Southern Missouri Bancorp, Inc 10-K/A for FY2019
Southern Missouri Bancorp, Inc. (SMBC)
10-K/A
2020-02-05
For: 2019-06-30
View Original
Added on
April 04, 2026
About this 10-K/A
Southern Missouri Bancorp, Inc filed this 10-K/A on February 5, 2020, covering the fiscal year ended June 30, 2019 (FY2019).
Headline figures
Fiscal year ended June 30, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $28.9M
- up 38.1% from net income of $20.93M a year earlier
- Diluted EPS
- $3.14
- up 31.4% from $2.39 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-K/A
(Amendment No. 1)
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the fiscal year ended June 30, 2019 OR
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|
|
[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 0-23406
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SOUTHERN MISSOURI BANCORP, INC.
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||
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(Exact name of registrant as specified in its charter)
|
||
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Missouri
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43-1665523
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2991 Oak Grove Road, Poplar Bluff, Missouri
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63901
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code: (573) 778-1800
Securities registered pursuant to Section 12(b) of the Act:
|
Title of Each Class
|
Trading Symbol
|
Name of Each Exchange
on Which Registered
|
||
|
Common Stock,
par value $0.01 per share
|
SMBC
|
The NASDAQ Stock Market, LLC
|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO X
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 the registrant has submitted electronically and posted on its corporate web site, if any, every interactive data file required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration was required to submit and post such files. YES X NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
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Large accelerated filer
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Accelerated filer
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X
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Non-accelerated filer
|
Smaller reporting company
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO X
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average of the high and low traded price of
such stock as of the last business day of the registrant's most recently completed second fiscal quarter, was $274.4 million. (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.)
As of September 13, 2019, there were issued and outstanding 9,201,783 shares of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of Form 10-K - Portions of the Proxy Statement for the 2019 Annual Meeting of Stockholders.
1
EXPLANATORY NOTE
The sole purpose of this Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 is to insert the signature of our independent registered public
accounting firm, BKD, LLP, in their reports contained in Item 8 and Item 9A, and in their consent filed as Exhibit 23, which was omitted from the reports and consent filed with the original Form 10-K. Other than the inclusion with this Amendment
No. 1 of new certifications required by Rules 13a-14(a) and 13a-14(b) under the Securities Exchange Act of 1934, as amended, and an updated list of exhibits in Item 15, this Amendment No. 1 does not modify, or update any other disclosures contained
in, our original Annual Report on Form 10-K for the fiscal year ended June 30, 2019.
Item 8. Financial Statements and Supplementary Information
Report of Independent Registered Public Accounting Firm
Stockholders, Board of Directors
and Audit Committee
Southern Missouri Bancorp, Inc.
Poplar Bluff, Missouri
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Southern Missouri Bancorp, Inc. (“Company”) as of June 30, 2019 and 2018
and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended June 30, 2019, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows
for each of the years in the three year period ended June 30, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
Company’s internal control over financial reporting as of June 30, 2019 based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated September 13, 2019, expressed an unqualified opinion.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2002.
/s/ BKD, LLP
Decatur, Illinois
September 13, 2019
2
> CONSOLIDATED BALANCE SHEETS <
JUNE 30, 2019 AND 2018
Southern Missouri Bancorp, Inc.
|
(dollars in thousands)
|
2019
|
2018
|
||||||
|
Assets
|
||||||||
|
Cash and cash equivalents
|
$
|
35,400
|
$
|
26,326
|
||||
|
Interest-bearing time deposits
|
969
|
1,953
|
||||||
|
Available for sale securities (Note 2)
|
165,535
|
146,325
|
||||||
|
Stock in FHLB of Des Moines
|
5,233
|
5,661
|
||||||
|
Stock in Federal Reserve Bank of St. Louis
|
4,350
|
3,566
|
||||||
|
Loans receivable, net of allowance for loan losses of
$19,903 and $18,214 at June 30, 2019 and June 30, 2018, respectively (Notes 3 and 4) |
1,846,405
|
1,563,380
|
||||||
|
Accrued interest receivable
|
10,189
|
7,992
|
||||||
|
Premises and equipment, net (Note 5)
|
62,727
|
54,832
|
||||||
|
Bank owned life insurance – cash surrender value
|
38,337
|
37,547
|
||||||
|
Goodwill
|
14,089
|
13,078
|
||||||
|
Other intangible assets, net
|
9,239
|
6,918
|
||||||
|
Prepaid expenses and other assets
|
21,929
|
18,537
|
||||||
|
TOTAL ASSETS
|
$
|
2,214,402
|
$
|
1,886,115
|
||||
|
Liabilities and Stockholders' Equity
|
||||||||
|
Deposits (Note 6)
|
$
|
1,893,695
|
$
|
1,579,902
|
||||
|
Securities sold under agreements to repurchase (Note 7)
|
4,376
|
3,267
|
||||||
|
Advances from FHLB of Des Moines (Note 8)
|
44,908
|
76,652
|
||||||
|
Note payable (Note 9)
|
3,000
|
3,000
|
||||||
|
Accounts payable and other liabilities
|
12,889
|
6,449
|
||||||
|
Accrued interest payable
|
2,099
|
1,206
|
||||||
|
Subordinated debt (Note 10)
|
15,043
|
14,945
|
||||||
|
TOTAL LIABILITIES
|
1,976,010
|
1,685,421
|
||||||
|
Commitments and contingencies (Note 15)
|
||||||||
|
Common stock, $.01 par value; 25,000,000 and 12,000,000 shares authorized;
9,324,659 and 8,996,584 shares issued, respectively, at June 30, 2019 and June 30, 2018 |
93
|
90
|
||||||
|
Additional paid-in capital
|
94,541
|
83,413
|
||||||
|
Retained earnings
|
143,677
|
119,536
|
||||||
|
Treasury stock of 35,351 and 0 shares at June 30, 2019 and June 30, 2018,
respectively, at cost |
(1,166
|
)
|
-
|
|||||
|
Accumulated other comprehensive income (loss)
|
1,247
|
(2,345
|
)
|
|||||
|
TOTAL STOCKHOLDERS' EQUITY
|
238,392
|
200,694
|
||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
2,214,402
|
$
|
1,886,115
|
||||
See accompanying notes to consolidated financial statements.
3
> CONSOLIDATED STATEMENTS OF INCOME <
YEARS ENDED JUNE 30, 2019, 2018 AND 2017
Southern Missouri Bancorp, Inc.
|
(dollars in thousands except per share data)
|
2019
|
2018
|
2017
|
|||||||||
|
Interest Income:
|
||||||||||||
|
Loans
|
$
|
92,328
|
$
|
73,122
|
$
|
57,988
|
||||||
|
Investment securities
|
2,323
|
2,166
|
1,975
|
|||||||||
|
Mortgage-backed securities
|
2,704
|
1,817
|
1,496
|
|||||||||
|
Other interest-earning assets
|
127
|
69
|
29
|
|||||||||
|
TOTAL INTEREST INCOME
|
97,482
|
77,174
|
61,488
|
|||||||||
|
Interest Expense:
|
||||||||||||
|
Deposits
|
21,208
|
12,825
|
8,472
|
|||||||||
|
Securities sold under agreements to repurchase
|
36
|
37
|
95
|
|||||||||
|
Advances from FHLB of Des Moines
|
2,377
|
1,041
|
1,138
|
|||||||||
|
Note payable
|
158
|
121
|
13
|
|||||||||
|
Subordinated debt
|
921
|
767
|
648
|
|||||||||
|
TOTAL INTEREST EXPENSE
|
24,700
|
14,791
|
10,366
|
|||||||||
|
NET INTEREST INCOME
|
72,782
|
62,383
|
51,122
|
|||||||||
|
Provision for loan losses (Note 3)
|
2,032
|
3,047
|
2,340
|
|||||||||
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
70,750
|
59,336
|
48,782
|
|||||||||
|
Noninterest income:
|
||||||||||||
|
Deposit account charges and related fees
|
5,005
|
4,584
|
3,824
|
|||||||||
|
Bank card interchange income
|
4,658
|
3,775
|
2,864
|
|||||||||
|
Loan late charges
|
463
|
432
|
432
|
|||||||||
|
Loan servicing fees
|
376
|
801
|
397
|
|||||||||
|
Other loan fees
|
1,360
|
1,467
|
1,146
|
|||||||||
|
Net realized gains on sale of loans
|
771
|
804
|
840
|
|||||||||
|
Net realized gains on sale of AFS securities
|
244
|
334
|
-
|
|||||||||
|
Earnings on bank owned life insurance
|
1,329
|
947
|
1,135
|
|||||||||
|
Other income
|
964
|
727
|
446
|
|||||||||
|
TOTAL NONINTEREST INCOME
|
15,170
|
13,871
|
11,084
|
|||||||||
|
Noninterest expense:
|
||||||||||||
|
Compensation and benefits
|
26,379
|
23,302
|
19,406
|
|||||||||
|
Occupancy and equipment, net
|
10,625
|
9,763
|
8,418
|
|||||||||
|
Deposit insurance premiums
|
661
|
517
|
681
|
|||||||||
|
Legal and professional fees
|
965
|
1,178
|
1,233
|
|||||||||
|
Advertising
|
1,161
|
1,197
|
1,102
|
|||||||||
|
Postage and office supplies
|
772
|
729
|
561
|
|||||||||
|
Intangible amortization
|
1,672
|
1,457
|
911
|
|||||||||
|
Bank card network fees
|
2,120
|
1,580
|
1,150
|
|||||||||
|
Other operating expense
|
5,614
|
4,752
|
4,790
|
|||||||||
|
TOTAL NONINTEREST EXPENSE
|
49,969
|
44,475
|
38,252
|
|||||||||
|
INCOME BEFORE INCOME TAXES
|
35,951
|
28,732
|
21,614
|
|||||||||
|
Income Taxes (Note 11)
|
||||||||||||
|
Current
|
6,972
|
8,333
|
4,899
|
|||||||||
|
Deferred
|
75
|
(530
|
)
|
1,163
|
||||||||
|
7,047
|
7,803
|
6,062
|
||||||||||
|
NET INCOME
|
$
|
28,904
|
$
|
20,929
|
$
|
15,552
|
||||||
|
Basic earnings per share available to common stockholders
|
$
|
3.14
|
$
|
2.40
|
$
|
2.08
|
||||||
|
Diluted earnings per share available to common stockholders
|
$
|
3.14
|
$
|
2.39
|
$
|
2.07
|
||||||
|
Dividends paid
|
$
|
0.52
|
$
|
0.44
|
$
|
0.40
|
||||||
See accompanying notes to consolidated financial statements.
4
> CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME <
YEARS ENDED JUNE 30, 2019, 2018 AND 2017
Southern Missouri Bancorp, Inc.
|
2019
|
2018
|
2017
|
||||||||||
|
(dollars in thousands)
|
||||||||||||
|
NET INCOME
|
$
|
28,904
|
$
|
20,929
|
$
|
15,552
|
||||||
|
Other comprehensive income:
|
||||||||||||
|
Unrealized gains (losses) on securities available-for-sale
|
4,940
|
(3,314
|
)
|
(1,879
|
)
|
|||||||
|
Less: reclassification adjustment for realized gains
included in net income |
244
|
334
|
-
|
|||||||||
|
Unrealized gains (losses) on available-for-sale securities for
which a portion of an other-than-temporary impairment has been recognized in income |
-
|
(213
|
)
|
57
|
||||||||
|
Defined benefit pension plan net (loss) gain
|
(10
|
)
|
(44
|
)
|
13
|
|||||||
|
Tax (expense) benefit
|
(1,094
|
)
|
1,033
|
674
|
||||||||
|
Total other comprehensive income (loss)
|
3,592
|
(2,872
|
)
|
(1,135
|
)
|
|||||||
|
COMPREHENSIVE INCOME
|
$
|
32,496
|
$
|
18,057
|
$
|
14,417
|
||||||
See accompanying notes to consolidated financial statements.
5
|
> CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY <
YEARS ENDED JUNE 30, 2019, 2018 AND 2017
Southern Missouri Bancorp, Inc.
|
||||||||||||||||||||||||
|
Additional
|
Accumulated Other
|
Total
|
||||||||||||||||||||||
|
Common
|
Paid-In
|
Retained
|
Treasury
|
Comprehensive
|
Stockholders'
|
|||||||||||||||||||
|
(dollars in thousands)
|
Stock
|
Capital
|
Earnings
|
Stock
|
Income (Loss)
|
Equity
|
||||||||||||||||||
|
BALANCE AS OF JUNE 30, 2016
|
$
|
74
|
$
|
34,432
|
$
|
89,798
|
$
|
-
|
$
|
1,662
|
$
|
125,966
|
||||||||||||
|
Net income
|
15,552
|
15,552
|
||||||||||||||||||||||
|
Change in unrealized gain on available for sale securities
|
(1,148
|
)
|
(1,148
|
)
|
||||||||||||||||||||
|
Defined benefit pension plan net loss
|
13
|
13
|
||||||||||||||||||||||
|
Dividends paid on common stock ($.40 per share )
|
(2,981
|
)
|
(2,981
|
)
|
||||||||||||||||||||
|
Stock option expense
|
11
|
11
|
||||||||||||||||||||||
|
Stock grant expense
|
274
|
274
|
||||||||||||||||||||||
|
Tax benefit of stock grants
|
225
|
225
|
||||||||||||||||||||||
|
Exercise of stock options
|
61
|
61
|
||||||||||||||||||||||
|
Common stock issued
|
12
|
35,098
|
35,110
|
|||||||||||||||||||||
|
BALANCE AS OF JUNE 30, 2017
|
$
|
86
|
$
|
70,101
|
$
|
102,369
|
$
|
-
|
$
|
527
|
$
|
173,083
|
||||||||||||
|
Net income
|
20,929
|
20,929
|
||||||||||||||||||||||
|
Change in unrealized gain on available for sale securities
|
65
|
(2,828
|
)
|
(2,763
|
)
|
|||||||||||||||||||
|
Defined benefit pension plan net loss
|
(44
|
)
|
(44
|
)
|
||||||||||||||||||||
|
Dividends paid on common stock ($.44 per share )
|
(3,827
|
)
|
(3,827
|
)
|
||||||||||||||||||||
|
Stock option expense
|
22
|
22
|
||||||||||||||||||||||
|
Stock grant expense
|
171
|
171
|
||||||||||||||||||||||
|
Exercise of stock options
|
172
|
172
|
||||||||||||||||||||||
|
Common stock issued
|
4
|
12,947
|
12,951
|
|||||||||||||||||||||
|
BALANCE AS OF JUNE 30, 2018
|
$
|
90
|
$
|
83,413
|
$
|
119,536
|
$
|
-
|
$
|
(2,345
|
)
|
$
|
200,694
|
|||||||||||
|
Net income
|
28,904
|
28,904
|
||||||||||||||||||||||
|
Change in unrealized gain on available for sale securities
|
3,602
|
3,602
|
||||||||||||||||||||||
|
Defined benefit pension plan net loss
|
(10
|
)
|
(10
|
)
|
||||||||||||||||||||
|
Dividends paid on common stock ($.52 per share )
|
(4,763
|
)
|
(4,763
|
)
|
||||||||||||||||||||
|
Stock option expense
|
51
|
51
|
||||||||||||||||||||||
|
Stock grant expense
|
323
|
323
|
||||||||||||||||||||||
|
Common stock issued
|
3
|
10,754
|
10,757
|
|||||||||||||||||||||
|
Treasury stock purchased
|
(1,166
|
)
|
(1,166
|
)
|
||||||||||||||||||||
|
BALANCE AS OF JUNE 30, 2019
|
$
|
93
|
$
|
94,541
|
$
|
143,677
|
$
|
(1,166
|
)
|
$
|
1,247
|
$
|
238,392
|
|||||||||||
See accompanying notes to consolidated financial statements.
6
|
> CONSOLIDATED STATEMENTS OF CASH FLOWS <
YEARS ENDED JUNE 30, 2019, 2018 AND 2017
Southern Missouri Bancorp, Inc.
|
||||||||||||
|
(dollars in thousands)
|
2019
|
2018
|
2017
|
|||||||||
|
Cash Flows From Operating Activities:
|
||||||||||||
|
NET INCOME
|
$
|
28,904
|
$
|
20,929
|
$
|
15,552
|
||||||
|
Items not requiring (providing) cash:
|
||||||||||||
|
Depreciation
|
3,402
|
3,119
|
2,982
|
|||||||||
|
(Gain) loss on disposal of fixed assets
|
29
|
(206
|
)
|
332
|
||||||||
|
Stock option and stock grant expense
|
374
|
230
|
510
|
|||||||||
|
(Gain) loss on sale/write-down of REO
|
267
|
(45
|
)
|
324
|
||||||||
|
Amortization of intangible assets
|
1,672
|
1,457
|
911
|
|||||||||
|
Amortization of purchase accounting adjustments
|
(2,886
|
)
|
(1,694
|
)
|
(1,116
|
)
|
||||||
|
Increase in cash surrender value of bank owned life insurance (BOLI)
|
(1,329
|
)
|
(947
|
)
|
(1,135
|
)
|
||||||
|
Provision for loan losses
|
2,032
|
3,047
|
2,340
|
|||||||||
|
Gains realized on sale of AFS securities
|
(244
|
)
|
(334
|
)
|
-
|
|||||||
|
Net amortization of premiums and discounts on securities
|
846
|
994
|
1,034
|
|||||||||
|
Originations of loans held for sale
|
(30,768
|
)
|
(29,749
|
)
|
(33,059
|
)
|
||||||
|
Proceeds from sales of loans held for sale
|
30,633
|
29,410
|
33,656
|
|||||||||
|
Gain on sales of loans held for sale
|
(771
|
)
|
(804
|
)
|
(840
|
)
|
||||||
|
Changes in:
|
||||||||||||
|
Accrued interest receivable
|
(459
|
)
|
(797
|
)
|
(314
|
)
|
||||||
|
Prepaid expenses and other assets
|
56
|
7,852
|
2,717
|
|||||||||
|
Accounts payable and other liabilities
|
5,973
|
(309
|
)
|
622
|
||||||||
|
Deferred income taxes
|
75
|
(1,774
|
)
|
964
|
||||||||
|
Accrued interest payable
|
795
|
265
|
138
|
|||||||||
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
38,601
|
30,644
|
25,618
|
|||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Net increase in loans
|
(139,056
|
)
|
(99,510
|
)
|
(112,372
|
)
|
||||||
|
Net change in interest-bearing deposits
|
983
|
249
|
723
|
|||||||||
|
Proceeds from maturities of available for sale securities
|
29,971
|
24,981
|
22,544
|
|||||||||
|
Proceeds from sales of available for sale securities
|
40,985
|
18,198
|
-
|
|||||||||
|
Net redemptions (purchases) of Federal Home Loan Bank stock
|
1,489
|
(1,756
|
)
|
2,462
|
||||||||
|
Net purchases of Federal Reserve Bank of St. Louis stock
|
(785
|
)
|
(1,209
|
)
|
(14
|
)
|
||||||
|
Purchases of available-for-sale securities
|
(31,207
|
)
|
(44,051
|
)
|
(31,490
|
)
|
||||||
|
Purchases of premises and equipment
|
(7,696
|
)
|
(2,138
|
)
|
(3,034
|
)
|
||||||
|
Net cash paid for acquisition
|
(8,377
|
)
|
(1,501
|
)
|
(1,736
|
)
|
||||||
|
Investments in state & federal tax credits
|
(2,192
|
)
|
(5,086
|
)
|
(1,897
|
)
|
||||||
|
Proceeds from sale of fixed assets
|
32
|
1,970
|
15
|
|||||||||
|
Proceeds from sale of foreclosed assets
|
2,317
|
1,374
|
835
|
|||||||||
|
Proceeds from BOLI claim
|
544
|
-
|
848
|
|||||||||
|
NET CASH USED IN INVESTING ACTIVITIES
|
(112,992
|
)
|
(108,479
|
)
|
(123,116
|
)
|
||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Net increase in demand deposits and savings accounts
|
40,664
|
82,567
|
115,340
|
|||||||||
|
Net increase (decrease) in certificates of deposits
|
102,551
|
(26,392
|
)
|
52,939
|
||||||||
|
Net increase (decrease) in securities sold under agreements to repurchase
|
1,109
|
(6,945
|
)
|
(16,873
|
)
|
|||||||
|
Proceeds from Federal Home Loan Bank advances
|
591,500
|
1,518,930
|
1,350,565
|
|||||||||
|
Repayments of Federal Home Loan Bank advances
|
(642,030
|
)
|
(1,491,130
|
)
|
(1,416,815
|
)
|
||||||
|
Proceeds from issuance of long term debt
|
-
|
-
|
15,000
|
|||||||||
|
Repayments of long term debt
|
(4,400
|
)
|
-
|
(15,650
|
)
|
|||||||
|
Common stock issued
|
-
|
-
|
24,144
|
|||||||||
|
Exercise of stock options
|
-
|
172
|
61
|
|||||||||
|
Purchase of treasury stock
|
(1,166
|
)
|
-
|
-
|
||||||||
|
Dividends paid on common stock
|
(4,763
|
)
|
(3,827
|
)
|
(2,981
|
)
|
||||||
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
83,465
|
73,375
|
105,730
|
|||||||||
|
Increase (decrease) in cash and cash equivalents
|
9,074
|
(4,460
|
)
|
8,232
|
||||||||
|
Cash and cash equivalents at beginning of period
|
26,326
|
30,786
|
22,554
|
|||||||||
|
Cash and cash equivalents at end of period
|
$
|
35,400
|
$
|
26,326
|
$
|
30,786
|
||||||
See accompanying notes to consolidated financial statements.
7
> CONSOLIDATED STATEMENTS OF CASH FLOWS <
YEARS ENDED JUNE 30, 2019, 2018 AND 2017
Southern Missouri Bancorp, Inc.
|
(dollars in thousands)
|
2019
|
2018
|
2017
|
|||||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||
|
Noncash investing and financing activities:
|
||||||||||||
|
Conversion of loans to foreclosed real estate
|
$
|
2,134
|
$
|
1,905
|
$
|
890
|
||||||
|
Conversion of foreclosed real estate to loans
|
51
|
112
|
128
|
|||||||||
|
Conversion of loans to repossessed assets
|
66
|
54
|
130
|
|||||||||
|
The Company purchased all of the capital stock of Gideon for $22,028 on November 21, 2018.
|
||||||||||||
|
The Company purchased all of the capital stock of Bancshares for $16,815 on February 23, 2018.
|
||||||||||||
|
The Company purchased all of the capital stock of Tammcorp for $22,074 on June 16, 2017.
|
||||||||||||
|
In conjunction with the acquisitions, liabilities were assumed as follows:
|
||||||||||||
|
Fair value of assets acquired
|
216,772
|
90,992
|
193,297
|
|||||||||
|
Less: common stock issued
|
10,757
|
12,955
|
10,965
|
|||||||||
|
Cash paid for the capital stock
|
11,271
|
3,860
|
11,109
|
|||||||||
|
Liabilities assumed
|
194,744
|
74,177
|
171,223
|
|||||||||
|
Cash paid during the period for:
|
||||||||||||
|
Interest (net of interest credited)
|
$
|
4,325
|
$
|
3,021
|
$
|
3,132
|
||||||
|
Income taxes
|
2,856
|
1,589
|
3,132
|
|||||||||
See accompanying notes to consolidated financial statements.
8
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 Bank (the Bank). 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. SB Real
Estate Investments, LLC is a wholly owned subsidiary of the Bank formed to hold Southern Bank Real Estate Investments, LLC. Southern Bank Real Estate Investments, LLC is a real estate investment trust (REIT) which is controlled by the investment
subsidiary, and has other preferred shareholders in order to meet the requirements to be a REIT. At June 30, 2019, assets of the REIT were approximately $650 million, and consisted primarily of loan participations acquired from the Bank.
The Bank is primarily engaged in providing a full range of banking and financial services to individuals and corporate customers in its market areas. The Bank
and Company are subject to competition from other financial institutions. The Bank and Company are subject to the regulation of certain federal and state agencies and undergo periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation. The financial statements of the Company have been prepared in conformity
with accounting principles generally accepted in the United States of America and general practices within the banking 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 investment or loan portfolios resulting from the borrowers’ inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of the investment portfolio, collateral
underlying loans receivable, and the value of the Company’s investments in real estate.
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly
owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, and estimated fair
values of purchased loans.
Cash and Cash Equivalents. For purposes of reporting cash flows, cash and cash equivalents includes cash, 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 $6.9 million and $3.4 million at June 30, 2019
and 2018, respectively. The deposits are held in various commercial banks in amounts not exceeding the FDIC’s deposit insurance limits, as well as at the Federal Reserve and the Federal Home Loan Bank of Des Moines and Chicago.
Interest-bearing Time Deposits. Interest-bearing deposits in banks mature within seven years and are carried at cost.
Available for Sale Securities. Available for sale securities, which include any security for which the Company has no
immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and losses, net of tax, are reported in accumulated other comprehensive income (loss), a component of stockholders’ equity. All securities have
been classified as available for sale.
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. Realized gains or losses 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.
9
When the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its
cost basis, it recognizes the credit component of an OTTI of a debt security in earnings and the remaining portion in other comprehensive income. As a result of this guidance, the Company’s consolidated balance sheet for the dates presented reflects
the full impairment (that is, the difference between the security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the
amortized cost basis. For available-for-sale debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is
recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the
remaining term of the security as projected based on cash flow projections.
Federal Reserve Bank and Federal Home Loan Bank Stock. The Bank is a member of the Federal Reserve and the Federal
Home Loan Bank (FHLB) systems. Capital stock of the Federal Reserve and the FHLB is a required investment based upon a predetermined formula and is carried at cost.
Loans. Loans are generally stated at unpaid principal balances, less the allowance for loan losses, any net deferred
loan origination fees, and unamortized premiums or discounts on purchased loans.
Interest on loans is accrued based upon the principal amount outstanding. The accrual of interest on loans is discontinued when, in management’s judgment, the
collectability of interest or principal in the normal course of business is doubtful. The Company complies with regulatory guidance which indicates that loans should be placed in nonaccrual status when 90 days past due, unless the loan is both
well-secured and in the process of collection. A loan that is “in the process of collection” may be subject to legal action or, in appropriate circumstances, through other collection efforts reasonably expected to result in repayment or restoration
to current status in the near future. A loan is considered delinquent when a payment has not been made by the contractual due date. 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 nonaccrual loan is generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably
assured, and a consistent record of performance has been demonstrated.
The allowance for losses on loans represents management’s best estimate of losses probable in the existing loan portfolio. The allowance for losses on loans is
increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. Loans are charged off in the period deemed uncollectible, based on management’s analysis of expected cash flows (for non-collateral
dependent loans) or collateral value (for collateral-dependent loans). Subsequent recoveries of loans previously charged off, if any, are credited to the allowance when received. The provision for losses on loans is determined based on management’s
assessment of several factors: reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on specific borrowers and industry groups, historical loan loss
experience, the level of classified and nonperforming loans, and the results of regulatory examinations.
Loans are considered impaired if, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan agreement. Depending on a particular loan’s circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at
the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. Valuation allowances are established for collateral-dependent impaired loans
for the difference between the loan amount and fair value of collateral less estimated selling costs. For impaired loans that are not collateral dependent, a valuation allowance is established for the difference between the loan amount and the
present value of expected future cash flows discounted at the historical effective interest rate or the observable market price of the loan. Impairment losses are recognized through an increase in the required allowance for loan losses. Cash receipts
on loans deemed impaired are recorded based on the loan’s separate status as a nonaccrual loan or an accrual status loan.
Some loans are accounted for in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. For these loans (“purchased
credit impaired loans”), the Company recorded a fair value discount and began carrying them at book value less their face amount (see Note 4). For these loans, we determined the contractual amount and timing of undiscounted principal and interest
payments (the “undiscounted contractual cash flows”), and estimated the amount and timing of undiscounted expected principal and interest payments,
10
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
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.
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. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be
impaired, the impairment loss recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets.
Depreciation is computed by use of straight-line and accelerated methods over the estimated useful lives of the assets. Estimated lives are generally seven to
forty years for premises, three to seven years for equipment, and three years for software.
Bank Owned Life Insurance. Bank owned life insurance policies are reflected in the consolidated balance sheets at the
estimated cash surrender value. Changes in the cash surrender value of these policies, as well as a portion of the insurance proceeds received, are recorded in noninterest income in the consolidated statements of income.
Intangible Assets. The Company’s intangible assets at June 30, 2019 included gross core deposit intangibles of $14.7
million with $6.9 million accumulated amortization, gross other identifiable intangibles of $3.8 million with accumulated amortization of $3.8 million, and FHLB mortgage servicing rights of $1.4 million. At June 30, 2018, the Company’s intangible
assets included gross core deposit intangibles of $10.6 million with $5.2 million accumulated amortization, gross other identifiable intangibles of $3.8 million with accumulated amortization of $3.8 million, and FHLB mortgage servicing rights of $1.5
million. The Company’s core deposit intangible assets are being amortized using the straight line method, over periods ranging from five to seven years, with amortization expense expected to be approximately $1.8 million in fiscal 2020, $1.3
million in fiscal 2021, $1.3 million in fiscal 2022, $1.3 million in fiscal 2023, $1.3 million in fiscal 2024, and $963,000 thereafter.
11
Goodwill. The Company’s goodwill is evaluated annually for impairment or more frequently if impairment indicators are
present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on
the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill
impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. As of June 30, 2019 and 2018, there was no impairment indicated.
Income Taxes. The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income
Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax
law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the
differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely
than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution
of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood
of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts,
circumstances, and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some
portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiary.
Incentive Plan. The Company accounts for its Management and Recognition Plan (MRP) and Equity Incentive Plan (EIP) in
accordance with ASC 718, “Share-Based Payment.” Compensation expense is based on the market price of the Company’s stock on the date the shares are granted and is recorded over the vesting period. The difference between the grant-date fair value and
the fair value on the date the shares are considered earned represents a tax benefit to the Company that is recorded as an adjustment to income tax expense.
Outside Directors’ Retirement. The Bank adopted a directors’ retirement plan in April 1994 for outside directors. 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.
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.
Stock Options. Compensation cost is measured based on the grant-date fair value of the equity instruments issued, and
recognized over the vesting period during which an employee provides service in exchange for the award.
Earnings Per Share. Basic earnings per share available to common stockholders is computed using the weighted-average
number of common shares outstanding. Diluted earnings per share available to common stockholders includes the effect of all weighted-average dilutive potential common shares (stock options) outstanding during each year.
12
Comprehensive Income. Comprehensive income consists of net income and other comprehensive income, net of applicable
income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other-than-temporary
impairment has been recognized in income, and changes in the funded status of defined benefit pension plans.
Transfers Between Fair Value Hierarchy Levels. Transfers in and out of Level 1 (quoted market prices), Level 2 (other
significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the period ending date.
The following paragraphs summarize the impact of new accounting pronouncements:
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain
disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for certain removed and modified disclosures, and is not expected to have
a significant impact on our financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Subtopic 718): Scope of Modification Accounting. The amendments in ASU 2017-09
provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under the new guidance, an entity should account for the effects of a modification unless
all of the following are the same immediately before and after the change: (1) the fair value of the modified award, (2) the vesting conditions of the modified award, and (3) the classification of the modified award as either an equity or liability
instrument. ASU 2017-09 was effective for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied prospectively to awards modified on or after the adoption date. The adoption of this
guidance in the first quarter of fiscal 2019 did not have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The Update
provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows, with the objective of reducing the diversity in practice. The Update addresses eight specific cash flow issues. For public
companies, the ASU was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and should be applied retrospectively. There has been no material impact on the Company’s consolidated
financial statements due to the adoption of this standard in the first quarter of fiscal 2019.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The Update amends guidance on reporting credit losses for assets
held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current
estimate of all expected credit losses. The Update affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual
right to receive cash. For public companies, the ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is available beginning after December 15, 2018, including
interim periods within those fiscal years. Adoption will be applied on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings. The Company formed a working group of key personnel responsible for the allowance for
loan losses estimate and initiated its evaluation of the data and systems requirements of adoption of the Update. The group determined that purchasing third party software would be the most effective method to comply with the requirements, evaluated
several outside vendors, and made a vendor recommendation that was approved by the Board. Model validation and data testing using existing ALLL methodology have been completed. Parallel testing of the new methodology compared to the current
methodology will be performed throughout fiscal year 2020 and the Company continues to evaluate the impact of adopting the new guidance. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the
beginning of the first reporting period in which the new standard is effective, which for the Company will be the three-month period ending September 30, 2020, but cannot yet determine the overall impact of the new guidance on the Company’s
consolidated financial statements, or the exact amount of any such one-time adjustment.
13
In February 2016, the FASB issued ASU 2016-02, “Leases,” to revise the accounting related to
lease accounting. Under the new guidance, a lessee is required to record a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The Update was effective for the Company July 1, 2019. Adoption of the standard allows the use of a modified retrospective transition approach for all periods presented at the time of adoption. Based on the
Company’s leases outstanding at June 30, 2019, which included four leased properties and numerous office equipment leases, the adoption of the new standard did not have a material impact on our consolidated statements of financial condition or
our consolidated statements of income, although an increase to assets and liabilities occurs at the time of adoption. In the first quarter of 2020, the Company recognized a lease liability and a corresponding right-of-use asset for all leases of
approximately $500,000 based on our current leases. Subsequent to June 30, 2019, the Company’s new leases, lease terminations, and lease modifications and renewals will impact the amount of lease liability and corresponding right-of-use asset
recognized. The Company’s leases are all currently “operating leases” as defined in the Update; therefore, no material change in the income statement presentation of lease expense is anticipated.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” to generally require equity
investments be measured at fair value with changes in fair value recognized in net income, simplify the impairment assessment of equity investments without readily-determinable fair value, and change disclosure and presentation requirements regarding
financial instruments and other comprehensive income, and clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax
assets. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10). The amendments in ASU 2018-03 make technical corrections to certain aspects of ASU 2016-01 on
recognition of financial assets and financial liabilities. ASU 2016-01 became effective for the Company in the first quarter of fiscal 2019 and continues to have no material impact on the Company’s consolidated financial statements.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective
date of ASU 2014-09. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with
Customers (Subtopic 340-40). The guidance in ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. In April 2016,
the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify two aspects of Topic 606- performance obligations and the licensing implementation guidance. Neither of the
two updates changed the core principle of the guidance in Topic 606. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), to provide narrow-scope improvements and practical expedients to ASU 2015-14. ASU
2014-09 became effective for the Company in the first quarter of fiscal 2019 and continues to have no material change to our accounting for revenue because the majority of our financial instruments are not within the scope of Topic 606.
NOTE 2: Available-for-Sale Securities
The amortized cost, gross unrealized gains, gross unrealized losses and approximate fair value of securities available for sale consisted
of the following:
|
June 30, 2019
|
||||||||||||||||
|
Gross
|
Gross
|
Estimated
|
||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
|
(dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
Debt and equity securities:
|
||||||||||||||||
|
U.S. government and Federal agency obligations
|
$
|
7,284
|
$
|
1
|
$
|
(15
|
)
|
$
|
7,270
|
|||||||
|
Obligations of states and political subdivisions
|
42,123
|
728
|
(68
|
)
|
42,783
|
|||||||||||
|
Other securities
|
5,176
|
75
|
(198
|
)
|
5,053
|
|||||||||||
|
TOTAL DEBT AND EQUITY SECURITIES
|
54,583
|
804
|
(281
|
)
|
55,106
|
|||||||||||
|
Mortgage-backed securities:
|
||||||||||||||||
|
FHLMC certificates
|
16,373
|
64
|
(65
|
)
|
16,372
|
|||||||||||
|
GNMA certificates
|
35
|
-
|
-
|
35
|
||||||||||||
|
FNMA certificates
|
34,943
|
610
|
(95
|
)
|
35,458
|
|||||||||||
|
CMOs issues by government agencies
|
57,946
|
775
|
(157
|
)
|
58,564
|
|||||||||||
|
TOTAL MORTGAGE-BACKED SECURITIES
|
109,297
|
1,449
|
(317
|
)
|
110,429
|
|||||||||||
|
TOTAL
|
$
|
163,880
|
$
|
2,253
|
$
|
(598
|
)
|
$
|
165,535
|
|||||||
14
|
June 30, 2018
|
||||||||||||||||
|
Gross
|
Gross
|
Estimated
|
||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
|
(dollars in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
Debt and equity securities:
|
||||||||||||||||
|
U.S. government and Federal agency obligations
|
$
|
9,513
|
$
|
-
|
$
|
(128
|
)
|
$
|
9,385
|
|||||||
|
Obligations of states and political subdivisions
|
41,862
|
230
|
(480
|
)
|
41,612
|
|||||||||||
|
Other securites
|
5,284
|
61
|
(193
|
)
|
5,152
|
|||||||||||
|
TOTAL DEBT AND EQUITY SECURITIES
|
56,659
|
291
|
(801
|
)
|
56,149
|
|||||||||||
|
Mortgage-backed securities:
|
||||||||||||||||
|
FHLMC certificates
|
16,598
|
1
|
(486
|
)
|
16,113
|
|||||||||||
|
GNMA certificates
|
38
|
-
|
-
|
38
|
||||||||||||
|
FNMA certificates
|
25,800
|
-
|
(738
|
)
|
25,062
|
|||||||||||
|
CMOs issues by government agencies
|
50,272
|
-
|
(1,309
|
)
|
48,963
|
|||||||||||
|
TOTAL MORTGAGE-BACKED SECURITIES
|
92,708
|
1
|
(2,533
|
)
|
90,176
|
|||||||||||
|
TOTAL
|
$
|
149,367
|
$
|
292
|
$
|
(3,334
|
)
|
$
|
146,325
|
|||||||
The amortized cost and fair value of available-for-sale 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, 2019
|
||||||||
|
Amortized
|
Estimated
|
|||||||
|
(dollars in thousands)
|
Cost
|
Fair Value
|
||||||
|
Within one year
|
$
|
6,777
|
$
|
6,777
|
||||
|
After one year but less than five years
|
10,189
|
10,237
|
||||||
|
After five years but less than ten years
|
19,658
|
19,930
|
||||||
|
After ten years
|
17,959
|
18,162
|
||||||
|
Total investment securities
|
54,583
|
55,106
|
||||||
|
Mortgage-backed securities
|
109,297
|
110,429
|
||||||
|
Total investments and mortgage-backed securities
|
$
|
163,880
|
$
|
165,535
|
||||
The carrying value of investment and mortgage-backed securities pledged as collateral to secure public deposits and securities sold under
agreements to repurchase amounted to $143.7 million and $124.2 million at June 30, 2019 and 2018, respectively. The securities pledged consist of marketable securities, including $5.6 million and $8.4 million of U.S. Government and Federal Agency
Obligations, $47.3 million and $39.8 million of Mortgage-Backed Securities, $55.7 million and $41.5 million of Collateralized Mortgage Obligations, $34.9 million and $34.2 million of State and Political Subdivisions Obligations, and $300,000 and
$300,000 of Other Securities at June 30, 2019 and 2018, respectively.
Gains of $265,450 and losses of $21,576 were recognized from sales of available-for-sale securities in 2019. Gains of $491,500 and losses of
$157,105 were recognized from sales of available-for-sale securities in 2018.
The Company did not hold any securities of a single issuer, payable from and secured by the same source of revenue or taxing authority, the
book value of which exceeded 10% of stockholders’ equity at June 30, 2019.
Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value
of these investments at June 30, 2019, was $51.8 million, which is approximately 31.3% of the Company’s available for sale investment portfolio, as compared to $124.9 million or approximately 85.4% of the Company’s available for sale investment
portfolio at June 30, 2018. Except as discussed below, management believes the declines in fair value for these securities to be temporary.
15
The tables below show our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position at June 30, 2019 and 2018.
|
Less than 12 months
|
12 months or more
|
Total
|
||||||||||||||||||||||
|
Unrealized
|
Unrealized
|
Unrealized
|
||||||||||||||||||||||
|
For the year ended June 30, 2019
|
Fair Value
|
Losses
|
Fair Value
|
Losses
|
Fair Value
|
Losses
|
||||||||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||
|
U.S. government-sponsored enterprises (GSEs)
|
$
|
-
|
$
|
-
|
$
|
6,969
|
$
|
15
|
$
|
6,969
|
$
|
15
|
||||||||||||
|
Obligations of state and political subdivisions
|
-
|
-
|
8,531
|
68
|
8,531
|
68
|
||||||||||||||||||
|
Other securities
|
-
|
-
|
985
|
198
|
985
|
198
|
||||||||||||||||||
|
Mortgage-backed securities
|
1,175
|
1
|
34,148
|
316
|
35,323
|
317
|
||||||||||||||||||
|
Total investments and mortgage-backed securities
|
$
|
1,175
|
$
|
1
|
$
|
50,633
|
$
|
597
|
$
|
51,808
|
$
|
598
|
||||||||||||
|
Less than 12 months
|
12 months or more
|
Total
|
||||||||||||||||||||||
|
Unrealized
|
Unrealized
|
Unrealized
|
||||||||||||||||||||||
|
For the year ended June 30, 2018
|
Fair Value
|
Losses
|
Fair Value
|
Losses
|
Fair Value
|
Losses
|
||||||||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||
|
U.S. government-sponsored enterprises (GSEs)
|
$
|
5,957
|
$
|
58
|
$
|
3,427
|
$
|
70
|
$
|
9,384
|
$
|
128
|
||||||||||||
|
Obligations of state and political subdivisions
|
14,861
|
224
|
8,526
|
256
|
23,387
|
480
|
||||||||||||||||||
|
Other securities
|
982
|
10
|
1,109
|
183
|
2,091
|
193
|
||||||||||||||||||
|
Mortgage-backed securities
|
65,863
|
1,513
|
24,187
|
1,020
|
90,050
|
2,533
|
||||||||||||||||||
|
Total investments and mortgage-backed securities
|
$
|
87,663
|
$
|
1,805
|
$
|
37,249
|
$
|
1,529
|
$
|
124,912
|
$
|
3,334
|
||||||||||||
The unrealized losses on the Company’s investments in U.S. government-sponsored enterprises, mortgage-backed securities, and obligations of state and political
subdivisions were caused by increases in market interest rates. The contractual terms of these instruments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does
not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider these investments to be
other-than-temporarily impaired at June 30, 2019.
Other securities. At June 30, 2019, there were two pooled trust preferred securities with an estimated fair value of
$779,000 and unrealized losses of $193,000 in a continuous unrealized loss position for twelve months or more. These unrealized losses were primarily due to the long-term nature of the pooled trust preferred securities and a reduced demand for these
securities, and concerns regarding the financial institutions that issued the underlying trust preferred securities.
The June 30, 2019, cash flow analysis for these two securities indicated it is probable the Company will receive all contracted principal and related interest
projected. The cash flow analysis used in making this determination was based on anticipated default, recovery, and prepayment rates, and the resulting cash flows were discounted based on the yield spread anticipated at the time the securities were
purchased. Other inputs include the actual collateral attributes, which include credit ratings and other performance indicators of the underlying financial institutions, including profitability, capital ratios, and asset quality. Assumptions for
these two securities included prepayments averaging 1.4 percent, annually, annual defaults averaging 50 basis points, and a recovery rate averaging 10 percent of gross defaults, lagged two years.
One of these two securities has continued to receive cash interest payments in full since our purchase; the other security received principal-in-kind (PIK), in
lieu of cash interest, for a period of time following the recession and financial crisis which began in 2008, but resumed cash interest payments during fiscal 2014. Our cash flow analysis indicates that cash interest payments are expected to continue
for the securities. Because the Company does not intend to sell these securities and it is not more-likely-than-not that the Company will be required to sell these securities prior to recovery of their amortized cost basis, which may be maturity, the
Company does not consider these investments to be other-than-temporarily impaired at June 30, 2019.
The Company does not believe any other individual unrealized loss as of June 30, 2019, represents OTTI. However, the Company could be required to recognize OTTI
losses in future periods with respect to its available for sale investment securities portfolio. The amount and timing of any required OTTI will depend on the decline in the underlying cash flows of the securities. Should the impairment of any of
these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in the period the OTTI is identified.
16
Credit losses recognized on investments. During fiscal 2009, the Company adopted ASC 820, formerly FASB Staff
Position 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The following table provides information about the trust
preferred security for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income (loss) for the years ended June 30, 2019 and 2018.
|
Accumulated Credit Losses
|
||||||||
|
Twelve-Month Period Ended
|
||||||||
|
(dollars in thousands)
|
June 30,
|
|||||||
|
2019
|
2018
|
|||||||
|
Credit losses on debt securities held
|
||||||||
|
Beginning of period
|
$
|
-
|
$
|
340
|
||||
|
Additions related to OTTI losses not previously recognized
|
-
|
-
|
||||||
|
Reductions due to sales
|
-
|
(333
|
)
|
|||||
|
Reductions due to change in intent or likelihood of sale
|
-
|
-
|
||||||
|
Additions related to increases in previously-recognized OTTI losses
|
-
|
-
|
||||||
|
Reductions due to increases in expected cash flows
|
-
|
(7
|
)
|
|||||
|
End of period
|
$
|
-
|
$
|
-
|
||||
NOTE 3: Loans and Allowance for Loan Losses
Classes of loans are summarized as follows:
|
(dollars in thousands)
|
June 30, 2019
|
June 30, 2018
|
||||||
|
Real Estate Loans:
|
||||||||
|
Residential
|
$
|
491,992
|
$
|
450,919
|
||||
|
Construction
|
123,287
|
112,718
|
||||||
|
Commercial
|
840,777
|
704,647
|
||||||
|
Consumer loans
|
97,534
|
78,571
|
||||||
|
Commercial loans
|
355,874
|
281,272
|
||||||
|
1,909,464
|
1,628,127
|
|||||||
|
Loans in process
|
(43,153
|
)
|
(46,533
|
)
|
||||
|
Deferred loan fees, net
|
(3
|
)
|
-
|
|||||
|
Allowance for loan losses
|
(19,903
|
)
|
(18,214
|
)
|
||||
|
Total loans
|
$
|
1,846,405
|
$
|
1,563,380
|
||||
The Company’s lending activities consist of origination of loans secured by mortgages on one- to four-family residences and commercial and
agricultural real estate, construction loans on residential and commercial properties, commercial and agricultural business loans and consumer loans. The Company has also occasionally purchased loan participation interests originated by other lenders
and secured by properties generally located in the states of Missouri and Arkansas.
Residential Mortgage Lending. The Company actively originates loans for the acquisition or refinance
of one- to four-family residences. This category includes both fixed-rate and adjustable-rate mortgage (“ARM”) loans amortizing over periods of up to 30 years, and the properties securing such loans may be owner-occupied or non-owner-occupied.
Single-family residential loans do not generally exceed 90% of the lower of the appraised value or purchase price of the secured property. Substantially all of the one- to four-family residential mortgage originations in the Company’s portfolio are
located within the Company’s primary lending area.
The Company also originates loans secured by multi-family residential properties that are often located outside the Company’s primary lending
area but made to borrowers who operate within our primary market area. The majority of the multi-family residential loans that are originated by the Bank are amortized over periods generally up to 25 years, with balloon maturities typically up to
ten years. Both fixed and adjustable interest rates are offered and it is typical for the Company to include an interest rate “floor” and “ceiling” in the loan agreement. Generally, multi-family residential loans do not exceed 85% of the lower of the
appraised value or purchase price of the secured property.
Commercial Real Estate Lending. The Company actively originates loans secured by commercial real
estate including land (improved, unimproved, and farmland), strip shopping centers, retail establishments and other businesses. These properties are typically owned and operated by borrowers headquartered within the Company’s primary lending area,
however, the property may be located outside our primary lending area. Approximately $301.7 million of our $840.1 million in commercial real estate loans are secured by properties located outside our primary lending area.
17
Most commercial real estate loans originated by the Company generally are based on amortization schedules of up to 25 years with monthly
principal and interest payments. Generally, the interest rate received on these loans is fixed for a maturity for up to seven years, with a balloon payment due at maturity. Alternatively, for some loans, the interest rate adjusts at least annually
after an initial period up to seven years. The Company typically includes an interest rate “floor” in the loan agreement. Generally, improved commercial real estate loan amounts do not exceed 80% of the lower of the appraised value or the purchase
price of the secured property. Agricultural real estate terms offered differ slightly, with amortization schedules of up to 25 years with an 80% loan-to-value ratio, or 30 years with a 75% loan-to-value ratio.
Construction Lending. The Company originates real estate loans secured by property or land that is
under construction or development. Construction loans originated by the Company are generally secured by 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 or non-owner occupied commercial real estate. During construction, these loans typically require monthly interest-only payments and have maturities ranging from six to twelve months. Once construction is
completed, permanent construction loans may be converted to monthly payments using amortization schedules of up to 30 years on residential and generally up to 25 years on commercial real estate.
While the Company typically utilizes maturity periods ranging from 6 to 12 months to closely monitor the inherent risks associated with construction loans for
these loans, weather conditions, change orders, availability of materials and/or labor, and other factors may contribute to the lengthening of a project, thus necessitating the need to renew the construction loan at the balloon maturity. Such
extensions are typically executed in incremental three month periods to facilitate project completion. The Company’s average term of construction loans is approximately eight months. During construction, loans typically require monthly interest only
payments which may allow the Company an opportunity to monitor for early signs of financial difficulty should the borrower fail to make a required monthly payment. Additionally, during the construction phase, the Company typically performs interim
inspections which further allow the Company opportunity to assess risk. At June 30, 2019, construction loans outstanding included 59 loans, totaling $27.2 million, for which a modification had been agreed to. At June 30, 2018, construction loans
outstanding included 72 loans, totaling $12.5 million, for which a modification had been agreed to. All modifications were solely for the purpose of extending the maturity date due to conditions described above. None of these modifications were
executed due to financial difficulty on the part of the borrower and, therefore, were not accounted for as TDRs.
Consumer Lending. The Company offers a variety of secured consumer loans, including home equity, direct and indirect
automobile loans, second mortgages, mobile home loans and loans secured by deposits. The Company originates substantially all of its consumer loans in its primary lending area. Usually, consumer loans are originated with fixed rates for terms of up
to five years, with the exception of home equity lines of credit, which are variable, tied to the prime rate of interest and are for a period of ten years.
Home equity lines of credit (HELOCs) are secured with a deed of trust and are issued up to 100% of the appraised or assessed value of the property securing the
line of credit, less the outstanding balance on the first mortgage and are typically issued for a term of ten years. Interest rates on the HELOCs are generally adjustable. Interest rates are based upon the loan-to-value ratio of the property with
better rates given to borrowers with more equity.
Automobile loans originated by the Company include both direct loans and a smaller amount of loans originated by auto dealers. The Company generally pays a
negotiated fee back to the dealer for indirect loans. Typically, automobile loans are made for terms of up to 60 months for new and used vehicles. Loans secured by automobiles have fixed rates and are generally made in amounts up to 100% of the
purchase price of the vehicle.
Commercial Business Lending. The Company’s commercial business lending activities encompass loans with a variety of
purposes and security, including loans to finance accounts receivable, inventory, equipment and operating lines of credit, including agricultural production and equipment loans. The Company offers both fixed and adjustable rate commercial business
loans. Generally, commercial loans secured by fixed assets are amortized over periods up to five years, while commercial operating lines of credit or agricultural production lines are generally for a one year period.
18
The following tables present the balance in the allowance for loan losses and the recorded investment in loans (excluding loans in process and deferred loan
fees) based on portfolio segment and impairment methods as of June 30, 2019 and 2018, and activity in the allowance for loan losses for the fiscal years ended June 30, 2019, 2018, and 2017.
|
(dollars in thousands)
|
Residential
|
Construction
|
Commercial
|
|||||||||||||||||||||
|
June 30, 2019
|
Real Estate
|
Real Estate
|
Real Estate
|
Consumer
|
Commercial
|
Total
|
||||||||||||||||||
|
Allowance for loan losses:
|
||||||||||||||||||||||||
|
Balance, beginning of period
|
$
|
3,226
|
$
|
1,097
|
$
|
8,793
|
$
|
902
|
$
|
4,196
|
$
|
18,214
|
||||||||||||
|
Provision charged to expense
|
487
|
268
|
765
|
231
|
281
|
2,032
|
||||||||||||||||||
|
Losses charged off
|
(30
|
)
|
-
|
(164
|
)
|
(103
|
)
|
(92
|
)
|
(389
|
)
|
|||||||||||||
|
Recoveries
|
23
|
-
|
5
|
16
|
2
|
46
|
||||||||||||||||||
|
Balance, end of period
|
$
|
3,706
|
$
|
1,365
|
$
|
9,399
|
$
|
1,046
|
$
|
4,387
|
$
|
19,903
|
||||||||||||
|
Ending Balance: individually
evaluated for impairment |
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||
|
Ending Balance: collectively
evaluated for impairment |
$
|
3,706
|
$
|
1,365
|
$
|
9,399
|
$
|
1,046
|
$
|
4,387
|
$
|
19,903
|
||||||||||||
|
Ending Balance: loans acquired
with deteriorated credit quality |
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||
|
Loans:
|
||||||||||||||||||||||||
|
Ending Balance: individually
evaluated for impairment |
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||
|
Ending Balance: collectively
evaluated for impairment |
$
|
490,307
|
$
|
78,826
|
$
|
821,415
|
$
|
97,534
|
$
|
349,681
|
$
|
1,837,763
|
||||||||||||
|
Ending Balance: loans acquired
with deteriorated credit quality |
$
|
1,685
|
$
|
1,308
|
$
|
19,362
|
$
|
-
|
$
|
6,193
|
$
|
28,548
|
||||||||||||
|
(dollars in thousands)
|
Residential
|
Construction
|
Commercial
|
|||||||||||||||||||||
|
June 30, 2018
|
Real Estate
|
Real Estate
|
Real Estate
|
Consumer
|
Commercial
|
Total
|
||||||||||||||||||
|
Allowance for loan losses:
|
||||||||||||||||||||||||
|
Balance, beginning of period
|
$
|
3,230
|
$
|
964
|
$
|
7,068
|
$
|
757
|
$
|
3,519
|
$
|
15,538
|
||||||||||||
|
Provision charged to expense
|
184
|
142
|
1,779
|
251
|
691
|
3,047
|
||||||||||||||||||
|
Losses charged off
|
(190
|
)
|
(9
|
)
|
(56
|
)
|
(129
|
)
|
(22
|
)
|
(406
|
)
|
||||||||||||
|
Recoveries
|
2
|
-
|
2
|
23
|
8
|
35
|
||||||||||||||||||
|
Balance, end of period
|
$
|
3,226
|
$
|
1,097
|
$
|
8,793
|
$
|
902
|
$
|
4,196
|
$
|
18,214
|
||||||||||||
|
Ending Balance: individually
evaluated for impairment |
$
|
-
|
$
|
-
|
$
|
399
|
$
|
-
|
$
|
351
|
$
|
750
|
||||||||||||
|
Ending Balance: collectively
evaluated for impairment |
$
|
3,226
|
$
|
1,097
|
$
|
8,394
|
$
|
902
|
$
|
3,845
|
$
|
17,464
|
||||||||||||
|
Ending Balance: loans acquired
with deteriorated credit quality |
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||
|
Loans:
|
||||||||||||||||||||||||
|
Ending Balance: individually
evaluated for impairment |
$
|
-
|
$
|
-
|
$
|
660
|
$
|
-
|
$
|
580
|
$
|
1,240
|
||||||||||||
|
Ending Balance: collectively
evaluated for impairment |
$
|
447,706
|
$
|
64,888
|
$
|
696,377
|
$
|
78,571
|
$
|
278,241
|
$
|
1,565,783
|
||||||||||||
|
Ending Balance: loans acquired
with deteriorated credit quality |
$
|
3,213
|
$
|
1,297
|
$
|
7,610
|
$
|
-
|
$
|
2,451
|
$
|
14,571
|
||||||||||||
|
(dollars in thousands)
|
Residential
|
Construction
|
Commercial
|
|||||||||||||||||||||
|
June 30, 2017
|
Real Estate
|
Real Estate
|
Real Estate
|
Consumer
|
Commercial
|
Total
|
||||||||||||||||||
|
Allowance for loan losses:
|
||||||||||||||||||||||||
|
Balance, beginning of period
|
$
|
3,247
|
$
|
1,091
|
$
|
5,711
|
$
|
738
|
$
|
3,004
|
$
|
13,791
|
||||||||||||
|
Provision charged to expense
|
184
|
(97
|
)
|
1,356
|
76
|
821
|
2,340
|
|||||||||||||||||
|
Losses charged off
|
(211
|
)
|
(31
|
)
|
(19
|
)
|
(65
|
)
|
(337
|
)
|
(663
|
)
|
||||||||||||
|
Recoveries
|
10
|
1
|
20
|
8
|
31
|
70
|
||||||||||||||||||
|
Balance, end of period
|
$
|
3,230
|
$
|
964
|
$
|
7,068
|
$
|
757
|
$
|
3,519
|
$
|
15,538
|
||||||||||||
Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property,
real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.
19
The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to cover probable credit losses inherent in the loan
portfolio at the balance sheet date. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when an amount is
determined to be uncollectible, based on management’s analysis of expected cash flow (for non-collateral dependent loans) or collateral value (for collateral-dependent loans). Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in
light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are
classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.
Under the Company’s allowance methodology, loans are first segmented into 1) those comprising large groups of homogeneous loans which are collectively evaluated
for impairment, and 2) all other loans which are individually evaluated. Those loans in the second category are further segmented utilizing a defined grading system which involves categorizing loans by severity of risk based on conditions that may
affect the ability of the borrowers to repay their debt, such as current financial information, collateral valuations, historical payment experience, credit documentation, public information, and current trends. The loans subject to credit
classification represent the portion of the portfolio subject to the greatest credit risk and where adjustments to the allowance for losses on loans as a result of provisions and charge offs are most likely to have a significant impact on operations.
A periodic review of selected credits (based on loan size and type) is conducted to identify loans with heightened risk or probable losses and to assign risk
grades. The primary responsibility for this review rests with loan administration personnel. This review is supplemented with periodic examinations of both selected credits and the credit review process by the Company’s internal audit function and
applicable regulatory agencies. The information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit represents a probable loss or risk that should
be recognized.
The Company considers, as the primary quantitative factor in its allowance methodology, average net charge offs over the most recent twelve-month period. The
Company also reviews average net charge offs over the most recent five-year period.
A loan is considered impaired when, based on current information and events, it is probable that the scheduled payments of principal or interest will not be
able to be collected when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal
and interest owed. Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or
the fair value of the collateral if the loan is collateral dependent.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes
in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, individual consumer and residential loans are not separately identified for impairment measurements, unless such loans are the subject of a
restructuring agreement due to financial difficulties of the borrower.
The general component covers non-classified loans and is based on historical charge-off experience and expected loss given the internal risk rating process.
The loan portfolio is stratified into homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for other qualitative factors is applied to the homogeneous pools of loans to estimate the incurred
losses in the loan portfolio.
20
Included in the Company’s loan portfolio are certain loans accounted for in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated
Credit Quality. These loans were written down at acquisition to an amount estimated to be collectible. As a result, certain ratios regarding the Company’s loan portfolio and credit quality cannot be used to compare the Company to peer companies or
to compare the Company’s current credit quality to prior periods. The ratios particularly affected by accounting under ASC 310-30 include the allowance for loan losses as a percentage of loans, nonaccrual loans, and nonperforming assets, and
nonaccrual loans and nonperforming loans as a percentage of total loans.
The following tables present the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating
category and payment activity as of June 30, 2019 and 2018. These tables include purchased credit impaired loans, which are reported according to risk categorization after acquisition based on the Company’s standards for such classification:
|
(dollars in thousands)
|
Residential
|
Construction
|
Commercial
|
|||||||||||||||||
|
June 30, 2019
|
Real Estate
|
Real Estate
|
Real Estate
|
Consumer
|
Commercial
|
|||||||||||||||
|
Pass
|
$
|
482,869
|
$
|
80,134
|
$
|
802,479
|
$
|
97,012
|
$
|
341,069
|
||||||||||
|
Watch
|
1,236
|
-
|
21,693
|
170
|
7,802
|
|||||||||||||||
|
Special Mention
|
103
|
-
|
3,463
|
26
|
-
|
|||||||||||||||
|
Substandard
|
7,784
|
-
|
13,142
|
291
|
7,003
|
|||||||||||||||
|
Doubtful
|
-
|
-
|
-
|
35
|
-
|
|||||||||||||||
|
Total
|
$
|
491,992
|
$
|
80,134
|
$
|
840,777
|
$
|
97,534
|
$
|
355,874
|
||||||||||
|
(dollars in thousands)
|
Residential
|
Construction
|
Commercial
|
|||||||||||||||||
|
June 30, 2018
|
Real Estate
|
Real Estate
|
Real Estate
|
Consumer
|
Commercial
|
|||||||||||||||
|
Pass
|
$
|
443,916
|
$
|
66,160
|
$
|
691,188
|
$
|
78,377
|
$
|
277,568
|
||||||||||
|
Watch
|
1,566
|
-
|
7,004
|
111
|
374
|
|||||||||||||||
|
Special Mention
|
75
|
-
|
926
|
27
|
69
|
|||||||||||||||
|
Substandard
|
5,362
|
25
|
4,869
|
56
|
2,079
|
|||||||||||||||
|
Doubtful
|
-
|
-
|
660
|
-
|
1,182
|
|||||||||||||||
|
Total
|
$
|
450,919
|
$
|
66,185
|
$
|
704,647
|
$
|
78,571
|
$
|
281,272
|
||||||||||
The above amounts include purchased credit impaired loans. At June 30, 2019, purchased credit impaired loans comprised $6.9 million of credits rated “Pass”;
$10.4 million of credits rated “Watch”, none rated “Special Mention”, $11.2 million of credits rated “Substandard” and none rated “Doubtful”. At June 30, 2018, purchased credit impaired loans comprised $7.8 million of credits rated “Pass”; $3.1
million of credits rated “Watch”, none rated “Special Mention”; $3.7 million of credits rated “Substandard”; and none rated “Doubtful”.
Credit Quality Indicators. The Company categorizes loans into risk categories based on relevant information about the
ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by
classifying the loans as to credit risk. This analysis is performed on all loans at origination, and is updated on a quarterly basis for loans risk rated Watch, Special Mention, Substandard, or Doubtful. In addition, lending relationships of $2
million or more, exclusive of any consumer or owner-occupied residential loan, are subject to an annual credit analysis which is prepared by the loan administration department and presented to a loan committee with appropriate lending authority. A
sample of lending relationships in excess of $1 million (exclusive of single-family residential real estate loans) are subject to an independent loan review annually, in order to verify risk ratings. The Company uses the following definitions for
risk ratings:
Watch – Loans classified as watch exhibit weaknesses that require more than usual monitoring. Issues may include
deteriorating financial condition, payments made after due date but within 30 days, adverse industry conditions or management problems.
Special Mention – Loans classified as special mention exhibit signs of further deterioration but still generally make
payments within 30 days. This is a transitional rating and loans should typically not be rated Special Mention for more than 12 months.
Substandard – Loans classified as substandard possess weaknesses that jeopardize the ultimate collection of the
principal and interest outstanding. These loans exhibit continued financial losses, ongoing delinquency, overall poor financial condition, and insufficient collateral. They are characterized by the distinct possibility that the institution will
sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have all the weaknesses of substandard loans, and have deteriorated to the
level that there is a high probability of substantial loss.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.
21
The following tables present the Company’s loan portfolio aging analysis (excluding loans in process and deferred loan fees) as of June 30, 2019 and 2018.
These tables include purchased credit impaired loans, which are reported according to aging analysis after acquisition based on the Company’s standards for such classification:
|
Greater Than
|
Greater Than 90
|
|||||||||||||||||||||||||||
|
(dollars in thousands)
|
30-59 Days
|
60-89 Days
|
90 Days
|
Total
|
Total Loans
|
Days Past Due
|
||||||||||||||||||||||
|
June 30, 2019
|
Past Due
|
Past Due
|
Past Due
|
Past Due
|
Current
|
Receivable
|
and Accruing
|
|||||||||||||||||||||
|
Real Estate Loans:
|
||||||||||||||||||||||||||||
|
Residential
|
$
|
227
|
$
|
1,054
|
$
|
1,714
|
$
|
2,995
|
$
|
488,997
|
$
|
491,992
|
$
|
-
|
||||||||||||||
|
Construction
|
-
|
-
|
-
|
-
|
80,134
|
80,134
|
-
|
|||||||||||||||||||||
|
Commercial
|
296
|
1
|
5,617
|
5,914
|
834,863
|
840,777
|
-
|
|||||||||||||||||||||
|
Consumer loans
|
128
|
46
|
176
|
350
|
97,184
|
97,534
|
-
|
|||||||||||||||||||||
|
Commercial loans
|
424
|
25
|
1,902
|
2,351
|
353,523
|
355,874
|
-
|
|||||||||||||||||||||
|
Total loans
|
$
|
1,075
|
$
|
1,126
|
$
|
9,409
|
$
|
11,610
|
$
|
1,854,701
|
$
|
1,866,311
|
$
|
-
|
||||||||||||||
|
Greater Than
|
Greater Than 90
|
|||||||||||||||||||||||||||
|
(dollars in thousands)
|
30-59 Days
|
60-89 Days
|
90 Days
|
Total
|
Total Loans
|
Days Past Due
|
||||||||||||||||||||||
|
June 30, 2018
|
Past Due
|
Past Due
|
Past Due
|
Past Due
|
Current
|
Receivable
|
and Accruing
|
|||||||||||||||||||||
|
Real Estate Loans:
|
||||||||||||||||||||||||||||
|
Residential
|
$
|
749
|
$
|
84
|
$
|
4,089
|
$
|
4,922
|
$
|
445,997
|
$
|
450,919
|
$
|
-
|
||||||||||||||
|
Construction
|
-
|
-
|
-
|
-
|
66,185
|
66,185
|
-
|
|||||||||||||||||||||
|
Commercial
|
1,100
|
290
|
1,484
|
2,874
|
701,773
|
704,647
|
-
|
|||||||||||||||||||||
|
Consumer loans
|
510
|
33
|
146
|
689
|
77,882
|
78,571
|
-
|
|||||||||||||||||||||
|
Commercial loans
|
134
|
90
|
707
|
931
|
280,341
|
281,272
|
-
|
|||||||||||||||||||||
|
Total loans
|
$
|
2,493
|
$
|
497
|
$
|
6,426
|
$
|
9,416
|
$
|
1,572,178
|
$
|
1,581,594
|
$
|
-
|
||||||||||||||
At June 30, 2019 there was one purchased credit impaired loan with net fair value of $3.1 million that was greater than 90 days past due. At June 30, 2018
there were two purchased credit impaired loans with net fair value of $1.1 million that were greater than 90 days past due.
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is
probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans but also include loans modified in troubled debt restructurings (TDRs)
where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended
to maximize collection.
The following tables present impaired loans (excluding loans in process and deferred loan fees) as of June 30, 2019 and 2018. These tables include purchased
credit impaired loans. Purchased credit impaired loans are those for which it was deemed probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable. In an instance where, subsequent to the
acquisition, the Company determines it is probable, for a specific loan, that cash flows received will exceed the amount previously expected, the Company will recalculate the amount of accretable yield in order to recognize the improved cash flow
expectation as additional interest income over the remaining life of the loan. These loans, however, will continue to be reported as impaired loans. In an instance where, subsequent to the acquisition, the Company determines it is probable that,
for a specific loan, that cash flows received will be less than the amount previously expected, the Company will allocate a specific allowance under the terms of ASC 310-10-35.
22
|
(dollars in thousands)
|
Recorded
|
Unpaid Principal
|
Specific
|
|||||||||
|
June 30, 2019
|
Balance
|
Balance
|
Allowance
|
|||||||||
|
Loans without a specific valuation allowance:
|
||||||||||||
|
Residential real estate
|
$
|
5,104
|
$
|
5,341
|
$
|
-
|
||||||
|
Construction real estate
|
1,330
|
1,419
|
-
|
|||||||||
|
Commercial real estate
|
26,410
|
31,717
|
-
|
|||||||||
|
Consumer loans
|
8
|
8
|
-
|
|||||||||
|
Commercial loans
|
6,999
|
9,187
|
-
|
|||||||||
|
Loans with a specific valuation allowance:
|
||||||||||||
|
Residential real estate
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
Construction real estate
|
-
|
-
|
-
|
|||||||||
|
Commercial real estate
|
-
|
-
|
-
|
|||||||||
|
Consumer loans
|
-
|
-
|
-
|
|||||||||
|
Commercial loans
|
-
|
-
|
-
|
|||||||||
|
Total:
|
||||||||||||
|
Residential real estate
|
$
|
5,104
|
$
|
5,341
|
$
|
-
|
||||||
|
Construction real estate
|
$
|
1,330
|
$
|
1,419
|
$
|
-
|
||||||
|
Commercial real estate
|
$
|
26,410
|
$
|
31,717
|
$
|
-
|
||||||
|
Consumer loans
|
$
|
8
|
$
|
8
|
$
|
-
|
||||||
|
Commercial loans
|
$
|
6,999
|
$
|
9,187
|
$
|
-
|
||||||
|
(dollars in thousands)
|
Recorded
|
Unpaid Principal
|
Specific
|
|||||||||
|
June 30, 2018
|
Balance
|
Balance
|
Allowance
|
|||||||||
|
Loans without a specific valuation allowance:
|
||||||||||||
|
Residential real estate
|
$
|
3,820
|
$
|
4,468
|
$
|
-
|
||||||
|
Construction real estate
|
1,321
|
1,569
|
-
|
|||||||||
|
Commercial real estate
|
14,052
|
15,351
|
-
|
|||||||||
|
Consumer loans
|
25
|
25
|
-
|
|||||||||
|
Commercial loans
|
2,787
|
3,409
|
-
|
|||||||||
|
Loans with a specific valuation allowance:
|
||||||||||||
|
Residential real estate
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
Construction real estate
|
-
|
-
|
-
|
|||||||||
|
Commercial real estate
|
660
|
660
|
399
|
|||||||||
|
Consumer loans
|
-
|
-
|
-
|
|||||||||
|
Commercial loans
|
580
|
580
|
351
|
|||||||||
|
Total:
|
||||||||||||
|
Residential real estate
|
$
|
3,820
|
$
|
4,468
|
$
|
-
|
||||||
|
Construction real estate
|
$
|
1,321
|
$
|
1,569
|
$
|
-
|
||||||
|
Commercial real estate
|
$
|
14,712
|
$
|
16,011
|
$
|
399
|
||||||
|
Consumer loans
|
$
|
25
|
$
|
25
|
$
|
-
|
||||||
|
Commercial loans
|
$
|
3,367
|
$
|
3,989
|
$
|
351
|
||||||
The above amounts include purchased credit impaired loans. At June 30, 2019, purchased credit impaired loans comprised $28.5 million of impaired loans without
a specific valuation allowance. At June 30, 2018, purchased credit impaired loans comprised $14.6 million of impaired loans without a specific valuation allowance.
The following tables present information regarding interest income recognized on impaired loans:
|
Fiscal 2019
|
||||||||
|
Average
|
||||||||
|
(dollars in thousands)
|
Investment in
|
Interest Income
|
||||||
|
Impaired Loans
|
Recognized
|
|||||||
|
Residential Real Estate
|
$
|
2,081
|
$
|
112
|
||||
|
Construction Real Estate
|
1,297
|
246
|
||||||
|
Commercial Real Estate
|
14,547
|
1,570
|
||||||
|
Consumer Loans
|
-
|
-
|
||||||
|
Commercial Loans
|
4,212
|
926
|
||||||
|
Total Loans
|
$
|
22,137
|
$
|
2,854
|
||||
23
|
Fiscal 2018
|
||||||||
|
Average
|
||||||||
|
(dollars in thousands)
|
Investment in
|
Interest Income
|
||||||
|
Impaired Loans
|
Recognized
|
|||||||
|
Residential Real Estate
|
$
|
3,358
|
$
|
219
|
||||
|
Construction Real Estate
|
1,317
|
165
|
||||||
|
Commercial Real Estate
|
9,446
|
1,163
|
||||||
|
Consumer Loans
|
-
|
-
|
||||||
|
Commercial Loans
|
3,152
|
199
|
||||||
|
Total Loans
|
$
|
17,273
|
$
|
1,746
|
||||
|
Fiscal 2017
|
||||||||
|
Average
|
||||||||
|
(dollars in thousands)
|
Investment in
|
Interest Income
|
||||||
|
Impaired Loans
|
Recognized
|
|||||||
|
Residential Real Estate
|
$
|
3,011
|
$
|
119
|
||||
|
Construction Real Estate
|
1,370
|
148
|
||||||
|
Commercial Real Estate
|
10,044
|
782
|
||||||
|
Consumer Loans
|
-
|
-
|
||||||
|
Commercial Loans
|
1,529
|
74
|
||||||
|
Total Loans
|
$
|
15,954
|
$
|
1,123
|
||||
Interest income on impaired loans recognized on a cash basis in the fiscal years ended June 30, 2019, 2018, and 2017 was immaterial.
For the fiscal years ended June 30, 2019, 2018, and 2017, the amount of interest income recorded for impaired loans that represents a change in the present
value of future cash flows attributable to the passage of time was approximately $1.3 million, $683,000, and $392,000, respectively.
The following table presents the Company’s nonaccrual loans at June 30, 2019 and 2018. Purchased credit impaired loans are placed on nonaccrual status in the
event the Company cannot reasonably estimate cash flows expected to be collected. The table excludes performing TDRs.
|
June 30,
|
||||||||
|
(dollars in thousands)
|
2019
|
2018
|
||||||
|
Residential real estate
|
$
|
6,404
|
$
|
5,913
|
||||
|
Construction real estate
|
-
|
25
|
||||||
|
Commercial real estate
|
10,876
|
1,962
|
||||||
|
Consumer loans
|
309
|
209
|
||||||
|
Commercial loans
|
3,424
|
1,063
|
||||||
|
Total loans
|
$
|
21,013
|
$
|
9,172
|
||||
The above amounts include purchased credit impaired loans. At June 30, 2019 and 2018, purchased credit impaired loans comprised $4.1 million and $1.1 million
of nonaccrual loans, respectively.
Included in certain loan categories in the impaired loans are TDRs, where economic concessions have been granted to borrowers who have experienced financial
difficulties. These concessions typically result from our loss mitigation activities, and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as
nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.
When loans and leases are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of
expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, and uses the current fair value of the collateral, less selling costs, for collateral dependent loans. If the Company determines that the
value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs, and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the
allowance. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.
24
At June 30, 2019, and June 30, 2018, the Company had $6.5 million and $8.1 million, respectively, of commercial real estate loans, $1.1 million and $800,000,
respectively, of residential real estate loans, $5.6 million and $2.8 million, respectively, of commercial loans, and $0 and $14,000, respectively, of consumer loans that were modified in TDRs and impaired. All loans classified as TDRs at June 30,
2019 and June 30, 2018, were so classified due to interest rate concessions. During Fiscal 2019 three commercial loans totaling $4.4 million, and three commercial real estate loans totaling $969,000 were modified as TDRs and had payment defaults
subsequent to the modification. When loans modified as TDRs have subsequent payment defaults, the defaults are factored into the determination of the allowance for loan losses to ensure specific valuation allowances reflect amounts considered
uncollectible.
Performing loans classified as TDRs at June 30, 2019 and June 30, 2018 segregated by class, are shown in the table below. Nonperforming TDRs are shown in
nonaccrual loans.
|
June 30, 2019
|
June 30, 2018
|
|||||||||||||||
|
(dollars in thousands)
|
Number of
|
Recorded
|
Number of
|
Recorded
|
||||||||||||
|
modifications
|
Investment
|
modifications
|
Investment
|
|||||||||||||
|
Residential real estate
|
10
|
$
|
1,130
|
12
|
$
|
800
|
||||||||||
|
Construction real estate
|
-
|
-
|
-
|
-
|
||||||||||||
|
Commercial real estate
|
20
|
6,529
|
13
|
8,084
|
||||||||||||
|
Consumer loans
|
-
|
-
|
1
|
14
|
||||||||||||
|
Commercial loans
|
10
|
5,630
|
8
|
2,787
|
||||||||||||
|
Total
|
40
|
$
|
13,289
|
34
|
$
|
11,685
|
||||||||||
We may obtain
physical possession of real estate collateralizing a residential mortgage loan or home equity loan via foreclosure or in-substance repossession. As of June 30, 2019 and June 30, 2018, the carrying value of foreclosed residential real estate
properties as a result of obtaining physical possession was $752,000 and $802,000, respectively. In addition, as of June 30, 2019 and June 30, 2018, we had residential mortgage loans and home equity loans with a carrying value of $493,000 and
$331,000, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.
Following is a summary of loans to executive officers, directors, significant shareholders and their affiliates held by the Company at June 30, 2019 and 2018,
respectively:
|
June 30,
|
||||||||
|
(dollars in thousands)
|
2019
|
2018
|
||||||
|
Beginning Balance
|
$
|
8,995
|
$
|
8,320
|
||||
|
Additions
|
7,238
|
6,543
|
||||||
|
Repayments
|
(7,134
|
)
|
(5,868
|
)
|
||||
|
Change in related party
|
33
|
-
|
||||||
|
Ending Balance
|
$
|
9,132
|
$
|
8,995
|
||||
NOTE 4: Accounting for Certain Acquired Loans
During the fiscal years ended June 30, 2011, 2015, 2017, and 2019, the Company acquired certain loans which evidenced deterioration of credit quality since
origination and for which it was probable, at acquisition, that all contractually required payments would not be collected.
Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be
collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased
credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to
be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our
internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.
The carrying amount of those loans is included in the balance sheet amounts of loans receivable at June 30, 2019 and June 30, 2018. The amount of these loans is
shown below:
25
|
June 30,
|
||||||||
|
(dollars in thousands)
|
2019
|
2018
|
||||||
|
Residential real estate
|
$
|
1,921
|
$
|
3,861
|
||||
|
Construction real estate
|
1,397
|
1,544
|
||||||
|
Commercial real estate
|
24,669
|
8,909
|
||||||
|
Consumer loans
|
-
|
-
|
||||||
|
Commercial loans
|
8,381
|
3,073
|
||||||
|
Outstanding balance
|
$
|
36,368
|
$
|
17,387
|
||||
|
Carrying amount, net of fair value adjustment of
$7,821 and $2,816 at June 30, 2019 and 2018, respectively |
$
|
28,547
|
$
|
14,571
|
||||
Accretable yield, or income expected to be collected, is as follows:
|
June 30,
|
||||||||||||
|
(dollars in thousands)
|
2019
|
2018
|
2017
|
|||||||||
|
Balance at beginning of period
|
$
|
589
|
$
|
609
|
$
|
656
|
||||||
|
Additions
|
102
|
-
|
-
|
|||||||||
|
Accretion
|
(1,342
|
)
|
(683
|
)
|
(391
|
)
|
||||||
|
Reclassification from nonaccretable difference
|
1,075
|
663
|
344
|
|||||||||
|
Disposals
|
(204
|
)
|
-
|
-
|
||||||||
|
Balance at end of period
|
$
|
220
|
$
|
589
|
$
|
609
|
||||||
During the fiscal years ended June 30, 2019 and 2018, the Company did not increase or reverse the allowance for loan losses related to these purchased credit
impaired loans.
NOTE 5: Premises and Equipment
Following is a summary of premises and equipment:
|
June 30,
|
||||||||
|
(dollars in thousands)
|
2019
|
2018
|
||||||
|
Land
|
$
|
12,414
|
$
|
12,152
|
||||
|
Buildings and improvements
|
54,304
|
46,802
|
||||||
|
Construction in progress
|
466
|
4
|
||||||
|
Furniture, fixtures, equipment and software
|
16,514
|
13,680
|
||||||
|
Automobiles
|
107
|
81
|
||||||
|
83,805
|
72,719
|
|||||||
|
Less accumulated depreciation
|
21,078
|
17,887
|
||||||
|
$
|
62,727
|
$
|
54,832
|
|||||
NOTE 6: Deposits
Deposits are summarized as follows:
|
June 30,
|
||||||||
|
(dollars in thousands)
|
2019
|
2018
|
||||||
|
Non-interest bearing accounts
|
$
|
218,889
|
$
|
203,517
|
||||
|
NOW accounts
|
639,219
|
569,005
|
||||||
|
Money market deposit accounts
|
188,355
|
116,389
|
||||||
|
Savings accounts
|
167,973
|
157,540
|
||||||
|
TOTAL NON-MATURITY DEPOSITS
|
1,214,436
|
1,046,451
|
||||||
|
Certificates
|
||||||||
|
0.00-.99%
|
2,447
|
77,958
|
||||||
|
1.00-1.99%
|
221,409
|
356,172
|
||||||
|
2.00-2.99%
|
398,931
|
98,842
|
||||||
|
3.00-3.99%
|
56,310
|
479
|
||||||
|
4.00-4.99%
|
162
|
-
|
||||||
|
TOTAL CERTIFICATES
|
679,259
|
533,451
|
||||||
|
TOTAL DEPOSITS
|
$
|
1,893,695
|
$
|
1,579,902
|
||||
The aggregate amount of deposits with a minimum denomination of $250,000 was $519.3 million and $401.7 million at June 30, 2019 and 2018, respectively.
26
Certificate maturities are summarized as follows:
|
(dollars in thousands)
|
||||
|
July 1, 2019 to June 30, 2020
|
$
|
467,676
|
||
|
July 1, 2020 to June 30, 2021
|
152,980
|
|||
|
July 1, 2021 to June 30, 2022
|
38,045
|
|||
|
July 1, 2022 to June 30, 2023
|
16,625
|
|||
|
July 1, 2023 to June 30, 2024
|
3,933
|
|||
|
Thereafter
|
-
|
|||
|
TOTAL
|
$
|
679,259
|
||
Brokered certificates totaled $44.9 million and $13.6 million at June 30, 2019 and 2018, respectively. Deposits from executive officers, directors, significant
shareholders and their affiliates (related parties) held by the Company at June 30, 2019 and 2018 totaled approximately $3.8 million and $2.9 million, respectively.
NOTE 7: Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase, which are classified as borrowings, generally mature within one to four days. The carrying value of securities
sold under agreement to repurchase amounted to $4.4 million and $3.3 million at June 30, 2019 and 2018, respectively. The securities underlying the agreements consist of marketable securities, including $0 and $1.2 million of U.S. Government and
Federal Agency Obligations, and $5.8 million and $3.4 million of Mortgage-Backed Securities at June 30, 2019 and 2018, respectively. The right of offset for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the
Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The collateral is held by the Company in a segregated custodial account. In the event the collateral fair value falls below stipulated
levels, the Company will pledge additional securities. The Company closely monitors collateral levels to ensure adequate levels are maintained.
The following table presents balance and interest rate information on the securities sold under agreements to repurchase.
|
June 30,
|
||||||||
|
(dollars in thousands)
|
2019
|
2018
|
||||||
|
Year-end balance
|
$
|
4,376
|
$
|
3,267
|
||||
|
Average balance during the year
|
3,988
|
5,373
|
||||||
|
Maximum month-end balance during the year
|
4,703
|
9,902
|
||||||
|
Average interest during the year
|
0.90
|
%
|
0.70
|
%
|
||||
|
Year-end interest rate
|
0.93
|
%
|
0.86
|
%
|
||||
27
NOTE 8: Advances from Federal Home Loan Bank
Advances from Federal Home Loan Bank are summarized as follows:
|
June 30,
|
||||||||||||
|
Interest
|
2019
|
2018
|
||||||||||
|
Maturity
|
Rate
|
(dollars in thousands)
|
||||||||||
|
08/13/18
|
3.32%
|
$
|
-
|
$
|
501
|
|||||||
|
08/14/18
|
3.98%
|
-
|
5,000
|
|||||||||
|
10/09/18
|
3.38%
|
-
|
1,503
|
|||||||||
|
12/28/18
|
1.69%
|
-
|
249
|
|||||||||
|
04/01/19
|
1.60%
|
-
|
249
|
|||||||||
|
04/01/19
|
1.27%
|
-
|
248
|
|||||||||
|
08/19/19
|
1.52%
|
200
|
396
|
|||||||||
|
11/22/19
|
1.91%
|
1,741
|
-
|
|||||||||
|
12/30/19
|
1.92%
|
249
|
248
|
|||||||||
|
01/14/20
|
1.76%
|
249
|
247
|
|||||||||
|
03/31/20
|
1.49%
|
248
|
246
|
|||||||||
|
06/10/20
|
1.26%
|
247
|
244
|
|||||||||
|
09/09/20
|
2.02%
|
4,929
|
-
|
|||||||||
|
11/23/20
|
2.13%
|
1,725
|
-
|
|||||||||
|
01/14/21
|
1.92%
|
247
|
245
|
|||||||||
|
03/31/21
|
1.68%
|
246
|
243
|
|||||||||
|
05/17/21
|
2.43%
|
5,000
|
-
|
|||||||||
|
06/10/21
|
1.42%
|
244
|
241
|
|||||||||
|
09/07/21
|
2.81%
|
9,000
|
-
|
|||||||||
|
09/09/21
|
2.28%
|
1,960
|
-
|
|||||||||
|
10/01/21
|
2.53%
|
5,000
|
-
|
|||||||||
|
11/16/21
|
2.43%
|
5,000
|
-
|
|||||||||
|
03/31/22
|
1.91%
|
244
|
242
|
|||||||||
|
03/28/24
|
2.56%
|
8,000
|
-
|
|||||||||
|
12/14/26
|
2.65%
|
379
|
-
|
|||||||||
|
Overnight
|
2.03%
|
-
|
66,550
|
|||||||||
|
TOTAL
|
$
|
44,908
|
$
|
76,652
|
||||||||
|
Weighted-average rate
|
2.42
|
%
|
2.18
|
%
|
||||||||
Of the advances outstanding at June 30, 2019, none were callable by the FHLB prior to maturity. In addition to the above advances, the Bank had an available
line of credit amounting to $320.1 million and $267.0 million with the FHLB at June 30, 2019 and 2018, respectively, with none being drawn at both period ends.
Advances from FHLB of Des Moines are secured by FHLB stock and commercial real estate and one- to four-family mortgage loans pledged. To secure outstanding
advances and the Bank’s line of credit, loans totaling $754.4 million and $706.2 million were pledged to the FHLB at June 30, 2019 and 2018, respectively. The principal maturities of FHLB advances at June 30, 2018, are below:
|
June 30, 2019
|
||||
|
FHLB Advance Maturities
|
(dollars in thousands)
|
|||
|
July 1, 2019 to June 30, 2020
|
$
|
2,934
|
||
|
July 1, 2020 to June 30, 2021
|
12,391
|
|||
|
July 1, 2021 to June 30, 2022
|
21,204
|
|||
|
July 1, 2022 to June 30, 2023
|
-
|
|||
|
July 1, 2023 to June 30, 2024
|
8,000
|
|||
|
July 1, 2024 to thereafter
|
379
|
|||
|
TOTAL
|
$
|
44,908
|
||
NOTE 9: Note Payable
In June 2017, the Company entered into a revolving, reducing line of credit with a five-year term, initially providing available credit of $15.0 million. The
line of credit bears interest at a floating rate based on LIBOR, which is due and payable monthly, and is secured by the stock of the Bank. Available credit under the line is reduced by $3.0 million on each anniversary date of the line of credit.
The balance outstanding under the line was $3.0 million at June 30, 2019 and 2018, and the total available credit under the line was $9.0 million and $12.0 million, respectively, with remaining available capacity of $6.0 million and $9.0 million,
respectively, at June 30, 2019 and 2018. The proceeds from this line of credit were used, in part, to fund the cash portion of the Tammcorp merger.
28
NOTE 10: Subordinated Debt
Southern Missouri Statutory Trust I issued $7.0 million of Floating Rate Capital Securities (the “Trust Preferred Securities”) with a liquidation value of
$1,000 per share in March 2004. The securities are due in 30 years, redeemable after five years and bear interest at a floating rate based on LIBOR. At June 30, 2019, the current rate was 5.16%. The securities represent undivided beneficial interests
in the trust, which was established by the Company for the purpose of issuing the securities. The Trust Preferred Securities were sold in a private transaction exempt from registration under the Securities Act of 1933, as amended (the “Act”) and have
not been registered under the Act. The securities may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
Southern Missouri Statutory Trust I used the proceeds from the sale of the Trust Preferred Securities to purchase Junior Subordinated Debentures of the Company.
The Company used its net proceeds for working capital and investment in its subsidiaries.
In connection with its October 2013 acquisition of Ozarks Legacy Community Financial, Inc. (OLCF), the Company assumed $3.1 million in floating rate junior
subordinated debt securities. The debt securities had been issued in June 2005 by OLCF in connection with the sale of trust preferred securities, bear interest at a floating rate based on LIBOR, are now redeemable at par, and mature in 2035. At June
30, 2019, the current rate was 4.86%. The carrying value of the debt securities was approximately $2.6 million at June 30, 2019, and June 30, 2018.
In connection with its August 2014 acquisition of Peoples Service Company, Inc. (PSC), the Company assumed $6.5 million in floating rate junior subordinated
debt securities. The debt securities had been issued in 2005 by PSC’s subsidiary bank holding company, Peoples Banking Company, in connection with the sale of trust preferred securities, bear interest at a floating rate based on LIBOR, are now
redeemable at par, and mature in 2035. At June 30, 2019, the current rate was 4.21%. The carrying value of the debt securities was approximately $5.2 million at June 30, 2019, and $5.1 million at June 30, 2018.
NOTE 11: Employee Benefits
401(k) Retirement Plan. The Bank has a 401(k) retirement plan that covers substantially all eligible employees. The
Bank makes “safe harbor” matching contributions of up to 4% of eligible compensation, depending upon the percentage of eligible pay deferred into the plan by the employee. Additional profit-sharing contributions of 5% of eligible salary have been
accrued for the plan year ended June 30, 2019, which the board of directors authorizes based on management recommendations and financial performance for fiscal 2019. Total 401(k) expense for fiscal 2019, 2018, and 2017 was $1.3 million, $1.3 million,
and $877,000, respectively. At June 30, 2019, 401(k) plan participants held approximately 366,000 shares of the Company’s stock in the plan. Employee deferrals and safe harbor contributions are fully vested. Profit-sharing or other contributions vest
over a period of five years.
Management Recognition Plans (MRPs). The Bank adopted an MRP for the benefit of non-employee directors and two MRPs for
officers and key employees (who may also be directors) in April 1994. During fiscal 2012, the Bank granted 6,072 MRP shares (split-adjusted) to employees. The shares granted were in the form of restricted stock vested at the rate of 20% of such
shares per year. For fiscal 2017, there were 1,214 shares vested; no shares vested in fiscal 2019 or 2018. Compensation expense, in the amount of the fair market value of the common stock at the date of grant, was recognized pro-rata over the five
years during which the shares vest. The MRP expense for fiscal 2017 was $13,000; there was no expense attributable to the plan in fiscal 2019 or 2018. At June 30, 2019, there was no unvested compensation expense related to the MRP, and no shares
remained available for award.
2008 Equity Incentive Plan. The Company adopted an Equity Incentive Plan (EIP) in 2008, reserving for award 132,000
shares (split-adjusted). EIP shares were available for award to directors, officers, and employees of the Company and its affiliates by a committee of outside directors. The committee held the power to set vesting requirements for each award under
the EIP. At the 2017 annual meeting, shareholders approved the 2017 Omnibus Incentive Plan, which provided that no further awards would be made under the EIP. During fiscal 2012, the Company awarded 73,928 shares (split-adjusted); during fiscal 2014,
the Company awarded 24,000 shares (split-adjusted); during fiscal 2015, the Company awarded 8,000 shares (split-adjusted); during fiscal 2016, the Company awarded 3,750 shares; and during fiscal 2017, the Company awarded 13,125 shares. No awards were
made under the plan in fiscal 2019 or 2018. All EIP awards were in the form of either restricted stock vesting at the rate of 20% of such shares per year, or performance-based restricted stock vesting at up to of 20% of such shares per year,
contingent on the achievement of specified profitability targets over a three-year period. During fiscal 2019, 2018,
29
and 2017, there were 7,100, 5,400, and 21,200 EIP shares (split-adjusted) vested each year, respectively. Compensation expense, in the amount of the fair market value of the common
stock at the date of grant, is recognized pro-rata over the five years during which the shares vest. The EIP expense for fiscal 2019, 2018, and 2017 was $141,000, $165,000, and $284,000, respectively. At June 30, 2019, unvested compensation expense
related to the EIP was approximately $247,000.
2003 Stock Option Plan. The Company adopted a stock option plan in October 2003 (the 2003 Plan). Under the plan, the
Company granted options to purchase 242,000 shares (split-adjusted) to employees and directors, of which, options to purchase 177,000 shares (split-adjusted) have been exercised, options to purchase 45,000 shares (split-adjusted) have been forfeited,
and 20,000 remain outstanding. Under the 2003 Plan, exercised options may be issued from either authorized but unissued shares, or treasury shares. At the 2017 annual meeting, shareholders approved the 2017 Omnibus Incentive Plan, which provided that
no further awards would be made under the 2003 Plan.
As of June 30, 2019, there was $2,000 in remaining unrecognized compensation expense related to unvested stock options under the 2003 Plan, which will be
recognized over the remaining weighted average vesting period. The aggregate intrinsic value of stock options outstanding at June 30, 2019, was $457,000, and the aggregate intrinsic value of stock options exercisable at June 30, 2019, was $423,000.
During fiscal 2019 no options to purchase shares were exercised. The intrinsic value of options vested in fiscal 2019, 2018, and 2017 was $35,000, $43,000, and $262,000, respectively.
2017 Omnibus Incentive Plan. The Company adopted an equity-based incentive plan in October 2017 (the 2017 Plan). Under
the 2017 plan, the Company reserved for issuance 500,000 shares of common stock for awards to employees and directors, against which full value awards (stock-based awards other than stock options and stock appreciation rights) are to be counted on a
2.5-for-1 basis. The 2017 Plan authorized awards to be made to employees, officers, and directors by a committee of outside directors. The committee held the power to set vesting requirements for each award under the 2017 Plan. Under the 2017 Plan,
stock awards and shares issued pursuant to exercised options may be issued from either authorized but unissued shares, or treasury shares.
Under the 2017 Plan, options to purchase 31,000 shares have been issued to employees, of which none have been exercised or forfeited, and 31,000 remain
outstanding. As of June 30, 2019, there was $234,000 in remaining unrecognized compensation expense related to unvested stock options under the 2017 Plan, which will be recognized over the remaining weighted average vesting period. The aggregate
intrinsic value of in-the-money stock options outstanding at June 30, 2019, was $8,000, and the no options were exercisable at June 30, 2019, at a strike price in excess of the market price. No in-the-money options were vested in fiscal 2019, and no
options vested during fiscal 2018 and 2017.
Full value awards totaling 15,000 and 22,000 shares, respectively, were issued to employees and directors in fiscal 2019 and 2018. All full value awards were in
the form of either restricted stock vesting at the rate of 20% of such shares per year, or performance-based restricted stock vesting at up to 20% of such shares per year, contingent on the achievement of specified profitability targets over a
three-year period. During fiscal 2019, full value awards of 4,200 shares were vested, while no full value awards vested in fiscal 2018 or 2017. Compensation expense, in the amount of the fair market value of the common stock at the date of grant, is
recognized pro-rata over the five years during which the shares vest. Compensation expense for full value awards under the 2017 Plan for fiscal 2019, 2018, and 2017 was $189,000, $60,000, and $0, respectively. At June 30, 2019, unvested compensation
expense related to full value awards under the 2017 Plan was approximately $1.0 million.
Changes in options outstanding under the 2003 Plan and the 2017 Plan were as follows:
|
|
2019
|
2018
|
2017
|
|||||||||||||||||||||
|
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||||||
|
|
Average
|
Average
|
Average
|
|||||||||||||||||||||
|
|
Price
|
Number
|
Price
|
Number
|
Price
|
Number
|
||||||||||||||||||
|
Outstanding at beginning of year
|
$
|
22.18
|
33,500
|
$
|
9.35
|
44,000
|
$
|
8.74
|
54,000
|
|||||||||||||||
|
Granted
|
34.35
|
17,500
|
37.31
|
13,500
|
-
|
-
|
||||||||||||||||||
|
Exercised
|
-
|
-
|
7.18
|
(24,000
|
)
|
6.08
|
(10,000
|
)
|
||||||||||||||||
|
Forfeited
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Outstanding at year-end
|
$
|
26.35
|
51,000
|
$
|
22.18
|
33,500
|
$
|
9.35
|
44,000
|
|||||||||||||||
|
Options exercisable at year-end
|
$
|
14.73
|
20,700
|
$
|
10.57
|
16,000
|
$
|
8.06
|
38,000
|
|||||||||||||||
30
The following is a summary of the assumptions used in the Black-Scholes pricing model in determining the fair values of options granted during fiscal years 2019
and 2018 (no options were granted in fiscal 2017):
|
2019
|
2018
|
2017
|
||||||||||
|
Assumptions:
|
||||||||||||
|
Expected dividend yield
|
1.51
|
%
|
1.18
|
%
|
-
|
|||||||
|
Expected volatility
|
20.39
|
%
|
20.42
|
%
|
-
|
|||||||
|
Risk-free interest rate
|
2.67
|
%
|
2.54
|
%
|
-
|
|||||||
|
Weighted-average expected life (years)
|
10.00
|
10.00
|
-
|
|||||||||
|
Weighted-average fair value of
options granted during the year
|
$
|
8.78
|
$
|
10.14
|
-
|
|||||||
The table below summarizes information about stock options outstanding under the 2003 Plan and 2017 Plan at June 30, 2019:
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||
|
Weighted
|
||||||||||||||||
|
Average
|
Weighted
|
Weighted
|
||||||||||||||
|
Remaining
|
Average
|
Average
|
||||||||||||||
|
Contractual
|
Number
|
Exercise
|
Number
|
Exercise
|
||||||||||||
|
Life
|
Outstanding
|
Price
|
Exercisable
|
Price
|
||||||||||||
|
6.5 mo.
|
10,000
|
6.38
|
10,000
|
6.38
|
||||||||||||
|
62.3 mo.
|
10,000
|
17.55
|
8,000
|
17.55
|
||||||||||||
|
102.6 mo.
|
13,500
|
37.31
|
2,700
|
37.31
|
||||||||||||
|
114.3 mo.
|
17,500
|
34.35
|
-
|
-
|
||||||||||||
NOTE 12: Income Taxes
The Company and its subsidiary files income tax returns in the U.S. Federal jurisdiction and various states. The Company is no longer subject to U.S. federal
and state tax examinations by tax authorities for tax years ending June 30, 2015 and before. The Company recognized no interest or penalties related to income taxes.
The components of net deferred tax assets are summarized as follows:
|
(dollars in thousands)
|
June 30, 2019
|
June 30, 2018
|
||||||
|
Deferred tax assets:
|
||||||||
|
Provision for losses on loans
|
$
|
4,601
|
$
|
4,418
|
||||
|
Accrued compensation and benefits
|
692
|
708
|
||||||
|
NOL carry forwards acquired
|
199
|
273
|
||||||
|
Minimum Tax Credit
|
130
|
130
|
||||||
|
Unrealized loss on other real estate
|
134
|
124
|
||||||
|
Unrealized loss on available for sale securities
|
-
|
730
|
||||||
|
Purchase accounting adjustments
|
255
|
-
|
||||||
|
Losses and credits from LLC's
|
1,206
|
1,003
|
||||||
|
Total deferred tax assets
|
7,218
|
7,386
|
||||||
|
Deferred tax liabilities:
|
||||||||
|
Purchase accounting adjustments
|
-
|
949
|
||||||
|
Depreciation
|
1,749
|
1,475
|
||||||
|
FHLB stock dividends
|
120
|
130
|
||||||
|
Prepaid expenses
|
313
|
98
|
||||||
|
Unrealized gain on available for sale securities
|
364
|
-
|
||||||
|
Other
|
61
|
327
|
||||||
|
Total deferred tax liabilities
|
2,607
|
2,979
|
||||||
|
Net deferred tax asset
|
$
|
4,611
|
$
|
4,407
|
||||
As of June 30, 2019, the Company had approximately $963,000 and $1.7 million in federal and state net operating loss carryforwards, respectively, which were
acquired in the July 2009 acquisition of Southern Bank of Commerce, the February 2014 acquisition of Citizens State Bankshares of Bald Knob, Inc. and the August 2014 acquisition of Peoples Service Company. The amount reported is net of the IRC Sec.
382 limitation, or state equivalent, related to utilization of net operating loss carryforwards of acquired corporations. Unless otherwise utilized, the net operating losses will begin to expire in 2027.
31
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
|
For the year ended June 30
|
||||||||||||
|
(dollars in thousands)
|
2019
|
2018
|
2017
|
|||||||||
|
Tax at statutory rate
|
$
|
7,550
|
$
|
8,074
|
$
|
7,565
|
||||||
|
Increase (reduction) in taxes
resulting from: |
||||||||||||
|
Nontaxable municipal income
|
(400
|
)
|
(441
|
)
|
(513
|
)
|
||||||
|
State tax, net of Federal benefit
|
487
|
553
|
215
|
|||||||||
|
Cash surrender value of
Bank-owned life insurance |
(279
|
)
|
(266
|
)
|
(397
|
)
|
||||||
|
Tax credit benefits
|
(270
|
) |
(871
|
)
|
(367
|
)
|
||||||
|
Adjustment of deferred tax asset
for enacted changes in tax laws |
-
|
1,124
|
-
|
|||||||||
|
Other, net
|
(41
|
)
|
(370
|
)
|
(441
|
)
|
||||||
|
Actual provision
|
$
|
7,047
|
$
|
7,803
|
$
|
6,062
|
||||||
For the year ended June 30, 2019, income tax expense at the statutory rate was calculated using a 21% annual effective tax rate (AETR), compared to 28.1% for
the year ended June 30, 2018, as a result of the Tax Cuts and Jobs Act ("Tax Act") signed into law December 22, 2017. The Tax Act ultimately reduced the corporate Federal income tax rate for the Company from 35% to 21%, and for the fiscal year ending
June 30, 2018, the Company was administratively subject to a 28.1% AETR. U. S. GAAP requires that the impact of the provisions of the Tax Act be accounted for in the period of enactment and the income tax effects of the Tax Act were recognized in
the Company’s financial statements for the quarter ended December 31, 2017, and for the twelve months ended June 30, 2018. The Tax Act is complex and requires significant detailed analysis. During the preparation of the Company's June 30, 2018
income tax returns, no significant adjustments related to enactment of the Tax Act were identified.
Tax credit benefits are recognized under the deferral method of accounting for investments in tax credits.
NOTE 13: Accumulated Other Comprehensive Income (AOCI)
The components of AOCI, included in stockholders’ equity, are as follows:
|
June 30,
|
||||||||
|
(dollars in thousands)
|
2019
|
2018
|
||||||
|
Net unrealized gain (loss) on securities available-for-sale
|
$
|
1,655
|
$
|
(3,041
|
)
|
|||
|
Net unrealized gain on securities available-for-sale
|
||||||||
|
securities for which a portion of an other-than-temporary
|
||||||||
|
impairment has been recognized in income
|
(1
|
)
|
(1
|
)
|
||||
|
Unrealized loss from defined benefit pension plan
|
(39
|
)
|
(29
|
)
|
||||
|
1,615
|
(3,071
|
)
|
||||||
|
Tax effect
|
(368
|
)
|
726
|
|||||
|
Net of tax amount
|
$
|
1,247
|
$
|
(2,345
|
)
|
|||
Amounts reclassified from AOCI and the affected line items in the statements of income during the years ended June 30, 2019 and 2018, were as follows:
|
Amounts Reclassified From AOCI
|
|||||||||
|
(dollars in thousands)
|
2019
|
2018
|
Affected Line Item in the Condensed
Consolidated Statements of Income |
||||||
|
Unrealized gain on securities available-for-sale
|
$
|
244
|
$
|
334
|
Net realized gains on sale of AFS securities
|
||||
|
Amortization of defined benefit pension items:
|
(10
|
)
|
(44
|
)
|
Compensation and benefits (included in computation of net periodic pension costs)
|
||||
|
Total reclassified amount before tax
|
234
|
290
|
|||||||
|
Tax benefit
|
49
|
81
|
Provision for Income Tax
|
||||||
|
Total reclassification out of AOCI
|
$
|
185
|
$
|
209
|
Net Income
|
||||
32
NOTE 14: Stockholders’ Equity and Regulatory Capital
The Company and Bank are 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 Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated
under U.S. GAAP, regulatory reporting requirements and regulatory capital standards. The Company and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors. Furthermore, the Company and Bank’s regulators could require adjustments to regulatory capital not reflected in the condensed consolidated financial statements.
Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total capital, Tier 1 capital (as defined), and common equity Tier 1 capital (as defined) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average total assets (as defined).
Management believes, as of June 30, 2019 and 2018, that the Company and the Bank met all capital adequacy requirements to which they are subject.
In July 2013, the Federal banking agencies announced their approval of the final rule to implement the Basel III regulatory reforms, among other changes
required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The approved rule included a new minimum ratio of common equity Tier 1 (CET1) capital of 4.5%, raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to
6.0%, and included a minimum leverage ratio of 4.0% for all banking institutions. Additionally, the rule created a capital conservation buffer of 2.5% of risk-weighted assets, and prohibited banking organizations from making distributions or
discretionary bonus payments during any quarter if its eligible retained income is negative, if the capital conservation buffer is not maintained. This new capital conservation buffer requirement is has been phased in beginning in January 2016 at
0.625% of risk-weighted assets and increasing each year until being fully implemented in January 2019. The enhanced capital requirements for banking organizations such as the Company and the Bank began January 1, 2015. Other changes included revised
risk-weighting of some assets, stricter limitations on mortgage servicing assets and deferred tax assets, and replacement of the ratings-based approach to risk weight securities.
As of June 30, 2019, the most recent notification from the Federal banking agencies 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 1 risk-based, common equity Tier 1 risk-based, and Tier 1 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 tables below summarize the Company and Bank’s actual and required regulatory capital:
|
Actual
|
For Capital Adequacy
Purposes
|
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
|
||||||||||||||||||||||
|
As of June 30, 2019
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||
|
Total Capital (to Risk-Weighted Assets)
|
||||||||||||||||||||||||
|
Consolidated
|
$
|
256,982
|
13.22
|
%
|
$
|
155,536
|
8.00
|
%
|
n/a
|
n/a
|
||||||||||||||
|
Southern Bank
|
247,199
|
12.81
|
%
|
154,364
|
8.00
|
%
|
192,954
|
10.00
|
%
|
|||||||||||||||
|
Tier I Capital (to Risk-Weighted Assets)
|
||||||||||||||||||||||||
|
Consolidated
|
235,768
|
12.13
|
%
|
116,652
|
6.00
|
%
|
n/a
|
n/a
|
||||||||||||||||
|
Southern Bank
|
225,985
|
11.71
|
%
|
115,773
|
6.00
|
%
|
154,364
|
8.00
|
%
|
|||||||||||||||
|
Tier I Capital (to Average Assets)
|
||||||||||||||||||||||||
|
Consolidated
|
235,768
|
10.81
|
%
|
87,231
|
4.00
|
%
|
n/a
|
n/a
|
||||||||||||||||
|
Southern Bank
|
225,985
|
10.38
|
%
|
87,077
|
4.00
|
%
|
108,846
|
5.00
|
%
|
|||||||||||||||
|
Common Equity Tier I Capital (to Risk-Weighted Assets)
|
||||||||||||||||||||||||
|
Consolidated
|
220,725
|
11.35
|
%
|
87,489
|
4.50
|
%
|
n/a
|
n/a
|
||||||||||||||||
|
Southern Bank
|
225,985
|
11.71
|
%
|
86,829
|
4.50
|
%
|
125,420
|
6.50
|
%
|
|||||||||||||||
33
|
Actual
|
For Capital Adequacy
Purposes
|
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
|
||||||||||||||||||||||
|
As of June 30, 2018
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||
|
Total Capital (to Risk-Weighted Assets)
|
||||||||||||||||||||||||
|
Consolidated
|
$
|
222,133
|
13.53
|
%
|
$
|
131,335
|
8.00
|
%
|
n/a
|
n/a
|
||||||||||||||
|
Southern Bank
|
214,804
|
13.18
|
%
|
130,337
|
8.00
|
%
|
162,921
|
10.00
|
%
|
|||||||||||||||
|
Tier I Capital (to Risk-Weighted Assets)
|
||||||||||||||||||||||||
|
Consolidated
|
202,756
|
12.35
|
%
|
98,501
|
6.00
|
%
|
n/a
|
n/a
|
||||||||||||||||
|
Southern Bank
|
195,427
|
12.00
|
%
|
97,753
|
6.00
|
%
|
130,337
|
8.00
|
%
|
|||||||||||||||
|
Tier I Capital (to Average Assets)
|
||||||||||||||||||||||||
|
Consolidated
|
202,756
|
10.97
|
%
|
73,932
|
4.00
|
%
|
n/a
|
n/a
|
||||||||||||||||
|
Southern Bank
|
195,427
|
10.60
|
%
|
73,721
|
4.00
|
%
|
92,152
|
5.00
|
%
|
|||||||||||||||
|
Common Equity Tier I Capital (to Risk-Weighted Assets)
|
||||||||||||||||||||||||
|
Consolidated
|
188,416
|
11.48
|
%
|
73,876
|
4.50
|
%
|
n/a
|
n/a
|
||||||||||||||||
|
Southern Bank
|
195,427
|
12.00
|
%
|
73,315
|
4.50
|
%
|
105,899
|
6.50
|
%
|
|||||||||||||||
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 tables. Additionally,
prior regulatory approval is required for the declaration of any dividends generally in excess of the sum of net income for that calendar year and retained net income for the preceding two calendar years. At June 30, 2019, approximately $29.7 million
of the equity of the Bank was available for distribution as dividends to the Company without prior regulatory approval.
NOTE 15: Commitments and Credit Risk
Standby Letters of Credit. In the normal course of business, the Company issues various financial standby, performance
standby, and commercial letters of credit for its customers. As consideration for the letters of credit, the institution charges letter of credit fees based on the face amount of the letters and the creditworthiness of the counterparties. These
letters of credit are stand-alone agreements, and are unrelated to any obligation the depositor has to the Company.
Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Financial
standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of
certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers.
The Company had total outstanding standby letters of credit amounting to $2.6 million at June 30, 2019, and $2.5 million at June 30, 2018, with terms ranging
from 12 to 24 months. At June 30, 2019, the Company’s deferred revenue under standby letters of credit agreements was nominal.
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. These instruments involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the balance sheets. Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a
portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the
same credit policies in granting lines of credit as it does for on balance sheet instruments.
The Company had $317.4 million in commitments to extend credit at June 30, 2019, and $266.8 million at June 30, 2018.
34
At June 30, 2019, total commitments to originate fixed-rate loans with terms in excess of one year were $42.6 million at rates ranging from 3.35% to 15.00%,
with a weighted-average rate of 5.43%. 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 balance sheet. The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period.
The Company originates collateralized commercial, real estate, and consumer loans to customers in Missouri, Arkansas, and Illinois. Although the Company has a
diversified portfolio, loans aggregating $517.3 million at June 30, 2019, are secured by single and multi-family residential real estate generally located in the Company’s primary lending area.
NOTE 16: Earnings Per Share
The following table sets forth the computations of basic and diluted earnings per common share:
|
Year Ended June 30,
|
||||||||||||
|
(dollars in thousands except per share data)
|
2019
|
2018
|
2017
|
|||||||||
|
Net income
|
$
|
28,904
|
$
|
20,929
|
$
|
15,552
|
||||||
|
Denominator for basic earnings per share -
|
||||||||||||
|
Weighted-average shares outstanding
|
9,193,235
|
8,734,334
|
7,483,350
|
|||||||||
|
Effect of dilutive securities stock options or awards
|
10,674
|
11,188
|
27,530
|
|||||||||
|
Denominator for diluted earnings per share
|
9,203,909
|
8,745,522
|
7,510,880
|
|||||||||
|
Basic earnings per share available to common stockholders
|
$
|
3.14
|
$
|
2.40
|
$
|
2.08
|
||||||
|
Diluted earnings per share available to common stockholders
|
$
|
3.14
|
$
|
2.39
|
$
|
2.07
|
||||||
NOTE 17: Acquisitions
On November 21, 2018, the Company completed its acquisition of Gideon Bancshares Company (“Gideon”), and its wholly owned subsidiary, First Commercial Bank
(“First Commercial”), in a stock and cash transaction. Upon completion of the Merger, each share of Gideon common stock was converted into the right to receive $72.48 in cash, as well as 2.04 shares of Southern Missouri common stock, with cash
payable in lieu of fractional Southern Missouri shares (the “Merger Consideration”). The Company issued an aggregate of 317,225 shares of common stock for the stock portion of the Merger Consideration and paid an aggregate of approximately $11.3
million for the cash portion of the Merger Consideration. The conversion of data systems took place on December 8, 2018. The Company acquired First Commercial primarily for the purpose of conducting commercial banking activities in markets where it
believes the Company’s business model will perform well, and for the long-term value of its core deposit franchise. Through June 30, 2019, the Company incurred $858,000 of third-party acquisition-related costs with $783,000 being included in
noninterest expense in the Company's consolidated statement of income for the year ended June 30, 2019, and $75,000 for the year ended June 30, 2018.
Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair
values on the date of the acquisition. Based on valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Gideon acquisition is detailed in the following table.
35
|
Gideon Bancshares Company
|
||||
|
Fair Value of Consideration Transferred
|
||||
|
(dollars in thousands)
|
||||
|
Cash
|
$
|
11,271
|
||
|
Common stock, at fair value
|
10,757
|
|||
|
Total consideration
|
$
|
22,028
|
||
|
Recognized amounts of identifiable assets acquired
|
||||
|
and liabilities assumed
|
||||
|
Cash and cash equivalents
|
$
|
2,894
|
||
|
Investment securities
|
54,866
|
|||
|
Loans
|
144,286
|
|||
|
Premises and equipment
|
3,663
|
|||
|
Identifiable intangible assets
|
4,125
|
|||
|
Miscellaneous other assets
|
5,926
|
|||
|
Deposits
|
(170,687
|
)
|
||
|
FHLB Advances
|
(18,701
|
)
|
||
|
Note Payable
|
(4,400
|
)
|
||
|
Miscellaneous other liabilities
|
(956
|
)
|
||
|
Total identifiable net assets
|
21,016
|
|||
|
Goodwill
|
$
|
1,012
|
||
Of the total estimated purchase price of $22.0 million, $4.1 million has been allocated to core deposit intangible. Additionally, $1.0 million has been
allocated to goodwill and none of the purchase price is deductible. Goodwill is attributable to synergies and economies of scale expected from combining the operations of the Bank and First Commercial. Total goodwill was assigned to the acquisition
of First Commercial. The core deposit intangible will be amortized over seven years on a straight line basis.
Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be
collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and non-accrual status, our assessment of the ability of the borrower to service the debt, and
recent loan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which
includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to $25.5 million of purchased credit impaired loans was not carried over and recorded at the acquisition
date. Management estimated the cash flows expected to be collected at acquisition using individual analysis of each purchased credit impaired loan.
The Company acquired the $154.0 million loan portfolio at an estimated fair value discount of $9.7 million. The excess of expected cash flows above the fair
value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-30.
The acquired business contributed revenues of $4.1 million and earnings of $565,000 for the period from November 21, 2018 through June 30, 2019. The following
unaudited pro forma summaries present consolidated information of the Company as if the business combination had occurred on the first day of each period:
|
Pro Forma
|
||||||||
|
Twelve months ended
|
||||||||
|
June 30,
|
||||||||
|
2019
|
2018
|
|||||||
|
Revenue
|
$
|
90,954
|
$
|
84,981
|
||||
|
Earnings
|
29,583
|
22,791
|
||||||
36
On February 23, 2018, the Company completed its acquisition of Southern Missouri Bancshares, Inc. (“Bancshares”), and its wholly owned subsidiary, Southern
Missouri Bank of Marshfield (“SMB-Marshfield”), in a stock and cash transaction. The conversion of data systems took place on March 17, 2018. The Company acquired SMB-Marshfield primarily for the purpose of conducting commercial banking activities in
markets where it believes the Company’s business model will perform well, and for the long-term value of its core deposit franchise. Through June 30, 2018, the Company incurred $708,000 of third-party acquisition-related costs with $683,000 being
included in noninterest expense in the Company's consolidated statement of income for the year ended June 30, 2018, and $25,000 in the prior year end. The goodwill of $4.4 million arising from the acquisition consists largely of synergies and
economies of scale expected from combining the operations of the Bank and SMB-Marshfield. Total goodwill was assigned to the acquisition of the bank holding company.
The following table summarizes the consideration paid for Bancshares and SMB-Marshfield, and the amounts of assets acquired and liabilities assumed recognized
at the acquisition date:
|
Southern Missouri Bank of Marshfield
|
||||
|
Fair Value of Consideration Transferred
|
||||
|
(dollars in thousands)
|
||||
|
Cash
|
$
|
3,860
|
||
|
Common stock, at fair value
|
12,955
|
|||
|
Total consideration
|
$
|
16,815
|
||
|
Recognized amounts of identifiable assets acquired
|
||||
|
and liabilities assumed
|
||||
|
Cash and cash equivalents
|
$
|
2,359
|
||
|
Interest bearing time deposits
|
1,450
|
|||
|
Investment securities
|
5,557
|
|||
|
Loans
|
68,258
|
|||
|
Premises and equipment
|
3,409
|
|||
|
BOLI
|
2,271
|
|||
|
Identifiable intangible assets
|
1,345
|
|||
|
Miscellaneous other assets
|
1,897
|
|||
|
Deposits
|
(68,152
|
)
|
||
|
FHLB Advances
|
(5,344
|
)
|
||
|
Miscellaneous other liabilities
|
(681
|
)
|
||
|
Total identifiable net assets
|
12,369
|
|||
|
Goodwill
|
$
|
4,446
|
||
NOTE 18: Fair Value Measurements
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted
prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3 – Unobservable inputs supported by little or no market activity and significant to the fair value of the assets
or liabilities
37
Recurring Measurements. The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets
measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2019 and 2018:
|
Fair Value Measurements at June 30, 2019, Using:
|
||||||||||||||||
|
Quoted Prices in
Active Markets for
Identical Assets
|
Significant Other
Observable Inputs
|
Significant
UnobservableInputs
|
||||||||||||||
|
(dollars in thousands)
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
U.S. government sponsored enterprises (GSEs)
|
$
|
7,270
|
$
|
-
|
$
|
7,270
|
$
|
-
|
||||||||
|
State and political subdivisions
|
42,783
|
-
|
42,783
|
-
|
||||||||||||
|
Other securities
|
5,053
|
-
|
5,053
|
-
|
||||||||||||
|
Mortgage-backed GSE residential
|
110,429
|
-
|
110,429
|
-
|
||||||||||||
|
Fair Value Measurements at June 30, 2018, Using:
|
||||||||||||||||
|
Quoted Prices in
Active Markets for
Identical Assets
|
Significant Othe
Observable Inputs
|
Significant
Unobservable
Inputs
|
||||||||||||||
|
(dollars in thousands)
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
U.S. government sponsored enterprises (GSEs)
|
$
|
9,385
|
$
|
-
|
$
|
9,385
|
$
|
-
|
||||||||
|
State and political subdivisions
|
41,612
|
-
|
41,612
|
-
|
||||||||||||
|
Other securities
|
5,152
|
-
|
5,152
|
-
|
||||||||||||
|
Mortgage-backed GSE residential
|
90,176
|
-
|
90,176
|
-
|
||||||||||||
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the
accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, 2019.
Available-for-sale Securities. When quoted market prices are available in an active market, securities are classified
within Level 1. If quoted market prices are not available, then fair values are estimated using pricing models, or quoted prices of securities with similar characteristics. For these securities, our Company obtains fair value measurements from an
independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment
speeds, credit information and the bond’s terms and conditions, among other things. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Nonrecurring Measurements. The following tables present the fair value measurement of assets measured at fair value on a nonrecurring basis and the
level within the ASC 820 fair value hierarchy in which the fair value measurements fell at June 30, 2019 and 2018:
|
Fair Value Measurements at June 30 , 2019, Using:
|
||||||||||||||||
|
|
Quoted Prices in
|
|||||||||||||||
|
|
Active Markets for
|
Significant Other
|
Significant
|
|||||||||||||
|
|
Identical Assets
|
Observable Inputs
|
Unobservable Inputs
|
|||||||||||||
|
(dollars in thousands)
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
|
||||||||||||||||
|
Foreclosed and repossessed assets held for sale
|
$
|
2,430
|
$
|
-
|
$
|
-
|
$
|
2,430
|
||||||||
|
Fair Value Measurements at June 30, 2018, Using:
|
||||||||||||||||
|
|
Quoted Prices in
|
|||||||||||||||
|
|
Active Markets for
|
Significant Other
|
Significant
|
|||||||||||||
|
|
Identical Assets
|
Observable Inputs
|
Unobservable Inputs
|
|||||||||||||
|
(dollars in thousands)
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
|
||||||||||||||||
|
Impaired loans (collateral dependent)
|
$
|
490
|
$
|
-
|
$
|
-
|
$
|
490
|
||||||||
|
Foreclosed and repossessed assets held for sale
|
1,467
|
-
|
-
|
1,467
|
||||||||||||
38
The following table presents gains and (losses) recognized on assets measured on a non-recurring basis for the years ended June 30, 2019 and 2018:
|
(dollars in thousands)
|
2019
|
2018
|
||||||
|
Impaired loans (collateral dependent)
|
$
|
-
|
$
|
(750
|
)
|
|||
|
Foreclosed and repossessed assets held for sale
|
(353
|
)
|
(248
|
)
|
||||
|
Total losses on assets measured on a non-recurring basis
|
$
|
(353
|
)
|
$
|
(998
|
)
|
||
The following is a description of valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the
accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarch. For assets classified within Level 3 of fair value hierarchy, the process used to develop the reported fair value
process is described below.
Impaired Loans (Collateral Dependent). A collateral dependent loan is considered to be impaired when it is probable
that all of the principal and interest due may not be collected according to its contractual terms. Generally, when a collateral dependent loan is considered impaired, the amount of reserve required is measured based on the fair value of the
underlying collateral. The Company makes such measurements on all material collateral dependent loans deemed impaired using the fair value of the collateral for collateral dependent loans. The fair value of collateral used by the Company is
determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data. This data includes information such as selling price of similar properties and
capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. In addition, management applies selling and other
discounts to the underlying collateral value to determine the fair value. If an appraised value is not available, the fair value of the collateral dependent impaired loan is determined by an adjusted appraised value including unobservable cash flows.
On a quarterly basis, loans classified as special mention, substandard, doubtful, or loss are evaluated including the loan officer’s review of the collateral
and its current condition, the Company’s knowledge of the current economic environment in the market where the collateral is located, and the Company’s recent experience with real estate in the area. The date of the appraisal is also considered in
conjunction with the economic environment and any decline in the real estate market since the appraisal was obtained. For all loan types, updated appraisals are obtained if considered necessary. In instances where the economic environment has
worsened and/or the real estate market declined since the last appraisal, a higher distressed sale discount would be applied to the appraised value.
The Company records collateral dependent impaired loans based on nonrecurring Level 3 inputs. If a collateral dependent loan’s fair value, as estimated by the
Company, is less than its carrying value, the Company either records a charge-off of the portion of the loan that exceeds the fair value or establishes a specific reserve as part of the allowance for loan losses.
Foreclosed and Repossessed Assets Held for Sale. Foreclosed and repossessed assets held for sale are valued at the
time the loan is foreclosed upon or collateral is repossessed and the asset is transferred to foreclosed or repossessed assets held for sale. The value of the asset is based on third party or internal appraisals, less estimated costs to sell and
appropriate discounts, if any. The appraisals are generally discounted based on current and expected market conditions that may impact the sale or value of the asset and management’s knowledge and experience with similar assets. Such discounts
typically may be significant and result in a Level 3 classification of the inputs for determining fair value of these assets. Foreclosed and repossessed assets held for sale are continually evaluated for additional impairment and are adjusted
accordingly if impairment is identified.
39
Unobservable (Level 3) Inputs. The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level
3 fair value measurements.
|
(dollars in thousands)
|
Fair value at
June 30 , 2019 |
Valuation
technique |
Unobservable
inputs |
Range of
inputs applied |
Weighted-average
inputs applied |
||||||||||
|
Nonrecurring Measurements
|
|||||||||||||||
|
Foreclosed and repossessed assets
|
$
|
2,430
|
Third party appraisal
|
Marketability discount
|
5.1% - 77.0
|
%
|
35.2
|
%
|
|||||||
|
(dollars in thousands)
|
Fair value at
June 30, 2018 |
Valuation
technique |
Unobservable
inputs |
Range of
inputs applied |
Weighted-average
inputs applied |
||||||||||
|
Nonrecurring Measurements
|
|||||||||||||||
|
Impaired loans (collateral dependent)
|
$
|
490
|
Internal Valuation
|
Discount to reflect
realizable value |
n/a
|
||||||||||
|
Foreclosed and repossessed assets
|
$
|
1,467
|
Third party appraisal
|
Marketability discount
|
0.0% - 53.1
|
%
|
18.2
|
%
|
|||||||
Fair Value of Financial Instruments. The following table presents estimated fair values of the Company’s financial instruments and the level within the
fair value hierarchy in which the fair value measurements fell at June 30, 2019 and 2018:
|
June 30, 2019
|
||||||||||||||||
|
Quoted Prices
|
||||||||||||||||
|
in Active
|
Significant
|
|||||||||||||||
|
Markets for
|
Significant Other
|
Unobservable
|
||||||||||||||
|
Carrying
|
Identical Assets
|
Observable Inputs
|
Inputs
|
|||||||||||||
|
(dollars in thousands)
|
Amount
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
Financial assets
|
||||||||||||||||
|
Cash and cash equivalents
|
$
|
35,400
|
$
|
35,400
|
$
|
-
|
$
|
-
|
||||||||
|
Interest-bearing time deposits
|
969
|
-
|
969
|
-
|
||||||||||||
|
Stock in FHLB
|
5,233
|
-
|
5,233
|
-
|
||||||||||||
|
Stock in Federal Reserve Bank of St. Louis
|
4,350
|
-
|
4,350
|
-
|
||||||||||||
|
Loans receivable, net
|
1,846,405
|
-
|
-
|
1,823,040
|
||||||||||||
|
Accrued interest receivable
|
10,189
|
-
|
10,189
|
-
|
||||||||||||
|
Financial liabilities
|
||||||||||||||||
|
Deposits
|
1,893,695
|
1,214,606
|
-
|
678,301
|
||||||||||||
|
Securities sold under agreements to
repurchase |
4,376
|
-
|
4,376
|
-
|
||||||||||||
|
Advances from FHLB
|
44,908
|
-
|
45,547
|
-
|
||||||||||||
|
Note payable
|
3,000
|
-
|
-
|
3,000
|
||||||||||||
|
Accrued interest payable
|
2,099
|
-
|
2,099
|
-
|
||||||||||||
|
Subordinated debt
|
15,043
|
-
|
-
|
15,267
|
||||||||||||
|
Unrecognized financial instruments (net of contract amount)
|
||||||||||||||||
|
Commitments to originate loans
|
-
|
-
|
-
|
-
|
||||||||||||
|
Letters of credit
|
-
|
-
|
-
|
-
|
||||||||||||
|
Lines of credit
|
-
|
-
|
-
|
-
|
||||||||||||
40
|
June 30, 2018
|
||||||||||||||||
|
Quoted Prices
|
||||||||||||||||
|
in Active
|
Significant
|
|||||||||||||||
|
Markets for
|
Significant Other
|
Unobservable
|
||||||||||||||
|
Carrying
|
Identical Assets
|
Observable Inputs
|
Inputs
|
|||||||||||||
|
(dollars in thousands)
|
Amount
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
Financial assets
|
||||||||||||||||
|
Cash and cash equivalents
|
$
|
26,326
|
$
|
26,326
|
$
|
-
|
$
|
-
|
||||||||
|
Interest-bearing time deposits
|
1,953
|
-
|
1,953
|
-
|
||||||||||||
|
Stock in FHLB
|
5,661
|
-
|
5,661
|
-
|
||||||||||||
|
Stock in Federal Reserve Bank of St. Louis
|
3,566
|
-
|
3,566
|
-
|
||||||||||||
|
Loans receivable, net
|
1,563,380
|
-
|
-
|
1,556,466
|
||||||||||||
|
Accrued interest receivable
|
7,992
|
-
|
7,992
|
-
|
||||||||||||
|
Financial liabilities
|
||||||||||||||||
|
Deposits
|
1,579,902
|
1,046,491
|
-
|
529,297
|
||||||||||||
|
Securities sold under agreements to
repurchase |
3,267
|
-
|
3,267
|
-
|
||||||||||||
|
Advances from FHLB
|
76,652
|
66,550
|
10,110
|
-
|
||||||||||||
|
Note payable
|
3,000
|
-
|
-
|
3,000
|
||||||||||||
|
Accrued interest payable
|
1,206
|
-
|
1,206
|
-
|
||||||||||||
|
Subordinated debt
|
14,945
|
-
|
-
|
14,382
|
||||||||||||
|
Unrecognized financial instruments (net of contract amount)
|
||||||||||||||||
|
Commitments to originate loans
|
-
|
-
|
-
|
-
|
||||||||||||
|
Letters of credit
|
-
|
-
|
-
|
-
|
||||||||||||
|
Lines of credit
|
-
|
-
|
-
|
-
|
||||||||||||
The following methods and assumptions were used in estimating the fair values of financial instruments:
Cash and cash equivalents, interest-bearing time deposits, accrued interest receivable, and accrued interest payable are valued at their carrying amounts, which
approximates book value. Stock in FHLB and the Federal Reserve Bank of St. Louis is valued at cost, which approximates fair value. For June 30, 2019, the fair value of loans is estimated on an exit price basis incorporating contractual cash flow,
prepayments discount spreads, credit loss and liquidity premiums. For June 30, 2018, the fair value of loans was estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. .
The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of
similar remaining maturities. Non-maturity deposits and securities sold under agreements are valued at their carrying value, which approximates fair value. Fair value of advances from the FHLB is estimated by discounting maturities using an
estimate of the current market for similar instruments. The fair value of subordinated debt and notes payable is estimated using rates currently available to the Company for debt with similar terms and maturities. The fair value of commitments to
originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair
value also considers the difference between current levels of interest rates and committed rates. The fair value of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to
terminate or otherwise settle the obligations with the counterparties at the reporting date.
NOTE 19: Significant Estimates
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to
certain concentrations. Estimates related to the allowance for loan losses are described in Note 1.
41
NOTE 20: Condensed Parent Company Only Financial Statements
The following condensed balance sheets, statements of income and comprehensive income and cash flows for Southern Missouri Bancorp, Inc. should be read in
conjunction with the consolidated financial statements and the notes thereto:
| (dollars in thousands) |
June 30,
|
||||||||
|
Condensed Balance Sheets
|
|
2019
|
2018
|
||||||
|
Assets
|
|||||||||
|
Cash and cash equivalents
|
$
|
8,149
|
$
|
8,383
|
|||||
|
Other assets
|
13,438
|
13,434
|
|||||||
|
Investment in common stock of Bank
|
234,716
|
197,863
|
|||||||
|
TOTAL ASSETS
|
$
|
256,303
|
$
|
219,680
|
|||||
|
Liabilities and Stockholders' Equity
|
|||||||||
|
Accrued expenses and other liabilities
|
$
|
2,868
|
$
|
4,041
|
|||||
|
Subordinated debt
|
15,043
|
14,945
|
|||||||
|
TOTAL LIABILITIES
|
17,911
|
18,986
|
|||||||
|
Stockholders' equity
|
238,392
|
200,694
|
|||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
256,303
|
$
|
219,680
|
|||||
|
Year ended June 30,
|
|||||||||||||
|
Condensed Statements of Income
|
(dollars in thousands)
|
2019
|
2018
|
2017
|
|||||||||
|
Interest income
|
$
|
25
|
$
|
20
|
$
|
17
|
|||||||
|
Interest expense
|
1,079
|
887
|
661
|
||||||||||
|
Net interest expense
|
(1,054
|
)
|
(867
|
)
|
(644
|
)
|
|||||||
|
Dividends from Bank
|
23,000
|
6,000
|
4,000
|
||||||||||
|
Operating expenses
|
827
|
940
|
955
|
||||||||||
|
Income before income taxes and
|
|||||||||||||
|
equity in undistributed income of the Bank
|
21,119
|
4,193
|
2,401
|
||||||||||
|
Income tax benefit
|
358
|
437
|
455
|
||||||||||
|
Income before equity in undistributed
|
|||||||||||||
|
income of the Bank
|
21,477
|
4,630
|
2,856
|
||||||||||
|
Equity in undistributed income of the Bank
|
7,427
|
16,299
|
12,696
|
||||||||||
|
NET INCOME
|
$
|
28,904
|
$
|
20,929
|
$
|
15,552
|
|||||||
|
COMPREHENSIVE INCOME
|
$
|
32,496
|
$
|
18,057
|
$
|
14,417
|
|||||||
|
Year ended June 30,
|
|||||||||||||
|
Condensed Statements of Cash Flow
|
(dollars in thousands)
|
2019
|
2018
|
2017
|
|||||||||
|
Cash Flows from operating activities:
|
|||||||||||||
|
Net income
|
$
|
28,904
|
$
|
20,929
|
$
|
15,552
|
|||||||
|
Changes in:
|
|||||||||||||
|
Equity in undistributed income of the Bank
|
(7,427
|
)
|
(16,299
|
)
|
(12,696
|
)
|
|||||||
|
Other adjustments, net
|
(635
|
)
|
40
|
412
|
|||||||||
|
NET CASH PROVIDED BY OPERATING ACTIVITES
|
20,842
|
4,670
|
3,268
|
||||||||||
|
Cash flows from investing activities:
|
|||||||||||||
|
Investments in Bank subsidiaries
|
(10,747
|
)
|
(3,488
|
)
|
(11,062
|
)
|
|||||||
|
NET CASH USED IN INVESTING ACTIVITIES
|
(10,747
|
)
|
(3,488
|
)
|
(11,062
|
)
|
|||||||
|
Cash flows from financing activities:
|
|||||||||||||
|
Dividends on common stock
|
(4,763
|
)
|
(3,827
|
)
|
(2,981
|
)
|
|||||||
|
Exercise of stock options
|
-
|
172
|
61
|
||||||||||
|
Payments to acquire treasury stock
|
(1,166
|
)
|
-
|
-
|
|||||||||
|
Proceeds from issuance of common stock
|
-
|
-
|
24,144
|
||||||||||
|
Proceeds from issuance of long term debt
|
-
|
-
|
15,000
|
||||||||||
|
Repayments of long term debt
|
(4,400
|
)
|
-
|
(15,650
|
)
|
||||||||
|
Injection of capital to subsidiary
|
-
|
-
|
(6,000
|
)
|
|||||||||
|
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
(10,329
|
)
|
(3,655
|
)
|
14,574
|
||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(234
|
)
|
(2,473
|
)
|
6,780
|
||||||||
|
Cash and cash equivalents at beginning of year
|
8,383
|
10,856
|
4,076
|
||||||||||
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
8,149
|
$
|
8,383
|
$
|
10,856
|
|||||||
42
NOTE 21: Quarterly Financial Data (Unaudited)
Quarterly operating data is summarized as follows (in thousands):
|
June 30, 2019
|
||||||||||||||||
|
(dollars in thousands)
|
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
||||||||||||
|
Interest income
|
$
|
22,042
|
$
|
24,207
|
$
|
25,186
|
$
|
26,047
|
||||||||
|
Interest expense
|
4,875
|
6,139
|
6,632
|
7,054
|
||||||||||||
|
Net interest income
|
17,167
|
18,068
|
18,554
|
18,993
|
||||||||||||
|
Provision for loan losses
|
682
|
314
|
491
|
545
|
||||||||||||
|
Noninterest income
|
3,430
|
4,054
|
3,946
|
3,740
|
||||||||||||
|
Noninterest expense
|
11,449
|
12,552
|
13,190
|
12,778
|
||||||||||||
|
Income before income taxes
|
8,466
|
9,256
|
8,819
|
9,410
|
||||||||||||
|
Income tax expense
|
1,666
|
1,802
|
1,725
|
1,854
|
||||||||||||
|
NET INCOME
|
$
|
6,800
|
$
|
7,454
|
$
|
7,094
|
$
|
7,556
|
||||||||
|
June 30, 2018
|
||||||||||||||||
|
(dollars in thousands)
|
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
||||||||||||
|
Interest income
|
$
|
18,411
|
$
|
19,231
|
$
|
19,385
|
$
|
20,147
|
||||||||
|
Interest expense
|
3,308
|
3,528
|
3,710
|
4,245
|
||||||||||||
|
Net interest income
|
15,103
|
15,703
|
15,675
|
15,902
|
||||||||||||
|
Provision for loan losses
|
868
|
642
|
550
|
987
|
||||||||||||
|
Noninterest income
|
3,271
|
3,174
|
3,870
|
3,556
|
||||||||||||
|
Noninterest expense
|
10,755
|
10,519
|
11,927
|
11,274
|
||||||||||||
|
Income before income taxes
|
6,751
|
7,716
|
7,068
|
7,197
|
||||||||||||
|
Income tax expense
|
1,889
|
2,546
|
1,810
|
1,558
|
||||||||||||
|
NET INCOME
|
$
|
4,862
|
$
|
5,170
|
$
|
5,258
|
$
|
5,639
|
||||||||
|
June 30, 2017
|
||||||||||||||||
|
(dollars in thousands)
|
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
||||||||||||
|
Interest income
|
$
|
15,105
|
$
|
15,083
|
$
|
14,955
|
$
|
16,345
|
||||||||
|
Interest expense
|
2,529
|
2,510
|
2,523
|
2,804
|
||||||||||||
|
Net interest income
|
12,576
|
12,573
|
12,432
|
13,541
|
||||||||||||
|
Provision for loan losses
|
925
|
656
|
376
|
383
|
||||||||||||
|
Noninterest income
|
2,575
|
2,700
|
2,925
|
2,884
|
||||||||||||
|
Noninterest expense
|
9,159
|
8,706
|
9,564
|
10,823
|
||||||||||||
|
Income before income taxes
|
5,067
|
5,911
|
5,417
|
5,219
|
||||||||||||
|
Income tax expense
|
1,358
|
1,735
|
1,463
|
1,506
|
||||||||||||
|
NET INCOME
|
$
|
3,709
|
$
|
4,176
|
$
|
3,954
|
$
|
3,713
|
||||||||
43
Item 9A. Controls and Procedures
An evaluation of the Company's disclosure controls and procedures (as defined in Rule13a-15(e) under the Securities Exchange Act of 1934
(the "Exchange Act")) as of June 30, 2019, was carried out under the supervision and with the participation of our Chief Executive Officer, our Chief Financial Officer, and several other members of our senior management. Our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2019 in ensuring that the information required to be disclosed in the reports the Company files or submits under the Exchange Act is (i)
accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and
forms. We intend to continually review and evaluate the design and effectiveness of the Company's disclosure controls and procedures and to improve the Company's controls and procedures over time and to correct any deficiencies that we may discover
in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's business. While we believe the present design of the disclosure controls and procedures is
effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures. There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Act) that occurred during the year ended June 30, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all
error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control
procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design
of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or
fraud may occur and not be detected.
Management's Report on Internal Control Over Financial Reporting
The management of Southern Missouri Bancorp, Inc., is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company's internal control over financial reporting is a process designed to provide reasonable assurance to the Company's management and board of directors regarding the
reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
44
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal
control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company's internal control over financial reporting as of June 30, 2019. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment, we believe
that, as of June 30, 2019, the Company's internal control over financial reporting was effective based on those criteria.
|
Date: September 13, 2019
|
By:
|
/s/ Greg A. Steffens
Greg A. Steffens President and Chief Executive Officer (Principal Executive Officer) |
|
/s/ Matthew T. Funke
Matthew T. Funke
Chief Financial Officer (Principal Financial and Accounting Officer) |
45
Report of Independent Registered Public Accounting Firm
Stockholders, Board of Directors
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
and Audit Committee
Southern Missouri Bancorp, Inc.
Poplar Bluff, Missouri
Opinion on the Internal Control over Financial Reporting
We have audited Southern Missouri Bancorp, Inc.’s (the “Company”) internal control over financial reporting as of June 30, 2019 based on
criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2019
based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
consolidated financial statements of the Company and our report dated September 13, 2019 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definitions and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ BKD, LLP
Decatur, Illinois
September 13, 2019
46
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements:
The following are contained in Item 8 of this Form 10-K:
|
Report of Independent Registered Public Accounting Firm
|
|
Consolidated Balance Sheets at June 30, 2019 and 2018
|
|
Consolidated Statements of Income for the Years Ended June 30, 2019, 2018, and 2017
|
|
Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2019, 2018, and 2017
|
|
Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2019, 2018, and 2017
|
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Consolidated Statements of Cash Flows for the Years Ended June 30, 2019, 2018, and 2017
|
|
Notes to the Consolidated Financial Statements, June 30, 2019, 2018, and 2017
|
(a)(2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable.
47
(a)(3) Exhibits:
|
Regulation S-K Exhibit Number
|
Document
|
||
|
Articles of Incorporation of the Registrant (filed as an exhibit to the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1999 and incorporated herein by reference)
|
|||
| 3.1(i)A | Amendment to Articles of Incorporation of Southern Missouri increasing the authorized capital stock of Southern Missouri (filed as an exhibit to Southern Missouri's Current Report on Form 8-K filed on November 21, 2016 and incorporated herein by reference) | ||
| 3.1(i)B |
Amendment to Articles of Incorporation of Southern Missouri increasing the authorized capital stock of Southern Missouri
(filed as an exhibit to Southern Missouri's Current Report on Form 8-K filed on November 8, 2018 and incorporated herein by reference) |
||
|
Certificate of Designation for the Registrant's Senior Non-Cumulative Perpetual Preferred Stock, Series A (filed as an exhibit to the
Registrant's Current Report on Form 8-K filed on July 26, 2011 and incorporated herein by reference)
|
|||
|
Bylaws of the Registrant (filed as an exhibit to the Registrant's Current Report on Form 8-K filed on December 6, 2007 and incorporated
herein by reference)
|
|||
|
10
|
Material Contracts:
|
||
| 1. |
Registrant's 2017 Omnibus Incentive Plan (attached to the Registrant's definitive proxy statement filed on September 26,
2017, and incorporated herein by reference) |
||
|
2.
|
2008 Equity Incentive Plan (attached to the Registrant's definitive proxy statement filed on September 19, 2008 and incorporated herein
by reference)
|
||
|
3.
|
2003 Stock Option and Incentive Plan (attached to the Registrant's definitive proxy statement filed on September 17, 2003 and
incorporated herein by reference)
|
||
|
4.
|
1994 Stock Option and Incentive Plan (attached to the Registrant's definitive proxy statement filed on October 21, 1994 and incorporated
herein by reference)"P"
|
||
|
5.
|
Management Recognition and Development Plan (attached to the Registrant's definitive proxy statement filed on October 21, 1994 and
incorporated herein by reference)"P"
|
||
|
6.
|
Employment Agreements
|
||
|
Employment Agreement with Greg A. Steffens (files as an exhibit to the Registrant's Annual Report on Form 10-KSB for the year ended June
30, 1999)
|
|||
|
7.
|
Director's Retirement Agreements
|
||
|
Director's Retirement Agreement with Sammy A. Schalk (filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2000 and incorporated herein by reference)
|
|||
|
Director's Retirement Agreement with Ronnie D. Black (filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2000 and incorporated herein by reference)
|
|||
|
Director's Retirement Agreement with L. Douglas Bagby (filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2000 and incorporated herein by reference)
|
|||
|
Director's Retirement Agreement with Rebecca McLane Brooks (filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for
the quarter ended December 31, 2004 and incorporated herein by reference)
|
|||
|
Director's Retirement Agreement with Charles R. Love (filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2004 and incorporated herein by reference)
|
|||
|
Director's Retirement Agreement with Charles R. Moffitt (filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 2004 and incorporated herein by reference)
|
|||
|
Director's Retirement Agreement with Dennis C. Robison (filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 2008 and incorporated herein by reference)
|
|||
|
Director's Retirement Agreement with David J. Tooley (filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 2011 and incorporated herein by reference)
|
|||
|
Director's Retirement Agreement with Todd E. Hensley (filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 2015 and incorporated herein by reference)
|
|||
|
Tax Sharing Agreement (filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and
incorporated herein by reference)
|
|||
|
10.1
|
Named Executive Officer Salary and Bonus Arrangements
|
||
|
10.2
|
Director Fee Arrangements for 2019
|
||
|
11
|
Statement Regarding Computation of Per Share Earnings
|
||
| 14 |
Code of Conduct and Ethics (filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 2016). |
||
|
21
|
Subsidiaries of the Registrant
|
||
|
Consent of Auditors
|
|||
|
Rule 13a-14(a)/15-d14(a) Certifications
|
|||
|
Rule 13a-14(a)/15-d14(a) Certifications
|
|||
|
Section 1350 Certifications
|
|||
| 101 |
The following financial statements from the Southern Missouri Bancorp, Inc. Annual Report on Form 10-K/A for the fiscal
year ended June 30, 2019, formatted in Extensive Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of
stocholders' equity, (v) consolidated statements of cash flows and (vi) the notes to consolidated financial statements. |
||
48
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:
|
February 5, 2020
|
By:
|
/s/ Greg A. Steffens
Greg A. Steffens
President and Chief Executive Officer
(Duly Authorized Representative)
|
|
49
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statement on Form S-3 (File No. 333- 156563, File No. 333-200736, and File No.
333-202963), and the registration statements on Form S-8 (File No. 333-2320, File No. 333-127134, File No. 333-184188, File No. 333-170651, File No. 333- 222588) relating to the Southern Missouri Bancorp, Inc. 1994 Stock Option and Incentive Plan and
Management Recognition Plan, 2003 Stock Option and Incentive Plan, 2008 Equity Incentive Plan, Southern Bank 401(k) Retirement Plan, and 2017 Omnibus Incentive Plan respectively, of our report dated September 13, 2019 relating to the consolidated
balance sheets of Southern Missouri Bancorp, Inc. and subsidiaries as of June 30, 2019 and 2018, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year
period ended June 30, 2019, and the effectiveness of internal control over financial reporting as of June 30, 2019, which reports appear in the June 30, 2019 annual report on Form 10-K of Southern Missouri Bancorp,
Inc.
/s/ BKD, LLP
Decatur, Illinois
September 13, 2019
CERTIFICATION
I, Greg A. Steffens, certify that:
|
1)
|
I have reviewed this annual report on Form 10-K of Southern Missouri Bancorp, Inc.;
|
|
|
2)
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3)
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
4)
|
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
|
5)
|
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting
|
|
|
Date:
|
February 5, 2020
|
By:
|
/s/ Greg A. Steffens
Greg A. Steffens
President and Chief Executive Officer (Principal Executive Officer) |
CERTIFICATION
I, Matthew T. Funke, certify that:
|
1)
|
I have reviewed this annual report on Form 10-K of Southern Missouri Bancorp, Inc.;
|
|
|
2)
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3)
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
4)
|
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
|
5)
|
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting
|
|
|
Date:
|
February 5, 2020
|
By:
|
/s/ Matthew T. Funke
Matthew T. Funke
Chief Financial Officer (Principal Financial and Accounting Officer) |
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies in his capacity as an officer of Southern
Missouri Bancorp, Inc. (the "Company"), that the Annual Report of the Company on Form 10-K for the fiscal year ended June 30, 2019 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the
information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.
|
Date:
|
February 5, 2020
|
By:
|
/s/ Greg A. Steffens
Greg A. Steffens
President and Chief Executive Office (Principal Executive Officer) |
|
|
Date:
|
February 5, 2020
|
By:
|
/s/ Matthew T. Funke
Matthew T. Funke
Chief Financial Officer (Principal Financial and Accounting Officer) |