-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H+NQ8TMPzeIKRfiHEv3Frgul1zcnJ/HfQDaYxNK6cSiYoe8k1CqFVfaxxUVmzn6A i1zSpKXO/qd+lK6oZVjMJA== 0000854560-97-000006.txt : 19970515 0000854560-97-000006.hdr.sgml : 19970515 ACCESSION NUMBER: 0000854560-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT SOUTHERN BANCORP INC CENTRAL INDEX KEY: 0000854560 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 431524856 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18082 FILM NUMBER: 97604210 BUSINESS ADDRESS: STREET 1: 1451 E BATTLEFIELD CITY: SPRINGFIELD STATE: MO ZIP: 65804 BUSINESS PHONE: 4178874400 MAIL ADDRESS: STREET 2: P O BOX 9009 CITY: SPRINGFIELD STATE: MO ZIP: 65808-9009 10-Q 1 1 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- UNITED STATES SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-Q /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period ended March 31, 1997, or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ -------------------------- Commission File Number 0-18082 -------------------------- GREAT SOUTHERN BANCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 43-1524856 (IRS Employer Identification Number) 1451 E. BATTLEFIELD SPRINGFIELD, MISSOURI (Address of principal executive offices) 65804 (Zip Code) (417) 887-4400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The number of shares outstanding of each of the registrant's classes of common stock: 8,130,372 shares of common stock, par value $.01, outstanding at April 30, 1997 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
March 31, June 30, 1997 1996 ------------ ------------ ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,974,120 $ 6,661,290 Interest-bearing deposits in other financial institutions. . . . . . . . . 5,272,757 22,953,737 ----------- ----------- Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 12,066,877 29,615,027 Available for sale securities. . . . . . . . . . . . . . . . . . . . . . . 6,454,507 4,655,816 Held to maturity securities (fair value $48,587,000 - March 1997; $49,291,000 - June 1996) . . . . . . . . . . . . . . . . . . . . . . . . 48,793,797 49,182,323 Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 579,070,007 546,759,467 Foreclosed assets held for sale, net . . . . . . . . . . . . . . . . . . . 4,603,019 9,861,556 Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 6,808,846 6,686,954 Accrued interest receivable Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,222,678 4,289,192 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 810,079 1,067,230 Investment in FHLBank Stock. . . . . . . . . . . . . . . . . . . . . . . . 10,792,600 10,022,800 Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . 2,653,258 1,774,439 Excess of cost over fair value of net assets acquired. . . . . . . . . . . -- 1,101,961 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,877,054 3,088,540 ------------ ------------ Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $679,152,722 $668,105,305 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $462,893,905 $397,054,516 Federal Home Loan Bank advances. . . . . . . . . . . . . . . . . . . . . . 133,733,398 180,797,043 Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 15,989,253 16,467,825 Advances from borrowers for taxes and insurance. . . . . . . . . . . . . . 1,735,365 2,659,427 Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . 2,144,248 2,431,507 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,757,615 887,418 ------------ ------------ Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 618,253,784 600,297,736 ------------ ------------ Capital stock Serial preferred stock, $.01 par value; authorized 1,000,000 shares Common stock, $.01 par value; authorized 10,000,000 shares; issued 12,325,002 - March 1997; issued 6,162,501 shares - June 1996. . . . 123,250 61,625 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 16,972,327 16,834,507 Retained earnings (substantially restricted) . . . . . . . . . . . . . . . 71,792,926 67,917,888 Unrealized appreciation on available-for-sale securities, net of income taxes of $572,946 - March 1997 and $61,460 - June 1996 . . . . 896,147 96,129 Treasury stock, at cost; 4,045,027 shares - March 1997; 3,512,906 shares - June 1996 . . . . . . . . . . . . . . . . . . . . . . (28,885,712) (17,102,580) ------------ ------------ Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . 60,898,938 67,807,569 ------------ ------------ Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . $679,152,722 $668,105,305 ============ ============ See Notes to Consolidated Financial Statements
3 GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- INTEREST INCOME Loans $12,949,649 $12,487,950 $38,265,046 $37,110,162 Investment Securities 931,273 963,073 2,926,323 2,857,825 Other 60,549 42,186 193,222 145,390 ---------- ---------- ---------- ---------- TOTAL INTEREST INCOME 13,941,471 13,493,209 41,384,591 40,113,377 ---------- ---------- ---------- ---------- INTEREST EXPENSE Deposits 4,820,305 4,271,225 13,062,173 12,804,282 FHLBank advances 2,317,515 2,735,961 7,871,619 7,856,859 Short-term borrowings 130,766 124,421 451,522 421,266 ---------- ---------- ---------- ---------- TOTAL INTEREST EXPENSE 7,268,586 7,131,607 21,385,314 21,082,407 ---------- ---------- ---------- ---------- NET INTEREST INCOME 6,672,885 6,361,602 19,999,277 19,030,970 PROVISION FOR LOAN LOSSES 427,615 350,016 1,287,100 997,421 ---------- ----------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,245,270 6,011,586 18,712,177 18,033,549 ---------- ---------- ---------- ---------- NONINTEREST INCOME Commissions 1,103,300 1,044,825 3,684,975 3,252,086 Service charge fees 673,886 572,170 2,004,445 1,766,944 Net realized gains on sales of loans and available-for-sale securities 181,370 167,339 578,487 996,029 Income (expense) on foreclosed assets (23,517) 972,129 292,919 819,649 Other income 372,473 454,285 1,037,176 1,130,148 ---------- ---------- ---------- ---------- TOTAL NONINTEREST INCOME 2,307,512 3,210,748 7,598,002 7,964,856 ---------- ---------- ---------- ---------- NONINTEREST EXPENSE Salaries and employee benefits 2,331,679 2,137,559 6,856,723 6,197,216 Net occupancy expense 589,509 572,074 1,696,091 1,672,304 Postage 164,971 165,966 470,232 466,969 Insurance 119,290 317,057 3,262,927 950,859 Amortization of goodwill 0 48,211 1,106,961 144,634 Advertising 143,843 111,417 416,578 345,711 Office supplies and printing 151,344 115,822 388,000 325,692 Other operating expenses 526,483 816,014 1,599,228 2,023,690 ---------- ---------- ---------- ---------- TOTAL NONINTEREST EXPENSE 4,027,119 4,284,120 15,796,740 12,127,075 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 4,525,663 4,938,214 10,513,439 13,871,300 PROVISION FOR INCOME TAXES 1,616,413 1,717,800 4,203,157 5,288,300 ---------- ---------- ---------- ---------- NET INCOME $ 2,909,250 $ 3,220,414 $ 6,310,282 $ 8,583,030 ========== ========== ========== ========== EARNINGS PER COMMON SHARE $.35 $.35 $.74 $.94 === === === === See Notes to Consolidated Financial Statements
4 GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED MARCH 31, 1997 1996 -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 6,310,282 $ 8,583,030 Items not requiring (providing) cash: Depreciation 682,166 730,554 Amortization 1,101,961 63,585 Provision for loan losses 1,287,100 997,421 Provision for losses on foreclosed assets 100,000 175,000 Net realized gains on sale of loans (373,062) (388,474) FHLBank stock dividend -- (176,400) (Gain)/loss on sale of premises and equipment (2,382) 2,171 Gain on sale of foreclosed assets (511,420) (1,273,949) Amortization of deferred income, premiums and discounts (710,439) (504,190) Net realized gains on sale of available-for-sale securities (205,426) (607,154) Deferred income taxes (300,000) 704,000 Changes in: Accrued interest receivable 323,665 (806,379) Prepaid expenses and other assets (878,819) 272,579 Accounts payable and accrued expenses (287,259) 532,295 Income taxes payable 1,046,697 (703,002) ----------- ----------- Net cash provided by operating activities 7,583,064 7,601,087 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans (27,419,910) (23,848,503) Purchase of premises and equipment (807,467) (775,283) Proceeds from sale of premises and equipment 5,791 2,875 Proceeds from sale of foreclosed assets 945,514 1,924,721 Capitalized costs on foreclosed assets (194,660) (192,278) Proceeds from sale of available-for-sale securities 1,377,623 2,219,926 Proceeds from maturing held-to-maturity securities 31,398,775 3,524,684 Purchase of held-to-maturity securities (31,185,375) (8,865,991) Purchase of available-for-sale securities (1,659,384) (2,702,316) Purchase of Federal Home Loan Bank Stock (769,800) (861,100) ----------- ----------- Net cash used in investing activities (28,308,893) (29,573,265) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in certificates of deposit 72,506,020 5,827,656 Net increase (decrease) in checking and savings (6,666,632) 657,448 Proceeds from FHLBank advances 363,210,755 337,104,678 Repayments of FHLBank advances (410,274,400) (311,608,290) Net increase (decrease) in short-term borrowings (478,571) 2,356,726 Advances from borrowers for taxes and insurance (924,062) (1,274,139) Purchase of treasury stock (12,234,178) (2,439,524) Dividends paid (2,435,244) (2,356,559) Stock options exercised 473,991 203,222 ----------- ----------- Net cash provided by financing activities 3,177,679 28,471,218 ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (17,548,150) 6,499,040 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 29,615,027 17,459,951 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,066,877 $ 23,958,991 =========== =========== See Notes to Consolidated Financial Statements
5 GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements of Great Southern Bancorp, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements presented herein reflect all adjustments, which are in the opinion of management, necessary for a fair statement of the results for the periods presented. Operating results for the three and nine months ended March 31, 1997 and 1996 are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 1996. When necessary, reclassifications have been made to prior period balances to conform to current period presentation. These reclassifications had no effect on net income. The Company completed a 2-for-1 stock split on October 21, 1996. Prior period information included in this form 10-Q reflects this stock split, when necessary. ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The discussion set forth below, as well as other portions of this Form 10-Q, may contain forward-looking comments. Such comments are based upon the information currently available to management of the Company and management's perception thereof as of the date of this Form 10-Q. Actual results of the Company's operations could materially differ from those forward-looking comments. The differences could be caused by a number of factors or combination of factors including, but not limited to, changes in the availability and/or cost of capital; changes in demand for banking services; changes in the portfolio composition; change in the interest rate yield on the Company's investments; changes in management strategy; increased competition from both bank and non-bank companies; changes in the economic, political or regulatory environments in the United States; litigation involving the Company and/or its subsidiaries; and changes in the availability of qualified labor. Readers should take these factors into account in evaluating any such forward-looking comments. 6 General Parts of management's discussion and analysis in the annual report on Form 10-K are not included below. The following should be read in conjunction with management's discussion and analysis in the Company's June 30, 1996 Form 10-K. The consolidated net income of the Company and more specifically, the net income of its primary subsidiary, Great Southern Bank, FSB (the "Bank"), is primarily dependent upon the difference or spread between the average yield earned on loans and investments and the average rate paid on deposits and borrowings, as well as the relative amounts of such assets and liabilities. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. The Bank, like other financial institutions, is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different times, or on a different basis than its interest-earning assets. The Company's consolidated net income is also affected by, among other things, gains on sales of loans and available-for-sale investments, provisions for loan losses, service charge fees and commissions, operating expenses and income taxes. Management of the Company has developed and implemented an asset/liability management strategy to match the repricing and/or maturity of its interest-earning assets and its interest-bearing liabilities and to achieve improved and sustained operating income without adversely affecting asset quality. In implementing this strategy, the Company has sought, subject to market conditions, to increase its origination of adjustable-rate loans secured by one- to four-family residential real estate in order to increase its investment in loans that are interest rate sensitive. The Company has also sold substantially all of the fixed-rate, one- to four-family residential loans originated since fiscal 1986, with servicing retained through fiscal 1995 and primarily servicing released beginning in fiscal 1996. Beginning in fiscal 1992, the Company's lending returned to origination of adjustable-rate commercial real estate and commercial business loans. By doing so, the Company is attempting to increase significantly its loan fees, increase its investment in loans that are interest rate sensitive and improve the yield on its loan portfolio. The Company intends to continue to prudently evaluate the origination of commercial real estate loans (both to purchase existing properties and construct new properties) in its total loan portfolio subject to commercial real estate and other market conditions and to applicable regulatory restrictions and may increase the percent of the commercial real estate loans to the overall portfolio. 7 EFFECT OF FEDERAL LAWS AND REGULATIONS Federal legislation and regulation significantly affect the banking operations of the Company and the Bank, and have increased competition among savings institutions, commercial banks, mortgage banking enterprises and other financial institutions. In particular, the capital requirements and operations of regulated depository institutions such as the Company and the Bank have been and will be subject to changes in applicable statutes and regulations from time to time, which changes could, under certain circumstances, adversely affect the Company or the Bank. On September 30, 1996, the President of the United States signed into law, legislation that impacted two major areas of the Bank. The first major area was a one-time assessment of SAIF-insured institutions of 65.7 basis points of March 31, 1995 SAIF-assessable deposits. The Bank was assessed approximately $2.5 million ($1.6 million after income taxes) which was paid at the end of November 1996. The payment was expensed in the September 30, 1996 quarter and had a significant impact on the Bank's earnings as of the time the payment was accrued. Along with this one-time SAIF assessment, the semi-annual SAIF assessment was reduced, beginning January 1, 1997, from an annualized 23 basis points on SAIF-assessable deposits, to approximately 6.48 basis points annualized on SAIF-assessable deposits. This reduced the monthly expense of the Bank, beginning January 1, 1997, by approximately $55,000 ($35,000 after tax). As a result of this lower assessment rate, the Bank significantly increased (approximately $80 million) the level of brokered deposits used to fund asset growth beginning in the March 31, 1997 quarter. The rates paid on these deposits, when compared to alternative sources and allowing for deposit insurance costs, is comparable to FHLBank advances but do not require the asset pledging the FHLBank requires. The second major area of change is the repeal of the bad debt reserve method of accounting for bad debts by large thrifts for taxable years beginning after 1995 (year ended June 30, 1997 for the Bank). The legislation requires applicable excess reserves accumulated after 1987 (year ended June 30, 1988 for the Bank) be recaptured and restored to income over a six year period with the first year beginning after 1995 (year ended June 30, 1997 for the Bank), and no longer creates recapture of the applicable excess reserves accumulated prior to 1988 for thrifts at the time they convert to bank charters. The post 1987 recapture may be delayed for a one- or two-year period if certain residential loan origination requirements are met. The amount of post 1987 recapture for the Bank is estimated at $5 million which would create income taxes of approximately $2 million, or $333,000 per year for each of the six years. The $2 million of tax has been accrued and expensed by the Bank in previous periods and accordingly, will not be reflected as a reduction in earnings or capital when paid. 8 Beginning with the current fiscal year ending June 30, 1997, the Bank will be required to follow the specific charge-off method which only allows a bad debt deduction equal to actual charge-offs, net of recoveries, experienced during the fiscal year of the deduction. In a year where recoveries exceed charge-offs, the Bank would be required to include the net recoveries in taxable income. RECENT CHANGES IN ACCOUNTING PRINCIPLES In March 1995, the FASB issued Statement of Financial Accounting Standards No. 121. "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). This statement applies to assets to be held and used as well as assets to be disposed of. SFAS 121 requires an entity to evaluate long-lived assets, certain identifiable intangibles, and related goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company adopted SFAS 121 during the current fiscal year ending June 30, 1997. The adoption of SFAS 121 has not had a material effect on the financial condition or net income of the Company. In May 1995, the FASB issued Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"). SFAS 122 requires that mortgage banking enterprises recognize as separate assets, rights to service mortgage loans for others, however those servicing rights are acquired. The Company adopted SFAS 122 during the current fiscal year ending June 30, 1997. The adoption of SFAS 122 has not had a material effect on the financial condition or net income of the Company. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes a fair value based method of accounting for stock-based compensation plans. It encourages entities to adopt that method in place of the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees", for all arrangements under which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of its stock. This statement applies to financial statements for fiscal 1997. Management is continuing to account for stock-based compensation in accordance with the provisions of APB No. 25. Therefore, SFAS 123 has not had a significant impact on the Company's consolidated financial statements. 9 In June 1996, the FASB issued Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125 extends the rules in SFAS 122 from servicing of mortgage loans to all loan servicing. The Company adopted SFAS 125 during the current fiscal year ending June 30, 1997. The adoption of SFAS 125 has not had a material effect on the financial condition or net income of the Company. ASSET AND LIABILITY MANAGEMENT During the nine months ended March 31, 1997, the Company experienced a small increase of $11.1 million in its total assets. There was a change in the various asset categories with the main areas of change being an increase in net loans of $32.3 million, offset by a decrease in cash and interest-bearing deposits in other financial institutions of $17.5 million and a decrease in foreclosed assets of $5.3 million. The increase in net loans was primarily from commercial real estate loans of $16 million and other residential loans of $11.2 million including one loan originated for the sale of a large foreclosed asset. The decrease in interest-bearing deposits in other financial institutions primarily resulted from the reversal of the higher than normal balances at correspondent banks due to the timing of transferring funds with June 30, 1996 falling on the weekend. The decrease in foreclosed assets is primarily from the sale of one large property discussed in the non-performing asset section below. Total liabilities increased $18 million, primarily from an increase in deposits of $66 million offset by a decrease in FHLBank advances of $47 million. The increase in deposits resulted from the increase in brokered deposits (approximately $80 million) due to the SAIF insurance assessment decrease discussed above and the paydown of primarily short-term FHLBank advances with those additional funds not used to fund net loan originations or for other funding needs. Stockholders' equity decreased $6.9 million primarily as a result of net treasury stock purchases of $11.8 million and dividend declarations and payments of $2.4 million, offset by net income of $6.3 million and unrealized appreciation on available-for-sale securities of $800,000. The Company repurchased 767,547 shares of common stock at an average price of $15.94 per share and reissued 235,426 shares of treasury stock at an average price of $1.92 per share for stock options exercised during the nine months ended March 31, 1997. During the month of April 1997, the Company purchased 150,400 shares of treasury stock at an average price of $17.40 per share and reissued 11,620 shares of treasury stock at an average price of $1.50 per share for stock option exercises. 10 Management believes that a key component of successful asset/liability management is the monitoring and management of interest rate sensitivity, which encompasses the repricing and maturity of interest-earning assets and interest-bearing liabilities. During any period in which a financial institution has a positive interest rate sensitivity gap, the amount of its interest-earning assets maturing or otherwise repricing within such period exceeds the amount of the interest-bearing liabilities maturing or otherwise repricing within the same period. Accordingly, in a rising interest rate environment, financial institutions with positive interest rate sensitivity gaps generally will experience greater increases in yield on their assets than in the cost of their liabilities. Conversely, in a falling interest rate environment, the cost of funds of financial institutions with positive interest rate sensitivity gaps generally will decrease less than the yield on their assets. Changes in interest rates generally will have the opposite effect on financial institutions with negative interest rate sensitivity gaps. In a rising interest rate environment financial institutions with negative gaps have more liabilities than assets mature or reprice during the relevant period, causing the increase in the cost of liabilities to exceed the increase in the yield on assets. Conversely, in a falling interest rate environment, the cost of funds of financial institutions with negative interest rate sensitivity gaps generally will decrease more than the yield on their assets. The Company's experience with interest rates is discussed in more detail under the headings "Results of Operations and Comparisons of the Three and Nine Months Ended March 31, 1997 and 1996" and in management's discussion and analysis in the June 30, 1996 Form 10-K. The Company's one-year interest rate sensitivity gap, as a percentage of total interest-earning assets was a positive $21 million, or 3.1%, at March 31, 1997, as compared to a positive $89 million, or 13.6%, at June 30, 1996. The decrease of $67 million resulted primarily from: (i) a $74 million increase in time deposits, substantially all being brokered deposits and in the 1 year or less category; (ii) a $35 million decrease in investment securities primarily due to a shifting of maturities from the 1 year or less category to the 1 to 2 years category and an $18 million reduction in interest-bearing deposits; offset by (iii) a $29 million increase in funded loans, the majority of which are in the one-year category, and (iii) a $22 million decrease in FHLBank advances paid down with the brokered deposits not used to fund loan growth as well as shifts from other periods. 11 As a part of its asset and liability management strategy, the Company has increased its investment in loans which are interest rate sensitive by emphasizing the origination of adjustable-rate, one- to four-family residential loans and adjustable-rate or relatively short- term commercial business and consumer loans, and originating fixed- rate, one- to four-family residential loans primarily for immediate resale in the secondary market. Approximately 30% of total assets are currently invested in commercial real estate and commercial business loans. This part of the strategy was designed to improve asset yield and fee income, and to shorten the average maturity and increase the interest rate sensitivity of the loan portfolio. While efforts to date have contributed to the changes in the one-year interest rate sensitivity gap and increasing net interest income, such lending, commensurate with the increased risk levels, has also resulted in an increase in the level of non-performing assets. Management continually evaluates existing and potential commercial real estate and commercial business loans, in order to try to reduce undesirable risks including concentrations in a given geographic area or a particular loan category. While from a credit risk standpoint the Company would prefer higher levels of one- to four-family and other residential loan originations rather than commercial real estate and commercial business loan originations, the Company has adapted to the changing lending environment and originates commercial real estate and commercial business loans to help maintain the desired size of the loan portfolio and assets in total, as well as to maintain the desired yield on the Company's investments. Interest rate risk exposure estimates (the sensitivity gap) are not exact measures of an institution's actual interest rate risk. They are only indicators of interest rate risk exposure produced in a simplified modeling environment designed to allow management to gauge the Company's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on the Company's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other factors beyond the Company's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated period may in fact mature or reprice at different times and in different amounts and would therefore cause a change (which potentially could be material) in the Company's interest rate risk. 12 The following table sets forth the Company's interest rate sensitive assets and liabilities that mature or reprice within one year as of the dates indicated and on the basis of the factors and assumptions set forth at the end of the tables.
March 31, June 30, 1997 1996 ------------ -------- (000'S OMITTED) Residential, commercial real estate and construction loans $484,015 $463,559 Commercial business loans 18,854 12,349 Consumer loans 18,526 16,202 Investment securities and other 22,540 76,343 ------- ------- Total interest rate sensitive assets repricing within one year 543,935 568,453 ------- ------- Interest-bearing demand deposits 107,057 112,289 Savings deposits 34,364 37,009 Time deposits 266,878 192,909 FHLBank advances 99,315 120,849 Other borrowings and liabilities 15,801 16,468 ------- ------- Total interest rate sensitive liabilities repricing within one year 523,415 479,524 ------- ------- One year interest rate sensitivity gap (1) $20,520 $ 88,929 ======= ======= Interest rate sensitive assets/interest rate sensitive liabilities 103.9% 118.5% ===== ===== One year interest rate sensitivity gap as a percent of interest-earning assets 3.1% 13.6% ==== ==== ___________________________________________ (1) Defined as the Company's interest-earning assets which mature or reprice within one year minus its interest-bearing liabilities that mature or reprice within one year.
13 The following table sets forth the interest rate sensitivity of the Company's assets and liabilities at March 31, 1997, on the basis of the factors and assumptions set forth below.
Maturing or Repricing --------------------------------------------------------------- Over 6 6 Months Months Over 1-3 Over 3-5 Over or Less to 1 Year Years Years 5 Years Total -------- --------- -------- -------- -------- -------- (Dollars in thousands) Residential, commercial real estate and construction loans $375,326 $108,689 $ 15,751 $10,424 $40,566 $550,756 Commercial business loans 18,556 298 239 0 0 19,093 Consumer loans 16,202 2,324 6,161 0 0 24,687 Investment securities and other 19,543 2,997 48,775 0 0 71,315 ------- ------- ------- ------ ------ ------- Total interest-earning assets 429,627 114,308 70,926 10,424 40,566 665,851 ------- ------- ------- ------ ------ ------- Interest-bearing demand deposits 107,057 0 0 0 0 107,057 Savings deposits 34,364 0 0 0 0 34,364 Time deposit 162,955 103,923 34,204 10,368 0 311,450 FHLBank advances 72,351 26,964 12,596 3,975 17,847 133,733 Other borrowings and liabilities 15,801 0 0 0 0 15,801 ------- ------- ------- ------ ------ ------- Total interest-bearing liabilities 392,528 130,887 46,800 14,343 17,847 602,405 ------- ------- ------- ------ ------ ------- Interest-earning assets less interest-bearing liabilities $ 37,099 $(16,579) $ 24,126 $(3,919) $22,719 $ 63,446 ======= ======= ======= ====== ====== ======= Cumulative interest rate sensitivity gap $ 37,099 $ 20,520 $44,646 $40,727 $63,446 ======= ======= ====== ====== ====== Cumulative interest rate sensitivity gap as a percent of interest-earning assets at March 31, 1997 5.6% 3.1% 6.7% 6.1% 9.5% === ==== ==== ==== ==== Cumulative interest rate sensitivity gap as a percent of interest-earning assets at June 30, 1996 (0.4)% 13.6% 8.9% 8.3% 10.2% === ==== === === ==== The assumptions used in the above two tables are: -- Prepayment rates are derived from market prepayment rates observed on or about March 31, 1997. They are supplied by the FHLBank of Des Moines Risk Management Department. -- Fixed-rate loans, net of loans in process, deferred fees and discounts are shown on the basis of contractual amortization and the prepayment assumptions noted above. -- Adjustable-rate loans are assumed to reprice at the earlier of maturity or the next contractual repricing date. -- Zero growth and constant percentage composition of assets and liabilities and funds from contractual amortization are not reinvested.
14 RESULTS OF OPERATIONS AND COMPARISON OF THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 and 1996 The decrease in earnings of $310,000, or 9.7%, for the three months ended March 31, 1997 when compared to the same period in 1996, was primarily due to a decrease in non-interest income of $900,000 and an increase in provision for loan losses of $80,000, offset by an increase in net interest income of $310,000, a decrease in non- interest expense of $260,000 and a decrease in provision for income taxes of $100,000 during the period. The decrease in earnings for the nine months ended March 31, 1997 when compared to the same period in 1996 of $2.3 million, or 26.5%, was primarily due to an increase in non-interest expense of $3.7 million, an increase in provision for loan losses of $290,000 and a decrease in non-interest income of $370,000, offset by an increase in net interest income of $970,000, and a decrease in provision for income taxes of $1.1 million during the period. Total Interest Income Total interest income increased $450,000, or 3.3%, during the three months ended March 31, 1997, when compared to the three months ended March 31, 1996. The increase was primarily due to a $460,000, or 3.7%, increase in interest income on loans. Total interest income increased $1.3 million, or 3.2%, during the nine months ended March 31, 1997, when compared to the nine months ended March 31, 1996. The increase was primarily due to a $1.2 million, or 3.1%, increase in interest income on loans. Interest Income - Loans For the three month period, interest income on loans increased from higher average balances, offset by a decrease from lower average yields. Interest income increased $540,000 as the result of higher average loan balances from $544 million during the three months ended March 31, 1996 to $567 million during the three months ended March 31, 1997. Interest income decreased $80,000 as the result of a decrease in average yield from 9.19% in the three months ended March 31 1996, to 9.13% in the three months ended March 31, 1997, as a result of lower market rates. For the nine month period, interest income on loans increased from higher average balances, offset by a decrease from lower average yields. Interest income increased $1.6 million as the result of higher average loan balances from $532 million during the nine months ended March 31, 1996 to $556 million during the nine months ended March 31, 1997. Interest income decreased $460,000 as the result of a decrease in average yield from 9.29% in the nine months ended March 31, 1996, to 9.17% in the nine months ended March 31, 1997, as a result of lower market rates. 15 Interest Income - Investments and Other Interest-Bearing Deposits For the three month period, interest income on investments and other interest-bearing deposits increased from higher average balances, offset by a decrease from lower average yields. Interest income increased $25,000 as the result of higher average balances from $76 million during the three months ended March 31, 1996 to $78 million during the three months ended March 31, 1997. Interest income decreased $35,000 as the result of a decrease in average yield from 5.28% in the three months ended March 31 1996, to 5.09% in the three months ended March 31, 1997, as a result of lower market rates. For the nine month period, interest income on investments and other interest-bearing deposits increased from both higher average balances and higher average yields. Interest income increased $85,000 as the result of higher average balances from $76 million during the nine months ended March 31, 1996 to $78 million during the nine months ended March 31, 1997. Interest income increased $30,000 as the result of an increase in average yield from 5.27% in the nine months ended March 31, 1996, to 5.32% in the nine months ended March 31, 1997, as a result of higher market rates. Total Interest Expense Total interest expense increased $140,000, or 1.9%, during the three months ended March 31, 1997 when compared with the same period in 1996 and $300,000, or 1.4%, during the nine months ended March 31, 1997 when compared with the same period in 1996. The increase during the three month period was primarily due to a $550,000, or 12.9%, increase in interest expense on deposits, offset by a $410,000, or 14.4%, decrease in interest expense on FHLBank advances and other borrowings. The increase during the nine month period was primarily due to a $260,000, or 2.0%, increase in interest expense on deposits, offset by a $45,000, or 0.5%, decrease on FHLBank advances and other borrowings. These changes were primarily the result of the funding changes discussed previously. Interest Expense - Deposits For the three month period, interest expense on deposits increased as a result of an increase in overall average balances, offset by a decrease in overall market rates. Interest expense increased $690,000 as a result of higher average balances of time deposits from $243 million during the three months ended March 31, 1996, to $293 million during the three months ended March 31, 1997 and increased $40,000 as a result of higher average balances of interest-bearing demand deposits from $99 million during the three months ended March 31, 1996, to $105 million during the three months ended March 31, 1997. These increases were offset by a decrease of $105,000 due to lower average rates on time deposits from 5.69% during the three months ended March 31, 1996, to 5.51% during the three months ended March 31, 1997 and a decrease of $60,000 due to lower average rates on interest- bearing demand deposits from 2.43% during the three months ended March 31, 1996, to 2.21% during the three months ended March 31, 1997. 16 For the nine month period, interest expense on deposits increased as a result of an overall increase in average balances, offset by an overall decrease in market rates. Interest expense increased $540,000 as a result of higher average balances on time deposits from $239 million during the nine months ended March 31, 1996 to $252 million during the nine months ended March 31, 1997 and increased $125,000 as a result of higher average balances on interest-bearing demand deposits from $101,000 during the three months ended March 31, 1996 to $108,000 during the nine months ended March 31, 1997. These increases were offset by a decrease of $335,000 due to lower average rates on time deposits from 5.74% during the nine months ended March 31, 1996, to 5.53% during the nine months ended March 31, 1997 and a decrease of $30,000 due to lower average rates on interest-bearing demand deposits from 2.44% during the nine months ended March 31, 1996 to 2.39% during the nine months ended March 31, 1997. Interest Expense - FHLBank and Other Borrowings For the three month period, interest expense on FHLBank advances and other borrowings decreased $410,000 due to lower average balances from $194 million in the three months ended March 31, 1996 to $167 million in the three months ended March 31, 1997. For the nine month period, interest expense on FHLBank advances and other borrowings increased $45,000 due to higher average balances from $184 million in the nine months ended March 31, 1996 to $188 million in the nine months ended March 31, 1997. This increase was offset by a decrease of $120,000 due to lower average interest rates from 6.00% in the nine months ended March 31, 1996 to 5.91% in the nine months ended March 31, 1997. In the three month period, average balances decreased as a result of the Company's use of brokered deposits to fund loan growth and reduce short term FHLBank advances as discussed previously in this document. In the nine month period, average balances increased as a result of the Company's use of short term FHLBank advances to partially fund loan growth and manage overall funds costs in the first six months of the nine month period. The changes in average rates were a result of changes in market rates. 17 Net Interest Income For the three month period, the Company's overall interest rate spread increased 6 basis points, or 1.6%, from 3.72% during the three months ended March 31, 1996, to 3.78% during the three months ended March 31, 1997. For the nine month period, the Company's overall interest rate spread increased 4 basis points, or 1.1%, from 3.78% during the three months ended March 31, 1996, to 3.82% during the three months ended March 31, 1997. The increase in both periods was due to an overall decrease in the weighted average rates paid on interest-bearing liabilities partially offset by a lesser overall decrease in the yields received on interest-earning assets. Provision for Loan Losses The provision for loan losses increased from $350,000 and $997,000, respectively, during the three and nine months ended March 31, 1996 to $428,000 and $1,287,000, respectively, during the three and nine months ended March 31, 1997. In any accounting period, the provision for loan losses is affected by many factors including, but not limited to, the change in the composition of the loan portfolio, the increase or decrease in total loans, the level of delinquencies and other non- performing loans and the historical loss experience of the portfolio. Non-performing assets decreased $3.7 million, or 22%, during the nine months ended March 31, 1997 from $16.9 million at June 30, 1996 to $13.2 million at March 31, 1997. Non-performing loans increased $1.9 million, or 32.2%, from $5.9 million at June 30, 1996 to $7.8 million at March 31, 1997, and foreclosed assets declined $5.5 million from $10.9 million at June 30, 1996 to $5.4 million at March 31, 1997. Non-performing loans at March 31, 1997 and June 30, 1996, included $320,000 and $452,000, respectively, of loans in connection with the sale of foreclosed assets, which are loans that have higher than usual loan-to-value ratios and are originated in connection with the sale of foreclosed assets. Substantially all of these loans were performing at March 31, 1997. 18 The $1.9 million increase in non-performing loans was primarily the result of (i) the addition of a net loan for $3.8 million (net of deferred gain and actual payments received) as a result of 100% financing of the sale of the foreclosed asset described in the Company's Annual Report on Form 10-K for the year ended June 30, 1996 on page 31 under the heading "Branson, Missouri"; partially offset by (ii) the payoff of the $934,000 loan described in the Company's Annual Report on Form 10-K for the year ended June 30, 1996 on page 31 under the heading "Lake Ozark, Missouri"; (iii) the receipt of all scheduled payments currently due on the loans totaling $984,000 described in the Company's Annual Report on Form 10-K for the year ended June 30, 1996 on page 30 under the heading "Branson, Missouri - Restaurant"; (iv) the receipt of all scheduled payments currently due on the $600,000 Tax Increment Financing (TIF) loan of the project described in the Company's Annual Report on Form 10-K for the year ended June 30, 1996 on page 31 under the heading "Lake Ozark, Missouri"; and (v) the foreclosure, net of charge-offs of approximately $110,000, of a $250,000 restaurant loan (sold during the nine months ended March 31, 1997) and various single family properties totaling $490,000. The net loan of $3.8 million on the sale of the foreclosed assets has a deferred gain of $427,000 currently netted against it. If the buyer is able to liquidate the project as planned, this gain will be recognized at a future time when the loan has paid down to an adequate level. The $5.5 million decline in foreclosed assets during the nine months ended March 31, 1997 was primarily due to: (i) the sale of the $4.3 million property noted in the non-performing loan section above ($3.8 million net loan balance); (ii) the sale of the $550,000 property described in the Company's Annual Report on Form 10-K for the year ended June 30, 1996 on page 33 under the heading "Springfield, Missouri - Ellis Trucking Terminal" with 28% cash down and normal long-term financing for the balance; (iii) the sale of condominium units carried at an aggregate of $312,000 and 1 single-family home carried at $54,000; offset by (iv) the foreclosure of the properties noted in the non-performing loan section above; (vi) a $207,000 charge-down on the property described in the Company's Annual Report on Form 10-K for the year ended June 30, 1996 on page 32 under the heading "Branson, Missouri - Clevenger Cove Campground" as the result of an updated appraisal; and (vii) various other activity of smaller properties in the account. 19 Potential problem loans increased $7.8 million during the nine months ended March 31, 1997 from $4.7 million at June 30, 1996 to $12.5 million at March 31, 1997. These are loans which management has identified through routine internal review procedures as having possible credit problems which may cause the borrowers difficulty in complying with current loan repayment terms. These loans are not reflected in the non-performing loans. The main reason for the increase in potential problem loans is: (i) an increase of $5.5 million from the continued cash flow problems of a theater in Branson, Missouri (subsequent to March 31, 1997, this loan was paid in full and a prepayment penalty of approximately $300,000 was collected); (ii) the continued credit deterioration of the borrower on a $985,000 loan secured by commercial lots located in Branson, Missouri; (iii) an increase of $950,000 from the improved credit quality and upgrade from non-performing status of the project disclosed in the non-performing loan section above; (iv) the increase of $280,000 in a condominium project in Branson, Missouri due to additional advances from increased collateral positions; (v) the deterioration of credit quality of a $250,000 commercial real estate loan secured by a building in Springfield, Missouri; and (vi) the deterioration of the credit quality of various projects, partially offset by the improvement from non-performing of other projects. The allowance for loan losses at March 31, 1997 and June 30, 1996, respectively, totaled $15.5 million and $14.4 million, representing 2.7% and 2.6% of total loans, 197% and 243% of non-performing loans, and 76% and 136% of non-performing loans and potential problem loans in total. The allowance for foreclosed asset losses totaled $828,000 and $1.1 million at March 31, 1997 and June 30, 1996, respectively, representing 15.2% and 9.9% of total foreclosed assets. Although the Company maintains the allowance for loan losses and the allowance for foreclosed asset losses at levels which it considers to be adequate to provide for potential losses and selling expenses, there can be no assurance that such losses will not exceed the estimated amounts, thereby adversely affecting future results of operations. Non-interest Income Non-interest income decreased $900,000, or 28.1%, in the three months ended March 31, 1997 when compared to the same period in 1996. The decrease was primarily due to: (i) a decrease in income on foreclosed assets of $1 million due to a gain on one large property in the March 31, 1996 quarter; (ii) an increase in service charge income of $102,000, or 18%, on transaction accounts from an increased fee structure; and (iii) various increases and decreases in other non- interest income items. 20 Non-interest income decreased $365,000, or 4.6%, in the nine months ended March 31, 1997 when compared to the same period in 1996. The decrease was primarily due to: (i) a decrease in income on foreclosed assets of $525,000 due to a gain of $1.2 million on one property in the March 31, 1996 period with smaller gains in the March 31, 1997 period; and (ii) a decrease in income of $400,000 from the sale of available-for-sale securities; offset by (iii) an increase in commission income of $435,000, or 13%, from the travel and investment subsidiaries; (iv) an increase of $235,000, or 13%, in service charge income on transaction accounts from an increased fee structure; and (v) various increases and decreases in other non-interest income items. Non-interest Expense Non-interest expense decreased $250,000, or 6%, in the three months ended March 31, 1997 when compared to the same period in 1996 primarily due to a decrease in deposit insurance of $200,000 due to SAIF changes previously discussed, offset by an increase of $200,000 in salaries and other employee benefits due to asset and earnings growth, and various increases and decreases in other non-interest expense items. Non-interest expense increased $3.7 million, or 30%, in the nine months ended March 31, 1997 when compared to the same period in 1996. The increase was primarily due to: (i) an increase in insurance of $2.5 million due to the accrual of the one-time SAIF assessment discussed previously; (ii) an increase in goodwill amortization of $1 million due to the write-off of goodwill remaining from a 1982 failed thrift purchase; (iii) an increase of $660,000 in salaries and other employee benefits due to asset and earnings growth; and (iv) decreases in various other non-interest expense items. Provision for Income Taxes Provision for income taxes as a percentage of pre-tax income increased from 34.8% in the three months ended March 31, 1996 to 35.7% in the three months ended March 31, 1997. The increase was due to fluctuations in accrual estimates. Provision for income taxes as a percentage of pre-tax income increased from 38.1% in the nine months ended March 31, 1996 to 40.0% in the nine months ended March 31, 1997. The increase was primarily due to the write-off of the goodwill amortization discussed above, which is a non-deductible item as well as fluctuations in accrual estimates. 21 Average Balances, Interest Rates and Yields The following tables present for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. The tables do not include non-interest- bearing demand deposits and do not reflect any effect of income taxes.
Three Months Ended March 31, --------------------------------------------------------- 1997 1996 --------------------------- -------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate -------- -------- ------ -------- -------- ------ (Dollars in thousands) Interest-earning assets: Loans receivable $567,456 $12,949 9.13% $543,695 $12,488 9.19% Investment securities and other interest-earning assets 77,887 992 5.09 76,192 1,005 5.28 ------- ------ ---- ------- ------- ---- Total interest-earning assets $645,343 13,941 8.64 $619,887 13,493 8.71 ======= ------ ---- ======= ------ ---- Interest-bearing liabilities: Demand deposits $104,598 578 2.21 $ 98,716 599 2.43 Savings deposits 34,118 207 2.43 36,248 222 2.45 Time deposits 292,788 4,035 5.51 242,532 3,450 5.69 ------- ----- ---- ------- ----- ---- Total deposits 431,504 4,820 4.47 377,496 4,271 4.53 FHLBank advances and other borrowings 166,507 2,448 5.88 194,447 2,860 5.88 ------- ----- ---- ------- ----- ---- Total interest-bearing liabilities $598,011 7,268 4.86 $571,943 7,131 4.99 ======= ----- ---- ======= ----- ---- Net interest income: Interest rate spread $6,673 3.78% $6,362 3.72% ===== ==== ===== ==== Net interest margin(1) 4.14% 4.11% ==== ==== Average interest-earning assets to average interest-bearing liabilities 107.9% 108.4% ===== ===== (1) Defined as the Company's net interest income divided by total interest-earning assets.
22
Nine Months Ended March 31, --------------------------------------------------------- 1997 1996 --------------------------- -------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate -------- -------- ------ -------- -------- ------ (Dollars in thousands) Interest-earning assets: Loans receivable $556,183 $38,265 9.17% $532,607 $37,110 9.29% Investment securities and other interest-earning assets 78,106 3,119 5.32 75,994 3,003 6.59 ------- ------ ---- ------- ------- ---- Total interest-earning assets $634,289 41,384 8.70 $608,601 40,113 8.79 ======= ------ ---- ======= ------ ---- Interest-bearing liabilities: Demand deposits $108,228 1,942 2.39 $101,191 1,849 2.44 Savings deposits 35,399 653 2.46 37,071 691 2.49 Time deposits 252,442 10,467 5.53 238,546 10,264 5.74 ------- ------ ---- ------- ------ ---- Total deposits 396,069 13,062 4.40 376,808 12,804 4.43 FHLBank advances and other borrowings 187,875 8,323 5.91 183,951 8,278 5.81 ------- ------ ---- ------- ------ ---- Total interest-bearing liabilities $583,944 21,385 4.88 $560,759 21,082 5.01 ======= ------ ---- ======= ------ ---- Net interest income: Interest rate spread $19,999 3.82% $19,031 3.78% ====== ==== ====== ==== Net interest margin(1) 4.20% 4.17% ==== ==== Average interest-earning assets to average interest-bearing liabilities 108.6% 108.5% ===== ===== (1) Defined as the Company's net interest income divided by total interest-earning assets.
23 Rate/Volume Analysis The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest- earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to volume and to rate.
Three Months Ended March 31, Nine Months Ended March 31, 1997 vs. 1996 1997 vs. 1996 -------------------------------- ------------------------------ Increase Increase (Decrease) (Decrease) Due to Total Due to Total ------------- Increase ------------- Increase Rate Volume (Decrease) Rate Volume (Decrease) ---- ------ ---------- ---- ------ ---------- (Dollars in thousands) (Dollars in thousands) Interest-earning assets: Loans receivable $ (81) $ 542 $ 461 $(459) $1,614 $1,155 Investment securities and other interest-earning assets (37) 24 (13) 32 84 116 --- --- --- --- ----- ----- Total interest-earning assets (118) 566 448 (427) 1,698 1,271 --- --- --- --- ----- ----- Interest-bearing liabilities: Demand deposits (63) 42 (21) (32) 125 93 Savings deposits (2) (13) (15) (7) (31) (38) Time deposits (104) 689 585 (337) 540 203 --- --- --- --- ----- ----- Total deposits (169) 718 549 (376) 634 258 FHLBank advances and other borrowings (1) (411) (412) (121) 166 45 --- --- --- --- ----- ----- Total interest-bearing liabilities (170) 307 137 (497) 800 303 --- --- --- --- ----- ----- Net interest income $ 52 $259 $ 311 $ 70 $ 898 $ 968 === === === === ===== =====
24 LIQUIDITY AND CAPITAL RESOURCES General The Company's capital position remained strong, with stockholders' equity at $60.9 million, or 9.0% of total assets of $679 million at March 31, 1997 compared to equity at $67.8 million, or 10.1%, of total assets of $668 million at June 30, 1996. In addition, the Bank exceeds each of the regulatory capital requirements. At March 31, 1997, the Bank had ratios of tangible and core capital to assets of 7.9% and risk-based capital of 11.8%. Federal regulations at that date required tangible, core and risk-based capital ratios of 1.5%, 3% and 8%, respectively. The Bank is required by regulation to maintain liquidity ratios at certain levels. Currently, a minimum of 5% of the combined total of deposits and short-term borrowings must be maintained in the form of cash and eligible investments. The Bank has historically maintained its liquidity ratio at a level in excess of that required. As of March 31, 1997, the Bank's liquidity ratio was 5.1%, compared to 7.3% at June 30, 1996. Management believes that the Company has sufficient cash flows and borrowing capacity available to meet its commitments and other foreseeable cash needs for operations. At March 31, 1997, the Company had commitments of approximately $60 million to fund loan originations, issued lines of credit, outstanding letters of credit and unadvanced loans. At March 31, 1997, the investment securities held to maturity included $3,000 of gross unrealized gains and $211,000 of gross unrealized losses related to securities intended to be held until maturity. The unrealized gains and losses are not expected to have a material effect on future earnings beyond the usual amortization of acquisition premium or accretion of discount because no sale of the investment portfolio is foreseen. The Company's primary sources of funds are savings deposits, FHLBank advances, other borrowings, loan repayments, proceeds from sales of loans and available-for-sale securities and funds provided from operations. The Company utilizes particular sources of funds based on the comparative costs and availability at the time. The Company has from time to time chosen not to pay rates on deposits as high as the rates paid by certain of its competitors and, when necessary, supplement deposits with less expensive alternative sources of funds. 25 STATEMENT OF CASH FLOWS During the nine months ended March 31, 1997 and 1996, the Company had positive cash flows from operating activities and positive cash flows from financing activities. The Company experienced negative cash flows from investing activities during the nine months ended March 31, 1997 and 1996. Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to adjustments in deferred assets, credits and other liabilities, the provision for loan losses and losses on foreclosed assets, depreciation, sale of foreclosed assets and the amortization of deferred loan origination fees and discounts (premiums) on loans and investments, all of which are non-cash or non-operating adjustments to operating cash flows. As a result, net income, adjusted for non-cash and non-operating items, was the primary source of cash flows from operating activities. Operating activities provided cash flows of $7.6 million in cash during each of the nine months ended March 31, 1997 and 1996. During the nine months ended March 31, 1997 and 1996, investing activities used cash of $28.3 million and $29.6 million, respectively, primarily due to the net increase of loans in both periods and purchases of held-to-maturity investments in the March 31, 1996 period. Changes in cash flows from financing activities of the periods covered by the Statements of Cash Flows are due to changes in deposits after interest credited, changes in FHLBank advances and changes in short-term borrowings as well as purchases of treasury stock and dividend payments to stockholders. Financing activities provided $3.2 million and $28.5 million, respectively, in cash during the nine months ended March 31, 1997 and 1996. Financing activities in the future are expected to primarily include changes in deposits, changes in FHLBank advances, changes in short-term borrowings and changes in treasury stock. DIVIDENDS During the nine months ended March 31, 1997 and 1996, respectively, the Company declared and paid dividends of $0.2875 and $0.2625 per share. The Board of Directors meets regularly to consider the level and the timing of dividend payments. 26 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Registrant and its subsidiaries are involved as plaintiff or defendant in various legal actions arising in the normal course of their business. While the ultimate outcome of the various legal proceedings involving the Registrant and its subsidiaries cannot be predicted with certainty, it is the opinion of management, after consultation with legal counsel, that these legal actions currently are not material to the Registrant. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to Vote of Common Stockholders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a) Exhibits See the attached exhibit 11, Statement re computation of earnings per share. See the attached exhibit 27, Financial Data Schedule. b) Reports on Form 8-K None. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Great Southern Bancorp, Inc. Registrant Date: May 13, 1997 /s/ William V. Turner -------------------------- William V. Turner Chairman of the Board, President and Chief Executive Officer Date: May 13 1997 /s/ Don M. Gibson -------------------------- Don M. Gibson, Executive Vice President and Chief Financial Officer 28 Exhibit Index ------------- Exhibit No. Description - ------- ----------- 11 Statement Re Computation of Earnings Per Share 27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only and not filed. 29
Exhibit 11- Statement Re Computation of Earnings Per Share Three Months Ended Six Months Ended March 31, March 31, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Primary: Average shares outstanding 8,312,650 8,901,624 8,476,188 8,834,876 Net effect of dilutive stock options - based on the treasury stock method using average market price 104,001 272,696 93,518 263,908 --------- --------- --------- --------- Primary shares 8,416,651 9,174,320 8,569,706 9,098,784 ========= ========= ========= ========= Net income $2,909,249 $3,220,413 $6,310,281 $8,583,029 ========= ========= ========= ========= Per share amount $0.35 $0.35 $0.74 $0.95 ==== ==== ==== ==== Fully diluted: Average shares outstanding 8,312,650 8,901,624 8,476,188 8,834,876 Net effect of dilutive stock options - based on the treasury stock method using average market price 104,676 275,992 104,676 275,992 --------- --------- --------- --------- Primary shares 8,417,326 9,177,616 8,580,864 9,110,868 ========= ========= ========= ========= Net income $2,909,249 $3,220,413 $6,310,281 $8,583,029 ========= ========= ========= ========= Per share amount $0.35 $0.35 $0.74 $0.94 ==== ==== ==== ====
EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the Consolidated Balance Sheet and the Consolidated Statement of Income filed as part of the quarterly report on Form 10-Q and is qualified in its entirety by reference to such quarterly report on Form 10-Q. 1,000
9-MOS JUN-30-1997 MAR-31-1997 6,794 5,273 0 0 6,455 48,794 48,587 579,070 15,466 679,153 462,894 115,305 5,637 34,418 0 0 123 60,776 679,153 38,265 2,926 193 41,385 13,062 21,385 19,999 1,287 40 15,797 10,513 10,513 0 0 6,310 .74 .74 4.20 7,849 0 0 12,490 14,356 243 66 15,466 15,466 0 0
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