10-Q 1 gsbc-10q063015.htm
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934

For the Quarterly Period Ended June 30, 2015

Commission File Number 0-18082

GREAT SOUTHERN BANCORP, INC.
                                                                                                                                                                                                      
(Exact name of registrant as specified in its charter)

Maryland
 
43-1524856
(State or other jurisdiction of incorporation
or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
1451 E. Battlefield, Springfield, Missouri
 
65804
(Address of principal executive offices)
 
(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 /  /
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes/X/   No /  /
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 

Large accelerated filer /  /
Accelerated filer /X/
Non-accelerated filer /  /
Smaller reporting company /  /
 
 
(Do not check if a smaller
reporting company) 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes /  /   No /X/
 
The number of shares outstanding of each of the registrant's classes of common stock: 13,853,811 shares of common stock, par value $.01, outstanding at August 6, 2015.
 
 
1


PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except number of shares)
 
   
JUNE 30,
    
DECEMBER 31,
  
   
2015
    
2014
  
   
(Unaudited)
      
ASSETS
        
Cash
   $ 
111,729
     $ 
109,052
  
Interest-bearing deposits in other financial institutions
    
157,499
      
109,595
  
Cash and cash equivalents
    
269,228
      
218,647
  
Available-for-sale securities
    
326,389
      
365,506
  
Held-to-maturity securities (fair value $390  – June 2015;
                
     $499 - December 2014)
    
353
      
450
  
Mortgage loans held for sale
    
16,567
      
14,579
  
Loans receivable, net of allowance for loan losses of
                
     $39,698 – June 2015; $38,435 - December 2014
    
3,202,377
      
3,038,848
  
FDIC indemnification asset
    
32,177
      
44,334
  
Interest receivable
    
11,306
      
11,219
  
Prepaid expenses and other assets
    
59,127
      
60,452
  
Other real estate owned, net
    
39,997
      
45,838
  
Premises and equipment, net
    
127,627
      
124,841
  
Goodwill and other intangible assets
    
6,633
      
7,508
  
Investment in Federal Home Loan Bank stock
    
12,605
      
16,893
  
Current and deferred income taxes
    
6,784
      
2,219
  
          Total Assets
   $ 
4,111,170
     $
3,951,334
  
 
                
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Liabilities:
                
Deposits
   $ 
3,196,318
     $ 
2,990,840
  
Federal Home Loan Bank advances
    
193,594
      
271,641
  
Securities sold under reverse repurchase agreements with customers
    
216,100
      
168,993
  
Short-term borrowings
    
1,308
      
42,451
  
Subordinated debentures issued to capital trusts
    
30,929
      
30,929
  
Accrued interest payable
    
1,076
      
1,067
  
Advances from borrowers for taxes and insurance
    
7,265
      
4,929
  
Accounts payable and accrued expenses
    
27,000
      
20,739
  
          Total Liabilities
    
3,673,590
      
3,531,589
  
Stockholders' Equity:
                
Capital stock
                
Serial preferred stock – $.01 par value; authorized 1,000,000 shares; issued
     and outstanding June 2015 and December 2014 - 57,943 shares,
     $1,000 liquidation amount
    
57,943
      
57,943
  
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding June 2015  – 13,801,109 shares;
                
December 2014 - 13,754,806 shares
    
138
      
138
  
Additional paid-in capital
    
23,167
      
22,345
  
Retained earnings
    
350,467
      
332,283
  
Accumulated other comprehensive income
    
5,865
      
7,036
  
          Total Stockholders' Equity
    
437,580
      
419,745
  
          Total Liabilities and Stockholders' Equity
  
$
4,111,170
     $ 
3,951,334
  

See Notes to Consolidated Financial Statements
 
 
2

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
   
THREE MONTHS ENDED
JUNE 30,
  
   
2015
    
2014
  
   
(Unaudited)
  
INTEREST INCOME
    
Loans
  
$
43,947
    
$
41,412
  
Investment securities and other
    
1,787
      
2,972
  
TOTAL INTEREST INCOME
    
45,734
      
44,384
  
INTEREST EXPENSE
                
Deposits
    
3,133
      
2,752
  
Federal Home Loan Bank advances
    
416
      
1,010
  
Short-term borrowings and repurchase agreements
    
16
      
512
  
Subordinated debentures issued to capital trusts
    
160
      
139
  
TOTAL INTEREST EXPENSE
    
3,725
      
4,413
  
NET INTEREST INCOME
    
42,009
      
39,971
  
PROVISION FOR LOAN LOSSES
    
1,300
      
1,462
  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
40,709
      
38,509
  
                 
NON-INTEREST INCOME
                
Commissions
    
299
      
344
  
Service charges and ATM fees
    
5,026
      
4,728
  
Net realized gains on sales of loans
    
1,059
      
608
  
Net realized gains on sales of available-for-sale securities
    
—
      
569
  
Late charges and fees on loans
    
762
      
265
  
Gain (loss) on derivative interest rate products
    
113
      
(130
)
Initial gain recognized on business acquisition
    
—
      
10,805
  
Amortization of income/expense related to business acquisitions
    
(5,158
)
    
(7,210
)
Other income
    
1,356
      
652
  
TOTAL NON-INTEREST INCOME
    
3,457
      
10,631
  
                 
NON-INTEREST EXPENSE
                
Salaries and employee benefits
    
14,606
      
13,470
  
Net occupancy and equipment expense
    
6,115
      
5,210
  
Postage
    
912
      
844
  
Insurance
    
856
      
953
  
Advertising
    
750
      
438
  
Office supplies and printing
    
378
      
367
  
Telephone
    
767
      
681
  
Legal, audit and other professional fees
    
664
      
908
  
Expense on foreclosed assets
    
318
      
1,342
  
Partnership tax credit investment amortization
    
420
      
427
  
Other operating expenses
    
2,163
      
9,759
  
TOTAL NON-INTEREST EXPENSE
    
27,949
      
34,399
  
                 
INCOME BEFORE INCOME TAXES
    
16,217
      
14,741
  
                 
PROVISION FOR INCOME TAXES
    
4,214
      
3,687
  
                 
NET INCOME
    
12,003
      
11,054
  
                 
Preferred stock dividends
    
145
      
145
  
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
  
$
11,858
    
$
10,909
  


3

   
THREE MONTHS ENDED
JUNE 30,
  
   
2015
    
2014
  
BASIC EARNINGS PER COMMON SHARE
  
$
0.86
    
$
0.80
  
DILUTED EARNINGS PER COMMON SHARE
  
$
0.85
    
$
0.79
  
DIVIDENDS DECLARED PER COMMON SHARE
  
$
0.22
    
$
0.20
  

See Notes to Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
4

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
   
SIX MONTHS ENDED
JUNE 30,
  
   
2015
    
2014
  
   
(Unaudited)
  
INTEREST INCOME
    
Loans
  
$
89,896
    
$
80,721
  
Investment securities and other
    
3,744
      
5,958
  
TOTAL INTEREST INCOME
    
93,640
      
86,679
  
INTEREST EXPENSE
                
Deposits
    
6,294
      
5,413
  
Federal Home Loan Bank advances
    
863
      
1,984
  
Short-term borrowings and repurchase agreements
    
37
      
1,069
  
Subordinated debentures issued to capital trusts
    
312
      
275
  
TOTAL INTEREST EXPENSE
    
7,506
      
8,741
  
NET INTEREST INCOME
    
86,134
      
77,938
  
PROVISION FOR LOAN LOSSES
    
2,600
      
3,154
  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
83,534
      
74,784
  
                 
NON-INTEREST INCOME
                
Commissions
    
580
      
626
  
Service charges and ATM fees
    
9,670
      
8,896
  
Net realized gains on sales of loans
    
1,999
      
1,157
  
Net realized gains on sales of available-for-sale securities
    
—
      
642
  
Late charges and fees on loans
    
1,110
      
579
  
Gain (loss) on derivative interest rate products
    
20
      
(233
)
Initial gain recognized on business acquisition
    
—
      
10,805
  
Amortization of income/expense related to business acquisitions
    
(12,054
)
    
(13,598
)
Other income
    
2,074
      
2,681
  
TOTAL NON-INTEREST INCOME
    
3,399
      
11,555
  
                 
NON-INTEREST EXPENSE
                
Salaries and employee benefits
    
29,183
      
26,487
  
Net occupancy and equipment expense
    
12,169
      
10,614
  
Postage
    
1,801
      
1,637
  
Insurance
    
1,835
      
1,879
  
Advertising
    
1,182
      
1,169
  
Office supplies and printing
    
715
      
657
  
Telephone
    
1,532
      
1,417
  
Legal, audit and other professional fees
    
1,287
      
1,841
  
Expense on foreclosed assets
    
703
      
2,192
  
Partnership tax credit investment amortization
    
840
      
880
  
Other operating expenses
    
3,942
      
11,520
  
TOTAL NON-INTEREST EXPENSE
    
55,189
      
60,293
  
                 
INCOME BEFORE INCOME TAXES
    
31,744
      
26,046
  
                 
PROVISION FOR INCOME TAXES
    
8,088
      
6,174
  
                 
NET INCOME
    
23,656
      
19,872
  
                 
Preferred stock dividends
    
290
      
290
  
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
  
$
23,366
    
$
19,582
  


5

   
SIX MONTHS ENDED
JUNE 30,
  
   
2015
    
2014
  
BASIC EARNINGS PER COMMON SHARE
  
$
1.69
    
$
1.43
  
DILUTED EARNINGS PER COMMON SHARE
  
$
1.67
    
$
1.42
  
DIVIDENDS DECLARED PER COMMON SHARE
  
$
0.42
    
$
0.40
  

See Notes to Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

   
THREE MONTHS ENDED
JUNE 30,
  
   
2015
    
2014
  
   
(Unaudited)
  
Net Income
  
$
12,003
    
$
11,054
  
                 
Unrealized appreciation (depreciation) on available-for-sale securities, net
                
of taxes (credit) of $(329) and $1,145, for 2015 and 2014, respectively
    
(968
)
    
2,126
  
                 
Reclassification adjustment for gains included in net income,
                
net of taxes (credit) of $0 and $(199), for 2015 and 2014, respectively
    
—
      
(370
)
                 
Change in fair value of cash flow hedge, net of taxes (credit) of $(13)
                
and $(54), for 2015 and 2014, respectively
    
(9
)
    
(101
)
                 
Comprehensive Income
  
$
11,026
    
$
12,709
  
                 


   
SIX MONTHS ENDED
JUNE 30,
  
   
2015
    
2014
  
   
(Unaudited)
  
Net Income
  
$
23,656
    
$
19,872
  
                 
Unrealized appreciation (depreciation) on available-for-sale securities, net
                
of taxes (credit) of $(381) and $2,678, for 2015 and 2014, respectively
    
(1,066
)
    
4,973
  
                 
Reclassification adjustment for gains included in net income,
                
net of taxes (credit) of $0 and $(225), for 2015 and 2014, respectively
    
—
      
(417
)
                 
Change in fair value of cash flow hedge, net of taxes (credit) of $(66)
                
and $(77), for 2015 and 2014, respectively
    
(105
)
    
(143
)
                 
Comprehensive Income
  
$
22,485
    
$
24,285
  
                 

See Notes to Consolidated Financial Statements
 
 
 
 
7
 

GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
   
SIX MONTHS ENDED JUNE 30,
  
   
2015
    
2014
  
   
(Unaudited)
  
CASH FLOWS FROM OPERATING ACTIVITIES
        
Net income
  
$
23,656
    
$
19,872
  
Proceeds from sales of loans held for sale
    
80,302
      
47,922
  
Originations of loans held for sale
    
(83,449
)
    
(49,089
)
Items not requiring (providing) cash:
                
Depreciation
    
4,596
      
4,220
  
Amortization of other assets
    
1,715
      
1,525
  
Compensation expense for stock option grants
    
263
      
273
  
Provision for loan losses
    
2,600
      
3,154
  
Net gains on loan sales
    
(1,999
)
    
(1,157
)
Net gains on sale of available-for-sale investment securities
    
—
      
(642
)
Net gains on sale of premises and equipment
    
(631
)
    
(41
)
(Gain) loss on sale of foreclosed assets
    
(489
)
    
790
  
Initial gain recognized on business acquisition
    
—
      
(10,805
)
Amortization of deferred income, premiums, discounts
                
and fair value adjustments
    
5,473
      
11,605
  
(Gain) loss on derivative interest rate products
    
(20
)
    
233
  
Deferred income taxes
    
(6,209
)
    
(371
)
Changes in:
                
Interest receivable
    
(87
)
    
761
  
Prepaid expenses and other assets
    
4,566
      
(288
)
Accounts payable and accrued expenses
    
5,926
      
(3,492
)
Income taxes refundable/payable
    
2,093
      
—
  
Net cash provided by operating activities
    
38,306
      
24,470
  
CASH FLOWS FROM INVESTING ACTIVITIES
                
Net increase in loans
    
(121,360
)
    
(143,068
)
Purchase of loans
    
(44,194
)
    
(39,926
)
Cash received from acquisitions
    
—
      
189,437
  
Cash received from FDIC loss sharing reimbursements
    
1,490
      
5,894
  
Purchase of premises and equipment
    
(8,655
)
    
(7,170
)
Proceeds from sale of premises and equipment
    
1,904
      
197
  
Proceeds from sale of foreclosed assets
    
11,111
      
12,362
  
Capitalized costs on foreclosed assets
    
(20
)
    
(40
)
Proceeds from sales of available-for-sale investment securities
    
—
      
41,312
  
Proceeds from maturing investment securities
    
110
      
110
  
Proceeds from called investment securities
    
5,143
      
4,535
  
Principal reductions on mortgage-backed securities
    
32,448
      
53,996
  
Purchase of available-for-sale securities
    
(1,410
)
    
(19,914
)
Redemption of Federal Home Loan Bank stock
    
4,288
      
1,768
  
Net cash provided by (used in) investing activities
    
(119,145
)
    
99,493
  
CASH FLOWS FROM FINANCING ACTIVITIES
                
Net increase (decrease) in certificates of deposit
    
167,179
      
(102,932
)
Net increase in checking and savings deposits
    
38,601
      
37,138
  
Proceeds from Federal Home Loan Bank advances
    
3,316,500
      
245,000
  
Repayments of Federal Home Loan Bank advances
    
(3,394,532
)
    
(277,284
)
Net increase in short-term borrowings
    
5,964
      
22,165
  
Repayments of structured repurchase agreements
    
—
      
(50,000
)
Advances from borrowers for taxes and insurance
    
2,336
      
2,677
  
Dividends paid
    
(5,796
)
    
(5,490
)
Purchase of company stock
    
—
      
(481
)
Stock options exercised
    
1,168
      
545
  
Net cash provided by (used in) financing activities
    
131,420
      
(128,662
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
50,581
      
(4,699
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
218,647
      
227,925
  
CASH AND CASH EQUIVALENTS, END OF PERIOD
  
$
269,228
    
$
223,226
  
See Notes to Consolidated Financial Statements
 
 
8
 
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" or "Great Southern") have been prepared in accordance with accounting principles generally accepted in the United States of America 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 condition, 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 and six months ended June 30, 2015 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, 2014, has been derived from the audited consolidated statement of financial condition of the Company as of that date.   Certain prior period amounts have been reclassified to conform to the current period presentation.  These reclassifications had no effect on net income.

Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for 2014 filed with the Securities and Exchange Commission.

NOTE 2: NATURE OF OPERATIONS AND OPERATING SEGMENTS

The Company operates as a one-bank holding company.  The Company's business primarily consists of the operations of Great Southern Bank (the "Bank"), which provides a full range of financial services to customers primarily located in Missouri, Iowa, Kansas, Minnesota, Nebraska and Arkansas.  In addition, the Company operates commercial loan production offices in Dallas, Texas and Tulsa, Oklahoma.  The Company and the Bank are subject to the regulation of certain federal and state agencies and undergo periodic examinations by those regulatory agencies.
The Company's banking operation is its only reportable segment.  The banking operation is principally engaged in the business of originating residential and commercial real estate loans, construction loans, commercial business loans and consumer loans and funding these loans through attracting deposits from the general public, accepting 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.  Selected information is not presented separately for the Company's reportable segment, as there is no material difference between that information and the corresponding information in the consolidated financial statements.

NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS

In January 2014, the FASB issued ASU No. 2014-04 to amend FASB ASC Topic 310, Receivables – Troubled Debt Restructurings by Creditors.  The objective of the amendments in this Update is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized.  The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.  The Update was effective for the Company beginning January 1, 2015, and did not have a material impact on the Company's financial position or results of operations.

9

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 660): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). The guidance in this Update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. For public companies, this Update will be effective for interim and annual periods beginning after December 15, 2016 and early application is not permitted for public companies. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The guidance in this Update changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires enhanced disclosures about repurchase agreements and similar transactions. The accounting changes in this Update are effective for public companies for the first interim or annual period beginning after December 15, 2014. In addition, for public companies, the disclosure for certain transactions accounted for as a sale is effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Early application is not permitted for public companies. The adoption of this Update did not have a material effect on the Company's consolidated financial statements.

In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share.  The guidance in this update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2015 and is not expected to have a material effect on the Company's consolidated financial statements.

NOTE 4: STOCKHOLDERS' EQUITY

Previously, the Company's stockholders approved the Company's reincorporation to the State of Maryland. Under Maryland law, there is no concept of "Treasury Shares." Instead, shares purchased by the Company constitute authorized but unissued shares under Maryland law. Accounting principles generally accepted in the United States of America state that accounting for treasury stock shall conform to state law. The cost of shares purchased by the Company has been allocated to Common Stock and Retained Earnings balances.


NOTE 5: EARNINGS PER SHARE
   
Three Months Ended June 30,
  
   
2015
    
2014
  
   
(In Thousands, Except Per Share Data)
  
Basic:
        
Average shares outstanding
    
13,790
      
13,685
  
Net income available to common stockholders
  
$
11,858
    
$
10,909
  
Per common share amount
  
$
0.86
    
$
0.80
  
                 
Diluted:
                
Average shares outstanding
    
13,790
      
13,685
  
Net effect of dilutive stock options – based on the treasury
                
stock method using average market price
    
189
      
95
  
Diluted shares
    
13,979
      
13,780
  
Net income available to common stockholders
  
$
11,858
    
$
10,909
  
Per common share amount
  
$
0.85
    
$
0.79
  
                 

 
10
 
   
Six Months Ended June 30,
  
   
2015
    
2014
  
   
(In Thousands, Except Per Share Data)
  
Basic:
        
Average shares outstanding
    
13,790
      
13,685
  
Net income available to common stockholders
  
$
23,366
    
$
19,582
  
Per common share amount
  
$
1.69
    
$
1.43
  
                 
Diluted:
                
Average shares outstanding
    
13,790
      
13,685
  
Net effect of dilutive stock options – based on the treasury
                
stock method using average market price
    
189
      
95
  
Diluted shares
    
13,979
      
13,780
  
Net income available to common stockholders
  
$
23,366
    
$
19,582
  
Per common share amount
  
$
1.67
    
$
1.42
  
                 

Options outstanding at June 30, 2015 and 2014, to purchase 12,750 and 182,275 shares of common stock, respectively, were  not included in the computation of diluted earnings per common share for each of the three and six month periods because such options' exercise prices were greater than the average market prices of the common shares for the three and six months ended June 30, 2015 and 2014, respectively.

NOTE 6: INVESTMENT SECURITIES
 
   
June 30, 2015
  
       
Gross
    
Gross
        
Tax
  
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
    
Equivalent
  
   
Cost
    
Gains
    
Losses
    
Value
    
Yield
  
   
(In Thousands)
  
                     
AVAILABLE-FOR-SALE SECURITIES:
                  
U.S. government agencies
  
$
20,000
    
$
—
    
$
197
    
$
19,803
      
2.00
%
Mortgage-backed securities
    
221,842
      
3,544
      
526
      
224,860
      
1.79
  
States and political subdivisions
    
74,018
      
4,388
      
39
      
78,367
      
5.72
  
Equity securities
    
847
      
2,512
      
—
      
3,359
      
—
  
   
$
316,707
    
$
10,444
    
$
762
    
$
326,389
      
2.72
%
                                         
HELD-TO-MATURITY SECURITIES:
                                  
States and political subdivisions
  
$
353
    
$
37
    
$
—
    
$
390
      
7.37
%

   
December 31, 2014
  
       
Gross
    
Gross
        
Tax
  
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
    
Equivalent
  
   
Cost
    
Gains
    
Losses
    
Value
    
Yield
  
   
(In Thousands)
  
                     
AVAILABLE-FOR-SALE SECURITIES:
                  
U.S. government agencies
  
$
20,000
    
$
—
    
$
486
    
$
19,514
      
2.00
%
Mortgage-backed securities
    
254,294
      
4,325
      
821
      
257,798
      
1.97
  
States and political subdivisions
    
79,237
      
5,810
      
7
      
85,040
      
5.76
  
Equity securities
    
847
      
2,307
      
—
      
3,154
      
—
  
   
$
354,378
    
$
12,442
    
$
1,314
    
$
365,506
      
2.82
%
                                         
HELD-TO-MATURITY SECURITIES:
                                  
States and political subdivisions
  
$
450
    
$
49
    
$
—
    
$
499
      
7.37
%


11

The amortized cost and fair value of available-for-sale securities at June 30, 2015, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
   
Amortized
    
Fair
  
   
Cost
    
Value
  
   
(In Thousands)
  
         
One year or less
  
$
—
    
$
—
  
After one through five years
    
254
      
266
  
After five through ten years
    
3,643
      
3,842
  
After ten years
    
90,121
      
94,062
  
Securities not due on a single maturity date
    
221,842
      
224,860
  
Equity securities
    
847
      
3,359
  
                 
   
$
316,707
    
$
326,389
  
                 

The held-to-maturity securities at June 30, 2015, by contractual maturity, are shown below.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
   
Amortized
    
Fair
  
   
Cost
    
Value
  
   
(In Thousands)
  
         
After one through five years
  
$
353
    
$
390
  

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at June 30, 2015 and December 31, 2014, respectively, was approximately $85.8 million and $106.0 million, which is approximately 26.3% and 29.0% of the Company's available-for-sale and held-to-maturity investment portfolio, respectively.

Based on an evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary at June 30, 2015.

The following table shows the Company's gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2015 and December 31, 2014:

   
June 30, 2015
  
   
Less than 12 Months
    
12 Months or More
    
Total
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
Description of Securities
  
Value
    
Losses
    
Value
    
Losses
    
Value
    
Losses
  
   
(In Thousands)
  
                         
U.S. government agencies
  
$
—
    
$
—
    
$
20,000
    
$
(197
)
  
$
20,000
    
$
(197
)
Mortgage-backed securities
    
19,004
      
(93
)
    
43,333
      
(433
)
    
62,337
      
(526
)
State and political
                                                
subdivisions
    
2,555
      
(25
)
    
917
      
(14
)
    
3,472
      
(39
)
   
$
21,559
    
$
(118
)
  
$
64,250
    
$
(644
)
  
$
85,809
    
$
(762
)


12

   
December 31, 2014
  
   
Less than 12 Months
    
12 Months or More
    
Total
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
Description of Securities
  
Value
    
Losses
    
Value
    
Losses
    
Value
    
Losses
  
   
(In Thousands)
  
                         
U.S. government agencies
  
$
—
      
—
    
$
20,000
    
$
(486
)
  
$
20,000
    
$
(486
)
Mortgage-backed securities
    
40,042
      
(328
)
    
45,056
      
(493
)
    
85,098
      
(821
)
State and political
                                                
subdivisions
    
—
      
—
      
925
      
(7
)
    
925
      
(7
)
   
$
40,042
    
$
(328
)
  
$
65,981
    
$
(986
)
  
$
106,023
    
$
(1,314
)

Gross gains of $-0- and $-0- and gross losses of $-0- and $-0- resulting from sales of available-for-sale securities were realized for the three and six months ended June 30, 2015.  Gross gains of $569,000 and $642,000 and gross losses of $-0- and $-0- resulting from sales of available-for-sale securities were realized for the three and six months ended June 30, 2014.  Gains and losses on sales of securities are determined on the specific-identification method.

Other-than-temporary Impairment.  Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities.  Where the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial asset impairment model.  Where the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment model.  The Company does not currently have securities within the scope of this guidance for beneficial interests in securitized financial assets.

The Company conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred.  The Company considers the length of time a security has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of the security, the type of security and other factors.  If certain criteria are met, the Company performs additional review and evaluation using observable market values or various inputs in economic models to determine if an unrealized loss is other-than-temporary.  The Company uses quoted market prices for marketable equity securities and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock exchange.  For non-agency collateralized mortgage obligations, to determine if the unrealized loss is other-than-temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss.  The Company also evaluates any current credit enhancement underlying these securities to determine the impact on cash flows.  If the Company determines that a given security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

During the three and six months ended June 30, 2015, no securities were determined to have impairment that was other than temporary.

Credit Losses Recognized on Investments.  There were no debt securities that have experienced fair value deterioration due to credit losses, as well as due to other market factors, but are not otherwise other-than-temporarily impaired.

13

Amounts Reclassified Out of Accumulated Other Comprehensive Income.  Amounts reclassified from accumulated other comprehensive income and the affected line items in the statements of income during the three and six months ended June 30, 2015 and 2014, were as follows:

   
Amounts Reclassified from Other Comprehensive Income
Three Months Ended June 30,
  
 
Affected Line Item in the Statements
of Income
   
2015
    
2014
  
   
(In Thousands)
    
              
Unrealized gains (losses) on available-
        
Net realized gains on available-
for-sale securities
  
$
—
    
$
569
  
for-sale securities
                 
(Total reclassified amount before tax)
Income Taxes
    
—
      
(199
)
Provision for income taxes
Total reclassifications out of accumulated
                    
other comprehensive income
  
$
—
    
$
370
    
                      


   
Amounts Reclassified from Other Comprehensive Income
Six Months Ended June 30,
  
 
Affected Line Item in the Statements
of Income
   
2015
    
2014
  
   
(In Thousands)
    
              
Unrealized gains (losses) on available-
        
Net realized gains on available-
for-sale securities
  
$
—
    
$
642
  
for-sale securities
                 
(Total reclassified amount before tax)
Income Taxes
    
—
      
(225
)
Provision for income taxes
Total reclassifications out of accumulated
                    
other comprehensive income
  
$
—
    
$
417
    
                      

 
 
 
 
 
14

 
NOTE 7: LOANS AND ALLOWANCE FOR LOAN LOSSES
 
   
June 30,
    
December 31,
  
   
2015
    
2014
  
   
(In Thousands)
  
         
One- to four-family residential construction
  
$
38,476
    
$
40,361
  
Subdivision construction
    
34,253
      
28,593
  
Land development
    
48,574
      
52,096
  
Commercial construction
    
459,907
      
392,929
  
Owner occupied one- to four-family residential
    
94,024
      
87,549
  
Non-owner occupied one- to four-family residential
    
146,480
      
143,051
  
Commercial real estate
    
1,015,454
      
945,876
  
Other residential
    
385,901
      
392,414
  
Commercial business
    
391,674
      
354,012
  
Industrial revenue bonds
    
39,532
      
41,061
  
Consumer auto
    
371,271
      
323,353
  
Consumer other
    
76,581
      
78,029
  
Home equity lines of credit
    
70,515
      
66,272
  
Acquired FDIC-covered loans, net of discounts
    
266,371
      
286,608
  
Acquired loans no longer covered by FDIC loss sharing agreements,
                
net of discounts
    
38,482
      
49,945
  
Acquired non-covered loans, net of discounts
    
110,865
      
121,982
  
     
3,588,360
      
3,404,131
  
Undisbursed portion of loans in process
    
(343,276
)
    
(323,572
)
Allowance for loan losses
    
(39,698
)
    
(38,435
)
Deferred loan fees and gains, net
    
(3,009
)
    
(3,276
)
   
$
3,202,377
    
$
3,038,848
  
                 
Weighted average interest rate
    
4.59
%
    
4.66
%
 
 

 
15

Classes of loans by aging were as follows:
   
June 30, 2015
  
                           
Total Loans
  
           
Past Due
                
> 90 Days
  
   
30-59 Days
    
60-89 Days
    
90 Days
    
Total Past
        
Total Loans
    
Past Due and
  
   
Past Due
    
Past Due
    
or More
    
Due
    
Current
    
Receivable
    
Still Accruing
  
   
(In Thousands)
  
One- to four-family
                            
residential construction
  
$
—
    
$
—
    
$
—
    
$
—
    
$
38,476
    
$
38,476
    
$
—
  
Subdivision construction
    
306
      
—
      
56
      
362
      
33,891
      
34,253
      
—
  
Land development
    
34
      
106
      
11
      
151
      
48,423
      
48,574
      
—
  
Commercial construction
    
—
      
—
      
—
      
—
      
459,907
      
459,907
      
—
  
Owner occupied one- to four-
                                                        
family residential
    
68
      
120
      
760
      
948
      
93,076
      
94,024
      
—
  
Non-owner occupied one- to
                                                        
four-family residential
    
—
      
101
      
212
      
313
      
146,167
      
146,480
      
—
  
Commercial real estate
    
2,349
      
87
      
2,670
      
5,106
      
1,010,348
      
1,015,454
      
—
  
Other residential
    
—
      
—
      
—
      
—
      
385,901
      
385,901
      
—
  
Commercial business
    
190
      
—
      
215
      
405
      
391,269
      
391,674
      
—
  
Industrial revenue bonds
    
—
      
—
      
—
      
—
      
39,532
      
39,532
      
—
  
Consumer auto
    
1,773
      
397
      
476
      
2,646
      
368,625
      
371,271
      
4
  
Consumer other
    
659
      
235
      
515
      
1,409
      
75,172
      
76,581
      
222
  
Home equity lines of credit
    
128
      
105
      
194
      
427
      
70,088
      
70,515
      
—
  
Acquired FDIC-covered
                                                        
loans, net of discounts
    
1,173
      
1,661
      
14,753
      
17,587
      
248,784
      
266,371
      
747
  
Acquired loans no longer
                                                        
covered by loss sharing
                                                        
agreements, net of
                                                        
discounts
    
16
      
—
      
91
      
107
      
38,375
      
38,482
      
—
  
Acquired non-covered loans,
                                                        
net of discounts
    
786
      
304
      
8,956
      
10,046
      
100,819
      
110,865
      
—
  
     
7,482
      
3,116
      
28,909
      
39,507
      
3,548,853
      
3,588,360
      
973
  
Less FDIC-supported loans,
                                                        
and acquired non-covered
                                                        
loans, net of discounts
    
1,975
      
1,965
      
23,800
      
27,740
      
387,978
      
415,718
      
747
  
                                                         
Total
  
$
5,507
    
$
1,151
    
$
5,109
    
$
11,767
    
$
3,160,875
    
$
3,172,642
    
$
226
  


16

   
December 31, 2014
  
                           
Total Loans
  
                       
Total
    
> 90 Days Past
  
   
30-59 Days
    
60-89 Days
    
Over 90
    
Total Past
        
Loans
    
Due and
  
   
Past Due
    
Past Due
    
Days
    
Due
    
Current
    
Receivable
    
Still Accruing
  
   
(In Thousands)
  
One- to four-family
                            
residential construction
  
$
—
    
$
—
    
$
—
    
$
—
    
$
40,361
    
$
40,361
    
$
—
  
Subdivision construction
    
109
      
—
      
—
      
109
      
28,484
      
28,593
      
—
  
Land development
    
110
      
—
      
255
      
365
      
51,731
      
52,096
      
—
  
Commercial construction
    
—
      
—
      
—
      
—
      
392,929
      
392,929
      
—
  
Owner occupied one- to four-
                                                        
family residential
    
2,037
      
441
      
1,029
      
3,507
      
84,042
      
87,549
      
170
  
Non-owner occupied one- to
                                                        
four-family residential
    
583
      
—
      
296
      
879
      
142,172
      
143,051
      
—
  
Commercial real estate
    
6,887
      
—
      
4,699
      
11,586
      
934,290
      
945,876
      
187
  
Other residential
    
—
      
—
      
—
      
—
      
392,414
      
392,414
      
—
  
Commercial business
    
59
      
—
      
411
      
470
      
353,542
      
354,012
      
—
  
Industrial revenue bonds
    
—
      
—
      
—
      
—
      
41,061
      
41,061
      
—
  
Consumer auto
    
1,801
      
244
      
316
      
2,361
      
320,992
      
323,353
      
—
  
Consumer other
    
1,301
      
260
      
801
      
2,362
      
75,667
      
78,029
      
397
  
Home equity lines of credit
    
89
      
—
      
340
      
429
      
65,843
      
66,272
      
22
  
Acquired FDIC-covered loans, net of discounts
    
6,236
      
1,062
      
16,419
      
23,717
      
262,891
      
286,608
      
194
  
Acquired loans no longer covered by FDIC loss sharing agreements,
                                                        
net of discounts
    
754
      
46
      
243
      
1,043
      
48,902
      
49,945
      
—
  
Acquired non-covered loans, net of discounts
    
2,638
      
640
      
11,248
      
14,526
      
107,456
      
121,982
      
—
  
     
22,604
      
2,693
      
36,057
      
61,354
      
3,342,777
      
3,404,131
      
970
  
Less FDIC-supported loans,
                                                        
and acquired non-covered loans, net of discounts
    
9,628
      
1,748
      
27,910
      
39,286
      
419,249
      
458,535
      
194
  
                                                         
Total
  
$
12,976
    
$
945
    
$
8,147
    
$
22,068
    
$
2,923,528
    
$
2,945,596
    
$
776
  

Nonaccruing loans (excluding FDIC-supported loans, net of discount and acquired non-covered loans, net of discount) are summarized as follows:

   
June 30,
    
December 31,
  
   
2015
    
2014
  
   
(In Thousands)
  
         
One- to four-family residential construction
  
$
—
    
$
—
  
Subdivision construction
    
56
      
—
  
Land development
    
11
      
255
  
Commercial construction
    
—
      
—
  
Owner occupied one- to four-family residential
    
760
      
859
  
Non-owner occupied one- to four-family residential
    
212
      
296
  
Commercial real estate
    
2,670
      
4,512
  
Other residential
    
—
      
—
  
Commercial business
    
215
      
411
  
Industrial revenue bonds
    
—
      
—
  
Consumer auto
    
472
      
316
  
Consumer other
    
293
      
404
  
Home equity lines of credit
    
194
      
318
  
                 
Total
  
$
4,883
    
$
7,371
  


17

The following table presents the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2015.  Also presented is the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2015:

   
One- to Four-
                          
   
Family
                          
   
Residential and
    
Other
    
Commercial
    
Commercial
    
Commercial
          
   
Construction
    
Residential
    
Real Estate
    
Construction
    
Business
    
Consumer
    
Total
  
   
(In Thousands)
  
Allowance for loan losses
                            
Balance April 1, 2015
  
$
3,985
    
$
2,809
    
$
20,216
    
$
3,356
    
$
3,945
    
$
4,760
    
$
39,071
  
Provision (benefit) charged to expense
    
(110
)
    
524
      
(146
)
    
(77
)
    
423
      
686
      
1,300
  
Losses charged off
    
(80
)
    
—
      
(2
)
    
—
      
(551
)
    
(935
)
    
(1,568
)
Recoveries
    
91
      
9
      
123
      
9
      
175
      
488
      
895
  
Balance June 30, 2015
  
$
3,886
    
$
3,342
    
$
20,191
    
$
3,288
    
$
3,992
    
$
4,999
    
$
39,698
  
                                                         
Balance January 1, 2015
  
$
3,455
    
$
2,941
    
$
19,773
    
$
3,562
    
$
3,679
    
$
5,025
    
$
38,435
  
Provision (benefit) charged to expense
    
446
      
384
      
239
      
(190
)
    
890
      
831
      
2,600
  
Losses charged off
    
(220
)
    
(2
)
    
(4
)
    
(197
)
    
(775
)
    
(2,082
)
    
(3,280
)
Recoveries
    
205
      
19
      
183
      
113
      
198
      
1,225
      
1,943
  
Balance June 30, 2015
  
$
3,886
    
$
3,342
    
$
20,191
    
$
3,288
    
$
3,992
    
$
4,999
    
$
39,698
  
                                                         
Ending balance:
                                                        
                                                         
Individually evaluated for
                                                        
impairment
  
$
663
    
$
—
    
$
2,130
    
$
1,411
    
$
261
    
$
243
    
$
4,708
  
Collectively evaluated for
                                                        
impairment
  
$
3,044
    
$
3,323
    
$
16,752
    
$
1,671
    
$
3,693
    
$
4,352
    
$
32,835
  
Loans acquired and
                                                        
accounted for under ASC
                                                        
310-30
  
$
179
    
$
19
    
$
1,309
    
$
206
    
$
38
    
$
404
    
$
2,155
  
                                                         
                                                         
Loans
                                                        
Individually evaluated for
                                                        
impairment
  
$
9,992
    
$
9,729
    
$
25,891
    
$
7,334
    
$
1,567
    
$
1,558
    
$
56,071
  
Collectively evaluated for
                                                        
impairment
  
$
303,241
    
$
376,172
    
$
989,563
    
$
501,147
    
$
429,639
    
$
516,809
    
$
3,116,571
  
Loans acquired and
                                                        
accounted for under ASC
                                                        
310-30
  
$
209,627
    
$
47,199
    
$
90,814
    
$
6,726
    
$
14,284
    
$
47,068
    
$
415,718
  
                                                         

The following table presents the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2014:
   
One- to Four-
                          
   
Family
                          
   
Residential and
    
Other
    
Commercial
    
Commercial
    
Commercial
          
   
Construction
    
Residential
    
Real Estate
    
Construction
    
Business
    
Consumer
    
Total
  
   
(In Thousands)
  
Allowance for loan losses
                            
Balance April 1, 2014
  
$
4,638
    
$
1,998
    
$
18,443
    
$
7,071
    
$
2,341
    
$
3,784
    
$
38,275
  
Provision (benefit) charged to expense
    
915
      
(281
)
    
(1,629
)
    
1,110
      
979
      
368
      
1,462
  
Losses charged off
    
(505
)
    
(2
)
    
(338
)
    
(95
)
    
(738
)
    
(764
)
    
(2,442
)
Recoveries
    
25
      
8
      
—
      
163
      
—
      
591
      
787
  
Balance June 30, 2014
  
$
5,073
    
$
1,723
    
$
16,476
    
$
8,249
    
$
2,582
    
$
3,979
    
$
38,082
  
                                                         
Balance January 1, 2014
  
$
6,235
    
$
2,678
    
$
16,939
    
$
4,464
    
$
6,451
    
$
3,349
    
$
40,116
  
Provision (benefit) charged to expense
    
367
      
(968
)
    
(134
)
    
3,693
      
(1,182
)
    
1,378
      
3,154
  
Losses charged off
    
(1,697
)
    
(2
)
    
(719
)
    
(130
)
    
(2,687
)
    
(1,784
)
    
(7,019
)
Recoveries
    
168
      
15
      
390
      
222
      
—
      
1,036
      
1,831
  
Balance June 30, 2014
  
$
5,073
    
$
1,723
    
$
16,476
    
$
8,249
    
$
2,582
    
$
3,979
    
$
38,082
  
 
 
18
 
The following table presents the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2014:

   
One- to Four-
                          
   
Family
                          
   
Residential and
    
Other
    
Commercial
    
Commercial
    
Commercial
          
   
Construction
    
Residential
    
Real Estate
    
Construction
    
Business
    
Consumer
    
Total
  
   
(In Thousands)
  
Allowance for loan losses
                            
Individually evaluated for
                            
impairment
  
$
829
    
$
—
    
$
1,751
    
$
1,507
    
$
823
    
$
232
    
$
5,142
  
Collectively evaluated for
                                                        
impairment
  
$
2,532
    
$
2,923
    
$
16,671
    
$
1,905
    
$
2,805
    
$
4,321
    
$
31,157
  
Loans acquired and
                                                        
accounted for under ASC
                                                        
310-30
  
$
94
    
$
18
    
$
1,351
    
$
150
    
$
51
    
$
472
    
$
2,136
  
                                                         
Loans
                                                        
Individually evaluated for