formation, and Stock Issuance, Charter Conversions
and Proposed State of Incorporation
Southern Missouri Bancorp, Inc. (the "Company"), a Delaware corporation,
was incorporated on December 30, 1993 for the purpose of becoming a holding
company for Southern Missouri Savings Bank, upon its conversion from a state
chartered mutual savings bank to a state chartered stock savings bank.
The Company's subscription and community stock offering was completed on
April 13, 1994 with the issuance of 1,803,201 shares of common stock at a
price of $10 per share. The stock offering provided net proceeds of
approximately $15.2 million after conversion costs and unearned compensation
related to shares issued to the Employee Stock Ownership Plan ("ESOP") and
Management Recognition Plan ("MRP").
On June 20, 1995, Southern Missouri Savings Bank converted from a state
chartered stock savings bank to a federally chartered stock savings bank and
changed its name to Southern Missouri Savings Bank, FSB.
On February 17, 1998, Southern Missouri Savings Bank, FSB 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. (the "Bank"
or "SMBT").
On October 19, 1998, the Company's stockholders approved a proposal to
change the Company's state of incorporation from Delaware to Missouri. This
reincorporation is expected to become effective during the quarter ending
December 31, 1998.
Note 3: Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, SMBT, which in turn owns all
of S.M.S. Financial Services, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Note 4: Employee Stock Ownership Plan
In conjunction with the stock offering, the Company established an ESOP
with 142,832 unallocated shares available for distribution. The unallocated
shares have been debited to unearned ESOP shares, a contra-equity account.
The Company recognizes compensation expense based on shares expected to be
released equal to the average market price of the shares in addition to
including the shares as outstanding for purposes of determining earnings per
share. At September 30, 1998, the ESOP had allocated 85,096 shares and had
3,000 shares committed for allocation to employees of the Bank.
Note 5: Benefit Plans
In conjunction with the stock offering, the Company established both a
MRP and a Stock Option and Incentive Plan ("SOIP"). The MRP authorized 71,416
shares to be issued to directors, officers and employees of SMBT of which
68,918 have been awarded and 63,218 have vested or remain outstanding. The
SOIP authorized 178,540 stock options for shares to be issued to directors,
officers and employees of SMBT, pursuant to which 151,049 options have been
awarded and 116,325 remain outstanding. Stock awarded under the MRP vests
over five years, with compensation expense being amortized over each
participant's vesting period. As of September 30, 1998, unvested MRP shares
totaled 12,411.
Note 6: Earnings Per Share
The Financial Accounting Standards Board recently adopted Statement of
Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share," and SFAS
No. 129, "Disclosure of Information about Capital Structure." The statements
replaced the presentation of primary earnings per share with a presentation of
basic earnings per share. These statements also required dual presentation of
basic and diluted earnings per share by entities with complex capital
structures and required a reconciliation of the numerators and denominators
between the two calculations. These statements became effective for financial
statements issued for periods ending after December 15, 1997, including those
for interim periods.
Basic and diluted earnings per share are based upon the weighted-average
shares outstanding. ESOP shares that have been committed to be released are
considered outstanding. The following table summarizes basic and diluted
earnings per common share for the three months ended September 30, 1998 and
1997, as restated, under SFAS No. 128:
Three Months Ended
September 30,
1998 1997
Net earnings $ 357,494 $ 357,151
Weighted-average shares -
Basic earnings per share 1,389,884 1,545,928
Stock options under treasury
stock method 43,573 47,412
Weighted-average shares -
Diluted earnings per share 1,433,457 1,593,340
Basic earnings per common share $ 0.26 $ 0.2
Diluted earnings per common share $ 0.25 $ 0.22
PART I
Item 2
Southern Missouri Bancorp, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company's performance is reliant on the operations of the Bank, since
the Company has no significant assets other than the common stock of the Bank
and $1.3 million in cash and investments. The Bank's results of operations
are primarily dependent on the difference (or "interest rate spread") between
the average yield earned on its interest-earning assets and the average rate
paid on interest-bearing liabilities. Interest-earning assets consist
primarily of loans receivable, investment securities, mortgage-backed and
related securities ("MBS") and other investments while interest bearing
liabilities consist primarily of retail deposits and Federal Home Loan Bank
("FHLB") advances. The interest rate spread is affected by economic,
regulatory, and competitive factors, which influence interest rates, loan
demand, prepayment rates and deposit flows. The Bank remains subject to
interest-rate risk to the degree that its interest-earning assets mature or
reprice at different times, or on a varying basis, from its interest-bearing
liabilities.
The Bank's results of operations are also affected by provisions for loan
losses, non-interest income and non-interest expenses, such as employee salary
and benefits, occupancy expenses and other operational expenditures. The
following discussion reviews the Company's consolidated financial condition at
September 30, 1998 and the results of operations for the three months ended
September 30, 1998 and 1997, respectively.
Forward Looking Statements
Except for the historical information contained herein, the matters
discussed in this Form 10-QSB may be deemed to be forward-looking statements
that involve risks and uncertainties, including changes in economic conditions
in the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company'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 the Company's judgement as of the date of
this Form 10-QSB. The Company disclaims however, any intent or obligation to
update these forward-looking statements.
Financial Condition
The Company's total assets increased $246,000, or 0.2%, from $155.9 million
at June 30, 1998 to $156.2 million at September 30, 1998. During this period,
net loans receivable declined $2.9 million, from $119.1 million at June 30,
1998 to $116.2 million at September 30, 1998. In addition, cash and cash
equivalents increased $3.2 million from $4.3 million at June 30, 1998 to $7.5
million at September 30, 1998. This was primarily the result of increased
loan prepayments and a reduction in loan originations. The loan portfolio's
decline consisted of a $2.3 million and $709,000 reduction in loans secured by
one- to four-family residences and consumer loans, respectively. The Company
has re-evaluated its loan product offerings and remains committed to its plan
to increase loans receivable.
Deposits increased $2.4 million, or 2.2%, from $109.4 million at June 30,
1998 to $111.8 million at September 30, 1998. The increase consisted
primarily of increased MMDA accounts and certificates of deposit. The
increase in deposits funded the repayment of $1.3 million in FHLB advances.
At September 30, 1998, stockholders' equity was $22.8 million as compared
to $24.1 million at June 30, 1998. The $1.3 million decline in stockholders'
equity was primarily due to the repurchase of $1.6 million in stock and
$181,000 in cash dividends on common stock. This decline was partially offset
by the Company's $357,000 net income, $81,000 in benefit plan shares committed
to be released and $49,000 in mark-to-market adjustments on the Company's
available-for-sale securities.
Results of Operations - Comparison of the three month periods ended September
30, 1998 and 1997.
Net Income. The Company's net income for the three month period ended
September 30, 1998 was $357,000, which equaled the $357,000 earned during the
same period of the prior year. Earnings were stable as a $29,000 increase in
net interest income after loss provisions was offset by a $7,000 decline in
noninterest income and increased noninterest expense of $22,000.
Net Interest Income. Net interest income increased by $16,000, or 1.3%, to
$1.29 million for the quarter ended September 30, 1998 as compared to the
$1.27 million earned during the same quarter of the prior year. The increase
was primarily due to a 34 basis point increase in the average interest-rate
spread, which was mostly offset by a 4.0% decline in the average ratio of
interest-earning assets to interest-bearing liabilities, from 119.0% to
115.0%.
Interest Income. Interest income for the three month period ended
September 30, 1998 declined $49,000, or 1.7% to $2.83 million as compared to
the $2.88 million earned during the same period of the prior year. The
decrease was primarily due to a $6.1 million or 3.9% decline in interest-
earning assets which was partially offset by a 17 basis point increase in the
average yield earned on these assets, to 7.52% from 7.35%. In addition, the
composition of interest-earning assets changed as the average balance of loans
receivable increased $7.2 million, or 6.6%, while average investment
securities and MBS declined $14.1million.
Interest Expense. Interest expense for the three month period ended
September 30, 1998 declined $65,000, or 4.0% to $1.54 million as compared to
the $1.61 million expended during the same period of the prior year. The
decline was primarily the result of a 17 basis point decline in the average
cost of interest-bearing liabilities as the average cost of FHLB advances
declined from 5.89% during the three months ended September 30, 1997 to 4.99%
during the three months ended September 30, 1998. The average rate paid on
these interest-bearing liabilities during the three months ended September 30,
1998 was 4.72% as compared to the 4.89% paid during the same period of the
prior year.
Provision for Loan Losses. The provision for loan losses for the three
month period ended September 30, 1998 decreased $13,000, or 55.6% to $10,000
as compared to $23,000 during the same period of the prior year. The
reduction in the provision was primarily due to a reduction in adversely
classified assets, primarily due to the improved financial condition of
several of the Bank's loan customers, which resulted in their removal from the
list of adversely classified assets. At September 30, 1998, adversely
classified assets totaled $5.2 million, or 3.31% of total assets and 22.65% of
total equity, as compared to $5.6 million, or 3.61% of assets and 23.35% of
total equity at June 30, 1998 (see "Loan Loss Activity" and "Nonperforming
Assets").
Noninterest Income. Non-interest income for the three months ended
September 30, 1998 declined $7,000, or 4.3% to $158,000, as compared to the
$165,000 earned during the same period of the prior year. The decline was
primarily attributed to a $32,000 reduction in gains realized on the sale of
available-for-sale securities, which was partially offset by increased income
from service charges and insurance commissions of $11,000 and $8,000,
respectively.
Noninterest Expense. Non-interest expense for the three months ended
September 30, 1998 increased $22,000, or 2.5% to $881,000, as compared to the
$859,000 expended during the same period of the prior year. The increase was
primarily attributed to a $29,000, or 36.7% increase in occupancy expense and
an increase in general operating expenses of $19,000. The increases were
partially offset by a $22,000, or 3.8% reduction in compensation and benefits
expense as well as a general reduction in expenses for professional fees,
advertising and deposit insurance. Increased occupancy expense was due to
higher depreciation expenses realized from the Bank upgrading its data
processing equipment, while the decline in compensation expense was mostly due
to lower ESOP expenses, which resulted from extending the term loan and number
of shares committed to be released under the ESOP.
Provision for Income Taxes. The provision for income taxes for both the
three months ended September 30, 1998 and 1997 was $195,000.
Regulatory Matters and Supervisory Agreement
On February 17, 1998, the Office of Thrift Supervision ("OTS") approved the
conversion of the Bank from a federally chartered stock savings bank to a
Missouri chartered stock savings bank. In connection with the charter
conversion, the Bank changed its name to Southern Missouri Bank and Trust Co.,
the primary regulator of the Bank changed from the OTS to the Missouri
Division of Finance and the operating restrictions placed on the Bank pursuant
to an OTS Supervisory Agreement were lifted. However, the Bank remains
subject to increased SAIF deposit insurance premium assessments due to the
Bank's former regulatory status. During the three months ended September 30,
1998, the Bank recognized additional expense of $9,000 due to these higher
deposit premiums.
Allowance for Loan Loss Activity
The Company regularly reviews its allowance for loan losses and makes
adjustments to its balance based on management's analysis of the loan
portfolio, the amount of non-performing and classified assets, as well as
general economic conditions. Although the Company maintains its allowance for
loan losses at a level, which it considers to be sufficient to provide for
losses, there can be no assurance that future losses will not exceed internal
estimates. In addition, the amount of the allowance for loan losses is
subject to review by regulatory agencies, which can order the establishment of
additional loss provisions. The following table summarizes changes in the
allowance for loan losses over the three months ended September 30, 1998 and
1997:
1998 1997
Balance, beginning of period $1,295,222 $ 706,487
Loans charged off - residential (1,205) -
Loans charged off - consumer (2,510) (1,377)
Loans charged off - mobile home (88) -
Recoveries of loans previously charged off
Residential real estate 275 -
Consumer 2,270 11,348
Mobile homes 22,566 -
Net recoveries (charge offs) 21,308 9,971
Provision charged to expense 10,000 22,500
Balance, end of period $1,326,530 $ 738,958
Ratio of net charge offs (recoveries)
during the period to average loans
outstanding during the period (1.81%) (.01%)
The increase in recoveries on mobile homes related primarily to the sale of
3 mobile homes, which had been charged off. At September 30, 1998, the
Company had 15 loans for $145,000, which had been charged off the Company's
books, but had not yet been repossessed.
Nonperforming Assets
The allowance for loan losses has been calculated based upon an evaluation
of pertinent factors underlying the various types and quality of the Bank's
loans. Management considers such factors as the repayment status of a loan,
the estimated net fair value of the underlying collateral, the borrower's
intent and ability to repay the loan, local economic conditions, and the
Bank's historical loss ratios. The allowance for loan losses increased
$31,000 to $1.33 million at September 30, 1998 from $1.30 million on June 30,
1998. At September 30, 1998, the Bank had $5.2 million, or 3.31% of total
assets and 22.65% of stockholders' equity adversely classified (substandard,
doubtful, or loss) as compared to adversely classified assets of $5.6 million,
or 3.61% of total assets and 23.35% of stockholders' equity at June 30, 1998.
The slight improvement in these ratios was attributed to enhanced collection
efforts and the improved financial condition of several of the Bank's loan
customers, which resulted in their removal from the balance of adversely
classified assets.
The ratio of nonperforming assets to total assets is a measure of asset
quality. Nonperforming assets of the Company include nonaccruing loans,
accruing loans delinquent/past maturity 90 days or more and assets which have
been acquired as a result of foreclosure or deed-in-lieu of foreclosure. The
following table summarizes changes in the Company's level of nonperforming
assets:
Loans past maturity/delinquent
90 days or more 9/30/98 6/30/98 9/30/97
Residential real estate $ 541,000 $ 843,000 $ 837,000
Commercial real estate 455,000 347,000 306,000
Consumer 235,000 67,000 46,000
Mobile homes 143,000 80,000 169,000
Total loans past maturity/
delinquent 90+ days 1,374,000 1,337,000 1,358,000
Assets acquired in settlement of loans 273,000 172,000 120,000
Total nonperforming assets $1,647,000 $1,509,000 $1,478,000
Percentage nonperforming assets to
total assets 1.06% .98% .91%
Percentage nonperforming loans to
net loans 1.18% 1.12% 1.21%
Asset and Liability Management and Market Risk
The goal of the Bank'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 it or the
Bank 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-earning 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 the Bank'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 the
Bank's overall profitability and exposure to interest-rate risk.
The Bank has not and does not anticipate the use of derivative financial
instruments or other financial instruments for managing its exposure to
interest-rate risk or use in a trading account. Further, the Bank is not
subject to any foreign currency exchange rate risk, commodity price risk,
equity price risk or risk to any hedge funds.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, the receipt of
principal and interest payments on loans and mortgage-backed securities,
investments and FHLB advances. While the scheduled repayments on loans and
securities as well as the maturity of short-term investments are somewhat
predictable sources of funding, deposit flows and loan prepayment rates are
influenced by many factors, which make their cash flows difficult to
anticipate.
The Company uses its liquidity resources principally to satisfy its ongoing
cash requirements which include funding loan commitments, funding maturing
certificates of deposit as well as deposit withdrawals, maintaining liquidity,
purchasing investments, and meeting operating expenses. At September 30,
1998, the Company had outstanding commitments to fund $2.2 million in mortgage
loans and $125,000 in non-mortgage loans. These commitments are expected to
be funded through existing cash balances, cash flow from normal operations
and, if needed, FHLB advances. At September 30, 1998, the Bank had available
credit at the FHLB of approximately $57.3 million, of which $19.8 million had
been advanced. Management believes that these and other liquidity resources
will be sufficient to meets the Company's liquidity needs.
Year 2000 Considerations
The Year 2000 issue exists because many computer systems and applications
use two-digit date fields to designate the current year. When the millenium
changes, date-sensitive systems may recognize the year 2000 as 1900, or not at
all. This inability to recognize or properly treat the year 2000 may cause
systems to process financial and operational information incorrectly. The
Year 2000 issue affects virtually all companies and organizations.
The Company performs all material data processing functions on an in-house
computer processing system provided by a third party. The Company is in the
process of assessing this system, other informational and data processing
systems as well as those of its vendors, and suppliers to ascertain the degree
to which each will be impacted by Year 2000. 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 Company will modify its contingency plan to incorporate
the results of this testing. The Company has notified its depositors and loan
customers of the Year 2000 issue and is in the process of assessing their Year
2000 preparedness.
Management anticipates Year 2000 expenditures to be less than $100,000, of
which approximately $25,000 had been expended as of September 30, 1998. In
addition, the Company has expended approximately $250,000 to upgrade its data
processing system since June 30, 1996. 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.
In the event the Company's Year 2000 efforts fails in any material respect,
the Company has formulated a contingency plan for its data processing
functions. The contingency plan calls for the use of the Company's backup
data processing system if the current system fails to operate properly. In
the event that the backup system is unable to properly function, the Company
plans to operate manually.
Regulatory Capital
The Bank is subject to minimum regulatory capital requirements equal to a
leverage ratio (or core capital) of 4.0% of average total assets, a tier I
capital to risk-weighted assets of 4.0% and a risk-based capital ratio of 8.0%
of risk-weighted assets. At September 30, 1998, the Bank exceeded all three
regulatory capital requirements with leverage capital of $20.9 million (13.57%
of average total assets), tier I capital of $20.9 million (23.67% of risk-
based assets) and risk-based capital of $22.0 million (24.92% of risk-weighted
assets). Under current regulatory guidelines, the Bank is considered to be
"well-capitalized".
PART II - OTHER INFORMATION
Southern Missouri Bancorp, Inc. and Subsidiary
Item 1 - Legal Proceedings
The Company and the Bank are not involved in any pending legal proceedings
other than legal proceedings incident to the business of the Company and
the Bank, which involve aggregate amounts management believes to be
immaterial to the financial condition and results of operations of the
Company and the Bank.
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security-Holders
(a) On October 19, 1998, the Company held its Annual Meeting of
Stockholders.
(b) At the meeting, Mr. Leonard M. Ehlers and Mr. Thadis R. Seifert were
elected to three year terms to expire
in 2001, the Company's proposal to change its state of incorporation
from Delaware to Missouri was approved, as was the amendment to increase
the Company's number of authorized shares of common stock.
(c) The results of the voting on each of the proposals is as follows:
(i) The election of Mr. Leonard M. Ehlers as a director of the
Company;
VOTES: FOR WITHHELD
1,237,766 1,190,761 47,005
(ii) The election of Mr. Thadis R. Seifert as a director of the
Company;
VOTES: FOR WITHHELD
1,237,766 1,190,761 47,005
(iii) The proposal to change the Corporation's state of incorporation to
Missouri from Delaware;
VOTES: FOR AGAINST ABSTAIN NON-VOTES
1,420,178 825,486 21,315 4,514 386,451
(iv) The proposal to change the Company's authorized number of shares;
VOTES: FOR AGAINST ABSTAIN NON-VOTES
1,237,766 1,187,482 44,195 6,089 -0-
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(3) (a) Certificate of Incorporation of the Registrant*
(3) (b) Bylaws of the Registrant*
Item 6 - Exhibits and Reports on Form 8-K (continued)
10 (a) Registrant's Stock Option Plan**
10 (b) Southern Missouri Savings Bank, FSB Management
Recognition and Development Plans**
10 (c) Employment Agreement with Donald R. Crandell***
10 (d) Director's Retirement Agreements***
(i) Robert A. Seifert
(ii) Thadis R. Seifert
(iii) Leonard W. Ehlers
(iv) James W. Tatum
(v) Samuel H. Smith
10 (e) Tax Sharing Agreement***
(27) Financial Data Schedule
* Filed as an exhibit to the registrant's Registration Statement on Form
S-1 (33-73746).
** Filed as an exhibit to the registrant's 1994 annual meeting proxy
statement dated October 21, 1994.
*** Filed as an exhibit to the registrant's Annual Report on Form 10-KSB for
the year ended June 30, 1995.
(b) Reports on Form 8-K: No reports on Form 8-K have been filed during
the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN MISSOURI BANCORP, INC.
Registrant
Date: November 10, 1998
Donald R. Crandell
President and Chief Executive Officer
Date: November 10, 1998
Greg A. Steffens
Chief Financial Officer
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