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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 March 31, 2000
--------------------------
Commission File Number 0-18082
--------------------------
GREAT SOUTHERN BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
43-1524856
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(IRS Employer Identification Number)
1451 E. BATTLEFIELD
SPRINGFIELD, MISSOURI
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(Address of principal executive offices)
65804
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(Zip Code)
(417) 887-4400
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of each of the registrant's classes of
common stock: 7,247,093 shares of common stock, par value $.01, outstanding at
May 12, 2000.
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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
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,427,139 $ 42,355,901
Interest-bearing deposits in other financial institutions. . . . . . . . . 524,974 1,244,319
----------- -----------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . 29,952,113 43,600,220
Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . 80,100,202 79,891,460
Held-to-maturity securities (fair value $37,147,900 - March 2000;
$37,415,600 - December 1999) . . . . . . . . . . . . . . . . . . . . . . 37,507,915 37,645,500
Loans receivable, net of allowance for loan losses of $17,374,299
- March 2000; $17,293,320 - December 1999. . . . . . . . . . . . . . . . 783,635,456 766,806,940
Interest receivable:
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,178,166 4,971,646
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,379,371 882,848
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . 4,127,642 4,027,242
Foreclosed assets held for sale, net . . . . . . . . . . . . . . . . . . . 1,890,002 817,118
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 9,884,402 9,984,075
Investment in Federal Home Loan Bank Stock . . . . . . . . . . . . . . . . 11,226,600 10,981,000
Excess of cost over fair value of net assets acquired, at amortized cost . 368,642 403,569
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,983,014 4,791,784
------------ ------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $970,233,525 $964,803,402
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $657,687,403 $625,900,352
Federal Home Loan Bank advances. . . . . . . . . . . . . . . . . . . . . . 189,259,149 200,530,921
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 35,028,310 53,594,090
Note payable to bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,500,000 7,517,025
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . 4,699,950 5,832,253
Advances from borrowers for taxes and insurance. . . . . . . . . . . . . . 704,144 309,100
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . 2,337,902 1,995,369
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,069,182 198,401
------------ ------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 903,286,040 895,877,511
------------ ------------
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares -- --
Common stock, $.01 par value; authorized 20,000,000 shares; issued
12,325,002 shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 123,250 123,250
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 17,499,538 17,487,433
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,033,443 100,310,493
Accumulated other comprehensive income:
Unrealized depreciation on available-for-sale securities,
net of income taxes of $321,201 at March 31, 2000
and $381,970 at December 31, 1999. . . . . . . . . . . . . . . . . . . . (735,264) (644,052)
------------ ------------
119,920,967 117,277,124
Less treasury common stock, at cost; March 31, 2000 - 5,048,032 shares;
December 31, 1999 - 4,835,890 shares . . . . . . . . . . . . . . . . . . (52,973,482) (48,351,233)
------------ ------------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . 66,947,485 68,925,891
------------ ------------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . $970,233,525 $964,803,402
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 3
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
--------------------------
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Loans $17,376,734 $14,845,247
Investment securities and other 1,766,152 1,079,061
---------- ----------
TOTAL INTEREST INCOME 19,142,886 15,924,308
---------- ----------
INTEREST EXPENSE
Deposits 7,010,604 5,804,474
Federal Home Loan Bank advances 3,012,628 2,114,813
Short-term borrowings 584,290 263,631
---------- ----------
TOTAL INTEREST EXPENSE 10,607,522 8,182,918
---------- ----------
NET INTEREST INCOME 8,535,364 7,741,390
PROVISION FOR LOAN LOSSES 475,600 576,410
---------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,059,764 7,164,980
---------- ----------
NON-INTEREST INCOME
Commissions 1,716,486 1,759,509
Service charge and ATM fees 1,276,273 999,490
Net realized gains on sales of loans 119,841 455,585
Net realized gains on available-for-sale securities 130 219,596
Expense on foreclosed assets (10,782) (43,508)
Other income 502,055 524,135
---------- ----------
TOTAL NON-INTEREST INCOME 3,604,003 3,914,807
---------- ----------
NON-INTEREST EXPENSE
Salaries and employee benefits 3,466,690 3,264,513
Net occupancy and equipment expense 899,542 1,053,455
Postage 267,588 270,611
Insurance 152,058 173,717
Amortization of goodwill 39,927 34,927
Advertising 132,544 110,242
Office supplies and printing 188,203 286,603
Other operating expenses 950,444 817,012
---------- ----------
TOTAL NON-INTEREST EXPENSE 6,096,996 6,011,080
---------- ----------
INCOME BEFORE INCOME TAXES 5,566,771 5,068,707
PROVISION FOR INCOME TAXES 1,907,965 1,622,000
---------- ----------
NET INCOME $ 3,658,806 $ 3,446,707
========== ==========
BASIC EARNINGS PER COMMON SHARE $.50 $.44
=== ===
DILUTED EARNINGS PER COMMON SHARE $.48 $.44
=== ===
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,658,806 $ 3,446,707
Items not requiring (providing) cash:
Depreciation 398,059 491,051
Amortization 34,927 34,927
Provision for loan losses 475,600 576,410
Gain on sale of loans (119,841) (455,585)
Proceeds from sales of loans held for sale 2,476,275 19,749,839
Originations of loans held for sale (4,596,915) (19,749,146)
Net realized (gains) losses on sale of available-for-sale securities (130) (6,284)
Loss on sale of premises and equipment 4,688 --
Gain on sale of foreclosed assets (66,136) (27,737)
Amortization of deferred income, premiums and discounts (656,603) (171,796)
Deferred income taxes (133,401) (735,210)
Changes in:
Accrued interest receivable (703,043) (191,240)
Prepaid expenses and other assets (100,401) 2,021,805
Accounts payable and accrued expenses (789,770) (1,094,732)
Income taxes refundable/payable 1,870,781 861,853
----------- -----------
Net cash provided by operating activities 1,752,896 4,750,862
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (15,925,578) (19,226,230)
Purchase of premises and equipment (305,609) (538,227)
Proceeds from sale of premises and equipment 2,535 --
Proceeds from sale of foreclosed assets 163,399 165,000
Capitalized costs on foreclosed assets (16,281) 185
Proceeds from maturing held-to-maturity securities 139,682 24,319,600
Purchase of held-to-maturity securities -- (9,367,313)
Proceeds from sale of available-for-sale securities 4,930 1,204,728
Purchase of available-for-sale securities -- (990,274)
Purchase of Federal Home Loan Bank stock (245,600) (178,600)
----------- -----------
Net cash used in investing activities (16,182,522) (4,611,131)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in certificates of deposit 25,064,303 27,972,729
Net increase in checking and savings deposits 6,722,748 2,009,717
Proceeds from Federal Home Loan Bank advances 648,000,000 281,200,000
Repayments of Federal Home Loan Bank advances (659,271,772) (303,630,909)
Net increase (decrease) in short-term borrowings (14,582,805) 3,467,646
Net increase (decrease) in advances from borrowers
for taxes and insurance 395,044 (816,664)
Purchase of treasury stock (4,933,544) (3,973,815)
Dividends paid (935,856) (976,498)
Stock options exercised 323,401 69,055
----------- -----------
Net cash provided by financing activities 781,519 5,321,261
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,648,107) 5,460,992
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 43,600,220 33,546,422
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,952,113 $ 39,007,414
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<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. The
financial statements presented herein reflect all adjustments which are, in the
opinion of management, necessary to fairly present the financial position,
results of operations and cash flows of the Company for the periods presented.
Those adjustments consist only of normal recurring adjustments. Operating
results for the three months ended March 31, 2000 and 1999 are not necessarily
indicative of the results that may be expected for the full year. The
consolidated statement of financial condition of the Company as of December 31,
1999, has been derived from the audited consolidated statement of financial
condition of the Company as of that date.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-K
annual report for 1999 filed with the Securities and Exchange Commission.
NOTE 2: OPERATING SEGMENTS
The Company's banking operation is its only reportable segment. The banking
operation segment is principally engaged in the business of originating
residential and commercial real estate loans, commercial business and consumer
loans and funding these loans through the attraction of deposits from the
general public, originating brokered deposits and borrowing from the Federal
Home Loan Bank and others. The operating results of this segment are regularly
reviewed by management to make decisions about resource allocations and to
assess performance.
The following table provides information about segment profits and segment
assets and has been prepared using the same accounting policies as those
described in Note 1. There are no material inter-segment revenues, thus no
reconciliations to amounts reported in the consolidated financial statements are
necessary. Revenue from segments below the reportable segment threshold is
attributable to four operating segments of the Company. These segments include
an insurance agency, a travel agency, discount brokerage services and real
estate appraisal services.
Three Months Ended March 31, 2000
----------------------------------------
Banking All Other Totals
------------ ------------ ------------
Interest income $18,988,176 $ 154,710 $19,142,886
Non-interest income 1,855,429 1,748,574 3,604,003
Segment profit 3,358,045 300,761 3,658,806
<PAGE> 6
Three Months Ended March 31, 1999
----------------------------------------
Banking All Other Totals
------------ ------------ ------------
Interest income $15,890,644 $ 33,664 $15,924,308
Non-interest income 1,840,886 2,073,921 3,914,807
Segment profit 3,035,081 411,626 3,446,707
NOTE 3: COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", requires the reporting of comprehensive income and its
components. Comprehensive income is defined as the change in equity from
transactions and other events and circumstances from non-owner sources, and
excludes investments by and distributions to owners. Comprehensive income
includes net income and other items of comprehensive income meeting the above
criteria. The Company's only component of other comprehensive income is the
unrealized gains and losses on available for sale securities.
Three Months Ended March 31,
----------------------------
2000 1999
------------- -------------
Net income $3,658,806 $3,446,707
--------- ---------
Unrealized holding losses,
net of income taxes (91,127) (190,905)
Less: reclassification adjustment
for gains included in net income,
net of income taxes (85) (142,737)
--------- ---------
(91,212) (333,642)
--------- ---------
Other comprehensive income $3,567,594 $3,113,065
========= =========
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission (the "SEC"), in the Company's press releases
or other public or shareholder communications, and in oral statements made with
the approval of an authorized executive officer, the words or phrases "will
likely result" "are expected to," "will continue," "is anticipated," "estimate,"
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including, among other things, changes in economic conditions in the Company's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans and deposits in the Company's market area and
competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ
<PAGE> 7
materially from any opinions or statements expressed with respect to future
periods in any current statements.
The Company does not undertake-and specifically declines any obligation- to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
General
The following should be read in conjunction with management's discussion
and analysis in the Company's December 31, 1999, Form 10-K.
The profitability of the Company, and more specifically, the profitability
of its primary subsidiary, Great Southern Bank (the "Bank"), depends primarily
on its net interest income. Net interest income is the difference between the
interest income it earns on its loans and investment portfolio, and the interest
it pays on interest-bearing liabilities, which consists mainly of interest paid
on deposits and borrowings. Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities and the
interest rates earned or paid on these balances. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income.
The Company's profitability is also affected by the level of its
non-interest income and operating expenses. Non-interest income consists
primarily of gains on sales of loans and available-for-sale investments, service
charge fees, commissions earned by non-bank subsidiaries and other general
operating income. Operating expenses consist primarily of salaries and employee
benefits, occupancy-related expenses, postage, insurance, advertising, office
expenses and other general operating expenses.
The operations of the Bank, and banking institutions in general, are
significantly influenced by general economic conditions and related monetary and
fiscal policies of regulatory agencies. Deposit flows and the cost of deposits
and borrowings are influenced by interest rates on competing investments and
general market rates of interest. Lending activities are affected by the demand
for financing real estate and other types of loans, which in turn are affected
by the interest rates at which such financing may be offered and other factors
affecting loan demand and the availability of funds.
Effect of Federal Laws and Regulations
Federal legislation and regulation significantly affect the banking
operations of the Company and the Bank, and have increased competition among
commercial banks, savings institutions, mortgage banking enterprises and other
financial institutions. In particular, the capital requirements and operations
of regulated depository institutions such as the Company and the Bank have been
and will be subject to changes in applicable statutes and regulations from time
to time, which changes could, under certain circumstances, adversely affect the
Company or the Bank.
<PAGE> 8
Potential Impact of Accounting Principles to be Implemented in the Future
The Financial Accounting Standards Board has adopted Statement of Financial
Accounting Standards("SFAS") No. 133, "Accounting for Derivative Financial
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
effective date of SFAS No. 133 has been delayed by SFAS No. 137 until fiscal
years beginning after June 15, 2000, but may be implemented early as of the
beginning of any fiscal quarter after issuance. SFAS No. 133 may not be applied
retroactively. Management presently believes the adoption of SFAS No. 133, which
the Company expects to initially adopt for its year ending December 31, 2001,
will not have a material impact on the Company's financial statements.
Year 2000 Issues
The Company has had no significant problems relating to the Year 2000 date
change; however, management continues to monitor all systems for potential
problems. In addition, nothing has come to management's attention regarding any
Year 2000 problems experienced by its customers or suppliers that have
significantly impacted or are expected to significantly impact the Company.
Asset and Liability Management
During the three months ended March 31, 2000, total assets increased by
$5.4 million to $970.2 million. Loans increased $16.8 million and foreclosed
assets held for sale increased $1.1 million, partially offset by a decline in
cash and cash equivalents of $13.6 million.
Total liabilities increased $7.4 million to $903.3 million. Deposits
increased $31.8 million and note payable to bank increased $4.0 million,
partially offset by a decrease in Federal Home Loan Bank ("FHLBank") advances of
$11.3 million and a decrease in short-term borrowings of $18.6 million. The
deposit increase was primarily from brokered deposits as core retail deposits
remained virtually unchanged from December 31, 1999. The note payable to a
third-party bank is a line of credit established by the Company to meet
operating cash needs, and as a source of funds to repurchase shares of the
Company's stock. The decrease in short-term borrowings was the result of
repayment of federal funds purchased. The decrease in FHLBank advances was due
to repayment of some advances from the brokered deposits proceeds. Management
continues to feel that FHLBank advances and brokered deposits are viable
alternatives to retail deposits when factoring all the costs associated with the
generation and maintenance of additional retail deposits.
<PAGE> 9
Stockholders' equity decreased $2.0 million primarily as a result of net
treasury stock purchases of $4.6 million, an increase in unrealized losses on
available-for-sale securities of $91,000 and dividend declarations and payments
of approximately $.9 million, partially offset by an increase from net income of
$3.7 million. The Company repurchased 233,697 shares of common stock at an
average price of $21.06 per share during the three months ended March 31, 2000
and reissued 21,555 shares of treasury stock at an average price of $12.83 per
share to cover stock option exercises.
Interest Rate Risk and Sensitivity
A principal operating objective of the Company is to produce stable
earnings by achieving a favorable interest rate spread that can be sustained
during fluctuations in prevailing interest rates. The Company has sought to
reduce its exposure to adverse changes in interest rates by attempting to
achieve a closer match between the periods in which its interest-bearing
liabilities and interest-earning assets can be expected to reprice through the
origination of adjustable-rate mortgages and loans with shorter terms and the
purchase of other shorter term interest-earning assets.
The rates of interest the Bank earns on assets and pays on liabilities
generally are established contractually for a period of time. Market interest
rates change over time. Accordingly, the Company's results of operations, like
those of other financial institutions, are impacted by changes in interest rates
and the interest rate sensitivity of the Company's assets and liabilities. The
risk associated with changes in interest rates and the Company's ability to
adapt to these changes is known as interest risk and is the Company's most
significant market risk.
The term "interest rate sensitivity" refers to those assets and liabilities
that mature within a stated period or reprice within that period in response to
fluctuations in market rates and yields. As noted above, one of the principal
goals of the Company's asset/liability program is to maintain and match the
interest rate sensitivity characteristics of the asset and liability portfolios.
In order to properly manage interest rate risk, the Bank's Board of
Directors has established an Asset/Liability Management Committee ("ALCO") made
up of members of management to monitor the difference between the Bank's
maturing and repricing assets and liabilities and to develop and implement
strategies to decrease the "gap" between the two. The primary responsibilities
of the committee are to assess the Bank's asset/liability mix, recommend
strategies to the Board that will enhance income while managing the Bank's
vulnerability to changes in interest rates and report to the Board the results
of the strategies used. At times, depending on the level of general interest
rates, the relationship between long- and short-term interest rates, market
conditions and competitive factors, the ALCO may determine to increase the
Bank's interest rate risk position somewhat in order to maintain its net
interest margin. The Company's experience with interest rates are discussed in
more detail under the headings "Results of Operations and Comparisons of the
Three Months Ended March 31, 2000 and 1999."
<PAGE> 10
An important element of both earnings performance and liquidity is the
management of interest rate sensitivity. Interest rate sensitivity reflects the
potential effect on net interest income of a movement in interest rates. The
difference between the Bank's interest-sensitive assets and interest-sensitive
liabilities for a specified time frame is referred to as "gap." A financial
institution is considered to be asset-sensitive, or have a positive gap, when
the amount of its earning assets maturing or repricing within a given time
period exceeds the amount of its interest-bearing liabilities also maturing or
repricing within that time period. Conversely, a financial institution is
considered to be liability-sensitive, or have a negative gap, when the amount of
its interest-bearing liabilities maturing or repricing within a given period
exceeds the amount of earning assets also maturing or repricing within that time
period. During a period of rising interest rates, a positive gap would tend to
increase net interest income, while a negative gap would tend to have an adverse
effect on net interest income. During a period of falling interest rates, a
positive gap would tend to have an adverse effect on net interest income, while
a negative gap would tend to increase net interest income. At March 31, 2000,
the Bank continues to maintain a positive one-year gap.
The Bank evaluates interest sensitivity risk and then formulates guidelines
regarding asset generation, funding sources and the pricing of each, and
off-balance sheet commitments in order to decrease sensitivity risk. These
guidelines are based upon management's outlook regarding future interest rate
movements, the state of the regional and national economy and other financial
and business risk factors. The Bank uses a static gap model and a computer
simulation to measure the effect on net interest income of various interest rate
scenarios over selected time periods. The Bank's gap can be managed by repricing
assets or liabilities, selling available-for-sale investments, replacing an
asset or liability prior to maturity or adjusting the interest rate during the
life of an asset or liability. Matching the amount of assets and liabilities
repricing during the same time interval helps to reduce the risk and minimize
the impact on net interest income in periods of rising or falling interes rates.
As a part of its asset and liability management strategy, the Bank has
increased its investment in loans which are interest rate sensitive by
emphasizing the origination of adjustable-rate, one- to four-family residential
loans and adjustable-rate or relatively short-term commercial business and
consumer loans, and originating fixed-rate, one- to four-family residential
loans primarily for immediate resale in the secondary market. Approximately
one-third of total assets are currently invested in commercial real estate and
commercial business loans. This part of the strategy was designed to improve
asset yield and fee income, and to shorten the average maturity and increase the
interest rate sensitivity of the loan portfolio. While efforts to date have
contributed to the changes in the one-year interest rate sensitivity gap and
increased net interest income, such lending, commensurate with the increased
risk levels, has also resulted in an increase in the level of non-performing
assets. Management continually evaluates existing and potential commercial real
estate and commercial business loans, in order to try to reduce undesirable
risks including concentrations in a given geographic area or a particular loan
category.
<PAGE> 11
Interest rate risk exposure estimates (the sensitivity gap) are not exact
measures of an institution's actual interest rate risk. They are only indicators
of interest rate risk exposure produced in a simplified modeling environment
designed to allow management to gauge the Bank's sensitivity to changes in
interest rates. They do not necessarily indicate the impact of general interest
rate movements on the Bank's net interest income because the repricing of
certain categories of assets and liabilities is subject to competitive and other
factors beyond the Bank's control. As a result, certain assets and liabilities
indicated as maturing or otherwise repricing within a stated period may in fact
mature or reprice at different times and in different amounts and would
therefore cause a change (which potentially could be material) in the Bank's
interest rate risk.
<PAGE> 12
RESULTS OF OPERATIONS AND COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000
AND 1999
The increase in earnings of $212,000, or 6.2%, for the three months ended
March 31, 2000 when compared to the same period in 1999, was primarily due to an
increase in net interest income of $794,000, or 10.3%, and a decrease in
provision for loan losses of $101,000, or 17.5%. These were partially offset by
an increase in non-interest expense of $86,000, or 1.4%, an increase in
provision for income taxes of $286,000, or 17.6%, and a decrease in non-interest
income of $311,000, or 7.9%, during the three month period.
Total Interest Income
Total interest income increased $3.2 million, or 20.2%, during the three
months ended March 31, 2000, when compared to the three months ended March 31,
1999. The increase was due to a $2.5 million, or 17.1%, increase in interest
income on loans and a $.7 million, or 63.7% increase in interest income on
investments and other interest earning assets.
Interest Income - Loans
During the three months ended March 31, 2000, interest income on loans
increased from both higher average balances and higher average interest rates.
Interest income increased $1.3 million as the result of higher average loan
balances from $726 million during the three months ended March 31, 1999, to $790
million during the three months ended March 31, 2000. The higher average balance
resulted from the Bank's increases in commercial real estate and commercial
business lending and indirect dealer consumer lending, partially offset by a
decline in multi-family residential lending.
Interest income increased $1.2 million as the result of higher average
interest rates. The average yield on loans increased from 8.18% during the three
months ended March 31 1999, to 8.80% during the three months ended March 31,
2000, primarily due to higher market rates of interest.
Interest Income - Investments and Other Interest-Earning Assets
Interest income on investments and other interest-earning assets increased
almost entirely as a result of higher average balances during the three months
ended March 31, 2000 when compared to the three months ended March 31, 1999.
Interest income increased $734,000 as a result of higher average balances from
$76 million during the three months ended March 31, 1999 to $130 million during
the three months ended March 31, 2000. This increase was primarily in
available-for-sale securities, where additional securities were acquired for
liquidity and pledging to deposit accounts under repurchase agreements. Interest
income decreased $47,000 as a result of slightly lower average yields from 5.68%
during the three months ended March 31, 1999, to 5.42% during the three months
ended March 31, 2000.
Total Interest Expense
Total interest expense increased $2.4 million, or 29.6%, during the three
months ended March 31, 2000 when compared with the same period in 1999. The
increase during the three month period was due to a $1.2 million, or 20.8%,
increase in interest expense on deposits, an $898,000, or 42.5%, increase in
interest expense on FHLBank advances, and a $321,000, or 121%, increase in
interest expense on short-term borrowings.
<PAGE> 13
Interest Expense - Deposits
Interest expense on deposits increased $913,000 as a result of higher
average balances of time deposits from $378 million during the three months
ended March 31, 1999, to $444 million during the three months ended March 31,
2000, and increased $419,000 due to higher average interest rates on time
deposits from 5.26% during the three months ended March 31, 1999, to 5.68%
during the three months ended March 31, 2000. The average balances on time
deposits increased as a result of the Bank's use of brokered deposits and the
average interest rates increased due to a combination of higher overall market
rates and increased brokered deposits. Interest on demand deposits decreased
$84,000 due to lower average balances from $134 million during the three months
ended March 31, 1999, to $116 million during the three months ended March 31,
2000, and decreased $23,000 due to lower average rates from 1.90% during the
three months ended March 31, 1999, to 1.83% during the three months ended March
31, 2000.
The other deposit category, savings, experienced only minor decreases due
to slightly lower balances.
Interest Expense - FHLBank Advances and Short-term Borrowings
Interest expense on FHLBank advances and short-term borrowings increased
$1.2 million due primarily to higher average balances from $176 million in the
three months ended March 31, 1999 to $240 million in the three months ended
March 31, 2000. Average rates increased from 5.42% during the three months ended
March 31, 1999, to 5.99% during the three months ended March 31, 2000. The
average balance increase was used to fund growth in loans and securities.
Average interest rates increased due to higher overall market rates during the
first quarter of 2000.
Net Interest Income
The Company's overall interest rate spread decreased 20 basis points, or
5.9%, from 3.40% during the three months ended March 31, 1999, to 3.20% during
the three months ended March 31, 2000. The decrease was due to a 58 basis point
increase in the weighted average rates paid on interest-bearing liabilities
offset by a 38 basis point increase in the weighted average yields received on
interest-earning assets. In comparing the two periods, the yield on loans
increased 62 basis points while the yield on investment securities declined 26
basis points.
The prime rate of interest averaged 7.75% during the three months ended
March 31, 1999, compared to an average of 8.69% during the three months ended
March 31, 2000. As a large percentage of the Bank's loans are tied to prime,
this increase was the primary reason for the increase in the weighted average
yields received on interest-earning assets.
Interest rates paid on deposits and FHLBank advances increased during the
three months ended March 31, 2000 compared to the same quarter one year earlier.
As the Company has grown the assets of the Bank, the brokered and other time
deposits and advances needed to fund that growth have increased the average cost
of deposits since time deposits are higher cost deposits for the Bank than are
interest-bearing demand and savings. In addition, overall interest rates were
higher during the period ended March 31, 2000.
<PAGE> 14
Provision for Loan Losses
The provision for loan losses decreased from $576,000 during the three
months ended March 31, 1999 to $476,000 during the three months ended March 31,
2000.
Management records a provision for loan losses in an amount sufficient to
result in an allowance for loan losses that will cover current net charge-offs
as well as risks believed to be inherent in the loan portfolio of the Bank. The
amount of provision charged against current income is based on several factors,
including, but not limited to, past loss experience, current portfolio mix,
actual and potential losses identified in the loan portfolio, economic
conditions and regular reviews by internal staff and regulatory examinations.
Weak economic conditions, higher inflation or interest rates, or other
factors may lead to increased losses in the portfolio. Management has
established various controls in an attempt to limit future losses, such as a
watch list of possible problem loans, documented loan administration policies
and a loan review staff to review the quality and anticipated collectibility of
the portfolio. Management determines which loans are potentially uncollectible,
or represent a greater risk of loss and makes additional provisions to expense,
if necessary, to maintain the allowance at a satisfactory level.
Non-performing assets increased $2.3 million during the three months ended
March 31, 2000 from $9.6 million at December 31, 1999 to $11.9 million at March
31, 2000. Non-performing loans increased $1.2 million, or 13.6%, from $8.8
million at December 31, 1999 to $10.0 million at March 31, 2000, and foreclosed
assets increased $1.1 million, or 131%, from $817,000 at December 31, 1999 to
$1.9 million at March 31, 2000 due to the foreclosure of one large commercial
real estate property.
Potential problem loans decreased $.5 million during the three months ended
March 31, 2000 from $10.8 million at December 31, 1999 to $10.3 million at March
31, 2000. These are loans which management has identified through routine
internal review procedures as having possible credit problems which may cause
the borrowers difficulty in complying with current loan repayment terms. These
loans are not reflected in the non-performing loans.
The Bank's allowance for loan losses as a percentage of total loans was
2.17% and 2.20% at March 31, 2000 and December 31, 1999, respectively.
Management considers the allowance for loan losses adequate to cover losses
inherent in the Company's loan portfolio at this time, based on current economic
conditions. If economic conditions deteriorate significantly, it is possible
that additional assets would be classified as non-performing, and accordingly,
additional provision for losses would be required, thereby adversely affecting
future results of operations and financial condition.
Non-interest Income
Non-interest income decreased $311,000, or 7.9%, in the three months ended
March 31, 2000 when compared to the same period in 1999. The decrease was
primarily due to: (i) a decrease in net realized gains on sales of fixed rate
residential and other loans of $336,000, or 73.7%; and (ii) a decrease of
$219,000, or 100%, in profits on sale of available-for-sale securities. During
the three months ended March 31, 2000, the Bank sold significantly fewer
residential and student loans than in the same period during 1999. During the
1999 period, interest rates were conducive to the generation of fixed-rate
mortgages, which the Bank typically sells, rather than adjustable-rate
mortgages, which the Bank typically retains in its portfolio. During the three
months ended March 31, 1999, the Company sold
<PAGE> 15
some of its investments in equity securities and realized the gains; conversely,
during the same period of 2000, the Company held its available-for-sale
securities due to unrealized losses in the portfolio.
This decline was partially offset by: (i) an increase in service charge and
ATM fees of $277,000, or 27.7%; and (ii) various increases or decreases in other
non-interest income items. The increase in service charge fees resulted from
increased rates and a larger number of accounts. The increase in ATM fees is
related to an increased number of ATMS in the Company's market area, resulting
in increased fees from use by non-customers.
Non-interest Expense
Non-interest expense increased $86,000, or 1.4%, in the three months ended
March 31, 2000, when compared to the same period in 1999. The increase was
primarily due to an increase of $202,000, or 6.2%, in salary and employee
related costs due to increased staffing levels resulting from asset/customer
growth and normal merit increases for existing employees. This was offset by:
(i) a decrease of $154,000, or 14.6%, in occupancy and equipment expense due to
the core computer conversion, Year 2000 testing and other technology related
expenses in 1999; (ii) a decrease of $98,000, or 34.3%, in office supplies and
printing costs related to the staffing increase, computer conversion and Year
2000 testing which occurred in 1999; and (iii) increases or decreases in other
non-interest expense items.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income increased
slightly from 32.0% in the three months ended March 31, 1999, to 34.3% in the
three months ended March 31, 2000.
Average Balances, Interest Rates and Yields
The following tables present for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. The tables do
not include non-interest-bearing demand deposits and do not reflect any effect
of income taxes.
<PAGE> 16
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------
2000 1999
--------------------------- --------------------------
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 $789,926 $17,377 8.80% $726,335 $14,845 8.18%
Investment securities and other
interest-earning assets 130,384 1,766 5.42 76,040 1,079 5.68
------- ------ ---- ------- ------- ----
Total interest-earning assets $920,310 19,143 8.32 $802,375 15,924 7.94
======= ------ ---- ======= ------ ----
Interest-bearing liabilities:
Demand deposits $115,678 528 1.83 $133,901 635 1.90
Savings deposits 29,365 182 2.48 32,954 200 2.43
Time deposits 443,910 6,301 5.68 378,072 4,969 5.26
------- ----- ---- ------- ----- ----
Total deposits 588,953 7,011 4.76 544,927 5,804 4.26
FHLBank advances and other borrowings 240,104 3,597 5.99 175,668 2,379 5.42
------- ----- ---- ------- ----- ----
Total interest-bearing liabilities $829,057 10,608 5.12 $720,595 8,183 4.54
======= ----- ---- ======= ----- ----
Net interest income:
Interest rate spread $8,535 3.20% $7,741 3.40%
===== ==== ===== ====
Net interest margin(1) 3.71% 3.86%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 111.0% 111.3%
===== =====
</TABLE>
(1) Defined as the Company's net interest income divided by total
interest-earning assets.
<PAGE> 17
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities for the periods shown. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in rate (i.e., changes in rate
multiplied by old volume) and (ii) changes in volume (i.e., changes in volume
multiplied by old rate). For purposes of this table, changes attributable to
both rate and volume which cannot be segregated have been allocated
proportionately to volume and to rate.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 vs. 1999
--------------------------------
Increase
(Decrease)
Due to Total
----------------- Increase
Rate Volume (Decrease)
-------- ------- ----------
<S> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Loans receivable $1,179 $1,353 $2,532
Investment securities and
other interest-earning assets (47) 734 687
----- ----- -----
Total interest-earning assets 1,132 2,087 3,219
----- ----- -----
Interest-bearing liabilities:
Demand deposits (23) (84) (107)
Savings deposits 4 (22) (18)
Time deposits 419 913 1,332
----- ----- -----
Total deposits 400 807 1,207
FHLBank advances and other borrowings 273 945 1,218
----- ----- -----
Total interest-bearing liabilities 673 1,752 2,425
----- ----- -----
Net interest income $ 459 $ 335 $ 794
===== ===== =====
</TABLE>
<PAGE> 18
Liquidity and Capital Resources
Liquidity is a measure of the Company's ability to generate sufficient cash
to meet present and future financial obligations in a timely manner through
either the sale or maturity of existing assets or the acquisition of additional
funds through liability management. These obligations include the credit needs
of customers, funding deposit withdrawals, and the day-to-day operations of the
Company. Liquid assets include cash, interest-bearing deposits with financial
institutions and certain investment securities and loans. As a result of the
Company's management of the ability to generate liquidity primarily through
liability funding, management believes that the Company maintains overall
liquidity sufficient to satisfy its depositors' requirements and meet its
customers' credit needs. At March 31, 2000, the Company had commitments of
approximately $122 million to fund loan originations, issued lines of credit,
outstanding letters of credit and unadvanced loans.
Management continuously reviews the capital position of the Company and the
Bank to insure compliance with minimum regulatory requirements, as well as
exploring ways to increase capital either by retained earnings or other means.
The Company's capital position remained strong, with stockholders' equity at
$66.9 million, or 6.9% of total assets of $970.2 million at March 31, 2000
compared to equity at $68.9 million, or 7.1%, of total assets of $964.8 million
at December 31, 1999.
Banks are required to maintain minimum risk-based capital ratios. These
ratios compare capital, as defined by the risk-based regulations, to assets
adjusted for their relative risk as defined by the regulations. Guidelines
require banks to have a minimum Tier 1 risk-based capital ratio, as defined, of
4.00%, a minimum total risk-based capital ratio of 8.00%, and a minimum 4.00%
core capital ratio. On March 31, 2000, the Bank's Tier 1 risk-based capital
ratio was 9.2%, total risk-based capital ratio was 10.5% and the core capital
ratio was 7.4%.
At March 31, 2000, the held-to-maturity investment portfolio included
$360,000 of gross unrealized losses. The unrealized losses are not expected to
have a material effect on future earnings beyond the usual amortization of
acquisition premium or accretion of discount because no sale of the
held-to-maturity investment portfolio is foreseen.
The Company's primary sources of funds are certificates of deposit, FHLBank
advances, other borrowings, loan repayments, proceeds from sales of loans and
available-for-sale securities and funds provided from operations. The Company
utilizes particular sources of funds based on the comparative costs and
availability at the time. The Company has from time to time chosen not to pay
rates on deposits as high as the rates paid by certain of its competitors and,
when believed to be appropriate, supplements deposits with less expensive
alternative sources of funds.
Statements of Cash Flows. During the three months ended March 31, 2000, and
1999, respectively, the Company experienced positive cash flows from operating
activities and financing activities.
<PAGE> 19
Cash flows from operating activities for the periods covered by the
Statements of Cash Flows have been primarily related to the origination and sale
of loans held-for-sale, changes in accrued and deferred assets, credits and
other liabilities, the provision for loan losses, depreciation, and the
amortization of deferred loan origination fees and discounts (premiums) on loans
and investments, all of which are non-cash or non-operating adjustments to
operating cash flows. Net income adjusted for non- cash and non-operating items
was the primary source of cash flows from operating activities during the three
months ended March 31, 2000 and 1999. During the three months ended March 31,
2000, this cash provided by operating activities was partially offset by
originations of loans held-for-sale, net of proceeds from sales of loans
held-for-sale, which was the primary use of cash flows from operating
activities. Operating activities provided cash flows of $1.8 million during the
three months ended March 31, 2000 and $4.8 million during the three months ended
March 31, 1999.
During the three months ended March 31, 2000 and 1999, respectively,
investing activities used cash of $16.2 million and $4.6 million primarily due
to the net increase of loans.
Changes in cash flows from financing activities during the periods covered
by the Statements of Cash Flows are due to increases in deposits after interest
credited, net repayments of FHLBank advances and changes in short-term
borrowings, as well as purchases of treasury stock and dividend payments to
stockholders. Financing activities provided $782,000 in cash during the three
months ended March 31, 2000 and $5.3 million in cash during the three months
ended March 31, 1999. Financing activities in the future are expected to
primarily include changes in deposits, FHLBank advances, and short-term
borrowings.
Dividends. During the three months ended March 31, 2000, the Company
declared and paid dividends of $.125 per share, or 26% of net income, compared
to dividends declared and paid during the three months ended March 31, 1999 of
$.125 per share, or 28% of net income. The Board of Directors meets regularly to
consider the level and the timing of dividend payments.
Common Stock Repurchases. The Company has been in various buy-back programs
since May 1990. During the three months ended March 31, 2000, the Company
repurchased 233,697 shares of its common stock at an average price of $21.06 per
share and reissued 21,555 shares of treasury stock at an average price of $12.83
per share to cover stock option exercises. During the three months ended March
31, 1999, the Company repurchased 165,449 shares of its common stock at an
average price of $24.02 per share and reissued 30,044 shares of treasury stock
at an average price of $2.17 per share to cover stock option exercises.
Management intends to continue its stock buy-back programs as long as
repurchasing the stock contributes to the overall growth of shareholder value.
The number of shares of stock that will be repurchased and the price that will
be paid is the result of many factors, several of which are outside of the
control of the Company. The primary factors, however, are the number of shares
available in the market from sellers at any given time and the price of the
stock within the market as determined by the market.
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant and its subsidiaries are involved as plaintiff or defendant
in various legal actions arising in the normal course of their business. While
the ultimate outcome of the various legal proceedings involving the Registrant
and its subsidiaries cannot be predicted with certainty, it is the opinion of
management, after consultation with legal counsel, that these legal actions
currently are not material to the Registrant.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Common Stockholders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
See the attached exhibit 11, Statement re computation of earnings per
share.
See the attached exhibit 27, Financial Data Schedule.
b) Reports on Form 8-K
None.
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Great Southern Bancorp, Inc.
Registrant
Date: May 12, 2000 /s/ William V. Turner
--------------------------
William V. Turner
Chairman of the Board
Date: May 12, 2000 /s/ Rex A. Copeland
--------------------------
Rex A. Copeland
Treasurer
<PAGE> 22
Exhibit Index
-------------
Exhibit
No. Description
- ------- -----------
11 Statement Re Computation of Earnings Per Share
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
Statement Re Computation of Earnings Per Share
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
Basic:
Average shares outstanding 7,389,733 7,759,234
========= =========
Net income $3,658,806 $3,446,707
========= =========
Per share amount $0.50 $0.44
==== ====
Diluted:
Average shares outstanding 7,389,733 7,759,234
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 182,662 132,481
--------- ---------
Diluted shares 7,572,395 7,891,715
========= =========
Net income $3,658,806 $3,446,707
========= =========
Per share amount $0.48 $0.44
==== ====
Note: Antidilutive stock options totaling 135,550 and 41,050 shares were not
included in the calculation of diluted earnings per share at March 31, 2000 and
1999, respectively.
<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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 29,427
<INT-BEARING-DEPOSITS> 525
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 80,100
<INVESTMENTS-CARRYING> 37,508
<INVESTMENTS-MARKET> 37,148
<LOANS> 783,635
<ALLOWANCE> 17,374
<TOTAL-ASSETS> 970,234
<DEPOSITS> 657,687
<SHORT-TERM> 114,187
<LIABILITIES-OTHER> 9,811
<LONG-TERM> 121,602
0
0
<COMMON> 123
<OTHER-SE> 66,824
<TOTAL-LIABILITIES-AND-EQUITY> 970,234
<INTEREST-LOAN> 17,377
<INTEREST-INVEST> 1,764
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 19,143
<INTEREST-DEPOSIT> 7,011
<INTEREST-EXPENSE> 10,608
<INTEREST-INCOME-NET> 8,535
<LOAN-LOSSES> 476
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,097
<INCOME-PRETAX> 5,567
<INCOME-PRE-EXTRAORDINARY> 3,659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,659
<EPS-BASIC> .50
<EPS-DILUTED> .48
<YIELD-ACTUAL> 3.71
<LOANS-NON> 10,007
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 10,327
<ALLOWANCE-OPEN> 17,293
<CHARGE-OFFS> 719
<RECOVERIES> 324
<ALLOWANCE-CLOSE> 17,374
<ALLOWANCE-DOMESTIC> 17,374
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,409
</TABLE>
