UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________________
Commission File Number 0-23122
GREAT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 61-1251805
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
ONE FINANCIAL SQUARE, LOUISVILLE, KENTUCKY 40202
(Address of principal executive offices) (Zip Code)
(502) 562-6000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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. X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, 13,804,439 shares
as of August 5, 1997.
GREAT FINANCIAL CORPORATION
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION 24
SIGNATURES 25
EXHIBITS INDEX 26
GREAT FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
1997 1996
----------- ------------
(unaudited)
Assets
Cash and cash equivalents ....................... $ 62,270 $ 126,323
Available-for-sale securities, at fair value .... 796,750 667,542
Mortgage loans held for sale .................... 91,338 65,546
Loans receivable, net of allowance for loan
losses of $14,593 (1997) and $13,538 (1996) .. 1,920,058 1,867,511
Federal Home Loan Bank stock, at cost ........... 37,870 34,816
Property and equipment .......................... 35,735 34,127
Mortgage servicing rights ....................... 36,247 37,187
Other assets .................................... 65,959 64,110
----------- -----------
Total assets ......................................... $3,046,227 $2,897,162
=========== ===========
Liabilities
Deposits:
Non-interest bearing ............................ $ 132,198 $ 112,129
Interest bearing ................................ 1,761,347 1,691,874
----------- -----------
Total deposits ................................ 1,893,545 1,804,003
Borrowed funds .................................... 834,812 781,297
Other liabilities ................................. 36,586 31,408
----------- -----------
Total liabilities ............................. 2,764,943 2,616,708
----------- -----------
Commitments and contingencies
Stockholders' equity
Preferred stock, $1.00 par value; 1,000,000
shares authorized and unissued
Common stock, $.01 par value; 24,000,000
shares authorized; 16,531,250 shares issued .. 165 165
Additional paid-in capital ...................... 164,568 162,279
Retained earnings - subject to restrictions ..... 186,431 177,201
Treasury stock, 2,740,548 shares (1997) and
2,414,518 shares (1996), at cost ............. (61,599) (48,845)
Unearned ESOP shares ............................ (9,643) (10,194)
Unearned compensation - stock compensation plans. (2,408) (3,058)
Net unrealized gains on available-for-sale
securities .................................... 3,770 2,906
----------- -----------
Total stockholders' equity ................... 281,284 280,454
----------- -----------
Total liabilities and stockholders' equity ........... $3,046,227 $2,897,162
=========== ===========
See notes to consolidated financial statements.
3
GREAT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(unaudited)
Interest income
Loans ................................... $41,019 $38,292 $ 81,061 $75,826
Securities .............................. 14,668 9,646 26,905 17,213
Other ................................... 59 302 275 547
--------- --------- --------- ---------
Total interest income ................ 55,746 48,240 108,241 93,586
--------- --------- --------- ---------
Interest expense
Deposits ................................ 22,763 19,448 44,559 37,824
Borrowed funds .......................... 12,346 9,850 22,645 18,942
--------- --------- --------- ---------
Total interest expense ............... 35,109 29,298 67,204 56,766
--------- --------- --------- ---------
Net interest income .......................... 20,637 18,942 41,037 36,820
Provision for loan losses .................... 775 616 1,498 1,236
--------- --------- --------- ---------
Net interest income after provision for loan
losses ...................................... 19,862 18,326 39,539 35,584
--------- --------- --------- ---------
Non-interest income
Servicing fee income .................... 6,296 6,530 12,648 13,284
Amortization of mortgage servicing rights (2,104) (1,948) (4,146) (3,789)
Commissions from sales of investment and
insurance products...................... 955 488 1,771 959
Service charges on deposit accounts...... 736 610 1,444 1,068
Gain on sale of mortgage loans .......... 1,781 1,889 3,143 3,402
Gain on sale of mortgage servicing rights 1,470 1,240 1,506 1,303
Gain on sale of retail banking office.... 772
Gain (loss) on sale of securities ....... (11) (271) 517 385
Other ................................... 615 475 1,268 1,158
--------- --------- --------- ---------
Net non-interest income .............. 9,738 9,013 18,923 17,770
--------- --------- --------- ---------
Non-interest expense
Compensation and benefits ............... 8,951 8,243 17,851 16,025
Office occupancy and equipment .......... 2,331 2,148 4,576 4,224
Office supplies, postage and telephone .. 1,363 1,241 2,865 2,505
Advertising and marketing ............... 896 882 1,701 1,834
Federal deposit insurance premiums ...... 291 862 557 1,688
Other ................................... 3,674 3,738 7,463 6,944
--------- --------- --------- ---------
Total non-interest expense ........... 17,506 17,114 35,013 33,220
--------- --------- --------- ---------
Income before income taxes.................... 12,094 10,225 23,449 20,134
Income tax expense............................ 4,173 3,664 8,075 7,142
--------- --------- --------- ---------
Net income.................................... $ 7,921 $ 6,561 $15,374 $12,992
========= ========= ========= =========
Earnings per share $0.57 $0.46 $1.09 $0.90
========= ========= ========= =========
See notes to consolidated financial statements.
4
GREAT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended June 30,
---------------------------
1997 1996
----------- -----------
(unaudited)
Net cash used in operating activities.......... $ (7,907) $ (4,907)
----------- -----------
Investing activities:
Purchases of available-for-sale securities. (384,800) (240,028)
Maturities of available-for-sale securities 107,545 62,756
Principal collected on mortgage-backed
securities ............................... 33,016 33,915
Proceeds from sales of available-for-sale
securities ............................... 117,962 33,884
Increase in loans receivable............... (55,662) (22,060)
Purchases of property and equipment and
other assets ............................. (3,519) (5,174)
Originations of mortgage servicing rights.. (2,051) (2,280)
Purchases of mortgage servicing rights..... (1,438) (51)
Proceeds from sale of mortgage servicing
rights.................................... 1,776 1,375
Purchases of Federal Home Loan Bank Stock.. (1,789) (6,771)
Proceeds from sale of other real estate
owned..................................... 2,240 610
Cash used in sale of retail banking office. (14,900)
Purchase of Lexington Federal Savings Bank,
FSB, net of cash and cash equivalents
acquired.................................. (30,363)
Other ..................................... (396) 48
----------- -----------
Net cash used in investing activities..... (202,016) (174,139)
----------- -----------
Financing activities:
Increase in deposits ...................... 105,374 136,542
Increase (decrease) in short-term
borrowings................................ 19,517 (39,543)
Long-term advances from Federal Home Loan
Bank ..................................... 100,000 90,750
Payments on long-term advances from Federal
Home Loan Bank ........................... (66,002) (24,585)
Increase in mortgage escrow funds ......... 5,879 5,702
Purchases of treasury stock ............... (17,779) (18,794)
Dividends paid ............................ (3,493) (2,964)
Exercise of stock options ................. 2,374 100
----------- ------------
Net cash provided by financing activities. 145,870 147,208
----------- ------------
Net decrease in cash and cash equivalents ..... (64,053) (31,838)
Cash and cash equivalents at beginning of
period ...................................... 126,323 84,167
----------- ------------
Cash and cash equivalents at end of period..... $ 62,270 $ 52,329
=========== ============
Cash paid during the period for:
Interest .................................. $ 66,949 $ 57,030
Income taxes, net ......................... $ 8,277 $ 5,640
Supplemental disclosure of noncash activities:
Additions to real estate acquired in
settlement of loans........................ $ 945 $ 1,506
Accrual of proceeds from sale of mortgage
servicing rights........................... $ 1,594 $ 1,083
See notes to consolidated financial statements.
5
GREAT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Great Financial Corporation (Company) and its subsidiary,
Great Financial Bank, FSB (Bank). All material intercompany balances
and transactions have been eliminated. The consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included. Such
adjustments consist only of normal recurring accruals. It is suggested
that these consolidated financial statements be read in conjunction
with the Company's audited financial statements included in its annual
report on Form 10-K for the year ended December 31, 1996. Results of
operations for interim periods are not necessarily indicative of the
results that may be expected for the entire fiscal year.
2. CASH AND CASH EQUIVALENTS
June 30, December 31,
1997 1996
--------- ------------
(in thousands)
Cash and due from banks $46,508 $ 27,702
Interest-bearing deposits with banks 5,762 1,315
Federal funds sold 10,000 33,200
Securities purchased under agreements to resell 64,106
--------- ------------
Total cash and cash equivalents $62,270 $126,323
========= ============
3. SECURITIES
June 30, 1997
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
Available-for-sale securities:
U.S. Government and agency obligations $146,108 $ 37 $ (146) $145,999
Other debt securities ................ 28,239 6 (134) 28,111
--------- ---------- ---------- ---------
Total debt securities ............... 174,347 43 (280) 174,110
Mortgage-backed securities ........... 616,504 7,229 (2,632) 621,101
Equity securities .................... 99 1,440 1,539
--------- ---------- ---------- ---------
Total available-for-sale securities ... $790,950 $8,712 $(2,912) $796,750
========= ========== ========== =========
6
December 31, 1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
Available-for-sale securities:
U.S. Government and agency obligations $189,048 $ 686 $ (299) $189,435
Other debt securities ................ 1,875 23 1,898
--------- ---------- ---------- ---------
Total debt securities .............. 190,923 709 (299) 191,333
Mortgage-backed securities ........... 471,873 5,183 (2,388) 474,668
Equity securities .................... 275 1,268 (2) 1,541
--------- --------- --------- ---------
Total available-for-sale securities .... $663,071 $7,160 $(2,689) $667,542
========= ========= ========= =========
Gross realized gains for the three and six months ended June 30, 1997
were $186,410 and $748,938, respectively. Gross realized losses for the
same periods were $197,624 and $232,085, respectively. Gross realized
gains for the three and six months ended June 30, 1996 were $218,203 and
$1,272,886, respectively. Gross realized losses for the same periods
were $489,022 and $887,325, respectively. In computing gains and losses
cost is determined by the specific identification method for debt and
mortgage-backed securities. Cost is determined by the average cost
method for equity securities.
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
Balance, beginning of period ....... $14,128 $12,214 $13,538 $11,821
Provision charged to income ........ 775 616 1,498 1,236
Charge-offs ........................ (347) (321) (600) (564)
Recoveries ......................... 37 22 157 38
Acquired in merger ................. 500 500
-------- -------- -------- --------
Balance, end of period ............. $14,593 $13,031 $14,593 $13,031
======== ======== ======== ========
5. LOAN SERVICING
The Company was servicing a portfolio consisting of 79,700 and 83,000
mortgage loans at June 30, 1997 and December 31, 1996, respectively, that
are owned by investors and are not included in the accompanying financial
statements. Mortgage loans serviced for others are summarized as follows:
June 30, December 31,
1997 1996
------------- ------------
(in thousands)
GNMA .............................. $2,992,186 $3,184,843
FNMA .............................. 788,419 970,435
FHLMC ............................. 695,394 672,976
Other investors ................... 341,549 240,642
------------- ------------
Total servicing portfolio ......... $4,817,548 $5,068,896
============= ============
7
In addition to servicing mortgage loans for others, the Company is a
subservicer for third-party servicing owners, including GNMA and FHLMC.
At June 30, 1997 and December 31, 1996, the Company subserviced a total
of 14,200 and 10,700 loans, respectively.
Custodial escrow balances maintained in connection with the foregoing
loan servicing were $119,063,000 and $102,339,000, at June 30, 1997
and December 31, 1996, respectively, of which $98,764,000 and
$76,257,000, respectively, are included in deposits in the accompanying
consolidated balance sheets.
6. BORROWED FUNDS
June 30, 1997 December 31, 1996
------------------- -------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
-------- -------- -------- --------
(dollars in thousands)
Short-term borrowings:
Securities sold under agreements to
repurchase ......................... $208,999 5.69% $ 9,000 5.37%
Advances from Federal Home Loan Bank . 58,500 5.81% 200,924 5.62%
Borrowings under lines of credit ..... 49,271 5.66% 87,329 5.51%
-------- --------
Total short-term borrowings ........ 316,770 297,253
-------- --------
Long-term borrowings from Federal Home
Loan Bank:
Adjustable rate advances, interest
based on LIBOR; 5.78% (1997) and
5.61%(1996) ......................... 100,000 150,000
Fixed rate advances, 6.14% (1997)
and 6.27% (1996) .................... 383,769 298,561
Mortgage matched and other advances
payable monthly through 2026 with
interest rates from 3.88% to 8.05% .. 34,273 35,483
-------- --------
Total long-term borrowings ......... 518,042 484,044
-------- --------
Total borrowed funds ................... $834,812 $781,297
======== ========
Information concerning borrowings under securities sold under agreements
to repurchase is summarized as follows:
At or For the Three Months At or For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(dollars in thousands)
Average balance during the period .......... $175,458 $ 67,524 $116,733 $ 59,386
Average interest rate during the period .... 5.67% 5.44% 5.61% 5.51%
Maximum month-end balance during the
period .................................... $208,999 $111,741 $208,999 $111,741
Mortgage-backed securities underlying
the agreements at end of period:
Carrying value .......................... $212,572 $ 96,859
Fair value .............................. $214,165 $ 98,090
8
Mortgage-backed securities sold under agreements to repurchase were
delivered to the broker-dealers who arranged the transactions. The
broker-dealers may have sold, loaned, or otherwise disposed of such
securities to other parties in the normal course of their operations, and
have agreed to resell the Company substantially identical securities at
the maturities of the agreements. The agreements outstanding at June
30, 1997 mature within one year.
7. SEGMENT INFORMATION
The schedules on pages 11 and 12 present information concerning the
Company's operations which include two reportable segments: banking and
mortgage banking businesses. The banking segment is composed of those
operations involved in making loans held for investment, primarily on
single family residences; investing in government and government
agencies' securities and receiving deposits from customers. The mortgage
banking segment is made up of those operations involved in originating
and purchasing residential mortgage loans for resale in the secondary
mortgage market an in servicing and subservicing loans for others.
Intersegment interest income and expense represent (i) interest on
advances from the banking segment to the mortgage banking segment to fund
the origination of loans computed at a rate tied to a short-term index
and to fund the investment in mortgage servicing rights computed at a
rate tied to a medium-term index, (ii) interest on custodial balances
of the mortgage banking segment on deposit with the banking segment
computed at a rate tied to a medium-term index, (iii) interest on
advances from the Parent Company (in "other" segment) to the banking
segment computed at a rate tied to a short-term index, and (iv) interest
expense incurred by the banking segment on a loan from the Parent Company
to the ESOP computed at 6%.
8. SALE OF RETAIL BANKING OFFICE
On March 14, 1997, the Company completed the sale of the Bank's retail
banking office in Liberty, Kentucky. Property and equipment with a
depreciated value of $142,000 and deposits with a carrying value of
$15,832,000 were transferred as well as cash of $14,900,000 and loans of
$24,000. The net gain on the sale was $772,000.
9. EARNINGS PER SHARE
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share." This statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, "Earnings per Share."
This statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier
application is not permitted. The pro forma effects of implementation of
this statement on the Company's reported net income and earnings per
share are presented below.
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share amounts)
Net income As reported $ 7,921 $ 6,561 $15,374 $12,992
Income available to common stockholders Pro forma 7,921 6,561 15,374 12,992
Primary earnings per share As reported $0.57 $0.46 $1.10 $0.90
Basic earnings per share Pro forma 0.61 0.49 1.18 0.96
Fully diluted earnings per share As reported $0.57 $0.46 $1.09 $0.90
Diluted earnings per share Pro forma 0.57 0.46 1.09 0.90
9
10. RECLASSIFICATIONS
Certain amounts have been reclassified in the previous year's financial
statements to conform with the current year's classifications.
10
SEGMENT INFORMATION
Three Months Ended June 30, 1997
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
Interest income:
Unaffiliated customers $ 50,622 $ 5,120 $ 4 $ 55,746
Intersegment 3,446 1,819 286 $ (5,551)
----------- ----------- ---------- ------------ ------------
Total interest income 54,068 6,939 290 (5,551) 55,746
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 34,365 744 35,109
Intersegment 2,105 3,446 (5,551)
----------- ----------- ---------- ------------ ------------
Total interest expense 36,470 4,190 (5,551) 35,109
----------- ----------- ---------- ------------ ------------
Net interest income 17,598 2,749 290 20,637
Provision for loan losses (775) (775)
Non-interest income 1,444 10,245 935 (2,886) 9,738
Non-interest expense (10,282) (8,887) (1,223) 2,886 (17,506)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 7,985 $ 4,107 $ 2 $ 12,094
=========== =========== ========== ============ ============
Identifiable assets $2,768,426 $314,538 $266,116 $(302,853) $3,046,227
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 655 $ 229 $ 9 $ 893
=========== =========== ========== ============ ============
Three Months Ended June 30, 1996
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
Interest income:
Unaffiliated customers $ 42,039 $ 6,197 $ 4 $ 48,240
Intersegment 3,261 2,144 252 $ (5,657)
----------- ----------- ---------- ------------ ------------
Total interest income 45,300 8,341 256 (5,657) 48,240
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 27,555 1,743 29,298
Intersegment 2,397 3,259 1 (5,657)
----------- ----------- ---------- ------------ ------------
Total interest expense 29,952 5,002 1 (5,657) 29,298
----------- ----------- ---------- ------------ ------------
Net interest income 15,348 3,339 255 18,942
Provision for loan losses (616) (616)
Non-interest income 799 10,208 275 (2,269) 9,013
Non-interest expense (9,937) (8,726) (720) 2,269 (17,114)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 5,594 $ 4,821 $ (190) $ 10,225
=========== =========== ========== ============ ============
Identifiable assets $2,497,961 $368,822 $261,362 $(320,053) $2,808,092
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 535 $ 320 7 $ 862
=========== =========== ========== ============ ============
11
SEGMENT INFORMATION
Six Months Ended June 30, 1997
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
Interest income:
Unaffiliated customers $ 98,185 $ 10,049 $ 7 $ 108,241
Intersegment 6,766 3,376 626 $ (10,768)
----------- ----------- ---------- ------------ ------------
Total interest income 104,951 13,425 633 (10,768) 108,241
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 65,871 1,333 67,204
Intersegment 4,002 6,766 (10,768)
----------- ----------- ---------- ------------ ------------
Total interest expense 69,873 8,099 (10,768) 67,204
----------- ----------- ---------- ------------ ------------
Net interest income 35,078 5,326 633 41,037
Provision for loan losses (1,498) (1,498)
Non-interest income 4,033 18,463 1,838 (5,411) 18,923
Non-interest expense (20,361) (17,729) (2,334) 5,411 (35,013)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 17,252 $ 6,060 $ 137 $ 23,449
=========== =========== ========== ============ ============
Identifiable assets $2,768,426 $314,538 $266,116 $(302,853) $3,046,227
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 1,252 $ 457 $ 17 $ 1,726
=========== =========== ========== ============ ============
Six Months Ended June 30, 1996
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
Interest income:
Unaffiliated customers $ 81,613 $ 11,966 $ 7 $ 93,586
Intersegment 6,070 3,218 671 $ (9,959)
----------- ----------- ---------- ------------ ------------
Total interest income 87,683 15,184 678 (9,959) 93,586
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 53,231 3,535 56,766
Intersegment 3,890 6,068 1 (9,959)
----------- ----------- ---------- ------------ ------------
Total interest expense 57,121 9,603 1 (9,959) 56,766
----------- ----------- ---------- ------------ ------------
Net interest income 30,562 5,581 677 36,820
Provision for loan losses (1,236) (1,236)
Non-interest income 2,652 19,007 492 (4,381) 17,770
Non-interest expense (19,322) (17,021) (1,258) 4,381 (33,220)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 12,656 $ 7,567 $ (89) $ 20,134
=========== =========== ========== ============ ============
Identifiable assets $2,497,961 $368,822 $261,362 $(320,053) $2,808,092
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 1,043 $ 635 9 $ 1,687
=========== =========== ========== ============ ============
12
GREAT FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
incurred on interest-bearing liabilities, such as deposits and borrowed funds.
The results are also significantly affected by its mortgage banking activities
which involve the origination, purchase, sale, servicing and subservicing of
residential mortgage loans. The Company also generates non-interest income such
as transactional fees and gain or loss on sale of mortgage loans, mortgage
servicing rights and securities. In addition, commissions are earned from the
sale of annuity, mutual fund and insurance products. The Company's operating
expenses consist primarily of employee compensation, occupancy expenses, federal
deposit insurance premiums and other general and administrative expenses. The
Company's results of operations are significantly affected by its periodic
amortization of mortgage servicing rights and by its provisions for loan losses.
The Company's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory agencies.
Any forward-looking statements included in this report or in any report included
by reference, which reflect management's best judgement based on factors known,
involve risks and uncertainties, as discussed above. Actual results could differ
materially from those expressed or implied.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 TO DECEMBER 31, 1996
Assets increased $149.1 million during the first six months of 1997 to $3.0
billion. The two largest components of asset growth were net loans receivable,
which increased $52.5 million, and available-for-sale securities, which
increased $129.2 million.
Net loans receivable totaled $1.9 billion at June 30, 1997. The Company
continues to diversify its loan portfolio and enhance portfolio yield by
increasing the percentage of consumer and commercial loans in the portfolio. The
following table shows the composition of the loan portfolio at June 30, 1997 in
comparison to December 31, 1996:
Loan Portfolio Composition at
-----------------------------
June 30, December 31,
1997 1996
------------- ------------
Loan category:
One-to-four family residential ..... 69.3% 72.4%
Multi-family residential ........... 8.3% 7.8%
Commercial real estate ............. 6.7% 5.3%
Construction and land .............. 5.9% 6.7%
Non-mortgage, primarily consumer ... 9.8% 7.8%
------------- ------------
100.0% 100.0%
============= ============
During the first six months of 1997, the Company purchased mortgage-backed
securities, funded by repurchase agreements, and government and debt securities,
funded by advances from the FHLB. Certain of the leveraged purchases were
structured to grow the Company without incurring significant interest rate risk,
and others were structured to manage interest rate risk related to borrowed
funds. The Company also used certain maturing short-term liquid assets to reduce
short-term borrowings. Mortgage-backed securities increased 30.9% during the
first six months of 1997 and debt and equity securities decreased by 8.9%. In
total, available-for-sale securities increased 19.4% during the first half of
1997.
13
Deposits increased $89.5 million or 5.0% during the first six months of 1997.
This increase was the result of growth in deposits of $105.3 million, offset by
a sale of $15.8 million of deposits (See note 8 - "Sale of Retail Banking
Office"). Approximately $82.4 million of the growth in deposits was due to
increased retail deposits attracted through advertising, competitive deposit
rates and retail sales efforts. The remainder was primarily due to an increase
in custodial escrow balances associated with the portfolio of loans serviced for
others.
Borrowed funds increased $53.5 million during the first six months of 1997, with
long-term FHLB advances increasing by $34.0 million, and short-term borrowings
increasing $19.5 million. Long-term fixed rate FHLB advances were increased as
part of the Company's strategy to manage interest rate risk related to borrowed
funds. The Company also replaced certain long-term adjustable rate FHLB advances
with short-term repurchase agreements to improve cash management flexibility.
Stockholders' equity totaled $281.3 million at June 30, 1997 or 9.2% of total
assets, which is an increase of $830,000 over year-end 1996. The increase in
total equity was the net result of proceeds from the exercise of stock options
of $2.4 million, the Company purchasing 562,800 shares of its common stock at a
cost of $17.8 million; an increase of $863,000 in net unrealized gains on
available-for-sale securities; dividends of $3.5 million; a reduction in
unearned balances of stock compensation plans by $3.5 million; and earnings of
$15.4 million for the six months ended June 30, 1997.
RESULTS OF OPERATIONS
OVERVIEW. The Company's net income of $7.9 million for the three months ended
June 30, 1997 was $1.4 million or 21% greater than the second quarter of 1996.
For the six months ended June 30, 1997 net income of $15.4 million was 18%
greater than the same period last year. These results were primarily due to
increased net interest income and fee income, partially offset by increased
non-interest expense.
NET INTEREST INCOME. For the second quarter of 1997, net interest income
increased 9% or $1.7 million versus the second quarter of 1996. This increase
was primarily the result of substantial growth in the Company's balance sheet,
partially offset by a slight decline in the interest rate spread and a reduction
in the ratio of interest-earning assets to interest-beearing liabilities.
Average interest-earning assets and average interest-bearing liabilities
increased $396.0 million and $431.8 million, respectively, in the second quarter
of 1997 versus the second quarter of 1996, resulting in $1.4 million of the
increase in net interest income. These average balance increases were the result
of growth from normal business operations and the acquisition of Lexington
Federal Savings Bank (Lexington Federal) in June 1996. The average yield on
interest-earning assets decreased from 7.99% for the second quarter of 1996 to
7.92% for the second quarter of 1997. This decrease was primarily due to a shift
in the mix of interest-earning assets resulting in a higher percentage of
available-for-sale securities and a lower percentage of loans receivable. The
average cost of interest-bearing liabilities decreased from 5.56% for the 1996
second quarter to 5.52% for the 1997 second quarter, primarily due to the growth
in shorter-term, lower rate certificates of deposit and decreased borrowing
costs. Changes in rates resulted in $296,000 of the increase in net interest
income and a decrease in the interest rate spread from 2.43% for the second
quarter of 1996 to 2.40% for the second quarter of 1997. Net interest margin
decreased to 2.93% for the second quarter of 1997 from 3.14% for the same period
last year primarily due to the reduction in the ratio of interest-earning assets
to interest-bearing liabilities resulting from stock repurchases. The Company's
initiative to increase shareholder value by repurchasing certain of its
outstanding common stock results in cash being used to repurchase stock, which
would otherwise be invested in interest-earning assets or used to reduce
interest-bearing borrowings, thereby lowering the ratio of interest-earning
assets to interest-bearing liabilities.
14
Net interest income was up $4.2 million or 11% for the first six months of 1997
compared to the same period of 1996. Average interest-earning assets and average
interest-bearing liabilities increased $397.4 million and $428.0 million,
respectively, in the first six months of 1997 versus the same period of 1996,
resulting in $3.1 million of the increase in net interest income. These average
balance increases were the result of growth from normal business operations, the
acquisition of Lexington Federal and the effects of liquidity and interest rate
risk management strategies on the securities portfolio and borrowed funds. The
average yield on interest-earning assets decreased from 8.03% for the first six
months of 1996 to 7.96% for the first six months of 1997. This decrease was
primarily due to a shift in the mix of interest-earning assets resulting in a
higher percentage of available-for-sale securities and a lower percentage of
loans receivable. The average cost of interest-bearing liabilities decreased
from 5.58% for the first six months of 1996 to 5.48% for the first six months of
1997, primarily due to the growth in shorter-term, lower rate certificates of
deposit and decreased borrowing costs. Changes in rates resulted in $1.2 million
of the increase in net interest income and an increase in the interest rate
spread from 2.45% for the first six months of 1996 to 2.48% for the same period
of 1997. Net interest margin decreased to 3.02% for the first six months of 1997
from 3.16% for the same period last year, primarily due to the reduction in the
ratio of interest-earning assets to interest-bearing liabilities resulting from
stock repurchases.
15
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income earned on
interest-earning assets and expense incurred on interest-bearing liabilities.
Net interest income depends on the volume of interest-earning assets and
interest-bearing liabilities and the rates earned or paid on them. The following
tables set forth certain information relating to the Company's average
consolidated balance sheets and consolidated statements of income for the three
month and six month periods ended June 30, 1997 and 1996. The yields and costs
are derived by dividing income or expense by the average balance of assets and
liabilities, respectively. For 1997, average balances are derived from daily
balances. For 1996, average balances for interest-earning assets and
interest-bearing liabilities are derived from daily balances. All other average
balances are derived from month-end balances. Management does not believe that
the use of average monthly balances instead of average daily balances has caused
any material differences in the information presented. The average balance of
loans receivable includes loans on which the Company has discontinued accruing
interest. Interest includes fees which are considered adjustments to yields and
costs.
Three Months Ended June 30,
----------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost (5) Balance Interest Cost (5)
---------- -------- --------- ---------- -------- --------
(dollars in thousands)
Assets:
Interest-earning assets:
Loans receivable, net (1) ...... $1,971,136 $41,019 8.35% $1,867,216 $38,292 8.25%
Mortgage-backed securities (2).. 665,498 11,823 7.13% 443,778 8,192 7.42%
Debt and equity securities (2).. 146,134 2,181 5.99% 67,818 1,000 5.93%
Other .......................... 4,516 59 5.24% 23,032 302 5.27%
FHLB stock ..................... 36,780 664 7.24% 26,176 454 6.98%
---------- -------- --------- ---------- -------- --------
Total interest-earning assets . 2,824,064 55,746 7.92% 2,428,020 48,240 7.99%
-------- --------- -------- --------
Non-interest-earning assets ......... 183,683 161,551
---------- ----------
Total assets ................... $3,007,747 $2,589,571
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts .............. $ 127,093 964 3.04% $ 130,477 998 3.08%
Demand deposit accounts......... 191,712 1,882 3.94% 109,520 964 3.54%
Money market accounts .......... 199,494 2,448 4.92% 162,022 1,866 4.63%
Certificate accounts ........... 1,202,905 17,469 5.82% 1,065,799 15,620 5.89%
Short-term borrowings .......... 299,365 4,330 5.80% 187,765 2,844 6.09%
Long-term borrowings ........... 528,884 8,016 6.08% 462,113 7,006 6.10%
---------- -------- --------- ---------- -------- --------
Total interest-bearing
liabilities ................. 2,549,453 35,109 5.52% 2,117,696 29,298 5.56%
-------- --------- -------- --------
Non-interest-bearing liabilities .... 180,357 197,134
---------- ----------
Total liabilities .............. 2,729,810 2,314,830
Stockholders' equity ................ 277,937 274,741
---------- ----------
Total liabilities and
stockholders' equity $3,007,747 $2,589,571
========== ==========
Net interest income / interest
rate spread (3) ...................... $20,637 2.40% $18,942 2.43%
Net interest earning assets / net ======== ========= ======== ========
interest margin (4) ................. $ 274,611 2.93% $ 310,324 3.14%
========== ========= ========== ========
Ratio of interest-earning assets
to interest-bearing liabilities ..... 110.77% 114.65%
========== ==========
- ---------------
<FN>
(1) Loans receivable, net include mortgage loans held for sale.
(2) Yields on securities do not give effect to changes in fair value that are
reflected as a component of stockholders' equity.
(3) Interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
(5) For purposes of calculating these figures, all interest amounts are
annualized.
</FN>
16
Six Months Ended June 30,
----------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost (5) Balance Interest Cost (5)
---------- -------- --------- ---------- -------- --------
(dollars in thousands)
Assets:
Interest-earning assets:
Loans receivable, net (1) ...... $1,952,013 $81,061 8.37% $1,836,984 $75,826 8.30%
Mortgage-backed securities (2).. 590,987 21,004 7.17% 395,937 14,384 7.31%
Debt and equity securities (2).. 152,897 4,636 6.11% 66,732 1,966 5.92%
Other .......................... 10,837 275 5.12% 20,647 547 5.33%
FHLB stock ..................... 35,807 1,265 7.12% 24,839 863 6.99%
---------- -------- --------- ---------- -------- --------
Total interest-earning assets . 2,742,541 108,241 7.96% 2,345,139 93,586 8.03%
-------- --------- -------- --------
Non-interest-earning assets ......... 183,094 173,376
---------- ----------
Total assets ................... $2,925,635 $2,518,515
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts .............. $ 130,069 1,967 3.05% $ 127,893 1,954 3.07%
Demand deposit accounts......... 184,908 3,543 3.86% 97,277 1,586 3.28%
Money market accounts .......... 198,437 4,610 4.68% 158,806 3,667 4.64%
Certificate accounts ........... 1,193,121 34,439 5.82% 1,040,010 30,617 5.92%
Short-term borrowings .......... 237,670 6,718 5.70% 178,678 5,437 6.12%
Long-term borrowings ........... 529,874 15,927 6.06% 443,390 13,505 6.13%
---------- -------- --------- ---------- -------- --------
Total interest-bearing
liabilities ................. 2,474,079 67,204 5.48% 2,046,054 56,766 5.58%
-------- --------- -------- --------
Non-interest-bearing liabilities .... 172,830 192,685
---------- ----------
Total liabilities .............. 2,646,909 2,238,739
Stockholders' equity ................ 278,726 279,776
---------- ----------
Total liabilities and
stockholders' equity $2,925,635 $2,518,515
========== ==========
Net interest income / interest
rate spread (3) ...................... $41,037 2.48% $36,820 2.45%
Net interest earning assets / net ======== ========= ======== ========
interest margin (4) ................. $ 268,462 3.02% $ 299,085 3.16%
========== ========= ========== ========
Ratio of interest-earning assets
to interest-bearing liabilities ..... 110.85% 114.62%
========== ==========
- ---------------
<FN>
(1) Loans receivable, net include mortgage loans held for sale.
(2) Yields on securities do not give effect to changes in fair value that are
reflected as a component of stockholders' equity.
(3) Interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
(5) For purposes of calculating these figures, all interest amounts are
annualized.
</FN>
17
RATE / VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
Three Months Ended June 30, Six Months Ended June 30,
1997 vs. 1996 1997 vs. 1996
-------------------------------- --------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------------- --------------------------------
Volume Rate Total Volume Rate Total
--------- -------- --------- --------- -------- ---------
(in thousands)
Interest-earning assets:
Loans receivable, net .............. $2,239 $ 488 $2,727 $ 4,614 $ 621 $ 5,235
Mortgage-backed securities ......... 3,963 (332) 3,631 6,901 (281) 6,620
Debt and equity securities ......... 1,172 9 1,181 2,604 66 2,670
Other .............................. (241) (2) (243) (252) (20) (272)
FHLB stock ......................... 192 18 210 385 17 402
-------- -------- --------- --------- -------- ---------
Total ......................... 7,325 181 7,506 14,252 403 14,655
-------- -------- --------- --------- -------- ---------
Interest-bearing liabilities:
Passbook accounts .................. (23) (11) (34) 28 (15) 13
Demand deposit accounts ............ 798 120 918 1,636 321 1,957
Money market accounts .............. 458 124 582 911 32 943
Certificate accounts ............... 2,033 (184) 1,849 4,354 (532) 3,822
Short-term borrowings .............. 1,627 (141) 1,486 1,677 (396) 1,281
Long-term borrowings ............... 1,033 (23) 1,010 2,579 (157) 2,422
-------- -------- --------- --------- -------- ---------
Total ......................... 5,926 (115) 5,811 11,185 (747) 10,438
-------- -------- --------- --------- -------- ---------
Net change in net interest income ....... $1,399 $ 296 $1,695 $ 3,067 $1,150 $ 4,217
======== ======== ========= ========= ======== =========
18
PROVISION FOR LOAN LOSSES. The provision for loan losses was $775,000 or 0.16%
(annualized) of average loans in the 1997 second quarter, compared to $616,000
or 0.13% of average loans in the second quarter last year. Net charge-offs were
0.06% of average loans in the second quarter of both years. The provision for
loan losses for the six months ended June 30, 1997 was $1.5 million or 0.15% of
average loans during the period, compared to $1.2 million or 0.14% of average
loans for the same period last year. Net charge-offs decreased when comparing
the two six-month periods, from $526,000 or 0.06% of average loans last year to
$443,000 or 0.05% of average loans this year.
NON-INTEREST INCOME. For the three months ended June 30, 1997, non-interest
income increased 8% or $725,000 in comparison to the same period last year. This
increase was primarily due to increased fee income from sales of investment and
insurance products, service charges on deposit accounts and loan related fees.
The increase in non-interest income of 6% or $1.2 million for the six months
ended June 30, 1997 in comparison to the same period last year, was primarily
attributable to the gain on the sale of a retail banking office and increased
fee income, partially offset by decreased servicing fee income and increased
amortization of mortgage servicing rights. Through an expanded sales staff and
product line, the Company increased fee income from sales of investment,
insurance, loan and deposit products to customers. The Company's decision to
sell the Bank's retail banking office in Liberty, Kentucky, was based on
analysis concluding that the branch no longer had sufficient market share for
profitable operations. Servicing fee income decreased in comparison to the prior
year due to a decrease in the number of loans the Company is subservicing for
third-parties. Increased amortization of mortgage servicing rights was
attributable to an increase in originated mortgage servicing rights.
NON-INTEREST EXPENSE. Non-interest expense for the three and six months ended
June 30, 1997 increased $392,000 and $1.8 million, respectively, in comparison
to the same periods of 1996. However, as a percentage of average assets, total
non-interest expense was only 2.33% and 2.41% of average assets for the three
and six months of 1997, respectively, as compared to 2.66% and 2.65% for the
same periods last year. This gain in efficiency was primarily the result of
lower FDIC insurance premiums and the growth in average assets outpacing
increases in all other operating expenses, including the increases due to the
acquisition of Lexington Federal. Compensation and benefits expense increased as
the result of growth in the staff needed to deliver and provide operational
support for an expanded line of retail banking and investment products to the
Company's growing customer base. The increase in other non-interest expense for
the six months ended June 30, 1997, includes increased amortization of goodwill
of $319,000.
INCOME TAX EXPENSE. Income tax expense of $4.2 million for the three months
ended June 30, 1997 and $3.7 million for the three months ended June 30, 1996,
resulted in effective income tax rates of 34.5% and 35.8%, respectively, on
income before income taxes. For the six months ended June 30, 1997 and 1996, the
effective income tax rates were 34.4% and 35.5%, respectively. The decreases in
the effective income tax rates are primarily due to increased income tax credits
earned in connection with the Company's investment in low income housing
partnerships as part of its community reinvestment activities and increased
income from tax-exempt securities.
19
NON-PERFORMING ASSETS
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated.
June 30, December 31,
1997 1996
------------- ------------
(dollars in thousands)
Non-performing loans:
Non-accrual loans ............................ $ 7,079 $ 7,185
Accruing loans which are contractually
past due 90 days or more:
FHA/VA loans (limited credit risk - see
discussion below) ......................... 79,305 88,185
Other loans ................................ 2,878 5,931
Restructured loans ........................... 1,970 1,992
------------ ------------
Total non-performing loans ................... 91,232 103,293
Real estate owned .............................. 1,840 2,815
------------ ------------
Total non-performing assets .................... $ 93,072 $106,108
============ ============
Non-performing loans to total loans:
Including FHA/VA loans ....................... 4.42% 5.19%
Excluding FHA/VA loans ....................... 0.58% 0.76%
Non-performing assets to total assets:
Including FHA/VA loans ....................... 3.06% 3.66%
Excluding FHA/VA loans ....................... 0.45% 0.62%
Allowance for loan losses to total loans ....... 0.71% 0.68%
Allowance for loan losses to non-performing
loans:
Including FHA/VA loans ....................... 16.00% 13.11%
Excluding FHA/VA loans ....................... 122.35% 89.61%
Allowance for loan losses to non-performing
assets:
Including FHA/VA loans ....................... 15.68% 12.76%
Excluding FHA/VA loans ....................... 106.00% 75.53%
Certain accruing FHA/VA loans which are contractually past due 90 days or more
are purchased by the Company from GNMA pools it services. The Company also
purchases portfolios of insured FHA and guaranteed VA loans, most of which are
90 days or more past due, from third parties. At June 30, 1997, the Company
held in its portfolio $141.8 million of FHA/VA loans most of which were
delinquent at the time of purchase. Such loans totaled $144.7 million at
December 31, 1996. As a servicer of GNMA pools, the Company is obligated to
remit to security holders interest at the coupon rate regardless of whether such
interest is actually received from the underlying borrower. The Company, by
purchasing such delinquent loans out of the pools, is able to retain the benefit
of the net interest rate differential between the coupon rate it would otherwise
be obligated to pay to the GNMA security holder and the Company's current cost
of funds. Most of the Company's investment in delinquent FHA and VA loans is
recoverable through claims made against the FHA or VA, and any credit losses
incurred are not greater or less than if the FHA/VA loans remained in the GNMA
pools and the Company remained as servicer. The same risk from foreclosure or
from loss of interest exists for the Company as servicer or owner of the loan,
and the Company, by purchasing delinquent FHA/VA loans, assumes only the
interest rate risk associated with investing in a fixed-rate loan if foreclosure
does not occur.
The FHA/VA loans acquired from third parties are purchased at a discount as
compensation to the Company for the credit and interest rate risks associated
with the loans. No purchases were made from third parties during the first
six months of 1997.
The Company also has certain impaired loans. The Company has defined impaired
loans as commercial real estate and commercial business loans classified as
substandard, doubtful, or loss, as defined by OTS regulations. Impaired loans,
net of related allowance, decreased from $6.8 million at December 31, 1996, to
$6.1 million at June 30, 1997.
20
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits; principal and interest
payments on loans and mortgage-backed securities; proceeds from the sale of
available-for-sale securities; proceeds from maturing debt securities; advances
from the FHLB; other borrowed funds; and sale of stock. Another source of
funds is mortgage banking activities which generate loan servicing fees and
proceeds from the sale of loans. While scheduled maturities of securities and
amortization of loans are predictable sources of funds, deposit flows and
prepayments on mortgage loans and mortgage-backed securities are greatly
influenced by the general level of interest rates, economic conditions,
and competition.
The Bank is required to maintain an average daily balance of liquid assets and
short-term liquid assets as a percentage of net withdrawable deposit accounts
plus short-term borrowings as defined by OTS regulations. The minimum required
liquidity and short-term liquidity ratios are currently 5% and 1%, respectively.
For June 1997, the Bank had liquidity and short-term liquidity ratios of 6.3%
and 5.3%, respectively.
At June 30, 1997, the Company had outstanding commitments to fund portfolio
loans totaling $117.8 million. The Company anticipates that it will have
sufficient funds available to meet these commitments.
The Bank is required by federal regulations to maintain minimum amounts of
capital. Currently, the minimum required levels are tangible capital of 1.5% of
tangible assets, core capital of 3.0% of adjusted tangible assets, and
risk-based capital of 8.0% of risk-weighted assets. At June 30, 1997, the Bank
had tangible capital of 7.8% of tangible assets, core capital of 7.8% of
adjusted tangible assets, and risk-based capital of 17.8% of risk-weighted
assets.
IMPACT OF NEW ACCOUNTING STANDARD
In February 1997 the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." This statement simplifies the standards for computing
earnings per share (EPS) previously found in APB Opinion No. 15, "Earnings per
Share," and makes them comparable to international EPS standards. It replaces
the presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application is not
permitted.
The pro forma effects of implementation of this statement on the Company's
reported net income and earnings per share are presented in note 9 to the
consolidated financial statements.
21
GREAT FINANCIAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.15 - Amendment No. 3 to Great Financial Bank, FSB,
401(k) Savings Plan
(b) Exhibit 10.16 - Amendment No. 1 to Great Financial Bank, FSB,
Employee Stock Ownership Plan
(c) Exhibit 10.17 - Great Financial Corporation Split Dollar Life
Insurance Agreements
(d) Exhibit 11 - Statement regarding computation of per share
earnings.
(e) There have been no reports filed on Form 8-K during the
quarterly period ended June 30, 1997.
22
GREAT FINANCIAL CORPORATION
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 FINANCIAL CORPORATION
--------------------------------------------
(Registrant)
Date: August 12, 1997 By Paul M. Baker
--------------------------------------------
Paul M. Baker
Chairman and Chief Executive Officer
Date: August 12, 1997 By Richard M. Klapheke
--------------------------------------------
Richard M. Klapheke
Treasurer and Secretary
(Chief Accounting Officer)
23
EXHIBITS INDEX
Exhibit
Number Description Page(s)
- ------- ----------- -------
10.15 Amendment No. 3 to Great Financial Bank, FSB, 27-31
401(k) Savings Plan
10.16 Amendment No. 1 to Great Financial Bank, FSB, 32-33
Employee Stock Ownership Plan
10.17 Great Financial Corporation Split Dollar Life 34-77
Insurance Agreements
11 Statement regarding computation of per share 78
earnings
24