FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-23406
SOUTHERN MISSOURI BANCORP, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1665523
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
531 Vine Street, Poplar Bluff, Missouri 63901
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (573) 785-1421
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ___
Indicate by check mark whether disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10- KSB or any amendments to this Form 10-KSB. YES NO x
The registrant's revenues for the fiscal year ended June 30, 1999 were $12.7 million.
As of September 15, 1999, there were issued and outstanding 1,387,384 shares of the registrant's common stock. [COMPLETE] The aggregate market value of the voting stock held by non-affiliates of the registrant on this date, computed by reference to the average of the bid and asked price of such stock, was $15.5 million (1,122,232 shares at $13.81. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB- Annual Report to Stockholders for the fiscal year ended June 30, 1999.
Part III of Form 10-KSB - Portions of the Proxy Statement for the 1999
Annual Meeting of Stockholders.
Transitional Small Business Disclosure Format (check one) Yes No X
PART I
Item 1. Description of Business
General
Southern Missouri Bancorp, Inc. ("Company"), which changed its state of incorporation to Missouri on April 1, 1999, was originally incorporated in Delaware on December 30, 1993 for the purpose of becoming the holding company for Southern Missouri Savings Bank ("SMSB") upon completion of its conversion from a state chartered mutual to a state chartered stock savings bank ("Conversion"). The Company completed the Conversion on April 13, 1994 through the sale and issuance of 1,803,201 shares of common stock. The Company's Common Stock is quoted on the National Association of Securities Dealers Automated Quotations ("NASDAQ") National Market System under the symbol "SMBC".
SMSB was chartered as a mutual Missouri savings and loan association in 1887. On June 20, 1995, it converted to a federally chartered stock savings bank and took the name Southern Missouri Savings Bank, FSB. On February 17, 1998, SMSB converted from a federally chartered stock savings bank to a Missouri chartered stock savings bank and changed its name to Southern Missouri Bank and Trust Co. ("Bank") and ("Charter Conversion").
As a result of the Charter Conversion, the primary regulator of the Bank changed from the Office of Thrift Supervision ("OTS") to the Missouri Division of Finance ("Division"). The Bank's deposits continue to be insured up to applicable limits by the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). Notwithstanding the Bank's conversion to a state savings bank, the Company did not become a bank holding company regulated by the Federal Reserve Board ("FRB") but remained an OTS-regulated savings and loan holding company as a result of the Bank's election (under Section 10(l) of the Home Owners Loan Act, as amended ("HOLA")) to be treated as an OTS-regulated savings association for purposes of regulation of the Company ("10(l) Election").
The principal business of the Bank consists primarily of attracting retail deposits from the general public and using such deposits along with wholesale funding from the Federal Home Loan Bank of Des Moines ("FHLB") to invest primarily in one- to four- family residential mortgage loans. To a lesser extent, the Bank also finances mortgage loans secured by commercial real estate loans, commercial business loans and consumer loans. These funds are also used to purchase mortgage-backed and related securities ("MBS"), obligations of state and political subdivisions, U.S. Government Agency obligations and other permissible investments.
At June 30, 1999, the Company had total assets of $165.0 million, total deposits of $120.2 million and stockholders' equity of $22.6 million. The Company has not engaged in any significant activity other than holding the stock of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank and its subsidiaries. Additionally, the Company's revenues are derived principally from interest earned on loans, investment securities and MBS and, to a lesser extent, insurance commissions, banking service charges, loan late charges and other fee income.
Forward Looking Statements
When used in this Form 10-KSB or future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "would be", "will allow", "intends to", "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project", or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.
Market Area
The Bank provides its customers with a full array of
community banking services and conducts its business from its
headquarters in Poplar Bluff and seven additional full service
offices located in Poplar Bluff, Van Buren, Dexter, Malden,
Kennett, Doniphan and Ellington, Missouri. The Bank's primary
market area includes all or portions of Butler, Carter, Dunklin,
Ripley, Stoddard, and Wayne counties, with Poplar Bluff being the economic
center of the area. The Bank's market area has a population of
approximately 175,000. The largest employer in the Bank's
primary market area is Briggs & Stratton, who operates a small
engine manufacturing facility and employs approximately 1,000
persons. Other major employers include Gates Rubber, Rowe
Furniture, Lucy Lee Hospital, John Pershing VA Hospital, Doctors
Regional Hospital, Poplar Bluff School District, and Arvin. The
Bank's market area is primarily rural in nature and relies
heavily on agriculture, with products including livestock, rice,
timber, soybeans, wheat, melons, corn and cotton.
Selected Consolidated Financial Information
This information is incorporated by reference from pages 3 and 4 of the 1999 Annual Report to Stockholders ("Annual Report") attached hereto as Exhibit 13.
Yields Earned and Rates Paid
This information contained under the section captioned "Yields Earned and Rates Paid" in the Annual Report is incorporated herein by reference from page 12 of the Annual Report.
Rate/Volume Analysis
This information is incorporated by reference from page 13 of the Annual Report.
Average Balance, Interest and Average Yields and Rates
This information contained under the section captioned "Average Balance, Interest and Average Yields and Rates" in the Annual Report is incorporated herein by reference from page 10 and 11 of the Annual Report.
Lending Activities
General. The Bank's primary focus in lending activities is on the origination of loans secured by mortgages on one- to four- family residences. To a lesser extent, the Bank also originates mortgage loans on commercial real estate, construction loans on residential and commercial properties, commercial business and consumer loans. The Bank has also occasionally purchased a limited amount of loan participation interests originated by other lenders within the Bank's market area and secured by properties generally located in the Bank's primary market area.
The Executive Loan Committee of the Bank, comprised of Greg Steffens and Kent Nichols, has the responsibility for the supervision of the loan portfolio with an overview provided by the full Board of Directors. Loans up to $250,000 may be approved by certain officers or either member of the Executive Committee, depending on the circumstances and the size of the loan, with all loans subject to ratification by the full Board of Directors. Loans in excess of $250,000 require the approval of a majority of the Discount Committee, whose members consist of four outside directors and Mr. Steffens, prior to the closing of the loan. In addition, foreclosure actions or the acceptance of deeds-in-lieu of foreclosure are subject to prior approval by the Board of Directors.
The aggregate amount of loans that the Bank is permitted to make under applicable federal regulations to any one borrower, including related entities, or the aggregate amount that the Bank could have invested in any one real estate project, is based on the Bank's capital levels. See "Regulation - Loans to One Borrower." At June 30, 1999, the maximum amount which the Bank could lend to any one borrower and the borrower's related entities was approximately $3.3 million. At June 30, 1999, the Bank's largest extension of credit to one entity was $2.6 million and was secured by commercial real estate and was performing according to it's terms.
Loan Portfolio Analysis. The following table sets forth the
composition of the Bank's loan portfolio by type of loan and type
of security as of the dates indicated.
At June 30,
1999 1998 1997
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
Type of Loan:
Mortgage Loans:
One-to four-family $ 87,247 73.78% $ 83,399 70.03% $ 77,895 72.27%
Commercial real estate 19,048 16.11 22,530 18.92 18,293 16.97
Construction 3,553 3.00 2,708 2.27 3,822 3.55
Total mortgage loans $109,848 92.89 $108,637 91.22 $100,010 92.79
Other Loans:
Automobile loans 5,808 4.91 7,319 6.15 4,862 4.51
Second mortgage 1,109 0.94 1,081 0.91 745 0.69
Mobile home 548 0.47 784 0.65 1,265 1.17
Loans secured by deposits 826 0.70 671 0.57 721 0.67
Commercial business 1,481 1.25 1,127 0.95 2,383 2.21
Other 1,169 0.99 1,480 1.24 435 0.40
Total other loans 10,941 9.26 12,462 10.47 10,411 9.65
Total loans $120,789 102.15 $121,099 101.69 $110,421 102.44
Less:
Undisbursed loans in process $ 1,296 (1.10) $ 653 (0.54) $ 1,838 (1.70)
Deferred fees and discounts 53 (0.04) 68 (0.06) 93 (0.08)
Allowance for loan losses 1,191 (1.01) 1,295 (1.09) 707 (0.66)
Net loans receivable $118,249 100.00 $119,083 100.00 $107,783 100.00
Type of Security:
Residential real estate
One-to four-family $ 88,726 75.03% $ 82,874 69.59% $ 78,359 72.70
Multi-family 2,076 1.76 3,134 2.63 583 0.54
Commercial real estate 17,753 15.01 20,865 17.52 20,246 18.78
Land 1,294 1.09 1,764 1.48 822 0.76
Savings accounts 826 0.70 671 0.57 721 0.67
Consumer and other 10,114 8.56 11,791 9.90 9,690 8.99
Total loans $120,789 102.15 $121,099 101.69 $110,421 102.44
Less:
Undisbursed loans in process $ 1,296 (1.10) $ 653 (0.54) $ 1,838 (1.70)
Deferred fees and discounts 53 (0.04) 68 (0.06) 93 (0.08)
Allowance for loan losses 1,191 (1.01) 1,295 (1.09) 707 (0.66)
Net loans receivable $118,249 100.00 $119,083 100.00 $107,783 100.00
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One- to Four-Family Residential Mortgage Lending. The Bank focuses its lending efforts primarily on originating loans for the acquisition or refinance of one- to four-family residences. These loans are originated as a result of customer and real estate agent referrals, existing and walk-in customers and from responses to the Bank's marketing campaign. At June 30, 1999, net mortgage loans secured by one- to four-family residences totaled $87.2 million, or 73.8% of net loans receivable.
The Bank currently offers both fixed-rate and adjustable- rate mortgage ("ARM") loans. During the year ended June 30, 1999 the Bank originated $8.8 million of ARM loans and $19.1 million of fixed-rate real estate loans which were secured by one- to four-family residences. Substantially all of the one- to four- family residential mortgage originations in the Bank's portfolio are located within the Bank's primary market area.
The Bank currently originates one- to four-family residential mortgage loans in amounts up to 90% of the lower of the purchase price or appraised value of residential property. Loans originated in excess of 80% do not require private mortgage insurance. Historically, the residential mortgage loans originated by the Bank have not complied with secondary market standards; however, single-family mortgages originated in the third quarter of fiscal 1999 and thereafter, have generally conformed to secondary market standards. The interest rates charged on these loans are competitively priced based on local market conditions, the availability of funding, and anticipated profit margins. Fixed and ARM loans originated by the Bank are amortized over periods as long as 30 years.
The Bank currently originates ARM loans, which adjust annually, after an initial period of one, three or five years. Typically, originated ARM loans are secured by owner occupied properties which reprice at a margin of 2.75% over the monthly average yield on United States Treasury securities adjusted to a constant maturity of one year ("CMT"). Generally, ARM loans secured by non-owner occupied residential properties reprice at a margin of 3.00% to 3.50% over the CMT index. Current residential ARM loan originations are subject to annual and lifetime interest rate caps. Additionally, in order to entice customers into an ARM, or better meet customer needs, the Bank offers ARMs with initial rates below those which would prevail under the foregoing computations, based on market factors, funding costs and the rates and terms for similar loans offered by the Bank's competitors. As a consequence of using interest rate caps, discounted initial rates and a "CMT" or "lagging" loan index, the interest earned on the Bank's ARMs will react differently to changing interest rates than the Bank's cost of funds.
Historically, most of the owner occupied residential loans originated by the Bank repriced annually at a margin of 2.50% or 2.75% over the 11th district cost of funds index or the Bank's internal cost of funds, while non-owner occupied residential loans typically repriced at a margin of 3.00% to 3.75% over these same indices. The maximum annual interest rate adjustment on these ARMs was typically limited to a 1.00% to 2.00% adjustment, while the maximum lifetime adjustment was generally limited to 5.00% to 6.00%. Generally, each of these indices are considered a "lagging" index because they adjust more slowly to changes in market interest rates than most other indices. At June 30, 1999, loans tied to these indices totaled $51.4 million.
In underwriting one- to four-family residential real estate loans, the Bank evaluates the borrower's ability to meet debt service requirements at current as well as fully indexed rates for ARM loans, as well as the value of the property securing the loan. During 1999, most properties securing real estate loans made by the Bank had appraisals performed on them by independent fee appraisers approved and qualified by the Board of Directors. The Bank generally requires borrowers to obtain title insurance and fire, property and flood insurance (if indicated) in an amount not less than the amount of the loan. Real estate loans originated by the Bank generally contain a "due on sale" clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property.
Multi-Family, Commercial Real Estate and Land Lending. The Bank actively originates loans secured by multi-family, commercial real estate (apartment buildings, strip shopping centers, retail establishments and other businesses) and land located in the Bank's primary market area. At June 30, 1999, the Bank had $2.1 million, $17.8 million, and $1.3 million, respectively, of multi-family, commercial real estate and land loans, which represented 1.8%, 15.0%, and 1.1%, respectively, of net loans receivable.
Multi-family, commercial real estate and land loans originated by the Bank generally are based on amortization schedules of up to 25 years with monthly principal and interest payments. Generally, the interest rate charged on these loans adjusts annually based upon the New York prime rate, one year CMT, the 11th district cost of funds or the Bank's internal cost of funds plus a margin and are occasionally subject to annual and lifetime interest-rate adjustment caps. Generally, multi-family, commercial real estate and land loans do not exceed 75% of the lower of the appraised value or purchase price of the secured property. Before credit is extended, the Bank analyzes the financial condition of the borrower, the borrower's credit history, and the reliability and predictability of the cash flow generated by the property and the value of the property itself. Generally, personal guaranties are required from the borrower in addition to the secured property as collateral for such loans. In addition, personal financial statements generally are required to be submitted to the Bank on at least an annual basis. The Bank also generally requires appraisals on properties securing multi-family, commercial real estate and land loans to be performed by a Board-approved independent certified fee appraiser.
Generally loans secured by multi-family, commercial real estate and land involve a greater degree of credit risk than one- to four-family residential mortgage loans. These loans typically involve large balances to single borrowers or groups of related borrowers. Because payments on loans secured by commercial real estate and multi-family properties are often dependent on the successful operation or management of the secured property, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project securing the Bank's loan is reduced (for example, if leases are not obtained or renewed), the borrower's ability to repay the loan may be impaired. See "Asset Quality." The Bank's largest extension of credit secured by commercail real estate was $2.6 million and performing according with it's terms.
Construction Lending. The Bank originates real estate loans secured by property or land that is under construction or development. At June 30, 1999, the Bank had $3.6 million, or 3.0% of net loans receivable in construction loans outstanding.
Construction loans originated by the Bank are generally secured by permanent mortgage loans for the construction of owner occupied residential real estate or to finance speculative construction secured by residential real estate, land development or owner-operated commercial real estate. At June 30, 1999, the Bank had $3.0 million in outstanding construction loans secured by residential real estate and $530,000 in other speculative construction secured by land or commercial real estate. During construction, these loans typically require monthly interest-only payments and have maturities ranging from 6 to 12 months. Once construction is completed, permanent construction loans are converted to monthly payments using amortization schedules up to 30 years.
Speculative construction and land development lending generally affords
the Bank an opportunity to receive higher interest rates and fees
with shorter terms to maturity than those obtainable from
residential lending. Nevertheless, construction and land
development lending is generally considered to involve a higher
level of credit risk than one- to four-family residential lending
due to (i) the concentration of principal among relatively few
borrowers and development projects, (ii) the increased difficulty
at the time the loan is made of accurately estimating building or
development costs and the selling price of the finished product,
(iii) the increased difficulty and costs of monitoring and
disbursing funds for the loan, (iv) the higher degree of
sensitivity to increases in market rates of interest and changes
in local economic conditions, and (v) the increased difficulty of
working out problem loans. Due in part to these risk factors,
the Bank may be required from time to time to modify or extend
the terms of some of these types of loans. In an effort to
reduce these risks, the application process includes a submission
to the Bank of accurate plans, specifications and costs of the
project to be constructed. These items are also used as a basis
to determine the appraised value of the subject property. Loan
amounts are limited to 85% of the lesser of current appraised
value and/or the cost of construction.
Consumer and Commercial Business Lending. The Bank offers a variety of secured consumer loans, including automobile, second mortgages, mobile homes and loans secured by deposits. The Bank also originates secured and unsecured loans to individuals and commercial businesses, as well as letters-of-credit and lines-of- credit. The Bank originates substantially all of its consumer and commercial business loans in its primary market area. Currently, all consumer loans are originated on a direct basis, where credit is extended directly to the borrower. Usually, consumer loans are originated with fixed rates for terms of up to five years, while commercial business loans typically will be for a period of up to five years and may have either a fixed or adjustable interest rate.
At June 30, 1999, the Bank's consumer and commercial business loan portfolio totaled $10.9 million, or 9.26% of net loans receivable. At June 30, 1999, $10.3 million, or 94.5% of the consumer and business loan portfolio had fixed rate loans while 5.5% had adjustable interest rates.
Consumer Lending. Automobile loans represents 53.1% of the Bank's installment loan portfolio at June 30, 1999, and totaled $5.8 million, or 4.9% of net loans receivable. Typically, automobile loans are made for terms of up to 60 months for new vehicles and up to 48 months for used vehicles. Loans secured by automobiles have fixed rates and are generally made in amounts up to 80% of the purchase price of the vehicle. The Bank has not engaged in indirect automobile lending since the third quarter of fiscal 1998. At June 30, 1999, the outstanding balance of indirect automobile loans was $126,000.
During prior periods, the Bank financed mobile homes for customers of a local mobile home dealer. At June 30, 1999, the remaining balance of these loans totaled $398,000. Of these loans, $53,000 were past due more than 90 days while the balance of loans past due 61 to 90 days was $22,000 and 30 to 60 days was $16,000. During 1999, the Bank realized net charge-offs of $48,000 related to these delinquent mobile homes. In addition, it is likely that additional charge-offs related to these mobile homes will be made in the future; however, this likelihood was considered when the Bank evaluated the adequacy of its allowance for loan losses at June 30, 1999.
Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards employed for consumer loans include employment stability, an application, a determination of the applicant's payment history on other debts, and an assessment of ability to meet existing and proposed obligations. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than do residential mortgage loans, especially in the case of consumer loans, which are unsecured or are secured by rapidly depreciable or mobile assets, such as automobiles or mobile homes. In the event of repossession or default, there may be no secondary source of repayment or the underlying value of the collateral could be insufficient to repay the loan. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. The Bank's delinquency levels for these type of loans are reflective of these risks. See "Asset Classification."
Commercial Business Lending. At June 30, 1999, the Bank also had $1.5 million in commercial business loans outstanding, or 1.3% of net loans receivable. The Bank's commercial business lending activities encompass loans with a variety of purposes and security, including loans to finance accounts receivable, inventory and equipment.
Commercial business loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The Bank's commercial business loans are evaluated based on the loan application, a determination of the applicant's payment history on other debts, business stability and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.
Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.
Loan Maturity and Repricing
The following table sets forth certain information at June 30, 1999 regarding the dollar amount of loans maturing or repriceing in the Bank's portfolio based on their contractual terms to maturity or repricing but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. Mortgage loans, which have adjustable rates, are shown as maturing at their next repricing date. Listed loan balances are shown before deductions for undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan losses.
After After After
One Year 3 Years 5 Years
Within Through Through Through After
One Year 3 Years 5 Years 10 Years 10 Years Total
(Dollars in thousands)
One-to four-family $57,083 $3,575 $2,497 $14,616 $9,476 $87,247
Commercial real estate 16,994 1,385 441 228 --- 19,048
Construction 3,553 --- --- --- --- 3,553
Consumer 3,323 2,974 2,970 193 --- 9,460
Commercial business 1,025 204 252 --- --- 1,481
Total loan $81,978 $8,138 $6,160 $15,037 $9,476 $120,789
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The following table sets forth the dollar amount of all loans due one year after June 30, 1999, which have fixed interest rates and which have adjustable interest rates.
Fixed Rates Adjustable Rates
(Dollars in thousands)
One-to four-family $27,271 $2,893
Commercial real estate 995 1,059
Construction --- ---
Consumer 6,097 40
Commercial business 456 ---
Total $34,819 $3,992
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The following table sets forth scheduled contractual amortization of loans at June 30, 1999 and June 30, 1998, and the dollar amount of loans at the date which are scheduled to mature within and after one year which have fixed or adjustable interest rates. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdraft loans are reported as due in one year or less.
At June 30, 1999 At June 30, 1998
Commercial Commercial
Mortgage Consumer Business Mortgage Consumer Business
Loans Loans Loans Total Loans Loans Loans Loans Total Loans
(Dollars in thousands)
Amounts due:
Within one year $ 77,630 $3,323 $1,025 $81,978 $ 96,467 $3,977 $ 879 $101,323
After one year
through three years 4,960 2,974 204 8,138 1,620 3,066 137 4,823
After three years
through five years 2,938 2,970 252 6,160 5,265 3,996 111 9,372
After five years 24,320 193 --- 24,513 5,285 296 --- 5,581
Total $109,848 $9,460 $1,481 $120,789 $108,637 $11,335 $1,127 $121,099
Interest rate terms on
amounts due after one
year:
Fixed $28,266 $6,097 $ 456 $34,819 $9,878 $ 7,359 $ 249 $ 17,486
Adjustable 3,952 40 --- 3,992 2,291 --- --- 2,291
Originations, Purchases and Servicing of Loans and Mortgage-Backed Securities
Generally, real estate loans are originated by the Bank's
staff of salaried loan officers. Loan applications are taken and
processed at each of the Bank's full-service locations. The Bank
has not participated in the secondary market and does not service
any loans for other entities. However, the Bank is now originating
loans saleable in the secondary market if the policy should change.
While the Bank originates both adjustable-rate and
fixed-rate loans, the ability to originate loans is dependent
upon the relative customer demand for loans in its market. In
1999, the Bank originated $50.5 million of loans, compared to
$48.5 million and $41.2 million in 1998 and 1997, respectively.
Of these loans, mortgage loans originated were$ 38.0 million,
$33.0 million, and $29.7 million in 1999, 1998, and 1997, respectively.
From time to time, the Bank has purchased loan
participations consistent with its loan underwriting standards.
In 1999, the Bank did not purchase any new loans. At June 30,
1999, loan participations totaled $1.7 million, or 1.4% of net
loans receivable. All of these participations were secured by
properties located in Missouri. At June 30, 1999, all of such
participations were performing in accordance to their respective
terms. The Bank will evaluate purchasing additional loan
participations, based in part on local loan demand and portfolio
growth.
In addition, the Bank has purchased MBS to complement
lending activities and provide balance sheet flexibility for
liquidity and asset/liability management. The Board believes
that the lower yield carried by MBS is somewhat offset by the
lower level of credit risk and the lower level of overhead
required in connection with these assets, as compared to one- to
four-family, commercial real-estate, multi-family and other types of
loans. See "- Mortgage-Backed and Related Securities."
The following table shows total mortgage loans originated,
purchased, sold and repaid during the periods indicated.
Year Ended June 30,
1999 1998 1997
(Dollars in thousands)
Total mortgage loans at beginning of period $108,637 $100,010 $89,197
Loans originated:
One-to four-family residential 27,839 20,687 21,993
Multi-family residential and
commercial real estate 5,878 9,736 5,618
Construction loans 4,253 2,540 2,086
Total loans originated 37,970 32,963 29,697
Loans purchased:
Total loans purchased --- 171 ---
Loans sold:
Total loans sold --- --- ---
Mortgage loan principal repayments (36,364) (24,391) (18,763)
Foreclosures (395) (116) (121)
Net loan activity 1,211 8,627 10,813
Total mortgage loans at end of period $109,848 $108,637 $100,010
Asset Quality
Delinquent Loans. Generally, when a borrower fails to make
a required payment on mortgage or installment loans the Bank
begins the collection process by mailing a computer generated
notice to the customer. If the delinquency is not cured
promptly, the customer is contacted again by notice or telephone.
After an account secured by real estate becomes over 60 days past
due, the Bank will send a 30-day demand notice to the customer,
which if not cured, unless satisfactory arrangements have been
made, will lead to foreclosure. For consumer loans, the Missouri
Right-To-Cure Statute is followed, which requires issuance of
specifically worded notices at specific time intervals prior to
repossession or further collection efforts.
The following table sets forth the Bank's loan delinquencies
by type and by amount at June 30, 1999.
Total Loans
Loans Delinquent For: Delinquent 60
60-89 Days 90 Days and Over or More
Numbers Amounts Numbers Amounts Numbers Amounts
One-to four-family 25 $664 10 $181 35 $ 845
Commercial non-real estate 1 9 1 27 2 36
Commercial real estate 1 2 1 87 2 89
Mobile home 3 22 13 76 16 98
Consumer 24 119 19 121 43 240
Totals 54 $816 44 $492 98 $1,308
Non-Performing Assets. The table below sets forth the
amounts and categories of non-performing assets in the Bank's
loan portfolio. Loans are placed on non-accrual status when the
collection of principal and/or interest become doubtful, and as a
result, previously accrued interest income on the loan is taken
out of current income. The Bank has no reserves for uncollected
interest and does not accrue interest on non-accrual loans. A
loan may be transferred back to accrual status once a
satisfactory repayment history has been restored. Foreclosed
assets held for sale include assets acquired in settlement of
loans and are shown net of reserves.
At June 30, 1999, the Bank had nine loans totaling $181,000 on
which interest was not being accrued in accordance with SFAS No.
114. The Bank would have recorded interest income of $17,000,
$46,000 and $124,000 on non-accrual loans during the years ended
June 30, 1999, 1998 and 1997, respectively, if such loans had
been performing during such periods. Interest income of approcimately
$13,000, $15,000 and $98,000 was recognized on these loans for years
ending June 30, 1999, 1998 and 1997, respectively.
The following table sets forth information with respect to
the Bank's non-performing assets as of the dates indicated. At
the dates indicated, the Bank had no restructured loans within
the meaning of SFAS 15.
At June 30,
1999 1998 1997 1996 1995
(Dollars in thousands)
Nonaccruing loans:
One-to four-family $ 35 $182 $ 922 $480 $700
Commercial real estate 86 344 279 --- 14
Consumer 60 7 179 45 14
Commercial business --- --- --- 21 9
Total $ 181 $533 $1,380 $546 $737
Loans 90 days past due
accruing interest:(1)
One-to four-family $ 146 $661 $--- $--- $---
Commercial real estate --- 3 --- --- ---
Consumer 83 140 --- --- ---
Commercial business 27 --- --- --- ---
Mobile homes 55 --- --- --- ---
Total $ 311 $ 804 $ --- $--- $---
Total nonperforming loans $ 492 $1,337 $1,380 $546 $737
Foreclosed assets held for sale:
Real estate owned $ 478 $ 172 $ 55 $ 60 $ 727
Other nonperforming assets 82 12 --- --- ---
Total nonperforming assets $1,052 $1,521 $1,435 $606 $1,464
Total nonperforming loans
to net loans 0.42% 1.12% 1.28% 0.57% 0.89%
Total nonperforming loans
to net assets 0.30% 0.86% 0.86% 0.34% 0.50%
Total nonperforming assets
to total assets 0.64% 0.98% 0.89% 0.38% 0.99%
(1) Prior to 1998, the Company reported all loans 90 days
or more past due as nonaccruing loans.
Asset Classification. Applicable regulations require that
each insured institution review and classify its assets on a
regular basis. In addition, in connection with examinations of
insured institutions, regulatory examiners have authority to
identify problem assets and, if appropriate, require them to be
classified. There are three classifications for problem assets:
substandard, doubtful and loss. Substandard assets must have one
or more defined weaknesses and are characterized by the distinct
possibility that the insured institution will sustain some loss
if the deficiencies are not corrected. Doubtful assets have the
weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation
in full on the basis of currently existing facts, conditions and
values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such
little value that continuance as an asset of the institution is
not warranted. When an insured institution classifies problem
assets as loss, it charges off the balances of the asset.
Assets, which do not currently expose the Bank to sufficient risk
to warrant classification in one of the aforementioned categories
but possess weaknesses, may be designated as special mention.
The Bank's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review
by the FDIC and the Division, which can order the establishment
of additional loss allowances.
In connection with the filing of its periodic reports with
the FDIC and in accordance with its asset classification policy,
the Bank regularly reviews its loan portfolio to determine
whether any loans require classification in accordance with
applicable regulations. On the basis of management's review of
the assets of the Company, at June 30, 1999, classified assets
totaled $5.1 million, or 3.09% of total assets as compared to
$5.6 million, or 3.55% of total assets at June 30, 1998.
The largest classified commercial real estate relationship
at June 30, 1999 totaled $2.6 million and was performing in
accordance with its terms. In addition, the Bank had classified
two other lending relationships secured primarily by commercial
real estate, which in the aggregate totaled $1.3 million. Each
of these borrowing relationships was classified due to concerns
over whether the property securing the Bank's loans generated
sufficient cash flow to amortize the loan in accordance with its
terms.
Other Loans of Concern. In addition to the classified
assets discussed above, there was also an aggregate of $1.0
million in net book value of loans (28 one- to four-family
residential loans, one construction loan and 28 consumer loans)
with respect to which management has doubts as to the ability of
the borrowers to continue to comply with present loan repayment
terms which may ultimately result in the classification of such
assets.
Real Estate Owned. Real estate properties acquired through
foreclosure or by deed in lieu of foreclosure are recorded at the
lower of cost or fair value, less estimated disposition costs.
If fair value at the date of foreclosure is lower than the
balance of the related loan, the difference will be charged-off
to the allowance for loan losses at the time of transfer.
Management periodically updates real estate valuations and if the
value declines, a specific provision for losses on such property
is established by a charge to operations. At June 30, 1999, the
Company's balance of real estate owned totaled $478,000 and
included 9 properties secured primarily by real estate lots and
one commercial lot. During the current fiscsl year, the bank foreclosed
on this commercial lot with a balance of $316,000. During this fiscal
year, the bank began to take a more aggressive action on collections
Allowance for Loan Losses. The Bank's allowance for loan
losses is established through a provision for loan losses based
on management's evaluation of the risk inherent in the loan
portfolio and changes in the nature and volume of loan activity,
including those loans which are being specifically monitored.
Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among
other matters, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience
and other factors that warrant recognition in providing for an
adequate provision for loan losses. These provisions for loan
losses are charged against earnings in the year they are
established. The Bank had an allowance for loan losses at June
30, 1999, of $1.2 million, which represented 113% of
nonperforming assets as compared to $1.3 million or 85% of
nonperforming assets at June 30, 1998. See Note 3 of Notes to
Consolidated Financial Statements contained in the Annual Report.
Although management believes that it uses the best
information available to determine the allowance, unforeseen
market conditions could result in adjustments and net earnings
could be significantly affected if circumstances differ
substantially from assumptions used in making the final
determination. Future additions to the allowance will likely be
the result of periodic loan, property and collateral reviews and
thus cannot be predicted with certainty in advance.
The following table sets forth an analysis of the Bank's
allowance for loan losses for the periods indicated. Where
specific loan loss reserves have been established, any difference
between the loss reserve and the amount of loss realized has been
charged or credited to current income.
Year Ended June 30,
1999 1998 1997 1996 1995
(Dollars in thousands)
Allowance at beginning of period $1,295 $ 706 $627 $572 $477
Recoveries
One-to four-family 2 1 --- --- ---
Consumer 31 42 --- --- ---
Mobile homes 58 89 --- --- ---
Total recoveries 91 132 --- --- ---
Charge offs:
One-to four-family 28 6 --- --- ---
Commercial real estate 10 --- --- --- ---
Consumer 286 116 162 5 ---
Mobile homes 106 204 --- --- ---
Total charge offs 430 326 162 5 ---
Net charge offs 339 194 162 5 ---
Provision for loan losses 235 783 241 60 95
Balance at end of period $1,191 $1,295 $706 $627 $572
Ratio of allowance to total loans
outstanding at the end of the
period 0.99% 1.07% 0.64% 0.63% 0.67%
Ratio of net charge offs to
average loans outstanding
during the period 0.29% 0.17% 0.16% 0.01% ---
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The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
At June 30,
1999 1998 1997 1996 1995
Percent of Loans Percent of Loans Percent of Loans Percent of Loans Percent of Loans
in each in each in each in each in each
Category to Total Category to Total Category to Total Category to Total Category to Total
Gross Gross Gross Gross Gross
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
(Dollars in thousands)
One-to-four-family $ 253 73.78% $ 372 70.03% $647 71.38% $562 72.77% $562 77.96%
Construction 17 3.00 20 2.27 --- --- --- --- --- ---
Commercial real estate 604 16.11 612 18.92 --- --- --- --- --- ---
Consumer 123 7.54 126 8.87 59 9.56 65 9.89 10 5.99
Commercial business 33 1.25 17 0.95 --- --- --- --- --- ---
Mobile homes 41 0.47 127 0.65 --- --- --- --- --- ---
Unallocated 120 --- 21 --- --- --- --- --- --- ---
Total allowance for
loan losses $1,191 $1,295 $706 $627 $572
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Investment Activities
General. Under Missouri law, the Bank is permitted to invest in various types of liquid assets, including U.S. Government and State of Missouri obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, banker's acceptances, repurchase agreements, federal funds, commercial paper, investment grade corporate debt securities and obligations of States and their political sub- divisions. Generally, the investment policy of the Company is to invest funds among various categories of investments and repricing characteristics based upon the Company's need for liquidity, to provide collateral for borrowings and public unit deposits, to help reach financial performance targets and to help maintain asset/liability management objectives.
The Company's investment portfolio is managed in accordance with the Bank's investment policy which was adopted by the Board of Directors of the Bank and is implemented by members of the asset/liability management committee which consists of the President and three outside directors.
Investment purchases and/or sales must be authorized by the appropriate party, depending on the aggregate size of the investment transaction, prior to any investment transaction. The Board of Directors reviews all investment transactions. Investment purchases are identified as either held-to-maturity ("HTM") or available-for-sale ("AFS") at the time of purchase. Debt securities classified as "HTM" are reported at amortized cost only if the reporting entity has the positive intent and ability to hold these securities to maturity. The Company has not classified a purchase of an investment security as held-to- maturity in the past three years. Securities classified as "AFS" must be reported at fair value with unrealized gains and losses recorded as a separate component of stockholders' equity. At June 30, 1999, AFS securities totaled $21.0 million (excluding FHLB stock). For information regarding the amortized cost and market values of the Company's investments, see Note 2 of Notes to Consolidated Financial Statements contained in the Annual Report.
Effective April 1, 1999, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. The statement further requires that all derivatives should be recognized as either assets or liabilities and measured at the fair value. The accounting for changes in the fair value, or gains and losses of a derivative depends on the use or the derivative and resulting designation. Presently, the Company has no derivative instruments and no outstanding hedging activites. Management does not intend to purchase derivative instruments or enter into hedging activities.
With the adoption of SFAS No. 133, the Company transferred its remaining held-to-maturity investment securities into the available-for-sale category. All investments transferred were obligations of state and political subdivisions with an amortized cost of $3.8 million at the date of transfer. The cumulative effect of the change in accounting principle of $133,000, net of income taxes of $78,000, is included as a credit in other comprehensive income for the year ended June 30, 1999. The transition provisions of SFAS No. 133 provide that at the date of initial application, any debt security categorized as HTM may be transferred into the AFS category without calling into question the Company's intent to hold other debt securities to maturity in the future.
Investment Securities. At June 30, 1999, the Company's investment securities portfolio totaled $22.1 million, or 13.40% of total assets as compared to $15.1 million, or 9.65% of total assets at June 30, 1998. The increase was mostly attributed to $24.9 million in security purchases exceeding $14.7 million in sales and maturities. At June 30, 1999, the investment securities portfolio included $15.2 million in callable agency bonds, $5.8 million in municipal bonds, $2.6 million of which is subject to early redemption at the option of the issuer, and $1.1 million in FHLB stock. Based on contractual maturities, the weighted average maturity of the investment securities portfolio at June 30, 1999, excluding FHLB stock, was 67.8 months.
Mortgage-Backed and Related Securities. At June 30, 1999, MBS totaled $16.9 million, or 10.25%, of total assets as compared to $14.2 million, or 9.08% of total assets at June 30, 1998. During 1999, the Bank had net sales of $1.7 million in MBS and maturities of $5.7 million, and had purchases of $10.3 million. At June 30, 1999, the MBS portfolio included $6.9 million in adjustable-rate MBS, $9.6 million in collateralized mortgage obligations, which passed the Federal Financial Institutions Examination Council's sensitivity test, and $467,000 in fixed- rate MBS.
Investment Securities Analysis
The following table sets forth the Company's investment securities portfolio at carrying value (including securities classified HTM and securities classified AFS) at the dates indicated.
At June 30,
1999 1998 1997
Carrying Percent of Carrying Percent of Carrying Percent of
Value(1) Portfolio Value(1) Portfolio Value(1) Portfolio
(Dollars in thousands)
U.S. government $15,220 68.96% $ 7,597 50.47% $10,046 51.15%
State and political
subdivision 5,759 26.10 6,401 42.53 6,528 33.23
Corporate securities --- --- --- --- 1,548 7.88
FHLB stock 1,091 4.94 1,054 7.00 1,520 7.74
Total $22,070 100.00% $15,052 100.00% $19,642 100.00%
_____________________________
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(1) The market value of the Company's investment securities portfolio amounted to $22.1 million, $15.2 million and $19.8 million at June 30, 1999, 1998 and 1997, respectively.
The following table sets forth the maturities and weighted average yields of the debt securities (classified as AFS) in the Company's investment securities portfolio at June 30, 1999.
Securities Available for Sale
June 30, 1999
Book/
Estimated Weighted
Amoritzed Market Average
Cost Value Yield
(Dollars in thousands)
U.S. government agencies:
Due within 1 year $ --- $ --- ---%
Due after 1 year but within 5 years 15,580 15,220 6.11
Due after 5 years but within 10 years --- --- ---
Due after 10 years --- --- ---
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State and political subdivisions:
Due within 1 year 280 281 6.16
Due after 1 year but within 5 years 2,787 2,846 7.21
Due after 5 years but within 10 years 940 997 7.97
Due after 10 years 1,584 1,635 6.17
Total Available for Sale $21,171 $20,979 6.34%
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The following table sets forth certain information at June 30, 1999 regarding the dollar amount of MBS in the Bank's portfolio based on their contractual terms to maturity, but does not include scheduled payments or potential prepayments. MBS, which have adjustable rates, are shown at ammortized cost as maturing at their next repricing date.
At June 30, 1999
(Dollars in thousands)
Amounts due:
Within 1 year $ 6,866
After 1 year through 3 years ---
After 3 years through 5 years ---
After 5 years 10,240
Total $17,106
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The following table sets forth the dollar amount of all MBS at ammortized cost due one year after June 30, 1999, which have fixed interest rates and have floating or adjustable rates.
At June 30, 1999
(Dollars in thousands)
Interest rate terms on amounts due after 1 year:
Fixed $ 469 Adjustable 16,636 Pending 1 Total $17,106 |
The following table sets forth certain information with respect to each security (other than U.S. Government and agency securities), which had an aggregate book value in excess of 10% of the Bank's retained earnings at the dates indicated.
At June 30,
1999 1998 1997
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
(Dollars in thousands)
FHLMC certificates $ 240 $ 240 $ 1,426 $ 1,426 $ 4,986 $ 4,986
GNMA certificates 4,981 4,981 6,326 6,326 11,770 11,770
FNMA certificates 2,107 2,107 3,846 3,846 6,391 6,391
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Collateralized
mortgage obligations 9,572 9,572 2,556 2,556 3,089 3,089
Total $16,900 $16,900 $14,154 $14,154 $26,236 $26,236
Deposit Activities and Other Sources of Funds
General. The Company's primary sources of funds are deposits, borrowings, payment of principal and interest on loans and MBS, interest and principal received on investment securities and other short-term investments, and funds provided from operating results. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and overall economic conditions.
Borrowings, including FHLB advances, have been used at times to provide additional liquidity. Borrowings are used on an overnight or short-term basis to compensate for periodic fluctuations in cash flows, and are used on a longer term basis to fund loan growth and to help manage the Company's sensitivity to fluctuating interest rates.
Deposits. The Bank offers a variety of deposit accounts, which have a wide range of interest rates and terms as set forth in the following table. Deposit account terms vary according to the minimum balance required, the time periods funds must remain on deposit and the interest rate, among other factors. Deposits are solicited from the Bank's primary market area and are attracted and retained through competitive pricing, cross- selling, advertisement and providing quality customer service.
The Bank will periodically promote a particular deposit product as part of the Bank's overall marketing plan. Deposit products have been promoted through various mediums, which include TV, radio, and newspaper advertisements. The emphasis of these campaigns is to increase consumer awareness and market share of the Bank.
The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, and competition. The Bank has become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. Based on its experience, the Bank believes that its deposits are relatively stable sources of funds. However, the ability of the Bank to attract and maintain certificates of deposit, and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.
Weighted
Average Minimum Percentage
Interest of Total
Rate Term Category Amount Balance Deposits
(Dollars in thousands)
--- None Non-interest Bearing $ $ 2,316 1.93%
2.38 None Now Accounts 100 9,112 7.58
2.50 None Savings Accounts 50 7,350 6.12
3.94 None Money Market Deposit Accounts 1,000 13,222 11.00
Certificate of Deposit
4.53 91-day Fixed-term/Fixed-rate 500 1,125 0.94
4.54 5 month Fixed-term/Fixed-rate 500 1,323 1.10
4.79 6 month Fixed-term/Fixed-rate 500 17,679 14.72
4.71 6 month IRA Fixed-term/Fixed-rate 500 284 0.24
4.87 9 month Fixed-term/Fixed-rate 500 13,489 11.23
4.87 9 month IRA Fixed-term/Fixed-rate 500 7,665 6.38
4.89 11 month Fixed-term/Fixed-rate 500 1,829 1.52
5.04 12 month Fixed-term/Fixed-rate 500 27,492 22.88
5.06 12 month IRA Fixed-term/Fixed-rate 500 1,885 1.57
4.95 15 month Fixed-term/Fixed-rate 500 1,003 0.83
4.84 24 month Fixed-term/Fixed-rate 500 2,817 2.34
4.98 24 month IRA Fixed-term/Fixed-rate 500 149 0.12
5.57 29 month Fixed-term/Fixed-rate 500 1,707 1.42
5.31 29 month IRA Fixed-term/Fixed-rate 500 412 0.34
4.96 36 month Fixed-term/Fixed-rate 500 2,318 1.93
5.23 36 month IRA Fixed-term/Fixed-rate 500 3,901 3.25
5.15 48 month Fixed-term/Fixed-rate 500 413 0.34
5.15 48 month IRA Fixed-term/Fixed- 500 30 0.02
5.08 60 month Fixed-term/Fixed-rate 500 2,254 1.88
5.15 60 month IRA Fixed-term/Fixed- 500 296 0.25
7.75 72 month Fixed-term/Fixed-rate 500 25 0.02
8.01 96 month Fixed-term/Fixed-rate 500 58 0.05
$120,154 100.00%
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The following table indicates the amount of the Bank's jumbo certificates of deposit by time remaining until maturity as of June 30, 1999. Jumbo certificates of deposit require minimum deposits of $100,000 and rates paid on such accounts are negotiable.
Maturity Period Amount
(Dollars in thousands)
Three months or less $ 6,799
Over three through six months 3,439
Over six through twelve months 3,453
Over 12 months 1,576
Total $15,267
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Time Deposits by Rates
The following table sets forth the time deposits in the Bank classified by rates at the dates indicated.
At June 30,
1999 1998 1997
(Dollars in thousands)
4.00 - 4.99% $59,839 $ 8,850 $21,004
5.00 - 5.99% 28,231 74,667 72,566
6.00 - 6.99% --- 120 123
7.00 - 7.99% 26 26 28
8.00 - 8.99% 58 59 68
9.00 - 9.99% --- 19 18
Total $88,154 $83,741 $ 93,807
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The following table sets forth the amount and maturities of all time deposits at June 30, 1999.
Amount Due
Percent
Less of Total
Than One 1-2 2-3 3-4 After Certificate
Year Years Years Years 4 Years Total Accounts
(Dollars in thousands)
4.00 - 4.99% $57,646 $1,711 $ 482 $--- $ --- $59,839 67.88%
5.00 - 5.99% 18,966 5,665 1,901 463 1,236 28,231 32.02
6.00 - 6.99% --- --- --- --- --- --- ---
7.00 - 7.99% 6 11 --- --- 9 26 0.03
8.00 - 8.99% --- --- --- 54 4 58 0.07
Total $76,618 $7,387 $2,383 $517 $1,249 $88,154 100.00%
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Deposit Flow
The following table sets forth the balances of savings deposits in the
various types of savings accounts offered by the Bank at the dates indicated.
At June 30,
1999 1998 1997
Percent of Increase Percent of Increase Percent of Increase
Amount Total (Decrease) Amount Total (Decrease) Amount Total (Decrease)
(Dollars in thousands)
Noninterest bearing $ 2,316 1.93% $ (274) $ 2,590 2.37% $ 1,420 $ 1,170 0.99% $ 399
NOW checking 9,112 7.58 1,602 7,510 6.86 (277) 7,787 6.56 521
Regular savings accounts 7,350 6.12 31 7,319 6.69 (321) 7,640 6.44 659
Money market deposits 13,222 11.00 4,972 8,250 7.54 (51) 8,301 6.99 906
Fixed-rate certificates
which mature(1):
Within one year 76,618 63.77 2,711 73,907 67.55 (11,242) 85,149 71.73 2,584
Within three years 9,770 8.13 6,632 3,138 2.87 (4,410 7,548 6.36 (6,834)
After three years 1,766 1.47 (4,930) 6,696 6.12 5,586 1,110 0.93 332
Total $120,154 100.00% $10,744 $109,410 100.00% $ (9,295) $118,705 100.00% $(1,433)
___________________________
<F1>
(1) At June 30, 1999, 1998 and 1997 certificates in excess of $100,000 totaled
$15.3 million, $12.0 million and $19.9 million, respectively.
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The following table sets forth the savings activities of the Bank for the periods indicated.
At June 30,
1999 1998 1997
(Dollars in thousands)
Beginning Balance $109,410 $118,705 $120,138
Net increase (decrease) before interest credit 7,058 (12,383) (4,977)
Interest credited 3,686 3,088 3,544
Net increase (decrease) in savings deposits 10,744 (9,295) (1,433)
Ending balance $120,154 $109,410 $118,705
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In the unlikely event the Bank is liquidated, depositors will be entitled to payment of their deposit accounts prior to any payment being made to the Company as the sole stockholder of the Bank. Substantially all of the Bank's depositors are residents of the State of Missouri.
Borrowings. As a member of the FHLB of Des Moines, the Bank has the ability to apply for FHLB advances. These advances are available under various credit programs, each of which has its own maturity, interest rate and repricing characteristics. Additionally, FHLB advances have prepayment penalties as well as limitations on size or term. In order to utilize FHLB advances, the Bank must be a member of the FHLB system, have sufficient collateral to secure the requested advance and own stock in the FHLB equal to 5% of the amount borrowed. See "REGULATION - The Bank -- Federal Home Loan Bank System."
Although deposits are the Bank's primary and preferred source of funds, the Bank actively uses FHLB advances. The Bank's general policy has been to utilize borrowings to meet short-term liquidity needs, or to provide a longer-term source of funding loan growth when other cheaper funding sources are unavailable or to aide in asset/liability management. As of June 30, 1999, $19.8 million of the Bank's $20.6 million in FHLB advances were for original terms of ten years, subject to early redemption by the FHLB after an initial period of one to three years. In order for the Bank to borrow these funds, it has pledged $78.4 million of its residential loans to the FHLB and has purchased $1.1 million in FHLB stock.
The following table sets forth certain information regarding borrowings by the Bank at the end of and during the periods indicated:
Year Ended June 30, 1999 1998
(Dollars in thousands)
Maximum amount of borrowings outstanding at any month end: FHLB advances $21,067 $24,576 Approximate average short-term borrowings outstanding with respect to: FHLB advances 126 2,700 Other FHLB long term borrowings 19,864 16,917 Weighted average rate paid on 4.92% 5.41% FHLB advances |
Subsidiary Activities
The Bank has one subsidiary, SMS Financial Services, Inc., which had a full-service insurance agency selling various types of insurance to individuals and businesses. This insurance agency was sold on May 31, 1999. The sale of the insurance agency is not expected to materially impact future operating income. It also leased computer equipment to the Bank. The activities of the subsidiary are not significant to the financial condition or results of operations of the Bank.
Competition
The Bank faces strong competition, both in originating loans and in attracting deposits, from a variety of entities which include some companies which are subject to less regulatory oversight or regulation. Major competitors of the Bank include other banks and thrifts, credit unions, pension funds, mortgage bankers and insurance companies. The competitive nature of the industry is unlikely to change as larger percentages of both available deposits and loans are shifted into debt and equity markets. The Bank is one of nine government regulated financial institution's located in the Bank's primary market area.
The Bank attracts its deposits through its branch network, primarily from the communities in which those offices are located; therefore, competition for those deposits is principally from other financial entities located within those same communities. The Bank competes for these deposits by offering a variety of competitively priced products, providing friendly service, offering convenient business hours, and by being an active participant in the success of each of these communities.
REGULATION
The Bank
General. As a state-chartered, federally insured savings bank, the Bank is subject to extensive regulation. Lending activities and other investments must comply with various statutory and regulatory requirements, including prescribed minimum capital standards. The Bank is regularly examined by the FDIC and the Division and files periodic reports concerning the Bank's activities and financial condition with its regulators. The Bank's relationship with depositors and borrowers also is regulated to a great extent by both federal law and the laws of Missouri, especially in such matters as the ownership of savings accounts and the form and content of mortgage documents.
Federal and state banking laws and regulations govern all areas of the operation of the Bank, including reserves, loans, mortgages, capital, issuance of securities, payment of dividends and establishment of branches. Federal and state bank regulatory agencies also have the general authority to limit the dividends paid by insured banks and bank holding companies if such payments should be deemed to constitute an unsafe and unsound practice. The respective primary federal regulators of the Company and the Bank have authority to impose penalties, initiate civil and administrative actions and take other steps intended to prevent banks from engaging in unsafe or unsound practices.
State Regulation and Supervision. As a state-chartered savings bank, the Bank is subject to applicable provisions of Missouri law and the regulations of the Division adopted thereunder. Missouri law and regulations govern the Bank's ability to take deposits and pay interest thereon, to make loans on or invest in residential and other real estate, to make consumer loans, to invest in securities, to offer various banking services to its customers, and to establish branch offices. Under state law, savings banks in Missouri also generally have all of the powers that federal mutual savings banks have under federal laws and regulations. The Bank is subject to periodic examination and reporting requirements by and of the Division.
Federal Securities Law. The stock of the Company is registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As such, the Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange Act.
The Company's stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three- month period.
Federal Reserve System. The Federal Reserve Board ("FRB") requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (checking, NOW and Super NOW checking accounts). At June 30, 1999, the Bank was in compliance with these reserve requirements.
Savings Banks are authorized to borrow from the Federal Reserve Bank "discount window," but FRB regulations require associations to exhaust other reasonable alternative sources of funds, including FHLB borrowings, before borrowing from the FRB.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Des Moines, which is one of 12 regional FHLBs that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the FHLB, which are subject to the oversight of the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member, the Bank is required to purchase and maintain stock in the FHLB of Des Moines. At June 30, 1999, the Bank had $1.1 million in FHLB stock, which was in compliance with this requirement. The Bank is paid a quarterly dividend on this stock which averaged 6.63% in 1999.
Under federal law, the FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to low- and moderately priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Bank's FHLB stock may result in a corresponding reduction in the Bank's capital.
Deposit Insurance. The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of depository institutions. The FDIC currently maintains two separate insurance funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the Bank's deposits, the FDIC has examination, supervisory and enforcement authority over the Bank.
The Bank's accounts are insured by the SAIF to the maximum extent permitted by law. The Bank pays deposit insurance premiums based on a risk-based assessment system established by the FDIC. Under applicable regulations, institutions are assigned to one of three capital groups that are based solely on the level of an institution's capital -- "well capitalized," "adequately capitalized," and "undercapitalized" -- which are defined in the same manner as the regulations establishing the prompt corrective action system, as discussed below. These three groups are then divided into three subgroups, which reflect varying levels of supervisory concern, from those which are considered to be healthy to those which are considered to be of substantial supervisory concern. The matrix so created results in nine assessment risk classifications, with rates that until September 30, 1996 ranged from 0.23% for well capitalized, financially sound institutions with only a few minor weaknesses to 0.31% for undercapitalized institutions that pose a substantial risk of loss to the SAIF unless effective corrective action is taken.
Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was enacted on September 30, 1996, the FDIC imposed a special assessment on each depository institution with SAIF- assessable deposits, which resulted in the SAIF achieving its designated reserve ratio. In connection therewith, the FDIC reduced the assessment schedule for SAIF members, effective January 1, 1997, to a range of 0% to 0.27%, with most institutions, including the Bank, paying 0%. This assessment schedule is the same as that for the BIF, which reached its designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF members are charged an assessment of .065% of SAIF- assessable deposits for the purpose of paying interest on the obligations issued by the Financing Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup. BIF-assessable deposits will be charged an assessment to help pay interest on the FICO bonds at a rate of approximately .013% until the earlier of December 31, 1999 or the date upon which the last savings association ceases to exist, after which time the assessment will be the same for all insured deposits.
In connection with the Bank's former regulatory status, the Bank's assessment rate for deposit insurance was increased from .065% to .095% beginning July 1, 1997. The increase resulted in approximately $9,000 in additional costs per quarter for deposit insurance until January 1, 1999 when the assessment rate was lowered to .065%.
The DIF Act provides for the merger of the BIF and the SAIF into the Deposit Insurance Fund on January 1, 1999, but only if no insured depository institution is a savings association on that date. The DIF Act contemplates the development of a common charter for all federally chartered depository institutions and the abolition of separate charters for national banks and federal savings associations. It is not known what form the common charter may take and what effect, if any, the adoption of a new charter would have on the operation of the Bank.
The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances that could result in termination of the deposit insurance of the Bank.
Prompt Corrective Action. Under the FDIA, each federal
banking agency is required to implement a system of prompt
corrective action for institutions that it regulates. The
federal banking agencies have promulgated substantially similar
regulations to implement this system of prompt corrective action.
Under the regulations, an institution shall be deemed to be
(i) "well capitalized" if it has a total risk-based capital ratio
of 10.0% or more, has a Tier I risk-based capital ratio of 6.0%
or more, has a leverage ratio of 5.0% or more and is not subject
to specified requirements to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if
it has a total risk-based capital ratio of 8.0% or more, has a
Tier I risk-based capital ratio of 4.0% or more, has a leverage
ratio of 4.0% or more (3.0% under certain circumstances) and does
not meet the definition of "well capitalized;"
(iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, has a Tier I risk-based capital
ratio that is less than 4.0% or has a leverage ratio that is less
than 4.0% (3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, has a Tier I risk-based capital ratio that is
less than 3.0% or has a leverage ratio that is less than 3.0%;
and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than
2.0%.
A federal banking agency may, after notice and an opportunity for a hearing, reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category if the institution is in an unsafe or unsound condition or has received in its most recent examination, and has not corrected, a less than satisfactory rating for asset quality, management, earnings or liquidity. (The FDIC may not, however, reclassify a significantly undercapitalized institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan that meets specified requirements, as well as a performance guaranty by each company that controls the institution, with the appropriate federal banking agency within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. Immediately upon becoming undercapitalized, an institution shall become subject to various mandatory and discretionary restrictions on its operations.
At June 30, 1999, the Bank was categorized as "well capitalized" under the prompt corrective action regulations of the FDIC.
Standards for Safety and Soundness. The federal banking
regulatory agencies have prescribed, by regulation, standards for
all insured depository institutions relating to: (i) internal
controls, information systems and internal audit systems;
(ii) loan documentation; (iii) credit underwriting; (iv) interest
rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits
("Guidelines"). The Guidelines set forth the safety and
soundness standards that the federal banking agencies use to
identify and address problems at insured depository institutions
before capital becomes impaired. If the FDIC determines that the
Bank fails to meet any standard prescribed by the Guidelines, the
agency may require the Bank to submit to the agency an acceptable
plan to achieve compliance with the standard. FDIC regulations
establish deadlines for the submission and review of such safety
and soundness compliance plans.
Capital Requirements. The FDIC's minimum capital standards applicable to FDIC-regulated banks and savings banks require the most highly-rated institutions to meet a "Tier 1" leverage capital ratio of at least 3% of total assets. Tier 1 (or "core capital") consists of common stockholders' equity, noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries minus all intangible assets other than limited amounts of purchased mortgage servicing rights and certain other accounting adjustments. All other banks must have a Tier 1 leverage ratio of at least 100-200 basis points above the 3% minimum. The FDIC capital regulations establish a minimum leverage ratio of not less than 4% for banks that are not the most highly rated or are anticipating or experiencing significant growth.
The FDIC's capital regulations require higher capital levels for banks which exhibit more than a moderate degree of risk or exhibit other characteristics which necessitate that higher than minimum levels of capital be maintained. Any insured bank with a Tier 1 capital to total assets ratio of less than 2% is deemed to be operating in an unsafe and unsound condition pursuant to Section 8(a) of the FDIA unless the insured bank enters into a written agreement, to which the FDIC is a party, to correct its capital deficiency. Insured banks operating with Tier 1 capital levels below 2% (and which have not entered into a written agreement) are subject to an insurance removal action. Insured banks operating with lower than the prescribed minimum capital levels generally will not receive approval of applications submitted to the FDIC. Also, inadequately capitalized state nonmember banks will be subject to such administrative action as the FDIC deems necessary.
FDIC regulations also require that banks meet a risk-based capital standard. The risk-based capital standard requires the maintenance of total capital (which is defined as Tier 1 capital and Tier 2 or supplementary capital) to risk weighted assets of 8% and Tier 1 capital to risk-weighted assets of 4%. In determining the amount of risk-weighted assets, all assets, plus certain off balance sheet items, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item. The components of Tier 1 capital are equivalent to those discussed above under the 3% leverage requirement. The components of supplementary capital currently include cumulative perpetual preferred stock, adjustable-rate perpetual preferred stock, mandatory convertible securities, term subordinated debt, intermediate-term preferred stock and allowance for possible loan and lease losses. Allowance for possible loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of Tier 1 capital. The FDIC includes in its evaluation of a bank's capital adequacy an assessment of the exposure to declines in the economic value of the bank's capital due to changes in interest rates. However, no measurement framework for assessing the level of a bank's interest rate risk exposure has been codified. In the future, the FDIC will issue a proposed rule that would establish an explicit minimum capital charge for interest rate risk, based on the level of a bank's measured interest rate risk exposure.
An undercapitalized, significantly undercapitalized, or critically undercapitalized institution is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. The plan must specify (i) the steps the institution will take to become adequately capitalized, (ii) the capital levels to be attained each year, (iii) how the institution will comply with any regulatory sanctions then in effect against the institution and (iv) the types and levels of activities in which the institution will engage. The banking agency may not accept a capital restoration plan unless the agency determines, among other things, that the plan "is based on realistic assumptions, and is likely to succeed in restoring the institution's capital" and "would not appreciably increase the risk...to which the institution is exposed."
The FDIA provides that the appropriate federal regulatory
agency must require an insured depository institution that is
significantly undercapitalized or is undercapitalized and either
fails to submit an acceptable capital restoration plan within the
time period allowed or fails in any material respect to implement
a capital restoration plan accepted by the appropriate federal
banking agency to take one or more of the following actions: (i)
sell enough shares, including voting shares, to become adequately
capitalized; (ii) merge with (or be sold to) another institution
(or holding company), but only if grounds exist for appointing a
conservator or receiver; (iii) restrict certain transactions with
banking affiliates as if the "sister bank" requirements of
Section 23A of the Federal Reserve Act ("FRA") did not exist;
(iv) otherwise restrict transactions with bank or non-bank
affiliates; (v) restrict interest rates that the institution pays
on deposits to "prevailing rates" in the institution's region;
(vi) restrict asset growth or reduce total assets; (vii) alter,
reduce or terminate activities; (viii) hold a new election of
directors; (ix) dismiss any director or senior executive officer
who held office for more than 180 days immediately before the
institution became undercapitalized; (x) employ "qualified"
senior executive officers; (xi) cease accepting deposits from
correspondent depository institutions; (xii) divest certain non-
depository affiliates which pose a danger to the institution;
(xiii) be divested by a parent holding company; and (xiv) take
any other action which the agency determines would better carry
out the purposes of the Prompt Corrective Action provisions. See
"-- Prompt Corrective Action."
The FDIC has adopted the Federal Financial Institutions Examination Council's recommendation regarding the adoption of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Specifically, the agencies determined that net unrealized holding gains or losses on available for sale debt and equity securities should not be included when calculating core and risk-based capital ratios.
FDIC capital requirements are designated as the minimum acceptable standards for banks whose overall financial condition is fundamentally sound, which are well-managed and have no material or significant financial weaknesses. The FDIC capital regulations state that, where the FDIC determines that the financial history or condition, including off-balance sheet risk, managerial resources and/or the future earnings prospects of a bank are not adequate and/or a bank has a significant volume of assets classified substandard, doubtful or loss or otherwise criticized, the FDIC may determine that the minimum adequate amount of capital for that bank is greater than the minimum standards established in the regulation.
The Bank's management believes that, under the current regulations, the Bank will continue to meet its minimum capital requirements in the foreseeable future. However, events beyond the control of the Bank, such as a downturn in the economy in areas where the Bank has most of its loans, could adversely affect future earnings and, consequently, the ability of the Bank to meet its capital requirements.
The table below sets forth the Bank's capital position relative to its FDIC capital requirements at June 30, 1999. The definitions of the terms used in the table are those provided in the capital regulations issued by the FDIC.
At June 30, 1999
Percent of
Adjusted
Amount Total Assets(1)
(Dollars in thousands)
Tier 1 (leverage) capital $20,792 12.7%
Tier 1 (leverage) capital requirement 6,565 4.0
Excess $14,227 8.7%
Tier 1 risk adjusted capital $20,792 23.3%
Tier 1 risk adjusted capital requirement 3,541 4.0
Excess $17,251 19.3%
Total risk-based capital $21,908 24.5%
Total risk-based capital requirement 7,142 8.0
Excess $14,766 16.5%
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(1) For the Tier 1 (leverage) capital and Missouri regulatory capital calculations, percent of total average assets of $164.1 million. For the Tier 1 risk-based capital and total risk-based capital calculations, percent of total risk- weighted assets of $89.3 million.
(2) As a Missouri-chartered savings bank, the Bank is subject to the capital requirements of the FDIC and the Division. The FDIC requires state-chartered savings banks, including the Bank, to have a minimum leverage ratio of Tier 1 capital to total assets of at least 3%, provided, however, that all institutions, other than those (i) receiving the highest rating during the examination process and (ii) not anticipating any significant growth, are required to maintain a ratio of 1% to 2% above the stated minimum, with an absolute total capital to risk-weighted assets of at least 8%. The Bank has not been notified by the FDIC of any leverage capital requirement specifically applicable to it.
Loans to One Borrower. As a result of the 10(1) Election made by the Bank in connection with the Charter Conversion (see "Item 1. Description of Business - General," the Bank remains subject to the loans to one borrower regulations applicable to federal savings associations).
Activities and Investments of Insured State-Chartered Banks. The FDIA generally limits the activities and equity investments of FDIC-insured, state-chartered banks to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met.
Subject to certain regulatory exceptions, FDIC regulations provide that an insured state-chartered bank may not, directly, or indirectly through a subsidiary, engage as "principal" in any activity that is not permissible for a national bank unless the FDIC has determined that such activities would pose no risk to the insurance fund of which it is a member and the bank is in compliance with applicable regulatory capital requirements. Any insured state-chartered bank directly or indirectly engaged in any activity that is not permitted for a national bank or for which the FDIC has granted and exception must cease the impermissible activity.
Affiliate Transactions. The Company and the Bank are legal entities separate and distinct. Various legal limitations restrict the Bank from lending or otherwise supplying funds to the Company (an "affiliate"), generally limiting such transactions with the affiliate to 10% of the bank's capital and surplus and limiting all such transactions to 20% of the bank's capital and surplus. Such transactions, including extensions of credit, sales of securities or assets and provision of services, also must be on terms and conditions consistent with safe and sound banking practices, including credit standards, that are substantially the same or at least as favorable to the bank as those prevailing at the time for transactions with unaffiliated companies.
Federally insured banks are subject, with certain exceptions, to certain restrictions on extensions of credit to their parent holding companies or other affiliates, on investments in the stock or other securities of affiliates and on the taking of such stock or securities as collateral from any borrower. In addition, such banks are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or the providing of any property or service.
Qualified Thrift Lender Test. As a result of the 10(l) Election made by the Bank in connection with its conversion to a state savings bank (see Item 1. Description of Business -- General"), the Bank remains subject to the qualified thrift lender ("QTL") test applicable to federal savings associations.
All savings associations are required to meet a QTL test to avoid certain restrictions on their operations. A savings institution that fails to become or remain a QTL shall either convert to a national bank charter or be subject to the following restrictions on its operations: (i) the Bank may not make any new investment or engage in activities that would not be permissible for national banks; (ii) the Bank may not establish any new branch office where a national bank located in the savings institution's home state would not be able to establish a branch office; (iii) the Bank shall be ineligible to obtain new advances from any FHLB; and (iv) the payment of dividends by the Bank shall be subject to the rules regarding the statutory and regulatory dividend restrictions applicable to national banks. Also, beginning three years after the date on which the savings institution ceases to be a QTL, the savings institution would be prohibited from retaining any investment or engaging in any activity not permissible for a national bank and would be required to repay any outstanding advances to any FHLB. In addition, within one year of the date on which a savings association controlled by a company ceases to be a QTL, the company must register as a bank holding company and become subject to the rules applicable to such companies. A savings institution may requalify as a QTL if it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution
qualify as a domestic building and loan association under the
Internal Revenue Code or that 65% of an institution's "portfolio
assets" (as defined) consist of certain housing and consumer-
related assets on a monthly average basis in nine out of every 12
months. Assets that qualify without limit for inclusion as part
of the 65% requirement are loans made to purchase, refinance,
construct, improve or repair domestic residential housing and
manufactured housing; home equity loans; mortgage-backed
securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct
or indirect obligations of the FDIC; and loans for educational
purposes, loans to small businesses and loans made through credit
cards. In addition, the following assets, among others, may be
included in meeting the test subject to an overall limit of 20%
of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of
origination; 100% of consumer loans; and stock issued by FHLMC or
FNMA. Portfolio assets consist of total assets minus the sum of
(i) goodwill and other intangible assets, (ii) property used by
the savings institution to conduct its business, and (iii) liquid
assets up to 20% of the institution's total assets. At June 30,
1999, the Bank was in compliance with the QTL test.
Community Reinvestment Act. Banks are also subject to the provisions of the Community Reinvestment Act of 1977 ("CRA"), which requires the appropriate federal bank regulatory agency, in connection with its regular examination of a bank, to assess the bank's record in meeting the credit needs of the community serviced by the bank, including low and moderate income neighborhoods. The regulatory agency's assessment of the bank's record is made available to the public. Further, such assessment is required of any bank which has applied, among other things, to establish a new branch office that will accept deposits, relocate an existing office or merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. The Bank received a "satisfactory" rating during its most recent CRA examination.
Dividends. Dividends from the Bank constitute the major source of funds for dividends, which may be paid by the Company. The amount of dividends payable by the Bank to the Company depends upon the Bank's earnings and capital position, and is limited by federal and state laws, regulations and policies.
The amount of dividends actually paid during any one period will be strongly affected by the Bank's management policy of maintaining a strong capital position. Federal law further provides that no insured depository institution may make any capital distribution (which would include a cash dividend) if, after making the distribution, the institution would be "undercapitalized," as defined in the prompt corrective action regulations. Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments should be deemed to constitute an unsafe and unsound practice.
The Company
General. As a result of the 10(l) Election made by the Bank, in connection with the charter conversion, the Company is a savings and loan holding company regulated by the OTS (for as long as the Bank satisfies the QTL test) rather than a bank holding company regulated by the FRB. Accordingly, the Company is subject to OTS regulations and filing requirements.
Holding Company Acquisitions. The HOLA and OTS regulations issued thereunder generally prohibit a savings and loan holding company, without prior OTS approval, from acquiring more than 5% of the voting stock of any other savings association or savings and loan holding company or controlling the assets thereof. They also prohibit, among other things, any director or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting shares of such holding company, from acquiring control of any savings association not a subsidiary of such savings and loan holding company, unless the acquisition is approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding company, the Company generally is not subject to activity restrictions under the HOLA. If the Company acquires control of another savings association as a separate subsidiary other than in a supervisory acquisition, it would become a multiple savings and loan holding company. There generally are more restrictions on the activities of a multiple savings and loan holding company than on those of a unitary savings and loan holding company. The HOLA provides that, among other things, no multiple savings and loan holding company or subsidiary thereof which is not an insured association shall commence or continue for more than two years after becoming a multiple savings and loan association holding company or subsidiary thereof, any business activity other than: (i) furnishing or performing management services for a subsidiary insured institution, (ii) conducting an insurance agency or escrow business, (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary insured institution, (iv) holding or managing properties used or occupied by a subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi) those activities previously directly authorized by regulation as of March 5, 1987 to be engaged in by multiple holding companies or (vii) those activities authorized by the Federal Reserve Board as permissible for bank holding companies, unless the OTS by regulation, prohibits or limits such activities for savings and loan holding companies. Those activities described in (vii) above also must be approved by the OTS prior to being engaged in by a multiple savings and loan holding company.
Qualified Thrift Lender Test. The HOLA provides that any savings and loan holding company that controls a savings association that fails the QTL test, as explained under "-- The Bank -- Qualified Thrift Lender Test," must, within one year after the date on which the Bank ceases to be a QTL, register as and be deemed a bank holding company subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Company and the Bank report their income on a fiscal year basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank's reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company.
Bad Debt Reserve. Historically, savings institutions, such as the Bank used to be, which met certain definitional tests primarily related to their assets and the nature of their business ("qualifying thrift"), were permitted to establish a reserve for bad debts and to make annual additions thereto, which may have been deducted in arriving at their taxable income. The Bank's deductions with respect to "qualifying real property loans," which are generally loans secured by certain interest in real property, were computed using an amount based on the Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable income, computed with certain modifications and reduced by the amount of any permitted additions to the non-qualifying reserve. Due to the Bank's loss experience, the Bank generally recognized a bad debt deduction equal to 8% of taxable income.
The thrift bad debt rules were revised by Congress in 1996. The new rules eliminated the 8% of taxable income method for deducting additions to the tax bad debt reserves for all thrifts for tax years beginning after December 31, 1995. These rules also required that all institutions recapture all or a portion of their bad debt reserves added since the base year (last taxable year beginning before January 1, 1988). The Bank has no post- 1987 reserves subject to recapture. For taxable years beginning after December 31, 1995, the Bank's bad debt deduction is determined under the experience method using a formula based on actual bad debt experience over a period of years. The unrecaptured base year reserves will not be subject to recapture as long as the institution continues to carry on the business of banking. In addition, the balance of the pre-1988 bad debt reserves continue to be subject to provisions of present law referred to below that require recapture in the case of certain excess distributions to shareholders.
Distributions. To the extent that the Bank makes "nondividend distributions" to the Company, such distributions will be considered to result in distributions from the balance of its bad debt reserve as of December 31, 1987 (or a lesser amount if the Bank's loan portfolio decreased since December 31, 1987) and then from the supplemental reserve for losses on loans ("Excess Distributions"), and an amount based on the Excess Distributions will be included in the Bank's taxable income. Nondividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, distributions in redemption of stock and distributions in partial or complete liquidation. However, dividends paid out of the Bank's current or accumulated earnings and profits, as calculated for federal income tax purposes, will not be considered to result in a distribution from the Bank's bad debt reserve. The amount of additional taxable income created from an Excess Distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if the Bank makes a "nondividend distribution," then approximately one and one-half times the Excess Distribution would be includable in gross income for federal income tax purposes, assuming a 34% corporate income tax rate (exclusive of state and local taxes). See "REGULATION" for limits on the payment of dividends by the Bank. The Bank does not intend to pay dividends that would result in a recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad debt reserve deduction using the percentage of taxable income method over the deduction that would have been allowable under the experience method is treated as a preference item for purposes of computing the AMTI. In addition, only 90% of AMTI can be offset by net operating loss carry-overs. AMTI is increased by an amount equal to 75% of the amount by which the Bank's adjusted current earnings exceeds its AMTI (determined without regard to this preference and prior to reduction for net operating losses). For taxable years beginning after December 31, 1986, and before January 1, 1996, an environmental tax of 0.12% of the excess of AMTI (with certain modification) over $2.0 million is imposed on corporations, including the Bank, whether or not an Alternative Minimum Tax is paid.
Dividends-Received Deduction. The Company may exclude from its income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. The corporate dividends-received deduction is generally 70% in the case of dividends received from unaffiliated corporations with which the Company and the Bank will not file a consolidated tax return, except that if the Company or the Bank owns more than 20% of the stock of a corporation distributing a dividend, then 80% of any dividends received may be deducted.
Missouri Taxation
Missouri-based savings banks, such as the Bank, are subject to a special financial institutions tax, based on net income without regard to net operating loss carryforwards, at the rate of 7% of net income. This tax is in lieu of certain other state taxes on thrift institutions, on their property, capital or income, except taxes on tangible personal property owned by the Bank and held for lease or rental to others and on real estate, contributions paid pursuant to the Unemployment Compensation Law of Missouri, social security taxes, sales taxes and use taxes. In addition, the Company is entitled to credit against this tax all taxes paid to the State of Missouri or any political subdivision except taxes on tangible personal property owned by the Bank and held for lease or rental to others and on real estate, contributions paid pursuant to the Unemployment Compensation Law of Missouri, social security taxes, sales and use taxes, and taxes imposed by the Missouri Financial Institutions Tax Law. Missouri savings banks are not subject to the regular state corporate income tax.
Audits
There have not been any IRS audits of the Company's Federal income tax returns or audits of the Bank's state income tax returns during the past five years.
For additional information regarding taxation, see Note 10 of Notes to Consolidated Financial Statements contained in the Annual Report.
Personnel
As of June 30, 1999, the Company had 58 full-time employees and 10 part-time employees. The Company believes that employees play a vital role in the success of a service company and that the Company's relationship with its employees is good. The employees are not represented by a collective bargaining unit.
Item 2. Description of Properties
The following table sets forth certain information regarding the Bank's offices as of June 30, 1999.
Building Net Land Building
Year Book Value as of Owned/ Owned/
Opened June 30, 1999 Leased Leased
(Dollars in thousands)
Main Office
531 Vine Street 1966 $443 Owned Owned
Poplar Bluff, Missouri
Branch Offices
Highway 60 1982 149 Owned Owned
Van Buren, Missouri
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1330 Highway 67 1976 --- Leased(1) Owned Poplar Bluff, Missouri
Business 60 West 1979 256 Owned Owned Dexter, Missouri
100 South Madison 1974 --- Leased(2) Leased Malden, Missouri
308 First Street 1982 173 Owned Owned Kennett, Missouri
116 Washington 1976 --- Leased(3) Leased Doniphan, Missouri
Item 3. Legal Proceedings
In the opinion of management, the Bank is not a party to any pending claims or lawsuits that are expected to have a material effect on the Bank's financial condition or operations. Periodically, there have been various claims and lawsuits involving the Bank mainly as a defendant, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank's business. Aside from such pending claims and lawsuits, which are incident to the conduct of the Bank's ordinary business, the Bank is not a party to any material pending legal proceedings that would have a material effect on the financial condition or operations of the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter ended June 30, 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The information contained in the section captioned "Common Stock" in the Annual Report is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report is incorporated herein by reference.
Item 7. Financial Statements
Independent Auditors' Report*
(a) Consolidated Statements of Financial Condition as of
June 30, 1999 and 1998*
(b) Consolidated Statements of Income for the Years Ended
June 30, 1999, 1998 and 1997*
(c) Consolidated Statements of Stockholders' Equity For the
Years Ended June 30, 1999, 1998 and 1997*
(d) Consolidated Statements of Cash Flows For the Years
Ended June 30, 1999, 1998 and 1997*
(e) Notes to Consolidated Financial Statements*
* Contained in the Annual Report filed as an exhibit hereto and incorporated herein by reference. All schedules have been omitted as the required information is either inapplicable or contained in the Consolidated Financial Statements or related Notes contained in the Annual Report.
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
No disagreement with the Company's independent accountants on accounting and financial disclosure has occurred during the two most recent fiscal years.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with
Section 16(a) of the Exchange Act
The information contained under the section captioned "Proposal I -- Election of Directors" in the Proxy Statement is incorporated herein by reference.
The following table sets forth certain information with respect to the executive officers of the Company and the Bank.
Position
Age at
Name June 30,1999 Company Bank
Thadis R. Seifert 80 Chairman of Board Director
and President
Leonard W. Ehlers 80 Director Chairman of the Board
Samuel H. Smith 61 Secretary/Treasurer Director
Greg A. Steffens 32 Chief Financial Officer President,Cheif
Executive Officer and
Chief Fianncial Officer
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In addition to the above, the Bank's executive officer group includes:
Age at
Name June 30, 1999 Position
James W. Tatum 73 Vice Chairman
Wilma F. Case 61 Senior Vice President
Kent Nichols 45 Senior Vice President and Chairman Loan Department
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The principal occupation of each executive officer of the Company is set forth below. All of the officers listed above have held positions with or been employed by the Company for five years unless otherwise stated. All executive officers reside in Poplar Bluff, Missouri. There are no family relationships among or between the executive officers, unless otherwise stated.
Thadis R. Seifert served as Executive Vice President of the Bank from 1970 until his retirement in 1985. He has been a director of the Bank since 1971. In 1997, Mr. Seifert was elected as Chairman of the Company and in 1999 he was appointed as President. Mr. Seifert also serves as an advisory Board Member for the Poplar Bluff Municipal Utilities. He is active in a variety of organizations, including the Kiwanis Club.
Leonard W. Ehlers served as the Official Court Reporter of the 36th Judicial Circuit and was the owner of Ehlers Reporting Service for over 39 years until his retirement in 1984. Mr. Ehlers is a Board Member of the Willhaven Residential Complex, Inc. and the United Gospel Rescue Mission.
Samuel H. Smith is President, Chief Executive Office and a majority stockholder of S H Smith and Company, Inc., an engineering consulting firm in Poplar Bluff, Missouri. He is a member of the Poplar Bluff Chamber of Commerce, the American Society of Civil Engineers, Missouri Society of Professional Engineers, and a member of the Board of Directors of the Poplar Bluff Museum.
Greg A. Steffens joined the Bank in 1998 and serves as the Chief Financial Officer of the Company and as President, Chief Executive Officer and Chief Financial Officer of the Bank. From 1993 to 1998, Mr. Steffens served as Chief Financial Officer of 1st Savings Bank and Sho-Me Financial Corp. in Mount Vernon, Missouri. From 1989 to 1993, Mr. Steffens was employed by the OTS as a thrift examiner. Mr. Steffens is a member of the Rotary Club.
James W. Tatum is the Vice President of the Company. Mr. Tatum was a member and a Partner of Kraft, Miles & Tatum, CPA's, an accounting firm, for over 40 years until his retirement in 1989. He is a past member of the Kiwanis Club and the Poplar Bluff Chamber of Commerce, the American Institute of CPA's and the Missouri Society of CPA's.
Wilma F. Case has been affiliated with the Bank for 31 years and has served as Senior Vice President since 1992. Ms. Case is active in a variety of organizations and currently serves as President of the American Cancer Society, as Director of the Kiwanis Club and is a member of the Business and Professional Women's Association and the Poplar Bluff Chamber of Commerce.
Kent Nichols has been affiliated with the Bank for 15 years, has served as Senior Vice President since 1994 and was appointed Chairman of the Loan Department in 1995. Mr. Nichols is active in the Kiwanis Club.
Item 10. Executive Compensation
The information contained under the section captioned "Proposal I -- Election of Directors" in the Proxy Statement is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to the section captioned "Voting Securities and Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference to the sections captioned "Voting Securities and Security Ownership of Certain Beneficial Owners and Management" and "Proposal I - Election of Directors" of the Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to the section captioned "Proposal I -- Election of Directors -- Certain Transactions."
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits.
(b) Report on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SOUTHERN MISSOURI BANCORP, INC.
Date: September 28, 1999 By: /s/ Thadis R. Seifert
Thadis R. Seifert
President
(Duly Authorized Representative)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Thadis R. Seifert September 28, 1999
Thadis R. Seifert
President
(Principal Executive Officer)
By: /s/ Donald R. Crandell September 28, 1999
Donald R. Crandell
Director
By: /s/ Greg A. Steffens September 28, 1999
Greg A. Steffens
Chief Financial Officer
(Principal Financial and Accounting Officer)
By: /s/ Leonard W. Ehlers September 28, 1999
Leonard W. Ehlers
Director
By: /s/ Samuel H. Smith September 28, 1999
Samuel H. Smith
Director
By: /s/ James W. Tatum September 28, 1999
James W. Tatum
Vice President and Director
By: /s/ Ronnie D. Black September 28, 1999
Ronnie D. Black
Director
By: /s/ L. Douglas Bagby September 28, 1999
L. Douglas Bagby
Director
SIGNATURES
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Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SOUTHERN MISSOURI BANCORP,INC.
Date: September 28, 1999 By: /s/ Thadis R.Seifert
Thadis R. Seifert
President
(Duly Authorized Representative)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Thadis R. Seifert September 28, 1999
Thadis R. Seifert
President
(Principal Executive Officer)
By: /s/ Donald R. Crandell September 28, 1999
Donald R. Crandell
Director
By: /s/ Greg A. Steffens September 28, 1999
Greg A. Steffens
Chief Financial Officer
(Principal Financial and Accounting Officer)
By: /s/ Leonard W. Ehlers September 28, 1999
Leonard W. Ehlers
Director
By: /s/ Samuel H. Smith September 28, 1999
Samuel H. Smith
Director
By: /s/ James W. Tatum September 28, 1999
James W. Tatum
Vice President and Director
By: /s/ Ronnie D. Black September 28, 1999
Ronnie D. Black
Director
By: /s/ L. Douglas Bagby September 28, 1999
L. Douglas Bagby
Director
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Index to Exhibits
Reference to
Prior Filing
Regulation S-B or Exhibit Number
Exhibit Number Document Attached Hereto
3(i) Certificate of Incorporation of the Registrant 3(i)
3(ii) Bylaws of the Registrant 3(ii)
10 Material contracts:
(a) Registrant's 1994 Stock Option Plan *
(b) Southern Missouri Savings Bank, FSB *
Management Recognition and Development Plans
(c) Employment Agreement with Greg A. Steffens 10(c)
(d) Director's Retirement Agreements **
(i) Robert A. Seifert
(ii) Thadis R. Seifert
(iv) Leonard W. Ehlers
(v) James W. Tatum
(vi) Samuel H. Smith
(e) Tax Sharing Agreement **
11 Statement Regarding Computation of Per Share Earnings 11
13 1999 Annual Report to Stockholders 13
21 Subsidiaries of the Registrant 21
23 Consent of Auditors 23
27 Financial Data Schedule 27
_______________________
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* Incorporated by reference to the Registrant's 1994 annual meeting proxy statement dated October 21, 1994. ** Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the year ended June 30, 1995.
Exhibit 10(c)
Employment Agreement with Greg A. Steffens
Exhibit 11
Statement Regarding Computation of Per Share Earnings
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Year Ended June 30,
1999 1998 1997
(Dollars in thousands)
Basic
Average shares outstanding 1,334,299 1,532,910 1,549,032
Net income $1,644,764 $1,064,463 $1,054,687
Basic earnings per share $ 1.23 $ 0.69 $ 0.68
Diluted
Average shares outstanding 1,334,299 1,532,910 1,549,032
Net effect of dilutive stock
options - based on the treasury
stock method using the period
end market price, if greater
than average market price 31,793 51,563 38,072
Total 1,366,092 1,584,473 1,587,104
Net income $1,644,764 $1,064,463 $1,054,687
Diluted earnings per share $ 1.20 $ 0.67 $ 0.67
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Exhibit 13
1999 Annual Report to Stockholders
Exhibit 21
Subsidiaries of the Registrant
Parent
Southern Missouri Bancorp, Inc.
Jurisdiction or
Subsidiaries (a) Percentage of State of
Ownership Incorporation
Southern Missouri Bank and 100% Missouri
Trust Co.
SMS Financial Services, Inc. 100% Missouri
(b)
___________________________
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(a) The operation of the Company's wholly owned subsidiaries are included in the Company's Financial Statements contained in Item 7 hereof.
(b) Wholly-owned subsidiary of Southern Missouri Bank and Trust Co.
Exhibit 23
Consent of Auditors
We have issued our report dated July 30, 1999, accompanying the Consolidated
Financial Statements incorporated by reference in the Annual Report of Southern
Missouri Bancorp, Inc. on Form 10-KSB for the year ending June 30, 1999. We
hereby consent to the incorporation of reference of said reports in the
Registration Statement of Southern Missouri Bancorp, Inc. on the Form S-8
(File NO. 333-2320, effective March 13, 1996)
Kraft, Miles & Tatum, LLC
Poplar Bluff, Missouri
September 27, 1999
TABLE OF CONTENTS
Page
Letter to Stockholders 1
Business of the Company and the Bank 2
Common Stock 2
Selected Consolidated Financial Condition,
Operating and Other Data 3-4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-17
Independent Auditors' Report 18
Consolidated Financial Statements:
Consolidated Statements of Financial Condition
as of June 30, 1999 and 1998 19
Consolidated Statements of Income for the
years ended June 30, 1999, 1998 and 1997 20
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1999, 1998 and 1997 21
Consolidated Statements of Cash Flows for the
years ended June 30, 1999, 1998 and 1997 22-23
Notes to Consolidated Financial Statements 24-45
Directors and Officers 46
Corporate Information 47
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September 1, 1999
To Our Fellow Stockholders:
On behalf of the Board of Directors, Management, and Staff of Southern Missouri Bancorp, Inc. and its wholly owned subsidiary, Southern Missouri Bank and Trust, we are pleased to present the results of the Company's performance for the year ended June 30, 1999 and discuss some of our strategic plans and initiatives for the upcoming millennium.
This was our fifth year of operation as a publicly traded company and it can be summarized by one word "Change". Operational change occurred as we strengthened collection procedures, tightened underwriting guidelines, enhanced core noninterest income and diligently reviewed our operating expenses. In addition, managerial change occurred as we said farewell to our President of 15 years with Mr. Donald Crandell's retirement, while we welcomed two new members to our management team, James Duncan and Adrian Rushing. Jim serves us as Executive Vice President and is responsible for our lending department including originating commercial loans, while Adrian serves us as Chief Operating Officer.
During 1999, our Company's primary goal was to increase revenue through a combination of loan growth and fee income, while addressing the performance of our loan portfolio. We were successful in increasing fee income through increased customer charges. Loan growth eluded us, however, primarily due to rapid prepayment rates, which caused us to broaden our selection of loan products to include a wider variety of competitively priced fixed rate loans. Change also occurred during the year as we sold our insurance operation to allow us to focus on our primary business - banking. The sum of all of these changes is a Company which recorded earnings of $1.23 per share for the fiscal year ended June 30, 1999, which reflects improvement over the $.69 per share earned during the prior fiscal year. Earnings per share increased for fiscal 1999, primarily as a result of a nonrecurring gain on the sale of the insurance operation and reduced loss provisions, but our new management team and the Board of Directors believe that these changes could lead to enhanced core operating performance.
Southern Missouri Bancorp had total assets of $165.0 million at June 30, 1999 as compared to $155.9 million at June 30, 1998. The 5.8% increase was consistent with our strategic plan for asset growth, but the composition of growth varied as it consisted primarily of securities instead of loans. We feel that our current staff and product lines will provide us the opportunity to reach our goals for loan growth, which in turn will allow us to continue to leverage our capital base and increase our financial returns. For the year ended June 30, 1999, we earned a return on average equity of 7.30% and a return on average assets of 1.02%, including the nonrecurring gain.
As we turn our attention toward the next millennium, we intend to focus on generating asset growth through loan originations, growing fee income, attracting new deposits in our local market area and prudently managing our stockholders' equity. It is our pledge to remain committed to the growth and performance goals of the Company and to generate value and opportunity for the main groups that hold the keys to our success: our shareholders, our customers, our staff, and our communities.
Thank you for your investment in Southern Missouri Bancorp, and for the confidence you have placed in our team here at Southern Missouri as we continue to implement change. Change, which we believe, will bring about one of the more important goals - a higher stock price and an improvement in our return on stockholders' equity. We look forward to a prosperous and bright future together.
/s/ Thadis R. Seifert /s/ Greg A. Steffens Thadis R. Seifert Greg A. Steffens Chairman and President Chief Financial Officer Southern Missouri Bancorp, Inc. Southern Missouri Bancorp, Inc. |
BUSINESS OF THE COMPANY AND THE BANK
Southern Missouri Bancorp, Inc. (Southern Missouri or Company) is a Missouri Corporation and owns all outstanding stock of Southern Missouri Bank and Trust Co. (SMBT or the Bank). The Company's earnings are primarily dependent on the operations of the Bank. As a result, the following discussion relates primarily to the operations of the Bank.
The Bank operates as a state-chartered stock savings bank, originally chartered by the State of Missouri in 1887. The Bank converted from a state-chartered stock savings and loan association to a Federally-chartered stock savings bank effective June 20, 1995. Then, effective February 17, 1998, the Bank converted its charter to a state-chartered stock savings bank. The Bank's deposit accounts are insured up to a maximum of $100,000 by the Savings Association Insurance Fund (SAIF), which is administered by the Federal Deposit Insurance Corporation (FDIC).
The Bank's primary business is the origination of mortgage loans secured by one- to four-family residences. The Bank conducts its business through its home office located in Poplar Bluff and seven full service branch facilities in Poplar Bluff, Van Buren, Dexter, Malden, Kennett, Doniphan, and Ellington, Missouri. Lending activities are funded through the attraction of deposit accounts, consisting of certificate accounts with terms of 60 months or less, passbook accounts and money-market deposit accounts and advances from the Federal Home Loan Bank of Des Moines. The Bank also originates mortgage loans on commercial real estate, construction loans on single-family residences and commercial properties, consumer loans, and loans secured by deposit accounts.
COMMON STOCK
The common stock of the Company is listed on the Nasdaq Stock Market under the symbol "SMBC".
The following table sets forth per share market price and dividend information for the Company's common stock. As of September 1, 1999, there were approximately 381 stockholders of record. This does not reflect the number of persons or entities who hold stock in nominee or "street name."
Fiscal 1999 High Low Dividend Paid First Quarter $ 21.875 $ 15.75 $ .125 Second Quarter 17.50 14.50 .125 Third Quarter 15.25 11.875 .125 Fourth Quarter 14.625 13.00 .125 Fiscal 1998 High Low Dividend Paid First Quarter $ 18.375 $ 17.00 $ .125 Second Quarter 20.75 17.00 .125 Third Quarter 23.875 18.75 .125 Fourth Quarter 23.00 20.25 .125 |
Any future dividend declarations and payments are subject to the discretion of the Board of Directors of the Company. The ability of the Company to pay dividends depends primarily on the ability of the Bank to pay dividends to the Company. For a discussion of the restrictions on the Bank's ability to pay dividends, see Note 12 of Notes to Consolidated Financial Statements included elsewhere in this report.
SELECTED CONSOLIDATED FINANCIAL CONDITION,
OPERATING AND OTHER DATA
At June 30,
(In thousands)
FINANCIAL CONDITION DATA: 1999 1998 1997 1996 1995
Total assets $164,972 $155,947 $160,393 $159,848 $148,323
Loans receivable, net 118,249 119,083 107,783 95,535 82,887
Mortgage-backed and
related securities 16,900 14,154 26,236 35,037 24,574
Cash, interest-bearing deposits
and investment securities 25,048 18,324 21,638 24,459 35,421
Deposits 120,155 109,410 118,705 120,138 118,152
Borrowings 20,550 21,069 13,535 11,550 1,314
Stockholders' equity 22,629 24,112 26,400 26,227 27,047
Year Ending June 30,
(In thousands)
OPERATING DATA: 1999 1998 1997 1996 1995
Interest income $ 11,414 $ 11,444 $ 11,408 $ 11,010 $ 9,640
Interest expense 6,247 6,212 6,318 6,308 5,187
Net interest income 5,167 5,232 5,090 4,702 4,453
Provision for loan losses 235 783 241 60 95
Net interest income after
provision for loan losses 4,932 4,449 4,849 4,642 4,358
Noninterest income 1,255 797 618 639 455
Noninterest expense 3,682 3,660 3,972 3,161 3,112
Income before income taxes 2,505 1,586 1,495 2,120 1,701
Income tax expense 860 522 440 653 454
Net income $ 1,645 $ 1,064 $ 1,055 $ 1,467 $ 1,247
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Basic earnings per common share $ 1.23 .69 .68 .89 .74 Diluted earnings per common share 1.20 .67 .67 .87 .73 Dividends per share .50 .50 .50 .50 .40
At June 30,
OTHER DATA: 1999 1998 1997 1996 1995
Number of:
Real estate loans 2,920 3,035 3,040 3,053 3,082
Deposit accounts 13,189 12,762 12,542 12,626 12,837
Full service offices 8 8 8 8 8
KEY OPERATING RATIOS: At or For the Year Ended June 30,
1999 1998 1997 1996 1995
Return on assets (net income
divided by average assets) 1.02% .67% .65% .93% .86%
Return on average equity (net
income divided by average equity) 7.30 4.06 4.09 5.48 4.68
Average equity to average assets 14.01 16.40 16.01 17.05 18.30
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities) 2.76 2.67 2.51 2.29 2.39
Net interest margin (net interest
income as a percentage of average
interest-earning assets) 3.32 3.39 3.25 3.09 3.16
Noninterest expense to average assets 2.29 2.29 2.46 2.01 2.14
Average interest-earning assets to
interest-bearing liabilities 114.15 117.76 118.32 119.42 121.09
Allowance for loan losses to total
loans at end of period .99 1.07 .64 .63 .67
Allowance for loan losses to
nonperforming loans 658.09 243.01 51.19 114.94 77.66
Net charge offs to average out-
standing loans during the period .29 .17 .16 .01 .00
Ratio of nonperforming assets
to total assets .64 .98 .89 .38 .99
Dividend payout ratio 39.95 72.29 73.06 52.17 46.98
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southern Missouri Bancorp, Inc. is a Missouri corporation originally organized on April 13, 1994 in Delaware, for the principal purpose of becoming the holding company of Southern Missouri Savings Bank (SMSB). SMSB converted from a Federally- chartered stock savings bank to a state-chartered stock savings bank effective February 17, 1998 and subsequently changed its name to Southern Missouri Bank and Trust Co. The Company's state of incorporation changed from Delaware to Missouri effective April 1, 1999. The principal business of SMBT consists primarily of attracting deposits from the general public and using such deposits along with wholesale funding from the Federal Home Loan Bank of Des Moines (FHLB) to finance mortgage loans secured by one-to four-family residences and, to a lesser extent, consumer loans, commercial real estate loans, and commercial business loans. These funds have also been used to purchase investment securities, mortgage-backed and related securities (MBS), U.S. government and federal agency obligations and other permissible securities.
The revenues of Southern Missouri are derived principally from interest earned on loans and, to a lesser extent, from interest earned on investment securities and MBS. Southern Missouri's operations are significantly influenced by general economic conditions including monetary and fiscal policies of the U.S. government and Federal Reserve. Additionally, Southern Missouri is subject to policies and regulations issued by financial institution regulatory agencies, including the Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS) and the Missouri Division of Finance. Each of these factors may influence interest rates, loan demand, prepayment rates and deposit flows. Interest rates available on competing investments as well as general market interest rates influence the Bank's cost of funds. Lending activities are affected by the demand for financing real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered. The Bank intends to continue to focus on its lending programs for one-to four-family residential real estate, commercial mortgage, business and consumer financing on loans secured by properties or collateral located in Southeastern Missouri.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters discussed in the annual report may be deemed to be forward-looking statements that involve risks and uncertainties, including changes in economic conditions in Southern Missouri's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in Southern Missouri's market area and price competition for loans and deposits. Actual strategies and results in future periods may differ materially from those currently expected. These forward- looking statements represent Southern Missouri's judgment as of the date of this report. Southern Missouri disclaims, however, any intent or obligation to update these forward-looking statements.
FINANCIAL CONDITION
Southern Missouri's total assets increased $9.1 million, or 5.8%, to $165.0 million at June 30, 1999 as compared to $155.9 million at June 30, 1998. The increase was primarily due to an increase in investment securities and MBS, funded primarily by an increase in deposits of $10.7 million. Investment securities and MBS increased $9.7 million from $28.2 million at June 30, 1998 to $37.9 million at June 30, 1999. The increase was mostly attributed to $24.9 million in security purchases exceeding $14.7 million in sales and maturities. Effective April 1, 1999, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". With the adoption of this statement, the Company transferred its remaining held to maturity investment securities into the available for sale category. (See Note 1 of Notes to Consolidated Financial Statements)
Net loans receivable declined $835,000 to $118.2 million at June 30, 1999 from $119.1 million on June 30, 1998. The Company was unable to achieve its stated goal of increasing loans receivable, due primarily to higher than anticipated loan prepayment rates. In response, the Company introduced a wider array of more competitively priced loan products including 15, 20, and 30-year fixed rate mortgages for residential financing. During fiscal 1999, the Company originated $50.5 million in loans as compared to originations of $48.5 million over the same period of the prior year.
Allowance for loan losses declined $104,000, or 8.0%, from $1.3 million at June 30, 1998 to $1.2 million at June 30, 1999. The allowance for loan losses at June 30, 1999 represented 1.0% and 33.2% of loans receivable and loans past due 90 days or more, respectively, as compared to respective balances of 1.1% and 97.0% at June 30, 1998 (see provision for loan losses).
Deposits increased $10.7 million, or 9.8%, from $109.4 million at June 30, 1998 to $120.2 million at June 30, 1999. The increase was primarily due to growth in checking accounts and certificates of deposit of $6.3 million and $4.4 million, respectively. The growth in checking accounts was due in part to the success of a recently introduced fee-based checking account and a competitively priced, tiered money market demand account, while the growth in certificates of deposit was due, in part to more competitive pricing.
Stockholders' equity declined $1.5 million, or 6.1%, from $24.1 million at June 30, 1998 to $22.6 million at June 30, 1999. The decline was primarily attributed to the repurchase of $2.8 million of the Company's common stock and the payment of $657,000 in cash dividends on common stock. The decline was partially offset by the Company's $1.6 million net income.
RESULTS OF OPERATIONS
Southern Missouri's results of operations are primarily dependent on the level of its net interest income, noninterest income, and the control of operating expenses. Net interest income is dependent primarily on the difference or spread between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, as well as the relative amounts of such assets and liabilities. Southern Missouri, like other financial institutions, is also subject to interest-rate risk to the degree that its interest-earning assets mature or reprice at different times, or on a varying basis, from its interest-bearing liabilities.
Southern Missouri's noninterest income consists primarily of fees charged on transaction and loan accounts and commissions earned on the sale of insurance products. Southern Missouri's operating expenses include, among other costs, employee compensation and benefits, occupancy expenses, legal and professional fees, federal deposit insurance premiums and other general and administrative expenses.
COMPARISON OF THE YEARS ENDED JUNE 30, 1999 AND 1998
Net Income. Southern Missouri's net income increased $580,000, or 54.5%, from $1.1 million for the year ended June 30, 1998 to $1.6 million for the year ended June 30, 1999. Fiscal 1999's results included a $526,000 pre-tax gain realized on the sale of the Bank's subsidiary's insurance operation. Exclusive of the sale, net income for fiscal 1999 would have approximated $1.3 million, which would have exceeded fiscal 1998's net income by $250,000, or 23.4%. The improvement was primarily due to reduced provisions for loan losses, partially offset by increased noninterest expense and a slight decline in net interest income. The Company's sale of its insurance operation is not expected to materially impact future operating income.
Net Interest Income. Net interest income, before provision for loan losses, declined by $65,000, or 1.3%, to $5.2 million for the year ended June 30, 1999 when compared to the year ended June 30, 1998. The decline was primarily due to the ratio of average interest-earning assets to interest-bearing liabilities declining to 114.2% during fiscal 1999 as compared to 117.8% during fiscal 1998, which was primarily due to the Company's stock repurchase program. This was partially offset by a .09% increase in the average interest rate spread.
Interest Income. Interest income declined $29,000, or .3%, to $11.4 million for the year ended June 30, 1999 when compared to the year ended June 30, 1998. The decline was primarily due to a .06% decline in the average yield earned on interest-earning assets, which was partly offset by a $1.0 million, or 0.7%, increase in average interest-earning assets.
Interest income on loans receivable increased $111,000, or 1.2%, to $9.3 million for the year ended June 30, 1999 as compared to $9.2 million for the year ended June 30, 1998. The increase was due to a $1.5 million increase in average loans receivable and stable portfolio yields during fiscal 1999. Interest income on the investment portfolio declined $179,000, or 8.4%, to $1.9 million for the year ended June 30, 1999 as compared to $2.1 million for the year ended June 30, 1998. The decline was due to prepayments on higher yielding MBS and the early redemption of higher yielding callable bonds resulting in lower average balances and lower average yields for fiscal 1999 as compared to fiscal 1998. Other interest income increased $38,000 in fiscal 1999 as compared to 1998 primarily due to higher average balances outstanding.
Interest Expense. Interest expense increased $36,000, or 0.6%, to $6.2 million for the year ended June 30, 1999 when compared to the year ended June 30, 1998. The increase was primarily due to the average balance of interest-bearing liabilities increasing $5.0 million, or 3.8%, which was partly offset by the .15% decline in the average rate paid on these same interest-bearing liabilities, to 4.58% during fiscal 1999 from 4.73% during fiscal 1998.
Provision for Loan Losses. Provisions for loan losses are charged to earnings to bring the total allowance for loan losses to a level considered adequate by management to provide for loan losses based on prior loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and current economic conditions. Management also considers other factors relating to the collectibility of the Bank's loan portfolio.
Provision for loan losses decreased $548,000 to $235,000 for the year ended June 30, 1999 as compared to $783,000 for the year ended June 30, 1998. The decline was primarily due to a reduction in classified assets from $5.6 million at June 30, 1998 to $5.1 million at June 30, 1999. In addition, during fiscal 1998, adversely classified assets increased significantly which contributed to increased provisions in that year. The largest classified commercial real estate relationship as of June 30, 1999 totaled $2.6 million and was current at that date and performing in accordance with its terms. Furthermore, the Bank has two other lending relationships with balances of $382,000 and $971,000 which are secured by commercial real estate which were current as of June 30, 1999, but classified primarily due to the related businesses experiencing cash flow difficulties.
The above provisions were made based on management's analysis of the various factors which affect the loan portfolio and management's desire to maintain the allowance at a level considered adequate. Management performed a detailed analysis of the Bank's loan portfolio, including types of loans, the Bank's historical charge-off history and an analysis of the Bank's allowance for loan losses. Management also considered the Bank's continued origination of loans secured by commercial real estate. Such loans bear an inherently higher level of credit risk than one-to four-family residential real estate loans. While management believes the allowance for losses at June 30, 1999 is adequate to cover all losses inherent in the Bank's portfolio, there can be no assurance that in the future the Bank's regulators will not require further increases in the allowance or actual losses will not exceed the allowance.
Noninterest Income. Noninterest income increased $458,000, or 57.4%, to $1.3 million for the year ended June 30, 1999 as compared to $797,000 earned during the year ended June 30, 1998. Contributing to the increase was a $526,000 one-time gain from the sale of the Company's insurance operation. In addition, the Company experienced increased income from banking service charges, late charges, foreclosed real estate, and insurance commissions, which were partially offset by reductions in gains on the sale of securities and in other income, in which during fiscal 1998 the Company realized a $150,000 one-time gain on the termination of a defined benefit plan.
Noninterest Expense. Noninterest expense increased $22,000, or 0.6% to $3.7 million for the year ended June 30, 1999 when compared to the year ended June 30, 1998. Compensation and benefits decreased from $2.5 million for 1998 to $2.2 million in 1999. The decrease was primarily due to a reduction in stock benefit plan expense, partially offset by salary increases. Effective July 1, 1998, the Employee Stock Ownership Plan (ESOP) loan terms were modified and principal payments were extended an additional four years, resulting in fewer shares being released. Due to less shares being released and a decline in the Company's average stock price, ESOP related expenses declined $264,000. ESOP expense will continue to fluctuate in the future based on changes in the market price of the Company's stock. Occupancy and equipment expense increased from $401,000 for 1998 to $497,000 during 1999 as a result of increased expenses for depreciation, repairs and maintenance, and data processing upgrades. SAIF deposit insurance premiums decreased from $110,000 in 1998 to $85,000 in 1999 as a result of the Bank's supervisory risk classification being upgraded. Professional fees decreased from $192,000 in 1998 to $136,000 in 1999 due to lower supervisory examination fees and legal fees. Other expenses increased $148,000 to $450,000 in 1999 from $302,000 in 1998 primarily due to increased costs associated with the Bank's fee-based checking club promotion, higher correspondent banking charges, and increased repossession expenses.
Provision for Income Taxes. Provision for income taxes increased $338,000 to $860,000 for the year ended June 30, 1999 as compared to $522,000 for the year ended June 30, 1998. The increase was primarily due to Southern Missouri's effective tax rate increasing from 32.9% for fiscal 1998 to 34.3% for fiscal 1999 and increased operating income. The increase in the effective tax rate for fiscal 1999 is primarily due to an increase in taxable state income.
COMPARISON OF THE YEARS ENDED JUNE 30, 1998 AND 1997
Net Income. Southern Missouri's net income increased $10,000, or .9%, from $1.1 million for the year ended June 30, 1997 to $1.1 million for the year ended June 30, 1998. Fiscal 1997's results included the adverse impact of a one-time, industry-wide special assessment to recapitalize the Savings Association Insurance Fund (SAIF). Exclusive of the one-time SAIF assessment of $779,000, net income for fiscal 1997 would have approximated $1.5 million, which would have exceeded fiscal 1998's net income by $481,000, or 31.1%. This decline in adjusted net income was primarily due to increased provisions for loan losses and increased recurring noninterest expenses.
Net Interest Income. Net interest income increased by $143,000, or 2.8%, to $5.2 million for the year ended June 30, 1998 as compared to $5.1 million for the year ended June 30, 1997. The increase was primarily due to a .16% increase in the average interest rate spread, which was partially offset by a decline in the ratio of average interest-earning assets to interest-bearing liabilities.
Interest Income. Interest income increased $35,000, or .3%, to $11.4 million for the year ended June 30, 1998 as compared to $11.4 million for the year ended June 30, 1997. The slight increase was primarily due to a .12% increase in the average yield earned on interest-earning assets, which was mostly offset by a $2.0 million, or 1.3%, decline in average interest-earning assets.
Interest income on loans receivable increased $1.1 million, or 13.8%, to $9.2 million for the year ended June 30, 1998 as compared to $8.1 million for the year ended June 30, 1997. The increase was due to a $12.2 million increase in average loans receivable and a .13% increase in average yield earned, from 7.84% during fiscal 1997 to 7.97% during fiscal 1998. Interest income on investment and MBS securities, and other interest- earning assets declined $1.1 million, or 32.1%, to $2.3 million for the year ended June 30, 1998 as compared to $3.3 million for the year ended June 30, 1997.
Interest Expense. Interest expense declined $107,000, or 1.7%, to $6.2 million for the year ended June 30, 1998 as compared to $6.3 million for the year ended June 30, 1997. The change was primarily due to the average balance of interest-bearing liabilities declining $1.1 million, or .8%, and the .04% decline in the average rate paid on these same interest-bearing liabilities, to 4.73% during fiscal 1998 from 4.77% during fiscal 1997.
Provision for Loan Losses. For the year ended June 30, 1998, the Bank established a provision for loan losses of $783,000 compared with $241,000 for the year ended June 30, 1997. Substandard assets identified under the Bank's internal classified assets policy increased from $1.4 million as of June 30, 1997 to $5.5 million at June 30, 1998 due primarily to an increase in substandard assets secured by commercial real estate. The largest classified commercial real estate relationship as of June 30, 1998 totaled $2.6 million and was current at that date and performing in accordance with its terms. In addition, the Bank had three other lending relationships with aggregate balances ranging from $299,000 to $536,000 which were secured primarily by commercial real estate that were also classified due to their underlying collateral experiencing cash flow difficulties.
Noninterest Income. Noninterest income increased $179,000, or 29.0%, to $797,000 for the year ended June 30, 1998 as compared to $618,000 for the year ended June 30, 1997. Contributing to the increase was a $150,000 one-time gain from the termination of a defined benefit plan, increased customer service charges of $47,000 and a $31,000 increase in gains on sales of investment and MBS securities which were partly offset by a $49,000 reduction in insurance commissions and other income. Gains on sales of investment and MBS securities are not a stable source of income and no assurance can be given that the Company will generate such gains in the future.
Noninterest Expense. Noninterest expense decreased $312,000, or 7.9%; however, exclusive of the aforementioned SAIF special assessment, noninterest expense increased $467,000, or 14.6%, to $3.7 million for the year ended June 30, 1998 as compared to $3.2 million for the year ended June 30, 1997. The increase was due to a $280,000 rise in compensation and benefits expense, $125,000 decline in realized recoveries from the sale of foreclosed real estate, increased occupancy costs of $95,000 and $31,000 in increased legal and professional fees. These increased expenditures were attributed to increased personnel, higher benefit plan costs, higher data processing costs and costs associated with SMBT's conversion to a bank charter. Offsetting a portion of these increases was a $54,000 decline in deposit insurance premiums.
Provision for Income Taxes. Provision for income taxes increased $82,000 to $522,000 for the year ended June 30, 1998 as compared to $440,000 for the year ended June 30, 1997. The increase was primarily due to Southern Missouri's effective tax rate increasing from 29.4% for fiscal 1997 to 32.9% for fiscal 1998. This increase was primarily due to the smaller effect of tax exempt income of state and municipal obligations.
ASSET/LIABILITY MANAGEMENT
The goal of Southern Missouri's asset/liability management strategy is to manage the interest rate sensitivity of both interest-earning assets and interest-bearing liabilities so as to maximize net interest income without exposing the Bank's Net Portfolio Value (NPV) to an excessive level of interest-rate risk. The Bank has employed various strategies intended to manage the potential effect that changing interest rates have on future operating results. Historically, the primary asset/liability management strategy had been to focus on matching the repricing intervals of interest-bearing assets and interest- bearing liabilities. This strategy has resulted in a manageable exposure to interest-rate risk with modest asset and loan growth rates.
The primary elements of Southern Missouri's current asset/liability strategy include (i) increasing loans receivable through the origination of both fixed and adjustable-rate residential loans, (ii) growth in loans secured by commercial real estate, which typically provide higher yields, increased credit risk and shorter repricing periods, (iii) expanding the consumer loan portfolio, (iv) active solicitation of less rate- sensitive deposits, (v) offering competitively priced short-term certificates of deposit, and (vi) the use of FHLB advances to help manage exposure to interest-rate risk. The degree to which each segment of the strategy is achieved will affect Southern Missouri's overall profitability and exposure to interest-rate risk.
During the year, Southern Missouri expanded its loan products to include fixed and adjustable-rate loans for residential financing based on an amortization schedule of up to 30 years. This, as well as more competitive pricing and an increase in customer preferences for fixed-rate residential financing led to fixed rate originations increasing from $5.1 million during the prior year to $19.1 million in fiscal 1999. At June 30, 1999, fixed rate loans with remaining maturities in excess of 10 years totaled $9.5 million, or 7.9% of loans receivable.
AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES
The following table sets forth certain information relating to the Company's average interest-earning assets and interest- bearing liabilities and reflects the average yield on assets and the average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average month-end balance of assets or liabilities, respectively, for the periods indicated. During the periods indicated, nonaccrual loans are included in the net loan category.
The table also presents information for the periods indicated with respect to the difference between the weighted-average yield earned on interest-earning assets and the weighted-average rate paid on interest-bearing liabilities, or "interest rate spread," which financial institutions have traditionally used as an indicator of profitability. Another indicator of an institution's net interest income is its "net yield on interest- earning assets," which is its net interest income divided by the average balance of interest-earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income.
Year Ended June 30,
1999 1998 1997
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
(Dollars in thousands)
Interest-earning assets:
Mortgage loans (1) $ 106,117 $ 8,315 7.84% $ 104,417 $ 8,172 7.83% $ 90,387 $ 6,988 7.73%
Other loans (1) 10,510 971 9.24 10,691 1,003 9.38 12,534 1,076 8.58
Total net loans 116,627 9,286 7.96 115,108 9,175 7.97 102,921 8,064 7.84
Mortgage-backed and
related securities 17,074 973 5.70 19,344 1,172 6.06 31,296 2,050 6.55
Investment securities (2) 16,693 967 5.79 16,078 947 5.89 18,473 1,159 6.27
Other interest-earning assets 5,200 188 3.62 4,049 150 3.70 3,934 135 3.43
Total interest-earning assets (1) 155,594 11,414 7.34 154,579 11,444 7.40 156,624 11,408 7.28
Other noninterest-earning assets 5,292 - 5,405 - 4,595 -
Total assets $ 160,886 $ 11,414 $ 159,984 $ 11,444 $161,219 $11,408
Interest-bearing liabilities:
Passbook accounts $ 7,190 $ 182 2.53 $ 7,487 $ 202 2.70 $ 7,221 $ 200 2.77
NOW accounts 10,672 210 1.97 9,605 186 1.94 7,316 178 2.43
Money market accounts 11,265 414 3.68 7,856 241 3.07 8,572 237 2.76
Certificates of deposit 87,189 4,457 5.11 86,705 4,522 5.21 96,197 4,947 5.14
Total deposits 116,316 5,263 4.52 111,653 5,151 4.61 119,306 5,562 4.66
FHLB advances 19,990 984 4.92 19,617 1,061 5.41 13,067 756 5.79
Total interest-bearing liabilities 136,306 6,247 4.58 131,270 6,212 4.73 132,373 6,318 4.77
Other liabilities 2,045 - 2,483 - 3,035 -
Total liabilities 138,351 6,247 133,753 6,212 135,408 6,318
Stockholders' equity 22,535 - 26,231 - 25,811 -
Total liabilities and
stockholders' equity $ 160,886 $ 6,247 $ 159,984 $ 6,212 $ 161,219 $ 6,318
Net interest income - $ 5,167 - - $ 5,232 - - $ 5,090 -
Interest rate spread (3) - - 2.76% - - 2.67% - - 2.51%
Net interest margin (4) - - 3.32% - - 3.39% - - 3.25%
Ratio of average interest-earning
assets to average interest-bearing
liabilities 114.15% - - 117.76% - - 118.32% - -
<F1>
(1)Calculated net of deferred loan fees, loan discounts and loans-in-process.
<F2>
(2)Includes FHLB stock and related cash dividends.
<F3>
(3)Net interest spread represents the difference between the average rate on
interest-earning assets and the average cost
of interest-bearing liabilities.
<F4>
(4)Net yield on average interest-earning assets represents net interest income
dividend by average interest-earning assets.
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YIELDS EARNED AND RATES PAID:
The following table sets forth for the periods and at the dates indicated, the weighted average yields earned on the Company's assets, the weighted average interest rates paid on the Company's liabilities, together with the net yield on interest-earning assets.
At
June 30, Year Ended June 30,
1999 1999 1998 1997
Weighted-average yield on loan portfolio 7.72% 7.96% 7.97% 7.84%
Weighted-average yield on mortgage-backed
and related securities 5.88 5.70 6.06 6.55
Weighted-average yield on investment securities 6.34 5.79 5.89 6.27
Weighted-average yield on other
interest-earning assets 3.63 3.62 3.70 3.43
Weighted-average yield on all
interest-earning assets 7.24 7.34 7.40 7.28
Weighted-average rate paid on deposits 4.47 4.52 4.61 4.66
Weighted-average rate paid on FHLB
advances 4.92 4.92 5.41 5.79
Weighted-average rate paid on all
interest-bearing liabilities 4.47 4.58 4.73 4.77
Interest rate spread (spread between weighted
average rate on all interest-earning assets
and all interest-bearing liabilities) 2.77 2.76 2.67 2.51
Net interest margin (net interest income
as a percentage of average interest-
earning assets) - 3.32 3.39 3.25
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The following table sets forth the effects of changing rates and volumes on net interest income of the Bank. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume).
Years Ended June 30, Years Ended June 30,
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Increase (Decrease)
Due to Due to
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $(12) $ 123 $ 0 $ 111 $134 $955 $ 22 $1,111
Mortgage-backed and
related securities (70) (138) 9 (199) (153) (783) 58 (878)
Investment securities (16) 36 1 21 (72) (150) 10 (212)
Other interest-
earning deposits (3) 42 (1) 38 11 4 0 15
Total net change in
income on interest-
earning assets (101) 63 9 (29) (80) 26 90 36
Interest-bearing
liabilities:
Deposits (50) 143 20 113 (60) (353) 2 (411)
FHLB advances (96) 21 (2) (77) (50) 379 (24) 305
Total net change in
expense on interest-
bearing liabilities (146) 164 18 36 (110) 26 (22) (106)
Net change in net
interest income $ 45 $(101) $(9) $ (65) $ 30 $ 0 $112 $ 142
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(1) Does not include interest on loans placed on nonaccrual status.
INTEREST RATE SENSITIVITY ANALYSIS
The following table sets forth as of June 30, 1999, management's estimates of the projected changes in net portfolio value and net interest income in the event of 1%, 2%, 3%, and 4% instantaneous permanent increases or decreases in market interest rates.
NPV as % of
Change Net Portfolio PV of Assets
in Rates $ Amount $ Change % Change NPV Ratio Change
(Dollars in thousands)
+400 bp $ 14,968 $ (7,671) (34)% 9.58% -416 bp
+300 bp 17,057 (5,582) (25) 10.75 -299 bp
+200 bp 18,998 (3,641) (16) 11.81 -193 bp
+100 bp 20,603 (2,036) (9) 12.65 -109 bp
0 bp 22,639 - - 13.74 12 -
-100 bp 23,005 366 2 13.86 15 bp
-200 bp 23,214 575 3 13.89 -2 bp
-300 bp 22,489 384 2 13.72 -37 bp
-400 bp 22,562 (150) (1) 13.37 -5 bp
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Computations in the table are based on prospective effects of hypothetical changes in interest rates and are based on an internally generated model using the actual maturity and repricing schedules for SMBT's loans and deposits, adjusted by management's assumptions for prepayment rates and deposit runoff. Further, the computations do not consider any reactions that the Bank may undertake in response to changes in interest rates. These projected changes should not be relied upon as indicative of actual results in any of the aforementioned interest rate changes.
Management cannot accurately predict future interest rates or their effect on the Bank's NPV and net interest income in the future. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV and net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Additionally, most of Southern Missouri's loans have features which restrict changes in interest rates on a short term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the foregoing table. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase.
SMBT's Board of Directors is responsible for reviewing SMBT's asset/liability and interest-rate risk management policy which includes allowable limits for exposure to interest-rate risk. The Board meets quarterly to review projected exposure to interest-rate risk, as well as liquidity and capital requirements.
LIQUIDITY AND CAPITAL RESOURCES
Southern Missouri's primary potential sources of funds include deposit growth, FHLB advances, amortization and prepayment of loan principal, investment maturities and sales, and on-going operating results. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and loan prepayment rates are significantly influenced by factors outside of the Bank's control, including general economic conditions and competition. Southern Missouri has relied on using FHLB advances as a source for funding cash or liquidity needs.
Southern Missouri uses its liquid assets as well as other funding sources to meet ongoing commitments, to fund loan commitments, to repay maturing certificates of deposit and FHLB advances, to make investments, to fund other deposit withdrawals and to meet operating expenses. At June 30, 1999, the Bank had outstanding commitments to extend credit of $6.5 million (including $1.2 million on lines of credit). Management anticipates that current funding sources will be adequate to meet foreseeable liquidity needs.
The primary sources of funding for the Company are deposits and FHLB advances. For the year ended June 30, 1999, Southern Missouri increased deposits by $10.7 million as compared to a decrease of $9.3 million during the prior year. The amount, or degree, to which the Company will continue to attract and retain new deposits is unknown. At June 30, 1999, the Company had additional borrowing capacity from the FHLB of approximately $39.8 million.
Liquidity management is an ongoing responsibility of the Company's management. The Company adjusts its investment in liquid assets based upon a variety of factors including (i) expected loan demand and deposit flows, (ii) anticipated investment and FHLB advance maturities, (iii) the impact on profitability, and (iv) asset/liability management objectives.
At June 30, 1999, the Company had $76.6 million in certificates of deposit maturing within one year and $32.0 million in other deposits without a specified maturity, as well as scheduled FHLB advances maturing within one year of $750,000. Management believes that most maturing interest-bearing liabilities will be retained or replaced by new interest-bearing liabilities.
REGULATORY CAPITAL
Federally insured savings banks are required to maintain a minimum level of regulatory capital. FDIC regulations established capital requirements, including a leverage (or core capital) requirement and a risk-based capital requirement. The FDIC is also authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.
At June 30, 1999, SMBT exceeded regulatory capital requirements with core and risk-based capital of $20.8 million and $21.9 million, or 12.7% and 24.5% of adjusted total assets and risk- weighted assets, respectively. These capital levels exceeded minimum requirements of 4.0% and 8.0% for adjusted total assets and risk-weighted assets, by approximately $14.2 million and $14.8 million, respectively. Under regulatory guidelines, SMBT was considered well-capitalized at June 30, 1999.
IMPACT OF INFLATION
The consolidated financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates generally have a more significant impact on a financial institution's performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. In the current interest rate environment, liquidity and maturity structure of the Company's assets and liabilities are critical to the maintenance of acceptable performance levels.
YEAR 2000 CONSIDERATION
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 may 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 is substantially complete.
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 is substantially complete.
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 Board of Directors oversees the Y2K plan and receives monthly updates on Y2K readiness from the 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 $100,000 of which has been incurred and expensed by the Bank through June 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 system 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.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Consolidated Financial Statements for a discussion of the impact of recent accounting pronouncements.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Southern Missouri Bancorp, Inc.
Poplar Bluff, Missouri
We have audited the accompanying consolidated statements of financial condition of Southern Missouri Bancorp, Inc. and Subsidiary (Company) as of June 30, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Southern Missouri Bancorp, Inc. and Subsidiary as of June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999 in conformity with generally accepted accounting principles.
Kraft, Miles & Tatum, LLC
Poplar Bluff, Missouri
July 30, 1999
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1999 AND 1998
ASSETS 1999 1998
Cash and cash equivalents $ 4,068,674 4,326,474
Investment and mortgage-backed and related
securities: (Note 2)
Available for sale - at estimated market
value (amortized cost $38,276,905 and
$23,550,641 at June 30, 1999 and 1998,
respectively) 37,878,685 23,506,508
Held to maturity - at amortized cost
(estimated market value $4,796,884
at June 30, 1998) - 4,645,407
Stock in Federal Home Loan Bank of Des Moines 1,091,000 1,053,500
Loans receivable, net (Note 3) 118,248,638 119,083,215
Accrued interest receivable (Note 4) 1,033,076 907,778
Foreclosed real estate, net (Note 5) 477,537 171,721
Premises and equipment (Note 6) 1,878,719 1,883,064
Prepaid expenses and other assets 296,014 369,391
Total assets $ 164,972,343 155,947,058
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) $ 120,154,540 109,410,436
Advances from borrowers for taxes and insurance 317,954 315,123
Advances from FHLB of Des Moines (Note 8) 20,550,000 21,068,905
Accounts payable and other liabilities 591,528 459,119
Accrued interest payable 728,859 581,590
Total liabilities 142,342,881 131,835,173
Commitments and contingencies (Note 13)
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 17,545,544 17,628,758
Retained earnings-substantially restricted 13,759,488 12,771,731
Treasury stock of 424,991 shares in 1999 and
310,813 shares in 1998, at cost (7,911,655) (5,613,008)
Unearned employee benefits (531,068) (665,824)
Accumulated other comprehensive income (250,879) (27,804)
Total stockholders' equity 22,629,462 24,111,885
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Total liabilities and
stockholders' equity $ 164,972,343 155,947,058
See accompanying notes to consolidated financial statements.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
Interest income:
Loans receivable $ 9,285,757 9,175,090 8,064,447
Investment securities 967,142 946,447 1,159,386
Mortgage-backed and related securities 972,770 1,172,281 2,049,764
Other interest-earning assets 188,834 150,030 134,871
Total interest income 11,414,503 11,443,848 11,408,468
Interest expense:
Deposits (Note 7) 5,263,225 5,150,691 5,562,266
Advances from FHLB 984,168 1,060,788 756,340
Total interest expense 6,247,393 6,211,479 6,318,606
Net interest income 5,167,110 5,232,369 5,089,862
Provision for loan losses (Note 3) 235,000 783,009 241,300
Net interest income after
provision for loan losses 4,932,110 4,449,360 4,848,562
Noninterest income:
Gain (loss) on sale of investment
securities, available for sale (625) 9,205 58,462
Gain (loss) on sale of mortgage-backed
securities, available for sale (27,942) 69,956 (10,386)
Gain on sale of mortgage-backed securities,
held to maturity - 242 -
Insurance commissions 323,603 302,246 333,519
Banking service charges 284,058 198,981 171,789
Net income on foreclosed real estate 17,487 (16,509) (15,971)
Loan late charges 82,574 68,845 49,103
Gain on sale of insurance agency 526,413 - -
Other 49,583 164,337 31,812
Total noninterest income 1,255,151 797,303 618,328
Noninterest expense:
General and administrative:
Compensation and benefits 2,237,166 2,457,458 2,177,532
Occupancy and equipment 496,929 401,141 306,218
SAIF special assessment - - 779,184
SAIF deposit insurance premium 85,265 109,980 163,711
Provisions (credit) for losses on
foreclosed real estate (Note 5) - (51,550) (176,533)
Professional fees 136,304 191,583 160,522
Advertising 133,925 116,349 110,986
Postage and office supplies 142,608 133,666 115,580
Other 450,300 301,573 335,203
Total noninterest expense 3,682,497 3,660,200 3,972,403
Income before income taxes 2,504,764 1,586,463 1,494,487
Income taxes (Note 10)
Current 593,300 588,000 440,700
Deferred 266,700 (66,000) (900)
860,000 522,000 439,800
Net income $ 1,644,764 1,064,463 1,054,687
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Basic earnings per common share $ 1.23 .69 .68 Diluted earnings per common share $ 1.20 .67 .67
See accompanying notes to consolidated financial statements.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
Accumulated
Additional Unearned Other Total
Common Paid-in Retained Treasury Employee Comprehensive Stockholders'
Stock Capital Earnings Stock Benefits Income Equity
Balance at June 30, 1996 $ 18,032 17,449,978 12,192,583 (1,691,030) (1,316,179) (426,090) 26,227,294
Net income 1,054,687 1,054,687
Change in unrealized gain
(loss) on available for
sale securities 422,751 422,751
Minimum pension liability adjustment 2,730 2,730
Total comprehensive income 1,480,168
Purchase of treasury stock (1,010,153) (1,010,153)
Dividends paid ($.50 per share) (770,517) (770,517)
Release of ESOP awards 104,800 204,047 308,847
MRP expense, net 25,000 118,604 143,604
Exercise of stock options 21,000 21,000
Balance at June 30, 1997 18,032 17,579,778 12,476,753 (2,680,183) (993,528) (609) 26,400,243
Net income 1,064,463 1,064,463
Change in unrealized gain (loss)
on available for sale securities (30,770) (30,770)
Minimum pension liability adjustment 3,575 3,575
Total comprehensive income 1,037,268
Purchase of treasury stock (3,314,645) (3,314,645)
Dividends paid ($.50 per share) (769,485) (769,485)
Release of ESOP awards 195,480 204,046 399,526
MRP expense, net 52,000 123,658 175,658
Exercise of stock options (198,500) 381,820 183,320
Balance at June 30, 1998 18,032 17,628,758 12,771,731 (5,613,008) (665,824) (27,804) 24,111,885
Net income 1,644,764 1,644,764
Change in unrealized gain (loss)
on available for sale securities (355,788) (355,788)
Cumulative effect of change in
accounting principle, net of tax
(Note 1) 132,713 132,713
Total comprehensive income 1,421,689
Purchase of treasury stock (2,803,903) (2,803,903)
Dividends paid ($.50 per share) (657,007) (657,007)
Release of ESOP awards 52,250 83,261 135,511
MRP expense, net 16,800 66,309 83,109
MRP shares awarded 14,814 (14,814) -
Exercise of stock options (167,078) 505,256 338,178
Balance at June 30, 1999 $ 18,032 17,545,544 13,759,488 (7,911,655) (531,068) (250,879) 22,629,462
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See accompanying notes to consolidated financial statements.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
Cash flows from operating activities:
Net income $ 1,644,764 1,064,463 1,054,687
Items not requiring (providing) cash:
Depreciation and amortization 265,769 217,895 188,521
MRP expense and ESOP expense 201,820 523,187 427,451
(Gain) loss on sale of investment
securities, available for sale 625 (9,205) (58,462)
(Gain) loss on sale of mortgage-backed
securities, available for sale 27,942 (69,956) 10,386
(Gain) on sale of mortgage-backed
securities, held to maturity - (242) -
Provision for loan losses 235,000 783,009 241,300
(Gain) on sale of insurance agency (526,413) - -
Provisions (credit) for losses on
foreclosed real estate - (51,550) (176,533)
Net amortization of deferred income,
premiums, and discounts 117,757 131,371 236,149
Changes in:
Accrued interest receivable (125,298) 172,189 61,132
Prepaid expenses and other assets 189,333 (17,494) 35,206
Accounts payable and other liabilities 132,409 (123,706) (13,356)
Accrued interest payable 147,269 (266,845) (133,374)
Net cash provided by
operating activities 2,310,977 2,353,116 1,873,107
Cash flows from investing activities:
Net decrease (increase) in loans 874,888 (12,170,696) (12,431,883)
Proceeds from sales of investment
securities, available for sale 999,375 2,584,919 2,081,950
Proceeds from maturing investment
securities, available for sale 5,440,000 6,660,000 3,965,556
Proceeds from maturing investment
securities, held to maturity 875,000 25,000 -
Purchase of investment securities,
available for sale (14,581,010) (4,993,594) (4,251,016)
Proceeds from sales of mortgage-backed
securities, held to maturity - 50,434 -
Proceeds from sales of mortgage-backed
securities, available for sale 1,700,497 7,493,339 6,475,469
Proceeds from maturing mortgage-backed
securities, available for sale 5,659,654 5,396,806 5,168,146
Proceeds from maturing mortgage-backed
securities, held to maturity - 80,159 64,070
Purchase of mortgage-backed
securities, available for sale (10,330,331) (1,107,089) (2,461,989)
Proceeds from sales of certificates
of deposit - 93,825 -
Proceeds from maturing certificates
of deposit - - 95,000
Proceeds from reduction of FHLB stock - 466,200 -
Purchase of FHLB stock (37,500) - -
Purchase of premises and equipment (282,257) (390,511) (428,079)
Proceeds from sale of foreclosed
real estate 39,477 32,468 37,550
Net cash provided by (used in)
investing activities (9,642,207) 4,221,260 (1,685,226)
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See accompanying notes to consolidated financial statements.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
Cash flows from financing activities:
Net increase in demand
deposits and savings accounts $ 6,331,517 771,880 2,485,172
Net increase (decrease) in
certificates of deposit 4,412,587 (10,066,045) (3,918,637)
Net increase (decrease) in advances from
borrowers for taxes and insurance 2,831 (6,486) (32,286)
Net increase (decrease) in advances from
FHLB of Des Moines (518,905) 7,533,584 1,984,843
Dividends on common stock (657,007) (769,485) (770,517)
Exercise of stock options 306,310 178,120 21,000
Payments to acquire treasury stock (2,803,903) (3,314,645) (1,010,153)
Net cash provided by (used in)
financing activities 7,073,430 (5,673,077) (1,240,578)
Increase (decrease) in cash
and cash equivalents (257,800) 901,299 (1,052,697)
Cash and cash equivalents
at beginning of period 4,326,474 3,425,175 4,477,872
Cash and cash equivalents
at end of period $ 4,068,674 4,326,474 3,425,175
Supplemental disclosures of
cash flow information:
Noncash investing and
financing activities
Conversion of loans to
foreclosed real estate $ 395,375 116,371 121,050
Conversion of foreclosed
real estate to loans $ 134,000 6,950 152,150
Transfer of investment securities from
held to maturity to available for sale $ 3,766,292 - -
Cash paid during the period for
Interest (net of interest credited) $ 1,577,100 2,062,670 2,018,878
Income taxes $ 468,514 583,928 441,560
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See accompanying notes to consolidated financial statements.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 and 1997
NOTE 1: Organization and Summary of Significant Accounting Policies
Organization
Southern Missouri Bancorp, Inc., a Missouri corporation (the Company) was organized in 1994 and is the parent company of Southern Missouri Bank and Trust (the Bank) and the Bank's wholly- owned subsidiary S.M.S. Financial Services, Inc. Substantially all of the Company's consolidated revenues are derived from the operations of the Bank, and the Bank represents substantially all of the Company's consolidated assets and liabilities.
Basis of Financial Statement Presentation
The financial statements of the Company have been prepared in conformity with generally accepted accounting principles and general practices within the financial institution industry. In the normal course of business, the Company encounters two significant types of risk; economic and regulatory. Economic risk is comprised of interest rate risk, credit risk, and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities reprice on a different basis than its interest-earning assets. Credit risk is the risk of default on the Company's loan portfolio that results from the borrowers' inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable and the value of the Company's investment in real estate.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. The determination of the provision for loan losses and the valuation of real estate are based on estimates that are particularly susceptible to changes in the economic environment and market conditions. These balances may be adjusted in the future based on such changes, or based on requirements of regulatory examiners of the Company's subsidiary.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank's wholly-owned subsidiary, S.M.S. Financial Services, Inc. The insurance agency of S.M.S. Financial Services, Inc. was sold effective 5-31-99. The operations of the agency were not material to the consolidated financial condition or operations of the Company. All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and due from depository institutions and interest- bearing deposits in other depository institutions with original maturities of three months or less. Interest bearing deposits in other depository institutions were $2,430,037 and $1,898,619 at June 30, 1999 and 1998, respectively.
Investment and Mortgage-Backed and Related Securities
Effective April 1, 1999, the Company adopted Statement of Financial Accounting Standards(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. The statement further requires that all derivatives should be recognized as either assets or liabilities and measured at the fair value. The accounting for changes in the fair value, or gains and losses, of a derivative depends on the use of the derivative and resulting designation. Presently, management does not intend to purchase derivative instruments or enter into hedging activities.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 and 1997
With the adoption of SFAS No. 133, the Company transferred its remaining held to maturity investment securities into the available for sale category. All investments transferred were obligations of state and political subdivisions with an amortized cost of $3,766,292, at the date of transfer. The cumulative effect of the change in accounting principle of $132,713, net of income taxes of $77,942, is included as a credit in other comprehensive income for the year ended June 30, 1999. The transition provisions of SFAS No. 133 provide that at the date of initial application, any debt security categorized as held to maturity may be transferred into the available for sale category without calling into question the Company's intent to hold other debt securities to maturity in the future.
Debt securities classified as available for sale are carried at fair value. Their related unrealized gains and losses, net of tax, are reported in accumulated other comprehensive income, a component of stockholders' equity. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt securities that are bought and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. No securities have been classified as trading securities.
Premiums and discounts on debt securities are amortized or accreted as adjustments to income over the estimated life of the security using the level yield method. Gain or loss on the sale of securities is based on the specific identification method. The fair value of securities is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
The Company does not invest in collateralized mortgage obligations that are considered high risk.
The Bank is a member of the Federal Home Loan Bank system. As a member of this system, it is required to maintain an investment in capital stock of the Federal Home Loan Bank (FHLB) in an amount equal to the greater of 1% of its outstanding home loans, 0.3% of its total assets, or one-twentieth of its outstanding advances from FHLB.
Loans Receivable, Net
Loans receivable, net are stated at unpaid principal balances, less the allowance for loan losses, net deferred loan origination fees, deferred gain on real estate and unearned discounts.
Discounts on mortgage loans are amortized to income using the interest method over the remaining period to contractual maturity adjusted for prepayments. Discounts on consumer loans are recognized over the lives of the loans using the interest method.
The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 and 1997
Loans are placed on nonaccrual status upon becoming 90 days contractually past due as to principal or interest, and in management's opinion full collection of interest is doubtful. Interest income previously accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income. Cash receipts on a nonaccrual loan are applied to principal and interest in accordance with its contractual terms unless full payment of principal is not expected, in which case cash receipts, whether designated as principal or interest, are applied as a reduction of the carrying value of the loan. A non-accrual loan is generally returned to accrual status when principal and interest payments are current, full collectibility of principal and interest is reasonably assured and a consistent record of performance has been demonstrated.
In accordance with SFAS No. 114, "Accounting by Creditor for Impairment of a Loan," as amended the Company considers a loan falling within its scope impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan agreement. SFAS No. 114 does not apply to large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, which, for the Company include small residential real estate loans and consumer loans. Valuation allowances are established for impaired loans for the difference between the loan amount and fair value of collateral less estimated selling costs. Impaired loans are placed on nonaccrual status at the point they become contractually delinquent 90 days or more and cash receipts are applied, and interest income recognized, pursuant to the discussion above for nonaccrual loans. Impairment losses are recognized through an increase in the allowance for loan losses.
Loan Origination Fees
Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method over the contractual life of the loans.
Foreclosed Real Estate
Real estate acquired by foreclosure or by deed in lieu of foreclosure is initially recorded at the lower of cost or fair value less estimated selling costs. Costs for development and improvement of the property are capitalized.
Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its estimated fair value, less estimated selling costs.
Loans to facilitate the sale of real estate acquired in foreclosure are discounted if made at less than market rates. Discounts are amortized over the fixed interest period of each loan using the interest method.
Income Taxes
The Company and its subsidiary file consolidated income tax returns. Deferred income taxes are provided on temporary differences between the financial reporting bases and income tax bases of the Company's assets and liabilities.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and include expenditures for major betterments and renewals. Maintenance, repairs, and minor renewals are expensed as incurred. When property is retired or sold, the retired asset and related accumulated depreciation are removed from the accounts and the resulting gain or loss taken into income.
Depreciation is computed by use of straight-line and accelerated methods over the estimated useful lives of the assets. Estimated lives are generally twenty to fifty years for premises, and five to seven years for equipment.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 and 1997
Earnings Per Share
Basic income per share is computed using the weighted average number of common shares outstanding during each year. Diluted income per share includes the effect of all dilutive potential common shares (primarily stock options) outstanding during each year.
Segments
Southern Missouri Bancorp, Inc. through the branch network of its subsidiary, Southern Missouri Bank and Trust, provides a broad range of financial services to individuals and companies in Southeast Missouri. These services include demand, time and savings deposits, and lending activities. While the Company's chief decision makers monitor the revenue streams of the various Company products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company's banking operations are considered by management to be aggregated in one reportable segment.
The following paragraphs summarize the impact of new accounting pronouncements:
SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" revised and standardized employers' disclosures about pension and other postretirement benefit plans. It did not change the measurement or recognition of those plans. The Company has adopted the disclosure requirements of SFAS No. 132 in the 1999 financial statements.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." The statement amends SFAS No. 65 and No. 115. The statement requires that after the securitization of a mortgage loan held for sale, any retained mortgage-backed securities must be classified under the provisions of SFAS No. 115. Mortgage banking enterprises must classify as trading any retained mortgage-backed securities that it commits to sell before or during the securitization process. The statement is effective for the first fiscal quarter of the fiscal year beginning after December 15, 1998. SFAS No. 134 is not expected to affect the Bank's financial position or results of operations of the Bank.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 and 1997
NOTE 2: Investment and Mortgage-Backed and Related Securities
Available for Sale - The amortized cost, gross unrealized gains, gross unrealized losses and estimated market value of securities available for sale consisted of the following:
June 30, 1999
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
U.S. government and federal
agency obligations $ 15,579,972 - 359,977 15,219,995
Obligations of states and
political subdivisions 5,591,415 167,634 - 5,759,049
Total investment securities 21,171,387 167,634 359,977 20,979,044
Mortgage-backed and related securities:
GNMA certificates 4,971,128 18,253 8,673 4,980,708
FNMA certificates 2,124,168 4,689 21,985 2,106,872
FHLMC certificates 240,000 - 276 239,724
Collateralized mortgage
obligations 9,770,222 550 198,435 9,572,337
Total mortgage-backed and
related securities 17,105,518 23,492 229,369 16,899,641
Total $ 38,276,905 191,126 589,346 37,878,685
June 30, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
U.S. government and federal
agency obligations $ 6,990,453 8,838 2,074 6,997,217
Obligations of states and
political subdivisions 2,296,754 58,441 - 2,355,195
Total investment securities 9,287,207 67,279 2,074 9,352,412
Mortgage-backed and related securities:
GNMA certificates 6,288,989 39,622 2,345 6,326,266
FNMA certificates 3,850,598 24,513 29,093 3,846,018
FHLMC certificates 1,412,755 18,687 5,357 1,426,085
Collateralized mortgage
obligations 2,711,092 - 155,365 2,555,727
Total mortgage-backed and
related securities 14,263,434 82,822 192,160 14,154,096
Total $ 23,550,64 150,101 194,234 23,506,508
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
Held to Maturity - The amortized costs, gross unrealized gains, gross unrealized losses and estimated market value of securities held to maturity consisted of the following:
June 30, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
U.S. government and federal
agency obligations $ 600,000 - 13,500 586,500
Obligations of states and
political subdivisions 4,045,407 164,977 - 4,210,384
Total $ 4,645,407 164,977 13,500 4,796,884
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The amortized cost and estimated market value of investment and mortgage-backed and related securities by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
June 30, 1999
Available for Sale
Estimated
Amortized Market
Cost Value
Due in one year or less $ 280,000 281,242
Due after one year
thru 5 years 18,367,701 18,065,798
Due after 5 years
thru 10 years 939,964 997,358
Due after 10 years 1,583,722 1,634,646
Total investment
securities 21,171,387 20,979,044
Mortgage-backed and
related securities 17,105,518 16,899,641
Total $ 38,276,905 37,878,685
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
Proceeds from sales of investment and mortgage-backed and related securities and gross realized gains and losses are summarized below.
June 30,
1999 1998 1997
Proceeds from sales:
Investment securities $ 999,375 2,584,919 2,081,950
Mortgage-backed and related
securities 1,700,497 7,543,773 6,475,469
Gross realized gains:
Investment securities - 12,427 58,462
Mortgage-backed and related
securities 4,879 81,187 44,854
Gross realized losses:
Investment securities (625) (3,222) -
Mortgage-backed and related
securities (32,821) (10,989) (55,240)
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Included in the 1998 gross realized gains on mortgage-backed and related securities are sales of small balance pools of mortgage- backed securities held to maturity, that had an amortized cost of $50,192 which met the condition described under paragraph 11b of SFAS No. 115 and are permitted to be sold prior to maturity.
The amortized cost of investment and mortgage-backed securities pledged as collateral to secure public deposits amounted to $11,692,878 and $10,662,083 at June 30, 1999 and 1998, respectively.
Adjustable rate mortgage loans included in mortgage-backed and related securities at June 30, 1999 and 1998 amounted to $6,866,095 and $9,780,955, respectively. All adjustable rate mortgage-backed and related securities at June 30, 1999 and 1998 are recorded as available for sale.
NOTE 3: Loans Receivable, net
Loans receivable, net are summarized as follows:
June 30,
1999 1998
Real estate loans:
Conventional $ 87,246,749 83,398,800
Construction 3,553,651 2,707,601
Commercial 19,047,821 22,529,953
Loans secured by deposit accounts 826,981 671,123
Consumer loans 10,113,558 11,792,529
120,788,760 121,100,006
Loans in process (1,296,384) (653,095)
Deferred loan fees, net (42,491) (61,240)
Deferred gain on sale of real estate (10,100) (7,234)
Allowance for loan losses (1,191,147) (1,295,222)
$ 118,248,638 119,083,215
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
Adjustable-rate loans included in the loan portfolio amounted to $77,619,448 and $95,429,990 at June 30, 1999 and 1998 respectively.
One-to four-family residential real estate loans amounted to $85,196,804 and $81,257,000 at June 30, 1999 and 1998, respectively.
Real estate construction loans are secured principally by single and multi-family dwelling units.
Commercial real estate loans are secured principally by motels, medical centers, churches and fast food restaurants.
Following is a summary of activity in the allowance for loan losses:
June 30,
1999 1998 1997
Balance, beginning of period $ 1,295,222 706,487 627,564
Loans charged-off (429,998) (326,382) (162,377)
Recoveries of loans previously
charged off 90,923 132,108 -
Net charge-offs (339,075) (194,274) (162,377)
Provision charged to expense 235,000 783,009 241,300
Balance, end of period $ 1,191,147 1,295,222 706,487
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The Company ceased recognition of interest income on loans with a book value of $181,000, $533,000 and $1,380,000 at June 30, 1999, 1998 and 1997, respectively. The average balance of nonaccrual loans for the year ended June 30, 1999 was approximately $321,000. Allowance for losses on nonaccrual loans amounted to approximately $18,000 at June 30, 1999. Interest income of approximately $13,000, $15,000 and $98,000 was recognized on these loans for the years ended June 30, 1999, 1998 and 1997, respectively. Gross interest income would have been approximately $17,000, $46,000 and $124,000 for the years ended June 30, 1999, 1998 and 1997, respectively, if the interest payments had been received in accordance with the original terms. The Savings Bank is not committed to lend additional funds to customers whose loans have been placed on nonaccrual.
Of the above nonaccrual loans at June 30, 1999, 1998, and 1997 $0, $316,000, and $0, respectively, was considered to be impaired. The average balance of impaired loans for the years ended June 30, 1999, 1998, and 1997 was $26,000, $297,000, and $0, respectively.
Following is a summary of loans to directors, executive officers and loans to corporations in which executive officers and directors have a substantial interest:
Balance, June 30, 1997 $ 574,005 Additions 86,956 Repayments (202,525) Balance, June 30, 1998 458,436 Additions 25,737 Repayments (49,603) Balance, June 30, 1999 $ 434,570 |
These loans were made on substantially the same terms as those prevailing at the time for comparable transactions with unaffiliated persons.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
NOTE 4: Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
June 30,
1999 1998
Investment securities $ 380,540 216,380
Mortgage-backed and related securities 92,371 83,443
Loans receivable 560,165 607,955
$ 1,033,076 907,778
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NOTE 5: Foreclosed Real Estate
Foreclosed real estate consists of the following:
June 30,
1999 1998
Foreclosed real estate $ 477,537 171,721
Allowance for losses - -
$ 477,537 171,721
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Activity in the allowance for losses for foreclosed real estate is as follows:
June 30,
1999 1998 1997
Balance, beginning of period $ 0 335,297 335,297
Charge-offs and recoveries, net 0 (283,747) 176,533
Provisions (credit) for losses on
foreclosed real estate 0 (51,550) (176,533)
Balance, end of period $ 0 0 335,297
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NOTE 6: Premises and Equipment
Following is a summary of premises and equipment:
June 30,
1999 1998
Land $ 342,042 342,042
Buildings and improvements 2,303,103 2,175,325
Furniture, fixtures, and equipment 1,124,009 1,297,611
Automobiles 62,821 62,821
3,831,975 3,877,799
Less accumulated depreciation (1,953,256) (1,994,735)
$ 1,878,719 1,883,064
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Depreciation expense for the years ended June 30, 1999, 1998 and 1997 was $247,668, $189,522 and $157,252, respectively.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
NOTE 7: Deposits
Deposits are summarized as follows:
June 30,
1999 1998
Non-interest bearing accounts $ 2,316,468 2,590,177
NOW accounts 9,112,465 7,510,236
Money market deposit accounts 13,222,131 8,250,437
Savings accounts 7,349,881 7,318,578
Total transactions accounts 32,000,945 25,669,428
Certificates:
4.00 - 4.99% 59,838,980 8,850,236
5.00 - 5.99% 28,231,135 74,667,090
6.00 - 6.99% - 120,183
7.00 - 7.99% 25,360 25,949
8.00 - 8.99% 58,120 58,372
9.00 - 9.99% - 19,178
Total certificates, 4.94%
and 5.16%, respectively 88,153,595 83,741,008
Total deposits $ 120,154,540 109,410,436
Weighted-average rates - deposits 4.47% 4.59%
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The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $15,266,726 and $12,021,623 at June 30, 1999 and 1998, respectively.
Certificate maturities at June 30, 1999 are summarized as follows:
July 1, 1999 to June 30, 2000 $ 76,618,226
July 1, 2000 to June 30, 2001 7,386,507
July 1, 2001 to June 30, 2002 2,383,276
July 1, 2002 to June 30, 2003 516,519
July 1, 2003 to June 30, 2004 1,249,067
$ 88,153,595
Interest expense on deposits is summarized as follows:
Year Ended June 30,
1999 1998 1997
NOW accounts $ 210,180 186,254 178,055
Money market deposit accounts 414,011 240,803 236,953
Savings accounts 181,567 202,143 199,583
Certificates of deposit 4,457,467 4,521,491 4,947,675
$ 5,263,225 5,150,691 5,562,266
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
NOTE 8: Advances from Federal Home Loan Bank of Des Moines
Advances from Federal Home Loan Bank of Des Moines are summarized as follows:
Callable or
Quarterly Interest 1999 1998
Maturity Thereafter Rate
1-22-08 7-22-99 4.79 16,800,000 16,800,000
2-06-08 2-06-01 5.17 3,000,000 3,000,000
7-02-99 - 4.99 750,000 -
7-03-98 - 5.69 - 1,000,000
8-27-08 - 5.97 - 159,238
9-08-08 - 5.80 - 109,667
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$ 20,550,000 21,068,905
Weighted average rate 4.85% 4.97%
In addition to the above advances, the Bank had an available line of credit amounting to $39,785,000, $42,131,000 and $50,000,000 with the FHLB at June 30, 1999, 1998 and 1997, respectively.
Advances from Federal Home Loan Bank of Des Moines are secured by FHLB stock and single-family mortgage loans of $26,715,000 and $31,603,000 at June 30, 1999 and 1998, respectively. Schedule principal maturities of advances from Federal Home Loan Bank of Des Moines over the next five years are as follows:
July 1, 1999 to June 30, 2000 $ 750,000
July 1, 2000 to June 30, 2001 -
July 1, 2001 to June 30, 2002 -
July 1, 2002 to June 30, 2003 -
July 1, 2003 to June 30, 2004 -
Thereafter 19,800,000
NOTE 9: Employee Benefits
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The Savings Bank has adopted a 401(k) profit sharing plan that covers substantially all eligible employees. Contributions to the plan are at the discretion of the Board of Directors of the Savings Bank. During 1999, 1998 and 1997 there were no contributions made to the plan.
The Savings Bank established a tax-qualified employee stock ownership plan (ESOP). The plan covers substantially all employees who have attained the age of 21 and completed one year of service.
The Savings Bank makes contributions to the ESOP equal to the ESOP's debt service less dividends on unallocated ESOP shares used to repay the ESOP loan. Dividends on allocated ESOP shares are paid to participants of the ESOP. The ESOP shares are pledged as collateral on the ESOP loan.
Shares are released from collateral and allocated to participants based on pro-rata compensation as the loan is repaid over seven years. Effective July 1, 1998 the loan terms were modified and principal payments were extended an additional four years. Benefits are vested over five years. Forfeitures are allocated on the same basis as other contributions. Benefits are payable upon a participant's retirement, death, disability or separation of service. The purchase of the shares of the ESOP has been recorded in the consolidated financial statements through a credit to common stock and additional paid- in capital with a corresponding charge to a contra equity account for the unreleased shares. As shares are committed to be released from collateral, the Savings Bank reports compensation expense equal to the average fair value of the ESOP shares committed to be released. The ESOP expense for 1999, 1998 and 1997 was $135,511, $399,526, and $308,847, respectively.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
The number of ESOP shares at June 30, 1999 were as follows:
Allocated shares 84,712
Unreleased shares 42,686
Total ESOP shares 127,398
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The fair value of unreleased ESOP shares at June 30, 1999 was $570,925.
The Board of Directors of the Bank adopted a management recognition plan (MRP) for the benefit of non-employee directors and two MRPs for officers and key employees (who may also be directors). The Bank contributed 53,590 shares to the MRP. Subsequent to the reorganization an additional 17,826 shares were purchased from the Company by the MRP. During 1994 the Bank granted 17,825 shares of common stock to non-employee directors and 45,593 shares to officers and key employees. During 1999 and 1998 the Bank granted 1,500 shares to a new executive officer. The market value of the common stock at the grant dates was $13.50 and $19.875. The shares granted are in the form of restricted stock payable at the rate of 20% of such shares per year. Compensation expense in the amount of the fair market value of the common stock at the date of grant will be recognized pro rata over the five years during which the shares are payable.
The Board of Directors can terminate the MRPs at any time, and if it does so, any shares not allocated will revert to the Company. The MRP expense for 1999, 1998 and 1997 was $66,309, $123,658 and $118,604, respectively.
The Board of Directors has also adopted a stock option plan. The purpose of the plan is to provide additional incentive to certain directors, officers and key employees of the Bank. In connection with conversion to stock form in April 1994, the Bank has granted non-incentive options of 53,560 shares to non- employee directors and incentive options of 72,489 shares to certain officers and key personnel of which 2,000 shares have been forfeited. The stock options were granted at $10 per share which was equal to the market value at the date of grant. During 1998 10,000 additional shares were granted at $19.75 and 15,000 shares were granted at $19.875 which was equal to the market value at the date of the grants. During 1999 the 10,000 shares granted in 1998 at $19.75 were repriced at $13.50 which was equal to the market value at the date of repricing. All of the aforementioned options are 100% vested at the grant date. During 1999 15,000 additional shares were granted at $13.50 which was equal to the market value at the date of the grant. Of these 15,000 shares granted, 7,600 shares vested at the grant date and the remaining 7,400 shares vest on January 3, 2000. All options expire ten years from the date of the grant. In addition 14,491 shares are unallocated.
Changes in options outstanding were as follows:
Number of Weighted Average
Shares Exercise Price
Balance at June 30, 1996 113,237 $10.00
Granted - -
Exercised (2,100) 10.00
Balance at June 30, 1997 111,137 10.00
Granted 25,000 19.83
Exercised (17,812) 10.00
Balance at June 30, 1998 118,325 12.08
Granted 15,000 13.50
Exercised (30,631) 10.00
Balance at June 30, 1999 102,694 12.29
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The Company has estimated the fair value of awards granted under its stock option plan during 1999 and 1998 utilizing the Black- Scholes pricing model.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
For the options granted in 1999 and 1998, the Company has applied Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had compensation cost for the Company's stock option plan been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and diluted earnings per share would have been reduced by approximately $38,000 and $111,000, or $.03 and $.07 per share in 1999 and 1998, respectively.
Following is a summary of the fair values of options granted using the Black-Scholes pricing model.
1999 1998
Fair value at grant date $ 57,000 $ 167,900
Assumptions:
Expected dividend yield 5.00% 5.00%
Expected volatility 19.00% 38.00%
Risk-free interest rate 5.64% 5.67%
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Weighted-average expected life 5 years 5 years
The Bank adopted a directors' retirement plan in 1994 for the directors at that time. The directors' retirement plan provides that each non-employee director (participant) shall receive, upon termination of service on the Board on or after age 60, other than termination for cause, a benefit in equal annual installments over a five year period. The benefit will be based upon the product of the participant's vesting percentage and the total Board fees paid to the participant during the calendar year preceding termination of service on the Board. The vesting percentage shall be determined based upon the participant's years of service on the Board, whether before or after the reorganization date, according to the following schedule:
Full Years of Service Non-Employee Director's
on the Board Vested Percentage
Less than 5 0%
5 to 9 50%
10 to 14 75%
15 or more 100%
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In the event that the participant dies before collecting any or all of the benefits, the Bank shall pay the participant's beneficiary. No benefits shall be payable to anyone other than the beneficiary, and shall terminate on the death of the beneficiary.
The following items are components of net pension cost for the years ended June 30, 1999, 1998 and 1997.
1999 1998 1997
Service cost - benefits earned
during the year $ 1,836 1,319 2,783
Interest cost on benefit obligation 11,401 2,625 11,634
Amortization of prior service cost
and net obligation 0 33,218 33,218
Amortization of unrecognized gains (1,178) - -
(Under) over accrual - - (2,175)
Net pension cost $ 12,059 37,162 45,460
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
The following table sets forth the directors' retirement plan's funded status and amounts recognized in the consolidated financial statements at June 30, 1999 and 1998:
1999 1998 Actuarial present value of benefit obligations:
Vested accumulated benefits $ 162,054 175,652 Non-vested accumulated benefits 5,283 13,228 Total accumulated benefits 167,337 188,880 Effect of projected future fee increases - - Projected benefit obligation for service rendered to date 167,337 188,880 Unrecognized net gain 24,002 - Accrued pension cost included in other liabilities $ 191,339 188,880 |
A reconciliation of the projected benefit obligation and fair value of plan assets is summarized as follows:
1999 1998
Projected Plan Assets Projected Plan Assets
Benefit at Benefit at
Obligation Fair Value Obligation Fair Value
Balance, beginning of year 188,880 - 184,936 -
Service cost 1,836 - 1,319 -
Interest cost 12,073 - 2,625 -
Actual return - - - -
Actuarial gain (25,852) - - -
Contributions - 9,600 - -
Benefits paid (9,600) (9,600) - -
Balance, end of year $ 167,337 - 188,880 -
1999 1998 1997
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Weighted average assumptions as of June 30:
Discount rate 7% 7% 7%
Rate of directors fees increase 0% 0% 0%
NOTE 10: Income Taxes
On August 20, 1996 the Small Business Job Protection Act of 1996 was signed into law. Under the Act, tax bad debt reserves in excess of the base year level (June 30, 1988) are subject to recapture and payable in equal amounts over six years in tax years beginning July 1, 1996. Since the Bank's tax bad debt reserves were less than its base year level and other conditions were met, the Bank did not have any recapture. Provisions of the Act repealed the percentage of taxable income method for the Bank effective July 1, 1996. The Bank is permitted to make additions to the tax bad debt reserve using the experience method.
SFAS No. 109 requires the Bank to establish a deferred tax liability for the tax bad debt reserves over the base year amounts. The Bank's base year tax bad debt reserves are $1,798,626. The estimated deferred tax liability on such amount is approximately $611,000, which has not been recorded in the accompanying consolidated financial statements. If these tax bad debt reserves are used for other than loan losses, the amount will be subject to Federal income taxes at the then prevailing corporate rate.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
The components of net deferred tax assets are summarized as follows:
1999 1998
Deferred tax assets:
Provision for losses on loans
and foreclosed real estate $ 356,139 408,314
Accrued compensation and benefits 94,631 113,834
Base year tax bad debt reserve at 12/31/87
in excess of current tax bad debt reserve 30,484 110,897
Unrealized loss on available for sale
securities 147,342 16,329
Gross deferred tax assets 628,596 649,374
Valuation allowance (30,484) (110,897)
Total deferred tax assets 598,112 538,477
Deferred tax liabilities:
FHLB stock dividends 166,566 166,566
Purchase accounting adjustments 55,327 58,224
Premises and equipment, tax vs book
accumulated depreciation 66,683 50,407
Installment sale 181,943 -
Total deferred tax liabilities 470,519 275,197
Net deferred tax assets $ 127,593 263,280
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The valuation allowance decreased by $80,413 during the year ended June 30, 1999.
Income taxes are summarized as follows:
Year Ended June 30,
1999 1998 1997
Current:
Federal $ 495,000 548,500 358,000
State 98,300 39,500 82,700
593,300 588,000 440,700
Deferred:
Federal 245,700 (65,000) (900)
State 21,000 (1,000) -
266,700 (66,000) (900)
$ 860,000 522,000 439,800
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The provision for income taxes varies from the amount of income tax determined by applying the statutory Federal income tax rate to income before income taxes as a result of the following differences:
Year Ended June 30,
1999 1998 1997
Tax at statutory Federal rate $ 851,630 539,397 508,125
Increase (reduction) in taxes
resulting from:
Nontaxable municipal income (94,951) (98,135) (121,946)
State tax, net of Federal benefit 83,592 26,070 54,582
Nondeductible ESOP expenses 15,894 66,463 35,632
Other, net 3,835 (11,795) (36,593)
Actual provision $ 860,000 $ 522,000 439,800
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
Deferred income tax expense represents the tax effects of reporting income and expense in different periods for financial reporting purposes than tax purposes as follows:
Year Ended June 30,
1999 1998 1997
Accrued income and expense $ 19,203 (30,199) (16,820)
Purchase accounting adjustments (2,897) (3,926) (3,922)
Provision for losses on loans
and foreclosed real estate 52,175 (54,090) 9,134
Premises and equipment, tax vs
book accumulated depreciation 16,276 22,215 10,708
Installment sale 181,943 - -
$ 266,700 (66,000) (900)
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NOTE 11: Comprehensive Income
SFAS No. 130 "Reporting Comprehensive Income" requires the reporting of comprehensive income and its components. Comprehensive income is defined as the change in equity from transactions and other events and circumstances from non-owner sources, and excludes investments by and distributions to owners. Comprehensive income includes net income and other items of comprehensive income meeting the above criteria. Components of other comprehensive income are as follows:
Year Ended June 30,
1999 1998 1997
Unrealized gains (losses) on
available for sale securities:
Unrealized holding gains (losses)
arising during period $(593,309) 28,876 689,607
Less: reclassification
adjustments for (gains) losses
realized in net income 28,567 (79,161) (48,076)
Total unrealized gains (losses)
on securities (564,742) (50,285) 641,531
Income tax expense (benefit) (208,954) (19,515) 218,780
Net unrealized gains (losses)
on securities (355,788) (30,770) 422,751
Minimum pension liability adjustment - 3,575 2,730
Cumulative effect of change in
accounting principle, net of income
taxes of $77,942 (See Note 1) 132,713 - -
Other comprehensive
income (loss) $(223,075) (27,195) 425,481
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At June 30, 1999 and 1998 accumulated other comprehensive income in the statement of financial condition consisted entirely of unrealized gains (losses) on available for sale investment and mortgage-backed and related securities.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
NOTE 12: Stockholders' Equity and Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital and Tier I risk-based capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average total assets (as defined). Management believes, as of June 30, 1999, that the Bank meets all capital adequacy requirements to which it is subject.
As of June 30, 1999, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's category.
The following table summarizes the Bank's actual and required regulatory capital as of June 30, 1999 and 1998:
To Be Well
Capitalized
Under Prompt
Corrective
For Capital Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
As of June 30, 1999:
Total Capital (to
Risk-Weighted Assets) $21,908 24.5% $ 7,142 >=8.0% $8,927 >=10.0%
Tier I Capital (to
Risk-Weighted Assets) 20,792 23.3% 3,541 >=4.0% 5,356 >= 6.0%
Tier I Capital (to
Average Assets) 20,792 12.7% 6,565 >=4.0% 8,206 >= 5.0%
As of June 30, 1998:
Total Capital (to
Risk-Weighted Assets) 22,257 25.5% 6,970 >=8.0% 8,712 >=10.0%
Tier I Capital (to
Risk-Weighted Assets) 21,167 24.3% 3,485 >=4.0% 5,227 >= 6.0%
Tier I Capital (to
Average Assets) 21,167 13.7% 6,196 >=4.0% 4,356 >= 5.0%
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The Bank's ability to pay dividends on its common stock to the Company is restricted to maintain adequate capital as shown in the above table.
NOTE 13: Commitments and Contingencies
In the ordinary course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. The Bank is involved in litigation of a routine nature which are being defended and handled in the ordinary course of business. These matters are not considered significant to the Company's financial condition.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
NOTE 14: Off-Balance-Sheet and Credit Risk
The Company's consolidated financial statements do not reflect various financial instruments to extend credit to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the statement of financial condition. A summary of the Company's commitments to extend credit and standby letters of credit is as follows:
Contract or Notional Amount
June 30,
1999 1998
Commitments to extend credit $ 6,520,072 3,132,428
Standby letters of credit $ 102,170 40,710
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At June 30, 1999, total commitments to originate fixed rate loans were $3.0 million at interest rates ranging from 6.75% to 9.5%. Commitments to extend credit and standby letters of credit include exposure to some credit loss in the event of nonperformance of the customer. The Company's policies for credit commitments and financial guarantees are the same as those for extension of credit that are recorded in the statement of financial condition. The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period.
The Company grants collateralized commercial, real estate, and consumer loans to customers in southeast Missouri. Although the Company has a diversified portfolio, loans aggregating $87,246,749 at June 30, 1999, are secured by single and multi- family residential real estate in the Company's primary lending area.
NOTE 15: Earnings Per Share
The following table sets forth the computations of basic and diluted earnings per common share for the year ended June 30:
1999 1998 1997
Numerator - net income $ 1,644,764 1,064,463 1,054,687
Denominators
Denominator for basic earnings
per share -
Weighted average shares
outstanding 1,334,299 1,532,910 1,549,032
Common equivalent shares due
to stock options under
treasury stock method 31,793 51,563 38,072
Denominator for diluted
earnings per share 1,366,092 1,584,473 1,587,104
Basic earnings per common
share $ 1.23 .69 .68
Diluted earnings per common
share $ 1.20 .67 .67
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
NOTE 16: Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company's financial instruments at June 30, 1999 and 1998, are summarized as follows:
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Non-trading instruments and
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nonderivatives:
Cash and cash equivalents $ 4,068,674 4,068,674 4,326,474 4,326,474
Investment and mortgage-backed
and related securities: Available for sale 37,878,685 37,878,685 23,506,508 23,506,508 Held to maturity - - 4,645,407 4,796,884 Stock in FHLB of Des Moines 1,091,000 1,091,000 1,053,500 1,053,500 Loans receivable, net 118,248,638 118,890,008 119,083,215 120,374,197 Accrued interest receivable 1,033,076 1,033,076 907,778 907,778 Deposits 120,154,540 118,914,387 109,410,436 109,379,862 Advances from FHLB of Des Moines 20,550,000 19,864,000 21,068,905 21,010,601 |
The following methods and assumptions were used in estimating the fair values of financial instruments:
Cash and cash equivalents are valued at their carrying amounts due to the relatively short period to maturity of the instruments.
Fair values of securities and mortgage-backed and related securities are based on quoted market prices or, if unavailable, quoted market prices of similar securities.
Stock in FHLB of Des Moines is valued at cost, which represents redemption value and approximates fair value.
Fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics are aggregated for purposes of the calculations.
Deposits with no defined maturities, such as NOW accounts, savings accounts and money market deposit accounts, are valued at the amount payable on demand at the reporting date.
The fair value of certificates of deposit is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
Fair value of advances from the FHLB of Des Moines is estimated by discounting maturities using an estimate of the current market for similar instruments.
The carrying amounts of accrued interest approximates their fair value.
SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
NOTE 17: Condensed Parent Company Only Financial Statements
The following condensed statements of financial condition and condensed statements of income and cash flows for Southern Missouri Bancorp, Inc. should be read in conjunction with the consolidated financial statements and the notes thereto.
STATEMENTS OF FINANCIAL CONDITION
At June 30,
Assets 1999 1998
Cash $ 508,585 266,599
Investment securities - available for sale 1,048,701 2,087,247
ESOP note receivable 437,241 510,114
Accrued interest receivable 28,787 62,026
Other assets 121,063 77,165
Equity in net assets of the Bank 20,523,068 21,144,543
Total assets $ 22,667,445 24,147,694
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ 37,983 35,809
Total liabilities 37,983 35,809
Stockholders' equity 22,629,462 24,111,885
Total liabilities and
stockholders' equity $ 22,667,445 24,147,694
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STATEMENTS OF INCOME
Year Ended June 30,
1999 1998 1997
Interest income $ 116,423 279,740 376,383
Dividend from Bank 2,300,000 1,447,206 400,000
2,416,423 1,726,946 776,383
Operating expenses 193,937 202,714 167,246
Income before income taxes and
equity in undistributed income of
the Bank 2,222,486 1,524,232 609,137
Income taxes (44,017) 7,500 48,161
Income before equity in undistributed
income of the Bank 2,266,503 1,516,732 560,976
Equity in undistributed income of
the Bank (621,739) (452,269) 493,711
Net income $ 1,644,764 1,064,463 1,054,687
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
STATEMENTS OF CASH FLOWS
Year Ended June 30
1999 1998 1997
Cash flows from operating activities:
Net income $ 1,644,764 1,064,463 1,054,687
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed income
of the Bank 621,739 452,269 (493,711)
Amortization of premiums (discounts)
on investment securities 31,053 29,900 33,012
Other adjustments, net 26,782 11,420 8,747
Net cash provided by
operating activities 2,324,338 1,558,052 602,735
Cash flows from investing activities:
Principal collected on loan to ESOP 72,873 204,046 204,046
Proceeds from sales and maturities
of investment securities, available
for sale 999,375 1,625,000 870,000
Net cash provided by
investing activities 1,072,248 1,829,046 1,074,046
Cash flows from financing activities:
Dividends on common stock (657,007) (769,485) (770,517)
Exercise of stock options 306,310 178,120 21,000
Payments to acquire treasury stock (2,803,903) (3,314,645) (1,010,153)
Net cash used in
financing activities (3,154,600) (3,906,010) (1,759,670)
Net increase (decrease) in cash and
cash equivalents 241,986 (518,912) (82,889)
Cash and cash equivalents at beginning
of period 266,599 785,511 868,400
Cash and cash equivalents at end of period $ 508,585 266,599 785,511
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SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 and 1997
NOTE 18: Quarterly Financial Data (Unaudited)
Quarterly operating data for the years ended June 30 is summarized as follows (in thousands):
First Second Third Fourth
1999: Quarter Quarter Quarter Quarter
Interest income $ 2,827 2,837 2,783 2,967
Interest expense 1,542 1,591 1,533 1,581
Net interest income 1,285 1,246 1,250 1,386
Provision for loan losses 10 15 10 200
Noninterest income 158 195 250 652
Noninterest expense 881 912 998 891
Income before income taxes 552 514 492 947
Income taxes 195 176 163 326
Net income $ 357 338 329 621
First Second Third Fourth
1998: Quarter Quarter Quarter Quarter
Interest income $ 2,876 2,897 2,842 2,829
Interest expense 1,607 1,589 1,514 1,502
Net interest income 1,269 1,308 1,328 1,327
Provision for loan losses 23 114 263 383
Noninterest income 173 179 161 284
Noninterest expense 867 902 987 904
Income before income taxes 552 471 239 324
Income taxes 195 178 76 73
Net income $ 357 293 163 251
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DIRECTORS AND OFFICERS
SOUTHERN MISSOURI BANCORP, INC.
DIRECTORS:
Thadis R. Seifert
Chairman of the Board
President
Retired former executive vice
president
of Savings Bank
Leonard M. Ehlers
Vice-Chairman
Retired court reporter of the 36th
Judicial Circuit
Donald R. Crandell
Retired former president and
chief executive officer
of Savings Bank
Samuel H. Smith
Engineer and majority owner of
S.H. Smith and Company, Inc.
James W. Tatum
Retired certified public
accountant
Ronnie D. Black
Executive Director General
Association
of General Baptist
L. Douglas Bagby
General Manager Municipal
Utilities of
City of Poplar Bluff
EXECUTIVE OFFICERS:
Thadis R. Seifert
President
Greg Steffens
Chief Financial Officer
James W. Tatum
Vice President
SOUTHERN MISSOURI BANK AND TRUST
DIRECTORS:
Leonard W. Ehlers
Chairman of the Board
Retired court reporter of the 36th
Judicial Circuit
James W. Tatum
Vice-Chairman
Retired certified public
accountant
Thadis R. Seifert
Retired former executive vice
president
of Savings Bank
Samuel H. Smith
Engineer and majority owner of
S.H. Smith and Company, Inc.
Ronnie D. Black
Executive Director General
Association
of General Baptists
L. Douglas Bagby
General Manager Municipal
Utilities of
City of Poplar Bluff
EXECUTIVE OFFICERS:
Greg Steffens
President
Chief Executive Officer
Chief Financial Officer
Wilma Case
Senior Vice President
Kent Nichols
Senior Vice President
Chairman Loan Department
CORPORATE INFORMATION
CORPORATE HEADQUARTERS TRANSFER AGENT
531 Vine Street Registrar and Transfer Company
Poplar Bluff, Missouri 63901 10 Commerce Drive
Cranford, New Jersey 07016
INDEPENDENT AUDITORS COMMON STOCK
Kraft, Miles and Tatum, LLC Nasdaq Stock Market
Poplar Bluff, Missouri 63901 Nasdaq Symbol: SMBC
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SPECIAL COUNSEL
Silver, Freedman & Taff, L.L.P.
Washington, D.C.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held Monday, October 18, 1999, at 9:00 a.m., Central Time, at the Greater Poplar Bluff Area Chamber of Commerce Building, 1111 West Pine, Poplar Bluff, Missouri 63901.
ANNUAL REPORT ON FORM 10-KSB
A copy of the Company's annual report on Form 10-KSB, including financial statement schedules as filed with the Securities and Exchange Commission, will be furnished without charge to stockholders as of the record date upon written request to the Secretary, Southern Missouri Bancorp, Inc., 531 Vine Street, Poplar Bluff, Missouri 63901.
Exhibit 10(c)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this 30th day of June, 1999, by and between Southern Missouri Bank & Trust Co.(hereinafter referred to as the "Bank"), and Greg Steffens (the "Employee").
WHEREAS, the Employee is currently serving as President and Chief Executive Officer of the Bank and the Chief Financial Officer of Southern Missouri Bancorp, Inc., the parent company of the Bank (the "Holding Company"); and
WHEREAS, the board of directors of the Bank ("Board of Directors") recognizes that, as is the case with publicly held corporations generally, the possibility of a change in control of the Holding Company and/or the Bank may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Bank, the Holding Company and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee to the Employee's assigned duties without distraction in the face of potentially disruptive circumstances arising from the possibility of a change in control of the Holding Company or the Bank, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of
a nature that (i) results in a change in control of the Bank or
the Holding Company within the meaning of the Home Owners' Loan
Act of 1933 with respect to the Holding Company, or successor
statutes and regulations, and the Change in Bank Control Act, 12
U.S.C. 1817(j) and applicable regulations thereunder; or (ii)
would be required to be reported in response to Item 1 of the
current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); (2) any person (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly of securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities; (3) individuals who are
members of the board of directors of the Bank or the Holding
Company on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was
approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or
(4) approval by the Holding Company's stockholders of a plan of
reorganization, merger or consolidation of the Bank or the
Holding Company, sale of all or substantially all of the assets
of the Bank or the Holding Company, a similar transaction in
which the Bank or the Holding Company is not the resulting
entity, or a transaction at the completion of which the former
stockholders of the acquired corporation become the holders of
more than 40% of the outstanding common stock of the Holding
Company and the Holding Company is the resulting entity of such
transaction; provided that the term "change in control" shall not
include an acquisition of securities by an employee benefit plan
of the Bank or the Holding Company. In the application of
regulations under the Change in Bank Control Act, determinations
to be made by the applicable federal banking regulator shall be
made by the Board of Directors.
(b) The term "Commencement Date" means the date of this Agreement, as set forth on page 1.
(c) The term "Date of Termination" means the earlier
of (1) the date upon which the Bank gives notice to the Employee
of the termination of the Employee's employment with the Bank or
(2) the date upon which the Employee ceases to serve as an
employee of the Bank.
(d) The term "Involuntary Termination" means termination of the employment of Employee without the Employee's express written consent, and shall include a material diminution of or interference with the Employee's duties, responsibilities and benefits as President and Chief Executive Officer of the Bank, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Bank's headquarters office as of the date hereof; (2) a material demotion of the Employee; (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank- or Holding Company-wide reduction in staff; (4) a material adverse change in the Employee's salary, perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Holding Company; and (5) a material permanent increase in the required hours of work or the workload of the Employee. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of one year commencing on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.
3. Employment. The Employee is employed as President and Chief Executive Officer of the Bank. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank as the Board of Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Bank agrees to pay the Employee during the term of this Agreement the salary established by the Board of Directors, which shall be at least the Employee's salary in effect as of the Commencement Date. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.
(b) Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Bank's Board of Directors for executive officers and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors
may terminate the Employee's employment at any time, but, except
in the case of Termination for Cause, termination of employment
shall not prejudice the Employee's right to compensation or other
benefits under this Agreement. In the event of the Involuntary
Termination of the Employee, if the Employee has offered to
continue to provide the specific services contemplated to be
provided by him pursuant to this Agreement and such offer has
been declined, then, as agreed upon liquidated damages and as the
sole and exclusive remedy of the Employee against the Bank under
this Agreement, but subject to the provisions of Section 7(b) and
(e) of this Agreement; during the period of the remaining term of
this Agreement (the "Liquidated Damage Period") the Bank shall
(i) pay to the Employee, monthly, one-twelfth of the employee's
salary at the annual rate in effect immediately prior to the Date
of Termination, and one-twelfth of the average annual amount of
cash bonus and cash incentive compensation of the Employee, based
on the average amounts of such compensation earned by the
Employee for the two full calendar years preceding the Date of
Termination and (ii) maintain substantially the same group life
insurance, hospitalization, medical, dental, prescription drug
and other health benefits, and long-term disability insurance (if
any) for the benefit of the Employee and his dependents and
beneficiaries who would have been eligible for such benefits if
the Employee had not suffered Involuntary Termination, on terms
substantially as favorable to the Employee including amounts of
coverage and deductibles and other costs to him in effect
immediately prior to such Involuntary Termination (the
"Employee's Health Coverage").
(b) Reduction of the Bank's Obligations Under Section 7(a).
(1) In the event the Employee becomes entitled to receive a change in control payment pursuant to Section 7(e) hereof and agreed upon liquidated damages pursuant to Section 7(a) hereof, then in that event (i) the Bank's obligation with respect to cash damages under Section 7(a) hereof shall be reduced (but not below zero) by the Employee's Cash Income (as hereinafter defined), if any, earned from providing personal services (other than to the Holding Company, the Bank or their successors) during the Liquidated Damage Period; and (ii) the Bank's obligation to maintain the Employee's Health Coverage under Section 7(a) shall be reduced to the extent, if any, that the Employee receives such benefits, on no less favorable terms, from another employer during the Liquidated Damage Period. For purposes hereof "Cash Income" means amounts of salary, wages, bonuses, incentive compensation and fees paid to the Employee in cash. To the extent the provisions of this Section 7(b)(1) are applicable and an overpayment has been made to the Employee as of the expiration of Liquidated Damage Period, the Employee shall reimburse the Bank in an amount equal to the after tax benefit realized by the Employee from such overpayment.
(2) The Employee agrees that in the event he
becomes entitled to a change in control payment under Section
7(e) hereof and agreed upon liquidated damages pursuant to
Section 7(a) hereof, throughout the Liquidated Damage Period, he
shall promptly inform the Bank of the nature and amounts of Cash
Income which he earns and the type of health benefits and
coverage he receives from providing services other than to the
Holding Company, the Bank or their successors, and shall provide
such documentation of such Cash Income and health benefits and
coverage as the Bank may request. In the event of changes to
such Cash Income or health benefits and coverage from time to
time during the Liquidated Damage Period, the Employee shall
inform the Bank of such changes, in each case within five days
after the change occurs, and shall provide such documentation
concerning the change as the Company may request.
(c) Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.
(d) Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days' written notice to the Bank or such shorter period as may be agreed upon between the Employee and the Board of Directors of the Bank. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.
(e) Change in Control. In the event of Involuntary Termination in connection with or within 12 months before or after a Change in Control, the Bank shall, in addition to the Bank's obligations under Section 7(a) of this Agreement and subject to Section 8 of this Agreement, pay to the Employee in a lump sum in cash within 25 business days after the Date of Termination an amount equal to 299% of the Employee's "base amount" as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). The rights of the Employee under this Section 7(e) shall survive a termination of this Agreement.
(f) Death; Disability. In the event of the death of
the Employee while employed under this Agreement and prior to any
termination of employment, the Employee's estate, or such person
as the Employee may have previously designated in writing, shall
be entitled to receive from the Bank the salary of the Employee
through the last day of the calendar month in which the Employee
died. If the Employee becomes disabled as defined in the Bank's
then current disability plan, if any, or if the Employee is
otherwise unable to serve as President and Chief Executive
Officer, the Employee shall be entitled to receive group and
other disability income benefits of the type, if any, then
provided by the Bank for executive officers.
8. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if the value and amounts of benefits under this Agreement, together with any other amounts and the value of benefits received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible by the Bank or the Holding Company for federal income tax purposes pursuant to Section 280G of the Code, then amounts and benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize amounts and the value of benefits to the Employee without causing any amount to become nondeductible by the Bank or the Holding Company pursuant to or by reason of such Section 280G. The Employee shall determine the allocation of such reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. Attorneys Fees. In the event the Bank exercises its
right of Termination for Cause, but it is determined by a court
of competent jurisdiction or by an arbitrator pursuant to
Section 17 that cause did not exist for such termination, or if
in any event it is determined by any such court or arbitrator
that the Bank has failed to make timely payment of any amounts
owed to the Employee under this Agreement, the Employee shall be
entitled to reimbursement for all reasonable costs, including
attorneys' fees, incurred in challenging such termination or
collecting such amounts. Such reimbursement shall be in addition
to all rights to which the Employee is otherwise entitled under
this Agreement.
10. No Assignments.
(a) This Agreement is personal to each of the parties
hereto, and neither party may assign or delegate any of its
rights or obligations hereunder without first obtaining the
written consent of the other party; provided, however, that the
Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Bank,
by an assumption agreement in form and substance satisfactory to
the Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Bank
would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such
an assumption agreement prior to the effectiveness of any such
succession or assignment shall be a breach of this Agreement and
shall entitle the Employee to compensation from the Bank in the
same amount and on the same terms as the compensation pursuant to
Section 7(e) hereof. For purposes of implementing the provisions
of this Section 10(a), the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.
11. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank at its home office, to the attention of the Board of Directors with a copy to the Secretary of the Bank, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.
12. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.
13. Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.
14. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
15. Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Missouri.
16. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
Attest: SOUTHERN MISSOURI BANK & TRUST C0.
/s/ Samuel H. Smith /s/Leonard W. Ehlers
Secretary By: Leonard W. Ehlers
Its: Chairman
|
Employee
/s/ Greg Steffens Greg Steffens |
BYLAWS
OF
SOUTHERN MISSOURI BANCORP, INC.
(FORMERLY SMB ACQUISITION BANCORP, INC.)
ARTICLE I
Home Office
The home office of Southern Missouri Bancorp, Inc. (formerly SMB Acquisition Bancorp, Inc.) (herein the "Corporation") shall be at 531 Vine Street in the State of Missouri. The Corporation may also have offices at such other places within or without the State of Missouri as the board of directors shall from time to time determine.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of stockholders shall be held at the home office of the Corporation or at such other place within or without the State in which the home office of the Corporation is located as the board of directors may determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. The annual meeting of the stockholders shall be held on the third Monday in October of each year, beginning with the year 1999, at the hour of 9:00 a.m., or at such other date and hour as shall be determined by the Board of Directors and stated in the notice of the meeting, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Missouri, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as conveniently may be arranged.
SECTION 3. Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called at any time by the majority of the board of directors or by a committee of the board of directors in accordance with the provisions of the Corporation's Articles of Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the rules and procedures established by the board of directors. The board of directors shall designate, when present, either the chairman of the board or president to preside at such meetings.
SECTION 5. Notice of Meetings. Written notice stating the
place, day and hour of the meeting and the purpose or purposes
for which the meeting is called shall be mailed by the secretary
or the officer performing his duties, not less than ten days nor
more than seventy days before the meeting to each stockholder of
record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United
States mail, addressed to the stockholder at his address as it
appears on the stock transfer books or records of the Corporation
as of the record date prescribed in Section 6 of this Article II,
with postage thereon prepaid. If a stockholder be present at a
meeting, or in writing waive notice thereof before or after the
meeting, notice of the meeting to such stockholder shall be
unnecessary. When any stockholders' meeting, either annual or
special, is adjourned for thirty days, notice of the adjourned
meeting shall be given as in the case of an original meeting. It
shall not be necessary to give any notice of the time and place
of any meeting adjourned for less than thirty days or of the
business to be transacted at such adjourned meeting, other than
an announcement at the meeting at which such adjournment is
taken.
SECTION 6. Closing Transfer Books; Fixing of Record Date.
The Board of Directors shall have power to close the transfer
books of the Corporation for a period not exceeding seventy days
preceding the date of any meeting of shareholders, or the date of
payment of any dividend, or the date for the allotment of rights,
or the date when any change or conversion or exchange of shares
shall go into effect; provided, however that in lieu of closing
the stock transfer books, the Board of Directors may fix in
advance a date, not exceeding seventy days preceding the date of
any meeting of shareholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of shares shall go into
effect, as a record date for the determination of the
shareholders entitled to notice of, and to vote at, the meeting
and any adjournment thereof, or to receive payment of the
dividend, or to receive the allotment of rights, or to exercise
the rights in respect of the change, conversion or exchange of
shares. In such case, only the shareholders who are shareholders
of record on the date of closing the transfer books, or on the
record date so fixed, shall be entitled to notice of, and to vote
at, the meeting and any adjournment thereof, or to receive
payment of the dividend, or to receive the allotment of rights,
or to exercise the rights, as the case may be, notwithstanding
any transfer of any shares on the books of the Corporation after
the date of closing of the transfer books or the record date
fixed as aforesaid. If the Board of Directors does not close the
transfer books or set a record date, only the shareholders who
are shareholders of record at the close of business on the
twentieth day preceding the date of the meeting shall be entitled
to notice of, and to vote at, the meeting, and any adjournment of
the meeting.
SECTION 7. Voting Lists. The officer or agent, having charge of the stock transfer books for shares of the Corporation shall make, at least ten days before each meeting of shareholders, a complete record of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. The record, for a period of ten days before such meeting, shall be kept on file at the principal office of the Corporation, and shall be subject to inspection by any shareholder for any purpose germane to the meeting at any time during usual business hours. Such record shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder for any purpose germane to the meeting during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the stockholders entitled to examine such record or transfer books or to vote at any meeting of stockholders.
SECTION 8. Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 9. Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy.
SECTION 10. Voting. At each election for directors every stockholder entitled to vote at such election shall be entitled to one vote for each share of stock held by him. Unless otherwise provided in the Articles of Incorporation, by Statute, or by these Bylaws, a majority of those votes cast by stockholders at a lawful meeting shall be sufficient to pass on a transaction or matter.
SECTION 11. Voting of Shares in the Name of Two or More Persons. When ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the stockholders of the Corporation any one or more of such stockholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose name shares of stock stand, the vote or votes to which these persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee and thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.
SECTION 13. Inspectors of Election. In advance of any meeting of stockholders, the board of directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. The number of inspectors shall be either one or three. If the board of directors so appoints either one or three inspectors, that appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may make such appointment at the meeting. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all stockholders.
SECTION 14. Nominating Committee. The board of directors shall act as a nominating committee for selecting the management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least twenty days prior to the date of the annual meeting. Provided such committee makes such nominations, no nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by stockholders are made in writing and delivered to the secretary of the Corporation in accordance with the provisions of the Corporation's Articles of Incorporation.
SECTION 15. New Business. Any new business to be taken up at the annual meeting shall be stated in writing and filed with the secretary of the Corporation in accordance with the provisions of the Corporation's Articles of Incorporation. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees, but in connection with such reports no new business shall be acted upon at such annual meeting unless stated and filed as provided in the Corporation's Articles of Incorporation.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation shall be under the direction of its board of directors. The board of directors shall annually elect a president from among its members and may also elect a chairman of the board from among its members. The board of directors shall designate, when present, either the chairman of the board or the president to preside at its meetings.
SECTION 2. Number, Term and Election. The board of directors shall initially consist of seven (7) members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected or qualified. The board of directors shall be classified in accordance with the provisions of the Corporation's Articles of Incorporation. The board of directors may increase the number of members of the board of directors but in no event shall the number of directors be increased in excess of fifteen.
SECTION 3. Qualification. Each director shall at all times be the beneficial owner of not less than 100 shares of capital stock of the Corporation.
SECTION 4. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of stockholders. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board or the president, or by one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place in the State of Missouri as the place for holding any special meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person but directors will not receive any compensation for participation in meetings by conference telephone.
SECTION 6. Notice. Written notice of any special meeting shall be given to each director at least two days previous thereto delivered personally or by telegram or at least five days previous thereto delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid if mailed or when delivered to the telegraph company if sent by telegram. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.
SECTION 7. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III.
SECTION 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by these Bylaws, the Articles of Incorporation, or the laws of Missouri.
SECTION 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors.
SECTION 10. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Corporation addressed to the chairman of the board or the president. Unless otherwise specified herein such resignation shall take effect upon receipt thereof by the chairman of the board or the president.
SECTION 11. Vacancies. Any vacancy occurring in the board of directors shall be filled in accordance with the provisions of the Corporation's Articles of Incorporation. Any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of two-thirds of the directors then in office. The term of such director shall be in accordance with the provisions of the Corporation's Articles of Incorporation.
SECTION 12. Removal of Directors. Any director or the entire board of directors may be removed only in accordance with the provisions of the Corporation's Articles of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated fee for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine. Nothing herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving remuneration therefor.
SECTION 14. Presumption of Assent. A director of the Corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent or abstention shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who votes in favor of such action.
SECTION 15. Advisory Directors. The board of directors may by resolution appoint advisory directors to the board, and shall have such authority and receive such compensation and reimbursement as the board of directors shall provide. Advisory director or directors emeriti shall not have the authority to participate by vote in the transaction of business.
ARTICLE IV
Committees of the Board of Directors
The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, as they may determine to be necessary or appropriate for the conduct of the business of the Corporation, and may prescribe the duties, constitution and procedures thereof. Each committee shall consist of one or more directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.
The board of directors shall have power, by the affirmative vote of a majority of the authorized number of directors, at any time to change the members of, to fill vacancies in, and to discharge any committee of the board. Any member of any such committee may resign at any time by giving notice to the Corporation provided, however, that notice to the board, the chairman of the board, the chief executive officer, the chairman of such committee, or the secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the authorized number of directors at any meeting of the board called for that purpose.
ARTICLE V
Officers
SECTION 1. Positions. The officers of the Corporation shall be a president, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The president shall be the chief executive officer unless the board of directors designates the chairman of the board as chief executive officer. The president shall be a director of the Corporation. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the Corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The board of directors may authorize the Corporation to enter into an employment contract with any officer in accordance with state law; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by vote of a simple majority of the board of directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation.
ARTICLE VI
Contracts, Loans, Checks and Deposits
SECTION 1. Contracts. To the extent permitted by applicable law, and except as otherwise prescribed by the Corporation's Articles of Incorporation or these Bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner as shall from time to time be determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the board of directors may select.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. The shares of the Corporation shall be represented by certificates signed by the chairman of the board of directors or by the president or a vice president and by the treasurer or by the secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. If any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.
SECTION 2. Form of Share Certificates. All certificates representing shares issued by the Corporation shall set forth upon the face or back that the Corporation will furnish to any shareholder upon request and without charge a full statement of the designations, preferences, limitations, and relative rights of the shares of each class authorized to be issued, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined, and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series.
Each certificate representing shares shall state upon the
face thereof: that the Corporation is organized under the laws
of the State of Missouri; the name of the person to whom issued;
the number and class of shares; the date of issue; the
designation of the series, if any, which such certificate
represents; the par value of each share represented by such
certificate, or a statement that the shares are without par
value. Other matters in regard to the form of the certificates
shall be determined by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be
issued for any shares until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the issuance of shares shall be paid in accordance with the provisions of the Corporation's Articles of Incorporation.
SECTION 5. Transfer of Shares. Transfer of shares of capital stock of the Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes.
SECTION 6. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 7 of Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 7. Lost Certificates. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 8. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the last day of June of each year. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors.
ARTICLE IX
Dividends
Subject to the provisions of the Articles of Incorporation and applicable law, the board of directors may, at any regular or special meeting, declare dividends on the Corporation's outstanding capital stock. Dividends may be paid in cash, in property or in the Corporation's own stock.
ARTICLE X
Corporate Seal
The corporate seal of the Corporation shall be in such form as the board of directors shall prescribe.
ARTICLE XI
Amendments
In accordance with the Corporation's Articles of Incorporation, these Bylaws may be repealed, altered, amended or rescinded by the stockholders of the Corporation only by vote of not less than 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed repeal, alteration, amendment or rescission is included in the notice of such meeting). In addition, the board of directors may repeal, alter, amend or rescind these Bylaws by vote of two-thirds of the board of directors at a legal meeting held in accordance with the provisions of these Bylaws.
* * * * *
Adopted by the Board of Directors on September 30, 1998.
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
SOUTHERN MISSOURI BANCORP, INC.
(formerly SMB Acquisition Bancorp, Inc.)
SECRETARY OF STATE
STATE OF MISSOURI
PO BOX 778
JEFFERSON CITY, MISSOURI 65102
Pursuant to the provisions of The General and Business Corporation Law of Missouri, the undersigned corporation certifies as follows:
1. The name of the corporation is Southern Missouri Bancorp, Inc. The corporation was originally chartered under the name SMB Acquisition Bancorp, Inc. on September 16, 1998.
2. The amendment set forth below was adopted by the shareholders of Southern Missouri Bancorp, Inc. on October 19, 1998.
3. The amendment adopted affects only Article III, Section 3.1, subsection (a) of the Articles of Incorporation as follows (the remainder of said Article III is unchanged):
"3.1 The Corporation shall have the authority to issue the following shares:
(a) Four million (4,000,000) shall be voting common stock with a par value of $0.01 per share ("Common Stock"); and"
4. The number of outstanding shares of Southern Missouri Bancorp, Inc. is 1,411,980, all of which are common stock, $0.01 par value, and all of which are entitled to vote on the amendment.
5. The number of said shares voted for the amendment is 1,187,482 and the number of said shares voted against the amendment is 44,195.
6. The amendment does not provide for an exchange, reclassification, or cancellation of any issued shares, or a reduction of the number of authorized shares of any class below the number of issued shares of any class.
7. The effective date of the amendment shall be the date of filing of this Certificate of Amendment.
* * *
IN WITNESS WHEREOF, this Certificate of Amendment has been
executed in duplicate as of the day and year hereafter
acknowledged.
SOUTHERN MISSOURI BANCORP, INC.
By: /s/Donald R. Crandell
Donald R. Crandell
President
ATTEST:
By: /s/Samuel H. Smith
Samuel H. Smith
Secretary
STATE OF MISSOURI )
) ss
COUNTY OF BUTLER )
|
I, Jacqueline S. Tidwell, a notary public, do hereby certify that on the 4th day of November, 1998, personally appeared before me, Donald R. Crandell and Samuel H. Smith, who being by me first duly sworn, declared that they are the persons who signed the foregoing document as President of Southern Missouri Bancorp, Inc. and Secretary of Southern Missouri Bancorp, Inc., respectively, that they are natural persons of the age of eighteen years or more, and that the statements therein contained are true.
/s/Jacqueline S. Tidwell Notary Public |
(NOTARIAL SEAL)
My commission expires January 26, 2002.
ARTICLES OF MERGER
SECRETARY OF STATE
STATE OF MISSOURI
PO BOX 778
JEFFERSON CITY, MISSOURI 65102
Pursuant to the provisions of The General and Business Corporation Law of Missouri, the undersigned corporations certify the following:
(1) That SMB Acquisition Bancorp, Inc., a Missouri corporation; and
(2) That Southern Missouri Bancorp, Inc., a Delaware corporation;
are hereby merged and that SMB Acquisition Bancorp, Inc. is the surviving corporation.
(3) That the Board of Directors of Southern Missouri Bancorp, Inc. met on August 18, 1998 and by resolution adopted by the unanimous vote of the members of such Board approved the Agreement and Plan of Merger attached hereto as Exhibit A and incorporated herein by reference.
(4) The Agreement and Plan of Merger was thereafter submitted to a vote at the 1998 Annual Meeting of Shareholders of Southern Missouri Bancorp, Inc. held on October 19, 1998 and at such meeting there were 1,411,980 shares entitled to vote and 825,486 shares voted in favor and 21,315 shares voted against said Agreement and Plan of Merger.
(5) That the officers and directors of SMB Acquisition Bancorp, Inc., the surviving corporation, shall remain in office.
(6) The Agreement and Plan of Merger was thereafter approved by unanimous written consent of Southern Missouri Bancorp, Inc. as the sole stockholder of SMB Acquisition Bancorp, Inc. on September 30, 1998. All of the 100 shares of SMB Acquisition Bancorp, Inc. Held by Southern Missouri Bancorp, Inc. were voted in favor and -0- shares were voted against said Agreement and Plan of Merger.
(7) That these Articles of Merger shall become effective upon filing.
(8) Pursuant to Section 1 of the Agreement and Plan of Merger, Article I, Section 1.1 of the Articles of Incorporation of SMB Acquisition is amended as follows:
"1.1 The name of the Corporation is Southern Missouri Bancorp, Inc."
* * *
IN WITNESS WHEREOF, these Articles of Merger have been
executed in duplicate by the aforementioned corporations as of
the day and year hereafter acknowledged.
SOUTHERN MISSOURI BANCORP, INC.
By: /s/Donald R. Crandell
Donald R. Crandell
President
|
ATTEST
By: /s/Samuel H. Smith
Samuel H. Smith
Secretary
|
SMB ACQUISITION BANCORP, INC.
By: /s/Donald R. Crandell
Donald R. Crandell
President
|
ATTEST
By: /s/Samuel H. Smith
Samuel H. Smith
Secretary
|
STATE OF MISSOURI )
) ss
COUNTY OF BUTLER )
|
I, Jacqueline S. Tidwell, a notary public, do hereby certify that on the 4th day of November, 1998, personally appeared before me, Donald R. Crandell and Samuel H. Smith, who being by me first duly sworn, declared that they are the persons who signed the foregoing document as President of Southern Missouri Bancorp, Inc. and SMB Acquisition Bancorp, Inc., and Secretary of Southern Missouri Bancorp, Inc. and SMB Acquisition Bancorp, Inc., respectively, that they are natural persons of the age of eighteen years or more, and that the statements therein contained are true.
/s/Jacqueline S. Tidwell Notary Public |
(NOTARIAL SEAL)
My commission expires January 26, 2002.
ARTICLES OF INCORPORATION
OF
SMB ACQUISITION BANCORP, INC.
ARTICLE I - CORPORATE TITLE
1.1 The name of the Corporation is SMB Acquisition Bancorp, Inc.
ARTICLE II - REGISTERED OFFICE AND AGENT
2.1 The address, including street and number, of the Corporation's initial registered office in this State is: 531 Vine Street, Popular Bluff, Missouri 63901, and the name of its initial registered agent at such address is: Donald R. Crandell.
ARTICLE III - CAPITAL STOCK
3.1 The Corporation shall have authority to issue the following shares:
(a) Three million (3,000,000) shares shall be voting Common Stock with a par value of $.01 per share ("Common Stock"); and
(b) Five hundred thousand (500,000) shares shall be Preferred Stock with a par value of $.01 per share ("Preferred Stock").
(i) The Board of Directors, by adoption of an authorizing resolution, may cause Preferred Stock to be issued from time to time in one or more series.
(ii) The Board of Directors, by adoption of an authorizing resolution, may with regard to the shares of any series of Preferred Stock:
(A) Fix the distinctive serial designation of the shares;
(B) Fix the dividend rate, if any;
(C) Fix the date from which dividends on shares issued before the date for payment of the first dividend shall be cumulative, if any;
(D) Fix the redemption price and terms of redemption, if any;
(E) Fix the amounts payable per share in the event of dissolution or liquidation of the Corporation, if any;
(F) Fix the terms and amounts of any sinking fund to be used for the purchase or redemption of shares, if any;
(G) Fix the terms and conditions, if any, under which the shares may be converted into, or exchanged for, shares of any other class or series;
(H) Provide whether such shares shall have voting powers, full or limited, or no voting powers, and the rights, if any, of such shares to vote as a class on some or all matters on which such shares may be entitled to vote; and
(I) Fix such other designations, preferences, and relative, participating, optional or other special rights, qualifications, limitations or restrictions not required by law.
3.2 (a) Notwithstanding any other provision of these Articles of Incorporation, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then- outstanding shares of Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit, unless a majority of the Whole Board (as defined in Article X) shall have by resolution granted in advance such entitlement or permission. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such person would be entitled to cast, multiplied by a fraction, the numerator of which is the number of shares of such class or series which are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit.
(b) The following definitions shall apply to this
Section 3.2 of this Article III.
(i) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing of these Articles of Incorporation.
(ii) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or provision thereto, pursuant to said Rule 13d-3 as in effect on the date of filing of these Articles of Incorporation; provided, however, that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock:
(A) which such person or any of its affiliates beneficially owns, directly or indirectly; or
(B) which such person or any of its
affiliates has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding (but
shall not be deemed to be the beneficial owner of any voting
shares solely by reason of an agreement, contract, or other
arrangement with this Corporation to effect any transaction which
is described in any one or more of clauses (i) through (v) of
Section 10.1 of Article X or upon the exercise of conversion
rights, exchange rights, warrants, or options or otherwise, or
(ii) sole or shared voting or investment power with respect
thereto pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of a
revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting,
with respect to shares of which neither such person nor any such
affiliate is otherwise deemed the beneficial owner); or
(C) which are beneficially owned, directly
or indirectly, by any other person with which such first
mentioned person or any of its affiliates acts as a partnership,
limited partnership, syndicate or other group pursuant to any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of capital
stock of this Corporation; and provided further, however, that
(i) no Director or Officer of this Corporation (or any affiliate
of any such Director or Officer) shall, solely by reason of any
or all of such Directors of Officers acting in their capacities
as such, be deemed, for any purposes hereof, to beneficially own
any Common Stock beneficially owned by any other such Director or
Officer (or any affiliate thereof), and (ii) neither any employee
stock ownership or similar plan of this Corporation or any
subsidiary of this Corporation, nor any trustee with respect
thereto or any affiliate of such trustee (solely by reason of
such capacity of such trustee), shall be deemed, for any purposes
hereof, to beneficially own any Common Stock held under any such
plan. For purposes of computing the percentage beneficial
ownership of Common Stock of a person, the outstanding Common
Stock shall include shares deemed owned by such person through
application of this subsection but shall not include any other
Common Stock which may be issuable by this Corporation pursuant
to any agreement, or upon exercise of conversion rights, warrants
or options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock which may be
issuable by this Corporation pursuant to any agreement, or upon
the exercise of conversion rights, warrants or options, or
otherwise.
(iii) A "person" shall mean any individual, firm, corporation, or other entity.
(c) The Board of Directors shall have the power to
construe and apply the provisions of this Section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with respect to
(i) the number of shares of Common Stock beneficially owned by
any person, (ii) whether a person is an affiliate of another,
(iii) whether a person has an agreement, arrangement, or
understanding with another as to the matters referred to in the
definition of beneficial ownership, (iv) the application of any
other definition or operative provision of the Section to the
given facts, or (v) any other matter relating to the
applicability or effect of this Section.
(d) The Board of Directors shall have the right to
demand that any person who is reasonably believed to beneficially
own Common Stock in excess of the Limit (or holds of record
Common Stock beneficially owned by any person in excess of the
Limit) supply the Corporation with complete information as to
(i) the record owner(s) of all shares beneficially owned by such
person who is reasonably believed to own shares in excess of the
Limit, and (ii) any other factual matter relating to the
applicability or effect of this section as may reasonably be
required of such person.
(e) Except as otherwise provided by law or expressly provided in this Section 3.2, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Section 3.2) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in these Articles of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.
(f) Any constructions, applications, or determinations made by the Board of Directors pursuant to this Section in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its stockholders.
(g) In the event any provision (or portion thereof) of this Section 3.2 shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section 3.2 remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding.
3.3 Except as otherwise specifically required by the Missouri General and Business Corporation Law, or by these Articles of Incorporation, or by the Corporation's Bylaws, or by any authorizing resolution of the Board of Directors providing for the issuance of a class or series of Preferred Stock, whenever the holders of shares of stock of the Corporation shall be entitled to vote as a class with respect to any matter, the affirmative vote of a majority of the outstanding shares of such class shall be required to constitute the act of such class.
3.4 There shall be no right to cumulative voting.
ARTICLE IV - PREEMPTIVE RIGHTS
4.1 No holder of shares of any class of stock of the Corporation, either now or hereafter authorized or issued, shall have any preemptive or preferential right of subscription to any shares of any class of stock of the Corporation, either now or hereafter authorized, or to any securities convertible into stock of any class of the Corporation, issued or sold, nor any right of subscription to any such security, other than such, if any, as the Board of Directors in its discretion may from time to time determine and at such prices as the Board of Directors may from time to time fix, pursuant to the authority conferred by these Articles of Incorporation.
ARTICLE V - INCORPORATOR
5.1 The name and place of residence of the incorporator is:
Donald R. Crandell, 531 Vine Street, Poplar Bluff, Missouri
63901.
ARTICLE VI - DIRECTORS
6.1 The number of directors to constitute the initial Board of Directors shall be seven (7); provided, however, that such number may be fixed, from time to time, at not less than five (5) nor more than fifteen (15), by, or in the manner provided in, the Bylaws of the Corporation, and any such change shall be reported in writing to the Secretary of State of the State of Missouri within thirty (30) calendar days of such change. The directors shall be divided into three classes: Class I, Class II and Class III. The number of directors in any such class shall not exceed the number of directors in any other class by more than one (1). The term of office of the initial Class I Directors shall expire at the annual meeting of shareholders of the Corporation in 1999; the term of office of the initial Class II Directors shall expire at the annual meeting of shareholders of the Corporation in 2000; and the term of office of the initial Class III Directors shall expire at the annual meeting of shareholders of the Corporation in 2001; or in each case thereafter until their respective successors are duly elected and qualified. At each annual election held after 1998, the Directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the Directors they succeed and shall be elected for a term of three (3) years expiring at the third succeeding annual shareholder meeting or thereafter until their respective successors are duly elected and qualified. If the number of Directors is changed, any increase or decrease in the number of Directors shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible.
6.2 Any vacancy on the Board (whether such vacancy is caused by death, resignation, or removal for cause or is the result of an increase in the number of directors) shall be filled by a majority of the directors then in office. Any Director elected to fill a vacancy in any class (whether such vacancy is caused by death, resignation, or removal with cause, or is the result of an increase in the number of directors in such class) shall hold office for a term which shall expire at the next election of directors by the shareholders of the Corporation.
6.3 At a meeting called expressly for that purpose, the entire Board of Directors, or any individual Director or Directors, may be removed, but only for cause, and only upon the affirmative vote of the holders of at least eighty percent (80%) of the total votes to which all of the shares then entitled to vote at a meeting of shareholders called for an election of Directors are entitled; provided, however, if less than the entire Board of Directors is to be removed, no individual Director may be so removed if the votes cast against such Director's removal would be sufficient to elect such Director if then cumulatively voted at an election of the class of Directors of which such Director is a part.
6.4 In addition to any affirmative vote required by law or otherwise, any amendment, alteration, change or repeal of the provisions of this Article VI shall require the affirmative vote of the holders of at least eighty percent (80%) of the total votes to which all of the shares then entitled to vote at a meeting of shareholders called for an election of Directors are entitled, unless such amendment, alteration, change or repeal has previously been expressly approved by the Board of Directors of the Corporation by the affirmative vote or consent of at least sixty-six and two-thirds percent (66-2/3%) of the number of Directors then authorized by, or in the manner provided in, the Bylaws, in which case the shareholder vote required by this Article 6.4 shall not apply.
6.5 The persons to constitute the initial Board of Directors of the Corporation are:
(a) Class I Directors (term to expire in 1999):
(i) James W. Tatum
(ii) Ronnie D. Black
(b) Class II Directors (term to expire in 2000):
(i) Donald R. Crandell
(ii) Samuel H. Smith
(iii) L. Douglas Bagby
(c) Class III Directors (term to expire in 2001):
(i) Leonard W. Ehlers
(ii) Thadis R. Seifert
ARTICLE VII - DURATION
7.1 The duration of the Corporation is perpetual.
ARTICLE VIII - PURPOSE AND POWERS
8.1 The Corporation is formed for the following purposes:
(a) To conduct business as a thrift holding company and to provide financial services through subsidiary corporations;
(b) To own, hold, rent, lease, operate, manage, hypothecate, sell and convey such real and personal property as may be useful and desirable in the operation of the Corporation's business; and
(c) To possess and enjoy all rights, powers and privileges as are granted to corporations under the Missouri General and Business Corporation Law.
ARTICLE IX - INDEMNIFICATION
9.1 The Corporation shall and does hereby indemnify any person who is or was a Director or executive officer of the Corporation or any subsidiary against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement and reasonably incurred by such person in connection with any threatened, pending or completed civil, criminal, administrative or investigative action, suit, proceeding or claim (including any action by or in the right of the Corporation or a subsidiary) by reason of the fact that such person is or was serving in such capacity; provided, however, that no such person shall be entitled to any indemnification pursuant to this Article IX on account of (i) conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct, or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation.
9.2 The Corporation may, to the extent that the Board of Directors deems appropriate and as set forth in a Bylaw or authorizing resolution, indemnify any person who is or was a non- executive officer, or employee or agent of the Corporation or any subsidiary or who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including an employee benefit plan) against any and all expenses (including attorneys' fees), judgements, fines and amounts paid in settlement and reasonably incurred by such person in connection with any threatened, pending or completed civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a subsidiary) by reason of the fact that such person is or was serving in such capacity; provided, however, that no such person shall be entitled to any indemnification pursuant to this Section 9.2 on account of (i) conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct, or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation.
9.3 The Corporation may, to the extent that the Board of Directors deems appropriate, make advances of expenses, including attorneys' fees, incurred prior to the final disposition of a civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a subsidiary) to any person to whom indemnification is or may be available under this Article IX; provided, however, that prior to making any advances, the Corporation shall receive a written undertaking by or on behalf of such person to repay such amounts advanced in the event that it shall be ultimately determined that such person is not entitled to such indemnification.
9.4 The indemnification and other rights provided by this Article IX shall not be deemed exclusive of any other rights to which a person to whom indemnification is or otherwise may be available (under these Articles of Incorporation or the Bylaws or any agreement or vote of shareholders or disinterested Directors or otherwise), may be entitled. The Corporation is authorized to purchase and maintain insurance on behalf of the Corporation or any person to whom indemnification is or may be available against any liability asserted against such person in, or arising out of, such person's status as Director, officer, employee or agent of the Corporation, any of its subsidiaries or another corporation, partnership, joint venture, trust or other enterprise (including an employee benefit plan) which such person is serving at the request of the Corporation.
9.5 Each person to whom indemnification is granted under this Article IX is entitled to rely upon the indemnification and other rights granted hereby as a contract with the Corporation and such person and such person's heirs, executors, administrators and estate shall be entitled to enforce against the Corporation all indemnification and other rights granted to such person by Sections 9.1 and 9.3 and this Article IX. The indemnification and other rights granted by Sections 9.1 and 9.3 and this Section 9.5 shall survive amendment, modification or repeal of this Article IX, and no such amendment, modification or repeal shall act to reduce, terminate or otherwise adversely affect the rights to indemnification granted hereby, with respect to any expenses, judgments, fines and amounts paid in settlement incurred by a person to whom indemnification is granted under this Article IX with respect to an action, suit, proceeding or claim that arises out of acts or omissions of such person that occurred prior to the effective date of such amendment, modification or repeal.
Any indemnification granted by the Board of Directors pursuant this Article IX shall inure to the person to whom the indemnification is granted and such person's heirs, executors, administrators and estate; provided, however, that such indemnification may be changed, modified or repealed, at any time or from time to time, at the discretion of the Board of Directors, and the survival of such indemnification shall be in accordance with terms determined by the Board of Directors.
9.6 For the purposes of this Article IX, "subsidiary" shall mean any corporation, partnership, joint venture, trust or other enterprise of which a majority of the voting power, equity or ownership interest is directly or indirectly owned by the Corporation.
ARTICLE X - CERTAIN BUSINESS COMBINATIONS
10.1 (a) In addition to any affirmative vote required by law, any other provision of these Articles of Incorporation or by any resolution or resolutions of the Board of Directors providing for the issue of any class or series of Preferred Stock (a "Preferred Stock Designation"), and except as otherwise expressly provided in Section 10.2 of this Article X:
(i) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Shareholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of 25% or more of the assets of the Corporation or any Subsidiary; or
(iii) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for any assets, cash, securities or other property (or a combination thereof) which equals or exceeds 25% of the Fair Market Value (as hereinafter defined) of the Common Stock of the Holding Company; or
(iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Shareholder; or
(v) any reclassification of securities (including any reverse stock split) or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries, or any other transaction (whether or not with or into or otherwise involving any Interested Shareholder), which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities of the Corporation of any Subsidiary which is Beneficially Owned (as hereinafter defined) by any Interested Shareholder or any Affiliate of any Interested Shareholder;
shall require the affirmative vote of (x) the holders of at least eighty percent (80%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class, and (y) the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock not Beneficially Owned by such Interested Shareholder, or any of its Affiliates or Associates (as hereinafter defined), voting together as a single class. Such affirmative vote shall be required notwithstanding any provision of law or of any agreement with any national securities exchange or otherwise which might otherwise permit a lesser vote or no vote.
(b) The term "Business Combination" as used in this Article X shall mean any transaction which is referred to in any one or more of subparagraphs (i) through (v) of paragraph (a) of this Section 10.1.
10.2 The provisions of Section 10.1 of this Article X shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by laws, any other provision of these Articles of Incorporation and any Preferred Stock Designation, if a majority of the Whole Board (as defined below) shall by resolution have approved a memorandum of understanding with the Interested Shareholder with respect to, and on substantially the same terms as, such Business Combination prior to the first time such Interested Shareholder or any Affiliate or Associate of such Interested Shareholder became an Interested Shareholder.
10.3 For the purposes of this Article X:
(a) A "person" means any individual, limited partnership, general partnership, corporation or other firm or entity.
(b) "Interested Shareholder" means any person (other than the Corporation or any Subsidiary) who or which:
(i) is the Beneficial Owner, directly or indirectly, of 10% or more of the voting power (with respect to voting generally in the election of directors) of the outstanding Voting Stock; or
(ii) is an Affiliate or an Associate of the
Corporation and at any time within the two-year period
immediately prior to the date in question was the Beneficial
Owner, directly or indirectly, of 5% or more of the voting power
(with respect to voting generally in the election of directors)
of the then-outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question Beneficially Owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.
(c) A person shall be a "Beneficial Owner" of, and shall "Beneficially Own," any Voting Stock:
(i) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly, within the meaning of the Securities Exchange Act of 1934, as in effect on the date of filing these Articles of Incorporation; or
(ii) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding (but neither such person nor any such Affiliate or Associate shall be deemed to be the Beneficial Owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of shareholders, pursuant to a public solicitation of proxies for such meeting, if such person, Affiliate or Associate is not otherwise deemed the Beneficial Owner of such shares); or
(iii) which are beneficially owned, directly or indirectly, within the meaning of the Securities Exchange Act of 1934, as in effect on the date of filing these Articles of Incorporation, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in subparagraph (ii) of this paragraph (c)) or disposing of any shares of Voting Stock;
provided, however, that in the case of any employee stock ownership or similar plan of the Corporation or of any Subsidiary in which the beneficiaries thereof possess the right to vote any shares of Voting Stock held by such plan, no such plan nor any trustee with respect thereto (nor any Affiliate of such trustee), solely by reason of such capacity of such trustee, shall be deemed, for any purposes hereof, to Beneficially Own any shares of Voting Stock held under any such plan; and provided, however, that in case of any individual retirement account or similar plan for which any Subsidiary serves as trustee or custodian and for which the beneficiary thereof possesses the right to vote any shares of Voting Stock held by such account or plan, no such account or plan nor any trustee or custodian with respect thereto (nor any Affiliate of such trustee or custodian) solely by reason of such capacity as trustee or custodian, shall be deemed, for any purposes hereof, to Beneficially Own any shares of Voting Stock held under any such plan or account.
(d) For the purposes of determining whether a person
is an Interested Shareholder pursuant to paragraph (b) of this
Section 10.3, the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed to be Beneficially Owned
by such person through application of paragraph (c) of this
Section 10.3 but shall not include any other unissued shares of
Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meaning ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing these Articles of Incorporation.
(f) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph (b) of this Section 10.3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.
(g) "Whole Board" means the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors;
(h) The "Fair Market Value" of any assets, securities or other property shall mean the fair market value thereof, as determined by a majority of the Whole Board in good faith after reasonable inquiry.
10.4 A majority of the Whole Board shall have the power and
duty to determine in good faith, on the basis of information
known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article X, including, without
limitation, (i) whether a person is an Interested Shareholder,
(ii) the number of shares of Voting Stock Beneficially Owned by
any person, and (iii) whether a person is an Affiliate or
Associate of another.
10.5 A majority of the Whole Board shall have the right to demand that any person who is reasonably believed to be an Interested Shareholder (or to hold or record shares of Voting Stock Beneficially Owned by any Interested Shareholder) supply the Corporation with complete information as to (a) the record owner(s) of all shares Beneficially Owned by such person who is reasonably believed to be an Interested Shareholder (or to hold of record any such Shares), (b) the number of, and class or series of, shares Beneficially Owned by such person who is reasonably believed to be an Interested Shareholder (or to hold of record any such Shares) and held or record by each such record owner and the number(s) of the stock certificate(s) evidencing such shares, and (c) any other factual matter relating to the applicability or effect of this Article X, as may be reasonably requested of such person, and such person shall furnish such information within ten (10) days after receipt of such demand.
10.6 Nothing contained in this Article X shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law.
10.7 Notwithstanding any other provisions of these Articles of Incorporation or any provision of law which might otherwise provide for lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, these Articles of Incorporation or any Preferred Stock Designation, the affirmative vote of (a) the holders of at least eighty percent (80%) of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, and (b) the holders of at least a majority of the voting power of all of the then- outstanding shares of the Voting Stock not Beneficially Owned by any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder, voting together as single class, shall be required to alter, amend or repeal this Article X.
ARTICLE XI - AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
11.1 Except as otherwise specifically set forth in these Articles of Incorporation, the Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, and amendments to the Articles of Incorporation shall be made in the manner prescribed by the Missouri General and Business Corporation Law.
11.2 The power to make, alter, amend, or repeal the Bylaws of the Corporation shall be vested exclusively in the Board of Directors, unless otherwise provided in such Bylaws.
ARTICLE XII - FURTHER POWERS OF BOARD OF DIRECTORS
12.1 The Board of Directors shall have and exercise such further powers as are provided to it under present or future laws of the State of Missouri.
* * *
IN WITNESS WHEREOF, these Articles of Incorporation have been signed this 14th day of September 1998.
/s/Donald R. Crandell
Donald R. Crandell,
Incorporator
|
STATE OF MISSOURI )
) ss
COUNTY OF BUTLER )
I, Lorna J. Brannum, a notary public, do hereby certify that on the 14th day of September 1998, Donald R. Crandell, personally appeared before me, who being by me first duly sworn, declared that he is the person who signed the foregoing document as incorporator, that he is a natural person of the age of eighteen years or more, and that the statements therein contained are true.
/s/Lorna J. Brannum Notary Public |
(NOTARIAL SEAL)
My commission expires May 27, 2001
| ARTICLE 9 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUN 30 1999 |
| PERIOD END | JUN 30 1999 |
| CASH | 1,638,637 |
| INT BEARING DEPOSITS | 2,430,037 |
| FED FUNDS SOLD | 0 |
| TRADING ASSETS | 0 |
| INVESTMENTS HELD FOR SALE | 37,878,685 |
| INVESTMENTS CARRYING | 0 |
| INVESTMENTS MARKET | 0 |
| LOANS | 118,248,638 |
| ALLOWANCE | 1,191,147 |
| TOTAL ASSETS | 164,972,343 |
| DEPOSITS | 120,154,540 |
| SHORT TERM | 750,000 |
| LIABILITIES OTHER | 1,638,341 |
| LONG TERM | 19,800,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 17,563,596 |
| OTHER SE | 5,065,886 |
| TOTAL LIABILITIES AND EQUITY | 164,972,343 |
| INTEREST LOAN | 9,285,759 |
| INTEREST INVEST | 1,939,912 |
| INTEREST OTHER | 188,834 |
| INTEREST TOTAL | 11,414,502 |
| INTEREST DEPOSIT | 5,263,225 |
| INTEREST EXPENSE | 6,247,393 |
| INTEREST INCOME NET | 5,167,110 |
| LOAN LOSSES | 235,000 |
| SECURITIES GAINS | (28,567) |
| EXPENSE OTHER | 3,682,497 |
| INCOME PRETAX | 2,504,764 |
| INCOME PRE EXTRAORDINARY | 2,504,764 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,644,764 |
| EPS BASIC | 1.23 |
| EPS DILUTED | 1.20 |
| YIELD ACTUAL | 7.24 |
| LOANS NON | 181,000 |
| LOANS PAST | 311,000 |
| LOANS TROUBLED | 0 |
| LOANS PROBLEM | 5,089,965 |
| ALLOWANCE OPEN | 1,295,222 |
| CHARGE OFFS | 429,998 |
| RECOVERIES | 90,923 |
| ALLOWANCE CLOSE | 1,191,147 |
| ALLOWANCE DOMESTIC | 1,071,147 |
| ALLOWANCE FOREIGN | 0 |
| ALLOWANCE UNALLOCATED | 120,000 |