<PAGE>
1996 ANNUAL REPORT FOR OUR STOCKHOLDERS
TAKING STOCK IN THE OZARKS.
GREAT SOUTHERN BANCORP, INC.
(This is the front cover and included the company logo. The background of
the front cover was a color picture of the corner of a residence with a
Great Southern branch across the street, visible through the porch.)
<PAGE>
(This is the inside of the front cover. The high and low stock information
was in a chart box.)
ANNUAL MEETING
The 7th Annual Meeting of Shareholders will be held 10 A.M. Wednesday,
October 16, 1996, at Ramada Inn, 3320 Rangeline, Joplin, Missouri.
CORPORATE PROFILE
Great Southern Bancorp, Inc. ("GSBC" or the "Company") is the holding
company for Great Southern Bank FSB (the "Bank"), which converted from a
mutual to a stock savings and loan in December 1989. In December 1994, the
Bank converted from a state charter to a federal savings bank charter.
Great Southern was founded in 1923 with a $5,000 investment, 4 employees
and 936 members, and has grown to over $665 million in assets, with more
than 350 employees and 65,000 + customers.
The Bank is headquartered in Springfield, Missouri and operates 25 branches
in 15 counties throughout the Ozarks; eight in Springfield.
A community oriented company, GSBC and its subsidiaries offer a full range
of banking, lending, investment, insurance and travel services.
The Bank is the 4th largest thrift in the state of Missouri, and of the top
four, enjoys the strongest capital ratio, expressed as equity/assets.
CORPORATE MISSION
A publicly held financial services organization, the Company is dedicated
to increasing stockholders' equity through profitable operations and sound
management. In order of priority, emphasis is on customer service, cost
control and product offerings.
The Bank's broad mission is to promote savings and provide the financial
means for home ownership to families throughout the Ozarks and southern
Missouri. In addition the Bank provides a broad base of family and
commercial financial products and services, emphasizing convenience,
personal attention, and competitive terms.
The other wholly owned subsidiary corporations of Great Southern Bancorp,
Inc. market related services, including investment counseling, discount
brokerage, insurance, travel and appraisal services.
STOCK INFORMATION
The stock of GSBC is traded on the over-the-counter market and quoted on
the NASDAQ National Market System under the symbol "GSBC."
As of June 30,1996, there were 4,406,048 total shares outstanding and
approximately 1,800 shareholders. The Company declared four dividends
during the year, making 25 consecutive dividends since conversion in
December 1989.
High/Low Stock Price (by Quarter)
Fiscal 1996 High Low
------------ ------ ------
First Quarter 22 1/2 18 1/2
Second Quarter 24 3/4 21 1/4
Third Quarter 25 3/8 23 1/4
Fourth Quarter 27 1/2 24
GENERAL INFORMATION
CORPORATE HEADQUARTERS
1451 E. Battlefield
Springfield, MO 65804
1 (800) 749-7113
MAILING ADDRESS
P.O. Box 9009, Springfield, MO 65808
DIVIDEND REINVESTMENT
For details on the automatic reinvestment of dividends in common stock of
the corporation call:
1 (800) 725-6651 or write:
Great Southern Bancorp, Inc.
Shareholder Relations
P.O. Box 9009
Springfield, MO 65808
FORM 10-K
The form 10-K report filed with the Securities and Exchange Commission may
be obtained without charge by request to:
Richard Wilson
Senior Vice President, Controller
P.O. Box 9009, Springfield, MO 65808
INVESTOR RELATIONS
Teresa Chasteen
Vice President, Director of Marketing
P.O. Box 9009, Springfield, MO 65808
AUDITORS
Baird, Kurtz & Dobson
Hammons Tower P.O. Box 1190
Springfield, MO 65801
LEGAL COUNSEL
Carnahan, Evans, Cantwell & Brown
1949 E. Sunshine
P.O. Box 10009
Springfield, MO 65808
TRANSFER AGENT AND REGISTRAR
Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
<PAGE> 1
(This is the table of contents page which included a small color picture
the same as the front cover, a small color picture the same as the title
page to the management's discussion and analysis on page 14, and a small
color picture the same as on page 7 of Mr. Joseph Turner, Executive Vice
President and General Counsel.)
COVER:
Communities are the "Roots of our system." 12
"THERE'S GOLD IN THEM THAR HILLS"
Management's Discussion and Analysis 16
CONTENTS
2 Message from the Chairman
Business can combine sound management and social conscience. Given a
renewed interest in "community" and Great Southern's long heritage of
taking 'stock' in the Ozarks, the best is yet to come.
3 5-year Track Record at a Glance
Selected Financial Data '92-'96
4 Convenience
Long known as the 'most convenient' bank in the Ozarks, Great Southern
redefines the concept and takes banking home.
6 Strength
Great Southern continues to measure up well by the numbers, but there's
a more telling measure in our past.and our future.
8 Service
A corporate culture for true customer service results in exemplary
individual efforts during the year.
10 Products
Demand deposit accounts go 'global' with the introduction of a new 3-
in-1 card.
12 Community
Taking care of our neighbors is a responsibility that isn't taken
lightly at Great Southern.
15 Management's Discussion and Analysis
FINANCIALS
25 Consolidated Statements of Financial Condition
26 Consolidated Statements of Income
27 Consolidated Statements of Changes in Stockholders' Equity
28 Consolidated Statements of Cash Flows
29 Notes to Consolidated Financial Statements
39 Accountants' Report
40 The Team profile
Great Southern Bancorp, Inc. and Great Southern Bank Officers
<PAGE> 2 & 3
Message From
The Chairman
Across America there seems to be a renewed interest in "community." The
quality and diversity of, as well as the reinvestment in, the place where
we live and do business.
Socially minded corporate philosophies are being touted as paramount to
prosperity as we head into the 21st century. Many believe the economic
future belongs to businesses that invest in their workers and communities.
I contend that their premise is exactly right ... but not new. Business can
successfully combine sound management and social conscience. Business can
do well and do good. Case study: Great Southern; fiscal year 1995-1996 D
Achiever of third consecutive "Best Year Ever" earnings performance and
recipient of the 1995 "Outstanding Philanthropic Corporation in the Ozarks"
Award, thus the theme of this year's annual report: "Taking 'Stock' in the
Ozarks."
In the pages that follow, we will elaborate on the principles of
convenience, strength, service, products and community reinvestment -
factors that prompt people to do business with us, own a share of our
company or recognize our organization for enlightened business practices.
The achievement of our quest for "Three in a Row" (Best Year Ever
performances) equated to a rewarding year for you, our shareholders, as
well. GSBC stock closed the year (June 1996) at $27.50, which represented a
43% gain over the $19.25 closing price of a year ago.
Earnings per share increased by 23% from $2.00 per share for the year
ending June 30, 1995 to $2.45 per share for the year ending June 30, 1996;
total assets, net loans receivable, and total deposits were all up 3D8%;
non-performing assets were up $4.1 million from a year ago (June 1995), but
only slightly from the prior quarter; the company's capital position
remained strong with stockholders' equity at 10.2% of total assets; and the
company continued to acquire GSBC stock through its stock repurchase
program.
While achieving these financial results, we were simultaneously
(1)redefining convenience; (2) enhancing market share; (3) introducing
creative and diverse products to the marketplace; and (4) identifying new
causes whereby we could 'give back' to the communities we serve.
Redefining Convenience
It used to be that convenience in banking meant a branch near your home.
Today, it means being able to bank anywhere, anytime via a number of
different mediums. In just two short years, we have gone from no ATMs to
number 2 in the market. Now, with over 30 machines in our network,
transaction volumes are 21U2 times the level of a year ago.
In April, we rolled out the Great Access Check Card - a three function
debit/ATM/Savings Plus card. The card met with overwhelming acceptance as
evidenced by the nearly 50,000 transactions totaling $1.5 million for the
month of July just 90 days after introduction.
Enhanced Market Share
We continue to focus on acquiring the core retail relationships of mortgage
loans and checking accounts. In Greene County, based on deeds of trust
filed, we are consistently number 1 or number 2 among all lenders. "The
Works" and "Summit" checking packages continue to compete admirably against
our competitors' free checking offerings. And we are promoting the "Total
Great Southern Package" through greater exposure of and cross-selling of
our subsidiary business lines.
Creative and Diverse Products
Great Southern has long been recognized as a leader/innovator in product
offerings. This past year we upheld that reputation with the unveiling of
our Bear CD and "Take Stock in the Ozarks" week.
Bear CDs were tied to either the men's or lady's basketball schedule at
SMSU, the second largest university in Missouri; with interest rates
starting at 5.25% and increasing five basis points for each victory. Over
$3.5 million was invested in the Bears' success.
In a special salute to locally headquartered public companies, we deemed
May 20-24th "Take Stock in the Ozarks" week. During that week, up to 250
shares of these local companies could be purchased at a flat $19 brokerage
fee. As you might imagine, brokerage business was brisk and the community
relations impact significant.
Community Causes
As in the past, a number of the causes we supported this year were to
benefit children. Perhaps the most noteworthy is our teaming up with the
Children's Miracle Network to fund an immunization van that will travel
throughout southwest Missouri allowing all children to obtain proper
vaccinations.
In addition, with the opening of our new facility in Nixa, Great Southern
raised over $3370 for Nixa Public Schools.
Fiscal 1997 is certain to be an interesting and challenging year, as the
face of banking continues to change, with the pending entry of new banking
chains into the market. We are optimistic about our opportunities to gain
market share and grow our customer base by emphasizing our superior
products, convenience, community bank position, and service with a southern
Missouri flair. Our way of doing business, albeit a little old fashioned,
has returned success many times over; therefore, we will continue to "take
stock" in people, communities, and tomorrow ... for we believe the best is
yet to come.
/s/ William V. Turner
William V. Turner
CHAIRMAN AND PRESIDENT
<TABLE>
<CAPTION>
SELECTED 5-YEAR FINANCIAL DATA
June 30
- -------------------------------------------------------------------------------------------------
FOR THE YEAR: 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Interest Income After
Provision for Loan Losses
(in thousands) $ 24,355 $ 22,380 $ 18,532 $ 15,675 $ 14,030
Income Before Change in
Accounting Principle 11,294 9,488 8,341** 4,736 3,792
Return on Average Assets 1.75% 1.62% 1.58% .99% .82%
Interest Rate Spread 3.83% 3.86% 4.05% 4.20% 3.55%
Return on Average
Stockholders' Equity 17.28% 15.57% 14.44% 9.37% 7.64%
Noninterest Expense to
Average Assets 2.53% 2.62% 2.78% 2.77% 2.99%
- -------------------------------------------------------------------------------------------------
PER COMMON SHARE*:
Fully Diluted Earnings
Before Change in
Accounting Principle $ 2.45 $ 2.00 $ 1.66** $ .92 $ .68
Cash Dividends Declared .70 .60 .31 .12 .12
Book Value (year end) 15.39 13.99 12.84 10.82 9.86
Market Price (year end) 27.50 19.25 14.92 9.21 8.25
- -------------------------------------------------------------------------------------------------
AT YEAR END:(in thousands)
Total Assets $668,105 $622,380 $534,740 $515,293 $470,672
Loans Receivable, Net 546,759 519,255 443,750 419,527 352,016
Savings Deposits 397,055 384,327 358,987 326,611 350,016
Total Borrowings 197,265 168,270 108,587 130,253 64,994
Stockholders Equity 68,535 62,982 61,462 51,723 49,879
Non-performing Assets 16,854 12,772 14,963 14,574 18,134
<FN>
* All per share amounts have been adjusted to reflect the July 25, 1994 3-for-1 stock split.
** These numbers do not reflect the Change in Accounting Principle explained in the audited
financial statements later in this report.
</TABLE>
(The right one-third of page 3 included five color graphs which were of the
following numbers from the Selected 5-Year Financial Data schedule
Stock Price (in dollars) '92 through '96
Earnings (in millions) '92 through '96
Total Assets (in millions) '92 through '96
Total Deposits (in millions) '92 through '96
Total Loans (in millions) '92 through '96
The page also included a color picture of Mr. William V. Turner standing in
front of our corporate offices.)
<PAGE> 4 & 5
Taking It
Home
CONVENIENCE
In times past, the "most convenient bank" could be defined as the bank with
the most branch locations, or the bank closest to home or work. But in this
complex world of fax machines, cell phones, computers and "instant"
information, banking convenience has grown to encompass every facet of
customer interaction, and is of paramount importance in maintaining long-
term relationships and attracting new customers. Great Southern has always
sought to incorporate banking convenience into every aspect of each product
and service offered, and strives to continuously meet and exceed customer
expectations.
Perhaps one of the most convenient services Great Southern provides is our
Great Access Phone Bank. Twenty-four hours a day, 365 days a year, this
interactive voice response system allows customers access to current
account, product and rate information from home, work, car or anywhere
there's a touch-tone telephone. For many common inquiries, the automated
system's response time is actually quicker than a personal one, and because
it's so easy to use, the number of calls to the Customer Service department
have been cut in half since introducing the system in April, 1995. Calls to
the Phone Bank now outnumber calls to Customer Service by more than three
to one.
Although customers can't withdraw funds via phone, they can use any of
Great Southern's 24-hour ATMs to get cash, even when the bank is closed.
Just two short years after introducing automated teller machines, Great
Southern's ATM network has grown to become the second largest in southwest
Missouri, with more than 30 machines located all over the Ozarks. And while
some of the ATMs are located at branches, many of them have been
strategically placed in convenience stores, affording customers easy access
to cash while they gas up or get a loaf of bread. The machines accept all
cards bearing a Cirrus (registered trademark), Plus (register trademark),
Shazam (registered trademark), MasterCard (registered trademark) or Visa
(registered trademark) emblem, along with our own SavingsPlus/ATM cards. In
addition, the new Great Access Check Card, a combination ATM card/
SavingsPlus card/debit card, can be used to get cash at any MasterMoney or
Cirrus ATM location, providing access to over 250,000 cash machines
worldwide.
Customers have been utilizing these added conveniences in such great
numbers that drive-through activity after 8pm dropped off dramatically at
some locations. As a result, hours were reduced at selected branches where
other banking options (ATMs, night depository) were available Oround the
clock. And to meet increased growth in the Joplin market, drive-through
hours were actually extended. Of course, Great Southern still offers more
convenient hours than the competition in every market.
In an innovative expansion on convenience in the home finance arena, Great
Southern is testing the concept of permanently locating full-time mortgage
loan solicitors inside major area realty offices. The advantages are two-
fold; customers enjoy quick answers and one-stop shopping, and the
solicitor is able to build and maintain relationships with real estate
agents, resulting in increased client referrals.
(These pages included five color photos of various customer and employees
transacting business at home with a phone, at an ATM, with a loan officer
at a real estate agency and at a branch. They also included a color graph
of monthly ATM transactions at Great Southern ATMs for the months of
September 1995, December 1995, March 1996 and June 1996. Also included was
a picture of a Great Southern Travel VIP card.)
<PAGE> 6
Taking A High
Community Profile
STRENGTH
There is little doubt that your company's sound growth and strength
continue to be vested squarely in our philosophy of commitment, both
corporate and personal, to the people and communities we serve.
On the heels of three successive 'best years ever', it is gratifying to see
this investment return so fully - in increased deposits, loan volume and
multiple consumer relationships - as Great Southern's brand of genuine
social conscienceness begets the hard-earned trust of our customers with
their money. Particularly with the competitive influx of large (and locally
unfamiliar) outmarket bank chains, our 73-year heritage of community
involvement promises to become an even more powerful tool for your company
in the immediate future.
Outside of work, Great Southern officers and branch managers sit on Chamber
of Commerce boards in Springfield, Joplin and Osage Beach, and on Nixa's
Board of Aldermen. Other officers serve on the boards and advisory boards
of the Springfield Convention & Visitors Bureau, Cox Health Systems,
Southwestern Bell Telephone, St. John's Regional Health System, Southwest
Missouri State University and Drury College's Breech School of Business
Administration. Corporate involvements include long-standing sponsorships
of regional and community charitable events, local sports contests,
children's hospital services and public schools.
And Great Southern participated with Carol Jones Women's Recovery Center,
the Family Violence Center and Boys & Girls Town in applying for and
receiving the area's first FHLB affordable housing grants, totalling in
excess of $400,000. At virtually every level impacting our quality of life
in the Ozarks - in business, education, recreation, health and public
welfare - Great Southern and its employees maintain a high profile of
involvement and service.
It has not gone unrecognized. The Ozarks Chapter of the National Society of
Fundraising Executives named Great Southern the 1995 "Outstanding
Philanthropic Corporation in the Ozarks," citing not only monetary
contributions but the personal dedication of our people. The Bank was also
specially recognized within its own industry again this year, earning the
1995 "Innovations in Housing" award for the state of Missouri from the
Federal Home Loan Bank of Des Moines. The annual award honors a member
financial institution that has done an outstanding job of building
partnerships which result in affordable housing and community development.
Yet with all this acclaim and apparent emphasis on 'doing good', will a
business 'do well'? The Great Southern team is convinced the two concepts
go hand-in-hand. Again this year, the Kansas City Star's annual "Star 50"
listed Great Southern as one of the top 25 best-managed companies in the
region, and for the second consecutive year, the #1 bank or S&L in the
region - based on Return on Total Assets, the most watched gauge of bank
earning strength, as well as profits, shareholder earnings and stock
prices. Studying 5-year Equity Per Share growth ratios, Equities magazine
also proclaimed Great Southern "one of America's Fastest Growing
Companies," ranking in the top fifty of all publicly-traded firms listed on
NASDAQ. And your company earned the satisfactory Community Reinvestment Act
performance rating for its leadership and record of meeting community
credit needs.
The strength of Great Southern is measured favorably today by any number of
numbers, but is more fully measured by the strength of our individual
relationships with the people of Southern Missouri - our healthy and
growing Great Southern family.
(These pages included three color photos of Don Gibson receiving the
Innovations in Housing award, Vicki Bilyeu on the Ozarks Today morning
television show, and Joe Turner at the Southwest Missouri State University.
They also included a picture of a local newspaper and our Take Stock In the
Ozarks campaign.)
<PAGE> 8 & 9
Taking The Extra Step
SERVICE
One early morning in 1983, a salesman, a computer programmer and a business
developer gathered in the lobby at Great Southern. They had met before
under similar circumstances, hoping to convince a bank to take a chance on
their fledgling company by providing start-up capital. And they had heard
the same reply time and again: the computer industry is too new, no one can
determine what the market will be and you don't have any assets.
But things would be different this time. Great Southern believed in their
enthusiasm and their plan to produce and market software for the medical
industry, and trusted in the trio's integrity. They got the start-up loan.
And today, Management Software, Inc. has grown to employ over 200 people in
the Springfield area, and had medical software sales topping $16 million in
1995.
Extraordinary example? No, it's an everyday occurrence at Great Southern.
Our employees regularly go above and beyond the norm to make a positive
impact on our customers and our community.
Like Lee Jeter, Teller at the downtown Branson branch, who took it upon
himself to personally deliver a misdirected check order to a gentleman in
Springfield. Or Steve Fleischaker, Manager at the Benton & Chestnut branch
in Springfield, who spent his own money to wire funds to Great Southern
customers who were caught cashless while vacationing in Florida.
Great Southern's customer service philosophy permeates every level of the
organization. Executive Vice President and Chief Operating Officer Don
Gibson personally joined others participating in a Works! phone-a-thon,
calling new checking account customers to get personal feedback and make
sure they understood and were using all the complimentary benefits the
accounts offer.
Originally founded to extend related services to our customers, Great
Southern subsidiaries also successfully increased service levels and
product offerings during the year. A concentrated effort to increase group
sales at Great Southern Travel resulted in almost a four-fold increase over
last year. The only travel agency in southern Missouri to be awarded the
distinguished "Winner's Circle Award" from Carnival Cruise Lines, Great
Southern Travel was also proclaimed Springfield's #1 Travel Agency by the
Springfield Business Journal.
An active member of the Missouri Association of Insurance Agents and the
Independent Insurance Agents Association of the Ozarks, Great Southern
Insurance represents a"Who's Who List" of major underwriters, and has
received recognition as an HPA agency for CNA, a Tower Agent for Travelers,
the President's Award for Cameron Mutual, and received "Top 100 Sales
Stars" of 1995 for State Auto Insurance companies. The subsidiary is
experiencing the effects of a soft market for commercial lines which
resulted in a decrease of overall volume, but was still able to improve
pretax profits to $145,163 over last year's $98,359.
Great Southern Investments - with gross revenues topping $1 1/4 million and
pretax profits of $415,434 for the fiscal year - increased service
offerings while reducing costs by delegating the clearing portion of their
business to another firm. Wealth accumulation, retirement planning, tax
reduction strategies and estate planning concepts were emphasized at
customer investment education seminars.
The rewards for providing exemplary service don't always show up on the
bottom line. They are expressed in the trust and friendships gained
through long-term relationships. Like Great Southern's 40-plus year
relationship with Bette Datz. Over the years, Bette has paid off three
mortgage loans and taken advantage of almost every product Great Southern
offers. "When I was widowed in 1977, I had to have someone I could trust,
and it's been Great Southern. Someone is always there that I can reach. And
be heard. Someone always willing to go the extra mile. Your concerns are
just as great if you have ten dollars or ten thousand dollars."
(These pages include five color photos of a pig roast held at the West
Plains branch, a customer and her child and dog at a drive-in window, a
company sponsored golf team at the Missouri Sports Hall of Fame Golf
Tournament and a customer and a teller assisting a customer. Also shown
were tickets to some of Branson's many shows available through Branson Box
Office, a division of Great Southern Bancorp, Inc.)
<PAGE> 10 & 11
Taking It
To The People
PRODUCTS
Marketers understand that successful product development is contingent upon
two factors: knowing and meeting the needs and desires of consumers as
times and conditions change; and effectively communicating product
information to the consumer. By continuously upgrading the current product
mix, Great Southern is able to perpetually give the customer more (and
more) for their money.
Complimentary benefits were enhanced on Works! checking packages, with the
addition of a new travel discount coupon booklet and certificates of
deposit with a lower minimum deposit requirement of $500, aimed at younger
consumers who want to invest but can't make a large commitment. Works II
members now also receive a buyer protection program similar to those
offered by credit card companies.
Following the re-engineering of the Summit Checking package for customers
age 50 or better, and The Works! enhancements, there was only one direction
for checking accounts to go: Global. By joining forces with MasterCard,
Great Southern is able to offer customers additional convenience and global
access to their checking accounts with the introduction of the Great Access
Check Card. A new way to pay for purchases, the Check Card can be used at
over 12 million locations worldwide (wherever MasterCard is accepted) and
the amount of purchase is deducted directly from the customer's checking
account, just as if they had written a check. The three-in-one card is also
a SavingsPlus discount card, offering cash discounts at over 200 merchants
across the Ozarks, and an ATM card with checking account access at over
250,000 cash machines worldwide. Faster and easier to use than a check, the
Card eliminates worry about check acceptance and carrying large amounts of
cash.
An Olympic-themed usage campaign kicked off the Card introduction, offering
prizes including Olympic apparel and logo merchandise to customers using
their cards during the May and June event. Each Check Card purchase became
an automatic entry for weekly drawings at each Great Southern branch, as
well as the a grand prize big screen TV drawing. A huge hit with customers,
Check Cards were used over 21,500 times in June to pay for over a half
million dollars in products and services, and over 26,400 times with over
$700,000 of purchases in July.
An innovative certificate of deposit program introduced last fall created a
win-win-win situation for Great Southern, its customers, and Southwest
Missouri State University. Seven-month Bears CDs could be opened with as
little as $500, and interest rates were tied to the winning records of the
SMSU men's and women's basketball teams. Over 570 CDs were opened, with
total deposits of $3.6 million. With the men's team going two games into
the conference tournament, and the Lady Bears advancing to the first round
of the NCAA, final interest rates rose from the starting 5.25% to 6.15% for
the men (Boomer CD) and 6.6% for the women (Buddy CD).
And the Ozarks' best seniors club, the Summit Club, began its second decade
of services aimed at seniors. Recent seminars included a 55 Alive AARP
Mature Driving Class and a how-to class on electronic equipment.
(These pages included four color photos of various customers, a billboard,
and customers accepting a prize. Included was photos from a television
campaign promoting the new check card. Also on theses pages was a pie
chart showing customer composition of a special certificate of deposit
promotion and a graph of check card transactions for selected months.)
<PAGE> 12 & 13
Taking Stock
In Our Youth
COMMUNITY
Community involvement requires more than occasionally donating resources to
a worthy cause. It requires dedication and commitment. Taking care of our
neighbors is a responsibility that isn't taken lightly at Great Southern.
Our involvement with McGregor Elementary, Great Southern's Adopt-A-School
partner in Springfield, was recognized by Partners in Education for its
achievement in integrating work place concepts into daily school
activities. This year's activities featured the addition of a special
school bank and store. Students earned "McGregor Bucks" for regularly
attending class, being alert, listening and participating in class, turning
in their work on time, and being a good citizen. The Bucks were
exchangeable for items at the school store, which was stocked with
donations solicited from area businesses.
When the Nixa branch opened last summer, Great Southern pledged to donate
money to the Nixa school system for each new account opened at the Nixa
office during its first year of operations. Following an extremely
successful branch addition, the Bank was honored to present the school
system with an unexpected $3,370 contribution.
Great Southern's newly-expanded SMSU basketball half time games were so
well received last winter that they were expanded to include SMSU's Grizzly
games on their West Plains campus as well as at Missouri Southern in
Joplin. The games included "3 Wheelin" (adult tricycle races), "Cash
Cushions" (musical chairs), "Suit & Shoot" (kids donning oversized clothes
while racing to make a basket), "Airfare" (make your best paper airplane
and aim for the target) and the ever-popular "Shoot-Out". Coaches Against
Cancer also received a donation for each event.
Expanding on a decade-long sponsorship with Children's Miracle Network, the
Bank worked with CMN to establish the C.A.R.E. Mobile, a self-contained
immunization clinic that can travel to remote areas across the Ozarks where
doctors and medical facilities are in short supply. All children are
accepted, regardless of insurance status or ability to pay. Missouri
currently ranks 49th nationally in the percentage of correctly immunized
children, and the project has become a test model for the State in reaching
these high risk children. On-going programs with CMN included the exclusive
Cash for Kids savings program, Branson Celebrity Golf Tournament and The
Children's Village project inside the pediatric unit at Cox Hospitals.
Other projects included raising funds for new Chamber of Commerce
facilities in Osage Beach and Springfield, Lake Ozark Regional Hospital,
the Jerry Lewis MDA telethon, Habitat for Humanity, Easter Seals telethon,
Boys & Girls Town of Missouri Annual Golf Tournament, Springfield Public
Schools Telethon for Technology, The Kitchen, United Way, The Missouri
Sports Hall of Fame, and individual community events such as Thayer Dogwood
Daze, Ava's Fox Trotter Celebration, Cabool's Ole Tyme Days, and Kimberling
City's Port of Lights. Involvement in these events, along with countless
other projects, all serve to underline Great Southern's genuine commitment
to the people of the Ozarks.
(These pages included four color photos of the new Children's Miralce
Network immunization van, Joe Turner presenting a check to for the van, a
half-time activity at a SMSU basketball game, and students participating in
the McGregor Bucks activity.)
<PAGE> 14
(This is a color page listing the Managemen'ts Discussion and Analysis,
Consolidated Statements of Financial Condition and Notes to Consolidated
Financial Statements. The picture on this page is a section of the stock
price page from a financial newspaper, with a background of gently rolling
country hills.)
<PAGE> 15 through 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The discussion set forth below, as well as other portions of this
document, may contain forward-looking comments. Such comments are based
upon the information currently available to management of Great Southern
Bancorp, Inc. (the "Company") and management's perception thereof as of the
date of this document. Actual results of the Company's operations could
materially differ from those forward-looking comments. The differences
could be caused by a number of factors or combination of factors including,
but not limited to, changes in the availability and/or cost of capital;
changes in demand for banking services; changes in the portfolio
composition; changes in the interest rate yield on the Company's
investments; changes in management strategy; increased competition from
both bank and non-bank companies; changes in the economic, political or
regulatory environments in the United States; litigation involving the
Company and/or its subsidiaries; and changes in the availability of
qualified labor. Readers should take these factors into account in
evaluating any such forward-looking comments.
GENERAL
The consolidated net income of the Company and more specifically, the
net income of its primary subsidiary, Great Southern Bank, FSB (the
"Bank"), is primarily dependent upon the difference or spread between the
average yield earned on loans and investments and the average rate paid on
deposits and borrowings, as well as the relative amounts of such assets and
liabilities. The interest rate spread is affected by regulatory, economic
and competitive factors that influence interest rates, loan demand and
deposit flows. The Bank, like other financial institutions, is subject to
interest rate risk to the degree that its interest-bearing liabilities
mature or reprice at different times, or on a different basis than its
interest-earning assets. The Company's consolidated net income is also
affected by, among other things, gains on sales of loans and available-for-
sale investments, provisions for loan losses, service charge fees and
commissions, operating expenses and income taxes.
Management of the Company has developed and implemented an
asset/liability management strategy to match the repricing and/or maturity
of its interest-earning assets and its interest-bearing liabilities and to
achieve improved and sustained operating income without adversely affecting
asset quality. In implementing this strategy, the Company has sought,
subject to market conditions, to increase its origination of adjustable-
rate loans secured by one- to four-family residential real estate in order
to increase its investment in loans that are interest rate sensitive. The
Company has also sold substantially all of the fixed-rate, one- to four-
family residential loans originated since fiscal 1986, with servicing
retained through fiscal 1995 and primarily servicing released beginning in
fiscal 1996. Beginning in fiscal 1992, the Company's lending returned to
origination of adjustable-rate commercial real estate and commercial
business loans. By doing so, the Company is attempting to increase
significantly its loan fees, increase its investment in loans that are
interest rate sensitive and improve the yield on its loan portfolio. The
Company intends to continue prudently to evaluate the origination of
commercial real estate loans in its total loan portfolio subject to
commercial real estate and other market conditions and to applicable
regulatory restrictions and may increase the percent of the commercial real
estate loans to the overall portfolio.
EFFECT OF FEDERAL LAWS AND REGULATIONS
Federal legislation and regulation significantly affect the banking
operations of the Company and have increased competition among savings
institutions, commercial banks, mortgage banking enterprises and other
financial institutions. In particular, the capital requirements and
operations of regulated depository institutions such as the Company and the
Bank have been and will be subject to changes in applicable statutes and
regulations from time to time, which changes could, under certain
circumstances, adversely affect the Company or the Bank.
Legislation recently passed by Congress and signed by the President
repealed the bad debt reserve method of accounting for bad debts by large
thrifts for taxable years beginning after 1995 (year ended June 30, 1997
for the Bank). The legislation requires applicable excess reserves
accumulated after 1987 (year ended June 30, 1988 for the Bank) be
recaptured and restored to income over a six year period with the first
year beginning after 1995 (year ended June 30, 1997 for the Bank), and
eliminates recapture of the applicable excess reserves accumulated prior to
1988 for thrifts converting to bank charters. The post 1987 recapture may
be delayed for a one- or two-year period if certain residential loan
origination requirements are met. The amount of post 1987 recapture for
the Bank is estimated at $5 million which would create tax of approximately
$2 million, or $333,000 per year for each of the six years. The $2 million
of tax has been accrued by the Bank in previous periods and would not be
reflected in earnings when paid.
In late 1995, the FDIC adopted a new deposit insurance assessment rate
schedule that provided for lower premiums for BIF members than for SAIF
members such as the Bank. Subsequently, the FDIC made further reductions
to the deposit insurance assessment rates applicable to BIF members. As a
result of such further adjustments, BIF members pay between 0 basis points
and 27 basis points on their deposits. As of year end, approximately 92%
of BIF members were being charged the 0 basis point rate. In contrast,
SAIF member institutions such as the Bank continue to pay assessment rates
ranging from 23 basis points to 31 basis points. This disparity causes
SAIF members, such as the Bank, to be placed at a competitive disadvantage
with BIF members with respect to the pricing of loans and deposits, the
ability to achieve lower operating costs, and the ability to raise funds in
the capital markets.
Legislative issues regarding the disparity in bank and thrift deposit
insurance premiums, the merger of the BIF and SAIF, recapitalization of the
SAIF and other pending regulatory issues remain unresolved. Management
cannot predict the impact future legislation or regulatory changes may have
on the Company or the Bank. The Company and the Bank will monitor the
development of the BIF and SAIF issue as well as other bank versus thrift
issues and will take the steps believed necessary to maximize the overall
value of the Company and the Bank.
RECENT CHANGES IN ACCOUNTING PRINCIPLES
In June 1993, the FASB issued Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS 114"). This statement requires discounting expected future cash
flows to measure impairment of certain loans or, as a practical expedient,
impairment measurements based on the loan's observable market price or the
fair value of collateral if the loan is collateral dependent. In October
1994, the FASB issued Statement No. 118 "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" ("SFAS 118")
which amended certain provisions of SFAS 114. SFAS 118 allows a creditor
to use existing methods for recognizing interest income on impaired loans
and requires information to be disclosed about the recorded investment in
certain impaired loans about how a creditor recognized interest income
related to those loans. These standards were adopted by the Company during
the current June 30, 1996 fiscal year. This accounting change did not have
a material adverse impact on the financial condition or net income of the
Company.
POTENTIAL IMPACT OF ACCOUNTING PRINCIPLES TO BE IMPLEMENTED IN THE FUTURE.
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" ("SFAS 121"). This statement
applies to assets to be held and used as well as assets to be disposed of.
SFAS 121 requires an entity to evaluate long-lived assets, certain
identifiable intangibles, and related goodwill for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Adoption of SFAS 121 will be required by the
Company during the fiscal year ended June 30, 1997. Management believes
the adoption of SFAS 121 will not have a material effect on the financial
condition or net income of the Company.
In May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122").
SFAS 122 requires that mortgage banking enterprises recognize as separate
assets, rights to service mortgage loans for others, however those
servicing rights are acquired. Adoption of SFAS 122 will be required by
the Company during the fiscal year ending June 30, 1997. Management
believes the adoption of SFAS 122 will not have a material effect on the
financial condition or net income of the Company.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
SFAS 123 establishes a fair value based method of accounting for stock-
based compensation plans. It encourages entities to adopt that method in
place of the provisions of APB Opinion No. 25, "Accounting for Stock Issued
to Employees", for all arrangements under which employees receive shares of
stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of its stock. This
statement applies to financial statements for fiscal 1997. Management
expects to continue to account for stock-based compensation in accordance
with the provisions of APB No. 25. Therefore, SFAS 123 is not expected to
have a significant impact on the Company's consolidated financial
statements.
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125 extends
the rules in SFAS 122 from servicing of mortgage loans to all loan
servicing. Adoption of SFAS 125 will be required by the Company during the
fiscal year ending June 30, 1997. Management believes the adoption of SFAS
125 will not have a material effect on the financial condition or net
income of the Company.
ASSET AND LIABILITY MANAGEMENT
Management believes that a key component of successful asset/liability
management is the monitoring and management of interest rate sensitivity,
which encompasses the repricing and maturity of interest-earning assets and
interest-bearing liabilities. During any period in which a financial
institution has a positive interest rate sensitivity gap, the amount of its
interest-earning assets maturing or otherwise repricing within such period
exceeds the amount of the interest-bearing liabilities maturing or
otherwise repricing within the same period. Accordingly, in a rising
interest rate environment, financial institutions with positive interest
rate sensitivity gaps generally will experience greater increases in yield
on their assets than in the cost of their liabilities. Conversely, in a
falling interest rate environment, the cost of funds of financial
institutions with positive interest rate gaps generally will decrease less
than the yield on their assets. Changes in interest rates generally will
have the opposite effect on financial institutions with negative interest
rate sensitivity gaps. In a rising interest rate environment financial
institutions with negative gaps have more liabilities than assets mature or
reprice during the relevant period, causing the increase in the cost of
liabilities to exceed the increase in the yield on assets. Conversely, in
a falling interest rate environment, the cost of funds of financial
institutions with negative interest rate sensitivity gaps generally will
decrease more than the yield on their assets. The Company's experience
with interest rates are discussed in more detail under the headings
"Results of Operations and Comparisons of the Years Ended June 30, 1996 and
1995" and " Results of Operations and Comparisons of the Years Ended June
30, 1995 and 1994."
The Company's one-year interest rate sensitivity gap, stated as a
dollar amount and as a percentage of total interest-earning assets, was a
positive $89 million, or 13.6%, at June 30, 1996, as compared to a positive
$75 million, or 12.3%, at June 30, 1995 and a positive $89 million, or
16.97% at June 30, 1994. The change in the Company's one-year gap position
from 1995 to 1996 resulted primarily from (i) a $43 million, or 126%,
increase in investment securities and other interest-earning assets from an
overall increase of $15 million due to the end of the quarter falling on a
weekend which increases cash items in the process of collection from other
financial institutions combined with maturities of $28 million shortening
into the one year or less category; (ii) an $18 million, or 4%, increase in
residential, commercial real estate and construction loans, the majority of
which were at adjustable rates with adjustment periods of one year or less;
(iii) a $24 million, or 25%, increase in Federal Home Loan Bank ("FHLBank")
advances with short maturities to match the increase in adjustable rate
loans; (iv) a $17 million, or 10%, increase in time deposits primarily from
a shift of $13 million to the one year or less category from the categories
over one year; and (v) a $9 million, or 9%, increase in demand deposits due
to the end of the quarter falling on a weekend as noted under (i) above,
which are in the one year or less category.
The change in the Company's one-year gap position from 1994 to 1995
resulted primarily from (i) a $73 million, or 20%, increase in residential,
commercial real estate and construction loans, the majority of which were
at adjustable rates with adjustment periods of one year or less; (ii) a $23
million, or 40%, decrease in investment securities and other interest-
earning assets due to maturities extending into the 1 to 3 year category;
(iii) a $42 million, or 75%, increase in Federal Home Loan Bank advances
with short maturities to match the increase in adjustable rate loans; (iv)
a $38 million, or 28%, increase in time deposits in the one year or less
category; and (v) an $11 million, or 7%, reduction split equally between
demand and savings deposits in the one year or less category.
As a part of its asset and liability management strategy, the Company
has increased its investment in loans which are interest rate sensitive by
emphasizing the origination of adjustable-rate, one- to four-family
residential loans and adjustable-rate or relatively short-term commercial
business and consumer loans, and originating fixed-rate, one- to four-
family residential loans primarily for immediate resale in the secondary
market. Approximately 30% of total assets are currently invested in
commercial real estate and commercial business loans. This part of the
strategy was designed to improve asset yield and fee income, and to shorten
the average maturity and increase the interest rate sensitivity of the loan
portfolio. While efforts to date have contributed to the changes in the
one-year interest rate sensitivity gap and increasing net interest income,
such lending, commensurate with the increased risk levels, has also
resulted in an increase in the level of non-performing assets. Management
continually evaluates existing and potential commercial real estate and
commercial business loans, in order to try to reduce undesirable risks
including concentrations in a given geographic area or a particular loan
category.
While from a credit risk standpoint the Company would prefer higher
levels of one- to four-family and other residential loan originations
rather than commercial real estate and commercial business loan
originations, the Company has adapted to the changing lending environment
and originates commercial real estate and commercial business loans to help
maintain the desired size of the loan portfolio and assets in total, as
well as to maintain the desired yield on the Company's investments.
Interest rate risk exposure estimates (the sensitivity gap) are not
exact measures of an institution's actual interest rate risk. They are
only indicators of interest rate risk exposure produced in a simplified
modeling environment designed to allow management to gauge the Company's
sensitivity to changes in interest rates. They do not necessarily indicate
the impact of general interest rate movements on the Company's net interest
income because the repricing of certain categories of assets and
liabilities is subject to competitive and other factors beyond the
Company's control. As a result, certain assets and liabilities indicated
as maturing or otherwise repricing within a stated period may in fact
mature or reprice at different times and in different amounts and would
therefore cause a change (which potentially could be material) in the
Company's interest rate risk.
Tables I & II set forth the Company's interest rate sensitive assets
and liabilities. Table I sets forth the Company's interest rate sensitive
assets and liabilities that mature or reprice within one year as of the
dates indicated, while table II sets forth the interest rate sensitivity of
the Company's June 30, 1996 assets and liabilities for all maturity or
repricing periods. Both tables were prepared on the basis of the factors
and assumptions following:
--Prepayment rates are derived from market prepayment rates observed
on or about June 30, 1996. These rates are supplied by the FHLBank of Des
Moines Risk Management Department.
--Fixed-rate loans, net of loans in process, deferred fees and
discounts are shown on the basis of contractual amortization and the
prepayment assumptions noted above.
--Adjustable-rate loans are assumed to reprice at the earlier of
maturity or the next contractual repricing date.
--Zero growth and constant percentage composition of assets and
liabilities are assumed. Funds from contractual amortization are not
reinvested.
<TABLE>
Caption>
TABLE I
June 30, 1996 1995 1994
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Residential, commercial real estate and
construction loans $463,559 $445,745 $372,474
Commercial business loans 12,349 9,606 9,350
Consumer loans 16,202 14,068 11,442
Investment securities and other 76,343 33,710 56,671
------- ------- -------
Total interest rate sensitive assets repricing
within one year 568,453 503,129 449,937
------- ------- -------
Demand deposits 112,289 103,401 109,128
Savings deposits 37,009 38,285 43,460
Time deposits 192,909 175,728 137,411
FHLBank advances 120,849 96,831 55,295
Other borrowings and liabilities 16,468 13,947 15,500
------- ------- -------
Total interest rate sensitive liabilities repricing
within one year 479,524 428,192 360,794
------- ------- -------
One year interest rate sensitivity gap (1) $ 88,929 $ 74,937 $ 89,143
======= ======= =======
Interest rate sensitive assets/interest rate sensitive
liabilities 118.5% 117.5% 124.7%
===== ===== =====
One year interest rate sensitivity gap as a percent of
interest-earning assets 13.6% 12.3% 16.9%
==== ==== ====
______________________
<FN>
(1) Defined as the Company's interest-earning assets which mature or reprice within one year minus its interest-
bearing liabilities which mature or reprice within one year.
</TABLE>
<TABLE>
<CAPTION>
TABLE II Maturing or Repricing (Dollars in thousands)
Over 6
6 Months Months Over 1-3 Over 3-5 Over
or Less to 1 Year Years Years 5 Years Total
-------- --------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Residential, commercial real estate
and construction loans $356,898 $106,661 $19,510 $11,471 $34,714 $529,254
Commercial business loans 12,234 115 181 12,530
Consumer loans 13,771 2,431 6,818 23,020
Investment securities and other 27,393 48,950 10,472 0 0 86,815
------- ------- ------ ------ ------ -------
Total interest-earning assets 410,296 158,157 36,981 11,471 34,714 651,619
------- ------- ------ ------ ------ -------
Demand deposits 112,289 112,289
Savings deposits 37,009 37,009
Time deposits 134,407 58,502 35,725 4,463 5,760 238,857
FHLBank advances 112,558 8,291 32,186 10,867 16,895 180,797
Other borrowings and liabilities 16,468 0 0 0 0 16,468
------- ------- ------ ------ ------ -------
Total interest-bearing liabilities 412,731 66,793 67,911 15,330 22,655 585,420
------- ------- ------ ------ ------ -------
Interest-earning assets less
interest-bearing liabilities $ (2,435) $ 91,364 $(30,930) $(3,859) $12,059 $66,199
======= ======= ====== ===== ====== ======
Cumulative interest rate
sensitivity gap $ (2,435) $ 88,929 $57,999 $54,140 $66,199
======= ======= ====== ====== ======
Cumulative interest rate
sensitivity gap as a percent of
interest-earning assets at June 30, 1996 (0.4)% 13.6% 8.9% 8.3% 10.2%
Cumulative interest rate
sensitivity gap as a percent of
interest- earning assets at June 30, 1995 2.1% 12.3% 9.8% 9.1% 10.6%
</TABLE>
RESULTS OF OPERATIONS AND COMPARISONS OF THE YEARS ENDED JUNE 30, 1996 AND
1995
The increase in earnings for the year ended June 30, 1996 compared to
June 30, 1995 of $1.8 million, or 19%, was primarily due to an increase in
the net interest income of $2.1 million and an increase in non-interest
income of $2.4 million, offset by an increase in non-interest expense of $1
million and an increase in provision for income taxes of $1.6 million
during fiscal 1996.
Interest Income
Total interest income increased $6.8 million, or 14.5%, from fiscal
1995 primarily due to a $6.2 million, or 14.2%, increase in interest income
on loans combined with a $.6 million, or 18.4%, increase in interest income
on investment securities and other interest-earning assets. The increase
in interest income on loans was the result of higher average balances from
$487 million in fiscal 1995 to $537 million in fiscal 1996 as a result of
strong loan growth, combined with an increase in average yield from 8.98%
in fiscal 1995 to 9.29% in fiscal 1996 as a result of higher market rates
during the fiscal year. The increase in interest income on investment
securities and other interest-bearing assets was the result of higher
average annual yields from 4.85% in fiscal 1995 to 5.34% in fiscal 1996 as
a result of higher market rates, combined with an increase in average
balances from $71 million in fiscal 1995 to $76 million in fiscal 1996 as a
result of available-for-sale securities acquired by the Company. The
Company believes interest income may stabilize in fiscal 1997 as the
average balances in fiscal 1996 approximate the current balances and
funding of current loan commitments are expected to primarily replace loan
maturities and repayments on existing loans during the fiscal year and
market rates are expected to be comparable to fiscal 1996.
Interest Expense
Total interest expense increased $4.7 million, or 20.2%, from fiscal
1995 primarily due to a $2.1 million, or 14.2%, increase in interest
expense on deposits and a $2.6 million, or 30.5%, increase in interest
expense on FHLBank advances and other borrowings. Interest expense on
deposits increased primarily due to an increase in average annual rates on
time deposits from 5.14% in fiscal 1995 to 5.69% in fiscal 1996 as a result
of higher market rates on the average for such deposits and higher average
balances from $222 million in fiscal 1995 to $239 million in fiscal 1996.
Interest expense on FHLBank advances and other borrowings increased
primarily due to higher average balances from $143 million in fiscal 1995
to $187 million in fiscal 1996 as a result of the Company's decision to use
FHLBank advances to fund increased loan volumes. The Company evaluates
various funding sources and generally uses the source which produces the
lowest overall cost in the current market environment. The main sources
evaluated are FHLBank advances, brokered CDs and retail deposits.
Net Interest Income
The Company's overall net interest margin decreased 4 basis points, or
.9%, from 4.25% in fiscal 1995 to 4.21% in fiscal 1996. The decrease is
due to an overall increase in the weighted average rates paid on interest-
bearing liabilities which was slightly greater than the overall increase in
the weighted average yield received on interest-earning assets. The
Company believes the net interest margin will remain stable or decline
slightly in fiscal 1997.
Provision for Loan Losses
The provision for loan losses increased $132,000, or 10%, in fiscal
1996 from fiscal 1995. In any accounting period, the provision for loan
losses is affected by many factors including, but not limited to, the
change in the composition of the loan portfolio, the increase or decrease
in total loans, the level of delinquencies, the historical loss experience
of the portfolio and non-performing loan levels.
Non-performing assets increased $4.1 million, or 32%, in fiscal 1996
from $12.8 million at June 30, 1995 to $16.9 million at June 30, 1996.
Non-performing loans increased $2.1 million, or 53.8%, from $3.8 million at
June 30, 1995 to $5.9 million at June 30,1996, and foreclosed assets
increased $2 million, or 22.6%, from $8.9 million at June 30, 1995 to $10.9
million at June 30, 1996. Non-performing loans at June 30, 1995 and 1996,
respectively, included $800,000 and $500,000 of loans in connection with
the sale of foreclosed assets. Substantially all of these loans are
currently performing according to their loan terms.
The increase in non-performing loans was primarily the result of (i)
the addition of loans totaling $1.3 million on a residential development in
Taney County, Missouri; (ii) the transfer from foreclosed assets to loans,
due to the implementation of SFAS 114, of one loan for $934,000 which had
been recorded as an in-substance foreclosure in fiscal 1995; (iii) the
addition of loans totaling $1 million on a restaurant located in Branson,
Missouri; and (iv) the addition of six unrelated single-family mortgage
loans totaling $.5 million; partially offset by (v) the foreclosure of a
79-unit motel in Branson, Missouri securing a $1.6 million loan.
The borrower on the $1.3 million residential development is in
bankruptcy. The loan is secured by 63 developed residential lots which
include all utilities (electric, sewer, water and natural gas), six single-
family homes constructed by the borrower and 166 acres of undeveloped land.
The borrower on the $934,000 loan has been delinquent for an extended
period, but was in bankruptcy so the Company had been unable to obtain
possession of the property. Subsequent to June 30, 1996, the property
securing this loan was auctioned at a bankruptcy court sponsored sale and
purchased by independent third parties for approximately $1.1 million, a
substantial portion of which has been received by the Company.
The borrower on the $1 million restaurant loans has been slow in
paying but began showing improvement towards the latter part of their 1995
season and experienced increased advance reservations for the 1996 season.
These advance reservations have been materializing in the 1996 season and
the borrower has been making loan payments according to the agreed payment
schedule. If the borrower continues with the scheduled payments for the
remainder of the 1996 season, the loan will have been brought current.
The Company foreclosed on the $1.6 million motel located in Branson,
Missouri in October 1995. The motel appraised for slightly more than the
balance of the loan. The Company is seeking a buyer for the property and
in the interim operated the motel during the 1995 fall and winter season
and is currently operating the motel during the 1996 season.
The increase in foreclosed assets in fiscal 1996 was primarily due to
(i) the addition of a $4.3 million condominium project located in Branson,
Missouri (this is net of a $1.4 million charge-down prior to foreclosure);
(ii) the addition of a $1 million residential development in Branson,
Missouri; (iii) the addition of the $1.6 million motel noted above; offset
by (iv) the sale of a $2.8 million 18 hole Arnold Palmer designed golf
course located at the Lake of the Ozarks, near Osage Beach, Missouri. The
sale was for a total of $4 million with $1 million cash at closing and
normal long-term financing for the balance; (v) the $934,000 property
transferred back to loans as noted above; (vi) the sale of nine condominium
units carried at an aggregate of $424,000; (vii) three residential lots
carried at an aggregate of $47,000 and 22.3 undeveloped acres carried at
$120,000 located on the Lake of the Ozarks; (viii) the sale of a $400,000
Joplin car wash; (ix) a $125,000 charge-down on two existing properties;
and (x) various other activity of smaller properties in the account.
Potential problem loans decreased $.9 million from $5.6 million at
June 30, 1995 to $4.7 million at June 30, 1996. 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 main reason for the decrease in potential
problem loans is the reduction of (i) $2.2 million in a condominium project
in Branson, Missouri due to collateral sales; and (ii) the $1 million
Branson, Missouri restaurant loans which moved to non-performing loans at
June 30, 1996; offset by (iii) deterioration of the credit quality of a
commercial business located in Springfield, Missouri of $2.3 million.
The allowance for loan losses at June 30, 1996 and 1995, respectively,
totaled $14.4 million and $14.6 million, representing 2.6% and 2.8% of
total loans, 243% and 380% of non-performing loans, and 139% and 154% of
non-performing loans and potential problem loans in total. The allowance
for foreclosed asset losses totaled $1.1 million and $.9 million at June
30, 1996 and 1995, respectively, representing 9.9% and 10.4% of total
foreclosed assets. Although Management maintains the allowance for loan
losses and the allowance for foreclosed asset losses at levels which it
considers to be adequate to provide for potential losses and selling
expenses, there can be no assurance that such losses will not exceed the
estimated amounts, thereby adversely affecting future results of
operations.
Non-interest Income
Non-interest income increased $2.4 million, or 30.4%, in fiscal 1996.
The main areas generating the net increase were: (i) an increase in income
on foreclosed assets of $971,000 primarily due to recovery in fiscal 1996
of previously recorded losses; (ii) an increase in profit on sale of loans
and available-for-sale securities of $1.1 million due to gains on sale of
available-for-sale securities of $680,000 in fiscal 1996, and an increase
in sales of fixed-rate one- to four-family loan originations in fiscal
1996; and (iii) modest increases or decreases in other non-interest income
items.
Non-interest Expense
Non-interest expense increased $1 million, or 6.4%, in fiscal 1996.
The increase was due primarily to: (i) an increase in employee expense of
$790,000, or 10.4%, primarily due to increases in the Bank for salaries,
commissions, retirement plan contributions and health insurance premiums;
and (ii) an increase of $340,000, or 17.9%, in net occupancy expense
primarily from expansion and upgrade in technology related items such as
computers and ATMs; offset by (iii) a decrease of $130,000, or 23.3%, in
supplies and printing from an overall reduction in pricing on purchases;
and (iv) various smaller increases and decreases in the other non-interest
expense categories.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income increased
from 36.8% in fiscal 1995 to 38.6% in fiscal 1996 due to changes in accrual
estimates.
RESULTS OF OPERATIONS AND COMPARISONS OF THE YEARS ENDED JUNE 30, 1995 AND
1994
The increase from fiscal 1994 in operating earnings (before the
cumulative change in accounting for income taxes of $3.4 million in fiscal
1994) of $1.1 million, or 13.7%, was primarily due to an increase in the
net interest income of $2.1 million and a decrease in provision for loan
losses of $1.7 million, offset by a decrease in non-interest income of $.9
million, an increase in non-interest expense of $.6 million and an increase
in provision for income taxes of $1.2 million during fiscal 1995.
Interest Income
Total interest income increased $8.1 million, or 20.8%, from fiscal
1994 to fiscal 1995 primarily due to a $7.4 million, or 20.4%, increase in
interest income on loans combined with a $.7 million, or 26.5%, increase in
interest income on investment securities and other interest-earning assets.
The increase in interest income on loans was the result of higher average
balances from $434 million in fiscal 1994 to $487 million in fiscal 1995 as
a result of strong loan growth, combined with an increase in average yield
from 8.37% in fiscal 1994 to 8.98% in fiscal 1995 as a result of higher
market rates during the fiscal year. The increase in interest income on
investment securities and other interest-earning assets was the result of
higher average annual yields from 4.06% in fiscal 1994 to 4.85% in fiscal
1995 as a result of higher market rates, combined with an increase in
average balances from $67 million in fiscal 1994 to $71 million in fiscal
1995 as a result of available-for-sale securities acquired by the Company.
Interest Expense
Total interest expense increased $6 million, or 34.3%, from fiscal
1994 primarily due to a $3.4 million, or 29.9%, increase in interest
expense on deposits and a $2.6 million, or 42.7%, increase in interest
expense on FHLBank advances and other borrowings. Interest expense on
deposits increased primarily due to an increase in average annual rates on
time deposits from 4.27% in fiscal 1994 to 5.14% in fiscal 1995 as a result
of higher market rates on the average for such deposits and higher average
balances from $189 million in fiscal 1994 to $222 million in fiscal 1995
primarily as a result of brokered deposits generated during fiscal 1995.
Interest expense on FHLBank advances and other borrowings increased
primarily due to higher average annual rates from 4.56% in fiscal 1994 to
5.95% in fiscal 1995 due to higher average short term market rates, and
higher average balances from $131 million in fiscal 1994 to $143 million in
fiscal 1995. The higher average balances were a result of the Company's
decision beginning during fiscal 1992 to use increased levels of FHLBank
advances to fund increased loan volumes.
Net Interest Income
The average annual interest rate spread decreased 19 basis points, or
4.7%, from 4.05% in fiscal 1994 to 3.86% in fiscal 1995. The decrease is
due to an overall increase in the weighted average rates paid on interest-
bearing liabilities partially offset by an overall increase in the weighted
average yield received on interest-earning assets and further offset by a
greater overall increase in the average balances of interest-earning
assets.
Provision for Loan Losses
The provision for loan losses decreased $1.7 million, or 56.4%, in
fiscal 1995 from fiscal 1994. In any accounting period, the provision for
loan losses is affected by many factors including, but not limited to, the
change in the composition of the loan portfolio, the increase or decrease
in total loans, the level of delinquencies, the historical loss experience
of the portfolio and non-performing loan levels.
Non-performing assets decreased $2.2 million, or 14.6%, in fiscal 1995
from $15 million at June 30, 1994 to $12.8 million at June 30, 1995. Non-
performing loans decreased $3.5 million, or 47.7%, from $7.3 million at
June 30, 1994 to $3.8 million at June 30,1995, while foreclosed assets
increased $1.3 million, or 17.2%, from $7.6 million at June 30, 1994 to
$8.9 million at June 30, 1995. Non-performing loans at June 30, 1994 and
1995, respectively, included $1.3 million and $.8 million of loans in
connection with the sale of foreclosed assets. Substantially all of these
loans were performing according to their loan terms at June 30, 1995.
The decrease in non-performing loans was primarily the result of the
foreclosure of three loans to one borrower totaling $2.6 million, the
repayment of one loan for $303,000 and the pay down on a $233,000 loan of
concern due to the liquidation of a portion of the collateral, partially
offset by the addition of four loans to one borrower totaling $475,000 and
other increases and decreases totaling a net decrease of $1.1 million
resulting from smaller loans being added to or subtracted from the non-
performing category.
The first project involved the in-substance foreclosure of loans
totaling $2.6 million, secured by an 18 hole Arnold Palmer designed golf
course located at the Lake of the Ozarks, near Osage Beach, Missouri. (The
$2.6 million does not include a $1.1 million loan to a separate borrower
secured by a residential development of condominiums and related amenities
located adjacent to the golf course. The $1.1 million loan was recorded as
an in-substance foreclosure during fiscal 1994.) The Company completed the
foreclosure on this property in July 1995 and completed the sale of this
property in fiscal 1996.
The $303,000 was a total principal payoff on a loan which still had
approximately $1.8 million of past interest owed and is secured by several
commercial properties located in the Springfield, Missouri area. The four
loans totaling $475,000 are secured by a restaurant and motel in
Gainesville, Missouri and a restaurant, single family residence,
approximately 10 acres of vacant land and three mobile home pads, all
located near Seymour, Missouri. The borrower has historically been slow in
paying. The Company has begun the foreclosure process on these properties.
The $233,000 loan of concern was on two single family residences owned
by one borrower. The Company sold one of the residences to the borrower
and took a mortgage on an existing residence for the down payment until the
borrower could sell the existing residence. The borrower was slow in
selling the existing residence, but completed the sale during the fiscal
year 1995 and paid down the debt.
The increase in foreclosed assets during fiscal 1995 resulted from the
foreclosure of three projects, offset by the sale of six projects,
recognition of a previously deferred sale, charge downs totaling $645,000
on properties still owned, and various sales and foreclosures of smaller
properties.
The first sale was a 70-unit apartment complex in Columbia, Missouri.
The Company sold the property with 100% financing and loaned additional
funds for improvements for a total loan of $950,000. Upon completion of
the renovation, a new appraisal was obtained which showed the loan-to-value
at the normal levels of the Company's lending policy so the loan is carried
as performing. The carrying value of the property at June 30, 1994 was
$650,000.
The second sale was a $350,000 cash sale of an office building located
in Joplin, Missouri. The property was carried on the books at $400,000.
The third sale was multiple cash sales totaling $330,000 of a commercial
lake front project located on the Lake of the Ozarks, which was carried on
the books at approximately the same value. The fourth sale was a $150,000
cash sale of two vacant lots located in Joplin, Missouri which were carried
on the books at $120,000. The fifth sale was a commercial building located
in Springfield, Missouri which had been sold in a previous fiscal year
under a lease with purchase option. The cash sale was completed in fiscal
1995 for $145,000. The property was carried at $122,000 at June 30, 1994.
The previously deferred sale was a $1.1 million sale of a golf course
and residential lots on 53 acres. The sale occurred in May 1992 with 100%
financing and was deferred until adequate cash proceeds were received to
allow recognition. Cumulative receipts on the loans and an updated
appraisal showing an acceptable loan-to-value ratio have been received so
that the Company may begin to recognize the deferred gain of $290,000 on
the installment method as principal payments are received on the loan. The
carrying value of the property at June 30, 1994 was $753,000.
The first charge down was for $400,000 and was on 22 two-bedroom
single family homes located in Montgomery, Alabama. The Company has been
renting the homes for the last few years while attempting to sell the
properties; however, completing such sales have been difficult because the
housing market in Montgomery has been over built during that time period.
The Bank was only allowed to own the homes for five years under OTS
regulations and declared and paid a dividend to Bancorp of the homes, along
with two other properties, after approval from the regulators. The Company
will continue to attempt to dispose of the properties as opportunities
arise and as the housing market allows. The carrying value of the
properties at June 30, 1995 was $330,000 or $15,000 per home.
The second charge down was for $245,000 and was on a residential
development of 15 lots and 22.3 undeveloped acres located on the Lake of
the Ozarks. The property was being carried at $169,000 at June 30, 1995,
which is based on a recent appraisal obtained of the property of $198,000
less the sale of one lot for $29,000, net.
The first addition to foreclosed assets was the $2.6 million in-
substance foreclosure noted above. The second foreclosure was three
condominium buildings recorded at $265,000 each. The buildings each
contain six units and are all located in a development adjacent to Silver
Dollar City near Branson, Missouri. The original borrower purchased the
buildings from the developer and enrolled them in a rental program. The
rental of the units was inadequate to cash flow the expenses and make the
required mortgage payments. The Company does not intend to rent the units
during the period it aggressively seeks a buyer for the properties.
The third addition to foreclosed assets was a 32-unit, two bedroom,
condominium project located in Branson, Missouri. The property was
recorded at $1.5 million. The units have been rented in the past, and the
Company will continue to rent these units while aggressively seeking a
buyer for the property.
Potential problem loans at June 30, 1995 amounted to $5.6 million
compared with $2.3 million at June 30, 1994. The increase of $3.3 million
resulted primarily from a condominium project located in Branson, Missouri.
Potential problem loans are loans that management has identified through
routine internal review procedures as having possible credit problems that
may cause the borrowers difficulties in complying with current loan
repayment terms. These loans are not considered as non-performing loans
for financial reporting purposes, however.
The allowance for loan losses at June 30, 1995 and 1994, respectively,
totaled $14.6 million and $13.6 million, representing 2.8% and 3.1% of
total loans, 380% and 186% of non-performing loans, and 154% and 139% of
non-performing loans and potential problem loans in total. The allowance
for foreclosed asset losses totaled $.9 million and $1.5 million at June
30, 1995 and 1994, respectively, representing 10.4% and 20.3% of total
foreclosed assets. Although management maintains the allowance for loan
losses and the allowance for foreclosed asset losses at levels which it
considers to be adequate to provide for potential losses, there can be no
assurance that such losses will not exceed the estimated amounts, thereby
adversely affecting future results of operations.
Non-interest Income
Non-interest income decreased $935,000, or 10.6%, in fiscal 1995. The
main areas generating the net decrease were: (i) a decrease in income on
foreclosed assets of $830,000 primarily due to recovery of previously
recorded losses in fiscal 1994; (ii) a decrease in profit on sale of loans
and available-for-sale securities of $450,000, or 80%, due to the sharp
drop at the beginning of fiscal 1995 of fixed-rate one- to four-family loan
originations and sales as a result of increasing rates; (iii) a decrease in
gain on sale of premises and equipment of $175,000, from the sale of two
previously occupied branches in Branson, Missouri in fiscal 1994; (iv) an
increase in service charge fees on transaction accounts of $140,000, or
6.7%; (v) an increase in commissions of $506,000, or 13%, primarily from
increased sales in the Company's travel and broker/dealer subsidiaries; and
(vi) modest increases or decreases in other non-interest income items.
Non-interest Expense
Non-interest expense increased $630,000, or 4.3%, in fiscal 1995. The
increase was due primarily to: (i) an increase in employee expense of
$263,000, or 3.6%, primarily due to salary and commission increases in the
travel and broker/dealer subsidiaries from increased sales activity; (ii)
an increase of $117,000, or 26%, in supplies and printing from an overall
increase in purchases; (iii) an increase of $134,000, or 7.7%, in net
occupancy expense primarily from upgrades in technology related items such
as computers and ATMs; (iv) a decrease in legal and professional fees of
$102,000, or 22.9%; and (v) various smaller increases in the majority of
expenses categories.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income increased
from 34.4% in fiscal 1994 to 36.8% in fiscal 1995 due to an increase in the
effective tax rate.
Average Balances, Interest Rates and Yields
Table III presents, for the periods indicated, the total dollar amount
of interest income from average interest-earning assets and the resulting
yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates, and the net interest
margin. Average balances of loans receivable includes the average balances
of non-accrual loans for each period. Interest income on loans includes
interest received on non-accrual loans on a cash basis. The table does not
reflect any effect of income taxes.
<TABLE>
<CAPTION>
TABLE III Years Ended June 30,
(Dollars in thousands) ------------------------------------------------------------------------------
June 30, 1996 1995 1994
1996 ------------------------ ------------------------ ------------------------
Yield/ Average Yield/ Average Yield/ Average Yield/
Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
------ -------- -------- ------ -------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable 8.80% $536,695 $49,884 9.29% $486,726 $43,686 8.98% $433,638 $36,281 8.37%
Investment securities and
other interest-earning assets 6.50 75,963 4,054 5.34 70,663 3,425 4.85 66,645 2,707 4.06
---- ------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning assets 8.58 612,658 53,938 8.80 557,389 47,111 8.45 500,283 38,988 7.79
---- ------- ------ ---- ------- ------ ---- ------- ------ ----
Interest-bearing liabilities:
Demand deposits 2.41 102,920 2,495 2.42 104,027 2,481 2.38 101,373 2,303 2.27
Savings deposits 2.50 36,901 914 2.48 40,887 1,002 2.45 44,166 1,064 2.41
Time deposits 5.56 238,791 13,594 5.69 221,825 11,402 5.14 189,318 8,092 4.27
---- ------- ------ ---- ------- ------ ---- ------- ------ ----
Total deposits 4.39 378,612 17,003 4.49 366,739 14,885 4.06 334,857 11,459 3.42
FHLBank advances and
other borrowings 5.77 186,522 11,129 5.97 143,281 8,526 5.95 130,890 5,974 4.56
---- ------- ------ ---- ------- ----- ---- ------- ----- ----
Total interest-bearing liabilities 4.86 $565,134 28,132 4.98 $510,020 23,411 4.59 $465,747 17,433 3.74
---- ======= ------ ---- ======= ------ ---- ======= ------ ----
Net interest income:
Interest rate spread 3.72% $25,806 3.82% $23,700 3.86% $21,555 4.05%
==== ====== ==== ====== ==== ====== ====
Net interest margin (1) 4.21% 4.25% 4.31%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities 108.4% 109.3% 107.4%
===== ===== =====
<FN>
(1) Defined as the Company's net interest income divided by total interest-
earning assets.
</TABLE>
Rate/Volume Analysis
Table IV 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>
TABLE IV Years Ended June 30,
---------------------------------------------------------------
(Dollars in thousands) 1995 vs. 1996 1994 vs. 1995
---------------------------- ----------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
---------------- Increase ---------------- Increase
Rate Volume (Decrease) Rate Volume (Decrease)
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $1,595 $4,603 $6,198 $2,761 $4,644 $7,405
Investment securities and
other interest-earning assets 361 268 629 547 171 718
----- ----- ----- ----- ----- -----
Total interest-earning assets 1,956 4,871 6,827 3,308 4,815 8,123
----- ----- ----- ----- ----- -----
Interest-bearing liabilities:
Demand deposits 40 (26) 14 117 61 178
Savings deposits 11 (99) (88) 19 (81) (62)
Time deposits 1,281 911 2,192 1,791 1,519 3,310
----- ----- ----- ----- ----- -----
Total deposits 1,332 786 2,118 1,927 1,499 3,426
FHLBank advances
and other borrowings 23 2,580 2,603 1,946 606 2,552
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities 1,355 3,366 4,721 3,873 2,105 5,978
----- ----- ----- ----- ----- -----
Net interest income $ 601 $1,505 $2,106 $ (565) $2,710 $2,145
===== ===== ===== ===== ===== =====
</TABLE>
Liquidity and Capital Resources
General. The Company's capital position remained strong, with
stockholders' equity at $68 million, or 10.1% of total assets of $668
million at June 30, 1996 compared to equity at $63 million, or 10.1%, of
total assets of $622 million at June 30, 1995. In addition, the Bank
exceeds each of the regulatory capital requirements. At June 30, 1996, the
Bank had ratios of tangible capital to assets of 8.5%, core capital of 8.5%
and risk-based capital of 13%. At June 30, 1995, the Bank had ratios of
tangible capital to assets of 8.0%, core capital of 8.0% and risk-based
capital of 12.3%. Federal regulations at each of those dates required
tangible, core and risk-based capital ratios of 1.5%, 3% and 8%,
respectively.
The Bank is required by regulation to maintain certain liquidity
ratios. Currently, a minimum of 5% of the combined total of deposits and
short-term borrowings must be maintained in the form of cash and eligible
investments. The Bank has historically maintained its liquidity ratio at a
level in excess of what is required. As of June 30, 1996, the Bank's
liquidity ratio was 7.3%, compared to 4.7% at June 30, 1995. During fiscal
year 1994, the Bank began changing the structure of its borrowings from the
FHLBank, and such changes made certain securities ineligible for purposes
of computing the liquidity ratio. The change in eligibility of the
securities, however, was inadvertently not taken into account by the Bank
in its calculations of its liquidity ratios. The ratio at June 30, 1995
was below the 5% requirement as a result of this error. Management
believes that the Company has sufficient cash flows and borrowing capacity
available to meet its commitments and other foreseeable cash needs for
operations. At June 30, 1996, the Company had commitments of approximately
$67 million to fund loan originations, issued lines of credit, outstanding
letters of credit and unadvanced loans.
At June 30, 1996, the held-to-maturity investment portfolio included
$165,000 of gross unrealized gains and $57,000 of gross unrealized losses.
The unrealized gains and losses are not expected to have a material effect
on future earnings beyond the usual amortization of acquisition premium or
accretion of discount because no sale of the held-to-maturity investment
portfolio is foreseen.
The Company's primary sources of funds are savings deposits, FHLBank
advances, other borrowings, loan repayments, proceeds from sale of loans
and securities and funds provided from operations. The Company utilizes
particular sources of funds based on the comparative costs and availability
at the time. The Company has from time to time chosen not to pay rates on
deposits as high as the rates paid by certain of its competitors and, when
necessary, supplements deposits with less expensive alternative sources of
funds.
Statements of Cash Flows. During the years ended June 30, 1996, 1995
and 1994, the Company had positive cash flows from operating activities and
positive cash flows from financing activities. The Company experienced
negative cash flows from investing activities during the years ended June
30, 1996, 1995 and 1994.
Cash flows from operating activities for the periods covered by the
Statements of Cash Flows have been primarily related to adjustments in
deferred assets, credits and other liabilities, the provision for loan
losses and losses on foreclosed assets, depreciation, sale of foreclosed
assets and the amortization of deferred loan origination fees and discounts
(premiums) on loans and investments, all of which are non-cash or non-
operating adjustments to operating cash flows. As a result, net income
adjusted for non-cash and non-operating items was the primary source of
cash flows from operating activities. Operating activities provided cash
flows of $11.6 million, $8.4 million and $9.4 million in cash during the
years ended June 30, 1996, 1995 and 1994, respectively.
During the years ended June 30, 1996, 1995 and 1994, investing
activities used cash of $34.4 million, $82.7 million and $19.9 million
primarily due to the net increase of loans in each period.
Changes in cash flows from financing activities of the periods covered
by the Statements of Cash Flows are due to changes in deposits after
interest credited, changes in FHLBank advances and changes in short-term
borrowings as well as purchases of treasury stock and dividend payments to
stockholders. Financing activities provided $35.0 million, $77.1 million
and $8.6 million in cash during the years ended June 30, 1996, 1995 and
1994. Financing activities in the future are expected to primarily include
changes in deposits and changes in FHLBank advances, and changes in short-
term borrowings.
Dividends. During the year ended June 30, 1996, the Company declared
and paid dividends of $.70 per share compared to dividends declared and
paid during the year ended June 30, 1995 of $.60 per share. 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 year ended June 30, 1996, the Company
repurchased 140,598 shares of its common stock at an average price of
$23.83 per share and reissued 43,888 shares of treasury stock at an average
price of $3.16 per share for stock option exercises. During the year ended
June 30, 1995, the Company repurchased 362,090 shares of its common stock
at an average price of $16.82 per share and reissued 65,649 shares of
treasury stock at an average price of $2.89 per share for 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 of which 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.
Beginning in September 1996, the Company's Employee Stock Ownership
Plan (the "ESOP") will be distributing approximately 443,000 shares of
stock as directed by the participants in the ESOP. As of the distribution,
each participant will have full rights of ownership, including the right of
sale and transfer. It is anticipated that a portion of these shares will
be available in the market for purchase by investors and the Company.
<PAGE> 25
GREAT SOTUHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 AND 1995
ASSETS
1996 1995
---- ----
Cash $ 6,661,290 $ 4,834,190
Interest bearing deposits in other
financial institutions 22,953,737 12,625,761
Cash and cash equivalents 29,615,027 17,459,951
Available-for-sale securities 4,655,816 3,090,782
Held-to-maturity securities 49,182,323 46,970,187
Loans receivable, net 546,759,467 519,254,604
Foreclosed assets held for sale, net 9,861,556 7,999,283
Premises and equipment 6,686,954 6,716,600
Accrued interest receivable
Loans 4,289,192 3,929,261
Investments 1,067,230 956,518
Investment in FHLB stock 10,022,800 8,486,000
Prepaid expenses and other assets 1,774,439 2,806,797
Excess of cost over fair value of net assets
acquired, at amortized cost 1,101,961 1,186,741
Deferred income taxes 3,088,540 3,522,844
----------- -----------
Total Assets $668,105,305 $622,379,568
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
- -----------
Deposits $397,054,516 $384,327,213
Federal Home Loan Bank advances 180,797,043 154,323,038
Short-term borrowings 16,467,825 13,946,943
Advances from borrowers for taxes and insurance 2,659,427 3,225,224
Accounts payable and accrued expenses 2,431,507 2,351,182
Income taxes payable 887,418 1,223,781
----------- -----------
Total Liabilities 600,297,736 559,397,381
----------- -----------
STOCKHOLDERS' EQUITY
- --------------------
Capital stock
Serial preferred stock, $.01 par value; authorized
1,000,000 shares
Common stock, $.01 par value; authorized
10,000,000 shares, issued 6,162,501 shares 61,625 61,625
Additional paid-in capital 16,834,507 16,692,966
Retained earnings - substantially restricted 67,917,888 59,755,968
Unrealized appreciation on available-for-sale securities,
net of income taxes of $61,460 and $231,156 in
1996 and 1995, respectively 96,129 361,551
Treasury stock, at cost; 1996 - 1,756,453 shares;
1995 - 1,659,743 shares (17,102,580) (13,889,923)
----------- -----------
Total Stockholders' Equity 67,807,569 62,982,187
----------- -----------
Total Liabilities and Stockholders' Equity $668,105,305 $622,379,568
=========== ===========
<PAGE> 26
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED JUNE 30, 1996
1996 1995 1994
---- ---- ----
INTEREST INCOME
Loans $ 49,884,135 $ 43,686,297 $ 36,280,622
Investment securities 3,849,815 3,278,520 2,611,975
Other 204,415 145,770 95,321
---------- ---------- ----------
53,938,365 47,110,587 38,987,918
---------- ---------- ----------
INTEREST EXPENSE
Deposits 17,002,724 14,884,740 11,458,929
FHLB advances 10,585,178 8,090,774 5,599,059
Short-term borrowings 544,509 435,548 374,974
---------- ---------- ----------
28,132,411 23,411,062 17,432,962
---------- ---------- ----------
NET INTEREST INCOME 25,805,954 23,699,525 21,554,956
PROVISION FOR LOAN LOSSES 1,450,754 1,319,266 3,023,196
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 24,355,200 22,380,259 18,531,760
---------- ---------- ----------
NONINTEREST INCOME
Commissions 4,412,600 4,375,438 3,869,794
Service charge fees 2,381,455 2,272,899 2,130,746
Net realized gains on sales of loans
and available-for-sale securities 1,220,336 112,590 565,264
Income (expense) on foreclosed assets 727,995 (242,535) 587,881
Other income 1,581,553 1,395,912 1,696,093
---------- ---------- ----------
10,323,939 7,914,304 8,849,778
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 8,381,708 7,592,305 7,329,575
Net occupancy expense 2,220,131 1,883,382 1,749,020
Postage 634,465 592,407 558,720
Insurance 1,267,765 1,250,336 1,186,983
Advertising 533,336 570,218 663,737
Office supplies and printing 435,427 567,484 450,524
Other operating expenses 2,801,552 2,837,301 2,722,540
---------- ---------- ----------
16,274,384 15,293,433 14,661,099
---------- ---------- ----------
INCOME BEFORE INCOME TAXES $ 18,404,755 $ 15,001,130 $ 12,720,439
PROVISION FOR INCOME TAXES 7,110,800 5,513,200 4,379,000
---------- ---------- ----------
INCOME BEFORE CHANGE IN
ACCOUNTING PRINCIPLE 11,293,955 9,487,930 8,341,439
CHANGE IN ACCOUNTING
PRINCIPLE
Cumulative effect on years
prior to 1994 of change
in accounting for
income taxes 0 0 3,375,000
---------- ---------- ----------
NET INCOME $ 11,293,955 $ 9,487,930 $ 11,716,439
========== ========== ==========
EARNINGS PER COMMON SHARE:
Income before change in
accounting principle $ 2.46 $ 2.00 $ 1.66
Cumulative effect of change in
accounting for income taxes .67
---- ---- ----
Net income $ 2.46 $ 2.00 $ 2.33
==== ==== ====
<PAGE> 27
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Unrealized
Employee Appreciation
Additional Stock on Available-
Common Paid-in Retained Ownership for-Sale Treasury
Stock Capital Earnings Plan Debt Securities, Net Stock Total
-------- ------------ ------------ ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1993 $ 20,542 $ 16,409,261 $ 42,842,136 $ (223,588) $ 0 $ (7,325,000) $ 51,723,351
Net income 11,716,439 11,716,439
Stock issued under Stock
Option Plan 191,350 229,249 420,599
Dividends declared, $.31
per share (1,523,548) (1,523,548)
Reduction of Employee Stock
Ownership Plan debt 223,588 223,588
Treasury stock purchased (1,098,550) (1,098,550)
------ ---------- ---------- ------- ------- --------- ---------
BALANCE, JUNE 30, 1994 20,542 16,600,611 53,035,027 0 0 (8,194,301) 61,461,879
Net income 9,487,930 9,487,930
Stock issued under Stock
Option Plan 133,438 189,804 323,242
Dividends declared, $.60
per share (2,766,989) (2,766,989)
Three-for-one stock split 41,083 (41,083)
Change in unrealized
appreciation available-for-
sale securities, net of
income taxes of $231,156 361,551 361,551
Treasury stock purchased (5,885,426) (5,885,426)
------ ---------- ---------- ------- ------- --------- ----------
BALANCE, JUNE 30, 1995 61,625 16,692,966 59,755,968 0 361,551 (13,889,923) 62,982,187
Net income 11,293,955 11,293,955
Stock issued under Stock
Option Plan 141,541 137,731 279,272
Dividends declared, $.70
per share (3,132,035) (3,132,035)
Change in unrealized
appreciation on available-for-
sale securities, net of
income taxes of $169,696 (265,422) (265,422)
Treasury stock purchased (3,350,388) (3,350,388)
------ ---------- ---------- ------- ------- ---------- ----------
BALANCE, JUNE 30, 1996 $ 61,625 $ 16,834,507 $ 67,917,888 $ 0 $ 96,129 $ (17,102,580) 67,807,569
====== ========== ========== ======= ======= ========== ==========
</TABLE>
<PAGE> 28
<TABLE>
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JUNE 30, 1996
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 11,293,955 $ 9,487,930 $ 11,716,439
Items not requiring (providing) cash
Depreciation 980,290 745,305 579,765
Amortization 192,845 214,637 186,846
Provision for loan losses 1,450,754 1,319,266 3,023,196
Provision for losses on foreclosed assets 275,000 400,000 740,000
Gain on sale of loans (539,979) (91,340) (565,264)
FHLB stock dividends received (176,400)
Net realized gains on available-for-sale securities (680,357) (21,250)
(Gain) loss on sale of premises and equipment 2,171 6,325 (175,947)
Gain on sale of foreclosed assets (1,316,887) (184,339) (1,301,183)
Amortization of deferred income, premiums and discounts (680,395) (1,210,560) (801,782)
Cumulative effect of change in accounting principle (3,375,000)
Deferred income taxes 604,000 (254,000) (500,000)
Changes in:
Accrued interest receivable (470,643) (1,531,793) 460,904
Prepaid expenses and other assets 924,293 (1,203,856) (110,993)
Accounts payable and accrued expenses 80,325 112,744 (192,938)
ESOP debt 223,588
Income taxes payable (336,363) 597,170 (526,894)
----------- ----------- -----------
Net cash provided by operating activities 11,602,609 8,386,239 9,380,737
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Net increase in loans (30,161,082) (78,739,654) (27,095,976)
Proceeds from sale of loans 221,063
Purchase of premises and equipment (955,690) (1,374,772) (587,673)
Proceeds from sale of premises and equipment 2,875 126 366,645
Proceeds from sale of foreclosed assets 2,044,721 1,125,608 5,106,315
Capitalized costs on foreclosed assets (206,107) (91,154)
Proceeds from maturing held-to-maturity securities 9,526,632 48,656,890 30,616,609
Purchase of held-to-maturity securities (11,971,929) (47,468,442) (28,458,970)
Purchase of available-for-sale securities (4,262,442) (2,549,119)
Proceeds from sale of available-for-sale securities 2,942,647 78,125
Purchase of FHLB stock (1,360,400) (2,421,300)
----------- ----------- -----------
Net cash used in investing activities (34,400,775) (82,692,538) (19,923,141)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase in certificates of deposit 4,484,912 33,390,147 18,863,413
Net increase (decrease) in checking and savings accounts 8,242,392 (8,050,268) 13,512,683
Proceeds from FHLB advances 425,700,856 393,585,443 225,052,413
Repayments of FHLB advances (399,226,851) (332,349,201) (246,888,973)
Net increase (decrease) in short-term borrowings 2,520,881 (1,552,859) 170,326
Advances (to) from borrowers for taxes and insurance (565,797) 386,161 111,647
Purchase of treasury stock (3,350,388) (5,885,426) (1,098,550)
Dividends paid (3,132,035) (2,766,989) (1,523,548)
----------- ----------- -----------
Stock options exercised 279,272 323,242 420,599
Net cash provided by financing activities 34,953,242 77,080,250 8,620,010
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,155,076 2,773,951 (1,922,394)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,459,951 14,686,000 16,608,394
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 29,615,027 $ 17,459,951 $ 14,686,000
=========== =========== ===========
</TABLE>
<PAGE> 29 through 38
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
JUNE 30, 1996, 1995 AND 1994
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Great Southern Bancorp, Inc. ("GSBC" or the "Company") operates as a one
savings bank holding company. GSBC's business primarily consists of the
business of Great Southern Bank (the "Bank"), which provides a full range of
financial services, as well as travel, insurance, investment services, loan
closings and appraisals through GSBC's other wholly-owned subsidiaries to
customers primarily in southwest and central Missouri. The Company and the
Bank are subject to the regulation of certain federal agencies and undergo
periodic examinations by those regulatory agencies.
In December 1989, GSBC completed the issuance of 2,054,167 shares of
common stock in connection with the conversion of the Bank from a mutual
savings and loan association to a stock savings bank (the "Conversion").
Concurrent with the Conversion, GSBC acquired all of the capital stock of the
Bank and became a savings bank holding company (see Note 17).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for loan losses and the valuation of foreclosed assets held for sale,
management obtains independent appraisals for significant properties.
Management believes that the allowances for losses on loans and the
valuation of foreclosed assets held for sale are adequate. While management
uses available information to recognize losses on loans and foreclosed assets
held for sale, changes in economic conditions may necessitate revision of
these estimates in future years. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Bank's allowances for losses on loans and valuation of foreclosed assets held
for sale. Such agencies may require the Bank to recognize additional losses
based on their judgments of information available to them at the time of
their examination.
Principles of Consolidation
The consolidated financial statements include the accounts of Great
Southern Bancorp, Inc. and its wholly-owned subsidiaries, Great Southern
Bank, Great Southern Capital Management, Great Southern Financial Corporation
and its wholly-owned subsidiary, Appraisal Services, Inc. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform to the
1996 financial statements presentation. These reclassifications had no
effect on net income.
Cash and Investment Securities
Regulations require the Bank to maintain an amount in cash and U.S.
government and other approved securities equal to 5.0% of savings deposits
(net of loans on savings deposits) plus short-term borrowings.
The Bank is a member of the Federal Home Loan Bank system. As a member
of this system, it is required to maintain an investment in capital stock of
the Federal Home Loan Bank in an amount equal to the greater of 1% of its
outstanding home loans, 0.3% of its total assets, or one-twentieth of its
outstanding advances from the Bank.
Investments in Debt and Equity Securities
During the year ended June 30, 1995, the Company adopted the provisions
of the Financial Accounting Standards Board Statement No. 115 (SFAS 115)
regarding investments in debt and equity securities. Management determines
the appropriate classification of securities at the time of purchase.
Available-for-sale securities, which include any security for which the
Company has no immediate plan to sell but which may be sold in the future,
are carried at fair value. Realized gains and losses, based on specifically
identified amortized cost of the specific security, are included in other
income. Unrealized gains and losses are recorded, net of related income tax
effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income using the level-yield method over
the period to maturity.
Held-to-maturity securities, which include any security for which the
Company has the positive intent and ability to hold until maturity, are
carried at historical cost adjusted for amortization of premiums and
accretion of discounts. Premiums and discounts are amortized and accreted,
respectively, to interest income using the level-yield method over the period
to maturity.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
Excess of Cost Over Fair Value of Net Assets Acquired
Unamortized costs in excess of the fair value of underlying net tangible
assets acquired were $1,101,961 and $1,186,741 at June 30, 1996 and 1995,
respectively, and are being amortized over a twenty-year period using the
straight-line method.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or fair
value, determined using an aggregate basis. Write-downs to fair value are
recognized as a charge to earnings at the time the decline in value occurs.
Forward commitments to sell mortgage loans are acquired to reduce market risk
on mortgage loans in the process of origination and mortgage loans held for
sale. Gains and losses resulting from sales of mortgage loans are recognized
when the respective loans are sold to investors. Gains and losses are
determined by the difference between the selling price and the carrying
amount of the loans sold, net of discounts collected or paid and considering
a normal servicing rate. Fees received from borrowers to guarantee the
funding of mortgage loans held for sale and fees paid to investors to ensure
the ultimate sale of such mortgage loans are recognized as income or expense
when the loans are sold or when it becomes evident that the commitment will
not be used. There were no material loans held for sale at June 30, 1996 and
1995.
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-offs are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Discounts and premiums on purchased residential and commercial real
estate loans are amortized to income using the interest method over the
remaining period to contractual maturity, adjusted for anticipated
prepayments.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to
expense and reduced by loans charged off, net of recoveries. The allowance
is maintained at a level considered adequate to provide for potential loan
losses, based on management's evaluation of the loan portfolio, as well as on
prevailing and anticipated economic conditions and historical losses by loan
category. General allowances have been established, based upon the
aforementioned factors and allocated to the individual loan categories.
Allowances are accrued on specific loans evaluated for impairment for which
the basis of each loan, including accrued interest, exceeds the discounted
amount of expected future collections of interest and principal or,
alternatively, the fair value of loan collateral.
A loan is considered impaired when it is probable that the Bank will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued and interest accrued and unpaid is removed at the time such
amounts are delinquent 90 days. Interest is recognized for nonaccrual loans
only upon receipt, and only after all principal amounts are current according
to the terms of the contract.
Foreclosed Assets Held for Sale
Assets acquired by foreclosure or in settlement of debt and held for
sale are valued at estimated fair value as of the date of foreclosure, and a
related valuation allowance is provided for estimated costs to sell the
assets. Management evaluates the value of foreclosed assets held for sale
periodically and increases the valuation allowance for any subsequent
declines in fair value. Changes in the valuation allowance are charged or
credited to noninterest expense.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to expense using straight-line and accelerated
methods over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized using straight-line and
accelerated methods over the terms of the respective leases or the estimated
useful lives of the improvements, whichever is shorter.
Fee Income
Loan servicing income represents fees earned for servicing real estate
mortgage loans owned by various investors. The fees are generally calculated
on the outstanding principal balances of the loans serviced and are recorded
as income when earned. Loan origination fees, net of direct loan origination
costs, are recognized as income using the level-yield method over the
contractual life of the loan.
Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve quantitative measures
of the Bank's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier I capital (as
defined) to adjusted tangible assets (as defined). Management believes, as
of June 30, 1996, that the Bank meets all capital adequacy requirements to
which it is subject.
As of June 30, 1995, the most recent notification from the Office of Thrift
Supervision categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-
based and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
table. No amount was deducted from capital for interest-rate risk.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1996
Total Risk-Based Capital
(to Risk Weighted Assets) $61,947 13.0% $38,049 8.0% $47,561 10.0%
Tier I Risk-Based Capital
(to Risk Weighted Assets) $55,992 11.8% $19,024 4.0% $28,536 6.0%
Core Capital
(to Adjusted Tangible Assets) $55,992 8.5% $19,837 3.0% $33,062 5.0%
Tangible Capital
(to Adjusted Tangible Assets) $55,992 8.5% $9,919 1.5% N/A N/A
</TABLE>
Regulatory Matters (Continued)
The amount of dividends that the Bank may pay is subject to various
regulatory limitations. At June 30, 1996, approximately $16,689,000 was
available from the Bank's retained earnings, without regulatory approval, for
distribution as dividends to GSBC. The Bank's internal capital policies
provide for greater restrictions than regulatory guidelines and, under
internal policies, approximately $7,591,000 was available for distribution as
dividends to GSBC.
Earnings Per Share
For each of the three years ended June 30, 1996, 1995 and 1994, earnings
per common share are based on the weighted average number of common and
common equivalent shares outstanding during the year less the weighted
average number of shares of treasury stock after adjusting for the stock
split of July 1, 1994 (see Note 17).
Such average shares include the weighted average number of common shares
considered outstanding, plus the shares issuable upon exercise of stock
options after the assumed repurchase of common shares with the related
proceeds as follows:
Weighted Average
Number of Shares
Common Shares Issuable
---------------- --------
1996 4,463,096 134,706
1995 4,581,146 157,587
1994 4,825,155 203,700
Cash Equivalents
The Bank considers all liquid investments with original maturities of
three months or less to be cash equivalents. At June 30, 1996 and 1995, cash
equivalents consisted of interest-bearing deposits in other financial
institutions.
Advertising
The Company expenses advertising costs as they are incurred.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effect of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be
realized.
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities are as follows:
June 30, 1996
-------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
Equity securities $ 4,498,227 $ 259,403 $ 101,814 $ 4,655,816
========= ======= ======= =========
June 30, 1995
-------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
Equity securities $ 2,498,075 $ 592,707 $ 3,090,782
========= ======= =========
The amortized cost and approximate fair value of held-to-maturity
securities are as follows:
June 30, 1996
-------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
U.S. Treasury $ 6,901,931 $ 6,939 $ 21,871 $ 6,887,000
U.S. Government agencies 41,831,616 158,457 35,072 41,955,000
State and political
subdivisions 448,776 224 449,000
---------- ------- ------ ----------
$49,182,323 $165,620 $ 56,943 $49,291,000
========== ======= ====== ==========
June 30, 1995
-------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
U.S. Treasury $ 1,266,827 $ 20,173 $ $ 1,287,000
U.S. Government agencies 45,247,046 334,314 59,360 45,522,000
State and political
subdivisions 456,314 314 456,000
---------- -------- ------ ----------
$46,970,187 $354,487 $ 59,674 $47,265,000
========== ======= ====== ==========
Maturities of held-to-maturity securities at June 30, 1996:
Approximate AmortizedFair
Cost Value
One year or less $ 39,086,921 $ 39,236,000
After one through five years 9,646,626 9,606,000
Other securities not due on
a single maturity date 448,776 449,000
---------- ----------
$ 49,182,323 $ 49,291,000
========== ==========
Proceeds of $2,942,647 and $78,125 with resultant gross gains of
$680,357 and $21,250, were realized from the sale of available-for-sale
securities in 1996 and 1995, respectively. There were no sales of available-
for-sale securities in 1994.
The book value of securities pledged as collateral to secure public
deposits amounted to $10,930,000 at June 30, 1996, and $10,875,000 at June
30, 1995. The approximate fair value of pledged securities amounted to
$10,985,000 at June 30, 1996, and $10,945,000 at June 30, 1995. The book
value of securities pledged as collateral to secure collateralized borrowing
accounts amounted to $8,830,000 at June 30, 1996, and $7,405,000 at June 30,
1995. The approximate fair value of pledged securities amounted to
$8,845,000 at June 30, 1996, and $7,450,000 at June 30, 1995. The book value
of securities pledged as collateral to secure Federal Home Loan Bank advances
amounted to $25,725,000 at June 30, 1996, and $25,740,000 at June 30, 1995.
The approximate fair value of pledged securities amounted to $25,750,000 at
June 30, 1996, and $25,910,000 at June 30, 1995.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at June 30, 1996 and 1995, include:
1996 1995
------------- -------------
One to four family residential loans $ 247,293,223 $ 241,473,441
Other residential mortgage loans 81,190,755 77,743,944
Commercial real estate loans 172,478,056 133,243,948
Other commercial loans 13,736,938 14,515,182
One to four family construction loans 13,454,894 13,319,228
Other residential construction loans 13,533,296 23,803,611
Commercial construction loans 16,518,373 27,273,047
Mortgage-backed securities 2,054,554 2,297,232
Installment and education loans 26,926,707 26,263,492
Discounts on loans purchased (1,254,361) (1,358,799)
Undisbursed portion of loans in process (22,382,663) (22,315,613)
Allowance for loan losses (14,356,147) (14,600,870)
Deferred loan fees and gains, net (2,434,158) (2,403,239)
----------- -----------
$ 546,759,467 $ 519,254,604
=========== ===========
Transactions in the allowance for loan losses were as follows:
Years Ended June 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
Balance, beginning of year $ 14,600,870 $ 13,635,733 $ 10,590,314
Provision charged to expense 1,450,754 1,319,266 3,023,196
Loans charged off (1,992,578) (881,731) (284,283)
Recoveries 297,101 527,602 306,506
---------- ---------- ----------
Balance, end of year $ 14,356,147 $ 14,600,870 $ 13,635,733
========== ========== ==========
The weighted average interest rate on loans receivable at June 30, 1996
and 1995, was 8.80% and 9.13%, respectively.
The Bank serviced whole mortgage loans and participations in mortgage
loans for others amounting to $79,985,000, $88,279,000 and $94,819,000 at
June 30, 1996, 1995 and 1994, respectively.
Impaired loans totaled $5,455,000 at June 30, 1996. An allowance for
loan losses of $832,000 relates to these impaired loans at June 30, 1996.
There were no impaired loans at June 30, 1996, without a related allowance
for loan loss assigned.
Interest of $923,000 was recognized on average impaired loans of
$9,210,000 for 1996. Interest of $923,000 was recognized on impaired loans
on a cash basis during 1996.
Loans on which the accrual of interest has been discontinued amounted to
$3,065,000 and $6,022,000 at June 30, 1995 and 1994, respectively. If
interest on these loans had been accrued, such interest income would have
approximated $735,000 and $466,000 for the years ended June 30, 1995 and
1994, respectively.
Certain directors and executive officers of the Company and the Bank
were customers of and had transactions with the Bank in the ordinary course
of business. In the opinion of management, all loans included in such
transactions were made on substantially the same terms as those prevailing at
the time for comparable transactions with unrelated parties. At June 30,
1996 and 1995, loans outstanding to these directors and executive officers
amounted to $1,382,000 and $1,865,000, respectively.
Certain of the Bank's real estate loans are pledged as collateral for
borrowings as set forth in Notes 7 and 8.
NOTE 4: FORECLOSED ASSETS HELD FOR SALE
June 30,
----------------------------
1996 1995
------------ ------------
Foreclosed assets $ 9,860,074 $ 7,769,885
Real estate sold under contract for
deed and other arrangements 1,087,084 1,161,945
---------- ---------
10,947,158 8,931,830
Valuation allowance (1,085,602) (932,547)
---------- ---------
$ 9,861,556 $ 7,999,283
========== =========
Transactions in the valuation allowance on foreclosed assets were as follows:
Years Ended June 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
Balance, beginning of year $ 932,547 $ 1,549,472 $ 1,192,111
Provision charged to expense 275,000 400,000 740,000
Charge-offs, net of recoveries (121,945) (1,016,925) (382,639)
--------- --------- ---------
Balance, end of year $ 1,085,602 $ 932,547 $ 1,549,472
========= ========= =========
As of July 1, 1995, the Bank implemented Statement of Financial
Accounting Standard No. 114. While implementation had no material effect on
net income, in accordance with the new pronouncement, loans totaling
$1,684,000 which were previously classified as in-substance foreclosures and
reported as part of foreclosed assets held-for-sale have been reclassified to
loans.
NOTE 5: PREMISES AND EQUIPMENT
Major classifications of premises and equipment stated at cost at June
30, 1996 and 1995, are as follows:
1996 1995
----------- -----------
Land $ 1,341,480 $ 1,341,480
Buildings and improvements 7,801,708 7,705,664
Furniture, fixtures and equipment 5,334,431 5,141,132
---------- ----------
14,477,619 14,188,276
Less accumulated depreciation 7,790,665 7,471,676
---------- ----------
$ 6,686,954 $ 6,716,600
========== ==========
Depreciation expense was $980,290, $745,305 and $579,765 for 1996, 1995
and 1994, respectively.
Deposits at June 30, 1996 and 1995, are summarized as follows:
Weighted Average
Interest Rate 1996 1995
---------------- ------------- -------------
Noninterest-bearing accounts $ 8,886,036 $ 8,181,911
Interest-bearing checking 2.41% - 2.51% 112,224,164 103,334,905
Savings accounts 2.50% - 2.52% 37,009,432 38,285,097
----------- -----------
158,119,632 149,801,913
----------- -----------
Certificate accounts 0% - 3.99% 2,376,245 3,745,910
4% - 4.99% 14,471,473 30,872,723
5% - 5.99% 169,904,888 84,499,283
6% - 6.99% 32,595,982 89,816,467
7% - 7.99% 17,123,007 20,105,440
8% - 10.25% 646,084 3,801,147
----------- -----------
237,117,679 232,840,970
----------- -----------
Accrued interest on deposits 1,817,205 1,684,330
----------- -----------
$ 397,054,516 $ 384,327,213
=========== ===========
The weighted average interest rate on certificates of deposit at June
30, 1996 and 1995, was 5.56% and 5.82%, respectively.
The aggregate amount of jumbo certificates of deposit in denominations
of $100,000 or more was approximately $35,193,000 and $32,340,000 at June 30,
1996 and 1995, respectively. From time to time the Bank purchases brokered
deposits. The aggregate amount of brokered deposits was approximately
$26,447,000 and $33,233,000 at June 30, 1996 and 1995, respectively.
At June 30, 1996, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
1997 1998 1999 2000 Thereafter
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
0% to 3.99% $ 2,261,786 $ 68,749 $ $ $ 45,710
4% to 4.99% 13,998,594 413,322 51,261 7,265 1,031
5% to 5.99% 147,010,350 17,361,341 3,109,821 798,564 1,624,812
6% to 6.99% 22,594,568 4,672,536 1,074,893 1,497,637 2,756,348
7% to 7.99% 4,938,001 8,626,075 268,575 733,325 2,557,031
8% to 10.25% 366,030 37,230 41,408 1,647 199,769
----------- ----------- ----------- ----------- -----------
$ 191,169,329 $ 31,179,253 $ 4,545,958 $ 3,038,438 $ 7,184,701
=========== =========== =========== =========== ===========
</TABLE>
A summary of interest expense on deposits is as follows:
Years Ended June 30,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
Checking accounts $ 2,494,566 $ 2,481,359 $ 2,302,744
Savings accounts 914,310 1,001,875 1,064,344
Certificate accounts 13,667,688 11,583,311 8,139,852
Early withdrawal penalties (73,840) (181,805) (48,011)
---------- ---------- ----------
$ 17,002,724 $ 14,884,740 $ 11,458,929
========== ========== ==========
NOTE 7: ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consist of the following:
June 30,
-------------------------------------------------------------
- -
1996 1995
------------------------------ -----------------------------
- -
Weighted Average Weighted
Average
Amount Interest Rate Amount Interest Rate
------------ ---------------- ------------ ---------------
- -
1996 $ % $ 96,627,143 6.48%
1997 120,640,939 5.76 20,204,468 6.46
1998 27,325,324 5.95 7,287,898 6.42
1999 4,861,091 6.14 4,822,779 6.08
2000 7,652,273 8.44 7,613,160 8.36
2001 3,214,917 6.33 671,691 7.52
2002 and
thereafter 16,894,943 7.23 16,892,639 7.26
----------- ---- ----------- ----
180,589,487 6.06 154,119,778 6.61
Accrued interest
on advances 207,556 203,260
----------- ---- ----------- ----
$180,797,043 6.06% $154,323,038 6.61%
=========== ==== =========== ====
In addition to the above advances, the Bank had available a line of
credit amounting to $11,600,000 and $17,081,300 with the FHLB at June 30,
1996 and 1995, respectively.
The FHLB requires the Bank to maintain FHLB stock, investment securities
and first mortgage loans free of pledges, liens and encumbrances in an amount
equal to at least 150% of outstanding advances as collateral for such
borrowings. Investment securities with book value of $25,725,000 and
$25,740,000, respectively, were specifically pledged as collateral for
advances at June 30, 1996 and 1995.
NOTE 8: SHORT-TERM BORROWINGS
Short-term borrowings at June 30, 1996 and 1995, are summarized as
follows:
1996 1995
----------- -----------
United States government securities sold
under reverse repurchase agreements $ 8,207,489 $ 7,293,498
Other borrowed money 8,260,336 6,653,445
---------- ----------
$16,467,825 $13,946,943
========== ==========
The Bank enters into sales of securities under agreements to repurchase
(reverse repurchase agreements). Reverse repurchase agreements are treated
as financings, and the obligations to repurchase securities sold are
reflected as a liability in the statement of financial condition. The dollar
amount of securities underlying the agreements remains in the asset accounts.
Other borrowed money consists of agreements with corporate entities
which are secured by a pledge of residential mortgage loans.
Securities sold under reverse repurchase agreements had book values
including accrued interest of $9,115,000 and $7,600,000 and fair values of
$8,845,000 and $7,450,000 at June 30, 1996 and 1995, respectively. Mortgage
loans securing other borrowed money accounts had carrying values of
$14,928,000 and $19,189,000 at June 30, 1996 and 1995, respectively.
Short-term borrowings had weighted average interest rates of 2.63% and
2.96% at June 30, 1996 and 1995, respectively. Securities and mortgage loans
underlying the agreements were being held by the Bank during the agreement
period. All agreements are written on a one month or less term.
Short-term borrowings averaged $17,344,000, $15,607,000 and $19,310,000
for the years ended June 30, 1996, 1995 and 1994, respectively. The maximum
amounts outstanding at any month end were $20,132,000, $18,695,000 and
$27,477,000 during the years ended June 30, 1996, 1995 and 1994,
respectively.
NOTE 9: CHANGE IN ACCOUNTING PRINCIPLE
Effective July 1, 1993, the Bank adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). As a result, the Bank recorded income for the accounting change of
$3,375,000, which increased net deferred tax assets as of that date.
SFAS 109 requires recognition of deferred tax liabilities and assets for
the difference between the financial statement and tax bases of assets and
liabilities. Under this new standard, a valuation allowance is established
to reduce deferred tax assets if it is more likely than not that a deferred
tax asset will not be realized.
Prior to 1994, deferred taxes were determined based on the difference
between taxes computed on income for financial reporting purposes and taxes
shown on tax returns.
NOTE 10: INCOME TAXES
As of June 30, 1996 and 1995, retained earnings includes approximately
$17,500,000 for which no deferred income tax liability has been recognized.
These amounts represent an allocation of income to bad-debt deductions for
tax purposes only. Reduction of amounts so allocated for purposes other than
tax bad-debt losses or adjustments arising from carryback of net operating
losses would create income for tax purposes only, which would be subject to
federal income tax, at the prevailing corporate rate. The unrecorded
deferred income tax liability on the above amount was approximately
$6,475,000 at June 30, 1996 and 1995.
The provision for income taxes consists of:
Years Ended June 30,
----------------------------------------------
1996 1995 1994
----------- ----------- -----------
Taxes currently payable $ 6,506,800 $ 5,767,200 $ 4,879,000
Deferred income taxes 604,000 (254,000) (500,000)
--------- --------- ---------
$ 7,110,800 $ 5,513,200 $ 4,379,000
========= ========= =========
The tax effects of temporary differences related to deferred taxes shown
on the June 30, 1996 and 1995, statements of financial condition were:
1996 1995
----------- -----------
Deferred tax assets:
Allowance for loan and
foreclosed asset losses $ 5,559,000 $ 5,600,000
Accrued compensated absences 62,000 60,000
Deferred compensation liability 65,000 60,000
Accrued bonuses 37,000 25,000
5,723,000 5,745,000
Deferred tax liabilities:
Tax loss reserve in excess
of base year (1,922,000) (1,421,000)
FHLB stock dividends (641,000) (570,000)
Unrealized appreciation on available-for-
sale securities (61,460) (231,156)
Other (10,000)
--------- ---------
(2,634,460) (2,222,156)
--------- ---------
Net deferred tax asset $ 3,088,540 $ 3,522,844
========= =========
Reconciliations of the Company's provision for income taxes to the
statutory corporate tax rates are as follows:
Years Ended June 30,
-------------------------------
1996 1995 1994
---- ---- ----
Tax at statutory rate 35.0% 35.0%
34.0%
State income taxes 2.1 2.9 3.9
Reduction of previously accrued taxes
(3.9)
Other 1.5 (1.1) .4
---- ---- ----
38.6% 36.8%
34.4%
==== ==== ====
The Company and its consolidated subsidiaries have not been audited
recently by the Internal Revenue Service with respect to consolidated federal
income tax returns, and as such, these returns have been closed without audit
through June 30, 1992.
State legislation provides that savings banks will be taxed based on an
annual privilege tax of 7% of net income. The 1996, 1995 and 1994 state tax
included in the provision for income tax amounts to $552,000, $674,000 and
$830,000, respectively.
Deferred income taxes related to the change in unrealized appreciation
on available-for-sale securities, shown in stockholders' equity, were
($169,696) and $231,156 for 1996 and 1995, respectively.
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and Cash Equivalents
For these short-term instruments, the carrying amount approximates fair
value.
Available-For-Sale Securities
Fair values for available-for-sale securities, which also are the
amounts recognized in the statements of financial condition, equal quoted
market prices, if available. If quoted market prices are not available, fair
values are estimated based on quoted market prices of similar securities.
Held-To-Maturity Securities
Fair values for held-to-maturity securities equal quoted market prices,
if available. If quoted market prices are not available, fair values are
estimated based on quoted market prices of similar securities.
Loans
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Loans with similar characteristics are aggregated for purposes of the
calculations. The carrying amount of accrued interest receivable
approximates its fair value.
Deposits
The fair value of demand deposits and savings accounts is the amount
payable on demand at the reporting date (i.e., their carrying amounts). The
fair value of fixed-maturity certificates of deposit is estimated using a
discounted cash flow calculation that applies the rates currently offered for
deposits of similar remaining maturities. The carrying amount of accrued
interest payable approximates its fair value.
Federal Home Loan Bank Advances
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing advances.
Short-Term Borrowings
The carrying amounts reported in the statements of financial condition
for short-term borrowings approximate those liabilities' fair value.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present credit worthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair value of letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the reporting
date.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
(Continued)
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which method involves
significant judgments by management and uncertainties. Fair value is the
estimated amount at which financial assets or liabilities could be exchanged
in a current transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these financial
instruments and because management does not intend to sell these financial
instruments, the Company does not know whether the fair values shown below
represent values at which the respective financial instruments could be sold
individually or in the aggregate.
<TABLE>
1996 1995
--------------------------- ---------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $29,615,027 $29,615,027 $17,459,951 $17,459,951
Available-for-sale securities 4,655,816 4,655,816 3,090,782 3,090,782
Held-to-maturity securities 49,182,323 49,291,000 46,970,187 47,265,000
Loans, net of allowance for loan losses 546,759,467 549,779,000 519,254,604 522,420,000
Accrued interest receivable 5,356,422 5,356,422 4,885,789 4,885,789
Financial liabilities:
Deposits 397,054,516 397,432,000 384,327,213 385,287,000
FHLB advances 180,797,043 180,577,000 154,323,038 155,568,000
Short-term borrowings 16,467,825 16,467,825 13,946,943 13,946,943
Unrecognized financial instruments
(net of contractual value):
Commitments to extend credit 0 0 0 0
Standby letters of credit 0 0 0 0
Unused lines of credit 0 0 0 0
</TABLE>
The Bank has entered into various operating leases at ten of its branch
locations. Some of the leases have renewal options. At June 30, 1996,
future minimum lease payments are as follows:
1997 $ 141,996
1998 134,238
1999 115,506
2000 106,188
2001 95,838
Later Years 347,184
-------
$ 940,950
=======
Rental expense was $188,188, $170,294 and $154,600 for the years ended
June 30, 1996, 1995 and 1994, respectively.
NOTE 13: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since a significant portion of the
commitments may expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counter party.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, commercial real estate and residential real
estate.
At June 30, 1996 and 1995, the Bank had outstanding commitments to
originate loans and fund commercial construction aggregating approximately
$48,590,000 and $68,485,000 including $18,881,000 and $22,315,000,
respectively, of undisbursed loans in process. The commitments extend over
varying periods of time with the majority being disbursed within a 30- to
180-day period. Loan commitments at fixed rates of interest amounted to
$3,025,000 and $2,300,000 with the remainder at floating market rates at June
30, 1996 and 1995, respectively.
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
The Bank had total outstanding letters of credit amounting to $8,911,000
and $9,524,000 at June 30, 1996 and 1995, respectively, with $664,000 and
$1,277,000 of the letters of credit having terms ranging from seven months to
six years at June 30, 1996 and 1995, respectively. The remaining $8,247,000
at June 30, 1996 and 1995, consisted of an outstanding letter of credit to
guarantee the payment of principal and interest on a Multifamily Housing
Refunding Revenue Bond issue. The Federal Home Loan Bank has issued a letter
of credit backing the Bank's letter of credit.
Lines of credit are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may
expire without being drawn upon, the total unused lines do not necessarily
represent future cash requirements. The Bank evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based
on management's credit evaluation of the counter party. Collateral held
varies but may include accounts receivable, inventory, property, plant and
equipment, commercial real estate and residential real estate. The Bank uses
the same credit policies in granting lines of credit as it does for
on-balance sheet instruments.
At June 30, 1996, the Bank had granted unused lines of credit to
borrowers aggregating approximately $6,034,000 and $2,963,000 for commercial
lines and open-end consumer lines, respectively. At June 30, 1995, the Bank
had granted unused lines of credit to borrowers aggregating approximately
$3,985,000 and $2,435,000 for commercial lines and open-end consumer lines,
respectively.
The Bank grants collateralized commercial, real estate and consumer
loans primarily to customers in the southwest and central portions of
Missouri. Although the Bank has a diversified portfolio, loans (including
loans in process) aggregating $59.6 million and $60.7 million at June 30,
1996 and 1995, respectively, are secured by motels, restaurants, recreational
facilities and other commercial properties in the Branson, Missouri, area.
Residential mortgage and consumer loans in the Branson, Missouri, area
aggregated $68.5 million and $79.4 million at June 30, 1996 and 1995,
respectively. In addition, construction loans in process at June 30, 1996,
totaled $39.8 million or 7% of the Bank's net loan portfolio. Approximately
66% of construction loans are multifamily and commercial properties. Of the
$39.8 million in construction loans in process, $2.9 million are for projects
in the Branson, Missouri, area.
Loans aggregating $91.0 million or 16.6% of the loan portfolio at
June 30, 1996, are secured by multi-family real estate.
NOTE 14: LITIGATION
GSBC and its subsidiaries are defendants in certain lawsuits arising in
the ordinary course of business. Management, after review with its legal
counsel, is of the opinion that the resolution of these legal matters will
not have a material adverse effect on the Company's financial position.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" (SFAS 122). SFAS 122 requires that mortgage banking enterprises
recognize as separate assets rights to service mortgage loans for others.
Adoption of SFAS 122 will be required by the Bank during the fiscal year
ending June 30, 1997. The impact of this statement is not expected to have a
material effect on the Bank's financial statements.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" (SFAS 125).
The primary impact of SFAS 125 on mortgage banking enterprises is to extend
the rules in SFAS 122 from servicing of mortgage loans to all loan servicing.
Adoption of SFAS 125 will be required by the Bank during the fiscal year
ending June 30, 1997. The impact of this statement is not expected to have a
material effect on the Bank's financial statements.
The Financial Accounting Standards Board recently adopted Financial
Accounting Standards Statement No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). This statement establishes a fair value based
method of accounting for stock-based compensation plans. It encourages
entities to adopt that method in place of the provisions of APB Opinion No.
25, "Accounting for Stock Issued to Employees", for all arrangements under
which employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts based on
the price of its stock. This statement applies to financial statements for
fiscal 1997. Management expects to continue to account for stock-based
compensation in accordance with the provisions of APB No. 25. Therefore,
SFAS 123 is not expected to have a significant impact on the Company's
consolidated financial statements.
NOTE 16: ADDITIONAL CASH FLOW INFORMATION
1996 1995 1994
---------- ---------- ---------
- -
Noncash Investing and
Financing Activities
- -----------------------
Conversion of loans
to foreclosed assets $7,014,308 $5,029,750
$2,833,243
Conversion of foreclosed
assets to loans $4,288,066 $1,606,463
$1,798,398
Additional Cash
Payment Information
- ----------------------
Interest paid $27,791,991 $22,733,483
$17,184,787
Income taxes paid $6,045,000 $4,730,490
$4,605,000
NOTE 17: STOCKHOLDERS' EQUITY
In connection with the conversion in December 1989, GSBC completed the
sale of 2,054,167 shares of its common stock (par value $.01) at an initial
public offering price of $9 per share. In the event of a future liquidation
of the Bank (and only in such event), eligible depositors who continue to
maintain accounts shall be entitled to receive a distribution from the
liquidation account.
On July 1, 1994, the Board of Directors of GSBC declared a stock split
effected in the form of a dividend on the outstanding common stock for
shareholders of record on July 15, 1994. Each stockholder received two
additional shares for each share owned on the record date. Historical
dividends per share disclosures have been updated where applicable to account
for the stock split.
NOTE 18: EMPLOYEE BENEFIT PLANS
The Company participates in a multi-employer defined benefit plan
covering all employees who have met minimum service requirements. The
Company's policy is to fund pension cost accrued. No contribution was
required for the three years ended June 30, 1996. As a member of a multi-
employer pension plan, disclosures of plan assets and liabilities for
individual employers are not required or practicable.
Effective upon the conversion, GSBC established an Employee Stock
Ownership Plan (ESOP) for full-time employees age 21 years or older who have
at least one year of credited service.
Contribution expense was $-0-, $2,500 and $222,201 for the years ended
June 30, 1996, 1995 and 1994, respectively. Interest incurred on ESOP debt
was $-0-, $-0- and $5,915 for the years ended June 30, 1996, 1995 and 1994,
respectively. Dividends declared on ESOP shares were $334,210, $314,313 and
$166,482 for the years ended June 30, 1996, 1995 and 1994, respectively. The
amounts contributed to the ESOP for the years ended June 30, 1996, 1995 and
1994, were the same as contribution expense for the same periods.
During fiscal 1996 the Company voted to terminate the ESOP. The Company
filed for, and received, approval of the termination from the IRS. On July
1, 1995, all participant shares became fully vested. The Company intends to
distribute the assets of the Plan during fiscal 1997.
In connection with management's decision to terminate the ESOP in July
1995, the Company adopted a defined contribution pension plan covering
substantially all employees. Employees may contribute up to 15% of their
compensation. Company matching contributions are discretionary, with a
maximum match of 50% of the employee's contribution on the first 6% of the
employee's compensation. Employer contributions charged to expense for 1996
were $134,674.
Effective upon the conversion, the Board of Directors of the Company
established the 1989 Stock Option and Incentive Plan for employees and
directors of the Company and its subsidiaries. Under the plan, stock options
or awards may be granted with respect to 302,001 shares of common stock.
Stock options may be either incentive stock options or nonqualified
stock options, and the option price must be at least equal to the fair value
of the Company's common stock on the date of grant. Options are granted for
a ten-year term and become exercisable in four cumulative annual installments
of 25% commencing two years from the date of grant. The Stock Option
Committee may accelerate a participant's right to purchase shares under the
plan.
Stock awards may be granted to key officers and employees upon terms and
conditions determined solely at the discretion of the Stock Option Committee.
The table below summarizes transactions under the Company's stock option
plan:
Shares
-----------------------
Available
to Grant Under Option
--------- ------------
Balance, July 1, 1993 ($7.625 - $30.125 per share) 47,129 114,989
Exercised ($7.625 - $9 per share) (26,254)
Forfeited ($7.625 - $21 per share) 1,300 (1,300)
------- -------
Balance, June 30, 1994 ($7.625 - $30.125 per share) 48,429 87,435
Exercised ($7.625 - $21 per share) (350)
Forfeited ($7.625 per share) 474 (474)
Effect of 3-for-1 Stock Split 96,585 173,222
Exercised ($2.542 - $7 per share) (64,589)
Forfeited ($2.542 per share) 4,235 (4,235)
------- -------
Balance, June 30, 1995 ($2.542 - $10.042 per share) 149,723 191,009
Granted ($21.875 - $26.375 per share) (68,000) 68,000
Exercised ($2.542 - $7 per share) (43,888)
Forfeited ($2.542 - $21.875 per share) 4,463 (4,463)
------- -------
Balance, June 30, 1996 ($2.542 - $26.375 per share) 86,186 210,658
======= =======
Options exercisable at June 30, 1996 140,749
=======
NOTE 20: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain
concentrations. Estimates related to the allowance for loan losses are
reflected in the footnote regarding loans. Current vulnerabilities due to
certain concentrations of credit risk are discussed in the footnote on
commitments and credit risk.
NOTE 21: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
Following is a summary of unaudited quarterly operating results for the
years ended June 30, 1996 and 1995:
1996
------------------------------------------------------
Three Months Ended
------------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- ----------- -----------
Interest income 13,218,646 $13,401,522 $13,493,209 $13,824,988
Interest expense 6,928,140 7,022,660 7,131,607 7,050,004
Provision for loan
losses 324,080 323,325 350,016 453,333
Net realized gains on
available-for-sale
securities 607,589 0 0 72,768
Net income 2,884,588 2,478,028 3,220,414 2,710,925
Earnings per common
share $.62 $.54 $.70 $.59
1995
------------------------------------------------------
Three Months Ended
------------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- ----------- -----------
Interest income $10,480,678 $11,379,218 $12,216,190 $13,034,501
Interest expense 4,770,837 5,518,430 6,333,033 6,788,762
Provision for loan
losses 307,778 306,888 496,629 207,971
Net realized gains on
available-for-sale
securities 0 0 0 21,250
Net income 2,273,905 2,391,671 2,394,424 2,427,930
Earnings per common
share $.46 $.50 $.51 $.52
NOTE 22: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at June 30, 1996 and 1995, and statements
of income and cash flows for the years ended June 30, 1996, 1995 and 1994 for
the parent company, Great Southern Bancorp, Inc., are as follows:
1996 1995
------------ ------------
BALANCE SHEETS
Assets
Cash $ 3,970,272 $ 6,811,892
Available-for-sale securities 4,646,709 3,081,388
Investment in subsidiary bank 57,109,923 50,323,664
Investment in other subsidiaries 1,423,989 2,169,082
Foreclosed assets held for sale, net 324,900 32,133
Dividends receivable 3,090
Other 450,741 467,670
---------- ----------
$ 67,926,534 $ 63,288,919
========== ==========
Liabilities and Stockholders' Equity
Income taxes payable $ 57,505 $ 75,576
Deferred income taxes 61,460 231,156
Common stock 61,625 61,625
Additional paid-in capital 16,834,507 16,692,966
Retained earnings 67,917,888 59,755,968
Unrealized appreciation on
available-for-sale securities, net 96,129 361,551
Treasury stock, at cost (17,102,580) (13,889,923)
---------- ----------
$ 67,926,534 $ 63,288,919
========== ==========
1996 1995 1994
----------- ------------ ------------
STATEMENTS OF INCOME
Income
Dividends from subsidiary bank $ 3,335,250 $ 13,373,110 $
Dividends from other subsidiaries 1,227,210 404,042 208,200
Income on foreclosed assets 94,848 67,248
Interest and dividend income 337,122 399,405 158,866
Net realized gains on sales of
available-for-sale securities 680,357 21,250
Other income (loss) (11,655) (11,121) 310
Total income 5,663,132 14,253,934 367,376
Expense
Operating expenses 204,967 238,559 454,784
Total expense 204,967 238,559 454,784
Income (loss) before income tax and
equity in undistributed earnings
of subsidiaries 5,458,165 14,015,375 (87,408)
Provision (credit) for income taxes 205,444 (15,765) (113,831)
Income before equity in
earnings of subsidiaries 5,252,721 14,031,140 26,423
Equity in undistributed earnings
of subsidiaries 6,041,234 (4,543,210) 11,690,016
---------- ---------- ----------
Net Income $ 11,293,955 $ 9,487,930 $ 11,716,439
========== ========= ==========
1996 1995 1994
------------ ----------- ------------
STATEMENTS OF CASH FLOWS
Cash Flows From Operating
Activities
Net income $ 11,293,955 $ 9,487,930 $ 11,716,439
Items not requiring (providing)
cash:
Loss on low income housing
partnership 11,665 11,121
Equity in undistributed earnings
of subsidiaries (6,041,234) 3,990,519 (11,690,016)
Gain on sale of foreclosed
assets (30,415) (25,070)
Net realized gains on sales of
available-for-sale securities (680,357) (21,250)
Changes in:
ESOP debt 223,588
Dividends receivable 3,090 (3,090)
Dividends, accounts payable
and income taxes (18,071) 182,950 (208,324)
--------- ---------- ----------
Net cash provided by
operating activities 4,538,633 13,623,110 41,687
---------- ---------- ----------
Cash Flows From Investing Activities
Net loans (originated) repaid 53,655 (53,655)
Proceeds from sale of foreclosed
assets 138,799 143,629
Purchase of available-for-sale
securities (4,262,729) (2,545,556)
Proceeds from sale of available-
for-sale securities 2,942,647 78,125
Capitalized costs on
foreclosed assets (1,151) 1,998
Investment in low income housing
partnership (231,358) (227,500)
Partnership distribution 5,332
---------- ---------- ----------
Net cash used in investing
activities (1,177,102) (2,499,507) (281,155)
Cash Flows From Financing Activities
Dividends paid (3,132,035) (2,766,989) (1,523,548)
Stock options exercised 279,272 323,242 420,599
Treasury stock purchased (3,350,388) (5,885,426) (1,098,550)
---------- ---------- ----------
Net cash used in
financing activities (6,203,151) (8,329,173) (2,201,499)
---------- ---------- ----------
Increase (Decrease) in Cash (2,841,620) 2,794,430 (2,440,967)
Cash, Beginning of Year 6,811,892 4,017,462 6,458,429
---------- ---------- ----------
Cash, End of Year $ 3,970,272 $ 6,811,892 $ 4,017,462
========== ========== ==========
Additional Cash Payment Information
Income taxes paid (refunded) $ 127,570 $ (289,285) $ (240,210)
<PAGE> 39
Independent Accountants' Report
Board of Directors
Great Southern Bancorp, Inc.
Springfield, Missouri
We have audited the consolidated statements of financial condition of
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES as of June 30, 1996 and 1995,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended June
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GREAT
SOUTHERN BANCORP, INC. AND SUBSIDIARIES as of June 30, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1, in 1995 the Company changed its method of
accounting for investments in debt and equity securities. As discussed in
Note 9, in 1994 the Company changed its method of accounting for income
taxes. These changes were made in response to new accounting pronouncements.
/s/ Baird, Kurtz & Dobson
August 12, 1996
Springfield, Missouri
<PAGE> 40
(The following text was next to an individual photo of each director.)
William V. Turner
CHAIRMAN OF THE BOARD, PRESIDENT, and CHIEF EXECUTIVE OFFICER
Great Southern's Chief Executive Officer since 1974, Bill Turner has guided
the Company with the same spirit of community-mindedness his own life so
fully reflects:
He has served as President of Springfield Baptist Hospital, Cox Health
Systems Board of Directors, Springfield Area Chamber of Commerce,
Springfield School District, and American Cancer Society in Greene County;
- as Chairman of the Greene County Cancer Crusade, the Campaign Fund Drive
for Mental Retardation, Drury College President's Club, and the committee
responsible for bringing Junior Achievement to Springfield;
- as Trustee of Southwest Baptist College and the Ozarks Playgrounds
Association;
- as Director of the Community Foundation,
- Treasurer of the Y.M.C.A.,
- and as a member of the Public Safety Committee, the Mayor's Commission
on Human Rights, and the Missouri and United States Savings and Loan
Leagues.
He has also served on the Boards of the Springfield Girls Club and the
Greene County American Red Cross,
- as Trustee of Springfield Boys Club,
- as Director of the Federal Savings and Loan Advisory Council in
Washington, D.C., and as Director and Vice Chairman of the Federal Home
Loan Bank of Des Moines.
- Chairman of the Boy Scouts of America
William E. Barclay
PRESIDENT, AUTO MAGIC / JIFFY LUBE
SPRINGFIELD, MO
A prominent Springfield entrepreneur, Bill Barclay brought the first
automated car wash to southern Missouri in 1962, and today oversees 300
employees at three Auto Magic and eleven Jiffy Lube locations.
His franchise was named Top Jiffy Lube Franchise West of the Mississippi in
O96. Bill has been a Board Member since 1975.
Larry D. Frazier
GENERAL MANAGER, WHITE RIVER VALLEY
ELECTRIC COOPERATIVE, HOLLISTER, MO
Larry has been General Manager of White River Valley Electric Cooperative
for 20 years, serving more than 35,000 customers in southern Missouri. A
noted leader in the utilities field, he is also a Director of Sho-Me Power
Cooperative, Marshfield; Executive Vice President of Branson's Roark Water
& Sewer Company; President of Rural Missouri Cable TV Cooperative; Chairman
of the NRECA Standing Committee on Economic Development, Washington, DC.
He joined our Board in 1992.
William K. Powell
PRESIDENT, HERRMAN LUMBER COMPANY
SPRINGFIELD, MO
Bill Powell has been associated with the Herrman Lumber Company for nearly
49 of its 79 years, and has served as its Chairman for the past 30 years. A
family-owned business founded in 1917, the company operates 10 building
centers in three states with approximately 200 employees. Bill is also a
Director of United Millworks, and this year celebrates a remarkable three
decades' continuous service to Great Southern's Board of Directors.
Al F. Turner
VICE CHAIRMAN OF THE BOARD
MOUNTAIN GROVE, MO
An attorney for 36 years, Al Turner served as Circuit Judge of Missouri's
44th Judicial Circuit for 12 years, following 8 years as Wright County
Prosecutor. His banking experience includes former positions as Counsel for
Seymour Bank, Bank of Mansfield, Security Bank of Mountain Grove and
Mountain Grove National Bank, also serving as Chairman, President and CEO
at Mountain Grove National from 1974-1977. Al joined the Great Southern
Board in 1976.
<PAGE> 41
(This text was above two group pictures of these officers.)
GREAT SOUTHERN BANCORP, INC.
- ----------------------------
William V. Turner
CHAIRMAN OF THE BOARD,
PRESIDENT, AND CHIEF EXECUTIVE OFFICER
Don M. Gibson
EXECUTIVE VICE PRESIDENT
CHIEF OPERATING OFFICER AND SECRETARY
Joseph W. Turner
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
OFFICERS OF GREAT SOUTHERN BANK
- -------------------------------
William V. Turner
CHAIRMAN OF THE BOARD,
PRESIDENT, AND CHIEF EXECUTIVE OFFICER
Don M. Gibson
EXECUTIVE VICE PRESIDENT
CHIEF OPERATING OFFICER AND SECRETARY
Joseph W. Turner
EXECUTIVE VICE PRESIDENT AND
GENERAL COUNSEL
Richard Huff
SENIOR VICE PRESIDENT
CHIEF LENDING OFFICER
Richard Wilson
SENIOR VICE PRESIDENT AND
CONTROLLER
Vicki Bilyeu
FIRST VICE PRESIDENT AND
RESIDENTIAL LENDING MANAGER
Bret Aegerter
VICE PRESIDENT
BRANCH ADMINISTRATION
Teresa Chasteen
VICE PRESIDENT AND
DIRECTOR OF MARKETING
Steve Mitchem
VICE PRESIDENT AND
COMMERCIAL LOAN ADMINISTRATION
Doug Marrs
VICE PRESIDENT
OPERATIONS
<PAGE>
(This is the back cover which was a smaller picture of the same picture
that was on the front cover. The majority of the page is a solid maroon.)
