-----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, ON/y4xXTUiPlkvUFf1XthoaYMew06YAAgpT0OTjHnsguHKSbWlLaFShKC+91mSIJ nswmjPV/U5z7RAJ0hjkiiw== 0000927089-00-000163.txt : 20000515 0000927089-00-000163.hdr.sgml : 20000515 ACCESSION NUMBER: 0000927089-00-000163 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18082 FILM NUMBER: 627793 BUSINESS ADDRESS: STREET 1: 1451 E BATTLEFIELD CITY: SPRINGFIELD STATE: MO ZIP: 65804 BUSINESS PHONE: 4178874400 MAIL ADDRESS: STREET 1: P O BOX 9009 STREET 2: P O BOX 9009 CITY: SPRINGFIELD STATE: MO ZIP: 65808-9009 10-Q 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, 2000 -------------------------- 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: 7,247,093 shares of common stock, par value $.01, outstanding at May 12, 2000. ================================================================================ 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31, 2000 1999 ------------- ------------ (Unaudited) ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,427,139 $ 42,355,901 Interest-bearing deposits in other financial institutions. . . . . . . . . 524,974 1,244,319 ----------- ----------- Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . 29,952,113 43,600,220 Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . 80,100,202 79,891,460 Held-to-maturity securities (fair value $37,147,900 - March 2000; $37,415,600 - December 1999) . . . . . . . . . . . . . . . . . . . . . . 37,507,915 37,645,500 Loans receivable, net of allowance for loan losses of $17,374,299 - March 2000; $17,293,320 - December 1999. . . . . . . . . . . . . . . . 783,635,456 766,806,940 Interest receivable: Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,178,166 4,971,646 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,379,371 882,848 Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . 4,127,642 4,027,242 Foreclosed assets held for sale, net . . . . . . . . . . . . . . . . . . . 1,890,002 817,118 Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 9,884,402 9,984,075 Investment in Federal Home Loan Bank Stock . . . . . . . . . . . . . . . . 11,226,600 10,981,000 Excess of cost over fair value of net assets acquired, at amortized cost . 368,642 403,569 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,983,014 4,791,784 ------------ ------------ Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $970,233,525 $964,803,402 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $657,687,403 $625,900,352 Federal Home Loan Bank advances. . . . . . . . . . . . . . . . . . . . . . 189,259,149 200,530,921 Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 35,028,310 53,594,090 Note payable to bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,500,000 7,517,025 Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . 4,699,950 5,832,253 Advances from borrowers for taxes and insurance. . . . . . . . . . . . . . 704,144 309,100 Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . 2,337,902 1,995,369 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,069,182 198,401 ------------ ------------ Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 903,286,040 895,877,511 ------------ ------------ 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 . . . . . . . . . . . . . . . . . . . . . . . . 17,499,538 17,487,433 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,033,443 100,310,493 Accumulated other comprehensive income: Unrealized depreciation on available-for-sale securities, net of income taxes of $321,201 at March 31, 2000 and $381,970 at December 31, 1999. . . . . . . . . . . . . . . . . . . . (735,264) (644,052) ------------ ------------ 119,920,967 117,277,124 Less treasury common stock, at cost; March 31, 2000 - 5,048,032 shares; December 31, 1999 - 4,835,890 shares . . . . . . . . . . . . . . . . . . (52,973,482) (48,351,233) ------------ ------------ Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . 66,947,485 68,925,891 ------------ ------------ Total Liabilities and Stockholders' Equity . . . . . . . . . . . . $970,233,525 $964,803,402 ============ ============
See Notes to Consolidated Financial Statements 3 GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED March 31, -------------------------- 2000 1999 ----------- ----------- (Unaudited) INTEREST INCOME Loans $17,376,734 $14,845,247 Investment securities and other 1,766,152 1,079,061 ---------- ---------- TOTAL INTEREST INCOME 19,142,886 15,924,308 ---------- ---------- INTEREST EXPENSE Deposits 7,010,604 5,804,474 Federal Home Loan Bank advances 3,012,628 2,114,813 Short-term borrowings 584,290 263,631 ---------- ---------- TOTAL INTEREST EXPENSE 10,607,522 8,182,918 ---------- ---------- NET INTEREST INCOME 8,535,364 7,741,390 PROVISION FOR LOAN LOSSES 475,600 576,410 ---------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,059,764 7,164,980 ---------- ---------- NON-INTEREST INCOME Commissions 1,716,486 1,759,509 Service charge and ATM fees 1,276,273 999,490 Net realized gains on sales of loans 119,841 455,585 Net realized gains on available-for-sale securities 130 219,596 Expense on foreclosed assets (10,782) (43,508) Other income 502,055 524,135 ---------- ---------- TOTAL NON-INTEREST INCOME 3,604,003 3,914,807 ---------- ---------- NON-INTEREST EXPENSE Salaries and employee benefits 3,466,690 3,264,513 Net occupancy and equipment expense 899,542 1,053,455 Postage 267,588 270,611 Insurance 152,058 173,717 Amortization of goodwill 39,927 34,927 Advertising 132,544 110,242 Office supplies and printing 188,203 286,603 Other operating expenses 950,444 817,012 ---------- ---------- TOTAL NON-INTEREST EXPENSE 6,096,996 6,011,080 ---------- ---------- INCOME BEFORE INCOME TAXES 5,566,771 5,068,707 PROVISION FOR INCOME TAXES 1,907,965 1,622,000 ---------- ---------- NET INCOME $ 3,658,806 $ 3,446,707 ========== ========== BASIC EARNINGS PER COMMON SHARE $.50 $.44 === === DILUTED EARNINGS PER COMMON SHARE $.48 $.44 === ===
See Notes to Consolidated Financial Statements 4 GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, -------------------------------- 2000 1999 --------------- --------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 3,658,806 $ 3,446,707 Items not requiring (providing) cash: Depreciation 398,059 491,051 Amortization 34,927 34,927 Provision for loan losses 475,600 576,410 Gain on sale of loans (119,841) (455,585) Proceeds from sales of loans held for sale 2,476,275 19,749,839 Originations of loans held for sale (4,596,915) (19,749,146) Net realized (gains) losses on sale of available-for-sale securities (130) (6,284) Loss on sale of premises and equipment 4,688 -- Gain on sale of foreclosed assets (66,136) (27,737) Amortization of deferred income, premiums and discounts (656,603) (171,796) Deferred income taxes (133,401) (735,210) Changes in: Accrued interest receivable (703,043) (191,240) Prepaid expenses and other assets (100,401) 2,021,805 Accounts payable and accrued expenses (789,770) (1,094,732) Income taxes refundable/payable 1,870,781 861,853 ----------- ----------- Net cash provided by operating activities 1,752,896 4,750,862 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans (15,925,578) (19,226,230) Purchase of premises and equipment (305,609) (538,227) Proceeds from sale of premises and equipment 2,535 -- Proceeds from sale of foreclosed assets 163,399 165,000 Capitalized costs on foreclosed assets (16,281) 185 Proceeds from maturing held-to-maturity securities 139,682 24,319,600 Purchase of held-to-maturity securities -- (9,367,313) Proceeds from sale of available-for-sale securities 4,930 1,204,728 Purchase of available-for-sale securities -- (990,274) Purchase of Federal Home Loan Bank stock (245,600) (178,600) ----------- ----------- Net cash used in investing activities (16,182,522) (4,611,131) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in certificates of deposit 25,064,303 27,972,729 Net increase in checking and savings deposits 6,722,748 2,009,717 Proceeds from Federal Home Loan Bank advances 648,000,000 281,200,000 Repayments of Federal Home Loan Bank advances (659,271,772) (303,630,909) Net increase (decrease) in short-term borrowings (14,582,805) 3,467,646 Net increase (decrease) in advances from borrowers for taxes and insurance 395,044 (816,664) Purchase of treasury stock (4,933,544) (3,973,815) Dividends paid (935,856) (976,498) Stock options exercised 323,401 69,055 ----------- ----------- Net cash provided by financing activities 781,519 5,321,261 ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,648,107) 5,460,992 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 43,600,220 33,546,422 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,952,113 $ 39,007,414 =========== ===========
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. The financial statements presented herein reflect all adjustments which are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows of the Company for the periods presented. Those adjustments consist only of normal recurring adjustments. Operating results for the three months ended March 31, 2000 and 1999 are not necessarily indicative of the results that may be expected for the full year. The consolidated statement of financial condition of the Company as of December 31, 1999, has been derived from the audited consolidated statement of financial condition of the Company as of that date. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K annual report for 1999 filed with the Securities and Exchange Commission. NOTE 2: OPERATING SEGMENTS The Company's banking operation is its only reportable segment. The banking operation segment is principally engaged in the business of originating residential and commercial real estate loans, commercial business and consumer loans and funding these loans through the attraction of deposits from the general public, originating brokered deposits and borrowing from the Federal Home Loan Bank and others. The operating results of this segment are regularly reviewed by management to make decisions about resource allocations and to assess performance. The following table provides information about segment profits and segment assets and has been prepared using the same accounting policies as those described in Note 1. There are no material inter-segment revenues, thus no reconciliations to amounts reported in the consolidated financial statements are necessary. Revenue from segments below the reportable segment threshold is attributable to four operating segments of the Company. These segments include an insurance agency, a travel agency, discount brokerage services and real estate appraisal services. Three Months Ended March 31, 2000 ---------------------------------------- Banking All Other Totals ------------ ------------ ------------ Interest income $18,988,176 $ 154,710 $19,142,886 Non-interest income 1,855,429 1,748,574 3,604,003 Segment profit 3,358,045 300,761 3,658,806 6 Three Months Ended March 31, 1999 ---------------------------------------- Banking All Other Totals ------------ ------------ ------------ Interest income $15,890,644 $ 33,664 $15,924,308 Non-interest income 1,840,886 2,073,921 3,914,807 Segment profit 3,035,081 411,626 3,446,707 NOTE 3: COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", requires the reporting of comprehensive income and its components. Comprehensive income is defined as the change in equity from transactions and other events and circumstances from non-owner sources, and excludes investments by and distributions to owners. Comprehensive income includes net income and other items of comprehensive income meeting the above criteria. The Company's only component of other comprehensive income is the unrealized gains and losses on available for sale securities. Three Months Ended March 31, ---------------------------- 2000 1999 ------------- ------------- Net income $3,658,806 $3,446,707 --------- --------- Unrealized holding losses, net of income taxes (91,127) (190,905) Less: reclassification adjustment for gains included in net income, net of income taxes (85) (142,737) --------- --------- (91,212) (333,642) --------- --------- Other comprehensive income $3,567,594 $3,113,065 ========= ========= ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements When used in this Form 10-Q and in future filings by the Company with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result" "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans and deposits in the Company's market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ 7 materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake-and specifically declines any obligation- to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. General The following should be read in conjunction with management's discussion and analysis in the Company's December 31, 1999, Form 10-K. The profitability of the Company, and more specifically, the profitability of its primary subsidiary, Great Southern Bank (the "Bank"), depends primarily on its net interest income. Net interest income is the difference between the interest income it earns on its loans and investment portfolio, and the interest it pays on interest-bearing liabilities, which consists mainly of interest paid on deposits and borrowings. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. The Company's profitability is also affected by the level of its non-interest income and operating expenses. Non-interest income consists primarily of gains on sales of loans and available-for-sale investments, service charge fees, commissions earned by non-bank subsidiaries and other general operating income. Operating expenses consist primarily of salaries and employee benefits, occupancy-related expenses, postage, insurance, advertising, office expenses and other general operating expenses. The operations of the Bank, and banking institutions in general, are significantly influenced by general economic conditions and related monetary and fiscal policies of regulatory agencies. Deposit flows and the cost of deposits and borrowings are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing real estate and other types of loans, which in turn are affected by the interest rates at which such financing may be offered and other factors affecting loan demand and the availability of funds. 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 commercial banks, savings institutions, 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. 8 Potential Impact of Accounting Principles to be Implemented in the Future The Financial Accounting Standards Board has adopted Statement of Financial Accounting Standards("SFAS") No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The effective date of SFAS No. 133 has been delayed by SFAS No. 137 until fiscal years beginning after June 15, 2000, but may be implemented early as of the beginning of any fiscal quarter after issuance. SFAS No. 133 may not be applied retroactively. Management presently believes the adoption of SFAS No. 133, which the Company expects to initially adopt for its year ending December 31, 2001, will not have a material impact on the Company's financial statements. Year 2000 Issues The Company has had no significant problems relating to the Year 2000 date change; however, management continues to monitor all systems for potential problems. In addition, nothing has come to management's attention regarding any Year 2000 problems experienced by its customers or suppliers that have significantly impacted or are expected to significantly impact the Company. Asset and Liability Management During the three months ended March 31, 2000, total assets increased by $5.4 million to $970.2 million. Loans increased $16.8 million and foreclosed assets held for sale increased $1.1 million, partially offset by a decline in cash and cash equivalents of $13.6 million. Total liabilities increased $7.4 million to $903.3 million. Deposits increased $31.8 million and note payable to bank increased $4.0 million, partially offset by a decrease in Federal Home Loan Bank ("FHLBank") advances of $11.3 million and a decrease in short-term borrowings of $18.6 million. The deposit increase was primarily from brokered deposits as core retail deposits remained virtually unchanged from December 31, 1999. The note payable to a third-party bank is a line of credit established by the Company to meet operating cash needs, and as a source of funds to repurchase shares of the Company's stock. The decrease in short-term borrowings was the result of repayment of federal funds purchased. The decrease in FHLBank advances was due to repayment of some advances from the brokered deposits proceeds. Management continues to feel that FHLBank advances and brokered deposits are viable alternatives to retail deposits when factoring all the costs associated with the generation and maintenance of additional retail deposits. 9 Stockholders' equity decreased $2.0 million primarily as a result of net treasury stock purchases of $4.6 million, an increase in unrealized losses on available-for-sale securities of $91,000 and dividend declarations and payments of approximately $.9 million, partially offset by an increase from net income of $3.7 million. The Company repurchased 233,697 shares of common stock at an average price of $21.06 per share during the three months ended March 31, 2000 and reissued 21,555 shares of treasury stock at an average price of $12.83 per share to cover stock option exercises. Interest Rate Risk and Sensitivity A principal operating objective of the Company is to produce stable earnings by achieving a favorable interest rate spread that can be sustained during fluctuations in prevailing interest rates. The Company has sought to reduce its exposure to adverse changes in interest rates by attempting to achieve a closer match between the periods in which its interest-bearing liabilities and interest-earning assets can be expected to reprice through the origination of adjustable-rate mortgages and loans with shorter terms and the purchase of other shorter term interest-earning assets. The rates of interest the Bank earns on assets and pays on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, the Company's results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of the Company's assets and liabilities. The risk associated with changes in interest rates and the Company's ability to adapt to these changes is known as interest risk and is the Company's most significant market risk. The term "interest rate sensitivity" refers to those assets and liabilities that mature within a stated period or reprice within that period in response to fluctuations in market rates and yields. As noted above, one of the principal goals of the Company's asset/liability program is to maintain and match the interest rate sensitivity characteristics of the asset and liability portfolios. In order to properly manage interest rate risk, the Bank's Board of Directors has established an Asset/Liability Management Committee ("ALCO") made up of members of management to monitor the difference between the Bank's maturing and repricing assets and liabilities and to develop and implement strategies to decrease the "gap" between the two. The primary responsibilities of the committee are to assess the Bank's asset/liability mix, recommend strategies to the Board that will enhance income while managing the Bank's vulnerability to changes in interest rates and report to the Board the results of the strategies used. At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCO may determine to increase the Bank's interest rate risk position somewhat in order to maintain its net interest margin. The Company's experience with interest rates are discussed in more detail under the headings "Results of Operations and Comparisons of the Three Months Ended March 31, 2000 and 1999." 10 An important element of both earnings performance and liquidity is the management of interest rate sensitivity. Interest rate sensitivity reflects the potential effect on net interest income of a movement in interest rates. The difference between the Bank's interest-sensitive assets and interest-sensitive liabilities for a specified time frame is referred to as "gap." A financial institution is considered to be asset-sensitive, or have a positive gap, when the amount of its earning assets maturing or repricing within a given time period exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. Conversely, a financial institution is considered to be liability-sensitive, or have a negative gap, when the amount of its interest-bearing liabilities maturing or repricing within a given period exceeds the amount of earning assets also maturing or repricing within that time period. During a period of rising interest rates, a positive gap would tend to increase net interest income, while a negative gap would tend to have an adverse effect on net interest income. During a period of falling interest rates, a positive gap would tend to have an adverse effect on net interest income, while a negative gap would tend to increase net interest income. At March 31, 2000, the Bank continues to maintain a positive one-year gap. The Bank evaluates interest sensitivity risk and then formulates guidelines regarding asset generation, funding sources and the pricing of each, and off-balance sheet commitments in order to decrease sensitivity risk. These guidelines are based upon management's outlook regarding future interest rate movements, the state of the regional and national economy and other financial and business risk factors. The Bank uses a static gap model and a computer simulation to measure the effect on net interest income of various interest rate scenarios over selected time periods. The Bank's gap can be managed by repricing assets or liabilities, selling available-for-sale investments, replacing an asset or liability prior to maturity or adjusting the interest rate during the life of an asset or liability. Matching the amount of assets and liabilities repricing during the same time interval helps to reduce the risk and minimize the impact on net interest income in periods of rising or falling interes rates. As a part of its asset and liability management strategy, the Bank 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 one-third 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. 11 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 Bank's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on the Bank's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other factors beyond the Bank'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 Bank's interest rate risk. 12 RESULTS OF OPERATIONS AND COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 The increase in earnings of $212,000, or 6.2%, for the three months ended March 31, 2000 when compared to the same period in 1999, was primarily due to an increase in net interest income of $794,000, or 10.3%, and a decrease in provision for loan losses of $101,000, or 17.5%. These were partially offset by an increase in non-interest expense of $86,000, or 1.4%, an increase in provision for income taxes of $286,000, or 17.6%, and a decrease in non-interest income of $311,000, or 7.9%, during the three month period. Total Interest Income Total interest income increased $3.2 million, or 20.2%, during the three months ended March 31, 2000, when compared to the three months ended March 31, 1999. The increase was due to a $2.5 million, or 17.1%, increase in interest income on loans and a $.7 million, or 63.7% increase in interest income on investments and other interest earning assets. Interest Income - Loans During the three months ended March 31, 2000, interest income on loans increased from both higher average balances and higher average interest rates. Interest income increased $1.3 million as the result of higher average loan balances from $726 million during the three months ended March 31, 1999, to $790 million during the three months ended March 31, 2000. The higher average balance resulted from the Bank's increases in commercial real estate and commercial business lending and indirect dealer consumer lending, partially offset by a decline in multi-family residential lending. Interest income increased $1.2 million as the result of higher average interest rates. The average yield on loans increased from 8.18% during the three months ended March 31 1999, to 8.80% during the three months ended March 31, 2000, primarily due to higher market rates of interest. Interest Income - Investments and Other Interest-Earning Assets Interest income on investments and other interest-earning assets increased almost entirely as a result of higher average balances during the three months ended March 31, 2000 when compared to the three months ended March 31, 1999. Interest income increased $734,000 as a result of higher average balances from $76 million during the three months ended March 31, 1999 to $130 million during the three months ended March 31, 2000. This increase was primarily in available-for-sale securities, where additional securities were acquired for liquidity and pledging to deposit accounts under repurchase agreements. Interest income decreased $47,000 as a result of slightly lower average yields from 5.68% during the three months ended March 31, 1999, to 5.42% during the three months ended March 31, 2000. Total Interest Expense Total interest expense increased $2.4 million, or 29.6%, during the three months ended March 31, 2000 when compared with the same period in 1999. The increase during the three month period was due to a $1.2 million, or 20.8%, increase in interest expense on deposits, an $898,000, or 42.5%, increase in interest expense on FHLBank advances, and a $321,000, or 121%, increase in interest expense on short-term borrowings. 13 Interest Expense - Deposits Interest expense on deposits increased $913,000 as a result of higher average balances of time deposits from $378 million during the three months ended March 31, 1999, to $444 million during the three months ended March 31, 2000, and increased $419,000 due to higher average interest rates on time deposits from 5.26% during the three months ended March 31, 1999, to 5.68% during the three months ended March 31, 2000. The average balances on time deposits increased as a result of the Bank's use of brokered deposits and the average interest rates increased due to a combination of higher overall market rates and increased brokered deposits. Interest on demand deposits decreased $84,000 due to lower average balances from $134 million during the three months ended March 31, 1999, to $116 million during the three months ended March 31, 2000, and decreased $23,000 due to lower average rates from 1.90% during the three months ended March 31, 1999, to 1.83% during the three months ended March 31, 2000. The other deposit category, savings, experienced only minor decreases due to slightly lower balances. Interest Expense - FHLBank Advances and Short-term Borrowings Interest expense on FHLBank advances and short-term borrowings increased $1.2 million due primarily to higher average balances from $176 million in the three months ended March 31, 1999 to $240 million in the three months ended March 31, 2000. Average rates increased from 5.42% during the three months ended March 31, 1999, to 5.99% during the three months ended March 31, 2000. The average balance increase was used to fund growth in loans and securities. Average interest rates increased due to higher overall market rates during the first quarter of 2000. Net Interest Income The Company's overall interest rate spread decreased 20 basis points, or 5.9%, from 3.40% during the three months ended March 31, 1999, to 3.20% during the three months ended March 31, 2000. The decrease was due to a 58 basis point increase in the weighted average rates paid on interest-bearing liabilities offset by a 38 basis point increase in the weighted average yields received on interest-earning assets. In comparing the two periods, the yield on loans increased 62 basis points while the yield on investment securities declined 26 basis points. The prime rate of interest averaged 7.75% during the three months ended March 31, 1999, compared to an average of 8.69% during the three months ended March 31, 2000. As a large percentage of the Bank's loans are tied to prime, this increase was the primary reason for the increase in the weighted average yields received on interest-earning assets. Interest rates paid on deposits and FHLBank advances increased during the three months ended March 31, 2000 compared to the same quarter one year earlier. As the Company has grown the assets of the Bank, the brokered and other time deposits and advances needed to fund that growth have increased the average cost of deposits since time deposits are higher cost deposits for the Bank than are interest-bearing demand and savings. In addition, overall interest rates were higher during the period ended March 31, 2000. 14 Provision for Loan Losses The provision for loan losses decreased from $576,000 during the three months ended March 31, 1999 to $476,000 during the three months ended March 31, 2000. Management records a provision for loan losses in an amount sufficient to result in an allowance for loan losses that will cover current net charge-offs as well as risks believed to be inherent in the loan portfolio of the Bank. The amount of provision charged against current income is based on several factors, including, but not limited to, past loss experience, current portfolio mix, actual and potential losses identified in the loan portfolio, economic conditions and regular reviews by internal staff and regulatory examinations. Weak economic conditions, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio. Management has established various controls in an attempt to limit future losses, such as a watch list of possible problem loans, documented loan administration policies and a loan review staff to review the quality and anticipated collectibility of the portfolio. Management determines which loans are potentially uncollectible, or represent a greater risk of loss and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level. Non-performing assets increased $2.3 million during the three months ended March 31, 2000 from $9.6 million at December 31, 1999 to $11.9 million at March 31, 2000. Non-performing loans increased $1.2 million, or 13.6%, from $8.8 million at December 31, 1999 to $10.0 million at March 31, 2000, and foreclosed assets increased $1.1 million, or 131%, from $817,000 at December 31, 1999 to $1.9 million at March 31, 2000 due to the foreclosure of one large commercial real estate property. Potential problem loans decreased $.5 million during the three months ended March 31, 2000 from $10.8 million at December 31, 1999 to $10.3 million at March 31, 2000. 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 Bank's allowance for loan losses as a percentage of total loans was 2.17% and 2.20% at March 31, 2000 and December 31, 1999, respectively. Management considers the allowance for loan losses adequate to cover losses inherent in the Company's loan portfolio at this time, based on current economic conditions. If economic conditions deteriorate significantly, it is possible that additional assets would be classified as non-performing, and accordingly, additional provision for losses would be required, thereby adversely affecting future results of operations and financial condition. Non-interest Income Non-interest income decreased $311,000, or 7.9%, in the three months ended March 31, 2000 when compared to the same period in 1999. The decrease was primarily due to: (i) a decrease in net realized gains on sales of fixed rate residential and other loans of $336,000, or 73.7%; and (ii) a decrease of $219,000, or 100%, in profits on sale of available-for-sale securities. During the three months ended March 31, 2000, the Bank sold significantly fewer residential and student loans than in the same period during 1999. During the 1999 period, interest rates were conducive to the generation of fixed-rate mortgages, which the Bank typically sells, rather than adjustable-rate mortgages, which the Bank typically retains in its portfolio. During the three months ended March 31, 1999, the Company sold 15 some of its investments in equity securities and realized the gains; conversely, during the same period of 2000, the Company held its available-for-sale securities due to unrealized losses in the portfolio. This decline was partially offset by: (i) an increase in service charge and ATM fees of $277,000, or 27.7%; and (ii) various increases or decreases in other non-interest income items. The increase in service charge fees resulted from increased rates and a larger number of accounts. The increase in ATM fees is related to an increased number of ATMS in the Company's market area, resulting in increased fees from use by non-customers. Non-interest Expense Non-interest expense increased $86,000, or 1.4%, in the three months ended March 31, 2000, when compared to the same period in 1999. The increase was primarily due to an increase of $202,000, or 6.2%, in salary and employee related costs due to increased staffing levels resulting from asset/customer growth and normal merit increases for existing employees. This was offset by: (i) a decrease of $154,000, or 14.6%, in occupancy and equipment expense due to the core computer conversion, Year 2000 testing and other technology related expenses in 1999; (ii) a decrease of $98,000, or 34.3%, in office supplies and printing costs related to the staffing increase, computer conversion and Year 2000 testing which occurred in 1999; and (iii) increases or decreases in other non-interest expense items. Provision for Income Taxes Provision for income taxes as a percentage of pre-tax income increased slightly from 32.0% in the three months ended March 31, 1999, to 34.3% in the three months ended March 31, 2000. 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. 16
Three Months Ended March 31, --------------------------------------------------------- 2000 1999 --------------------------- -------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate -------- -------- ------ -------- -------- ------ (Dollars in thousands) Interest-earning assets: Loans receivable $789,926 $17,377 8.80% $726,335 $14,845 8.18% Investment securities and other interest-earning assets 130,384 1,766 5.42 76,040 1,079 5.68 ------- ------ ---- ------- ------- ---- Total interest-earning assets $920,310 19,143 8.32 $802,375 15,924 7.94 ======= ------ ---- ======= ------ ---- Interest-bearing liabilities: Demand deposits $115,678 528 1.83 $133,901 635 1.90 Savings deposits 29,365 182 2.48 32,954 200 2.43 Time deposits 443,910 6,301 5.68 378,072 4,969 5.26 ------- ----- ---- ------- ----- ---- Total deposits 588,953 7,011 4.76 544,927 5,804 4.26 FHLBank advances and other borrowings 240,104 3,597 5.99 175,668 2,379 5.42 ------- ----- ---- ------- ----- ---- Total interest-bearing liabilities $829,057 10,608 5.12 $720,595 8,183 4.54 ======= ----- ---- ======= ----- ---- Net interest income: Interest rate spread $8,535 3.20% $7,741 3.40% ===== ==== ===== ==== Net interest margin(1) 3.71% 3.86% ==== ==== Average interest-earning assets to average interest-bearing liabilities 111.0% 111.3% ===== =====
(1) Defined as the Company's net interest income divided by total interest-earning assets. 17 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, 2000 vs. 1999 -------------------------------- Increase (Decrease) Due to Total ----------------- Increase Rate Volume (Decrease) -------- ------- ---------- (Dollars in thousands) Interest-earning assets: Loans receivable $1,179 $1,353 $2,532 Investment securities and other interest-earning assets (47) 734 687 ----- ----- ----- Total interest-earning assets 1,132 2,087 3,219 ----- ----- ----- Interest-bearing liabilities: Demand deposits (23) (84) (107) Savings deposits 4 (22) (18) Time deposits 419 913 1,332 ----- ----- ----- Total deposits 400 807 1,207 FHLBank advances and other borrowings 273 945 1,218 ----- ----- ----- Total interest-bearing liabilities 673 1,752 2,425 ----- ----- ----- Net interest income $ 459 $ 335 $ 794 ===== ===== =====
18 Liquidity and Capital Resources Liquidity is a measure of the Company's ability to generate sufficient cash to meet present and future financial obligations in a timely manner through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. These obligations include the credit needs of customers, funding deposit withdrawals, and the day-to-day operations of the Company. Liquid assets include cash, interest-bearing deposits with financial institutions and certain investment securities and loans. As a result of the Company's management of the ability to generate liquidity primarily through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. At March 31, 2000, the Company had commitments of approximately $122 million to fund loan originations, issued lines of credit, outstanding letters of credit and unadvanced loans. Management continuously reviews the capital position of the Company and the Bank to insure compliance with minimum regulatory requirements, as well as exploring ways to increase capital either by retained earnings or other means. The Company's capital position remained strong, with stockholders' equity at $66.9 million, or 6.9% of total assets of $970.2 million at March 31, 2000 compared to equity at $68.9 million, or 7.1%, of total assets of $964.8 million at December 31, 1999. Banks are required to maintain minimum risk-based capital ratios. These ratios compare capital, as defined by the risk-based regulations, to assets adjusted for their relative risk as defined by the regulations. Guidelines require banks to have a minimum Tier 1 risk-based capital ratio, as defined, of 4.00%, a minimum total risk-based capital ratio of 8.00%, and a minimum 4.00% core capital ratio. On March 31, 2000, the Bank's Tier 1 risk-based capital ratio was 9.2%, total risk-based capital ratio was 10.5% and the core capital ratio was 7.4%. At March 31, 2000, the held-to-maturity investment portfolio included $360,000 of gross unrealized losses. The unrealized 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 held-to-maturity investment portfolio is foreseen. The Company's primary sources of funds are certificates of deposit, 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 believed to be appropriate, supplements deposits with less expensive alternative sources of funds. Statements of Cash Flows. During the three months ended March 31, 2000, and 1999, respectively, the Company experienced positive cash flows from operating activities and financing activities. 19 Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to the origination and sale of loans held-for-sale, changes in accrued and deferred assets, credits and other liabilities, the provision for loan losses, depreciation, 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. Net income adjusted for non- cash and non-operating items was the primary source of cash flows from operating activities during the three months ended March 31, 2000 and 1999. During the three months ended March 31, 2000, this cash provided by operating activities was partially offset by originations of loans held-for-sale, net of proceeds from sales of loans held-for-sale, which was the primary use of cash flows from operating activities. Operating activities provided cash flows of $1.8 million during the three months ended March 31, 2000 and $4.8 million during the three months ended March 31, 1999. During the three months ended March 31, 2000 and 1999, respectively, investing activities used cash of $16.2 million and $4.6 million primarily due to the net increase of loans. Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows are due to increases in deposits after interest credited, net repayments of FHLBank advances and changes in short-term borrowings, as well as purchases of treasury stock and dividend payments to stockholders. Financing activities provided $782,000 in cash during the three months ended March 31, 2000 and $5.3 million in cash during the three months ended March 31, 1999. Financing activities in the future are expected to primarily include changes in deposits, FHLBank advances, and short-term borrowings. Dividends. During the three months ended March 31, 2000, the Company declared and paid dividends of $.125 per share, or 26% of net income, compared to dividends declared and paid during the three months ended March 31, 1999 of $.125 per share, or 28% of net income. The Board of Directors meets regularly to consider the level and the timing of dividend payments. Common Stock Repurchases. The Company has been in various buy-back programs since May 1990. During the three months ended March 31, 2000, the Company repurchased 233,697 shares of its common stock at an average price of $21.06 per share and reissued 21,555 shares of treasury stock at an average price of $12.83 per share to cover stock option exercises. During the three months ended March 31, 1999, the Company repurchased 165,449 shares of its common stock at an average price of $24.02 per share and reissued 30,044 shares of treasury stock at an average price of $2.17 per share to cover stock option exercises. Management intends to continue its stock buy-back programs as long as repurchasing the stock contributes to the overall growth of shareholder value. The number of shares of stock that will be repurchased and the price that will be paid is the result of many factors, several of which are outside of the control of the Company. The primary factors, however, are the number of shares available in the market from sellers at any given time and the price of the stock within the market as determined by the market. 20 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. 21 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 12, 2000 /s/ William V. Turner -------------------------- William V. Turner Chairman of the Board Date: May 12, 2000 /s/ Rex A. Copeland -------------------------- Rex A. Copeland Treasurer 22 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. EX-11 2 COMPUTATION OF EARNINGS Statement Re Computation of Earnings Per Share Three Months Ended March 31, ------------------------ 2000 1999 ---------- ---------- Basic: Average shares outstanding 7,389,733 7,759,234 ========= ========= Net income $3,658,806 $3,446,707 ========= ========= Per share amount $0.50 $0.44 ==== ==== Diluted: Average shares outstanding 7,389,733 7,759,234 Net effect of dilutive stock options - based on the treasury stock method using average market price 182,662 132,481 --------- --------- Diluted shares 7,572,395 7,891,715 ========= ========= Net income $3,658,806 $3,446,707 ========= ========= Per share amount $0.48 $0.44 ==== ==== Note: Antidilutive stock options totaling 135,550 and 41,050 shares were not included in the calculation of diluted earnings per share at March 31, 2000 and 1999, respectively. EX-27 3 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 3-MOS DEC-31-2000 MAR-31-2000 29,427 525 0 0 80,100 37,508 37,148 783,635 17,374 970,234 657,687 114,187 9,811 121,602 0 0 123 66,824 970,234 17,377 1,764 2 19,143 7,011 10,608 8,535 476 0 6,097 5,567 3,659 0 0 3,659 .50 .48 3.71 10,007 0 0 10,327 17,293 719 324 17,374 17,374 0 2,409
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