-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M0UPZq56rpeS9Lwt6A5f2p13gISz8iTSG1aCOksD3rMo8XuqoDxOjt+O2Ycw0cAM s23p+GDbQNVTG5WGcUKcXw== 0000916907-99-000014.txt : 19991117 0000916907-99-000014.hdr.sgml : 19991117 ACCESSION NUMBER: 0000916907-99-000014 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN MISSOURI BANCORP INC CENTRAL INDEX KEY: 0000916907 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 431665523 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23406 FILM NUMBER: 99753336 BUSINESS ADDRESS: STREET 1: 531 VINE ST CITY: POPLAR BLUFF STATE: MO ZIP: 63901 BUSINESS PHONE: 5737851421 10QSB 1 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 EX-27 2
9 3-MOS JUN-30-2000 SEP-30-1999 1,135,851 3,065,872 0 0 37,996,269 0 0 121,142,899 1,142,651 166,817,138 117,798,795 4,500,000 1,806,429 19,800,000 0 0 17,581,576 5,331,338 22,912,914 2,325,596 580,308 17,823 2,923,187 1,309,599 1,569,944 1,353,243 20,000 (17,955) 814,459 616,546 0 0 0 400,606 .30 .30 7.28 138,750 596,869 0 5,370,452 1,191,147 114,511 46,015 1,142,651 1,142,651 0 0
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