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 December 31, 1997
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)
Registrant's telephone number, including area code 573-785-1421
Not Applicable
Former name, former address and former fiscal year, if changed
since last report.
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 1,596,594 as of January 31, 1998.
SOUTHERN MISSOURI BANCORP, INC.
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1997
INDEX
Page No.
PART I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3-4
Notes to Consolidated Financial Statements 5
(Unaudited)
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 6-16
PART II - Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a
Vote of Security-Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
December 31, June 30,
ASSETS 1997 1997
Cash and cash equivalents $ 5,872,009 3,425,175
Certificates of deposit 91,042 91,199
Investment and mortgage-backed and
related securities:
Available for sale - at estimated
market value (amortized cost of
$27,781,816 and $39,571,322 at
December 31, 1997 and June 30, 1997,
respectively) 27,805,944 39,577,474
Held to maturity - at amortized
cost (estimated market value of
$4,889,339 and $4,904,989 at
December 31, 1997 and June 30, 1997,
respectively) 4,647,311 4,780,845
Stock in Federal Home Loan Bank
of Des Moines 1,519,700 1,519,700
Loans receivable, net 116,791,657 107,782,977
Accrued interest receivable 1,003,535 1,079,967
Foreclosed real estate, net 65,861 54,838
Premises and equipment 1,796,611 1,682,075
Prepaid expenses and other assets 332,642 398,784
Total assets $ 159,926,312 160,393,034
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 110,982,085 118,704,601
Advances from borrowers for taxes
and insurance 116,948 321,609
Advances from FHLB of Des Moines 21,027,276 13,535,321
Accounts payable and other liabilities 559,986 582,825
Accrued interest payable 688,804 848,435
Total liabilities 133,375,099 133,992,791
Commitments and contingencies
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 17,662,612 17,579,778
Retained earnings - substantially
restricted 12,738,976 12,476,753
Treasury stock of 191,107 shares at
December 31, 1997 and 169,898 shares
at June 30, 1997, at cost (3,050,013) (2,680,183)
Common stock acquired by ESOP (612,137) (714,160)
Common stock acquired by MRP (218,506) (279,368)
Unrealized gain on investment and
mortgage-backed securities available
for sale 15,824 2,966
Minimum pension liability (3,575) (3,575)
Total stockholders' equity 26,551,213 26,400,243
Total liabilities and
stockholders' equity $ 159,926,312 160,393,034
See accompanying notes to consolidated financial statements.<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
Interest income:
Loans receivable $ 2,279,525 2,002,973 4,475,995 3,952,695
Investment securities 275,285 256,879 530,583 601,560
Mortgage-backed and related
securities 312,122 548,215 707,245 1,114,461
Other interest-earning assets 29,911 14,568 58,755 29,967
Total interest income 2,896,843 2,822,635 5,772,578 5,698,683
Interest expense:
Deposits 1,298,976 1,368,068 2,673,189 2,780,534
Advances from FHLB
of Des Moines 289,773 170,409 522,497 340,086
Total interest expense 1,588,749 1,538,477 3,195,686 3,120,620
Net interest income 1,308,094 1,284,158 2,576,892 2,578,063
Provision for loan losses 113,959 22,500 136,459 40,000
Net interest income after
provision for loan losses 1,194,135 1,261,658 2,440,433 2,538,063
Noninterest income:
Gain (loss) on sale of investment
securities, available for sale (390) 53,389 (390) 53,389
Gain (loss) on sale of mortgage-backed
securities, available for sale 37,656 (53,424) 69,268 (53,424)
Insurance commissions 84,736 92,668 156,330 182,374
Banking service charges 44,536 46,471 93,413 85,116
Net income on foreclosed real
estate (3,965) (9,214) (4,519) (11,746)
Loan late charges 14,217 13,705 22,630 24,247
Other 2,471 5,958 15,324 13,868
Total noninterest income 179,261 149,553 352,056 293,824
Noninterest expense:
Compensation and benefits 577,646 502,335 1,167,553 1,058,084
Occupancy and equipment 91,186 78,808 170,928 158,633
SAIF special assessment - - - 779,184
SAIF deposit insurance premium 28,004 69,858 57,067 140,180
Gain foreclosed real estate,net (3,551) (14,738) 4,338 (18,160)
Professional fees 93,231 36,603 130,323 60,711
Advertising 32,434 27,111 64,220 49,463
Postage and office supplies 26,762 28,513 52,853 51,689
Other 56,911 77,219 122,320 141,511
Total noninterest expense 902,623 805,709 1,769,602 2,421,295
Income before income taxes 470,773 605,502 1,022,887 410,592
Income taxes 177,584 180,950 372,547 84,287
Net income $ 293,189 424,552 650,340 326,305
Basic earnings per
common share $ .19 .27 .42 .21
Diluted earnings per
common share $ .18 .27 .41 .21
Dividends per share $ .125 .125 .250 .250
See accompanying notes to consolidated financial statements.<PAGE>
SOUTHERN MISSOURI BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
1997 1996
Cash flows from operating activities:
Net income $ 650,340 326,305
Items not requiring (providing) cash:
Depreciation and amortization 104,224 83,409
MRP expense and ESOP expense 245,719 209,465
(Gain) loss on sale of investment securities -
available for sale 390 (53,389)
(Gain) loss on sale of mortgage-backed securities -
available for sale (69,268) 53,424
Provision for loan losses 136,459 40,000
Loss (gain) on foreclosed real estate, net 4,338 (18,160)
Net amortization of deferred income,
premiums, and discounts 64,343 58,393
Changes in:
Accrued interest receivable 76,432 129,593
Prepaid expenses and other assets 58,324 284,294
Accounts payable and other liabilities (22,839) (44,750)
Accrued interest payable (159,631) (110,930)
Net cash provided by operating activities 1,088,831 957,654
Cash flows from investing activities:
Net increase in loans (9,122,741) (6,867,375)
Proceeds from sales of investment securities,
available for sale 999,219 1,578,200
Proceeds from maturing investment securities,
available for sale 1,830,000 3,538,955
Proceeds from maturing investment securities,
held to maturity - 30,000
Proceeds from sales of mortgage-backed
securities, available for sale 6,337,653 639,376
Proceeds from maturing mortgage-backed
securities, available for sale 2,662,033 2,453,518
Proceeds from maturing mortgage-backed
securities, held to maturity 51,607 16,860
Proceeds from maturing certificates
of deposit - 95,000
Purchase of premises and equipment (210,942) (303,351)
Proceeds from sale of foreclosed real estate 4,343 4,700
Net cash provided by investing activities 2,551,172 1,185,883
Cash flows from financing activities:
Net decrease in deposits (7,722,516) (1,399,846)
Net decrease in advances from
borrowers for taxes and insurance (204,661) (217,915)
Net increase in advances from FHLB of Des Moines 7,491,955 1,992,572
Dividends on common stock (388,117) (385,244)
Payments to acquire treasury stock (369,830) (983,588)
Net cash used by financing activities (1,193,169) (994,021)
Increase in cash and cash equivalents 2,446,834 1,149,516
Cash and cash equivalents at beginning of period 3,425,175 4,477,872
Cash and cash equivalents at end of period $ 5,872,009 5,627,388
Supplemental disclosures of
cash flow information:
Noncash investing and financing activities
Conversion of loans to foreclosed real estate $ 6,094 132,446
Conversion of foreclosed real estate to loans $ 6,950 39,100
Cash paid during the period for
Interest (net of interest credited) $ 792,199 1,063,670
Income taxes $ 241,000 8,500
See accompanying notes to consolidated financial statements<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The information contained in the accompanying consolidated financial
statements is unaudited. In the opinion of management, the financial
statements contain all adjustments (none of which were other than normal
recurring accruals) necessary for a fair statement of the results of
operations for the interim periods. These financial statements should be
read in conjunction with the audited consolidated financial statements
contained in the Company's 1997 Annual Report to Stockholders. The
results of operations for the three and six month periods ended
December 31, 1997 are not necessarily indicative of the results of
operations for the entire fiscal year.
(2) In February 1997, the FASB issued SFAS No. 128, Earnings per Share and
SFAS No. 129, Disclosure of Information about Capital Structure. The
Statements supersede APB Opinion No. 15, amend certain other accounting
pronouncements, and modify the presentation of earnings per share. The
Statements are effective for financial statements for both interim
periods and years ending after December 15, 1997. Following is a summary
of basic and diluted earnings per common share for the three months and
six months ended December 31, 1997 and the three months and six months
ended December 31, 1996, as restated, under SFAS No. 128:
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
Net earnings $ 293,189 424,552 650,340 326,305
Weighted-average shares -
Basic EPS 1,548,151 1,548,463 1,552,120 1,557,654
Stock options under treasury
stock method 51,996 33,300 49,800 33,232
Weighted-average shares -
Diluted EPS 1,600,147 1,581,763 1,601,920 1,590,886
Basic earnings per common
share $ .19 .27 .42 .21
Diluted earnings per common
share $ .18 .27 .41 .21
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
On April 13, 1994, Southern Missouri Savings Bank (Savings Bank) completed its
conversion from mutual to stock form and became a wholly-owned subsidiary of a
newly formed Delaware holding company, Southern Missouri Bancorp, Inc.
(Company). The Company sold 1,785,375 shares of common stock at $10 per share
in conjunction with the subscription offering to the Savings Bank Employee
Stock Ownership Plan (ESOP), eligible account holders and other members of the
Savings Bank. In addition, 17,826 shares of authorized common stock were
granted to the Savings Bank's Management Recognition Plan to fulfill its order
in the subscription offering. Net proceeds of the sale of common stock in the
subscription offering were $15,160,161, after deduction of conversion costs of
$729,369. The Company retained 50% of the net conversion proceeds less the
funds used to make the ESOP loan to the Savings Bank for the purchase of shares
of common stock for the Savings Bank's ESOP and used the balance of the net
proceeds to purchase all of the stock of the Savings Bank in the conversion.
The Company has no significant assets other than common stock of the Savings
Bank and net proceeds retained by the Company following the conversion. The
Company's principal business is the business of the Savings Bank. Therefore,
the discussion in the Management's Discussion and Analysis of Financial
Condition and Results of Operations relates primarily to the Savings Bank and
its operations.
Certain statements in this report which relate to the Company's plans,
objectives or future performance may be deemed to be forward-looking statements
within the meaning of Private Securities Litigation Act of 1995. Such
statements are based on management's current expectations. Actual strategies
and results in future periods may differ materially from those currently
expected because of various risks and uncertainties. Additional discussion of
factors affecting the Company's business and prospects is contained in periodic
filings with the Securities and Exchange Commission.
Regulatory Matters and Supervisory Agreement
On February 10, 1998, the Office of Thrift Supervision (OTS) approved the
conversion of Southern Missouri Savings Bank from a federal savings and loan to
a state-chartered savings bank utilizing the SASSER Amendment with the
simultaneous election for Southern Missouri Savings Bank to be treated as a
savings association with Southern Missouri Savings Bank's holding company,
Southern Missouri Bancorp, Inc. to remain OTS regulated. The anticipated
consummation of the conversion will be in the first calendar quarter of 1998.
On December 21, 1994, the Savings Bank voluntarily entered into a Supervisory
Agreement with the Office of Thrift Supervision, its primary federal regulator.
The Supervisory Agreement generally concerns the Savings Bank's investment
portfolio and, more specifically, focuses on the reporting, monitoring, and
assessment
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
of interest rate risk in connection with the Savings Bank's portfolio of
collateralized mortgage obligations (CMO's). In an effort to comply with the
Supervisory Agreement, the Savings Bank has hired a Chief Financial Officer who
serves primarily as a senior investment officer. In addition, the Savings Bank
revised its Investment Policy to conform more closely to the OTS's policy on
securities activities and implemented additional procedures to review the
investment activities and monitor interest rate risk management.
In connection with the Savings Bank's most recent regulatory examination
conducted during the fourth quarter of 1996, OTS examiners noted the Savings
Bank's noncompliance with the Supervisory Agreement. Accordingly, additional
actions, primarily relating to the Savings Bank's internal operations and
lending activities, have been imposed by the OTS on the Savings Bank's
management to achieve compliance and improve the operations of the Savings
Bank. As a result of the most recent OTS examination and existing Supervisory
Agreement, certain growth restrictions have been placed on the Savings Bank.
Additionally, as a result of the Savings Bank s current regulatory status, the
Savings Bank will no longer be eligible for the lowest assessment rate for
deposit insurance. Instead, the assessment rate increased from .065% to .095%
of deposits beginning July 1, 1997. This will result in approximately $9,000
in additional costs per quarter for deposit insurance.
During the third quarter of fiscal 1997, the Savings Bank exceeded the growth
restriction imposed by the Supervisory Agreement and, as a result, may be
subject to sanction for violation of the Supervisory Agreement. The Savings
Bank sought an exemption from compliance with the terms of the Supervisory
Agreement for its growth during the third quarter and the request was denied.
If the OTS determines that a material violation has occurred the OTS may impose
the sanctions discussed below. The Savings Bank achieved compliance with the
growth limitations during the fourth quarter of fiscal 1997. The Savings Bank
requested a waiver of the growth limitations for future periods and received
permission for an asset growth rate of 2 percent per quarter beginning with the
quarter ending September 30, 1997.
A savings association engaging in unsafe and unsound practices is subject to a
variety of regulatory enforcement actions. Management believes that the growth
restrictions have not to date had an adverse effect on the Savings Bank s
operations. In the future, the continued existence of growth restrictions
could have a material adverse effect on the operations of the Savings Bank,
and, consequently, on the operations of the Company. Failure to achieve
compliance with the Supervisory Agreement could lead to further regulatory
enforcement actions, including the assessment of civil money penalties against
the Savings Bank and/or its officers and directors. To the Savings Bank s
knowledge, no such actions have been initiated. The Supervisory Agreement will
remain in effect until it is terminated by the OTS.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Quantitative and Qualitative Disclosures About Market Risk
In January, 1997, the SEC adopted new rules about registrants' accounting
policies for derivatives, and quantitative and qualitative disclosures about
market risk (Item 305 of Regulation S-K) inherent in derivative financial
instruments, other financial instruments, and derivative commodity instruments.
Registrants are required to disclose quantitative information about market
risk, including interest rate risk, foreign currency exchange rate risk,
commodity price risk, and other market or price risks (equity price risk) for
trading and other than trading portfolios in accordance with one or more of
three alternatives. The disclosure alternatives include tabular presentation
of fair values of market risk sensitive financial instruments and contract
terms sufficient to determine cash flows from those instruments, categorized by
maturity dates; sensitivity analysis of potential losses in future earnings,
fair values or cash flows of market risk sensitive
financial instruments from selected hypothetical changes in market rates or
prices; and value at risk disclosures of potential losses in future earnings,
fair values or cash flows of market risk sensitive instruments over a selected
period using a selected likelihood of occurrence from changes in market rates
or prices. Registrants are also required to disclose qualitative information
about market risk for trading and other than trading portfolios. Qualitative
disclosures include the registrant's primary market risk, including interest
rate risk, foreign currency exchange rate risk, commodity price risk, and other
market or price risks (equity price risk); approach to managing these risks,
including discussion of objectives, strategies and instruments used; and
changes in either of the above two qualitative disclosures compared to the most
recent fiscal year and if known, in future periods.
The Savings Bank does not purchase derivative financial instruments or other
financial instruments for trading purposes. Further, the Savings Bank is not
subject to any foreign currency exchange rate risk, commodity price risk or
equity price risk. The Savings Bank is subject to interest rate risk. A
discussion of the Savings Bank's quantitative and qualitative disclosures about
market risk is discussed in the following paragraphs.
The Savings Bank's principal financial objective is to achieve long-term
profitability while reducing its exposure to fluctuating interest rates. The
Savings Bank has an exposure to interest rate risk, including short-term U.S.
prime interest rates. The Savings Bank has sought to reduce exposure of its
earnings to changes in market interest rates by managing the mismatch between
asset and liability maturities and interest rates. The principal element in
achieving this objective is to increase the interest-rate sensitivity of the
Savings Bank's assets by originating loans with interest rates subject to
periodic adjustment to market conditions. Accordingly, when possible, the
Savings Bank has emphasized the origination of adjustable-rate mortgage (ARM)
loans for retention in its portfolio, and originates a limited amount of fixed-
rate loans. In addition the Savings Bank maintains the majority of its
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
investment portfolio with maturities up to ten years. The Savings Bank relies
on retail deposits as its primary source of funds. Management believes retail
deposits, compared to brokered deposits, reduce the effects of interest rate
fluctuations because they generally represent a more stable source of funds.
As part of its interest rate risk management strategy, the Savings Bank
promotes transaction accounts and one- to three-year certificates of deposit.
Management does not anticipate that either financial objectives, strategies or
instruments used, to reduce its interest rate risk exposure will change
significantly in the near future.
The OTS provides a net market value methodology to measure the interest rate
risk exposure of thrift institutions. This exposure is a measure of the
potential decline in the net portfolio value (NPV) of the institution based
upon the effect of an assumed 200 basis point increase or decrease in interest
rates. NPV is the present value of the expected net cash flows from the
institution's financial instruments (assets, liabilities and off-balance sheet
contracts). Cash and cash equivalents and other assets and liabilities are
valued at costs. Loans, deposits and investments are valued taking into
consideration similar maturities, related discount rates and applicable
prepayment assumptions. Under OTS regulations, an institution's normal level
of interest rate risk in the event of this assumed change in interest rates is
a decrease in the institution's NPV in an amount not exceeding 2% of the
present value of its assets. Utilizing this measurement concept, at September
30, 1997, the change in the Savings Bank's NPV as a percent of the present
value of its assets was negative 2.19% in the event of a 200 basis point
increase in interest rates. The interest rate risk rule did not have a
significant effect on risk based capital at September 30, 1997. This procedure
for measuring interest rate risk was developed by the OTS to replace the gap
analysis (the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period).
The following table, sets forth as of the most recent date available from the
OTS, September 30, 1997, the estimated changes in fair value of equity, based
on the indicated interest rate environments.
Change (In)
Basis Points) NPV as % of PV
in Interest Estimated Net Portfolio Value of Assets
Rates $ Amount $ Change % Change NPV Ratio BP Change
(Dollars in Thousands)
+400 13,858 (9,880) (42)% 9.26% (546)bp
+300 16,903 (6,836) (29) 11.03 (368)bp
+200 19,574 (4,164) (18) 12.53 (219)bp
+100 21,859 (1,880) (8) 13.75 (97)bp
0 23,739 14.72
-100 24,731 993 4 15.19 48 bp
-200 25,785 2,046 9 15.69 97 bp
-300 27,062 3,323 14 16.28 156 bp
-400 28,647 4,909 21 17.02 230 bp
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to 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 may lag behind changes in market rates.
Additionally, certain assets, such as ARM 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 particular, short-term U.S. prime interest rates, expected rates
of prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
Year 2000
The Savings Bank is reviewing computer applications with its outside data
processing software vendors to ensure operational and financial systems are not
adversely affected by Year 2000 software failures. All major customer
applications are processed internally by the Savings Bank's data processing
department. The software vendors have indicated that they expect to modify
existing programs to make them year 2000 compliant. Management of the Savings
Bank is unable to estimate any additional expense related to this issue. Any
year 2000 compliance failures could result in additional expense to the Savings
Bank.
Liquidity and Capital Resources
The Savings Bank's principal sources of funds are cash receipts from deposits,
loan repayments by borrowers, and net income. The Savings Bank has an
agreement with the Federal Home Loan Bank of Des Moines (FHLB of Des Moines)
to provide cash advances, should the need for additional funds be required.
Commitments to originate fixed rate and adjustable-rate mortgage loans at
December 31, 1997 were approximately $1,500,000 and $1,200,000, respectively.
For regulatory purposes, liquidity is measured as a ratio of cash and certain
investments to withdrawable deposits and short term borrowings. The minimum
level of liquidity required by OTS regulation is presently 4%. The Savings
Bank's liquidity ratio was approximately 8.1% at December 31, 1997. The
Savings Bank maintains a high level of liquidity as a matter of management
philosophy in order to more closely match interest-sensitive assets with
interest-sensitive liabilities.
The savings and loan industry historically has accepted interest rate risk as a
part of its operating philosophy. Long-term, fixed-rate loans were funded with
deposits which adjust to market interest rates more frequently. In recent
years, the Savings Bank has originated primarily mortgage loans which permit
adjustment of the interest rate after an initial term of one to three years in
order to reduce inherent interest rate risk.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Investment and mortgage-backed and related securities with a carrying value of
$27,806,000 are classified as available for sale at December 31, 1997. Such
securities are carried at fair value and can be liquidated with no further
impact on capital. The Company's unrealized gains and losses on investment and
mortgage-backed and related securities net, of applicable income taxes, are
recorded in stockholders' equity.
Under the capital adequacy guidelines and regulatory framework for prompt
corrective action, the Savings Bank is required to maintain tangible capital,
core capital, tier 1 risk-based capital (core capital to risk-weighted assets),
and risk-based capital of 1.5%, 4% 4%, and 8%. The Savings Bank met such
capital requirements at December 31, 1997.
The following table presents the Savings Bank's capital position relative to
its regulatory capital requirements at December 31, 1997:
Unaudited Regulatory Capital
Tier 1
Tangible Core Risk-Based Risk-Based
Stockholders' equity
per consolidated
financial statements $ 26,551,213 26,551,213 26,551,213 26,551,213
Stockholders' equity of
Southern Missouri
Bancorp, Inc. not
available for regulatory
capital purposes (4,917,978) (4,917,978) (4,917,978) (4,917,978)
GAAP capital 21,633,235 21,633,235 21,633,235 21,633,235
General valuation
allowances - - - 771,644
Non-includable unrealized
loss on investment and
mortgage-backed and
related securities
available for sale 45,379 45,379 45,379 45,379
Non-includable deferred
tax assets (218,943) (218,943) (218,943) (218,943)
Non-includable intangible
assets (40,398) (40,398) (40,398) (40,398)
Regulatory capital 21,419,273 21,419,273 21,419,273 22,190,917
Regulatory capital
requirement (2,337,000) (4,674,000 ) (3,558,000) (7,115,000)
Regulatory capital
- excess $ 19,082,273 16,745,273 17,861,273 15,075,917
Regulatory capital ratio 13.75% 13.75% 24.08% 24.95%
Regulatory capital
requirement 1.50 4.00 4.00 8.00
Regulatory capital
ratio - excess 12.25% 9.75% 20.08% 16.95%
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Financial Condition
Total assets decreased slightly from $160,393,000 at June 30, 1997 to
$159,926,000 at December 31, 1997. Cash flows from sales, maturities and
prepayments of securities, and advances from the FHLB of Des Moines were used
to originate loans and fund deposit outflows. The Savings Bank intends to
borrow from the FHLB when the cost of such borrowings is less than the overall
cost of retail deposits or in the event of other cash flow needs. Premises and
equipment increased due to upgrading of the data processing system. Advances
by borrowers for taxes and insurance decreased since real estate taxes are paid
on behalf of borrowers in December of each year. Accrued interest payable
decreased due to the reduction of certificates of deposit during the year.
Additional paid-in capital and common stock acquired by the ESOP and MRP
changed as a result of the recognition of shares committed to be released for
the ESOP and MRP. Unrealized gain on investment securities and mortgage-backed
and related securities available for sale, net of income tax changed from a
gain of $3,000 at June 30, 1997 to a gain of $16,000 at December 31, 1997. The
balance is expected to fluctuate in the future based on changes in interest
rates, as well as the amount and maturities of investment securities and
mortgage-backed securities available for sale.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31,
1997 AND 1996
Net Income
Net income for the three months ended December 31, 1997 was $293,000 compared
with $425,000 for the three months ended December 31, 1996. Net income for the
six months ended December 31, 1997 was $650,000 compared with $326,000 for the
six months ended December 31, 1996.
Net Interest Income
Net interest income increased from $1.28 million for the three months ended
December 31, 1996 to $1.31 million for the comparable three month period in
1997. Net interest income remained stable at $2.58 million for the six month
period ended December 31, 1996 and 1997.
Interest Income
Interest income was $2.82 million for the three months ended December 31, 1996
compared with $2.90 million for the comparable three month period in 1997.
Interest income was $5.70 million for the six months ended December 31, 1996
compared with $5.77 million for the comparable six month period in 1997.
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Interest on loans receivable increased for both the three month and six month
periods ended December 31, 1997 compared to the 1996 periods as a result of
higher average loans outstanding and a slightly higher yield. The weighted-
average rate on loans increased from 7.73% at December 31, 1996 to 7.78% at
December 31, 1997. Interest on mortgage-backed securities (MBSs) decreased due
to a lower average balance and a lower weighted-average yield for the three and
six month periods ended December 31, 1997 compared to the 1996 periods. The
weighted-average rate on MBSs decreased from 6.67% at December 31, 1996 to
6.55% at December 31, 1997. Interest on investment securities increased from
$257,000 at December 31, 1996 to $275,000 at December 31, 1997. This increase
was a result of a higher average balance outstanding offset by a lower weighted
average rate. Interest on investment securities decreased from $602,000 for
the six month period ended December 31, 1996 compared to $531,000 for the
comparable six month period in 1997. This decrease was a result of a lower
average balance and lower weighted-average yield on investment securities. The
weighted-average yield on investment securities decreased from 6.33% at
December 31, 1996 to 6.06% at December 31, 1997.
Interest on other interest earning assets increased due to higher average
balances. The components of interest bearing assets change from time to time
based on the availability and interest rates of loans, investment securities,
and MBSs.
Interest Expense
Interest expense increased due to higher interest rates and slightly higher
average balances. The weighted-average rate on interest bearing liabilities
was 4.67% at December 31, 1996 as compared to 4.80% at December 31, 1997.
Provision for Loan Losses
Provision for loan losses are charged to earnings to bring the total allowance
for loan losses to a level considered adequate by management to provide for
loan losses based on prior loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral and current economic
conditions. Management also considers other factors relating to the
collectibility of the Savings Bank's loan portfolio.
For the three months ended December 31, 1997, the Savings Bank established a
provision for loan losses of $114,000 compared with $23,000 for the three
months ended December 31, 1996. For the six months ended December 31, 1997,
the Savings Bank established a provision for loan losses of $136,000 compared
with $40,000 for the six months ended December 31, 1996. These higher
provisions for the three and six month periods ended December 31, 1997 are
attributable to establishing additional provision for loan losses for the
Savings Bank's mobile home loans made by a local dealer and
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
underwritten by the Savings Bank. Efforts to reduce the amount of these mobile
home loans that are past due and are on nonaccrual have not been as successful
as had been anticipated and management increased its provision for loan losses
as a result.
Following is a summary of activity in the allowance for loan losses for the six
months ended December 30, 1997 and 1996:
1997 1996
Balance, beginning of period $ 706,487 627,564
Loans charged off - consumer (5,878) (6,025)
Loans charged off - mobile homes (91,459) -
Recoveries of loans previously
charged off - mobile homes 26,035 -
Net charge offs (71,302) (6,025)
Provision charged to expense 136,459 40,000
Balance, end of period $ 771,644 661,539
Ratio of net charge-offs during
the period to average loans
outstanding during the period .06% .01%
The book value of nonaccrual loans at December 31, 1997 was $1,255,000 compared
to $1,380,000 at June 30, 1997. The average balance of nonaccrual loans for
the six months ended December 31, 1997 was approximately $1,331,000. Allowance
for losses on nonaccrual loans amounted to approximately $63,000 at December
31, 1997. For the three months and six months ended December 31, 1997, gross
interest income which would have been recorded had nonaccrual loans been
current in accordance with their original terms amounted to approximately
$28,000 and $49,000, respectively. The amount of interest income included in
the Company's net earnings for the three months and six months ended December
31, 1997 was approximately $14,000 and $21,000, respectively.
The following table sets forth information with respect to the Savings Bank s
nonaccrual loans at December 31, 1997 and June 30, 1997:
Loans accounted for on a
nonaccrual basis:
Residential real estate $ 707 922
Commercial real estate 306 279
Commercial 5 -
Consumer 71 24
Mobile homes 166 155
$ 1,255 1,380
Total loans delinquent 90 days
or more to net loans 1.07% 1.28%
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Nonaccrual residential real estate loans at December 31, 1997 consists of 34
loans in the Savings Bank's market area that range in balances from $2,000 to
$74,000. On a majority of these loans, the borrowers are communicating and
cooperating with the Savings Bank and are making payments, but are unable to
bring their loans to a current status. Management anticipates no significant
loss on these loans.
At December 31, 1997, the Savings Bank had an aggregate of $287,000 of loans to
a borrower that were secured by commercial property. As of that date, these
loans were 180 to 300 days past due. Management is in the process of
foreclosing on these loans. Management believes that the loans are well secured
and a loss on these loans, if any, will be minimal.
Nonaccrual mobile home loans at December 31, 1997 consists of loans made by a
local dealer and underwritten by the Savings Bank. Management has assigned an
officer to these loans in an effort to reduce the level of past due loans. The
dealer is cooperating with the Savings Bank. The dealer refurbishes and
resells mobile homes repossessed. The Savings Bank has discontinued
underwriting new loans for this dealer, except for the mobile homes that he is
reselling. Dealer reserves on deposit with the Savings Bank totaled $45,000 at
December 31, 1997.
The Savings Bank does not accrue interest on loans more than 90 days past due.
Noninterest Income
Noninterest income increased from $150,000 for the three months ended December
31, 1996 to $179,000 for 1997. Noninterest income increased from $294,000 for
the six months ended December 31, 1996 to $352,000 for 1997. The Savings Bank
realized net gains on sales on investment securities and MBSs of $37,000 for
the three months ended December 31, 1997 compared to none in 1996. Such gains
were $69,000 for the six months ended December 31, 1997, compared to none in
1996. Gains on sales of investment securities and MBSs are not a stable source
of income and no assurance can be given that the Savings Bank will generate
such gains in the future.
Commissions on insurance decreased for both the three and six months ended
December 31, 1997 over the comparable periods in 1996 due to a decrease in
sales activity.
Noninterest Expense
Noninterest expense increased from $806,000 for the three months ended December
31, 1996 to $903,000 for the three months ended December 31, 1997. Noninterest
expense decreased from $2.42 million for the six months ended December 31, 1996
to $1.77 million for the six months ended December 31, 1997.<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
The SAIF special assessment recorded for the six month period ended December
31, 1996 was a result of legislation enacted September 30, 1996 to recapitalize
the Savings Association Insurance Fund. The Savings Bank was assessed .657% of
deposits at March 31, 1995. The assessment of $779,000 was paid on November
28, 1996.
Compensation and benefits increased for the three month and six month periods
in 1997 over 1996 due to higher ESOP expense, salary increases and additional
employees. Under generally accepted accounting principles, expense of the ESOP
is affected by changes in the market price of the Company's stock, which has
been higher during 1997 as compared to 1996. ESOP expense will fluctuate in
the future based on changes in the market price of the Company's stock.
Occupancy and equipment increased for the three month and six month periods in
1997 over 1996 due to increases in depreciation expense and data processing
equipment costs. SAIF deposit insurance premium decrease for the three month
and six month periods in 1997 over 1996 as a result of a substantially lower
assessment rate effective January 1, 1997. Professional fees increased for the
three month and six month periods in 1997 over 1996 due to legal work related
to the supervisory agreement. Advertising cost increased for the three month
and six month periods in 1997 over 1996 due to an increase in cost and an
increase in advertising activity in general.
Income Taxes
Income tax expense decreased from $181,000 for the three months ended December
31, 1996 to $178,000 for 1997 due to an decrease in income before income taxes.
Income taxes increased from $84,000 for the six months ended December 31, 1996
to $373,000 for 1997. This increase is a result of the higher income before
income taxes for this period. The effective rate of income taxes is affected
by the relationship of nontaxable municipal interest income to income before
income taxes.
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material legal proceedings to which the Holding Company or
the Savings Bank is a party or of which any of their property is subject.
From time to time, the Savings Bank is a party to various legal
proceedings incident to its business.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Stockholders of the Company (Meeting) was held on
October 27, 1997. The results of the vote on the matters presented at the
Meeting are as follows:
1. The following individuals were elected as directors, each for a three-
year term:
Vote For Vote Withheld
Donald R. Crandell 1,100,685 11,053
Samuel H. Smith 1,100,799 10,939
The terms of Directors Samuel H. Smith, Thadis R. Seifert, Leonard W.
Ehlers, James W. Tatum and Donald R. Crandell continued after the
meeting.
Broker non-votes totalled 0 .
Item 5 - Other Information
None
<PAGE>
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION - Continued
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: none
(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: February 12, 1998 BY: Donald R. Crandell
Donald R. Crandell,
Chief Executive Officer
Chief Financial Officer and
Duly Authorized Officer<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,872,009
<INT-BEARING-DEPOSITS> 91,042
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,805,944
<INVESTMENTS-CARRYING> 27,781,816
<INVESTMENTS-MARKET> 4,889,339
<LOANS> 117,634,491
<ALLOWANCE> 771,644
<TOTAL-ASSETS> 159,926,312
<DEPOSITS> 110,982,085
<SHORT-TERM> 20,750,000
<LIABILITIES-OTHER> 1,752,869
<LONG-TERM> 277,276
0
0
<COMMON> 18,032
<OTHER-SE> 26,533,181
<TOTAL-LIABILITIES-AND-EQUITY> 159,926,312
<INTEREST-LOAN> 4,475,995
<INTEREST-INVEST> 1,237,828
<INTEREST-OTHER> 58,755
<INTEREST-TOTAL> 5,772,578
<INTEREST-DEPOSIT> 2,673,189
<INTEREST-EXPENSE> 522,497
<INTEREST-INCOME-NET> 2,576,892
<LOAN-LOSSES> 136,459
<SECURITIES-GAINS> 68,878
<EXPENSE-OTHER> 1,769,602
<INCOME-PRETAX> 1,022,887
<INCOME-PRE-EXTRAORDINARY> 1,022,887
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650,340
<EPS-PRIMARY> .42
<EPS-DILUTED> .41
<YIELD-ACTUAL> 7.81
<LOANS-NON> 1,255,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 126,707
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<ALLOWANCE-OPEN> 738,958
<CHARGE-OFFS> 97,337
<RECOVERIES> 26,035
<ALLOWANCE-CLOSE> 771,644
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 771,644
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