<PAGE> 1
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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1998
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Commission File Number 0-18082
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GREAT SOUTHERN BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
43-1524856
(IRS Employer Identification Number)
1451 E. BATTLEFIELD
SPRINGFIELD, MISSOURI
(Address of principal executive offices)
65804
(Zip Code)
(417) 887-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of each of the registrant's classes of
common stock: 7,857,461 shares of common stock, par value $.01, outstanding at
November 9, 1998.
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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,
1998 1998
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<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,196,800 $ 12,199,490
Interest-bearing deposits in other financial institutions. . . . . . . . . 28,460,720 33,631,748
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Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 39,657,520 45,831,238
Available for sale securities. . . . . . . . . . . . . . . . . . . . . . . 6,931,992 6,362,700
Held to maturity securities (fair value $49,280,000 - September 1998;
$50,541,000 - June 1998) . . . . . . . . . . . . . . . . . . . . . . . . 49,062,209 50,362,963
Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 665,674,542 655,226,070
Foreclosed assets held for sale, net . . . . . . . . . . . . . . . . . . . 6,536,468 4,750,910
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 9,663,458 9,457,015
Income taxes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . 0 240,623
Accrued interest receivable
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,913,495 5,159,425
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741,297 738,382
Investment in FHLBank Stock. . . . . . . . . . . . . . . . . . . . . . . . 9,454,100 9,454,100
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . 1,069,761 3,960,573
Excess of cost over fair value of net assets acquired . . . . . . . . . . . 583,761 626,465
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,556,786 2,920,665
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Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $797,845,389 $795,091,129
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $582,088,136 $553,365,464
Federal Home Loan Bank advances. . . . . . . . . . . . . . . . . . . . . . 142,174,401 169,563,052
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 567,631 0
Advances from borrowers for taxes and insurance. . . . . . . . . . . . . . 2,772,450 2,176,662
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . 4,376 2,577,058
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,995,031 0
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Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 729,602,025 727,682,236
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Capital stock
Serial preferred stock, $.01 par value; authorized
and issued 1,000,000 shares
Common stock, $.01 par value; authorized 20,000,000 shares; issued
12,325,002 shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 123,250 123,250
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 17,110,496 17,110,496
Retained earnings (substantially restricted) . . . . . . . . . . . . . . . 87,916,352 84,955,740
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities, net of
income taxes of $268,813 - September 1998 and $669,921 - June 1998 . . 420,452 1,047,824
Treasury stock, at cost; 4,429,330 shares - September 1998;
4,363,275 shares - June 1998 . . . . . . . . . . . . . . . . . . . . . . (37,327,186) (35,828,417)
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Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . 68,243,364 67,408,893
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Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . $797,845,389 $795,091,129
============ ============
<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,
1998 1997
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<S> <C> <C>
INTEREST INCOME
Loans $15,528,539 $13,886,549
Investment securities 938,142 987,835
Other 214,326 59,312
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TOTAL INTEREST INCOME 16,681,007 14,933,696
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INTEREST EXPENSE
Deposits 6,122,240 5,180,123
FHLBank advances 2,256,372 2,285,491
Short-term borrowings 175 248,774
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TOTAL INTEREST EXPENSE 8,378,787 7,714,388
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NET INTEREST INCOME 8,302,220 7,219,308
PROVISION FOR LOAN LOSSES 806,846 416,628
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,495,374 6,802,680
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NON-INTEREST INCOME
Commissions 1,430,891 1,198,214
Service charge fees 1,183,571 840,903
Net realized gains on sales of loans and
available-for-sale securities 531,208 657,240
Income on foreclosed assets 77,409 84,344
Other income 416,423 256,106
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TOTAL NON-INTEREST INCOME 3,639,502 3,036,807
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NON-INTEREST EXPENSE
Salaries and employee benefits 2,897,283 2,591,922
Net occupancy expense 873,322 650,551
Tax consulting fees 47,150 439,157
Postage 237,954 186,289
Insurance 151,314 178,001
Amortization of goodwill 37,705 0
Advertising 85,329 71,905
Office supplies and printing 187,132 157,329
Other operating expenses 848,784 722,558
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TOTAL NON-INTEREST EXPENSE 5,365,973 4,997,712
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INCOME BEFORE INCOME TAXES 5,768,903 4,841,775
PROVISION FOR INCOME TAXES 1,990,331 981,500
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NET INCOME $ 3,778,572 $ 3,860,275
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<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 4
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30,
1998 1997
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<S> <C> <C>
OTHER COMPREHENSIVE INCOME
Unrealized appreciation (depreciation) on
Available-for-sale securities, net of income taxes
of $296,799 for 1998 and $136,613 for 1997 (464,224) 213,676
Less: reclassification adjustment for appreciation
(depreciation)included in net income, net of income
taxes of $101,395 for 1998 and $158,591 for 1997 (158,591) (256,548)
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(627,372) (42,873)
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COMPREHENSIVE INCOME $ 3,151,200 $ 3,817,403
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BASIC EARNINGS PER COMMON SHARE $.48 $.48
=== ===
DILUTED EARNINGS PER COMMON SHARE $.47 $.47
=== ===
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 5
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,778,572 $ 3,860,275
Items not requiring (providing) cash:
Depreciation 404,813 252,408
Amortization 42,704 --
Provision for loan losses 806,846 416,628
Net realized gains on sale of loans (262,951) (236,668)
Gain on sale of premises and equipment -- (9,728)
Gain on sale of foreclosed assets (189,149) (175,991)
Amortization of deferred income,
premiums and discounts (427,058) (174,000)
Net realized gains on sale of available-for-sale securities (268,257) (421,148)
Deferred income taxes (636,121) (50,000)
Changes in:
Accrued interest receivable 243,015 492,177
Prepaid expenses and other assets 2,890,812 (739,234)
Accounts payable and accrued expenses (2,572,682) 3,077,198
Income taxes payable 2,637,538 833,681
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Net cash provided by operating activities 6,448,082 4,984,047
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CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (12,241,251) (1,278,872)
Purchase of premises and equipment (611,256) (120,669)
Proceeds from sale of foreclosed assets 109,500 215,044
Capitalized costs on foreclosed assets (29,189) (13,462)
Proceeds from sale of available-for-sale securities 851,629 1,002,406
Proceeds from maturing held-to-maturity securities 5,500,000 8,801,992
Purchase of held-to-maturity securities (4,200,024) (8,906,328)
Purchase of available-for-sale securities (2,181,920) (819,217)
Purchase of FHLBank stock -- (769,800)
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Net cash used in investing activities (12,802,511) (1,119,106)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in certificates of deposit 32,315,448 (8,588,710)
Net increase (decrease) in checking and savings (3,592,776) (6,006,929)
Proceeds from FHLBank advances 83,807,973 71,195,556
Repayments of FHLBank advances (111,196,624) (73,394,849)
Net increase in short-term borrowings 567,631 2,953,572
Advances from borrowers for taxes and insurance 595,788 739,085
Purchase of treasury stock (1,498,769) (1,215,973)
Dividends paid (817,960) (744,547)
Stock options exercised -- 17,275
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Net cash provided by (used in) financing activities 180,711 (15,045,820)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,173,698) 2,870,073
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 45,831,238 29,615,027
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 39,657,520 $ 32,485,100
=========== ===========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 6
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 months ended September 30, 1998 and 1997 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, 1998. When necessary, reclassifications have been made to
prior period balances to conform to current period presentation. These
reclassifications had no effect on net income.
During the quarter ended September 30, 1998, the Company adopted the
provisions of SFAS No. 130, by the reclassification of all prior periods
presented.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Forward-Looking Statements
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission (the "SEC"), in the Company's press
releases or other public or shareholder communications, and in oral statements
made with the approval of an authorized executive officer, the words or
phrases "will likely result" "are expected to," "will continue," "is
anticipated," "estimate," "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties, including, among other things, changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Company wishes to advise readers that the factors listed above
could affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Company does not undertake-and specifically declines any obligation-
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or
unanticipated events.
<PAGE> 7
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, 1998 Form
10-K.
The Company will be changing to a calendar year-end beginning with the
period January 1, 1999 to December 31, 1999. In order to make this transiton,
a short fiscal year for the period July 1, 1998 to December 31, 1998 will be
necessary.
The profitability of the Company, and more specifically, the
profitability of its primary subsidiary Great Southern Bank (the "Bank"),
depends primarily on its net interest income. Net interest income is the
difference between the interest income it earns on its loans and investment
portfolio, and its cost of funds, which consists mainly of interest paid on
deposits and borrowings. Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities and the
interest rates earned or paid on these balances. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income.
The Company's profitability is also affected by the level of its non-
interest income and operating expenses. Non-interest income consists
primarily of gains on sales of loans and available-for-sale investments,
service charge fees and commissions. Operating expenses consist primarily of
salaries and employee benefits, occupancy-related expenses, equipment and
technology-related expenses and other general operating expenses.
The operations of the Bank, and banking institutions in general, are
significantly influenced by general economic conditions and related monetary
and fiscal policies of regulatory agencies. Deposit flows and the cost of
funds are influenced by interest rates on competing investments and general
market rates of interest. Lending activities are affected by the demand for
financing real estate and other types of loans, which in turn are affected by
the interest rates at which such financing may be offered and other factors
affecting loan demand and the availability of funds.
Effect of Federal Laws and Regulations
Federal legislation and regulation significantly affect the banking
operations of the Company and the Bank, and have increased competition among
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> 8
Recent Changes in Accounting Principles
The FASB recently adopted SFAS No. 130, "Reporting Comprehensive Income."
This Statement establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements.
It does not address issues of recognition or measurement. The Company's most
significant component of other comprehensive income is the unrealized gains
and losses on available-for-sale securities. The Company adopted the
provisions of SFAS No. 130, by the reclassification of all prior periods
presented.
The FASB recently adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement establishes standards for
reporting operating segments and requires certain other disclosures about
products and services, geographic areas and major customers. The disclosure
requirements are effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS 131 is not expected to have a material impact on the
Company's financial statements.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). SFAS 132 revises disclosure
requirements for pension and other postretirement benefit plans but does not
change the measurement or recognition of those plans. The Company adopted
SFAS 132 in the current short fiscal year. The adoption of SFAS 132 did not
have a material effect on the financial statements of the Company.
Potential Impact of Accounting Principles to be Implemented in the Future
The FASB recently adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999, and may be
implemented as of the beginning of any fiscal quarter after issuance. SFAS
No. 133 may not be applied retroactively. Management does not believe
adopting SFAS No. 133 will have a material impact on the Company's financial
statements
YEAR 2000 COMPUTER PROGRAM PROBLEMS
The "Year 2000 Problem" centers on the inability of computer systems to
precisely recognize the year 2000. Many existing computer programs and
systems were originally programmed with six digit dates that provided only two
digits to identify the calendar year in the date field, without considering
the upcoming change in the century. With the impending millennium, these
programs and computers may recognize "00" as the year 1900 rather than the
year 2000. If computer systems are not adequately changed to identify the
year 2000, many computer applications could fail or create erroneous results.
As a result, many calculations which rely on the date/field information, such
as interest, payment or due dates and other operating functions, will generate
results which could be significantly misstated, and the Bank could experience
a temporary inability to process transactions, send invoices or engage in
similar normal business activities. In addition, under certain circumstances,
failure to adequately address the Year 2000 Problem could adversely affect the
viability of the Bank's suppliers and creditors and the creditworthiness of
its borrowers. Thus, if not adequately addressed, the Year 2000 Problem could
result in a significant adverse impact on the Bank's products, services and
competitive condition.
<PAGE> 9
Financial institution regulators have recently increased their focus upon
year 2000 issues, issuing guidance concerning the responsibilities of senior
management and directors. The FDIC and the other federal banking regulators
have issued safety and soundness guidelines to be followed by insured
depository institutions, such as the Bank, to assure resolution of any year
2000 problems. The federal banking agencies have asserted that year 2000
testing and certification is a key safety and soundness issue in conjunction
with regulatory exams, and thus an institution's failure to address
appropriately the Year 2000 Problem could result in supervisory action,
including such enforcement actions as the reduction of the institution's
supervisory ratings, the denial of applications for approval of a merger or
acquisition, or the imposition of civil money penalties.
The Bank has been experiencing rapid growth in both the deposit and loan
areas. The hardware and core software systems are approaching their capacity.
Due to this growth and the year 2000 issue, the Bank evaluated both upgrading
the current systems as well as looking into a potential replacement system.
Management of the Bank determined conversion to a new hardware and software
system was the best solution to meet the growth needs of the Bank as well as
resolve the year 2000 issues.
Subsequent to September 30, 1998, the Bank completed the conversion to
the Jack Henry Silverlake system for all its core processing system and
internal financial reporting system. The new system has been certified year
2000 compliant and will be tested in early 1999. In addition to replacing the
core system, the Company has been in a program of replacing the personal
computers and wide area networks with year 2000 compliant systems. This
program was substantially completed subsequent to September 30, 1998.
A complete inventory of non-mission critical hardware and software was
completed in December 1997. Non-compliant software systems are scheduled for
replacement or will be discontinued. Security systems, elevators, heating and
air conditioning and like items have been tested and will function as usual
through the date of change. All third party vendors, whose products will
continue to be used, have certified their products as compliant. Testing of
these and all other systems is scheduled for completion no later than June 30,
1999.
A contingency plan, utilizing the current core software, has been
formulated. The supplier of the current system has released a year 2000
compliant system which can be installed on a larger hardware system that can
be obtained by the Bank. This would be for temporary, emergency use only, to
allow time to complete the conversion that is in progress. Should there be a
failure of utilities or telephone communications, both of which the Bank is
dependent on, a plan is being formulated to ensure the ability to operate
enough strategic branch locations to serve our customers.
A budget of $2.4 million has been established to complete the necessary
steps previously noted. Approximately $1.2 million has been spent to date,
with an additional $800,000 budgeted for 1998 and $400,000 budgeted for 1999.
While a portion of these costs will be expensed as incurred, the majority of
these costs will be capitalized and expensed over a 3 to 5 year period.
Management does not feel it will have a material impact on the financial
condition of the Company.
<PAGE> 10
An outside consultant has been utilized throughout the process to provide
an independent review of all areas. The Company's estimate of year 2000
project costs and completion dates are based on management's best estimates
that have been derived utilizing numerous assumptions about future events.
These estimates and actual results may differ materially.
The first stage of the compliance process for the Bank was an internal
risk assessment performed by the Information Systems Steering Committee along
with major vendors and consultants. The Risk Assessment revealed the need to
replace the Bank's mainframe operating system and to replace the majority of
the online terminals, which are desktop computers. The desktop systems have
been purchased and installed.
The insurance, investment and travel subsidiaries operate on separate
computer systems from the Bank and each other. The Year 2000 Committee of the
Bank will be assisting these companies in performing a Risk Assessment of
their systems and taking the steps necessary to ensure compliance with all
year 2000 issues before December 31, 1999.
Asset and Liability Management
During the three months ended September 30, 1998, the Company maintained
total assets at approximately $800 million, with some shifting of amounts
between asset types. Loans increased $10 million while foreclosed assets
declined $1.8 million and cash and cash equivalents declined $9.2 million.
The following loan categories experienced net increases as noted:
Commercial real estate and construction loans $13 million
Consumer (primarily automobile and student) loans 10 million
The following loan categories experienced net decreases as noted:
Single-family and other residential loans $13 million
Total liabilities also remained level at approximately $730 million again
with some shifting of balances between liability categories. The primary
changes were an increase in deposits of $29 million offset by a decrease in
Federal Home Loan Bank ("FHLBank") advances of $27 million. The deposit
increase was primarily from brokered deposits. The decrease in FHLBank
advances was due to repayment of these from the brokered deposits. Management
continues to feel that FHLBank advances and brokered deposits are viable
alternatives to retail deposits when factoring all the costs associated with
the generation and maintenance of retail deposits.
Stockholders' equity increased $800,000 primarily as a result of net
income of $3.8 million offset by dividend declarations and payments of
$900,000, net treasury stock purchases of $1.5 million and a reduction in
unrealized gains on available-for-sale securities of $600,000.. The Company
repurchased 65,255 shares of common stock at an average price of $23.24 per
share during the three months ended September 30, 1998. There were no shares
issued for exercised stock options during the quarter.
<PAGE> 11
Interest Rate Sensitivity
A principal operating objective of the Company is to produce stable
earnings by achieving a favorable interest rate spread that can be sustained
during fluctuations in prevailing interest rates. The Company has sought to
reduce its exposure to adverse changes in interest rates by attempting to
achieve a closer match between the periods in which its interest-bearing
liabilities and interest-earning assets can be expected to reprice through the
origination of adjustable-rate mortgages and loans with shorter terms and the
purchase of other shorter term interest-earning assets.
The term "interest rate sensitivity" refers to those assets and
liabilities that mature and reprice periodically in response to fluctuations
in market rates and yields. As noted above, one of the principal goals of the
Company's asset/liability program is to maintain and match the interest rate
sensitivity characteristics of the asset and liability portfolios.
In order to properly manage interest rate risk, the Bank's Board of
Directors has established an Asset/Liability Management Committee ("ALCO")
made up of members of management to monitor the difference between the Bank's
maturing and repricing assets and liabilities and to develop and implement
strategies to decrease the "gap" between the two. The primary
responsibilities of the committee are to assess the Bank's asset/liability
mix, recommend strategies to the Board that will enhance income while managing
the Bank's vulnerability to changes in interest rates and report to the Board
the results of the strategies used. The Company's experience with interest
rates are discussed in more detail under the headings "Results of Operations
and Comparisons of the Three Months Ended September 30, 1998 and 1997."
An important element of both earnings performance and liquidity is management
of interest rate sensitivity. Interest rate sensitivity reflects the
potential effect on net interest income of a movement in interest rates. The
difference between the Company's interest-sensitive assets and interest-
sensitive liabilities for a specified time frame is referred to as "gap." A
financial institution is considered to be asset-sensitive, or having a
positive gap, when the amount of its earning assets maturing or repricing
within a given time period exceeds the amount of its interest-bearing
liabilities also maturing or repricing within that time period. Conversely, a
financial institution is considered to be liability-sensitive, or have a
negative gap, when the amount of its interest-bearing liabilities maturing or
repricing within a given period exceeds the amount of earning assets also
maturing or repricing within that time period. During a period of rising
interest rates, a positive gap would tend to increase net interest income,
while a negative gap would tend to have an adverse effect on net interest
income. During a period of falling interest rates, a positive gap would tend
to have an adverse effect on net interest income, while a negative gap would
tend to increase net interest income.
<PAGE> 12
The Company evaluates interest sensitivity risk and then formulates
guidelines regarding asset generation, funding sources and the pricing of
each, and off-balance sheet commitments in order to decrease sensitivity risk.
These guidelines are based upon management's outlook regarding future interest
rate movements, the state of the regional and national economy and other
financial and business risk factors. The Bank uses a static gap model and a
computer simulation to measure the effect on net interest income of various
interest rate scenarios over selected time periods. The Company's gap can be
managed by repricing assets or liabilities, selling available-for-sale
investments, replacing an asset or liability prior to maturity or adjusting
the interest rate during the life of an asset or liability. Matching the
amount of assets and liabilities repricing during the same time interval helps
to reduce the risk and minimize the impact on net interest income in periods
of rising or falling interest rates.
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 one-third of total assets are currently invested in commercial
real estate and commercial business loans. This part of the strategy was
designed to improve asset yield and fee income, and to shorten the average
maturity and increase the interest rate sensitivity of the loan portfolio.
While efforts to date have contributed to the changes in the one-year interest
rate sensitivity gap and increased net interest income, such lending,
commensurate with the increased risk levels, has also resulted in an increase
in the level of non-performing assets. Management continually evaluates
existing and potential commercial real estate and commercial business loans,
in order to try to reduce undesirable risks including concentrations in a
given geographic area or a particular loan category.
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> 13
RESULTS OF OPERATIONS AND COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30,
1998 and 1997
The decrease in earnings of $82,000, or 2.1%, for the three months ended
September 30, 1998 when compared to the same period in 1997, was primarily due
to an increase in net interest income of $1.1 million, or 15.0%, and an
increase in non-interest income of $603,000, or 19.9%, offset by an increase
in non-interest expense of $368,000, or 7.4%, and an increase in provision for
income taxes of $1 million, or 102.6%, during the three month period.
Total Interest Income
Total interest income increased $1.7 million, or 11.7%, during the three
months ended September 30, 1998, when compared to the three months ended
September 30, 1997. The increase was primarily due to a $1.6 million, or
11.8%, increase in interest income on loans.
Interest Income - Loans
During the three months ended September 30, 1998, interest income on loans
increased primarily from higher average balances. Interest income increased
$1.6 million as the result of higher average loan balances from $593 million
during the three months ended September 30, 1997 to $660 million during the
three months ended September 30, 1998. The higher average balance resulted
from the Bank's increased lending in commercial real estate and commercial
business lending and the indirect dealer consumer lending offset by a decline
in single-family residential lending.
. The average yield on loans increased from 9.36% during the three months
ended September 30 1997, to 9.41% during the three months ended September 30,
1998.
Interest Income - Investments and Other Interest-Earning Deposits
Interest income on investments and interest-earning deposits increased
$105,000, or 10.0%, during the three months ended September 30, 1998 when
compared to the three months ended September 30, 1997. Interest income
increased $137,000 as a result of higher average balances from $86 million
during the three months ended September 30, 1997 to $98 million during the
three months ended September 30, 1998. This increase was primarily in
interest-bearing deposits in FHLBank used to fund daily operations and
lending. Interest income declined $31,000 as a result of lower average yields
from 4.86% during the three months ended September 30, 1997, to 4.71% during
the three months ended September 30, 1998 due to lower short term market
rates.
Total Interest Expense
Total interest expense increased $665,000, or 8.6%, during the three
months ended September 30, 1998 when compared with the same period in 1997.
The increase during the three month period was primarily due to a $942,000, or
18.2%, increase in interest expense on deposits.
<PAGE> 14
Interest Expense - Deposits
Interest expense on deposits increased $942,000 as a result of higher
average balances of time deposits from $304 million during the three months
ended September 30, 1997, to $354 million during the three months ended
September 30, 1998 and due to higher average balances of interest-bearing
demand deposits from $116 million during the three months ended September 30,
1997, to $157 million during the three months ended September 30, 1998. The
average balances on time deposits increased as a result of the Company's use
of brokered deposits and the average balances on interest-bearing demand
deposits increased as a result other borrowings being reclassed to this
category beginning June 30, 1998. Time deposits experienced small decreases
due to lower rates while interest-bearing demand deposits experienced small
increases due to higher rates. The other deposit category, savings,
experienced only minor increases due to slightly higher balances.
Interest Expense - FHLBank Advances and Other Borrowings
Interest expense on FHLBank advances and other borrowings decreased
$278,000 due to lower average balances from $170 million in the three months
ended September 30, 1997 to $150 million in the three months ended September
30, 1998. Average rates were slightly higher during the three months ended
September 30, 1998 at 6.01% compared to 5.95% during the three months ended
September 30, 1997. The average balances decreased primarily as a result of
the Company's reclass of short-term borrowings to interest-bearing demand
deposits as noted above.
Net Interest Income
The Company's overall interest rate spread increased 12 basis points, or
3.1%, from 3.86% during the three months ended September 30, 1997, to 3.98%
during the three months ended September 30, 1998. The increase was due to a
slight increase in the weighted average yields received on interest-earning
assets combined with a decrease in the weighted average rates paid on
interest-bearing liabilities.
Provision for Loan Losses
The provision for loan losses increased from $417,000 during the three
months ended September 30, 1997 to $807,000 during the three months ended
September 30, 1998.
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.
One additional factor which changed effective with the Bank's charter
conversion on June 30, 1998, was the policy on consumer loan charge-offs.
Beginning June 30, 1998, the Bank is charging off the entire balance of any
consumer loan at the time it becomes 120 days past due and any subsequent
recovery from the sale of collateral is recorded as a recovery at the time of
the sale. Prior to the charter change, consumer loans were kept on the books
at the estimated recovery value of the collateral.
<PAGE> 15
Non-performing assets increased $3.4 million during the three months
ended September 30, 1998 from $11.9 million at June 30, 1998 to $15.3 million
at September 30, 1998. Non-performing loans increased $1.6 million, or 22.0%,
from $7.2 million at June 30, 1998 to $8.8 million at September 30, 1998, and
foreclosed assets increased $1.8 million, or 37.6%, from $4.8 million at June
30, 1998 to $6.5 million at September 30, 1998.
Potential problem loans decreased $1.9 million during the three months
ended September 30, 1998 from $8.9 million at June 30, 1998 to $7 million at
September 30, 1998. 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, 1998 and June 30, 1998,
respectively, totaled $16.6 million and $16 million, representing 2.5% and
2.5% of total loans, 189% and 227% of non-performing loans, and 105% and 101%
of non-performing loans and potential problem loans in total. The allowance
for foreclosed asset losses was $0 at both September 30, and June 30, 1998.
Although the Company maintains the allowance for loan losses and the allowance
for foreclosed asset losses at levels which management considers to be
adequate to provide for potential losses and selling expenses, there can be no
assurance that such losses will not exceed the estimated amounts, thereby
adversely affecting future results of operations.
Non-interest Income
Non-interest income increased $603,000, or 19.9%, in the three months
ended September 30, 1998 when compared to the same period in 1997. The
increase was primarily due to: (i) an increase of $343,000, or 41%, in service
fees on deposits accounts primarily from increased ATM and debit card fees
along with increased insufficient check fees; and (ii) an increase in
commission income of $233,000, or 19%, from increased sales in the travel,
insurance and investment subsidiaries; offset by (iii) a decrease of $154,000,
or 24%, in profits on sale of available-for-sale securities; and (iv) various
increases and decreases in other non-interest income items.
Non-interest Expense
Non-interest expense increased $368,000, or 7.4%, in the three months
ended September 30, 1998 when compared to the same period in 1997. The
increase was primarily due to: (i) an increase of $305,000, or 11.8%, in
salary and employee related costs due to increased staffing levels resulting
from asset and customer growth; (ii) an increase of $222,000, or 34.1%, in
occupancy and equipment expense due to expansion of the Company's ATM network
and computer conversion and other technology related purchases; offset by
(iii) a decrease of $392,000, in tax consulting fees expended to obtain the
special one-time state refund noted below; and (iii) increases or decreases in
other non-interest expense items.
<PAGE> 16
In conjunction with the Company's recent growth and the year 2000 issue
discussed previously in this document, the Company will be incurring
additional operating costs associated with the evaluation, purchase,
implementation and operation of new mainframe hardware and software as well as
other replacement computer and equipment items. In addition, it is probable
that the insurance, investment and travel subsidiaries will incur costs in the
evaluation, purchase, implementation and operation of their systems to bring
them into compliance to avoid potential year 2000 issues. While the exact
impact of the cost to correct or convert the various systems of the Company is
not known at this time, management does not feel it will be material to the
overall operations or financial condition of the Company.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income increased
from 20.3% in the three months ended September 30, 1997 to 34.5% in the three
months ended September 30, 1998. The smaller than normal percentage in the
September 30, 1997 period was due to a refund of prior period state financial
institution taxes of $1.1 million. The refund was the result of a review of
the Bank's state financial institution tax returns by a consulting firm. The
refund resulted from the Bank's charter change from a state savings and loan
charter to a federal savings bank charter in December 1994.
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.
<PAGE> 17
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------
1998 1997
--------------------------- --------------------------
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 $659,965 $15,529 9.41% $593,259 $13,887 9.36%
Investment securities and other
interest-earning assets 97,762 1,152 4.71 86,006 1,046 4.86
------- ------ ---- ------- ------- ----
Total interest-earning assets $757,727 16,681 8.81 $679,265 14,933 8.79
======= ------ ---- ======= ------ ----
Interest-bearing liabilities:
Demand deposits $156,758 968 2.47 $116,307 689 2.37
Savings deposits 34,255 213 2.49 35,115 217 2.47
Time deposits 353,644 4,942 5.59 303,983 4,274 5.62
------- ----- ---- ------- ----- ----
Total deposits 544,657 6,123 4.50 455,405 5,180 4.55
FHLBank advances and other borrowings 150,273 2,256 6.01 170,306 2,534 5.95
------- ----- ---- ------- ----- ----
Total interest-bearing liabilities $694,930 8,379 4.83 $625,711 7,714 4.93
======= ----- ---- ======= ----- ----
Net interest income:
Interest rate spread $8,302 3.98% $7,219 3.86%
===== ==== ===== ====
Net interest margin(1) 4.38% 4.25%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 109.0% 108.6%
===== =====
<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,
1998 vs. 1997
--------------------------------
Increase
(Decrease)
Due to Total
-------------- Increase
Rate Volume (Decrease)
---- ------ ----------
<S> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ 73 $1,569 $1,642
Investment securities and
other interest-earning assets (31) 137 106
--- ----- -----
Total interest-earning assets 42 1,706 1,748
--- ----- -----
Interest-bearing liabilities:
Demand deposits 30 249 279
Savings deposits 1 (5) (4)
Time deposits (26) 694 668
--- ----- -----
Total deposits 5 938 943
FHLBank advances and other borrowings 23 (301) (278)
--- ----- -----
Total interest-bearing liabilities 28 637 665
--- ----- -----
Net interest income $ 14 $1,069 $1,083
=== ===== =====
</TABLE>
<PAGE> 19
Liquidity and Capital Resources
Liquidity is a measure of the Company's ability to generate sufficient
cash to meet present and future financial obligations in a timely manner
through either the sale or maturity of existing assets or the acquisition of
additional funds through liability management. These obligations include the
credit needs of customers, funding deposit withdrawals, and the day-to-day
operations of the Company. Liquid assets include cash, interest-bearing
deposits with financial institutions and certain investment securities and
loans. As a result of the Company's management of the ability to generate
liquidity primarily through liability funding, management believes that the
Company maintains overall liquidity sufficient to satisfy its depositors'
requirements and meet its customers' credit needs. At September 30, 1998, the
Company had commitments of approximately $117 million to fund loan
originations, issued lines of credit, outstanding letters of credit and
unadvanced loans.
Management continuously reviews the capital position of the Company and
the Bank to insure compliance with minimum regulatory requirements, as well as
exploring ways to increase capital either by retained earnings or other means.
The Company's capital position remained strong, with stockholders' equity
at $68.2 million, or 8.5% of total assets of $798 million at September 30,
1998 compared to equity at $67.4 million, or 8.5%, of total assets of $795
million at June 30, 1998.
Banks are required to maintain minimum risk-based capital ratios. These
ratios compare capital, as defined by the risk-based regulations, to assets
adjusted for their relative risk as defined by the regulations. Guidelines
required banks to have a minimum Tier 1 capital ratio, as defined, of 4.00%
and a minimum Tier 2 capital ratio of 8.00%, and a minimum 4.00% leverage
capital ratio. On September 30, 1998, the Bank's Tier 1 capital ratio was
10.1%, Tier 2 capital ratio was 11.3% and leverage ratio was 7.8%.
At September 30, 1998, the held-to-maturity investment portfolio included
$218,000 of gross unrealized gains and no gross unrealized losses. The
unrealized gains are not expected to have a material effect on future earnings
beyond the usual amortization of acquisition premium or accretion of discount
because no sale of the held-to-maturity investment portfolio is foreseen.
The Company's primary sources of funds are savings deposits, FHLBank
advances, other borrowings, loan repayments, proceeds from sales of loans and
securities and funds provided from operations. The Company utilizes
particular sources of funds based on the comparative costs and availability at
the time. The Company has from time to time chosen not to pay rates on
deposits as high as the rates paid by certain of its competitors and, when
believed to be appropriate, supplements deposits with less expensive
alternative sources of funds.
Statements of Cash Flows. During the three months ended September 30,
1998 and 1997, the Company had positive cash flows from operating activities
and negative cash flows from investment activities. During the three months
ended September 30, 1998, the Company had positive cash flows from financing
activities. The Company experienced negative cash flows from financing
activities during the three months ended September 30, 1997.
<PAGE> 20
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 $6.4 million and $5.0
million in cash during the three months ended September 30, 1998 and 1997,
respectively.
During the three months ended September 30, 1998 and 1997, investing
activities used cash of $12.8 million and $1.1 million, respectively,
primarily due to the net increase of loans in each period.
Changes in cash flows from financing activities during 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 $180,000 in cash during the three
months ended September 30, 1998 and used $15.0 million in cash during the
three months ended September 30, 1997. Financing activities in the future are
expected to primarily include changes in deposits and changes in FHLBank
advances.
Dividends. During the three months ended September 30, 1998, the Company
declared and paid dividends of $.11 per share, or 23% of net income, compared
to dividends declared and paid during the three months ended September 30,
1997 of $.10 per share, or 21% of net income. The Board of Directors meets
regularly to consider the level and the timing of dividend payments.
Common Stock Repurchases. The Company has been in various buy-back
programs since May 1990. During the three months ended September 30, 1998,
the Company repurchased 65,255 shares of its common stock at an average price
of $22.97 per share. During the three months ended September 30, 1997, the
Company repurchased 24,709 shares of its common stock at an average price of
$16.81 per share. No shares were reissued during the three months ended
September 30, 1998 or 1997 as there were no stock option exercises.
Management intends to continue its stock buy-back programs as long as
repurchasing the stock contributes to the overall growth of shareholder value.
The number of shares of stock that will be repurchased and the price that will
be paid is the result of many factors, several of which are outside of the
control of the Company. The primary factors, however, are the number of
shares available in the market from sellers at any given time and the price of
the stock within the market as determined by the market.
<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 21, 1998, the
results of the matters voted upon were as follows:
(a) The following nominee for election as director was elected.
Affirmative Votes
Director Votes Withheld
------------------ ----------- ---------
William V. Turner 7,451,243 9,132
(b) 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
----------- -------- -----------
7,445,648 6,863 7,864
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> 22
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 16, 1998 /s/ William V. Turner
--------------------------
William V. Turner
Chairman of the Board,
President and Chief
Executive Officer
Date: November 16, 1998 /s/ Don M. Gibson
--------------------------
Don M. Gibson,
Executive Vice President and
Chief Financial Officer
<PAGE> 23
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> 24
<TABLE>
<CAPTION>
Exhibit 11- Statement Re Computation of Earnings Per Share
Three Months Ended
September 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Basic:
Average shares outstanding 7,940,341 8,091,509
========= =========
Net income $3,778,572 $3,860,275
========= =========
Per share amount $0.48 $0.48
==== ====
Diluted:
Average shares outstanding 7,940,341 8,091,509
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 157,422 101,097
--------- ---------
Diluted shares 8,097,763 8,192,606
========= =========
Net income $3,778,572 $3,860,275
========= =========
Per share amount $0.47 $0.47
==== ====
</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> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,197
<INT-BEARING-DEPOSITS> 28,461
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,932
<INVESTMENTS-CARRYING> 49,062
<INVESTMENTS-MARKET> 49,280
<LOANS> 665,675
<ALLOWANCE> 16,650
<TOTAL-ASSETS> 797,845
<DEPOSITS> 582,088
<SHORT-TERM> 36,648
<LIABILITIES-OTHER> 4,772
<LONG-TERM> 106,094
0
0
<COMMON> 123
<OTHER-SE> 68,120
<TOTAL-LIABILITIES-AND-EQUITY> 797,845
<INTEREST-LOAN> 15,529
<INTEREST-INVEST> 938
<INTEREST-OTHER> 214
<INTEREST-TOTAL> 16,681
<INTEREST-DEPOSIT> 6,122
<INTEREST-EXPENSE> 8,378
<INTEREST-INCOME-NET> 8,302
<LOAN-LOSSES> 807
<SECURITIES-GAINS> 267
<EXPENSE-OTHER> 5,366
<INCOME-PRETAX> 5,769
<INCOME-PRE-EXTRAORDINARY> 3,779
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,779
<EPS-PRIMARY> .48
<EPS-DILUTED> .47
<YIELD-ACTUAL> 4.38
<LOANS-NON> 8,796
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,042
<ALLOWANCE-OPEN> 16,373
<CHARGE-OFFS> 718
<RECOVERIES> 188
<ALLOWANCE-CLOSE> 16,650
<ALLOWANCE-DOMESTIC> 16,650
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
