<PAGE> 1
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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period ended September 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 0-18082
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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: 8,075,039 shares of common stock, par value $.01,
outstanding at November 10, 1997
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<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,319,476 $ 8,176,763
Interest-bearing deposits in other financial institutions. . . . . . . . . 25,112,144 24,308,337
----------- -----------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 33,431,620 32,485,100
Available for sale securities. . . . . . . . . . . . . . . . . . . . . . . 6,129,304 7,408,020
Held to maturity securities (fair value $49,934,000 - September 1997;
$49,859,000 - June 1997) . . . . . . . . . . . . . . . . . . . . . . . . 49,749,124 49,756,978
Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 604,568,128 583,709,446
Foreclosed assets held for sale, net . . . . . . . . . . . . . . . . . . . 3,697,022 5,650,962
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 8,078,714 7,433,073
Accrued interest receivable
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,462,778 4,225,771
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699,121 767,541
Investment in FHLBank Stock. . . . . . . . . . . . . . . . . . . . . . . . 10,792,600 10,792,600
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . 3,217,779 2,982,653
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,706,550 2,629,140
------------ ------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $727,532,740 $707,841,284
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $481,522,821 $459,235,746
Federal Home Loan Bank advances. . . . . . . . . . . . . . . . . . . . . . 149,018,807 151,881,100
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 26,356,172 28,744,191
Advances from borrowers for taxes and insurance. . . . . . . . . . . . . . 3,168,445 2,488,397
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . 2,739,729 1,873,824
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,786,736 3,269,659
------------ ------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 664,592,710 647,492,917
------------ ------------
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 shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 123,250 123,250
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 17,058,326 17,058,326
Retained earnings (substantially restricted) . . . . . . . . . . . . . . . 77,030,082 73,980,259
Unrealized appreciation on available-for-sale securities, net of
income taxes of $843,850 - September 1997 and $870,860 - June 1997 . . . 1,319,244 1,362,116
Treasury stock, at cost; 4,244,590 shares - September 1997;
4,219,881 shares - June 1997 . . . . . . . . . . . . . . . . . . . . . . (32,590,872) (32,175,584)
------------ ------------
Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . 62,940,030 60,348,367
------------ ------------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . $727,532,740 $707,841,284
============ ============
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 3
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans $13,886,549 $12,624,995
Investment Securities 987,835 1,009,441
Other 59,312 70,955
---------- ----------
TOTAL INTEREST INCOME 14,933,696 13,705,391
---------- ----------
INTEREST EXPENSE
Deposits 5,180,123 4,203,351
FHLBank advances 2,285,491 2,662,821
Short-term borrowings 248,774 145,023
---------- ----------
TOTAL INTEREST EXPENSE 7,714,388 7,011,195
---------- ----------
NET INTEREST INCOME 7,219,308 6,694,196
PROVISION FOR LOAN LOSSES 416,628 410,593
---------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,802,680 6,283,603
---------- ----------
NONINTEREST INCOME
Commissions 1,198,214 1,183,208
Service charge fees 840,903 610,151
Net realized gains on sales of loans and
available-for-sale securities 657,240 265,113
Income (expense) on foreclosed assets 84,344 328,011
Other income 256,106 334,088
---------- ----------
TOTAL NONINTEREST INCOME 3,036,807 2,720,571
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 2,591,922 2,361,941
Net occupancy expense 650,551 561,863
Tax consulting fees 439,157 --
Postage 186,289 145,572
Insurance 178,001 2,814,738
Amortization of goodwill -- 1,096,961
Advertising 71,905 112,794
Office supplies and printing 157,329 127,136
Other operating expenses 722,558 504,219
---------- ----------
TOTAL NONINTEREST EXPENSE 4,997,712 7,725,224
---------- ----------
INCOME BEFORE INCOME TAXES 4,841,775 1,278,950
PROVISION FOR INCOME TAXES 981,500 785,653
---------- ----------
NET INCOME $ 3,860,275 $ 493,297
========== ==========
EARNINGS PER COMMON SHARE $.47 $.05
=== ===
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 4
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,860,275 $ 493,297
Items not requiring (providing) cash:
Depreciation 252,408 214,847
Amortization -- 1,096,961
Provision for loan losses 416,628 410,593
Net realized gains on sale of loans (236,668) (121,145)
(Gain)/loss on sale of premises and equipment (9,728) --
Gain on sale of foreclosed assets (175,991) (352,506)
Amortization of deferred income,
premiums and discounts (174,000) (227,854)
Net realized gains on sale of available-for-sale securities (421,148) (143,968)
Deferred income taxes (50,000) (50,000)
Changes in:
Accrued interest receivable (168,587) 492,177
Prepaid expenses and other assets (235,126) (739,234)
Accounts payable and accrued expenses 865,905 3,077,198
Income taxes payable (1,482,923) 833,681
----------- -----------
Net cash provided by operating activities 2,441,045 4,984,047
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (18,983,843) (1,278,872)
Purchase of premises and equipment (904,824) (120,669)
Proceeds from sale of premises and equipment 16,503 --
Proceeds from sale of foreclosed assets 264,387 215,044
Capitalized costs on foreclosed assets (7,651) (13,462)
Proceeds from sale of available-for-sale securities 1,629,582 1,002,406
Proceeds from maturing held-to-maturity securities 1,000,000 8,801,992
Purchase of held-to-maturity securities (999,750) (8,906,328)
Purchase of available-for-sale securities -- (819,217)
----------- -----------
Net cash used in investing activities (17,985,596) (1,119,106)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in certificates of deposit 13,964,305 (8,588,710)
Net increase (decrease) in checking and savings 8,322,770 (6,006,929)
Proceeds from FHLBank advances 203,387,405 71,195,556
Repayments of FHLBank advances (206,249,698) (73,394,849)
Net increase (decrease) in short-term borrowings (2,388,019) 2,953,272
Advances from borrowers for taxes and insurance 680,048 739,085
Purchase of treasury stock (415,288) (1,215,973)
Dividends paid (810,452) (744,547)
Stock options exercised -- 17,275
----------- -----------
Net cash provided by (used in) financing activities 16,491,071 (15,045,820)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 946,520 2,870,073
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 32,485,100 29,615,027
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,431,620 $ 32,485,100
=========== ===========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 5
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial
statements of Great Southern Bancorp, Inc. (the "Company") have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
financial statements presented herein reflect all adjustments, which
are in the opinion of management, necessary for a fair statement of
the results for the periods presented. Operating results for the
three months ended September 30, 1997 and 1996 are not necessarily
indicative of the results that may be expected for the full year. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form
10-K for the year ended June 30, 1997. When necessary,
reclassifications have been made to prior period balances to conform
to current period presentation. These reclassifications had no effect
on net income.
The Company completed a 2-for-1 stock split on October 21, 1996.
Prior period information included in this form 10-Q reflects this
stock split, when necessary.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The discussion set forth below, as well as other portions of this
Form 10-Q, may contain forward-looking comments. Such comments are
based upon the information currently available to management of the
Company and management's perception thereof as of the date of this
Form 10-Q. Actual results of the Company's operations could
materially differ from those forward-looking comments. The
differences could be caused by a number of factors or combination of
factors including, but not limited to; changes in the availability
and/or cost of capital; changes in demand for banking services;
changes in the portfolio composition; change in the interest rate
yield on the Company's investments; changes in management strategy;
increased competition from both bank and non-bank companies; changes
in the economic, political or regulatory environments in the United
States; litigation involving the Company and/or its subsidiaries; and
changes in the availability of qualified labor. Readers should take
these factors into account in evaluating any such forward-looking
comments.
<PAGE> 6
General
Parts of management's discussion and analysis in the annual report
on Form 10-K are not included below. The following should be read in
conjunction with management's discussion and analysis in the Company's
June 30, 1997 Form 10-K.
The consolidated net income of the Company and more specifically,
the net income of its primary subsidiary, Great Southern Bank, FSB
(the "Bank"), is primarily dependent upon the difference or spread
between the average yield earned on loans and investments and the
average rate paid on deposits and borrowings, as well as the relative
amounts of such assets and liabilities. The interest rate spread is
affected by regulatory, economic and competitive factors that
influence interest rates, loan demand and deposit flows. The Bank,
like other financial institutions, is subject to interest rate risk to
the degree that its interest-bearing liabilities mature or reprice at
different times, or on a different basis than its interest-earning
assets. The Company's consolidated net income is also affected by,
among other things, gains on sales of loans and available-for-sale
investments, provisions for loan losses, service charge fees and
commissions, operating expenses and income taxes.
Management of the Company has developed and implemented an
asset/liability management strategy to match the repricing and/or
maturity of its interest-earning assets and its interest-bearing
liabilities and to achieve improved and sustained operating income
without adversely affecting asset quality. In implementing this
strategy, the Company has sought, subject to market conditions, to
increase its origination of adjustable-rate loans secured by various
types of real estate in order to increase its investment in loans that
are interest rate sensitive. The Company has also sold substantially
all of the fixed-rate, one- to four-family residential loans
originated since fiscal 1986, with servicing retained through fiscal
1995 and primarily servicing released beginning in fiscal 1996.
EFFECT OF FEDERAL LAWS AND REGULATIONS
Federal legislation and regulation significantly affect the banking
operations of the Company and the Bank, and have increased competition
among savings institutions, commercial banks, mortgage banking
enterprises and other financial institutions. In particular, the
capital requirements and operations of regulated depository
institutions such as the Company and the Bank have been and will be
subject to changes in applicable statutes and regulations from time to
time, which changes could, under certain circumstances, adversely
affect the Company or the Bank.
<PAGE> 7
On September 30, 1996, the President of the United States signed
into law, legislation that impacted two major areas of the Bank. The
first major area was a one-time assessment of SAIF-insured
institutions of 65.7 basis points of March 31, 1995 SAIF-assessable
deposits. The Bank was assessed approximately $2.5 million ($1.6
million after income taxes) which was paid at the end of November
1996. The payment was expensed in the September 30, 1996 quarter and
had a significant impact on the Bank's earnings as of the time the
payment was accrued.
Along with this one-time SAIF assessment, the semi-annual SAIF
assessment was reduced, beginning January 1, 1997, from an annualized
23 basis points on SAIF-assessable deposits, to approximately 6.48
basis points annualized on SAIF-assessable deposits. This reduced the
monthly expense of the Bank, beginning January 1, 1997, by
approximately $55,000 ($35,000 after tax). As a result of this lower
assessment rate, the Bank significantly increased (approximately $80
million) the level of brokered deposits used to fund asset growth
beginning in the March 31, 1997 quarter. The rates paid on these
deposits, when compared to alternative sources and allowing for
deposit insurance costs, is comparable to FHLBank advances but do not
require the asset pledging the FHLBank requires.
The second major area of change is the repeal of the bad debt
reserve method of accounting for bad debts by large thrifts for
taxable years beginning after 1995 (year ended June 30, 1997 for the
Bank). The legislation requires applicable excess reserves
accumulated after 1987 (year ended June 30, 1988 for the Bank) be
recaptured and restored to income over a six year period with the
first year beginning after 1995 (year ended June 30, 1997 for the
Bank), and no longer creates recapture of the applicable excess
reserves accumulated prior to 1988 for thrifts at the time they
convert to bank charters. The post 1987 recapture may be delayed for
a one- or two-year period if certain residential loan origination
requirements are met. The Bank met these requirements for fiscal year
June 30, 1997. The amount of post 1987 recapture for the Bank is
estimated at $5 million which would create income taxes of
approximately $2 million, or $400,000 per year for each of the five
years remaining in the recapture period. The $2 million of tax has
been accrued and expensed by the Bank in previous periods and
accordingly, will not be reflected as a reduction in earnings or
capital when paid.
Beginning with the fiscal year ending June 30, 1997, the Bank is
required to follow the specific charge-off method which only allows a
bad debt deduction equal to actual charge-offs, net of recoveries,
experienced during the fiscal year of the deduction. In a year where
recoveries exceed charge-offs, the Bank will be required to include
the net recoveries in taxable income.
<PAGE> 8
RECENT CHANGES IN ACCOUNTING PRINCIPLES
In March 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. It requires dual
presentation of basic and diluted earnings per share by entities with
complex capital structures and requires a reconciliation of the
numerators and denominators between the two calculations. SFAS 128 is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Management believes the
adoption of SFAS 128 will not have a material effect on the financial
statements of the Company.
ASSET AND LIABILITY MANAGEMENT
During the three months ended September 30, 1997, the Company
experienced an increase of $20 million in its total assets. There was
a change in the various asset categories with the main area of change
being an increase in net loans of $21 million.
The increase in net loans was primarily from 1) an increase in
commercial real estate loans of $21 million offset by a decrease in
commercial construction loans of $9 million; 2) an increase in
commercial business loans of $ 13 million; and 3) an increase in
consumer automobile loans of $2 million; offset by a decrease in
single-family residential loans of $6 million offset by an increase in
single-family construction loans of $1 million.
Total liabilities increased $17 million, primarily from an increase
in deposits of $22 million offset by a decrease in FHLBank advances of
$3 million and a decrease in short-term borrowings of $2 million. The
increase in deposits resulted primarily from a $17 million increase in
time deposits including an increase in brokered deposits of $12
million and an increase in interest-bearing demand deposits and non-
interest-bearing demand deposits of $3 million each. The decrease in
short-term borrowings was due to normal fluctuations in these mainly
higher balance corporate accounts. The decrease in FHLBank advances
was due to the paydown of primarily short-term FHLBank advances with
the additional deposit funds not used to fund net loan originations or
used for other funding needs.
Stockholders' equity increased $2.6 million primarily as a result
of net income of $3.9 million offset by dividend declarations and
payments of $900,000 and net treasury stock purchases of $400,000.
The Company repurchased 24,709 shares of common stock at an average
price of $16.81 per share during the three months ended September 30,
1997.
<PAGE> 9
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
Months Ended September 30, 1997 and 1996" and in management's
discussion and analysis in the June 30, 1997 Form 10-K.
The Company's one-year interest rate sensitivity gap, as a
percentage of total interest-earning assets was a positive $36
million, or 5.0%, at September 30, 1997, as compared to a positive $48
million, or 6.9%, at June 30, 1997. The decrease of $8 million
resulted primarily from: (i) a $17 million increase in time deposits,
with the majority being brokered deposits and in the 1 year or less
category; and (ii) a $7 million decrease in loans in the one-year
category; offset by (iii) a $12 million decrease in FHLBank advances
paid down with the brokered deposits not used to fund loan growth as
well as shifts from other periods; and (iv) a $4 million increase in
investment securities due to a shifting of maturities from the 1 to 2
years category to the 1 year or less category.
<PAGE> 10
As a part of its asset and liability management strategy, the
Company has increased its investment in loans which are interest rate
sensitive by emphasizing the origination of adjustable-rate, one- to
four-family residential loans and adjustable-rate or relatively short-
term commercial business and consumer loans, and originating fixed-
rate, one- to four-family residential loans primarily for immediate
resale in the secondary market. Approximately 30% of total assets are
currently invested in commercial real estate and commercial business
loans. This part of the strategy was designed to improve asset yield
and fee income, and to shorten the average maturity and increase the
interest rate sensitivity of the loan portfolio. While efforts to
date have contributed to the changes in the one-year interest rate
sensitivity gap and increased net interest income, such lending,
commensurate with the increased risk levels, has also resulted in an
increase in the level of non-performing assets. Management
continually evaluates existing and potential commercial real estate
and commercial business loans, in order to try to reduce undesirable
risks including concentrations in a given geographic area or a
particular loan category.
While from a credit risk standpoint the Company would prefer higher
levels of one- to four-family and other residential loan originations
rather than commercial real estate and commercial business loan
originations, the Company has adapted to the changing lending
environment and originates commercial real estate and commercial
business loans to 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.
<PAGE> 11
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.
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- ---------
<S> <C> <C>
(000'S OMITTED)
Residential real estate loans $245,239 262,123
Construction loans 6,059 5,908
Commercial real estate loans 205,445 206,020
Commercial business loans 34,561 25,557
Consumer loans 23,586 22,549
Investment securities and other 64,918 60,628
------- -------
Total interest rate sensitive assets
repricing within one year 579,808 582,785
------- -------
Interest-bearing demand deposits 114,985 115,299
Savings deposits 37,690 35,065
Time deposits 257,525 240,643
FHLBank advances 105,832 117,659
Other borrowings and liabilities 28,153 26,338
------- -------
Total interest rate sensitive liabilities
repricing within one year 544,185 535,004
------- -------
One year interest rate sensitivity gap (1) $35,623 $ 47,781
======= =======
Interest rate sensitive assets/interest rate
sensitive liabilities 106.5% 108.9%
===== =====
One year interest rate sensitivity gap as a
percent of interest-earning assets 5.0% 6.9%
=== ===
<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.
</TABLE>
<PAGE> 12
The following table sets forth the interest rate sensitivity of the
Company's assets and liabilities at September 30, 1997, on the basis
of the factors and assumptions set forth below.
<TABLE>
<CAPTION>
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
-------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Residential real estate loans $134,421 $110,818 $ 60,802 $ 6,306 $22,785 $335,132
Construction loans 6,059 -- -- -- -- 6,059
Commercial real estate loans 205,239 206 1,681 2,423 2,531 212,080
Commercial business loans 34,457 104 188 56 -- 34,805
Consumer loans 21,287 2,299 5,059 1,610 65 30,320
Investment securities and other 52,692 12,226 27,243 -- -- 92,161
------- ------- ------- ------ ------ -------
Total interest-earning assets 454,155 125,653 94,973 10,395 25,381 710,557
------- ------- ------- ------ ------ -------
Interest-bearing demand deposits 114,985 -- -- -- -- 114,985
Savings deposits 37,690 -- -- -- -- 37,690
Time deposit 195,790 61,735 40,037 7,435 3,268 308,265
FHLBank advances 79,462 26,370 21,584 4,005 17,460 148,881
Other borrowings and liabilities 28,153 -- -- -- -- 28,153
------- ------- ------- ------ ------ -------
Total interest-bearing liabilities 456,080 88,105 61,621 11,440 20,728 637,974
------- ------- ------- ------ ------ -------
Interest-earning assets less
interest-bearing liabilities $ (1,925) $ 37,548 $ 33,352 $(1,045) $ 4,653 $ 72,583
======= ======= ======= ====== ====== =======
Cumulative interest rate sensitivity gap $ (1,925) $ 35,623 $68,975 $67,930 $72,583
======= ======= ====== ====== ======
Cumulative interest rate sensitivity gap
as a percent of interest-earning
assets at September 30, 1997 (.2)% 5.0% 9.7% 9.6% 10.2%
=== === === === ====
Cumulative interest rate sensitivity gap
as a percent of interest-earning
assets at June 30, 1997 0.1% 6.9% 10.1% 9.6% 10.5%
=== === ==== === ====
<FN>
The assumptions used in the above two tables are:
-- Prepayment rates are derived from market prepayment rates
observed on or about September 30, 1997.
-- Fixed-rate loans, net of loans in process, deferred fees and
discounts are shown on the basis of contractual amortization and the
prepayment assumptions noted above.
-- Adjustable-rate loans are assumed to reprice at the earlier of
maturity or the next contractual repricing date.
-- Zero growth and constant percentage composition of assets and
liabilities and funds from contractual amortization are not
reinvested.
</TABLE>
<PAGE> 13
RESULTS OF OPERATIONS AND COMPARISON OF THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 and 1996
The increase in earnings of $3.4 million, or 683%, for the three
months ended September 30, 1997 when compared to the same period in
1996, was primarily due to a decrease in non-interest expense of $2.7
million, an increase in net interest income of $525,000 and an
increase in non-interest income of $315,000, offset by an increase in
provision for income taxes of $200,000 during the period.
Total Interest Income
Total interest income increased $1.2 million, or 9%, during the
three months ended September 30, 1997, when compared to the three
months ended September 30, 1996. The increase was primarily due to a
$1.3 million, or 10%, increase in interest income on loans, offset by
a small decrease in other interest income areas.
Interest Income - Loans
Interest income on loans increased from higher average balances
combined with higher average yields. Interest income increased $1.1
million as the result of higher average loan balances from $546
million during the three months ended September 30, 1996 to $593
million during the three months ended September 30, 1997. Interest
income increased $165,000 as the result of an increase in average
yield from 9.24% in the three months ended September 30 1996, to 9.36%
in the three months ended September 30, 1997, as a result of higher
average loan rates.
Interest Income - Investments and Other Interest-Bearing Deposits
Interest income on investments and other interest-bearing deposits
decreased from lower average yields, offset by higher average
balances. Interest income decreased $190,000 as the result of a
decrease in average yield from 5.49% in the three months ended
September 30, 1996, to 4.86% in the three months ended September 30,
1997. Interest income increased $150,000 as the result of higher
average balances from $79 million during the three months ended
September 30, 1996 to $86 million during the three months ended
September 30, 1997.
<PAGE> 14
Total Interest Expense
Total interest expense increased $700,000, or 10%, during the three
months ended September 30, 1997 when compared with the same period in
1996. The increase during the three month period was primarily due to
a $975,000, or 23%, increase in interest expense on deposits, offset
by a $275,000, or 10%, decrease in interest expense on FHLBank
advances and other borrowings. These changes were primarily the
result of the funding changes discussed previously.
Interest Expense - Deposits
Interest expense on deposits increased primarily as a result of an
increase in higher average balances and higher average rates of time
deposits. Interest expense increased $950,000 as a result of higher
average balances of time deposits from $236 million during the three
months ended September 30, 1996, to $304 million during the three
months ended September 30, 1997 and increased $30,000 as a result of
higher average rates from 5.57% during the three months ended
September 30, 1996 to 5.62% during the three months ended September
30, 1997. The other deposit areas experienced only minor increases or
decreases due to balances and or rates.
Interest Expense - FHLBank and Other Borrowings
Interest expense on FHLBank advances and other borrowings decreased
$275,000 due to lower average balances from $190 million in the three
months ended September 30, 1996 to $170 million in the three months
ended September 30, 1997. The average balances decreased as a result
of the Company's use of brokered deposits to fund loan growth and
reduced short term FHLBank advances as discussed previously in this
document.
Net Interest Income
The Company's overall interest rate spread decreased 2 basis
points, or 0.5%, from 3.88% during the three months ended September
30, 1996, to 3.86% during the three months ended September 30, 1997.
The increase was due to an overall increase in the weighted average
rates paid on interest-bearing liabilities partially offset by an
increase in the yields received on loans.
<PAGE> 15
Provision for Loan Losses
The provision for loan losses increased slightly from $411,000
during the three months ended September 30, 1996 to $417,000 during
the three months ended September 30, 1997. In any accounting period,
the provision for loan losses is affected by many factors including,
but not limited to, the change in the composition of the loan
portfolio, the increase or decrease in total loans, the level of
delinquencies and other non-performing loans and the historical loss
experience of the portfolio.
Non-performing assets increased $350,000, or 2.5%, during the three
months ended September 30, 1997 from $13.9 million at June 30, 1997 to
$14.2 million at September 30, 1997. Non-performing loans increased
$2.3 million, or 29.2%, from $7.9 million at June 30, 1997 to $10.2
million at September 30, 1997, and foreclosed assets declined $2
million from $6 million at June 30, 1997 to $4 million at September
30, 1997.
Potential problem loans increased $1.4 million during the three
months ended September 30, 1997 from $7.1 million at June 30, 1997 to
$8.6 million at September 30, 1997. These are loans which management
has identified through routine internal review procedures as having
possible credit problems which may cause the borrowers difficulty in
complying with current loan repayment terms. These loans are not
reflected in the non-performing loans
The allowance for loan losses at September 30, 1997 and June 30,
1997, respectively, totaled $16 million and $15.5 million,
representing 2.6% and 2.7% of total loans, 157% and 197% of non-
performing loans, and 85% and 103% of non-performing loans and
potential problem loans in total. The allowance for foreclosed asset
losses totaled $319,000 at both September 30, 1997 and June 30, 1997,
representing 7.9% and 5.3%, respectively, of total foreclosed assets.
Although the Company maintains the allowance for loan losses and the
allowance for foreclosed asset losses at levels which it considers to
be adequate to provide for potential losses and selling expenses,
there can be no assurance that such losses will not exceed the
estimated amounts, thereby adversely affecting future results of
operations.
<PAGE> 16
Non-interest Income
Non-interest income increased $315,000, or 11.6%, in the three
months ended September 30, 1997 when compared to the same period in
1996. The increase was primarily due to: (i) an increase in service
charge income of $230,000, or 38%, on transaction accounts and
electronic transactions from increased volumes; (ii) an increase of
$275,000 in profits on sale of available-for-sale securities; offset
by (iii) a decrease in income on foreclosed assets of $240,000 due to
larger recoveries in the previous year's quarter; and (iv) various
increases and decreases in other non-interest income items.
Non-interest Expense
Non-interest expense decreased $2.7 million, or 35%, in the three
months ended September 30, 1997 when compared to the same period in
1996. The decrease was primarily due to: (i) a decrease in insurance
of $2.6 million due to the accrual in the September 30, 1996 quarter
of the one-time SAIF assessment discussed previously; (ii) a decrease
in goodwill amortization of $1.1 million due to the write-off in the
September 30, 1996 quarter of goodwill remaining from a 1982 failed
thrift purchase; (iii) an increase of $440,000 in tax consulting fees
paid as the result of a recovery of $1.1 million of state financial
institution taxes; (iv) an increase of $230,000 in salaries and other
employee benefits due to asset and earnings growth; and (iv) decreases
in various other non-interest expense items.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income
decreased from 61.4% in the three months ended September 30, 1996 to
20.3% in the three months ended September 30, 1997. The large
percentage in the September 30, 1996 quarter was due to the non-
deductible goodwill write-off in that quarter. The small percentage
in the September 30, 1997 quarter was due to a refund of prior period
state financial institution taxes of $1.1 million. The refund was the
result of a review of the Bank's state financial institution tax
returns by a consulting firm. The refund resulted from the Bank's
charter change from a state charter to a federal savings bank charter
in December 1994.
<PAGE> 17
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.
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------
1997 1996
--------------------------- --------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Loans receivable $593,259 $13,887 9.36% $546,358 $12,625 9.24%
Investment securities and other
interest-earning assets 86,006 1,046 4.86 78,642 1,080 5.49
------- ------ ---- ------- ------- ----
Total interest-earning assets $679,265 14,933 8.79 $625,000 13,705 8.77
======= ------ ---- ======= ------ ----
Interest-bearing liabilities:
Demand deposits $116,307 689 2.37 $110,263 688 2.50
Savings deposits 35,115 217 2.47 36,620 225 2.46
Time deposits 303,983 4,274 5.62 236,292 3,290 5.57
------- ----- ---- ------- ----- ----
Total deposits 455,405 5,180 4.55 383,175 4,203 4.39
FHLBank advances and other borrowings 170,306 2,534 5.95 190,345 2,808 5.90
------- ----- ---- ------- ----- ----
Total interest-bearing liabilities $625,711 7,714 4.93 $573,520 7,011 4.89
======= ----- ---- ======= ----- ----
Net interest income:
Interest rate spread $7,219 3.86% $6,694 3.88%
===== ==== ===== ====
Net interest margin(1) 4.25% 4.28%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 108.6% 109.0%
===== =====
<FN>
(1) Defined as the Company's net interest income divided by total
interest-earning assets.
</TABLE>
<PAGE> 18
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.
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 vs. 1996
--------------------------------
Increase
(Decrease)
Due to Total
-------------- Increase
Rate Volume (Decrease)
---- ------ ----------
<S> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ 166 $1,096 $1,262
Investment securities and
other interest-earning assets (187) 153 (34)
--- ----- -----
Total interest-earning assets (21) 1,249 1,228
--- ----- -----
Interest-bearing liabilities:
Demand deposits (12) 13 1
Savings deposits 1 (9) (8)
Time deposits 33 951 984
--- ----- -----
Total deposits 22 955 977
FHLBank advances and other borrowings 24 (298) (274)
--- ----- -----
Total interest-bearing liabilities 46 657 703
--- ----- -----
Net interest income $ (67) $ 592 $ 525
=== ===== =====
</TABLE>
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's capital position remained strong, with stockholders'
equity at $62.9 million, or 8.6% of total assets of $728 million at
September 30, 1997 compared to equity at $60.3 million, or 8.5%, of
total assets of $708 million at June 30, 1997. In addition, the Bank
exceeds each of the regulatory capital requirements. At September 30,
1997, the Bank had ratios of tangible and core capital to assets of
7.7% and risk-based capital of 11.4%. 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
September 30, 1997, the Bank's liquidity ratio was 6.9%, compared to
7.4% at June 30, 1997. Management believes that the Company has
sufficient cash flows and borrowing capacity available to meet its
commitments and other foreseeable cash needs for operations. At
September 30, 1997, the Company had commitments of approximately $82
million to fund loan originations, issued lines of credit, outstanding
letters of credit and unadvanced loans.
At September 30, 1997, the investment securities held to maturity
included $196,000 of gross unrealized gains and $11,000 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.
<PAGE> 20
STATEMENT OF CASH FLOWS
During the three months ended September 30, 1997, the Company
experienced positive cash flows from operating activities and
financing activities, and negative cash flows from investing
activities. During the three months ended September 30, 1996, the
Company experienced positive cash flows from operating activities, and
negative cash flows from investing activities and financing
activities.
Cash flows from operating activities for the periods covered by the
Statements of Cash Flows have been primarily related to adjustments in
deferred assets, credits and other liabilities, the provision for loan
losses and losses on foreclosed assets, depreciation, sale of
foreclosed assets and the amortization of deferred loan origination
fees and discounts (premiums) on loans and investments, all of which
are non-cash or non-operating adjustments to operating cash flows. As
a result, net income, adjusted for non-cash and non-operating items,
was the primary source of cash flows from operating activities.
Operating activities provided cash flows of $2.4 million and $5
million, respectively, during the three months ended September 30,
1997 and 1996.
During the three months ended September 30, 1997 and 1996,
investing activities used cash of $18 million and $1.1 million,
respectively, primarily due to the net increase of loans in both
periods.
Changes in cash flows from financing activities of the periods
covered by the Statements of Cash Flows are due to changes in deposits
after interest credited, changes in FHLBank advances and changes in
short-term borrowings as well as purchases of treasury stock and
dividend payments to stockholders. Financing activities provided
$16.5 million in cash during the three months ended September 30, 1997
and used $15 million in cash during the three months ended September
30, 1996. Financing activities in the future are expected to
primarily include changes in deposits, changes in FHLBank advances,
changes in short-term borrowings and changes in treasury stock.
DIVIDENDS
During the three months ended September 30, 1997 and 1996,
respectively, the Company declared and paid dividends of $0.11 and
$0.10 per share. The Board of Directors meets regularly to consider
the level and the timing of dividend payments.
<PAGE> 21
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
At the Company's annual meeting of stockholders held on October 15,
1997, the results of the matters voted upon were as follows:
(a) Each of the following nominees for election as director was
elected.
Affirmative Votes
Director Votes Withheld
------------------ ----------- ---------
William K. Powell 7,502,760 23,614
Joseph W. Turner 7,424,467 101,907
(b) An affirmative vote in excess of the majority of the shares
available to vote was obtained to approve the 1997 Stock Option and
Incentive Plan.
Affirmative Negative Abstentions Non-voting
----------- -------- ----------- ----------
5,919,163 172,056 106,940 1,328,215
(c) An affirmative vote in excess of the majority of the shares
available to vote was obtained to approve the appointment of Baird,
Kurtz & Dobson as auditors for the current fiscal year.
Affirmative Negative Abstentions
----------- -------- -----------
7,484,903 23,779 8,460
<PAGE> 22
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
See the attached exhibit 11, Statement re computation of earnings
per share.
See the attached exhibit 27, Financial Data Schedule.
b) Reports on Form 8-K
None.
<PAGE> 23
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: November 14, 1997 /s/ William V. Turner
--------------------------
William V. Turner
Chairman of the Board,
President and Chief
Executive Officer
Date: November 14 1997 /s/ Don M. Gibson
--------------------------
Don M. Gibson,
Executive Vice President and
Chief Financial Officer
<PAGE> 24
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.
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit 11- Statement Re Computation of Earnings Per Share
Three Months Ended
September 30,
1997 1996
---------- ----------
<S> <C> <C>
Primary:
Average shares outstanding 8,091,509 8,770,534
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 108,443 278,580
--------- ---------
Primary shares 8,199,952 9,049,114
========= =========
Net income $3,860,275 $ 493,297
========= =========
Per share amount $0.47 $0.05
==== ====
Fully diluted:
Average shares outstanding 8,091,509 8,770,534
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 101,097 289,488
--------- ---------
Primary shares 8,192,606 9,060,022
========= =========
Net income $3,860,275 $ 493,297
========= =========
Per share amount $0.47 $0.05
==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and the Consolidated Statement of
Income filed as part of the quarterly report on Form 10-Q and is
qualified in its entirety by reference to such quarterly report on
Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 8,319
<INT-BEARING-DEPOSITS> 25,112
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,129
<INVESTMENTS-CARRYING> 49,749
<INVESTMENTS-MARKET> 49,934
<LOANS> 604,568
<ALLOWANCE> 15,990
<TOTAL-ASSETS> 727,533
<DEPOSITS> 481,523
<SHORT-TERM> 132,328
<LIABILITIES-OTHER> 7,695
<LONG-TERM> 43,047
0
0
<COMMON> 123
<OTHER-SE> 62,817
<TOTAL-LIABILITIES-AND-EQUITY> 727,533
<INTEREST-LOAN> 13,887
<INTEREST-INVEST> 988
<INTEREST-OTHER> 59
<INTEREST-TOTAL> 14,934
<INTEREST-DEPOSIT> 5,180
<INTEREST-EXPENSE> 7,714
<INTEREST-INCOME-NET> 7,219
<LOAN-LOSSES> 417
<SECURITIES-GAINS> 421
<EXPENSE-OTHER> 4,998
<INCOME-PRETAX> 4,842
<INCOME-PRE-EXTRAORDINARY> 4,842
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,860
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
<YIELD-ACTUAL> 4.25
<LOANS-NON> 10,182
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,557
<ALLOWANCE-OPEN> 15,524
<CHARGE-OFFS> 20
<RECOVERIES> 70
<ALLOWANCE-CLOSE> 15,990
<ALLOWANCE-DOMESTIC> 15,990
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
