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, 1999
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)
Missouri 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 9, 1999
Common Stock, Par Value $.01 1,387,584 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 9-14
PART II. OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security-Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
- Signature Page 16
PART I: FINANCIAL INFORMATION
SOUTHERN MISSOURI BANCORP, INC AND SUSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1999 and JUNE 30, 1999
(UNAUDITED)
ASSETS
September 30, June 30,
1999 1999
Cash and due from banks $ 1,135,851 $ 1,790,590
Interest bearing deposits in other
Financial institutions 3,065,872 2,278,085
Cash and Cash equivalents 4,201,723 4,068,675
Available-for -sale investment securities 23,735,888 20,979,045
Mortgage-backed securities, available-for-sale 14,260,381 16,899,641
Loans receivable, net 119,948,120 118,248,638
Foreclosed real estate, net 409,331 477,537
Premises and equipment, net 1,880,571 1,878,719
Accrued interest receivable:
Loans 529,865 555,923
Investments 368,576 477,152
Federal Home Loan Bank stock 1,215,000 1,091,000
Prepaid expenses and other assets 267,683 296,014
Total Assets $166,817,138 $164,972,343
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits $117,798,795 $120,154,540
Federal Home Loan Bank Advances 24,300,000 20,550,000
Accrued interest payable 639,148 707,341
Advances from borrowers for taxes and insurance 414,153 318,431
Accrued expenses and other liabilities 752,128 612,569
Total Liabilities 143,904,224 142,342,881
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 17,563,544 17,545,543
Accumulated other comprehensive income (262,189) (250,879)
Retained earning, substantially restricted 13,992,758 13,759,487
Unearned ESOP shares (396,853) (426,853)
Unearned MRP shares (102,724) (104,214)
Treasury Stock, at cost; 423,792 and 424,991 shares at
September 30, 1999 and June 30, 1999, respectively (7,899,654) (7,911,654)
Total Stockholder's equity 22,912,914 22,629,462
Total Liabilities and Stockholder's Equity $166,817,138 $164,972,343
See Notes to Consolidated Financial Statements
PART: I FINANCIAL INFORMATION
SOUTHERN MISSOURI BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
Three-months ended
September 30,
INTEREST INCOME: 1999 1998
Loans receivable $ 2,325,596 $ 2,372,957
Investment securities 353,354 203,562
Mortgage-backed and related securities 226,954 209,114
Other interest-earning assets 17,283 41,598
Total interest income 2,923,187 2,827,231
INTEREST EXPENSE:
Deposits 1,306,599 1,285,789
Federal Home Loan Bank advances 263,345 256,305
Total interest expense 1,569,944 1,542,094
NET INTEREST INCOME 1,353,243 1,285,137
PROVISION FOR LOAN LOSSES 20,000 10,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,333,243 1,275,137
NONINTEREST INCOME:
Banking service charges 87,256 59,555
Net realized loss on investment and mortgage-
backed securities, available-for-sale (17,955) (625)
Insurance commissions 744 79,098
Net income on foreclosed assets (2,921) (4,373)
Late charges and other fees 17,997 18,153
Other income 12,641 5,592
Total noninterest income 97,762 157,760
NONINTEREST EXPENSE:
Compensation and benefits 488,132 567,465
Occupancy and equipment, net 122,007 109,029
SAIF deposit insurance premiums 17,747 24,504
Legal and professional fees 33,829 32,693
Advertising 22,208 26,745
Postage and office supplies 39,903 35,996
Other operating expense 90,633 84,349
Total noninterest expense 814,459 880,781
INCOME BEFORE INCOME TAXES 616,546 552,116
PROVISION FOR INCOME TAXES 215,940 194,622
NET INCOME 400,606 357,494
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains (losses) on AFS securities (22,622) 49,026
Adjustment for (gains) losses included in net income 11,312 394
Other comprehensive income (11,310) 49,420
COMPREHENSIVE INCOME $ 389,296 $ 406,914
Basic earnings per common share $ 0.30 $ 0.26
Diluted earnings per common share $ 0.30 $ 0.25
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
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(UNAUDITED)
Three-months ended
September 30,
1999 1998
Cash Flows From Operating Activities:
Net income $ 400,606 $ 357,494
Items not requiring (providing) cash:
Depreciation and amortization 58,254 57,062
MRP expense and ESOP expense 49,491 81,050
Loss (gain) on sale of available-for-sale securities - 625
(Gain) Loss on sale of MBS, available-for-sale 17,955 -
Provision for loan losses 20,000 10,000
(Gain) loss on foreclosed real estate, net (6,700) 69
Net amortization of deferred income, premiums,
and discounts 20,641 16,869
Changes in:
Accrued interest receivable 134,636 29,945
Prepaid expenses and other assets (9,310) 5,259
Accounts payable and other liabilities 118,379 6,536
Accrued expense and other liabilities (47,014) 354,064
Net cash provided by operating activities 756,938 918,973
Cash flows from investing activities:
Net decrease (increase) in loans (1,673,522) 2,817,285
Proceeds from sales of available-for-sale
investment securities - 999,375
Proceeds from sales of available-for-sale
mortgage-backed securities 1,491,800 -
Proceeds from maturing available-for-sale
mortgage-backed securities 1,090,388 1,171,264
Purchase of Federal Home Loan Bank stock (124,000) (37,500)
Purchase of available-for-sale investment securities (2,759,750) (2,022,500)
Purchase of premises and equipment (60,106) (46,658)
Proceeds from sale of foreclosed real estate 76,658 1,250
Net cash provided by (used in)
investing activities (1,958,532) 2,882,516
Cash flows from financing activities:
Net increase (decrease) in certificates of deposit (3,478,454) 946,202
Net increase (decrease) in demand, NOW and
Saving accounts 1,122,710 1,433,207
Net increase in advances from borrowers
for taxes and insurance 95,723 68,925
Proceeds from Federal Home Loan Bank advances 22,000,000 5,500,000
Repayments of Federal Home Loan Bank advances (18,250,000) (6,768,905)
Cash dividends paid (167,336) (180,934)
Exercise of stock options 12,000 20,000
Purchase of treasury stock - (1,614,094)
Net cash provided by (used in) financing
activities 1,334,643 (595,599)
Increase in cash and cash equivalents 133,049 3,205,890
Cash and cash equivalents at beginning of period 4,068,674 4,326,474
Cash and cash equivalents at end of period $4,201,723 $7,532,364
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,
1999 1998
Supplemental disclosures of
Cash flow information:
Noncash investing and financing activities:
Conversion of loans to foreclosed real estate
and other assets $ 146,165 $ 176,973
Conversion of foreclosed real estate to loans $ 87,000 $ 94,500
Cash paid during the period for:
Interest (net of interest credited) $ 617,100 $ 585,967
Income taxes $ - $ -
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, 1999 are 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, 1999 Form 10-KSB,
which was filed with the SEC and the Company's annual report,
which contains the audited consolidated financial statements for
the fiscal years ended June 30, 1999 and 1998.
Note 2: Holding Company Formation, and Stock Issuance, Charter
Conversions and State of Incorporation
Southern Missouri Bancorp, Inc. (the "Company"), a Missouri
corporation, was originally incorporated in the State of Delaware
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 was completed on
April 1, 1999.
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 common shares of stock 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, 1999, the ESOP
had allocated 100,146 shares and had 3,000 shares committed to be
released for June 30, 2000 allocation to participants in the
Bank's ESOP.
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 62,158 have been awarded and
vested, 3,900 have been awarded and are not yet vested and 5,358
remain unawarded. Stock awarded under the MRP vests over five
years, with compensation expense being amortized over each
participant's vesting period. The SOIP authorized 178,540 stock
options for shares to be issued to directors, officers and
employees of SMBT, pursuant to which 178,540 options have been
awarded and 115,985 remain outstanding and unexercised. In
addition, the shareholders of the Company approved an increase in
the SOIP of 67,932 stock options at the October 18, 1999 annual
meeting, none of which have been awarded.
Note 6: Earnings Per Share
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, 1999 and 1998.
Three Months Ended
September 30,
1999 1998
Net earnings $ 400,606 $ 357,494
Weighted-average shares -
Basic earnings per share 1,340,358 1,389,884
Stock options under treasury
stock method 16,590 43,573
Weighted-average shares -
Diluted earnings per share 1,356,948 1,433,457
Basic earnings per common share $ 0.30 $ 0.26
Diluted earnings per common share $ 0.30 $ 0.25
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 $1.6 million in investments and
other assets. 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's salaries and benefits, occupancy
expenses and other operational expenditures. The following
discussion reviews the Company's consolidated financial condition
at September 30, 1999 as well as the results of operations for
the three-month period ended September 30, 1999 and 1998,
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 $1.8 million, or 1.1%, to
$166.8 million at September 30, 1999 as compared to $165.0
million at June 30, 1999. The increase was primarily due to a
$1.7 million, or 1.4%, rise in the balance of loans receivable,
from $118.2 million at June 30, 1999 to $119.9 million at
September 30, 1999, which represented growth consistent with the
Company's budget. Over this same period, deposit balances
declined $2.4 million, or 2.0%, from $120.2 million at June 30,
1999 to $117.8 million at September 30, 1999. In order to fund
asset growth and deposit outflows, the balance of FHLB advances
increased $3.8 million, or 18.3%, to $24.3 million at September
30, 1999, from $20.6 million at June 30, 1999.
Results of Operations - Comparison of the three month period
ended September 30, 1999 and 1998.
Net Income. The Company's net income for the three-month
period ended September 30, 1999 was $401,000 as compared to
$357,000 earned during the same period of the prior year.
Increased earnings over the three month period ended September
30, 1999 was primarily due to increased net interest income and
lower operating expenses, partially offset by lower noninterest
income.
Net Interest Income. Net interest income increased by
$68,000, or 5.3%, to $1.4 million for the three months ended
September 30, 1999 as compared to the $1.3 million earned during
the same period of the prior year. The increase was mostly due
to the incremental interest rate spread earned on an increase in
the average balance of interest-earning assets and interest-
bearing liabilities , partially offset by slight declines in both
the average ratio of interest-earning assets to interest-bearing
liabilities and the average interest rate spread.
Interest Income. Interest income for the three-month period
ended September 30, 1999 increased $96,000, or 3.3%, to $2.9
million for the three months ended September 30, 1999 as compared
to $2.8 million during the same period of the prior year. The
increase was primarily due to a $10.3 million increase in the
average balance of interest-earning assets, from $150.3 million
at September 30, 1998 to $160.6 million. These increases were
partially offset by a 24 basis point decline in the average yield
earned on these assets, from 7.52% to 7.28%. The decline in the
average yield was primarily due to reduced average interest rates
earned on loans receivable (primarily due to a general decline in
cost of funds based indices), partially offset by higher
investment security yields.
Interest Expense. Interest expense for the three-month period
ended September 30, 1999 increased $28,000, or 1.8%, to $1.6
million when compared to the same period of the prior year. The
increase was primarily due to a $10.0 million increase in the
average balance of interest-bearing liabilities, from $130.7
million to $140.7 million, which was nearly offset by a 26 basis
point reduction in the average rate paid on these liabilities,
from 4.72% to 4.46%. The decline in the average cost was
primarily due to reduced interest costs for certificates of
deposit and FHLB advances, which was partly offset by increased
costs for money market demand accounts.
Provision for Loan Losses. The provision for loan losses for
the three-month period ended September 30, 1999 was $20,000 as
compared to the $10,000 established during the same period of the
prior year (see "Allowance for Loan Loss Activity" and
"Nonperforming Assets").
Noninterest Income. Noninterest income for the three-month
period ended September 30, 1999 declined $60,000, or 38.0%, to
$98,000 for the three month period ended September 30, 1999 as
compared to $158,000 during the same period of the prior year.
The decrease was primarily due to a $78,000 decline in insurance
commissions and a $17,000 loss realized on the sale of available-
for-sale securities, which was partially offset by a $28,000
increase in bank service charges and a $7,000 rise in other
income. The decline in insurance commissions was due to the sale
of the Company's insurance operations in the fourth quarter of
fiscal 1999.
Noninterest Expense. Noninterest expense for the three-month
period ended September 30, 1999 declined $66,000, or 7.7%, to
$814,000 for the three month period ended September 30, 1999 as
compared to $881,000 during the same period of the prior year.
The decline was primarily due to a $79,000 reduction in
compensation and benefits expense, partially offset by a $13,000
increase in occupancy and equipment expense. The reduction in
compensation and benefits expense was due in part to the sale of
the Company's insurance operations in the fourth quarter of
fiscal 1999 and lower ESOP expense as a result of a decline in the
average market price of the Company's common stock.
Provision for Income Taxes. The provision for income taxes for
the three-month period ended September 30, 1999 was $216,000 as
compared to the $195,000 for the same period of the prior year.
The increase was attributed to increased taxable income.
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 for the three months ended September 30, 1999 and 1998:
1999 1998
Balance, beginning of period $1,191,147 $1,295,222
Loans charged off:
Real estate (28,877) (1,205)
Consumer (65,422) (2,510)
Mobile homes (20,212) (88)
Gross charged off loans (114,511) (3,803)
Recoveries of loans previously charged off:
Real estate 125 275
Consumer 33,601 2,270
Mobile homes 12,289 22,566
Gross recoveries of charged off loans 46,015 25,111
Net recoveries (charge offs) (68,496) 21,308
Provision charged to expense 20,000 10,000
Balance, end of period $1,142,651 $1,326,530
Ratio of net charge offs(recoveries) during the
period to average loans outstanding during the period .06% (.02)%
The increase in charge offs during the three month period
ended September 30, 1999 was partially the result of
underwriting guidelines for secured and unsecured consumer loans,
which were utilized during a period beginning in July 1997, which
emphasized consumer loan portfolio growth. In an effort to
reduce delinquencies and charge-offs, the Company began to adopt
and implement more restrictive consumer loan underwriting
guidelines in December 1998 and aggressively reviewed the
existing portfolio under these guidelines. Management believes
that these guidelines will result in reduced future charge-offs,
while allowing loan portfolio growth. However, management
anticipates that charge-offs will remain at levels higher than
historical averages over the next several quarters due to the
previous underwriting guidelines. These factors were considered
in the Company's analysis of the adequacy of its provision for
loan losses. In addition, the Company anticipates future loan
recoveries since it has 20 loans totaling $163,000, secured by
automobile loans or mobile home loans which have been charged
off, but the actual value of the collateral had not yet been
realized through repossession. The Company does not expect to
realize the full charged off balance of these loans.
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 declined
$48,000 to $1.1 million at September 30, 1999 from $1.2 million
at June 30, 1999. At September 30, 1999, the Bank had $5.4
million, or 3.2% of assets adversely classified (substandard,
doubtful, or loss) as compared to adversely classified assets of
$5.1 million, or 3.1% of assets at June 30, 1999.
The ratio of nonperforming assets to total assets and net loans
receivable is another 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 over selected time
periods:
Loans past maturity/delinquent 90 days or more
9/30/99 6/30/99 9/30/98
Residential real estate $ 470,000 $ 181,000 $ 541,000
Commercial real estate 86,000 86,000 455,000
Commercial - 27,000 -
Consumer 122,000 143,000 235,000
Mobile homes 58,000 55,000 143,000
Total loans past maturity/delinquent 90+ days 736,000 492,000 1,374,000
Assets acquired in settlement of loans 409,000 560,000 273,000
Total nonperforming assets $1,145,000 $1,052,000 $1,647,000
Percentage nonperforming assets to total assets 0.69% 0.64% 1.06%
Percentage nonperforming loans to net loans 0.61% 0.42% 1.18%
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 sensitivity to fluctuating interest rates. The
degree to which each segment of the strategy is achieved will
affect 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, maturities or early redemption of investment
securities 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,
1999, the Company had outstanding commitments to fund $6.5
million in mortgage loans and $546,000 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, 1999 the Bank had available credit at
the FHLB of approximately $64.0 million, of which $24.3 million
had been advanced. Management believes that these and other
liquidity resources will be sufficient to meets the Company's
liquidity needs.
Year 2000 Compliance
General. The Year 2000 ("Y2K") issue confronting the Bank and
its suppliers, customers, customers' suppliers and competitors
centers on the inability of computer systems to recognize the
year 2000. Many existing computer programs and systems
originally were programmed with six digit dates that provided
only two digits to identify the calendar year in the date field.
With the impending new millennium, these programs and computers
will recognize "00" as the year 1900 rather than the year 2000.
Financial institution regulators recently have increased their
focus upon Y2K compliance issues and have issued guidance
concerning the responsibilities of senior management and
directors. The Federal Financial Institutions Examination
Council ("FFIEC") has issued several interagency statements on
Y2K Project Management Awareness. These statements require
financial institutions to, among other things, examine the Y2K
implications of reliance on vendors and with respect to data
exchange, the potential impact of the Y2K issue on customers,
suppliers and borrowers. These statements also require each
federally regulated financial institution to survey its exposure,
measure risk and prepare a plan to address the Y2K issue. In
addition, the federal banking regulators have issued safety and
soundness guidelines to be followed by insured depository
institutions, such as the Bank, to assure resolution of any Y2K
problems. The federal banking agencies have asserted that Y2K
testing and certification is a key safety and soundness issue in
conjunction with regulatory examinations and, thus, that an
institution's failure to address appropriately the Y2K issue
could result in supervisory action, including the reduction of
the institution's supervisory ratings, the denial of applications
for approval of mergers or acquisitions or the imposition of
civil money penalties.
Risk. Like most financial institutions service providers, the
Bank and its operations may be significantly affected by the Y2K
issue due to its dependence on technology and date-sensitive
data. Computer software and hardware and other equipment, both
within and outside the Bank's direct control and third parties
with whom the Bank electronically or operationally interfaces
(including without limitation its customers and third party
vendors) are likely to be affected. If computer systems are not
modified in order to be able to identify the year 2000, many
computer applications could fail or create erroneous results. As
a result, many calculations which rely on date field information,
such as interest, payment or due dates and other operating
functions, could generate results which are significantly
misstated, and the Bank could experience an inability to process
transactions, prepare statements or engage in similar normal
business activities. Likewise, under certain circumstances, a
failure to adequately address the Y2K issue could adversely
affect the viability of the Bank's suppliers and creditors and
the creditworthiness of its borrowers. Thus, if not adequately
addressed, the Y2K issue could result in a significant adverse
impact on the Bank's operations and, in turn, its financial
condition and results of operations.
State of Readiness. During October 1997, the Bank formulated
its plan to address the Y2K issue. Since that time, the Bank has
taken the following steps:
- Established senior management advisory and review
responsibilities;
- Completed a Bank-wide inventory of applications and system
software;
- Built an internal tracking database for application and vendor
software;
- Developed, tested and validated compliance plans;
- Initiated vendor compliance verification;
- Begun awareness and education activities for employees,
customers, borrowers and suppliers;
- Started testing contingency plans.
The following paragraphs summarize the phases of the Bank's Y2K
plan:
Awareness Phase. The Bank formally established a Y2K plan
headed by a senior manager, and a project team was assembled for
management of the Y2K project. The project team created a plan
of action that includes milestones, budget estimates, strategies,
and methodologies to track and report the status of the project.
Members of the project team also attended conferences and
information sharing sessions to gain more insight into the Y2K
issue and potential strategies for addressing it. This phase is
substantially complete.
Assessment Phase. The Bank's strategies were further developed
with respect to how the objectives of the Y2K plan would be
achieved, and a Y2K business risk assessment was made to quantify
the extent of the Bank's Y2K exposure. A corporate inventory
(which is periodically updated as new technology is acquired and
as systems progress through subsequent phases) was developed to
identify and monitor Y2K readiness for information systems
(hardware, software, utilities, and vendors) as well as
environmental systems (security systems, facilities, etc.).
Systems were prioritized based on business impact and available
alternatives. Mission critical systems supplied by vendors were
researched to determine Y2K readiness. If Y2K-ready versions
were not available, the Bank began identifying functional
replacements, which were either upgradable or currently Y2K-
ready, and a formal plan was developed to repair, upgrade, or
replace all mission critical systems. This phase is
substantially complete.
Beginning in August, 1998, all borrowing relationships greater
than $250,000 were sent a questionnaire developed by the Bank's
credit administration staff to evaluate Y2K exposure. The Bank
also performed a more detailed risk assessment of major borrowers
and depositors exposure to Y2K and their potential impact on the
Bank. The Bank's loan portfolio is primarily real estate-based
and is diversified with regard to individual borrowers and types
of businesses, and the Bank's primary market area is not
significantly dependent on one employer or industry. As part of
the current credit approval process, all new and renewed loans
are evaluated for Y2K risk as well as new major depositors.
Renovation Phase. The Bank's corporate inventory revealed that
Y2K upgrades were available for all vendor supplied mission
critical systems, and all these Y2K-ready versions have been
delivered, placed into production and have been successfully
evaluated through the validation process. This phase has been
completed.
Validation Phase. The validation phase is designed to test the
ability of hardware and software to accurately process date
sensitive data. The Bank has completed its validation testing of
each mission critical system. During the validation testing
process, no significant Y2K problems were identified relating to
any modified or upgraded mission critical system. New equipment
purchases or data updates that are made to mission critical
systems will continue to be validated.
Implementation Phase. The Bank's plan calls for putting Y2K-
ready code into production before having actually completed Y2K
validation testing. Y2K-ready modified or upgraded versions have
been installed and placed into production with respect to all
mission critical systems. This phase has been completed.
Bank Resources Invested. The Bank's Y2K project team has
substantially completed its assigned task of ensuring that all
systems across the Bank are identified, analyzed for Y2K
compliance, corrected, if necessary, tested, and changes put into
service. The Y2K project team members represent all functional
areas of the Bank, including branches, data processing, loan
administration, accounting, item processing, operations,
compliance, internal audit, the Board of Directors and marketing.
The Bank's Board of Directors oversees the Y2K plan and provides
guidance and resources to, and receives monthly updates from, the
Y2K project team.
The Bank has expensed costs associated with the required system
changes as those costs are incurred, and such costs are being
funded through operating cash flows. The total cost of the Y2K
conversion project for the Bank is estimated to be $125,000,
approximately $105,000 of which has been incurred and expensed by
the Bank through September 30, 1999. The Bank does not expect
significant increases in future data processing costs related to
Y2K compliance.
Customer Awareness. The Bank has established a customer
awareness program, by which, the Bank's customers will be
informed about the Bank's Y2K preparedness as well as the Y2K
issue in general. The program's focus includes direct and
indirect customer contact and its goal is to make the Bank's Y2K
efforts known to its customer base and allay significant
apprehension of the customer base to the Y2K issue.
Contingency Plans. During the assessment phase, the Bank began
to develop back-up or contingency plans for each of its mission
critical systems. Virtually all of the Bank's mission critical
systems are dependent upon third party vendors or service
providers, therefore, contingency plans include selecting a new
vendor or service provider and converting to their system. No
mission critical vendor systems failed during the validation
phase. For some systems, contingency plans consist of using
spreadsheet or data base software or reverting to manual systems
until systems problems can be corrected. Although the Bank has
been informed that each of its primary vendors have certified
that all mission critical systems either are or will timely be
Y2K-ready, no warranties have been received from such vendors.
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, 1999, the Bank exceeded all regulatory capital
requirements with leverage capital of $21.0 million (12.8% of
average total assets), tier I capital of $21.0 million (23.5% of
risk-weighted assets) and risk-based capital of $22.2 million
(24.8% 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 18, 1999, the Company held its Annual Meeting of
Stockholders.
(b) At the meeting Mr. James W. Tatum and Mr. Ronnie D. Black
were elected to three year terms to expire in 2002, the Company's
proposal to ratify the 1994 Stock Option plan amendment was
approved and the Company's proposal to appoint Kraft, Miles &
Tatum , LLC as the Company's auditors for the fiscal year end
June 30, 2000 was also approved.
(c) The results of the voting on each of the proposals is as
follows:
(i) The election of Mr. James W. Tatum as a director of the
Company;
VOTES FOR WITHHELD NO VOTE
1,222,961 1,064,362 146,101 12,498
(ii) The election of Mr. Ronnie D. Black as a director of the
Company;
VOTES FOR WITHHELD NO VOTE
1,222,961 1,064,762 145,701 12,498
(iii) The proposal to ratify the 1994 Stock Option plan
amendment;
VOTES FOR AGAINST ABSTAIN
1,222,961 1,089,438 124,783 8,740
(iv) The proposal to appoint Kraft, Miles & Tatum , LLC as the
Company's auditors;
VOTES FOR AGAINST ABSTAIN
1,222,961 1,193,789 12,404 16,798
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b)
None
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 14, 1999 xThadis R. Seifert
Thadis R. Seifert
President
Date: November 14, 1999 xGreg A. Steffens
Greg A. Steffens
Chief Financial Officer
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