1
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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
/X/ Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended December 31, 1996, or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
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Commission File Number 0-18082
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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: 8,330,643 shares of common stock, par value $.01,
outstanding at February 8, 1997
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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,
1996 1996
------------ ------------
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,940,830 $ 6,661,290
Interest-bearing deposits in other financial institutions. . . . . . . . . 10,136,971 22,953,737
----------- -----------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 16,077,801 29,615,027
Available for sale securities. . . . . . . . . . . . . . . . . . . . . . . 6,072,007 4,655,816
Held to maturity securities (fair value $49,445,000 - December 1996;
$49,291,000 - June 1996) . . . . . . . . . . . . . . . . . . . . . . . . 49,428,429 49,182,323
Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 565,376,695 546,759,467
Foreclosed assets held for sale, net . . . . . . . . . . . . . . . . . . . 4,985,440 9,861,556
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 6,546,790 6,686,954
Accrued interest receivable
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,867,391 4,289,192
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 987,312 1,067,230
Investment in FHLBank Stock. . . . . . . . . . . . . . . . . . . . . . . . 10,792,600 10,022,800
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . 2,492,350 1,774,439
Excess of cost over fair value of net assets acquired. . . . . . . . . . . -- 1,101,961
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,856,009 3,088,540
------------ ------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $669,482,824 $668,105,305
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $379,487,782 $397,054,516
Federal Home Loan Bank advances. . . . . . . . . . . . . . . . . . . . . . 207,778,389 180,797,043
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,919,509 16,467,825
Advances from borrowers for taxes and insurance. . . . . . . . . . . . . . 1,170,422 2,659,427
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . 2,684,797 2,431,507
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,271,516 887,418
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Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 609,312,415 600,297,736
------------ ------------
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares
Common stock, $.01 par value; authorized 10,000,000 shares; issued
12,325,002 - December 1996; issued 6,162,501 shares - June 1996. . . . 123,250 61,625
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 16,783,382 16,834,507
Retained earnings (substantially restricted) . . . . . . . . . . . . . . . 69,732,031 67,917,888
Unrealized appreciation on available-for-sale securities, net of
income taxes of $403,991 - December 1996 and $61,460 - June 1996 . . . . 631,885 96,129
Treasury stock, at cost; 4,148,299 shares - December 1996;
3,512,906 shares - June 1996 . . . . . . . . . . . . . . . . . . . . . . (27,100,139) (17,102,580)
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Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . 60,170,409 67,807,569
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Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . $669,482,824 $668,105,305
============ ============
<FN>
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,
1996 1995 1996 1995
----------- ----------- ----------- -----------
INTEREST INCOME
Loans $12,690,402 $12,381,573 $25,315,397 $24,622,212
Investment Securities 985,609 969,711 1,995,050 1,894,752
Other 61,718 50,238 132,673 103,204
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 13,737,729 13,401,522 27,443,120 26,620,168
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 4,038,517 4,254,233 8,241,868 8,533,057
FHLBank advances 2,891,283 2,601,805 5,554,104 5,120,898
Short-term borrowings 175,733 166,622 320,756 296,845
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 7,105,533 7,022,660 14,116,728 13,950,800
---------- ---------- ---------- ----------
NET INTEREST INCOME 6,632,196 6,378,862 13,326,392 12,669,368
PROVISION FOR LOAN LOSSES 448,892 323,325 859,485 647,405
---------- ----------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,183,304 6,055,537 12,466,907 12,021,963
---------- ---------- ---------- ----------
NONINTEREST INCOME
Commissions 1,398,467 1,126,615 2,581,675 2,207,261
Service charge fees 720,408 587,393 1,330,559 1,194,774
Net realized gains on sales of loans and
available-for-sale securities 132,004 95,313 397,117 828,690
Income (expense) on foreclosed assets (11,575) (129,481) 316,436 (152,480)
Other income 330,615 332,495 664,703 675,863
---------- ---------- ---------- ----------
TOTAL NONINTEREST INCOME 2,569,919 2,012,335 5,290,490 4,754,108
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 2,163,103 2,013,924 4,525,044 4,059,657
Net occupancy expense 544,719 549,739 1,106,582 1,100,230
Postage 159,689 152,714 305,261 301,003
Insurance 328,899 318,801 3,143,637 633,802
Amortization of goodwill 10,000 48,212 1,106,961 96,423
Advertising 159,941 151,844 272,735 234,294
Office supplies and printing 109,520 111,401 236,656 209,870
Other operating expenses 568,526 580,109 1,072,745 1,207,676
---------- ---------- ---------- ----------
TOTAL NONINTEREST EXPENSE 4,044,397 3,926,744 11,769,621 7,842,955
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,708,826 4,141,128 5,987,776 8,933,116
PROVISION FOR INCOME TAXES 1,801,091 1,663,100 2,586,744 3,570,500
---------- ---------- ---------- ----------
NET INCOME $ 2,907,735 $ 2,478,028 $ 3,401,032 $ 5,362,616
========== ========== ========== ==========
EARNINGS PER COMMON SHARE $.34 $.27 $.38 $.58
=== === === ===
<FN>
See Notes to Consolidated Financial Statements
4
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED DECEMBER 3!,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,401,032 $ 5,362,616
Items not requiring (providing) cash:
Depreciation 433,432 486,667
Amortization 1,101,961 42,390
Provision for loan losses 859,485 647,405
Provision for losses on foreclosed assets 0 75,000
Net realized gains on sale of loans (253,149) (221,102)
FHLBank stock dividend -- (176,400)
Gain on sale of premises and equipment (847) (1,219)
Gain on sale of foreclosed assets (440,211) (15,647)
Amortization of deferred income,
premiums and discounts (397,983) (311,002)
Net realized gains on sale of available-for-sale securities (143,968) (607,188)
Deferred income taxes (110,000) 456,000
Changes in:
Accrued interest receivable 501,719 159,334
Prepaid expenses and other assets (717,911) 154,054
Accounts payable and accrued expenses 253,290 512,104
Income taxes payable 384,098 (246,865)
----------- -----------
Net cash provided by operating activities 4,870,948 6,316,147
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (13,741,205) (25,329,070)
Purchase of premises and equipment (293,521) (583,106)
Proceeds from sale of premises and equipment 1,100 2,875
Proceeds from sale of foreclosed assets 562,514 451,283
Capitalized costs on foreclosed assets (194,662) (115,488)
Proceeds from sale of available-for-sale securities 1,066,219 2,218,206
Proceeds from maturing held-to-maturity securities 18,054,030 22,779
Purchase of held-to-maturity securities (18,436,037) (1,502,398)
Purchase of available-for-sale securities (1,460,155) (2,039,863)
Purchase of Federal Home Loan Bank Stock (769,800) (810,600)
----------- -----------
Net cash used in investing activities (15,211,517) (27,685,382)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in certificates of deposit (11,310,473) 9,404,078
Net decrease in checking and savings (6,256,262) (5,302,429)
Proceeds from FHLBank advances 271,987,468 274,845,688
Repayments of FHLBank advances (245,006,122) (247,713,743)
Net increase in short-term borrowings 451,685 3,662,632
Advances from borrowers for taxes and insurance (1,489,005) (1,430,634)
Purchase of treasury stock (10,015,405) (980,379)
Dividends paid (1,586,889) (1,572,769)
Stock options exercised 28,346 79,351
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Net cash provided by (used in ) financing activities (3,196,657) 30,991,795
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,537,226) 9,622,560
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 29,615,027 17,459,951
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,077,801 $ 27,082,511
=========== ===========
<FN>
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. In
the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended
December 31, 1996 and 1995 are not necessarily indicative of the
results that may be expected for the full year. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K
for the year ended June 30, 1996. When necessary, reclassifications
have been made to prior period balances to conform to current period
presentation. These reclassifications had no effect on net income.
The Company completed a 2-for-1 stock split on October 21, 1996.
Prior period information included in this form 10-Q reflects this
stock split, when necessary.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The discussion set forth below, as well as other portions of this
Form 10-Q, may contain forward-looking comments. Such comments are
based upon the information currently available to management of the
Company and management's perception thereof as of the date of this
Form 10-Q. Actual results of the Company's operations could
materially differ from those forward-looking comments. The
differences could be caused by a number of factors or combination of
factors including, but not limited to, changes in the availability
and/or cost of capital; changes in demand for banking services;
changes in the portfolio composition; change in the interest rate
yield on the Company's investments; changes in management strategy;
increased competition from both bank and non-bank companies; changes
in the economic, political or regulatory environments in the United
States; litigation involving the Company and/or its subsidiaries; and
changes in the availability of qualified labor. Readers should take
these factors into account in evaluating any such forward-looking
comments.
6
General
Parts of management's discussion and analysis in the annual report
on Form 10-K are not included below. The following should be read in
conjunction with management's discussion and analysis in the Company's
June 30, 1996 Form 10-K.
The consolidated net income of the Company and more specifically,
the net income of its primary subsidiary, Great Southern Bank, FSB
(the "Bank"), is primarily dependent upon the difference or spread
between the average yield earned on loans and investments and the
average rate paid on deposits and borrowings, as well as the relative
amounts of such assets and liabilities. The interest rate spread is
affected by regulatory, economic and competitive factors that
influence interest rates, loan demand and deposit flows. The Bank,
like other financial institutions, is subject to interest rate risk to
the degree that its interest-bearing liabilities mature or reprice at
different times, or on a different basis than its interest-earning
assets. The Company's consolidated net income is also affected by,
among other things, gains on sales of loans and available-for-sale
investments, provisions for loan losses, service charge fees and
commissions, operating expenses and income taxes.
Management of the Company has developed and implemented an
asset/liability management strategy to match the repricing and/or
maturity of its interest-earning assets and its interest-bearing
liabilities and to achieve improved and sustained operating income
without adversely affecting asset quality. In implementing this
strategy, the Company has sought, subject to market conditions, to
increase its origination of adjustable-rate loans secured by one- to
four-family residential real estate in order to increase its
investment in loans that are interest rate sensitive. The Company has
also sold substantially all of the fixed-rate, one- to four-family
residential loans originated since fiscal 1986, with servicing
retained through fiscal 1995 and primarily servicing released
beginning in fiscal 1996. Beginning in fiscal 1992, the Company's
lending returned to origination of adjustable-rate commercial real
estate and commercial business loans. By doing so, the Company is
attempting to increase significantly its loan fees, increase its
investment in loans that are interest rate sensitive and improve the
yield on its loan portfolio. The Company intends to continue to
prudently evaluate the origination of commercial real estate loans
(both to purchase existing properties and construct new properties) in
its total loan portfolio subject to commercial real estate and other
market conditions and to applicable regulatory restrictions and may
increase the percent of the commercial real estate loans to the
overall portfolio.
7
EFFECT OF FEDERAL LAWS AND REGULATIONS
Federal legislation and regulation significantly affect the banking
operations of the Company and the Bank, and have increased competition
among savings institutions, commercial banks, mortgage banking
enterprises and other financial institutions. In particular, the
capital requirements and operations of regulated depository
institutions such as the Company and the Bank have been and will be
subject to changes in applicable statutes and regulations from time to
time, which changes could, under certain circumstances, adversely
affect the Company or the Bank.
On September 30, 1996, the President of the United States signed
into law, legislation that impacts 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. The Bank
estimates this will reduce 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, subsequent to December 31, 1996,
the Bank significantly increased the level of brokered deposits used
to fund asset growth. The rates paid on these deposits, when compared
to alternative sources and allowing for deposit insurance costs, is
comparable to FHLBank advances but do not require the asset pledging
the FHLBank requires.
The second major area of change is the repeal of the bad debt
reserve method of accounting for bad debts by large thrifts for
taxable years beginning after 1995 (year ended June 30, 1997 for the
Bank). The legislation requires applicable excess reserves
accumulated after 1987 (year ended June 30, 1988 for the Bank) be
recaptured and restored to income over a six year period with the
first year beginning after 1995 (year ended June 30, 1997 for the
Bank), and no longer creates recapture of the applicable excess
reserves accumulated prior to 1988 for thrifts at the time they
convert to bank charters. The post 1987 recapture may be delayed for
a one- or two-year period if certain residential loan origination
requirements are met. The amount of post 1987 recapture for the Bank
is estimated at $5 million which would create income taxes of
approximately $2 million, or $333,000 per year for each of the six
years. The $2 million of tax has been accrued and expensed by the
Bank in previous periods and accordingly, will not be reflected in
earnings or capital when paid.
8
Beginning with the current fiscal year ending June 30, 1997, the
Bank will be required to follow the specific charge-off method which
only allows a bad debt deduction equal to actual charge-offs, net of
recoveries, experienced during the fiscal year of the deduction. In a
year where recoveries exceed charge-offs, the Bank would be required
to include the net recoveries in taxable income.
RECENT CHANGES IN ACCOUNTING PRINCIPLES
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121. "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("SFAS 121"). This
statement applies to assets to be held and used as well as assets to
be disposed of. SFAS 121 requires an entity to evaluate long-lived
assets, certain identifiable intangibles, and related goodwill for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company
adopted SFAS 121 during the current fiscal year ending June 30, 1997.
The adoption of SFAS 121 has not had a material effect on the
financial condition or net income of the Company.
In May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS
122"). SFAS 122 requires that mortgage banking enterprises recognize
as separate assets, rights to service mortgage loans for others,
however those servicing rights are acquired. The Company adopted SFAS
122 during the current fiscal year ending June 30, 1997. The adoption
of SFAS 122 has not had a material effect on the financial condition
or net income of the Company.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 establishes a fair value based method of accounting
for stock-based compensation plans. It encourages entities to adopt
that method in place of the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", for all arrangements under
which employees receive shares of stock or other equity instruments of
the employer or the employer incurs liabilities to employees in
amounts based on the price of its stock. This statement applies to
financial statements for fiscal 1997. Management is continuing to
account for stock-based compensation in accordance with the provisions
of APB No. 25. Therefore, SFAS 123 has not had a significant impact
on the Company's consolidated financial statements.
9
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125
extends the rules in SFAS 122 from servicing of mortgage loans to all
loan servicing. The Company adopted SFAS 125 during the current
fiscal year ending June 30, 1997. The adoption of SFAS 125 has not
had a material effect on the financial condition or net income of the
Company.
ASSET AND LIABILITY MANAGEMENT
During the six months ended December 31, 1996, the Company
experienced a slight increase of $1.4 million in its total assets.
There was a change in the various asset categories with the main areas
of change being an increase in net loans of $18.6 million, offset by a
decrease in cash and interest-bearing deposits in other financial
institutions of $13.5 million and a decrease in foreclosed assets of
$4.9 million.
The increase in net loans was primarily from commercial real estate
loans of $8 million and one other residential loan of $4.2 million
originated for the sale of a large foreclosed asset. The decrease in
interest-bearing deposits in other financial institutions primarily
resulted from the reversal of the higher than normal balances at
correspondent banks due to the timing of transferring funds with June
30, 1996 falling on the weekend. The decrease in foreclosed assets is
primarily from the sale of one large property discussed in the non-
performing asset section below.
Total liabilities increased $9 million, primarily from an increase
in FHLBank advances of $27 million offset by a decrease in deposits of
$18 million. The above represented the Company's continued practice
of using primarily short-term FHLBank advances to fund net loan
originations and other funding needs. As noted above, subsequent to
December 31, 1996, the Bank significantly increased the level of
brokered deposits as a source of funding.
Stockholders' equity decreased $7.6 million primarily as a result
of net treasury stock purchases of $10 million and dividend
declarations and payments of $1.6 million, offset by net income of
$3.4 million and unrealized appreciation on available-for-sale
securities of $536,000. The Company repurchased 640,583 shares of
common stock at an average price of $15.63 per share and reissued
5,190 shares of treasury stock at an average price of $3.44 per share
for stock options exercised during the six months ended December 31,
1996.
10
Management believes that a key component of successful
asset/liability management is the monitoring and management of
interest rate sensitivity, which encompasses the repricing and
maturity of interest-earning assets and interest-bearing liabilities.
During any period in which a financial institution has a positive
interest rate sensitivity gap, the amount of its interest-earning
assets maturing or otherwise repricing within such period exceeds the
amount of the interest-bearing liabilities maturing or otherwise
repricing within the same period. Accordingly, in a rising interest
rate environment, financial institutions with positive interest rate
sensitivity gaps generally will experience greater increases in yield
on their assets than in the cost of their liabilities. Conversely, in
a falling interest rate environment, the cost of funds of financial
institutions with positive interest rate sensitivity gaps generally
will decrease less than the yield on their assets. Changes in
interest rates generally will have the opposite effect on financial
institutions with negative interest rate sensitivity gaps.
In a rising interest rate environment financial institutions with
negative gaps have more liabilities than assets mature or reprice
during the relevant period, causing the increase in the cost of
liabilities to exceed the increase in the yield on assets.
Conversely, in a falling interest rate environment, the cost of funds
of financial institutions with negative interest rate sensitivity gaps
generally will decrease more than the yield on their assets. The
Company's experience with interest rates is discussed in more detail
under the headings "Results of Operations and Comparisons of the Three
and Six Months Ended December 31, 1996 and 1995" and in management's
discussion and analysis in the June 30, 1996 Form 10-K.
The Company's one-year interest rate sensitivity gap, as a
percentage of total interest-earning assets was a positive $51
million, or 7.7%, at December 31, 1996, as compared to a positive $89
million, or 13.6%, at June 30, 1996. The decrease of $38 million
resulted primarily from: (i) a $26 million increase in funded loans,
substantially all in the one-year category, offset by a $26 million
decrease in investment securities due to a shifting of maturities from
the 1 year or less category to the 1 to 2 years category; (ii) an $18
million decrease in overall deposits, substantially all in the 1 year
or less category; and (iii) a $51 million increase in FHLBank advances
due to an increase in balances combined with a shift from other
periods.
11
As a part of its asset and liability management strategy, the
Company has increased its investment in loans which are interest rate
sensitive by emphasizing the origination of adjustable-rate, one- to
four-family residential loans and adjustable-rate or relatively short-
term commercial business and consumer loans, and originating fixed-
rate, one- to four-family residential loans primarily for immediate
resale in the secondary market. Approximately 30% of total assets are
currently invested in commercial real estate and commercial business
loans. This part of the strategy was designed to improve asset yield
and fee income, and to shorten the average maturity and increase the
interest rate sensitivity of the loan portfolio. While efforts to
date have contributed to the changes in the one-year interest rate
sensitivity gap and increasing net interest income, such lending,
commensurate with the increased risk levels, has also resulted in an
increase in the level of non-performing assets. Management
continually evaluates existing and potential commercial real estate
and commercial business loans, in order to try to reduce undesirable
risks including concentrations in a given geographic area or a
particular loan category.
While from a credit risk standpoint the Company would prefer higher
levels of one- to four-family and other residential loan originations
rather than commercial real estate and commercial business loan
originations, the Company has adapted to the changing lending
environment and originates commercial real estate and commercial
business loans to help maintain the desired size of the loan portfolio
and assets in total, as well as to maintain the desired yield on the
Company's investments.
Interest rate risk exposure estimates (the sensitivity gap) are not
exact measures of an institution's actual interest rate risk. They
are only indicators of interest rate risk exposure produced in a
simplified modeling environment designed to allow management to gauge
the Company's sensitivity to changes in interest rates. They do not
necessarily indicate the impact of general interest rate movements on
the Company's net interest income because the repricing of certain
categories of assets and liabilities is subject to competitive and
other factors beyond the Company's control. As a result, certain
assets and liabilities indicated as maturing or otherwise repricing
within a stated period may in fact mature or reprice at different
times and in different amounts and would therefore cause a change
(which potentially could be material) in the Company's interest rate
risk.
12
The following table sets forth the Company's interest rate
sensitive assets and liabilities that mature or reprice within one
year as of the dates indicated and on the basis of the factors and
assumptions set forth at the end of the tables.
December 31, June 30,
1996 1996
------------ --------
(000'S OMITTED)
Residential, commercial real estate and
construction loans $480,577 $463,559
Commercial business loans 17,635 12,349
Consumer loans 18,764 16,202
Investment securities and other 50,377 76,343
------- -------
Total interest rate sensitive assets
repricing within one year 567,353 568,453
------- -------
Interest-bearing demand deposits 107,727 112,289
Savings deposits 34,469 37,009
Time deposits 185,676 192,909
FHLBank advances 171,592 120,849
Other borrowings and liabilities 16,920 16,468
------- -------
Total interest rate sensitive liabilities
repricing within one year 516,384 479,524
------- -------
One year interest rate sensitivity gap (1) $50,969 $ 88,929
======= =======
Interest rate sensitive assets/interest rate
sensitive liabilities 109.9% 118.5%
===== =====
One year interest rate sensitivity gap as a
percent of interest-earning assets 7.7% 13.6%
==== ====
<FN>
___________________________________________
(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, 1996, on the basis of
the factors and assumptions set forth below.
Maturing or Repricing
---------------------------------------------------------------
Over 6
6 Months Months Over 1-3 Over 3-5 Over
or Less to 1 Year Years Years 5 Years Total
-------- --------- -------- -------- -------- --------
(Dollars in thousands)
Residential, commercial real
estate and construction loans $372,707 $107,870 $ 16,380 $ 9,778 $34,659 $541,394
Commercial business loans 17,392 243 232 0 0 17,867
Consumer loans 16,467 2,297 6,096 0 0 24,860
Investment securities and other 48,375 2,002 26,053 0 0 76,430
------- ------- ------- ------ ------ -------
Total interest-earning assets 454,941 112,412 48,761 9,778 34,659 660,551
------- ------- ------- ------ ------ -------
Interest-bearing demand deposits 107,727 0 0 0 0 107,727
Savings deposits 34,469 0 0 0 0 34,469
Time deposit 135,204 50,472 32,142 10,465 0 228,283
FHLBank advances 136,206 35,386 14,191 3,960 18,035 207,778
Other borrowings and liabilities 16,920 0 0 0 0 16,920
------- ------- ------- ------ ------ -------
Total interest-bearing liabilities 430,526 85,858 46,333 14,425 18,035 595,177
------- ------- ------- ------ ------ -------
Interest-earning assets less
interest-bearing liabilities $ 24,415 $ 26,554 $ 2,428 $(4,647) $16,624 $ 65,374
======= ======= ======= ====== ====== =======
Cumulative interest rate sensitivity gap $ 24,415 $ 50,969 $53,397 $48,750 $65,374
======= ======= ====== ====== ======
Cumulative interest rate sensitivity gap
as a percent of interest-earning
assets at December 31, 1996 3.7% 7.7% 8.1% 7.4% 9.9%
=== ==== ==== ==== ====
Cumulative interest rate sensitivity gap
as a percent of interest-earning
assets at June 30, 1996 (0.4)% 13.6% 8.9% 8.3% 10.2%
=== ==== === === ====
<FN>
The assumptions used in the above two tables are:
-- Prepayment rates are derived from market prepayment rates
observed on or about December 31, 1996. They are supplied by the
FHLBank of Des Moines Risk Management Department.
-- Fixed-rate loans, net of loans in process, deferred fees and
discounts are shown on the basis of contractual amortization and the
prepayment assumptions noted above.
-- Adjustable-rate loans are assumed to reprice at the earlier of
maturity or the next contractual repricing date.
-- Zero growth and constant percentage composition of assets and
liabilities and funds from contractual amortization are not
reinvested.
14
RESULTS OF OPERATIONS AND COMPARISON OF THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 1996 and 1995
The increase in earnings for the three months ended December 31,
1996 when compared to the same period in 1995 of $430,000, or 17.3%,
was primarily due to an increase in non-interest income of $560,000
and an increase in net interest income of $260,000, offset by an
increase in non-interest expense of $120,000, an increase in provision
for loan losses of $130,000 and an increase in provision for income
taxes of $140,000 during the period.
The decrease in earnings for the six months ended December 31, 1996
when compared to the same period in 1995 of $2 million, or 36.6%, was
primarily due to an increase in non-interest expense of $3.9 million
and an increase in provision for loan losses of $210,000, offset by an
increase in non-interest income of $535,000, an increase in net
interest income of $655,000, and a decrease in provision for income
taxes of $985,000 during the period.
Total Interest Income
Total interest income increased $336,000, or 2.5%, during the three
months ended December 31, 1996, when compared to the three months
ended December 31, 1995. The increase was primarily due to a
$308,000, or 2.5%, increase in interest income on loans and a $28,000,
or 2.7%, increase in interest income on investment securities and
interest-bearing deposits.
Total interest income increased $823,000, or 3.1%, during the six
months ended December 31, 1996, when compared to the six months ended
December 31, 1995. The increase was primarily due to a $693,000, or
2.8%, increase in interest income on loans and a $130,000, or 6.5%,
increase in interest income on investment securities and interest-
bearing deposits.
Interest Income - Loans
For the three month period, interest income on loans increased from
higher average balances, offset by a decrease from lower average
yields. Interest income increased $457,000 as the result of higher
average loan balances from $535 million during the three months ended
December 31, 1995 to $555 million during the three months ended
December 31, 1996. Interest income decreased $149,000 as the result
of a decrease in average yield from 9.26% in the three months ended
December 31, 1995, to 9.15% in the three months ended December 31,
1996, as a result of lower market rates.
15
For the six month period, interest income on loans increased from
higher average balances, offset by a decrease from lower average
yields. Interest income increased $1.1 million as the result of
higher average loan balances from $527 million during the six months
ended December 31, 1995 to $551 million during the six months ended
December 31, 1996. Interest income decreased $378,000 as the result
of a decrease in average yield from 9.34% in the six months ended
December 31, 1995, to 9.20% in the six months ended December 31, 1996,
as a result of lower market rates.
Interest Income - Investments and Other Interest-Bearing Deposits
Of the increase in interest income on investment securities and
interest-bearing deposits, $63,000 and $15,000, respectively, was the
result of higher average balances from $75 million and $76 million in
the three and six months ended December 31,1995 to $78 million in both
the three and six months ended December 1, 1996, primarily as a result
of slight increases in investment securities. The remaining increase
of $13,000 and $53,000, respectively, was the result of an increase in
average yields from 5.32% and 5.26%, respectively, during the three
and six months ended December 31, 1995 to 5.39% and 5.44%,
respectively, during the three and six months ended December 31, 1996
as a result of higher market rates on investment securities.
Total Interest Expense
Total interest expense increased $83,000, or 1.2%, during the three
months ended December 31, 1996 when compared with the same period in
1995 and $166,000, or 1.2%, during the six months ended December 31,
1996 when compared with the same period in 1995. The increase during
the three month period was primarily due to a $298,000, or 10.8%,
increase in interest expense on FHLBank advances and other borrowings,
offset by a $215,000, or 5.1%, decrease in interest expense on
deposits. The increase during the six month period was primarily due
to a $457,000, or 8.4%, increase in interest expense on FHLBank
advances and other borrowings, offset by a $291,000, or 3.4%, decrease
in interest expense on deposits.
Interest Expense - FHLBank and Other Borrowings
For the three month period, interest expense on FHLBank advances
and other borrowings increased $201,000 due to higher average balances
from $193 million in the three months ended December 31, 1995 to $206
million in the three months ended December 31, 1996. In addition, an
increase of $97,000 was the result of higher average interest rates
from 5.75% in the three months ended December 31, 1995 to 5.94% in the
three months ended December 31, 1996.
16
For the six month period, interest expense on FHLBank advances and
other borrowings increased $331,000 due to higher average balances
from $187 million in the six months ended December 31, 1995 to $199
million in the six months ended December 31, 1996. In addition, an
increase of $126,000 was the result of higher average interest rates
from 5.79% in the six months ended December 31, 1995 to 5.92% in the
three months ended December 31, 1996.
In both the three and six month periods, average balances increased
as a result of the Company's use of short term FHLBank advances to
partially fund loan growth and manage overall funds costs. The
changes in average rates were a result of changes in market rates.
Interest Expense - Deposits
For the three month period, interest expense on deposits decreased
as a result of an overall decrease in both average balances and market
rates. Interest expense decreased $168,000 as a result of lower
average balances of time deposits from $240 million during the three
months ended December 31, 1995 to $228 million during the three months
ended December 31, 1996. In addition, a decrease of $103,000 was the
result of lower average rates from 5.68% during the three months ended
December 31, 1995, to 5.51% during the three months ended December 31,
1996.
For the six month period, interest expense on deposits also
decreased as a result of an overall decrease in both average balances
and market rates. Interest expense decreased $260,000 as a result of
lower average rates on time deposits from 5.76% during the six months
ended December 31, 1995 to 5.54% during the six months ended December
31, 1996. In addition, a decrease of $122,000 was the result of lower
average balances on time deposits from $237 million during the six
months ended December 31, 1995, to $232 during the six months ended
December 31, 1996.
Interest expense on deposits increased $56,000 and $94,000 as a
result of increases in average balances of interest-bearing demand
deposits $101 million and $102 million, respectively, during the three
and six months ended December 31, 1995 to $110 million during both the
three and six months ended December 31, 1996.
17
Net Interest Income
For the three month period, the Company's overall interest rate
spread decreased 6 basis points, or 1.6%, from 3.85% during the three
months ended December 31, 1995, to 3.79% during the three months ended
December 31, 1996.
For the six month period, the Company's overall interest rate
spread decreased 5 basis points, or 1.3%, from 3.88% during the three
months ended December 31, 1995, to 3.83% during the three months ended
December 31, 1996.
The decrease in both periods was due to an overall decrease in the
weighted average yield received on interest-earning assets partially
offset by a lesser overall decrease in the rates paid on interest-
bearing liabilities.
Provision for Loan Losses
The provision for loan losses increased from $324,000 and $647,000,
respectively, during the three and six months ended December 30, 1995
to $449,000 and $859,000, respectively, during the six months ended
December 31, 1996. 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 $4.4 million, or 26%, during the
six months ended December 31, 1996 from $16.9 million at June 30, 1996
to $12.5 million at December 31, 1996. Non-performing loans increased
$837,000, or 14.2%, from $5.9 million at June 30, 1996 to $6.7 million
at December 31, 1996, and foreclosed assets declined $5.2 million from
$10.9 million at June 30, 1996 to $5.7 million at December 31, 1996.
Non-performing loans at December 31, 1996 and June 30, 1996, included
$320,000 and $452,000, respectively, of loans in connection with the
sale of foreclosed assets, which are loans that have higher than usual
loan-to-value ratios and are originated in connection with the sale of
foreclosed assets. Substantially all of these loans were performing
at December 31, 1996.
18
The $837,000 increase in non-performing loans was primarily the
result of (i) the addition of a net loan for $3.8 million (net of
deferred gain and actual payments received) as a result of 100%
financing of the sale of the foreclosed asset described in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996
on page 31 under the heading "Branson, Missouri"; partially offset by
(ii) the payoff of the $934,000 loan described in the Company's Annual
Report on Form 10-K for the year ended June 30, 1996 on page 31 under
the heading "Lake Ozark, Missouri"; (iii) the receipt of all scheduled
payments currently due on the loans totaling $984,000 described in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996
on page 30 under the heading "Branson, Missouri - Restaurant"; (iv)
the receipt of all scheduled payments currently due on the $600,000
Tax Increment Financing (TIF) loan of the project described in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996
on page 31 under the heading "Lake Ozark, Missouri"; (v) the addition
of a loan for $233,000 on an apartment building located near Branson,
Missouri; (vi) the addition of a residential development of $273,000
located in Springfield, Missouri; and (vii) the foreclosure of a
$250,000 restaurant loan (sold during the six months ended December
31, 1996), five single family homes totaling $440,000 and charge-offs
on these foreclosures of approximately $100,000.
The net loan of $3.8 million on the sale of the foreclosed assets
has a deferred gain of $427,000 currently netted against it. If the
buyer is able to liquidate the project as planned, this gain will be
recognized at a future time when the loan has paid down to an adequate
level.
The $5.2 million decline in foreclosed assets during the six months
ended December 31, 1996 was primarily due to: (i) the sale of the $4.3
million property noted in the non-performing loan section above; (ii)
the sale of the $550,000 property described in the Company's Annual
Report on Form 10-K for the year ended June 30, 1996 on page 33 under
the heading "Springfield, Missouri - Ellis Trucking Terminal" with 28%
cash down and normal long-term financing for the balance; (iii) the
sale of condominium units carried at an aggregate of $312,000 and 1
single-family home carried at $54,000; offset by (iv) the foreclosure
of the properties noted in item (v) in the non-performing loan section
above; (vi) a $207,000 charge-down on the property described in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996
on page 32 under the heading "Branson, Missouri - Clevenger Cove
Campground" as the result of an updated appraisal; and (vii) various
other activity of smaller properties in the account.
19
Potential problem loans increased $7.9 million during the six
months ended December 31, 1996 from $4.7 million at June 30, 1996 to
$12.6 million at December 31, 1996. These are loans which management
has identified through routine internal review procedures as having
possible credit problems which may cause the borrowers difficulty in
complying with current loan repayment terms. These loans are not
reflected in the non-performing loans. The main reason for the
increase in potential problem loans is: (i) an increase of $5.5
million from the continued cash flow problems of a theater in Branson,
Missouri; (ii) the continued credit deterioration of the borrower on a
$985,000 loan secured by commercial lots located in Branson, Missouri;
(iii) an increase of $950,000 from the improved credit quality and
upgrade from non-performing status of the project disclosed in the
non-performing loan section above; (iv) the increase of $280,000 in a
condominium project in Branson, Missouri due to additional advances
from increased collateral positions; (v) the deterioration of credit
quality of a $250,000 commercial real estate loan secured by a
building in Springfield, Missouri; and (vi) the deterioration of the
credit quality of various projects, partially offset by the
improvement from non-performing of other projects.
The allowance for loan losses at December 31, 1996 and June 30,
1996, respectively, totaled $15.1 million and $14.4 million,
representing 2.7% and 2.6% of total loans, 223% and 243% of non-
performing loans, and 78% and 136% of non-performing loans and
potential problem loans in total. The allowance for foreclosed asset
losses totaled $728,000 and $1.1 million at December 31, 1996 and June
30, 1996, respectively, representing 12.7% and 9.9% of total
foreclosed assets. Although the Company maintains the allowance for
loan losses and the allowance for foreclosed asset losses at levels
which it considers to be adequate to provide for potential losses and
selling expenses, there can be no assurance that such losses will not
exceed the estimated amounts, thereby adversely affecting future
results of operations.
Non-interest Income
Non-interest income increased $558,000, or 27.7%, in the three
months ended December 31, 1996 when compared to the same period in
1995. The increase was primarily due to: (i) an increase in
commission income of $270,000 from the travel, insurance and
investment subsidiaries; (ii) an increase in service charge income of
$135,000 on transaction accounts from an increased fee structure;
(iii) an increase in income on foreclosed assets of $120,000 from the
decline in net expenses of foreclosed properties;; and (iv) an
increase in income of $33,000 from increased profits from sales of
loans; and (v) modest increases and decreases in other non-interest
income items.
20
Non-interest income increased $536,000, or 11.3%, in the six months
ended December 31, 1996 when compared to the same period in 1995. The
increase was primarily due to: (i) an increase in income on foreclosed
assets of $470,000 from the sale in the September 30, 1996 quarter of
the foreclosed properties, some of which were previously discussed;
(ii) an increase in commission income of $375,000 from the travel,
insurance and investment subsidiaries; (iii) an increase of $135,000
in service charge income on transaction accounts from an increased fee
structure; offset by (iv) a decrease in income of $460,000 from the
sale of available-for-sale securities; and (v) modest increases and
decreases in other non-interest income items.
Non-interest Expense
Non-interest expense increased $120,000, or 3%, in the three months
ended December 31, 1996 when compared to the same period in 1995
primarily due to an increase of $150,000 in salaries and other
employee benefits due to asset and earnings growth, offset by a
decrease in goodwill amortization of $38,000 due to the write-off of
remaining goodwill in the September 30, 1996 quarter.
Non-interest expense increased $3.9 million, or 50%, in the six
months ended December 31, 1996 when compared to the same period in
1995. The increase was primarily due to: (i) an increase in insurance
of $2.5 million due to the accrual of the one-time SAIF assessment
discussed previously; (ii) an increase in goodwill amortization of $1
million due to the write-off of goodwill remaining from a 1982 failed
thrift purchase; and (iii) an increase of $465,000 in salaries and
other employee benefits due to asset and earnings growth.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income
decreased from 40% in the three months ended December 31, 1995 to 38%
in the three months ended December 31, 1996. The decrease was
partially due to the decrease in the write-off of the goodwill, which
is a non-deductible item and partially due to fluctuations in accrual
estimates.
Provision for income taxes as a percentage of pre-tax income
increased from 40% in the six months ended December 31, 1995 to 43% in
the six months ended December 31, 1996. The increase was primarily
due to the write-off of the goodwill amortization discussed above,
which is a non-deductible item as well as fluctuations in accrual
estimates.
21
Average Balances, Interest Rates and Yields
The following tables present for the periods indicated the total
dollar amount of interest income from average interest-earning assets
and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates, and
the net interest margin. The tables do not include non-interest-
bearing demand deposits and do not reflect any effect of income taxes.
Three Months Ended December 31,
---------------------------------------------------------
1996 1995
--------------------------- --------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------
(Dollars in thousands)
Interest-earning assets:
Loans receivable $554,751 $12,690 9.15% $534,656 $12,382 9.26%
Investment securities and other
interest-earning assets 77,829 1,048 5.39 76,712 1,020 5.32
------- ------ ---- ------- ------- ----
Total interest-earning assets $632,580 13,738 8.69 $611,368 13,402 8.77
======= ------ ---- ======= ------ ----
Interest-bearing liabilities:
Demand deposits $109,820 676 2.46 $100,748 607 2.41
Savings deposits 35,459 221 2.49 37,386 234 2.50
Time deposits 228,235 3,142 5.51 240,317 3,413 5.68
------- ----- ---- ------- ----- ----
Total deposits 383,175 4,039 4.33 378,451 4,254 4.50
FHLBank advances and other borrowings 206,404 3,067 5.94 192,755 2,769 5.75
------- ----- ---- ------- ----- ----
Total interest-bearing liabilities $589,579 7,106 4.90 $571,206 7,023 4.92
======= ----- ---- ======= ----- ----
Net interest income:
Interest rate spread $6,632 3.79% $6,379 3.85%
===== ==== ===== ====
Net interest margin(1) 4.19% 4.17%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 109.1% 107.0%
===== =====
<FN>
(1) Defined as the Company's net interest income divided by total
interest-earning assets.
22
Six Months Ended December 31,
---------------------------------------------------------
1996 1995
--------------------------- --------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------
(Dollars in thousands)
Interest-earning assets:
Loans receivable $550,557 $25,315 9.20% $527,050 $24,622 9.34%
Investment securities and other
interest-earning assets 78,254 2,128 5.44 75,909 1,998 5.26
------- ------ ---- ------- ------- ----
Total interest-earning assets $628,811 27,443 8.73 $602,959 26,620 8.83
======= ------ ---- ======= ------ ----
Interest-bearing liabilities:
Demand deposits $110,043 1,364 2.48 $102,434 1,250 2.44
Savings deposits 36,039 446 2.48 37,482 469 2.50
Time deposits 232,263 6,432 5.54 236,552 6,814 5.76
------- ------ ---- ------- ------ ----
Total deposits 378,345 8,242 4.36 376,468 8,533 4.53
FHLBank advances and other borrowings 198,567 5,875 5.92 187,298 5,418 5.79
------- ------ ---- ------- ------ ----
Total interest-bearing liabilities $576,912 14,117 4.89 $563,766 13,951 4.99
======= ------ ---- ======= ------ ----
Net interest income:
Interest rate spread $13,326 3.83% $12,669 3.88%
====== ==== ====== ====
Net interest margin(1) 4.24% 4.20%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 109.0% 107.0%
===== =====
<FN>
(1) Defined as the Company's net interest income divided by total
interest-earning assets.
23
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-
earning assets and interest-bearing liabilities for the periods shown.
For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i)
changes in rate (i.e., changes in rate multiplied by old volume) and
(ii) changes in volume (i.e., changes in volume multiplied by old
rate). For purposes of this table, changes attributable to both rate
and volume which cannot be segregated have been allocated
proportionately to volume and to rate.
Three Months Ended December 31, Six Months Ended December 31,
1996 vs. 1995 1996 vs. 1995
-------------------------------- ------------------------------
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 $(149) $ 457 $ 308 $(378) $1,071 $ 693
Investment securities and
other interest-earning assets 13 15 28 67 63 130
--- --- --- --- ----- ---
Total interest-earning assets (136) 472 336 (311) 1,134 823
--- --- --- --- ----- ---
Interest-bearing liabilities:
Demand deposits 13 56 69 20 94 114
Savings deposits (1) (12) (13) (5) (18) (23)
Time deposits (103) (168) (271) (260) (122) (382)
--- --- --- --- ----- ---
Total deposits (91) (124) (215) (245) (46) (291)
FHLBank advances and other borrowings 97 201 298 126 331 457
--- --- --- --- ----- ---
Total interest-bearing liabilities 6 77 83 (119) 285 166
--- --- --- --- ----- ---
Net interest income $(142) $395 $ 253 $(192) $ 849 $ 657
=== === === === ===== ===
24
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's capital position remained strong, with stockholders'
equity at $60.2 million, or 9% of total assets of $669 million at
December 31, 1996 compared to equity at $67.8 million, or 10.1%, of
total assets of $668 million at June 30, 1996. In addition, the Bank
exceeds each of the regulatory capital requirements. At December 31,
1996, the Bank had ratios of tangible and core capital to assets of
7.9% and risk-based capital of 12%. 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, 1996, the Bank's liquidity ratio was 6.9%, compared to
7.3% at June 30, 1996. Management believes that the Company has
sufficient cash flows and borrowing capacity available to meet its
commitments and other foreseeable cash needs for operations. At
December 31, 1996, the Company had commitments of approximately $56
million to fund loan originations, issued lines of credit, outstanding
letters of credit and unadvanced loans.
At December 31, 1996, the investment securities held to maturity
included $67,000 of gross unrealized gains and $51,000 of gross
unrealized losses related to securities intended to be held until
maturity. The unrealized gains and losses are not expected to have a
material effect on future earnings beyond the usual amortization of
acquisition premium or accretion of discount because no sale of the
investment portfolio is foreseen.
The Company's primary sources of funds are savings deposits,
FHLBank advances, other borrowings, loan repayments, proceeds from
sales of loans and available-for-sale securities and funds provided
from operations. The Company utilizes particular sources of funds
based on the comparative costs and availability at the time. The
Company has from time to time chosen not to pay rates on deposits as
high as the rates paid by certain of its competitors and, when
necessary, supplement deposits with less expensive alternative sources
of funds.
25
STATEMENT OF CASH FLOWS
During the six months ended December 31, 1996 and 1995, the Company
had positive cash flows from operating activities, and during the six
months ended December 30, 1995, the Company had positive cash flows
from financing activities. The Company experienced negative cash
flows from investing activities during the six months ended December
31, 1996 and 1995, and had negative cash flows from financing
activities during the six months ended December 31, 1996.
Cash flows from operating activities for the periods covered by the
Statements of Cash Flows have been primarily related to adjustments in
deferred assets, credits and other liabilities, the provision for loan
losses and losses on foreclosed assets, depreciation, sale of
foreclosed assets and the amortization of deferred loan origination
fees and discounts (premiums) on loans and investments, all of which
are non-cash or non-operating adjustments to operating cash flows. As
a result, net income, adjusted for non-cash and non-operating items,
was the primary source of cash flows from operating activities.
Operating activities provided cash flows of $4.9 million and $6.3
million in cash during the six months ended December 31, 1996 and
1995, respectively.
During the six months ended December 31, 1996 and 1995, investing
activities used cash of $15.2 million and $27.7 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 used $3.2
million in cash during the six months ended December 31, 1996 and
provided $31 million in cash during the six months ended December 30,
1995. Financing activities in the future are expected to primarily
include changes in deposits, changes in FHLBank advances, and changes
in short-term borrowings.
DIVIDENDS
During the six months ended December 31, 1996 and December 31,
1995, respectively, the Company declared and paid dividends of $0.1875
and $0.1750 per share. The Board of Directors meets regularly to
consider the level and the timing of dividend payments.
26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant and its subsidiaries are involved as plaintiff or
defendant in various legal actions arising in the normal course of
their business. While the ultimate outcome of the various legal
proceedings involving the Registrant and its subsidiaries cannot be
predicted with certainty, it is the opinion of management, after
consultation with legal counsel, that these legal actions currently
are not material to the Registrant.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Common Stockholders
See Item 4 of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
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 October 8, 1996, the Registrant filed a Form 8-K disclosing
two items which materially impacted the September 30, 1996 quarterly
earnings. The status of a stock buy-back program and the announcement
of a new stock buy-back program were also disclosed.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Great Southern Bancorp, Inc.
Registrant
Date: February 13, 1997 /s/ William V. Turner
--------------------------
William V. Turner
Chairman of the Board,
President and Chief
Executive Officer
Date: February 13 1997 /s/ Don M. Gibson
--------------------------
Don M. Gibson,
Executive Vice President and
Chief Financial Officer
28
Exhibit Index
-------------
Exhibit
No. Description
- ------- -----------
11 Statement Re Computation of Earnings Per Share
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
29
Exhibit 11- Statement Re Computation of Earnings Per Share
Three Months Ended Six Months Ended
December 30, December 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Primary:
Average shares outstanding 8,338,937 8,966,284 8,554,730 8,980,466
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 304,666 284,422 291,225 284,422
--------- --------- --------- ---------
Primary shares 8,643,603 9,250,706 8,845,955 9,264,888
========= ========= ========= =========
Net income $2,907,735 $2,478,028 $3,401,032 $5,362,616
========= ========= ========= =========
Per share amount $0.34 $0.27 $0.38 $0.58
==== ==== ==== ====
Fully diluted:
Average shares outstanding 8,338,937 8,966,284 8,554,730 8,980,466
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 315,227 295,560 315,227 295,560
--------- --------- --------- ---------
Primary shares 8,654,164 9,261,844 8,869,957 9,276,026
========= ========= ========= =========
Net income $2,907,735 $2,478,028 $3,401,032 $5,362,616
========= ========= ========= =========
Per share amount $0.34 $0.27 $0.38 $0.58
==== ==== ==== ====