-----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, FbHlS7b+gH2cj2wFgW8R8dLW9KmxF7iO9A/fvtLWwJw9zTiRVuBHO7YAL4+CPXd1 yRbdNjWtSiICWSDj/MF5eA== 0000854560-98-000007.txt : 19980218 0000854560-98-000007.hdr.sgml : 19980218 ACCESSION NUMBER: 0000854560-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 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: SEC FILE NUMBER: 000-18082 FILM NUMBER: 98540946 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 December 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: 8,047,863 shares of common stock, par value $.01, outstanding at February 10, 1998. - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
December 31, June 30, 1997 1997 ------------- ------------ ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,559,610 $ 8,176,763 Interest-bearing deposits in other financial institutions. . . . . . . . . 26,599,274 24,308,337 ----------- ----------- Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 39,158,884 32,485,100 Available for sale securities. . . . . . . . . . . . . . . . . . . . . . . 6,256,469 7,408,020 Held to maturity securities (fair value $48,622,000 - December 1997; $49,859,000 - June 1997) . . . . . . . . . . . . . . . . . . . . . . . . 48,258,097 49,756,978 Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 622,848,664 583,709,446 Foreclosed assets held for sale, net . . . . . . . . . . . . . . . . . . . 3,574,326 5,650,962 Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 8,404,757 7,433,073 Accrued interest receivable Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,118,048 4,225,771 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 801,574 767,541 Investment in FHLBank Stock. . . . . . . . . . . . . . . . . . . . . . . . 10,792,600 10,792,600 Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . 3,272,487 2,982,653 Excess cost over fair value of net assets acquired . . . . . . . . . . . . 531,875 0 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,440,295 2,629,140 ------------ ------------ Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $750,458,076 $707,841,284 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $464,429,868 $459,235,746 Federal Home Loan Bank advances. . . . . . . . . . . . . . . . . . . . . . 186,363,306 151,881,100 Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 30,430,934 28,744,191 Advances from borrowers for taxes and insurance. . . . . . . . . . . . . . 927,626 2,488,397 Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . 2,857,507 1,873,824 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (167,556) 3,269,659 ------------ ------------ Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 684,841,685 647,492,917 ------------ ------------ Capital stock Serial preferred stock, $.01 par value; authorized 1,000,000 shares Common stock, $.01 par value; authorized 20,000,000 shares; issued 12,325,002 shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 123,250 123,250 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 17,083,381 17,058,326 Retained earnings (substantially restricted) . . . . . . . . . . . . . . . 79,761,120 73,980,259 Unrealized appreciation on available-for-sale securities, net of income taxes of $1,009,705 - December 1997 and $870,860 - June 1997. . . 1,579,282 1,362,116 Treasury stock, at cost; 4,258,861 shares - December 1997; 4,219,881 shares - June 1997 . . . . . . . . . . . . . . . . . . . . . . (32,930,642) (32,175,584) ------------ ------------ Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . 65,616,391 60,348,367 ------------ ------------ Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . $750,458,076 $707,841,284 ============ ============ See Notes to Consolidated Financial Statements
3 GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 ----------- ----------- ---------- ----------- INTEREST INCOME Loans $13,991,641 $12,690,402 $27,878,190 $25,315,397 Investment Securities 967,121 985,609 1,954,956 1,995,050 Other 148,568 61,718 207,880 132,673 ---------- ---------- ---------- ---------- TOTAL INTEREST INCOME 15,107,330 13,737,729 30,041,026 27,443,120 ---------- ---------- ---------- ---------- INTEREST EXPENSE Deposits 5,214,480 4,038,517 10,394,603 8,241,868 FHLBank advances 2,390,353 2,891,283 4,675,844 5,554,104 Short-term borrowings 281,674 175,733 530,448 320,756 ---------- ---------- ---------- ---------- TOTAL INTEREST EXPENSE 7,886,507 7,105,533 15,600,895 14,116,728 ---------- ---------- ---------- ---------- NET INTEREST INCOME 7,220,823 6,632,196 14,440,131 13,326,392 PROVISION FOR LOAN LOSSES 435,754 448,892 852,382 859,485 ---------- ----------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,785,069 6,183,304 13,587,749 12,466,907 ---------- ---------- ---------- ---------- NON-INTEREST INCOME Commissions 1,387,419 1,398,467 2,585,633 2,581,675 Service charge fees 912,352 720,408 1,753,255 1,330,559 Net realized gains on sales of loans and available-for-sale securities 675,754 132,004 1,332,994 397,117 Income (expense) on foreclosed assets 298,748 (11,575) 383,092 316,436 Other income 522,023 330,615 778,129 664,703 ---------- ---------- ---------- ---------- TOTAL NON-INTEREST INCOME 3,796,296 2,569,919 6,833,103 5,290,490 ---------- ---------- ---------- ---------- NON-INTEREST EXPENSE Salaries and employee benefits 2,635,380 2,163,103 5,227,302 4,525,044 Net occupancy expense 698,684 544,719 1,349,235 1,106,582 Tax consulting fees -- -- 439,157 -- Postage 206,145 159,689 392,434 305,261 Insurance 173,625 328,899 351,626 3,143,637 Amortization of goodwill -- 10,000 -- 1,106,961 Advertising 222,767 159,941 294,672 272,735 Office supplies and printing 165,658 109,520 322,987 236,656 Other operating expenses 783,133 568,526 1,505,691 1,072,745 ---------- ---------- ---------- ---------- TOTAL NON-INTEREST EXPENSE 4,885,392 4,044,397 9,883,104 11,769,621 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 5,695,973 4,708,826 10,537,748 5,987,776 PROVISION FOR INCOME TAXES 2,076,200 1,801,091 3,057,700 2,586,744 ---------- ---------- ---------- ---------- NET INCOME $ 3,619,773 $ 2,907,735 $ 7,480,048 $ 3,401,032 ========== ========== ========== ========== BASIC EARNINGS PER COMMON SHARE $.45 $.35 $.93 $.40 === === === === DILUTED EARNINGS PER COMMON SHARE $.44 $.34 $.91 $.38 === === === === See Notes to Consolidated Financial Statements
4 GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED DECEMBER 31, 1997 1996 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 7,480,048 $ 3,401,032 Items not requiring (providing) cash: Depreciation 550,001 433,432 Amortization -- 1,101,961 Provision for loan losses 852,382 859,485 Net realized gains on sale of loans (456,860) (253,149) (Gain)/loss on sale of premises and equipment (80,272) (847) Gain on sale of foreclosed assets (529,338) (440,211) Amortization of deferred income, premiums and discounts (348,237) (397,983) Net realized gains on sale of available-for-sale securities (872,920) (143,968) Deferred income taxes 50,000 (110,000) Changes in: Accrued interest receivable 73,690 501,719 Prepaid expenses and other assets (289,834) (717,911) Accounts payable and accrued expenses 983,683 253,290 Income taxes payable (3,414,636) 322,473 ----------- ----------- Net cash provided by operating activities 3,997,707 4,809,323 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans (37,232,199) (13,741,205) Purchase of additional business units (546,875) -- Purchase of premises and equipment (1,627,421) (293,521) Proceeds from sale of premises and equipment 201,008 1,100 Proceeds from sale of foreclosed assets 702,636 562,514 Capitalized costs on foreclosed assets (34,977) (194,662) Proceeds from sale of available-for-sale securities 2,380,482 1,066,219 Proceeds from maturing held-to-maturity securities 4,250,000 18,054,030 Purchase of held-to-maturity securities (2,767,108) (18,436,037) Purchase of available-for-sale securities -- (1,460,155) Purchase of FHLBank stock -- (769,800) ----------- ----------- Net cash used in investing activities (34,674,454) (15,211,517) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in certificates of deposit (6,018,484) (11,310,473) Net increase (decrease) in checking and savings 11,2122,606 (6,256,262) Proceeds from FHLBank advances 445,426,866 271,987,468 Repayments of FHLBank advances (410,944,660) (245,006,122) Net increase in short-term borrowings 1,686,743 451,685 Advances from borrowers for taxes and insurance (1,560,771) (1,489,005) Purchase of treasury stock (755,058) (10,015,405) Dividends paid (1,699,187) (1,586,889) Stock options exercised 2,476 89,971 ----------- ----------- Net cash provided by (used in) financing activities 37,350,531 (3,135,032) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,673,784 (13,537,226) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 32,485,100 29,615,027 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 39,158,884 $ 16,077,801 =========== =========== 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 months and six months ended December 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, 1997. 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, 1997 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 various types of 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. 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. 7 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 Bank met these requirements for fiscal year June 30, 1997. The amount of post 1987 recapture for the Bank is estimated at $5 million which would create income taxes of approximately $2 million, or $400,000 per year for each of the five years remaining in the recapture period. 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. Beginning with the fiscal year ending June 30, 1997, the Bank is 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 will be required to include the net recoveries in taxable income. 8 YEAR 2000 COMPUTER PROGRAM PROBLEMS A large amount of information has been distributed concerning the potential computer and equipment crash that may occur in the year 2000. Many computers, computer programs and other technology items that only distinguish the year by the last two digits instead of all four digits are expected to read the year 2000 as the year 1900. This is expected to potentially produce catastrophic errors. The Company, like most other companies and financial institutions, relies on timely, accurate, efficient data processing for every area of its operations. Any problems which might occur due to the year 2000 concern could be detrimental to the operations and financial stability of the Company. The Board of Directors of the Bank adopted a Year 2000 Compliance Policy which mandates to senior management and all employees, full compliance with the time frames dictated by sound business practice and the Federal Financial Institutions Examination Council. The Bank's Year 2000 Compliance Project is an ongoing process and the Bank expects to be in compliance by December 31, 1998. The first stage of the Compliance process for the Bank was an internal risk assessment performed by the Information Systems Steering Committee along with major vendors and consultants. The Risk Assessment revealed the need to replace the Bank's mainframe operating system and to replace the majority of the online terminals, which are desktop computers. The desktop systems have been purchased and will be installed in phases, with the final phase to be completed by July 31, 1998. The Bank has experienced sizeable growth in recent years which, independent of the year 2000 issue, has created the need to upgrade the core mainframe hardware and software systems to handle the increased growth. The Year 2000 Committee and management are currently receiving proposals and attending presentations of core mainframe hardware and software systems. One of the main items included in each proposal is written certification of compliance with the year 2000 issue. The time table for the core mainframe system is to select, financially commit and begin conversion to the system during the March 1998 quarter with completion of the conversion process during the December 1998 quarter. The exact impact of the cost to convert to a new core mainframe system and to upgrade the desktop computers and other equipment is not known at this time. However management does not feel it will have a material impact on the financial condition of the Company. The insurance, investment and travel subsidiaries operate on separate computer systems from the Bank and each other. The Year 2000 Committee of the Bank will be assisting these companies in performing a Risk Assessment of their systems and taking the steps necessary to ensure compliance with all year 2000 issues before December 31, 1999. 9 RECENT CHANGES IN ACCOUNTING PRINCIPLES In March 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share. It requires dual presentation of basic and diluted earnings per share by entities with complex capital structures and requires a reconciliation of the numerators and denominators between the two calculations. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company adopted SFAS 128 at December 31, 1997. The adoption of SFAS 128 did not have a material effect on the financial statements of the Company. ASSET AND LIABILITY MANAGEMENT During the six months ended December 31, 1997, the Company experienced an increase of $43 million in its total assets. While there were changes in various asset categories, the main area of change was an increase in net loans of $39 million. The following loan categories experienced net increases as noted: Commercial real estate and construction loans $30 million Commercial business loans 17 million Consumer (primarily automobile and student) loans 8 million The following loan categories experienced net decreases as noted: Single-family residential and construction loans $8 million Other residential and construction loans 7 million Total liabilities increased $37 million during the six months ended December 31, 1997, primarily from an increase in FHLBank advances of $34 million. Overall deposits increased $5 million during the six months. Netted in this deposit increase was a decline in brokered deposits of $8 million. The increase in FHLBank advances and decline in brokered deposits was due to the more favorable rates on advances versus brokered deposits during the latter part of the six month period. Stockholders' equity increased $5.3 million primarily as a result of net income of $7.5 million offset by dividend declarations and payments of $1.7 million and net treasury stock purchases of $750,000. The Company repurchased 16,285 shares of common stock at an average price of $21.01 per share during the six months ended December 31, 1997 and issued 2,014 shares at an average price of $10.94 per share for exercised stock options. 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 Six Months Ended December 31, 1997 and 1996" and in management's discussion and analysis in the June 30, 1997 Form 10-K. The Company's one-year interest rate sensitivity gap, as a percentage of total interest-earning assets was a positive $91 million, or 12.4%, at December 31, 1997, as compared to a positive $48 million, or 6.9%, at June 30, 1997. The increase of $43 million resulted primarily from: (i) an $18 million increase in commercial real estate commercial business and consumer loans; (ii) a $12 million increase in investment securities due to a shifting of maturities from the 1 to 2 years category into the 1 year or less category; (iii) a $20 million decrease in time deposits, with the majority being brokered deposits and in the 1 year or less category; offset by (iv) a $7 million increase in interest-bearing demand deposits due to the Company's recent growth in these customer accounts. 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 increased 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 achieve the desired growth 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.
December 31, June 30, 1997 1997 ------------- --------- (000'S OMITTED) Residential real estate loans $249,661 262,123 Construction loans 7,138 5,908 Commercial real estate loans 217,953 206,020 Commercial business loans 39,209 25,557 Consumer loans 26,546 22,549 Investment securities and other 72,274 60,628 ------- ------- Total interest rate sensitive assets repricing within one year 612,781 582,785 ------- ------- Interest-bearing demand deposits 122,029 115,299 Savings deposits 34,688 35,065 Time deposits 220,062 240,643 FHLBank advances 114,716 117,659 Other borrowings and liabilities 30,431 26,338 ------- ------- Total interest rate sensitive liabilities repricing within one year 521,926 535,004 ------- ------- One year interest rate sensitivity gap (1) $90,855 $ 47,781 ======= ======= Interest rate sensitive assets/interest rate sensitive liabilities 148.3% 108.9% ===== ===== One year interest rate sensitivity gap as a percent of interest-earning assets 12.4% 6.9% ==== === ___________________________________________ (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 December 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 real estate loans $165,066 $ 84,595 $ 55,036 $ 3,519 $22,840 $331,056 Construction loans 7,138 -- -- -- -- 7,138 Commercial real estate loans 217,222 731 5,039 2,975 2,505 228,472 Commercial business loans 39,103 106 181 49 -- 39,439 Consumer loans 24,160 2,386 6,745 2,543 150 35,984 Investment securities and other 57,907 14,367 19,632 -- -- 91,906 ------- ------- ------- ------ ------ ------- Total interest-earning assets 510,596 102,185 86,633 9,086 25,495 733,995 ------- ------- ------- ------ ------ ------- Interest-bearing demand deposits 122,029 -- -- -- -- 122,029 Savings deposits 34,688 -- -- -- -- 34,688 Time deposit 169,432 50,630 55,263 8,129 3,067 286,521 FHLBank advances 100,148 14,568 42,905 11,484 17,258 186,363 Other borrowings and liabilities 30,431 -- -- -- -- 30,431 ------- ------- ------- ------ ------ ------- Total interest-bearing liabilities 456,728 65,198 98,168 19,613 20,325 660,032 ------- ------- ------- ------ ------ ------- Interest-earning assets less interest-bearing liabilities $ 53,868 $ 36,987 $(11,535) $(10,527) $ 5,170 $ 73,963 ======= ======= ======= ====== ====== ======= Cumulative interest rate sensitivity gap $ 53,868 $ 90,855 $79,320 $ 68,793 $73,963 ======= ======= ====== ====== ====== Cumulative interest rate sensitivity gap as a percent of interest-earning assets at December 30, 1997 7.3% 12.4% 10.8% 9.4% 10.1% === ==== ==== === ==== Cumulative interest rate sensitivity gap as a percent of interest-earning assets at June 30, 1997 0.1% 6.9% 10.1% 9.6% 10.5% === === ==== === ==== The assumptions used in the above two tables are: -- Prepayment rates are derived from market prepayment rates observed on or about December 31, 1997. -- 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 SIX MONTHS ENDED DECEMBER 31, 1997 and 1996 The increase in earnings of $712,000, or 24.5%, for the three months ended December 31, 1997 when compared to the same period in 1996, was primarily due to an increase in non-interest income of $1.2 million, or 47.7%, and an increase in net interest income of $589,000, or 8.9%, offset by an increase in non-interest expense of $841,000, or 20.8%, and an increase in provision for income taxes of $275,000, or 15.3%, during the three month period. The increase in earnings of $4.1 million, or 119.9%, for the six months ended December 31, 1997 when compared to the same period in 1996, was primarily due to an increase in non-interest income of $1.5 million, or 29.2%, an increase in net interest income of $1.1 million, or 8.4%, and a decrease in non-interest expense of $1.9 million, or 16.0%, offset by an increase in provision for income taxes of $471,000, or 18.2%, during the six month period. Total Interest Income Total interest income increased $1.4 million, or 10.0%, during the three months ended December 31, 1997, when compared to the three months ended December 31, 1996. The increase was primarily due to a $1.3 million, or 10.3%, increase in interest income on loans. Total interest income increased $2.6 million, or 9.5%, during the six months ended December 31, 1997, when compared to the six months ended December 31, 1996. The increase was primarily due to a $2.6 million, or 10.1%, increase in interest income on loans. Interest Income - Loans During the three months ended December 31, 1997, interest income on loans increased primarily from higher average balances. Interest income increased $1.1 million as the result of higher average loan balances from $555 million during the three months ended December 31, 1996 to $611 million during the three months ended December 31, 1997. Interest income increased $255,000 during the three months ended December 31, 1997 as the result of the receipt of interest on a commercial real estate loan with a zero principal balance that is being accounted for on a cash basis. The average yield on loans remained basically unchanged at 9.15% during the three months ended December 31 1996, and at 9.16% during the three months ended December 31, 1997. 15 During the six months ended December 31, 1997, interest income on loans increased from higher average balances combined with slightly higher average yields. Interest income increased $2.2 million as the result of higher average loan balances from $551 million during the six months ended December 31, 1996 to $602 million during the six months ended December 31, 1997. Interest income increased $255,000 during the six months ended December 31, 1997 as the result of the receipt of interest on a commercial real estate loan with a zero principal balance that is being accounted for on a cash basis. The average yield on loans increased slightly from 9.20% during the six months ended December 31 1996, to 9.26% during the six months ended December 31, 1997. Interest Income - Investments and Other Interest-Bearing Deposits Since the Company derives the majority of its interest income from loans, the net increase in interest income on investments and interest-bearing deposits during the three and six months ended December 31, 1997 of $69,000 and $35,000, respectively, when compared to the three and six months ended December 31, 1996, was not material. Total Interest Expense Total interest expense increased $781,000, or 11.0%, during the three months ended December 31, 1997 when compared with the same period in 1996. The increase during the three month period was primarily due to a $1.2 million, or 29.1%, increase in interest expense on deposits, offset by a $395,000, or 12.9%, decrease in interest expense on FHLBank advances and other borrowings. Total interest expense increased $1.5 million, or 10.5%, during the six months ended December 31, 1997 when compared with the same period in 1996. The increase during the six month period was primarily due to a $2.2 million, or 26.1%, increase in interest expense on deposits, offset by a $878,000, or 15.8%, decrease in interest expense on FHLBank advances and other borrowings. Interest Expense - Deposits Interest expense on deposits increased $1.1 million as a result of higher average balances of time deposits from $228 million during the three months ended December 31, 1996, to $307 million during the three months ended December 31, 1997. The average balances increased as a result of the Company's use of brokered deposits to fund loan growth . Time deposits experienced only minor increases due to higher rates and the other deposit areas experienced only minor increases or decreases due to rates and or balances. 16 Interest expense on deposits increased $2.1 million as a result of higher average balances of time deposits from $232 million during the six months ended December 31, 1996, to $306 million during the six months ended December 31, 1997. The average balances increased as a result of the Company's use of brokered deposits to fund loan growth . Time deposits experienced only minor increases due to higher rates and the other deposit areas experienced only minor increases or decreases due to rates and or balances. Interest Expense - FHLBank and Other Borrowings Interest expense on FHLBank advances and other borrowings decreased $371,000 due to lower average balances from $206 million in the three months ended December 31, 1996 to $181 million in the three months ended December 31, 1997. Average rates were only slightly higher during the three months ended December 31, 1996 at 5.94% compared to 5.90% during the three months ended December 31, 1997. The average balances decreased as a result of the Company's use of brokered deposits to fund a portion of the loan growth and reduced short term FHLBank advances. Interest expense on FHLBank advances and other borrowings decreased $676,000 due to lower average balances from $199 million in the six months ended December 31, 1996 to $176 million in the six months ended December 31, 1997. Average rates during both six month periods were 5.92%. The average balances decreased as a result of the Company's use of brokered deposits to fund a portion of the loan growth and reduced short term FHLBank advances. Net Interest Income The Company's overall interest rate spread decreased 9 basis points, or 2.4%, from 3.79% during the three months ended December 31, 1996, to 3.70% during the three months ended December 31, 1997. The decrease was primarily due to a decrease in the weighted average yields received on interest-earning assets. The Company's overall interest rate spread decreased 5 basis points, or 1.3%, from 3.83% during the six months ended December 31, 1996, to 3.78% during the six months ended December 31, 1997. The decrease was primarily due to a decrease in the weighted average yields received on interest-earning assets combined with a slight increase in the weighted average rate paid on interest-bearing liabilities. 17 Provision for Loan Losses The provision for loan losses decreased slightly from $449,000 during the three months ended December 31, 1996 to $436,000 during the three months ended December 31, 1997. The provision for loan losses decreased slightly from $859,000 during the six months ended December 31, 1996 to $852,000 during the six months ended December 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 slightly during the six months ended December 31, 1997 from $13.9 million at June 30, 1997 to $13.8 million at December 31, 1997. Non-performing loans increased $2.3 million, or 29.2%, from $7.9 million at June 30, 1997 to $10.2 million at December 31, 1997, and foreclosed assets declined $2.4 million from $6 million at June 30, 1997 to $3.6 million at December 31, 1997. Potential problem loans increased $1.9 million during the six months ended December 31, 1997 from $7.1 million at June 30, 1997 to $9 million at December 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 allowance for loan losses at December 31, 1997 and June 30, 1997, respectively, totaled $15.8 million and $15.5 million, representing 2.5% and 2.7% of total loans, 155% and 197% of non- performing loans, and 82% and 103% of non-performing loans and potential problem loans in total. The allowance for foreclosed asset losses totaled $65,000 at December 31, 1997 and $319,000 at June 30, 1997, representing 1.8% and 5.3%, respectively, 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. 18 Non-interest Income Non-interest income increased $1.2 million, or 47.7%, in the three months ended December 31, 1997 when compared to the same period in 1996. The increase was primarily due to: (i) an increase of $452,000 in profits on sale of available-for-sale securities; (ii) an increase in income on foreclosed assets of $310,000 due to larger recoveries in the current year period; (iii) an increase in service charge income of $192,000, or 27%, on transaction accounts and electronic transactions from increased volumes; and (iv) various increases and decreases in other non-interest income items. Non-interest income increased $1.5 million, or 29.2%, in the six months ended December 31, 1997 when compared to the same period in 1996. The increase was primarily due to: (i) an increase of $729,000 in profits on sale of available-for-sale securities; (ii) an increase in service charge income of $423,000, or 32%, on transaction accounts and electronic transactions from increased volumes; and (iii) various increases and decreases in other non-interest income items. Non-interest Expense Non-interest expense increased $841,000, or 21%, in the three months ended December 31, 1997 when compared to the same period in 1996. The increase was primarily due to: (i) an increase of $472,000 in salary and employee related costs due to increased staffing levels resulting from asset and customer growth and expanded consumer lending department; (ii) an increase of $154,000 in occupancy and equipment expense due to expansion of the Company's ATM network and other technology related purchases; and (iii) increases in the majority of other non-interest expense items resulting from asset and earnings growth; offset by (iv) a decrease of $155,000 in insurance due to the reduction in the ongoing SAIF assessments each quarter as a result of the one-time assessment discussed previously. Non-interest expense decreased $1.9 million, or 16%, in the six months ended December 31, 1997 when compared to the same period in 1996. The decrease was primarily due to: (i) a decrease in insurance of $2.6 million due to the accrual in the September 30, 1996 quarter of the one-time SAIF assessment discussed previously; (ii) a decrease in goodwill amortization of $1.1 million due to the write-off in the September 30, 1996 quarter of goodwill remaining from a 1982 failed thrift purchase; (iii) an increase of $440,000 in tax consulting fees paid as the result of a recovery of $1.1 million of state financial institution taxes; (iv) an increase of $702,000 in salaries and employee related costs due to increased staffing levels resulting from asset and customer growth and expanded consumer lending department; (v) an increase of $243,000 in occupancy and equipment expense due to expansion of the Company's ATM network and other technology related purchases (vi) increases in the majority of other non-interest expense items resulting from asset and earnings growth. 19 In conjunction with the Company's recent growth and the year 2000 issue discussed previously in this document, the Company will be incurring additional operating costs associated with the evaluation, purchase, implementation and operation of new mainframe hardware and software as well as other replacement computer and equipment items. In addition, it is probable that the insurance, investment and travel subsidiaries will incur costs in the evaluation, purchase, implementation and operation of their systems to bring them into compliance to avoid potential year 2000 issues. While the exact impact of the cost to correct or convert the various systems of the Company is not known at this time, management does not feel it will be material to the overall operations or financial condition of the Company. Provision for Income Taxes Provision for income taxes as a percentage of pre-tax income decreased from 38.2% in the three months ended December 31, 1996 to 36.4% in the three months ended December 31, 1997 due to tax credits and other estimation items. Provision for income taxes as a percentage of pre-tax income decreased from 43.2% in the six months ended December 31, 1996 to 29% in the six months ended December 31, 1997. The larger than normal percentage in the December 31, 1996 period was due to the non- deductible goodwill write-off in that period. The small percentage in the December 31, 1997 period was due to a refund of prior period state financial institution taxes of $1.1 million. The refund was the result of a review of the Bank's state financial institution tax returns by a consulting firm. The refund resulted from the Bank's charter change from a state charter to a federal savings bank charter in December 1994. 20 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 December 31, --------------------------------------------------------- 1997 1996 --------------------------- -------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate -------- -------- ------ -------- -------- ------ (Dollars in thousands) Interest-earning assets: Loans receivable $610,976 $13,991 9.16% $554,751 $12,690 9.15% Investment securities and other interest-earning assets 92,817 1,116 4.81 77,829 1,048 5.39 ------- ------ ---- ------- ------- ---- Total interest-earning assets $703,793 15,107 8.59 $632,580 13,738 8.69 ======= ------ ---- ======= ------ ---- Interest-bearing liabilities: Demand deposits $121,970 696 2.28 $109,820 676 2.46 Savings deposits 35,083 218 2.49 35,459 221 2.49 Time deposits 307,020 4,300 5.60 228,235 3,142 5.51 ------- ----- ---- ------- ----- ---- Total deposits 464,073 5,214 4.49 373,514 4,039 4.33 FHLBank advances and other borrowings 181,267 2,672 5.90 206,404 3,067 5.94 ------- ----- ---- ------- ----- ---- Total interest-bearing liabilities $645,340 7,886 4.89 $579,918 7,106 4.90 ======= ----- ---- ======= ----- ---- Net interest income: Interest rate spread $7,221 3.70% $6,632 3.79% ===== ==== ===== ==== Net interest margin(1) 4.10% 4.19% ==== ==== Average interest-earning assets to average interest-bearing liabilities 109.1% 109.1% ===== ===== (1) Defined as the Company's net interest income divided by total interest-earning assets.
21
Six Months Ended December 31, --------------------------------------------------------- 1997 1996 --------------------------- -------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate -------- -------- ------ -------- -------- ------ (Dollars in thousands) Interest-earning assets: Loans receivable $602,109 $27,878 9.26% $550,557 $25,315 9.20% Investment securities and other interest-earning assets 89,449 2,163 4.84 78,254 2,128 5.44 ------- ------ ---- ------- ------- ---- Total interest-earning assets $691,558 30,041 8.69 $628,811 27,443 8.73 ======= ------ ---- ======= ------ ---- Interest-bearing liabilities: Demand deposits $119,135 1,386 2.33 $110,043 1,364 2.48 Savings deposits 35,099 435 2.48 36,039 446 2.48 Time deposits 305,501 8,574 5.61 232,263 6,432 5.54 ------- ------ ---- ------- ------ ---- Total deposits 459,735 10,395 4.52 378,345 8,242 4.36 FHLBank advances and other borrowings 175,761 5,206 5.92 198,567 5,875 5.92 ------- ------ ---- ------- ------ ---- Total interest-bearing liabilities $635,496 15,601 4.91 $576,912 14,117 4.89 ======= ------ ---- ======= ------ ---- Net interest income: Interest rate spread $14,440 3.78% $13,326 3.83% ====== ==== ====== ==== Net interest margin(1) 4.18% 4.24% ==== ==== Average interest-earning assets to average interest-bearing liabilities 108.8% 109.0% ===== ===== (1) Defined as the Company's net interest income divided by total interest-earning assets.
22 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 December 31, Six Months Ended December 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 $ 13 $1,288 $1,301 $ 177 $2,386 $2,563 Investment securities and other interest-earning assets (85) 153 68 (120) 155 35 --- ----- ----- --- ----- ----- Total interest-earning assets (72) 1,441 1,369 57 2,541 2,598 --- ----- ----- --- ----- ----- Interest-bearing liabilities: Demand deposits (39) 59 20 (64) 86 22 Savings deposits (1) (2) (3) 1 (12) (11) Time deposits 55 1,103 1,158 88 2,054 2,142 --- ----- ----- --- ----- ----- Total deposits 15 1,160 1,175 25 2,128 2,153 FHLBank advances and other borrowings (24) (371) (395) 7 (676) (669) --- ----- ----- --- ----- ----- Total interest-bearing liabilities (9) 789 780 32 1,452 1,484 --- ----- ----- --- ----- ----- Net interest income $ (63) $ 652 $ 589 $ 25 $1,089 $1,114 === ===== ===== === ===== =====
23 LIQUIDITY AND CAPITAL RESOURCES General The Company's capital position remained strong, with stockholders' equity at $65.6 million, or 8.7% of total assets of $750 million at December 31, 1997 compared to equity at $60.3 million, or 8.5%, of total assets of $708 million at June 30, 1997. In addition, the Bank exceeds each of the regulatory capital requirements. At December 31, 1997, the Bank had ratios of tangible and core capital to assets of 7.5% and risk-based capital of 11.2%. 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 December 31, 1997, the Bank's liquidity ratio was 7.6%, compared to 7.4% at June 30, 1997. 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 December 31, 1997, the Company had commitments of approximately $87 million to fund loan originations, issued lines of credit, outstanding letters of credit and unadvanced loans. At December 31, 1997, the investment securities held to maturity included $382,000 of gross unrealized gains and $18,000 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. 24 STATEMENT OF CASH FLOWS During the six months ended December 31, 1997, the Company experienced positive cash flows from operating activities and financing activities, and negative cash flows from investing activities. During the six months ended December 31, 1996, the Company experienced positive cash flows from operating activities, and negative cash flows from investing activities and financing activities. 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 $4 million and $4.8 million, respectively, during the six months ended December 31, 1997 and 1996. During the six months ended December 31, 1997 and 1996, investing activities used cash of $35 million and $15.2 million, respectively, primarily due to the net increase of loans in both periods. 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 $37.4 million in cash during the six months ended December 31, 1997 and used $3.1 million in cash during the six months ended December 31, 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 six months ended December 31, 1997 and 1996, respectively, the Company declared and paid dividends of $0.22 and $0.20 per share. The Board of Directors meets regularly to consider the level and the timing of dividend payments. 25 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 On December 9, 1997, the Registrant filed a Form 8-K announcing the purchase by its travel agency subsidiary company of a travel agency in Joplin, MO. 26 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: February 16, 1998 /s/ William V. Turner -------------------------- William V. Turner Chairman of the Board, President and Chief Executive Officer Date: February 16, 1998 /s/ Don M. Gibson -------------------------- Don M. Gibson, Executive Vice President and Chief Financial Officer 27 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. 28
Exhibit 11- Statement Re Computation of Earnings Per Share Three Months Ended Six Months Ended December 31, December 31, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Basic: Average shares outstanding 8,072,483 8,338,937 8,081,996 8,554,730 ========= ========= ========= ========= Net income $3,619,773 $2,907,735 $7,480,048 $3,401,032 ========= ========= ========= ========= Per share amount $0.45 $0.35 $0.93 $0.40 ==== ==== ==== ==== Diluted: Average shares outstanding 8,072,483 8,338,937 8,081,996 8,554,730 Net effect of dilutive stock options - based on the treasury stock method using average market price 143,082 315,227 143,082 315,227 --------- --------- --------- --------- Diluted shares 8,215,565 8,654,164 8,225,078 8,869,957 ========= ========= ========= ========= Net income $3,619,773 $2,907,735 $7,480,048 $3,401,032 ========= ========= ========= ========= Per share amount $0.44 $0.34 $0.91 $0.38 ==== ==== ==== ====
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
6-MOS JUN-30-1998 DEC-31-1997 12,560 26,599 0 0 6,256 48,258 48,622 622,849 15,838 750,458 464,430 145,144 3,618 71,650 0 0 123 65,493 750,458 27,878 1,955 208 30,041 10,395 15,601 14,440 852 873 9,883 10,538 10,538 0 0 7,480 .93 .91 4.18 10,201 0 0 9,072 15,524 636 98 15,838 15,838 0 0
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