Front Cover
1998 ANNUAL REPORT FOR OUR SHAREHOLDERS
Native Sun in the Ozarks.
(The cover is a picture of two men who represent a loan officer and a
bank customer. The setting is the customers farm with the customer on a
lawn tractor.)
Inside Front Cover
(This is the inside of the front cover. The two years of high/low stock
information is in a chart box and there is a picture of the Missouri
Sports Hall of Fame where the 1998 Annual Meeting will be held.)
Annual Meeting
The 9th Annual Meeting of Shareholders will be held 10 A.M. Wednesday,
October 21, 1998, at the Missouri Sports Hall of Fame, Springfield,
Missouri.
Corporate Profile
Great Southern Bancorp, Inc. ("GSBC" or the "Company") is the holding
company for Great Southern Bank (the "Bank"), which converted from a
mutual to a stock company in December 1989. In June 1998, the Bank
converted from a federal savings bank charter to a Missouri chartered
trust company.
Great Southern was founded in 1923 with a $5,000 investment, 4 employees
and 936 members, and has grown to over $795 million in assets, with more
than 370 employees and 70,000 + customers.
<PAGE> Inside Cover continued
The Bank is headquartered in Springfield, Missouri and operates 27
branches in 15 counties throughout the Ozarks; nine in Springfield.
A community-oriented company, GSBC and its subsidiaries offer a full
range of banking, lending, investment, insurance and travel services.
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. and the Bank 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, 1998, there were 7,961,727 total shares outstanding and
approximately 917 shareholders of record. The Company declared four
dividends during the year, making 33 consecutive dividends since
conversion in December 1989.
High/Low Stock Price Fiscal 1998 Fiscal 1997
------------------- ------------------
High Low High Low
------- ------- ------- -------
First Quarter 19 9/16 16 15 1/2 13 1/8
Second Quarter 25 7/8 19 1/8 18 14 1/2
Third Quarter 26 1/4 24 18 1/4 17
Fourth Quarter 26 3/8 25 18 16 1/8
General Information
CORPORATE HEADQUARTERS
1451 E. Battlefield
Springfield, MO 65804
1 (800) 749-7113
MAILING ADDRESS
P.O. Box 9009, Springfield, MO 65808
<PAGE> Inside Cover continued
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
Great Southern Bank
P.O. Box 9009, Springfield, MO 65808
INVESTOR RELATIONS
Teresa Chasteen
Vice President, Director of Marketing
Great Southern Bank
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. It includes a small color picture
identical to the picture on the front cover. There are also three other
pictures in the Contents section that are a portion of the each picture
on the pages referenced.)
Our Cover
A sunrise in the James River Valley finds Great Southern with a neighbor
in his own backyard. Living and working in the Ozarks for 76 years has
enabled us to provide our customers with full-strength banking and full-
service convenience ... all served with sound, native Ozarks' savvy.
Contents
2 Chairman's Message
The changing times find the Great Southern sun where it's always been:
Out front. Leading the way.
4 Competing on Home Turf
Aggressively marketed, and user-friendly, the Great Southern product
enjoys a high profile in the Ozarks.
6 The Wisdom of the Hills
Anticipating our customers' need leads us to new products. They tell us
what they need. We listen.
8 Home-Grown Loans
"The Ozarks Lending Authority" has many faces. All highly visible and
influential in a thriving Ozarks economy.
10 It's Our Neighborhood
The quality-of-life projects we sponsor anchor our role in the community.
Great Southern cares.
12 Everything Under the Sun
Great Southern's resourceful subsidiaries complement the Bank's
leadership in consumer-oriented service.
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 and 3
(Along the bottom of pages 2 and 3 are eight bar graphs. They are for
stock price (in dollars), earnings (in millions), total assets (in
millions), total deposits (in millions), total loans (in millions),
checking account growth (in thousands), monthly check card transactions
(in thousands) and monthly transactions at Great Southern ATMs (in
thousands). The years presented by the graphs are 1994 through 1998.
The page also included a color photo of our Chairman, William V. Turner.)
Message From The Chairman
In the past 24 months, southwest Missouri has witnessed nearly a dozen
name changes and additions among its principal banking providers.
The most visible signs of the changing times are the number of bank logos
that have changed or cropped up recently in our communities. That is,
with one, particularly notable exception: Great Southern.
Having just celebrated our 75th anniversary and completed our fifth
consecutive record year, in such an environment, it could be argued that
"Southwest Missouri's largest home-owned bank" was simply the incidental
beneficiary of turmoil in the local financial services marketplace.
But such an assessment greatly underestimates the new competition;
overstates the "turmoil;" ignores the company's preparation and execution
of a strategic business development plan; and overlooks the fact that
Great Southern's current run of "best years ever" began before the recent
mergers, acquisitions and start-ups.
Indeed, we are pleased to report fiscal 1998 was another banner year.
Net income was $1.76 per share ($14.4 million) up 60% over last year's
$1.10 per share ($9.3 million). In addition, the company posted growth
in all of the following areas: total assets approached $800 million ($795
million-up 12%); net loans receivable were $655 million (up 12%); and
total deposits were $553 million (up 20%).
Non-performing assets were $12 million, down $1.9 million from a year ago
(June 1997).
The company continued to maintain a healthy capital position with
stockholders' equity at 8.5% of total assets.
GSBC stock closed the year (June 98) at $25.375, which represented a 57%
increase over the $16.125 closing price of a year ago.
In addition to financial accomplishments, significant decisions were made
this past year to better position the company for the future:
(1) Effective June 30, 1998, our thrift subsidiary converted to a
Missouri chartered trust company. As a result of the conversion, the
corporation will have full commercial banking powers which will enable us
to meet the ever-increasing demand for commercial real estate loans and
non-residential lending programs.
<PAGE> 2 and 3 continued
(2) Our bank subsidiary made a major investment to purchase a new
computer system from Jack Henry & Associates (Monett, Missouri).
Complementary teller and new account systems were also acquired. These
systems will allow us to accommodate significant retail growth and
enhance service levels and efficiency for customers.
(3) The bank also added two new branches to its network of service
centers bringing the total to 27. A second location in Joplin, Missouri,
on Rangeline - convenient for north Joplin, Webb City and Missouri
Southern State College, will enable us to expand our business in that
market. The other new office is our ninth in Springfield. It is
strategically located on perhaps the fastest growing corridor in the city
- - Campbell and James River Expressway.
(4) Great Southern Travel, GSBC's travel subsidiary, acquired two
International Tour and Cruise franchises in Joplin and Monett, Missouri.
The addition of International Tours' sales volume will put Great Southern
in the top 5% of all U.S. travel agencies.
Advancements were also made in checking account growth; electronic
transaction usage; commercial deposit services; the consumer credit
product line; intracompany referrals; and cooperative advertising
alliances.
In 1998, we continued to focus on growing retail checking accounts - the
core product of a household's banking relationship. "Cash Back Checking
(free)" and "The Works ($100 minimum package account)" were promoted
throughout the year with a heavy emphasis on our unique, differentiating
feature - earning five cents every time payment is made with our debit
card instead of writing a check. As a result, total checking accounts
were up 25% from a year ago, and monthly debit card transactions were up
115%.
Another factor fueling our phenomenal retail growth is the continued
expansion of what is already the "largest single bank ATM network in
southwest Missouri." With more than 100 machines throughout the Ozarks,
monthly transactions at Great Southern ATMs are now approaching 110,000.
Technology has made it possible for us to begin offering commercial
deposit customers their bank statements on CD-ROM and the capability of
banking "on-line" will follow once we go live with our new computer
system.
Our consumer credit product line (another staple for retail business) was
the focus of an internal campaign - "Borrow Where You Bank" - geared
toward existing customers. Modifications were made to our home equity
product to make it more competitive and we continued to grow our floor
planning and indirect lines of dealer business.
Finally, our leadership position, coupled with community roots and vast
delivery channels, has made us the "partner of choice" this past year for
a number of entities (from Silver Dollar City to the Nike Ozarks Open)
looking for cooperative advertising alliances.
<PAGE> 2 and 3 continued
As a community bank we have to be innovative to compete, stay profitable,
and earn loyal customers and employees. As Ralph Waldo Emerson once
said, "What lies behind us (a rich heritage) and what lies before us (a
promising future) are tiny matters compared to what lies within us."
People ... not a structure are what make a bank and Great Southern is no
exception. Our employee's attitudes, vision and practical advice ...
their leadership and management skills ... the way they personally go
that extra mile to take care of customers - resolving issues before the
sun goes down ... these are the things that make us who we are. A bank
by any other name...just wouldn't be the Ozarks' native sun.
William V. Turner
CHAIRMAN
<TABLE>
<CAPTION>
Selected 5-year Financial Data
June 30
-----------------------------------------------------
For the Year: 1998 1997 1996 1995 1994
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net Interest Income After
Provision for Loan Losses
(in thousands) $28,087 $25,012 $24,355 $22,380 $18,532
Income Before Change in
Accounting Principle 14,444 9,340 11,294 9,488 8,341**
Return on Average Assets 1.93% 1.39% 1.75% 1.62% 1.58%
Interest Rate Spread 3.79% 3.79% 3.82% 3.86% 4.05%
Return on Average
Stockholders' Equity 22.49% 15.02% 17.28% 15.57% 14.44%
Non-interest Expense to
Average Assets 2.74% 3.04% 2.53% 2.62% 2.78%
Per Common Share*:
Earnings Before Change in
Accounting Principle $1.76 $1.10 $1.23 $1.00 $.83**
Cash Dividends Declared .43 .39 .35 .30 .15
Book Value (year end) 8.47 7.45 7.70 7.00 6.42
Market price (year end) 25.375 16.125 13.75 9.625 7.459
At Year End: (in thousands)
Total Assets $795,091 $707,841 $668,105 $622,380 $534,740
Loans Receivable, Net 655,226 583,709 546,759 519,255 443,750
Savings Deposits 553,365 459,236 397,055 384,327 358,987
Total Borrowings 169,563 180,625 197,265 168,270 108,587
Stockholders' Equity 67,409 60,348 68,535 62,982 61,462
Non-performing Assets 11,958 13,850 16,854 12,772 14,963
<FN>
* All per share amounts have been adjusted to reflect the July 25, 1994
3-for-1 stock split, and the October 21, 1996 2-for-1 stock split.
** These numbers do not reflect a change in accounting principle.
</TABLE>
<PAGE> 4 and 5
(Pages 4 through 13 include various color photos of Great Southern ATMs,
office settings, billboards, customers, employees, community events and
fund raising events.
Competing on Home Turf
- ----------------------
To native southern Missourians, the recent signs of the changing times
have been bank signs changing. Big out-market banks, promising economies
of scale and implied benefits of sheer size, have taken over smaller
banks, and smaller-yet community banks, seeking to capitalize on the
resulting losses of local familiarity and autonomy, have sprung up in
their wakes.
Given the recent competitive influx of new consumer products, services
and special grand opening offers aimed at retention and new-bank
identity, that Great Southern holds its own is remarkable enough. For if
there's a national trend "when the big banks come to town," it has been
quite the opposite.
Today, celebrating our 76th year in the Ozarks - with offices and ATMs
across more than 30 local communities - the Great Southern sun logo is
undeniably one of the more recognizable area trademarks, and especially
as other banks' signs have been changing, there is little doubt that
Great Southern has benefitted from its constant, familiar identity.
But to the consumer, "familiarity" and "preference" are not necessarily
one-and-the-same. We're all willing to try something new, including a
new bank. Especially if the old familiar bank, resting on its laurels,
isn't keeping up.
A generation or two ago, when Great Southern itself was the newcomer on
the block in so many communities, we succeeded by becoming involved.
Living and working side-by-side with our customers - knowing our friends
and neighbors in each community we serve - has given us a powerful
competitive edge in the development of the specific new products and
services they're needing, and as involved citizens and community leaders
ourselves, our hearts are in the right place too. Like them, we're
natives.
Today, as we open new branches in new neighborhoods, we succeed the same
way. In fact our corporate culture for community involvement has become
so second nature, we sometimes fail to appreciate its underlying
importance as a competitive marketing tool. We just do it.
As a result, while other banks jockey for logo visibility in on-premise
branch fronts, billboards and signs, the Great Southern sun permeates a
much deeper public consciousness off-premise. It welcomes the eager
audience at Missouri's first annual Route 66 Country Music Festival,
where a bright yellow 30-foot Great Southern tent, complete with Cash
Cube and credit applications desks, is practically expected. And right
at home.
<PAGE> 4 and 5 continued
It crosses the TV screen at home, almost incidentally, in KOLR, Silver
Dollar City and Showboat Branson Belle advertising, as the exclusive ATM
discount ticket outlet for their summer-long Family Fun Combo. Also
home-owned, the station and the attractions found a willing bank partner
for local affinity marketing on their very first choice. They want us
back, at Christmas time, for the Radio City Music Hall Rockettes.
When local organizers created the Ozarks Event Card - with package
savings on tickets to Springfield Lasers' World Team Tennis matches, the
Nike Ozarks Open, the Missouri Sports Hall of Fame, the Ozarks Empire
Fair and Dickerson Park Zoo - they intentionally left a place on the
front of the card for the Great Southern sun. Not that we're a soft
touch. We're simply the natural; we're already involved in them all.
At every SMSU football and basketball home game in Springfield, the Great
Southern sun shines down from the scoreboards over our own "Halftime
Games," a traditional sponsorship we began more than a decade ago that,
by popular demand, has since expanded to include home games at Missouri
Southern State College in Joplin, and the SMSU Grizzlies in West Plains.
Like them, we enjoy a distinct competitive advantage, and it's not just
the visibility of our colors. It's our home turf. We're playing to a
home crowd. And we're playing to win.
(On page 4 there is a picture of the Showboat Branson Belle and a tent
card of the special joint promotion by Silver Dollar City, KOLR 10, the
News Leader and Great Southern. On page 5 is a picture of the tent used
by Great Southern at the Route 66 Country Music Festival, a Route 66
participant in the Great Southern Cash Cube, and a picture of the new
Joplin Great Southern branch.)
Cutlines for photos
a) Local exposure of the Great Southern logo on TV was dramatically
increased when we partnered our ATMs with the marketing budgets of the
area's top family attractions. Delighted Silver Dollar City officials
reported children's tickets were up by more than 20% over the previous
summer.
b) The bank took in more than 500 credit card applications daily at the
Route 66 Country Music Festival, a 3-day concert that featured several of
the nation's top country performers, including LeAnn Rimes, George Jones,
Charlie Daniels, Tim McGraw and Faith Hill.
c) Among the top attractions at the Festival was the Great Southern "Cash
Cube," in which participants get to keep any cash they can grab. The
only trick is there's a time limit, and the money is blowing around like
crazy!
d) Branch expansions included a new facility on Joplin's primary north-
south artery, Rangeline, near Missouri Southern State College and the
regionally-popular North Park Mall. Our southern location on 32nd Street
celebrates it's 10th Anniversary next Spring.
<PAGE> 6 and 7
The Wisdom of the Hills
- -----------------------
One of the more enlightening anecdotes in rural southern Missouri tells
of the "big city" politician who has come into the hills to stump for
votes. Lost and late for his engagement, the politician spots a farmer
and directs his driver to stop for directions. The farmer points down
the lane, "Turn right at the first cattle guard, it's a short piece down
on your left from there." Thanking him, the politician moves on, then
stops and backs up to beg one more question: "Sorry to trouble you again,
but is that cattle guard wearing a uniform?"
As we look to the future of banking in the Ozarks, it is with the sober
appreciation that our customers, and not our competitors, guide us. As
we prepare for "banking-on-the-Internet" and as others posture to offer
it first, we know that, here in the Ozarks, our own customers are at
least as concerned about the impact of the year 2000 in computers.
There is comfort in insight. But also challenge. Preparing to meet the
competition head-on - and on an equal playing field - Great Southern Bank
converted to a Missouri chartered trust company in June, providing it
with the full commercial banking powers some of its major new competitors
wield.
As the competition gets bigger, other volume-oriented services like
consumer credit cards can also become a marketing issue - as evidenced
frequently by "loss-leader-style" teasers in advertising - designed to
build the bank around the card. The concept of relationship banking is
not, of course, a new one. In fact it has been one of Great Southern's
own marketing strengths for at least the last decade - which is why we
moved our VISA (R)/ MasterCard(R) product this year to First USA, and now
offer a no-annual-fee Great Southern credit card at just prime plus
1.49%. Our old card wasn't bad. Many of our customers will still carry
it. But our new card steals the competition's thunder, levels the
playing field, and lets us move on into the more important aspects of
relationship banking.
Obviously, building multiple ties to customers is smart, and most banks
today consider cross-selling to be one of their more promising marketing
frontiers. But to characterize relationship banking at Great Southern as
simply a 'marketing strategy,' or even a 'new frontier,' is misleading.
Many of the products, benefits and conveniences we offer have come from
direct customer input, and many of our new customers open multiple
accounts with us on their very first visit. It's often more a matter of
'service' than 'strategy.'
What's more, relationship-banking was a big marketing issue around here a
couple of decades ago, about the time Great Southern opened specialized
subsidiaries for insurance, investments and travel, and became the area's
first "banking supermarket." If it's a new frontier, it's nevertheless
familiar turf.
<PAGE> 6 and 7 continued
Great Southern new account staffers find it quite natural to introduce
checking applicants to co-working specialists in consumer and mortgage
lending. And lending officers regularly "return the favor," helping loan
applicants open new checking accounts - for the simple convenience of
automatic payment drafts. The emphasis is always on service and one-stop
problem solving, rather than sales, and it happens between our
subsidiaries just as naturally. Happy checking customers expect the same
level of service when they move their auto coverage to Great Southern
Insurance ... who can often package it with a new homeowner's plan for
additional savings ... which can be accumulated in a tax-advantaged
college savings plan at the Bank ... or in an equally attractive annuity
at Great Southern Investments ... who can also quote you today's best
cruise value to the Caymans ... while you're still deciding between
annuities and mutual funds ... or more Great Southern stock.
Great Southern is completing the full integration of new teller-, new
account- and new mainframe computer systems, representing a significant
investment in the future. The new systems let us take full-service
banking to unprecedented levels. Comprehensive customer relationship
information will be available on-the-spot, on-screen, at every Great
Southern customer service and teller station anywhere in the Ozarks.
Certainly, our new system puts us on a level playing field with the
biggest of our new competitors. But that wasn't the reason. We merely
maxed our old system with new business this year. We needed it anyway.
(On page 6 there is a picture of a family using a Great Southern ATM in
Branson.)
(On page 7 is a picture of a new drive-up ATM, a computer and CD ROM disk
representing a commercial checking option and a picture of the new Great
Southern credit card stock and Great Southerns CU-pons promotional
material.)
Cutlines for photos
a) Great Southern customers enjoy the largest single-bank ATM network in
southern Missouri, now more than 100 units strong, and growing. This
one, opposite Shoji Tabuchi's Theater in Branson, sports corporate
colors, while others (above) pick up a development's overall color scheme
purely for aesthetics.
b) On request, commercial checking account customers can opt to receive
their monthly reconciliations on CD ROM.
C) We're well-known in the Ozarks, but the region's rapidly-growing
population of business and retiree newcomers deserves special attention.
The bank cooperates with local Chambers of Commerce in area newcomers
guides, and in a particularly targeted offer, sponsors "CU-pons" in City
Utilities information kits that accompany hookup requests.
<PAGE> 8 and 9
The Home-Grown Loan
- -------------------
Since the mid-seventies, Great Southern has competed strategically as a
"low-cost provider" in basic consumer financial services - attracting
business by coupling highly competitive terms with the extra time-and-
money-savings conveniences of multiple locations and longer banking
hours.
It is a strategy that has worked, one that has helped make us "the
largest home-owned bank around," and one that continues to work, as
evidenced by last year's stellar growth in new checking business on the
promotional strength of our debit card-oriented "Cash Back" account.
As bank marketing has gotten more sophisticated, a conventional wisdom
has been to reduce customer service costs and increase profits by
targeting only the bigger, better customers, and discouraging the high-
maintenance smaller ones who are choking the drive-thru lanes.
The strategy makes sense, and perhaps best characterizes Great Southern's
competitive environment in the lending arena this year: Everyone's
targeting the Ozark's growing small business and big commercial business
accounts.
In spite of the new wisdom, or in the face if it, Great Southern's long
investment in building customer relationships from the bottom up is
paying off. Many of those growing businesses today are owned by some of
the same 'low-profit' drive-thru customers of yesterday, some of whom now
feel they "couldn't have done it without us." Others come to Great
Southern on their referrals, and still others simply on the basis of our
reputation.
Having such a heritage is great. But the reason Great Southern's works
so well is that it hasn't stopped. We're still building our heritage.
And as "The Ozarks' Lending Authority," we're still 'targeting'
everything from student loans to multi-million-dollar commercial
projects.
It's a heritage of involvement - as witnessed in continuing education
classes at the Springfield Area Board of Realtors", where loan solicitor
Vicki Bilyeu is a favorite keynote speaker. -Or on home-turf at
individual realtors' offices, where Great Southern regularly warms the
morning's sales meeting attendance with "Breakfast on the House."
It's also a heritage of leadership, as evidenced by our continued
emphasis on product development to attract new business and to serve our
customers better. New products this year included a modified "PrimeLine"
home equity loan, featuring a revolving line of credit, a floating prime
rate, and no closing costs or application fees. Simultaneously, we
introduced the "Great Home Improvement Loan," an unsecured product
offering borrowers up to $15,000 without refinancing or tying up home
equity. Customers using at least 77% of their loan for home improvements
enjoy a fixed rate and fixed monthly payments for up to ten years.
<PAGE> 8 and 9 continued
And, despite our growing influence and size, the Great Southern heritage
continues to be one of personal service, as well. Not just the 'lip-
service' kind, and much more than the 'loan-decisions-made-quickly' kind:
The one-on-one kind. Some of our new big-bank competitors are mailing
slick color brochures, featuring small-business-oriented services, to
those targeted lists of most promising prospects. We see them on our own
prospects' desks - when our loan solicitor comes by - to listen, to see,
to understand and shake hands - leaving behind a nice Great Southern
piece featuring a face, a name, and a direct-line local phone number.
(On page 8 is a picture of a Great Southern mortgage loan officer
officiating a high school football game. On page 9 is a picture of a
Great Southern mortgage loan officer at a realtors officer, a consumer
loan officer at a dealership that participates in the indirect consumer
loan program, and some promotional material used by the commercial loan
department.)
Cutlines for photos
a) Residential Lending department head Gene Barnes (tossing coin) is a
well-known figure in area mortgage lending, having held key positions in
the lending departments at three other financial institutions before
joining Great Southern. He's equally well-known on the area's playing
fields, having refereed more than 1,000 high school and collegiate
football and basketball games.
b) -Or on home-turf at individual realtors' offices, where Great Southern
regularly warms the morning's sales meeting attendance with "Breakfast on
the House."
c) Competitive terms and responsive on-site service have helped the bank
develop a strong indirect-loan market working with area auto dealers like
Mike May, shown here with Consumer Lending Vice President Mary Allison.
<PAGE> 10 and 11
It's Our Neighborhood
- ---------------------
In 1991, our annual report recalled basic tenets of doing business that
had been established more than half-a-century before, including "That
community involvement be commensurate with company growth and success."
Today, we couldn't say it better ourselves. Our commitment to the
communities we serve goes beyond lending money. We have a long history
of lending a helping hand as well. And like the Great Southern sign, our
community involvement is visible everywhere.
Our sun graces the sides of the CMN C.A.R.E. Mobile, a mobile clinic
serving children in remote areas across the Ozarks - and regardless of
ability to pay. Great Southern has been a major corporate sponsor of the
Children's Miracle Network Telethon and the Children's Hospital Services
at Cox Health System since 1986, and has helped raise nearly $6 1/2
million for CMN activities, all of which has stayed in the area to
provide family care grants, outreach programs and life enhancing
equipment and services for children with various medical needs.
On the first Monday of every October, Great Southern presents the Annual
Boys & Girls Town Benefit Golf Tournament, funding state-accredited
treatment programs for children ages 6-17 who are recovering from
substance and sexual abuse, stress and other family and social behavioral
problems. Last year, the tournament netted over $49,000, which is now
also helping to build a new campus for the kids at Fort and Grand in
Springfield. Boys and Girls Town of Missouri projects this year's total
to reach $80,000.
Great Southern's other major golf tournament is equally popular, and
actually sold-out this year. Sports stars including Leon Spinks, Roger
Wehrli and Freddie Patek joined Great Southern's annual Missouri Sports
Hall of Fame Golf Classic this year in netting $76,000 for the continued
operations of the facility.
At Christmas time, Great Southern teamed up with KOLR TV and CBS to help
popular talk show host Oprah Winfrey create the world's largest piggy
bank. Viewers were asked to drop their spare change in a special piggy
bank at Battlefield Mall. Local donations totalled $3,625 in short
order, and added up to more than $3 1/2 million nationally. The money
provides college scholarships for underprivileged kids across the
country.
<PAGE> 10 and 11 continued
Other worthy annual causes sporting the Great Southern sun of sponsorship
include the March of Dimes, the Muscular Dystrophy Association, Easter
Seals, the American Cancer Society, Meals on Wheels and St. Jude's
Research Hospital. And in addition to our special causes and
involvements, Great Southern stays involved year-round in a number of
other quality-of-life participations, like helping kids make the grade in
school. After we adopted McGregor Elementary in Springfield we began
looking for ways to help students build the skills they'll need in the
future. Our "McGregor Bucks" program fits the bill as kids earn "Scholar
Dollars" for doing the right thing: attending classes, paying attention,
excelling and being good citizens. In other words, they worked hard for
their money, redeemable at our in-school store for school supplies and
other goodies.
Because we're more than just a bank, the Great Southern sun shines at
Nixa's Sucker Days, Cabool's Farm Fest, at Poke Salat Days in Ava, and at
big and small town Christmas parades across southern Missouri. The
Ozarks is our neighborhood, and each community is our home.
(On page 10 is a picture of some students in front of the new Boys and
Girls town facilities. On page 11 is a picture of the Great Southern
chuck wagon on the Boys and Girls Town annual trail ride, an infant in
the CMN ward at Cox Hospital, some participants in a Great Southern
sponsored charity golf tournament and participants in the annual March of
Dimes Walk America.)
Cutlines for photos
a) Students pose on the construction site in eager anticipation of the
opening of their new Boys and Girls Town campus in Springfield. Each
year, Boys and Girls Town of Missouri loads up 250 participants on horses
and mules for the great Wagon Train (above right), a popular event among
the kids that also builds self-confidence, pride of accomplishment,
personal esteem and many new friendships.
b) A new project for CMN this year, "Books for Babies," helps parents
connect even while their babies are still confined to incubators in
Neonatal Intensive Care. Reading to newborns encourages bonding, hastens
recovery, relieves stress and even promotes family literacy. The program
has been an unqualified success, boasting 100% participation from
parents.
c) Our employees enjoy turning out in big numbers at the annual March of
Dimes WalkAmerica, which this year generated over $77,000 in the
Springfield area alone. Great Southern has been a principal corporate
sponsor for the last 4 years.
<PAGE> 12 and 13
Everything Under The Sun
- ------------------------
Our oldest subsidiary, established in 1952 largely on the coattails of
the original Savings & Loan Association's mortgage loan business, has
long since found its own niche in the highly competitive insurance
industry, and today employs a diverse staff of 19 specialists - including
three Certified Insurance Counselors and six Certified Insurance Service
Representatives - writing all lines of insurance and representing several
of the nation's top underwriters. For the 4th consecutive year, the
agency received national recognition by CAN as a High Performance Agency.
Complementing the bank's 'bottom-up' new client development philosophy -
but with a reverse twist - Great Southern Insurance spread its name last
year by focusing marketing efforts on commercial business development,
and has increased writings so significantly that 60% of its total
property casualty business is now commercial. Including trickle-down
personal business from business owners, managers and employees, the
subsidiary reported written premium increases across the board, along
with a healthy 8% increase in net income before taxes for the fiscal
year.
Other notable accomplishments for the year included the establishment of
a new branch office in Nixa, and a computer system expansion assuring
both year 2000 compliance and state-of-the-art transmission capabilities
with our national insurance company underwriters.
When record after record is broken, we come to expect it. But when long-
standing records fall, like Roger Maris' single-season home-run record to
Mark McGwire, we all take notice.
In 1932, a reporter for the New York Times asked Babe Ruth, "Do you
realize you made more money this year than President Hoover?" Ruth
replied, "I had a better year than Hoover."
Great Southern Investments had that kind of year, with gross revenues
passing $1.4 million. We doubled the number of new customer accounts
opened versus fiscal 1997. We more than doubled our mutual fund and
equity trading volume. And tripled the balances in our money market
accounts. We may not be in the same league as Ruth or McGwire. But 'we
came to play.'
A key product development has been our MoneyWorks Cash Management
Account, giving investors the ability to consolidate all their stock,
bond and mutual fund activities into one no-fee account - along with
simplified, easy-to-read statements of all their investment holdings.
Airline commission cuts, consumer-direct ticket sales and even travel
shopping on the Internet have forced a number of agencies out of the
travel business - and most of the others to re-think methods of
compensation for the services they provide. At the same time, Great
Southern Travel was posting an overall sales increase of 27% for the
year, and now ranks among the top 5% of all independent travel agencies
in the U.S.
The subsidiary's strategic business plan focuses on group and tour sales
- - up 35%, on cruises - up 26%, and on the development of other more
profitable packages and services that fall outside the industry's common
commission woes.
Great Southern Travel's Branson Box Office became the preferred supplier
for Branson travel with International Tours Inc. this year, a travel
group encompassing more than 1,100 retail travel agencies across the
country. Branson Group operations, formerly divided between Branson
offices and our South Street location in Springfield, have been
consolidated in Branson, where they are now directed by General Manager
Lenni Neimeyer.
On the way to the top, Great Southern Travel brought home a boatload of
prestigious souvenirs, including Carnival Cruise Lines' Winner's Circle
Award, Holland America Lines' Premium Preferred account status,
membership in Funjet Vacations' exclusive 500 Club, and Apple Vacations'
Golden Apple Award - all recognizing customer service and sales
performance excellence.
And to cap off a great year, we acquired something even more prestigious
than awards: Joplin's largest travel agency, International Tours and
Cruises, and brought on board Mark Norton as Executive Vice President and
Managing Director. Great Southern Travel also acquired International
Tours of Monett in June.
(On page 12 is a picture of two Great Southern insurance agents ( a
father and son). On page 13 is a picture of Great Southerns new Joplin
travel agency and its employees, an investment councilor presenting a
radio talk show and a poster representing some of the numerous travel
awards received by Great Southern Travel.)
Cutlines for photos
a) In Insurance, like everything else we do, it's all about people. New
agent Wes Summers, 25, won accreditation as a Certified Insurance
Counselor during the year. But top-performing Great Southern Insurance
veteran Gene Summers, alias 'dad', is the one beaming with pride.
b) Great Southern's native sun became a whole lot more visible in
Missouri's 4th largest market this year, with the addition of another
bank branch on Rangeline, and the simultaneous acquisitions of Mark
Norton and his International Tours and Cruises, the four-state corners'
largest travel agency.
c) You can reach Great Southern Investments counselor Mike Bennitt most
anytime at 888-4440. But if you're not sure what questions to ask, tune
into his radio talk show Wednesday mornings at 8am on radio station KLFJ
and listen to what the experts are discussing.
<PAGE> 14 and 15
(On page 14 is a half page picture identical to the front cover photo.)
Management's Discussion and Analysis 15
Consolidated Financial Statements 25
Notes to Consolidated Financial Statements 29
Great Southern Bancorp, Inc. and subsidiaries
Management's Discussion and Analysis
The discussion set forth below, as well as other portions of this
document, may contain forward-looking statements within the meaning of
the federal securities laws. Such statements are subject to certain
risks and uncertainties, and 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 and/or abroad; 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 profitability of the Company, and more specifically, the
profitability of its primary subsidiary Great Southern Bank (the "Bank"),
depends primarily on its net interest income. Net interest income is the
difference between the interest income it earns on its loans and
investment portfolio, and its cost of funds, which consists mainly of
interest paid on deposits and borrowings. Net interest income is
affected by the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rates earned or paid on these
balances. When interest-earning assets approximate or exceed interest-
bearing liabilities, any positive interest rate spread will generate net
interest income.
The Company's profitability is also affected by the level of its non-
interest income and operating expenses. Non-interest income consists
primarily of gains on sales of loans and available-for-sale investments,
service charge fees and commissions of non-bank subsidiaries. Operating
expenses consist primarily of salaries and employee benefits, occupancy-
related expenses, equipment and technology-related expenses and other
general operating expenses.
<PAGE> 15 continued
The operations of the Bank, and banking institutions in general, are
significantly influenced by general economic conditions and related
monetary and fiscal policies of regulatory agencies. Deposit flows and
the cost of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing real estate and other types of
loans, which in turn are affected by the interest rates at which such
financing may be offered and other factors affecting loan demand and the
availability of funds.
EFFECT OF FEDERAL LAWS AND REDULATIONS
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.
On June 30, 1998, the Bank became a state chartered trust company and the
Company became a bank holding company. This change brought with it an
additional set of regulations and new regulators for the Bank and
Company. The new regulators may have different areas of emphasis when
evaluating the operations of the Company or the Bank than their prior
regulators. While this change may cause the Company or the Bank to make
changes in the way they conduct business, these changes are not expected
to be material to the overall operations or profitability of the Company.
RECENT CHANGES IN ACCOUNTING PRINCIPLES
In March 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 replaces the presentation of primary
earnings per share with a presentation of basic earnings per share. It
requires dual presentation of basic and diluted earnings per share by
entities with complex capital structures and requires a reconciliation of
the numerators and denominators between the two calculations. SFAS 128
is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The adoption of SFAS 128
did not have a material effect on the financial statements of the
Company.
<PAGE> 15 continued and 16
POTENTIAL IMPACT OF ACCOUNTING PRINCIPLES TO BE IMPLEMENTED IN THE FUTURE
The FASB recently adopted SFAS No. 130, "Reporting Comprehensive Income."
This Statement establishes standards for reporting and display of
comprehensive income and its components in a full set of financial
statements. It does not address issues of recognition or measurement.
The Company's most significant component of other comprehensive income is
the unrealized gains and losses on available-for-sale securities. The
disclosure requirements are effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS 130 is not expected to have a
material impact on the Company's financial statements.
The FASB recently adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement establishes
standards for reporting operating segments and requires certain other
disclosures about products and services, geographic areas and major
customers. The disclosure requirements are effective for fiscal years
beginning after December 15, 1997. The Statement requires selected
information about operating segments in the Company's interim financial
reports for the fiscal year beginning July 1, 1998. Management is in the
process of evaluating the impact of the adoption of SFAS 131 on the
Company's financial statements.
The FASB recently adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999, and may be implemented as of the beginning of any fiscal
quarter after issuance. SFAS No. 133 may not be applied retroactively.
Management does not believe adopting SFAS No. 133 will have a material
impact on the Company's financial statements
YEAR 2000
The "Year 2000 Problem" centers on the inability of computer systems to
precisely recognize the year 2000. Many existing computer programs and
systems were originally programmed with six digit dates that provided
only two digits to identify the calendar year in the date field, without
considering the upcoming change in the century. With the impending
millennium, these programs and computers will recognize "00" as the year
1900 rather than the year 2000. If computer systems are not adequately
changed to identify the year 2000, many computer applications could fail
or create erroneous results. As a result, many calculations which rely
on the date/field information, such as interest, payment or due dates and
other operating functions, will generate results which could be
significantly misstated, and the Bank could experience a temporary
inability to process transactions, send invoices or engage in similar
normal business activities. In addition, under certain circumstances,
failure to adequately address the Year 2000 Problem could adversely
affect the viability of the Bank's suppliers and creditors and the
creditworthiness of its borrowers. Thus, if not adequately addressed,
<PAGE> 16 continued and 17
the Year 2000 Problem could result in a significant adverse impact on the
Bank's products, services and competitive condition.
Financial institution regulators have recently increased their focus upon
year 2000 issues, issuing guidance concerning the responsibilities of
senior management and directors. The FDIC and the other federal banking
regulators have issued safety and soundness guidelines to be followed by
insured depository institutions, such as the Bank, to assure resolution
of any year 2000 problems. The federal banking agencies have asserted
that year 2000 testing and certification is a key safety and soundness
issue in conjunction with regulatory exams, and thus an institution's
failure to address appropriately the Year 2000 Problem could result in
supervisory action, including such enforcement actions as the reduction
of the institution's supervisory ratings, the denial of applications for
approval of a merger or acquisition, or the imposition of civil money
penalties.
The Bank has been experiencing rapid growth in both the deposit and loan
areas. The hardware and core software systems are approaching their
capacity. Due to this growth and the year 2000 issue, the Bank evaluated
both upgrading the current systems as well as looking into a potential
replacement system. Management of the Bank determined conversion to a
new hardware and software system was the best solution to meet the growth
needs of the Bank as well as resolve the year 2000 issues.
The new system has been certified year 2000 compliant. Installation of
the new system has been completed and training and testing is underway.
Conversion to the new system is scheduled to be completed by early
November 1998.
In addition to replacing the core system, the personal computers and wide
area network are being completely replaced with year 2000 compliant
systems. This process is 80% complete with final completion scheduled
for October 1998.
A complete inventory of non-mission critical hardware and software was
completed in December 1997. Non-compliant software systems are scheduled
for replacement or will be discontinued. Security systems, elevators,
heating and air conditioning and like items have been tested and are
expected to function as usual through the date of change. All third
party vendors have certified their products as compliant. Testing of
these and all other systems is scheduled for completion no later than
June 30, 1999.
A contingency plan, utilizing the current core software, has been
formulated. The supplier of the current system has released a year 2000
compliant system which can be installed on a larger hardware system that
can be obtained by the Bank. This would be for temporary, emergency use
only, to allow time to complete the conversion that is in progress.
Should there be a failure of utilities or telephone communications, both
of which the Bank is dependent on, a plan is being formulated to ensure
the ability to operate enough strategic branch locations to serve our
customers.
<PAGE> 17 continued
A budget of $2.4 million has been established to complete the necessary
steps previously noted. Approximately $800,000 has been spent to date,
with an additional $1.2 million budgeted for 1998 and $400,000 budgeted
for 1999. The majority of these costs are capital items that will be
depreciated or amortized over a period of 3 to 5 years.
An outside consultant has been utilized throughout the process to provide
an independent review of all areas. The Company's estimate of year 2000
project costs and completion dates are based on management's best
estimates that have been derived utilizing numerous assumptions about
future events. These estimates and actual results may differ materially.
ASSET/LIABILITY MANAGEMENT
During fiscal year 1998, the Company increased total assets by $87
million. The main areas of change were an increase in net loans of $71
million and an increase in cash and interest-bearing deposits of $13
million.
The following loan categories experienced net increases as noted:
commercial real estate and construction loans, $57 million;
commercial business loans, $29 million; consumer (primarily automobile
and student) loans, $19 million.
The following loan categories experienced net decreases as noted:
Single-family and other residential loans, $32 million.
The increase in cash and interest-bearing deposits was primarily due to
larger cash letters in the process of collection at any point in time and
the timing of transfers of funds from cash letters, and increased cash
funds needed to supply the expanded number of ATM machines.
Total liabilities increased $81 million during fiscal 1998, primarily
from an increase in deposits of $94 million and an increase in Federal
Home Loan Bank (FHLBank) advances of $18 million. The deposit increase
was primarily from brokered deposits and the reclassification as deposits
of accounts that previously were short-term borrowings. The increase in
FHLBank advances and deposits was to fund the brisk loan demand during
the fiscal year. Management feels FHLBank advances and brokered deposits
are viable alternatives to retail deposits when factoring all the costs
associated with the generation and maintenance of retail deposits. In
addition, brokered deposits have become more attractive in recent years
with the low level of FDIC deposit insurance. Also, brokered deposits do
not require any collateral pledging while FHLBank advances require the
pledging of collateral at levels greater than the funds being obtained.
<PAGE> 17 continued
Stockholders' equity increased $7.1 million primarily as a result of net
income of $14.4 million offset by dividend declarations and payments of
$3.5 million and net treasury stock purchases of $3.6 million. The
Company repurchased a net of 143,394 shares of common stock during the
fiscal year.
A principal operating objective of the Company is to produce stable
earnings by achieving a favorable interest rate spread that can be
sustained during fluctuations in prevailing interest rates. The Company
has sought to reduce its exposure to adverse changes in interest rates by
attempting to achieve a closer match between the periods in which its
interest-bearing liabilities and interest-earning assets can be expected
to reprice through the origination of adjustable-rate mortgages and loans
with shorter terms and the purchase of other shorter term interest-
earning assets.
The term "interest rate sensitivity" refers to those assets and
liabilities that mature and reprice periodically in response to
fluctuations in market rates and yields. As noted above, one of the
principal goals of the Company's asset/liability program is to maintain
and match the interest rate sensitivity characteristics of the asset and
liability portfolios.
In order to properly manage interest rate risk, the Bank's Board of
Directors has established an Asset/Liability Management Committee
("ALCO") made up of members of management to monitor the difference
between the Bank's maturing and repricing assets and liabilities and to
develop and implement strategies to decrease the "gap" between the two.
The primary responsibilities of the committee are to assess the Bank's
asset/liability mix, recommend strategies to the Board that will enhance
income while managing the Bank's vulnerability to changes in interest
rates and report to the Board the results of the strategies used. The
Company's experience with interest rates are discussed in more detail
under the headings "Results of Operations and Comparisons of the Years
Ended June 30, 1998 and 1997" and "Results of Operations and Comparisons
of the Years Ended June 30, 1997 and 1996."
Interest Rate Sensitivity
An important element of both earnings performance and liquidity is
management of interest rate sensitivity. Interest rate sensitivity
reflects the potential effect on net interest income of a movement in
interest rates. The difference between the Company's interest-sensitive
assets and interest-sensitive liabilities for a specified time frame is
referred to as "gap." A financial institution is considered to be asset-
sensitive, or having a positive gap, when the amount of its earning
assets maturing or repricing within a given time period exceeds the
amount of its interest-bearing liabilities also maturing or repricing
within that time period.
<PAGE> 18
Conversely, a financial institution is considered to be liability-
sensitive, or have a negative gap, when the amount of its interest-
bearing liabilities maturing or repricing within a given period exceeds
the amount of earning assets also maturing or repricing within that time
period. During a period of rising interest rates, a positive gap would
tend to increase net interest income, while a negative gap would tend to
have an adverse effect on net interest income. During a period of
falling interest rates, a positive gap would tend to have an adverse
effect on net interest income, while a negative gap would tend to
increase net interest income.
The Company evaluates interest sensitivity risk and then formulates
guidelines regarding asset generation, funding sources and the pricing of
each, and off-balance sheet commitments in order to decrease sensitivity
risk. These guidelines are based upon management's outlook regarding
future interest rate movements, the state of the regional and national
economy and other financial and business risk factors. The Bank uses a
static gap model and a computer simulation to measure the effect on net
interest income of various interest rate scenarios over selected time
periods. The Company's gap can be managed by repricing assets or
liabilities, selling available-for-sale investments, replacing an asset
or liability prior to maturity or adjusting the interest rate during the
life of an asset or liability. Matching the amount of assets and
liabilities repricing during the same time interval helps to reduce the
risk and minimize the impact on net interest income in periods of rising
or falling interest rates.
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 $79 million, or 10.2%, at June 30, 1998, as compared to a
positive $48 million, or 6.9%, at June 30, 1997 and a positive $89
million, or 13.6% at June 30, 1996.
The change in the Company's one-year gap position from 1997 to 1998
resulted primarily from (i) a $22 million, or 36%, increase in investment
securities and other interest-earning assets due to maturities shifting
back from the 1 to 3 year category; (ii) a $17 million, or 3%, net
increase in various loan types; (iii) a $49 million decrease in FHLBank
advances from a shifting of advances into callable advances that have
longer maturities with call provisions of 6 months to 2 years; and (iv) a
$26 million decrease in other borrowings and liabilities which were
reclassified into interest-bearing demand deposits; offset by (v) a $43
million, or 18%, increase in time deposits in the one year or less
category primarily from the Company's continued increased use of brokered
deposits substantially all of which had maturities of one year or less;
and (vi) a $40 million, or 35%, increase in interest-bearing demand
deposits, primarily from $26 million of other borrowings reclassified to
this category and from growth in accounts.
<PAGE> 18 continued
The change in the Company's one-year gap position from 1996 to 1997
resulted primarily from (i) a $30 million, or 6%, increase in various
loan types, the majority of which were at adjustable rates with
adjustment periods of one year or less; (ii) a $16 million, or 21%,
decrease in investment securities and other interest-earning assets due
to maturities extending into the 1 to 3 year category; (iii) a $10
million, or 60%, increase in other borrowings and liabilities; and (iv) a
$48 million, or 25%, increase in time deposits in the one year or less
category primarily from the Company's increased use of brokered deposits
substantially all of which have maturities of six months or less.
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 34% 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 this strategy has 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.
Interest rate risk exposure estimates (the sensitivity gap) are not exact
measures of an institution's actual interest rate risk. They are only
indicators of interest rate risk exposure produced in a simplified
modeling environment designed to allow management to gauge the Company's
sensitivity to changes in interest rates. They do not necessarily
indicate the impact of general interest rate movements on the Company's
net interest income because the repricing of certain categories of assets
and liabilities is subject to competitive and other factors beyond the
Company's control. As a result, certain assets and liabilities indicated
as maturing or otherwise repricing within a stated period may in fact
mature or reprice at different times and in different amounts and would
therefore cause a change (which potentially could be material) in the
Company's interest rate risk.
<PAGE> 19
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, 1998 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 overall market prepayment rates
observed on or about June 30, 1998.
- -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
reinvested at estimated market rates.
<TABLE>
<CAPTION>
Table I June 30, 1998 1997 1996
-------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Residential, commercial real estate and
construction loans $458,449 $474,051 $463,559
Commercial business loans 53,605 25,557 12,349
Consumer loans 27,542 22,549 16,202
Investment securities and other 82,460 60,628 76,343
------- ------- -------
Total interest rate sensitive assets repricing
within one year 622,056 582,785 568,453
------- ------- -------
Interest-bearing demand deposits 155,485 115,299 112,289
Savings deposits 34,644 35,065 37,009
Time deposits 283,707 240,643 192,909
FHLBank advances 69,228 117,659 120,849
Other borrowings and liabilities 0 26,338 16,468
------- ------- -------
Total interest rate sensitive
liabilities repricing within one year 543,064 535,004 479,524
------- ------- -------
One year interest rate sensitivity gap* $ 78,992 $ 47,781 $ 88,929
======= ======= =======
Interest rate sensitive assets/interest
rate sensitive liabilities 114.5% 108.9% 118.5%
===== ===== =====
One year interest rate sensitivity gap
as a percent of interest-earning assets 10.2% 6.9% 13.6%
==== === ====
<FN>
*Defined as the Company's interest-earning assets that mature or reprice within one year minus its
interest-bearing liabilities which mature or reprice within one year.
</TABLE>
<PAGE> 19 continued
<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 real estate loans $164,460 $ 55,346 $ 59,602 $ 9,593 $ 19,382 $308,383
Construction loans 48,913 0 88 0 180 49,181
Commercial real estate loans 189,015 715 15,459 7,057 3,274 215,520
Commercial business loans 53,486 119 514 388 216 54,723
Consumer loans 23,466 4,076 12,556 5,696 773 46,567
Investment securities and other 65,075 17,385 17,352 0 0 99,812
------- ------ ------- ------- ------ -------
Total interest-earning assets 544,415 77,641 105,571 22,734 23,825 774,186
------- ------ ------- ------- ------ -------
Interest-bearing demand deposits 155,485 155,485
Savings deposits 34,644 34,644
Time deposits 198,167 85,540 34,024 9,303 3,23 330,268
FHLBank advances 61,910 7,318 38,326 11,999 49,955 169,508
------- ------ ------- ------- ------ -------
Total interest-bearing liabilities 450,206 92,858 72,350 21,302 53,189 689,905
------- ------ ------- ------- ------ -------
Interest-earning assets less
interest-bearing liabilities $ 94,209 $(15,217) $ 33,221 $ 1,432 $(29,364) $ 84,281
======= ====== ======= ====== ====== =======
Cumulative interest rate
sensitivity gap $ 94,209 $ 78,992 $112,213 $113,645 $ 84,281
======= ====== ======= ======= ======
Cumulative interest rate
sensitivity gap as a percent
of interest-earning assets
at June 30, 1998 12.2% 10.2% 14.5% 14.7% 10.9%
==== ==== ==== ==== ====
Cumulative interest rate
sensitivity gap as a percent
of interest-earning assets
at June 30, 1997 .1% 6.9% 10.1% 9.6% 10.5%
== === ==== === ====
</TABLE>
RESULTS OF OPERATIONS AND COMPARISON FOR THE YEARS ENDED JUNE 30, 1998
AND 1997
The increase in earnings of $5.1 million, or 54.6%, for the year ended
June 30, 1998 when compared to June 30, 1997, was primarily due to an
increase in non-interest income of $3.3 million, or 31.7%, and an
increase in net interest income of $3.2 million, or 12.1%, offset by an
increase in non-interest expense of $100,000, or 0.5%, and an increase in
provision for income taxes of $1.2 million, or 20.4%, during fiscal 1998.
TOTAL INTEREST INCOME
Total interest income increased $6.4 million, or 11.5%, during fiscal
1998 primarily due to a $6.2 million, or 12.0%, increase in interest
income on loans.
<PAGE> 19 continued and 20
INTEREST INCOME - LOANS
During fiscal 1998, interest income on loans increased primarily from
higher average balances. Interest income increased $5.8 million as the
result of higher average loan balances from $561 million during fiscal
1997 to $624 million during fiscal 1998. The higher average balance
resulted from the Bank's increased lending in commercial real estate and
commercial business lending and entry into the indirect dealer consumer
lending offset by a decline in single-family residential lending. The
average yield on loans increased from 9.15% during fiscal 1997, to 9.22%
during fiscal 1998 as a result of the change in the mix of loan types.
INTEREST INCOME - INVESTMENTS AND OTHER INTEREST-EARNING DEPOSITS
Interest income on investments and interest-earning deposits increased
$220,000, or 5.3%, during fiscal 1998 when compared to fiscal 1997.
Interest income increased $512,000 as a result of higher average balances
from $80 million during fiscal 1997 to $92 million in fiscal 1998. This
increase was primarily in interest-bearing deposits in FHLBank used to
fund daily operations and lending. Interest income declined $292,000 as
a result of lower average yields from 5.22% during fiscal 1997, to 4.76%
during fiscal 1998 due to lower short term market rates.
TOTAL INTEREST EXPENSE
Total interest expense increased $3.2 million, or 11.0%, during fiscal
1998 when compared with fiscal 1997 primarily due to an increase in
interest expense on deposits of $3.0 million, or 16.7%.
INTEREST EXPENSE - DEPOSITS
Interest expense on time deposits increased $2.8 million as a result of
higher average balances from $262 million during fiscal 1997, to $312
million during fiscal 1998. The average balances of time deposits
increased primarily as a result of the Company's use of brokered and
other time deposits to fund loan growth. In recent years, brokered
deposit rates have become competitive with rates on FHLBank advances and
larger retail deposits.
Interest expense on deposits increased $250,000 as a result of higher
average balances of interest bearing demand deposits from $109 million
during fiscal 1997, to $121 million during fiscal 1998. This increase in
balances was the result of the rapid growth of personal checking
customers during the fiscal year. The Bank experienced this growth in
large part due to acquisitions of competitors by larger banking
institutions. This increase was partially offset by a $147,000 decrease
in interest expense from slightly lower average rates from 2.36% in
fiscal 1997 to 2.20% in fiscal 1998, due to the change of the deposit mix
<PAGE> 20 continued
INTEREST EXPENSE - FHLBANK ADVANCES AND OTHER BORROWINGS
Interest expense on FHLBank advances and other borrowings increased
$359,000 due to higher average balances from $185 million during fiscal
1997 to $191 million during fiscal 1998. These higher average balances
resulted from the use of FHLBank advances for funding a portion of the
loan growth previously mentioned. Average rates were slightly lower
during fiscal 1998 at 5.77% compared to 5.88% during fiscal 1997.
NET INTEREST INCOME
The Company's overall interest rate spread remained constant at 3.79%
during fiscal 1997 and fiscal 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $150,000, or 8.6%, during fiscal
1998 from $1.7 million during fiscal 1997 to $1.9 million during fiscal
1998.
Management records a provision for loan losses in an amount sufficient to
result in an allowance for loan losses that will cover current net
charge-offs as well as risks believed to be inherent in the loan
portfolio of the Bank. The amount of provision charged against current
income is based on several factors, including, but not limited to, past
loss experience, current portfolio mix, actual and potential losses
identified in the loan portfolio, economic conditions and regular reviews
by internal staff and regulatory examinations. During periods of loan
growth, a portion of the provision may reflect management's desire to
maintain a satisfactory allowance to protect the Company from losses
which occur as a routine part of the banking business.
Weak economic conditions, higher inflation or interest rates, or other
factors may lead to increased losses in the portfolio. Management has
established various controls in an attempt to limit future losses, such
as a watch list of possible problem loans, documented loan administration
policies and a loan review staff to review the quality and anticipated
collectibility of the portfolio. Management determines which loans are
potentially uncollectible, or represent a greater risk of loss and makes
additional provisions to expense, if necessary, to maintain the allowance
at a satisfactory level.
Non-performing assets decreased $1.9 million, or 13.7%, during fiscal
1998 from $13.9 million at June 30, 1997 to $12.0 million at June 30,
1998. Non-performing loans decreased $670,000, or 8.5%, from $7.9
million at June 30, 1997 to $7.2 million at June 30, 1998, and foreclosed
assets declined $1.2 million, or 20.4%, from $6 million at June 30, 1997
to $4.8 million at June 30, 1998.
<PAGE> 20 continued and 21
Potential problem loans increased $1.8 million, or 25.4%, during fiscal
1998 from $7.1 million at June 30, 1997 to $9.0 million at June 30, 1998.
These are loans which management has identified through routine internal
review procedures as having possible credit problems which may cause the
borrowers difficulty in complying with current loan repayment terms.
These loans are not reflected in the non-performing loans.
The allowance for loan losses at June 30, 1998 and June 30, 1997,
respectively, totaled $16.4 million and $15.5 million, representing 2.5%
and 2.7% of total loans, 227% and 197% of non-performing loans, and 101%
and 103% of non-performing loans and potential problem loans in total.
The allowance for foreclosed asset losses was $0 at June 30, 1998 and
$319,000 at June 30, 1997, representing 0% and 5.3%, respectively, of
total foreclosed assets.
Management considers the allowance for loan losses and the allowance for
foreclosed asset losses adequate to cover the possible risk of loss in
the Company's assets at this time, based on current economic conditions.
If economic conditions deteriorate significantly, it is possible that
additional assets would be classified as non-performing, and accordingly,
additional provision for possible losses would be required, thereby
adversely affecting future results of operations.
NON-INTEREST INCOME
Non-interest income increased $3.3 million, or 31.7%, during fiscal 1998
compared to fiscal 1997. The increase was primarily due to: (i) an
increase of $1.2 million in profits on sale of available-for-sale
securities; (ii) an increase in service charge income of $1.1 million, or
37.9%, on transaction accounts and electronic transactions due to
increased volumes from an expanded ATM network and special promotions on
debit card usage; (iii) an increase of $683,000, or 13.7%, in commission
income from the travel, insurance and investment subsidiaries from growth
in these areas; (iv) an increase of $600,000 in profits on sale of loans
from increased levels of fixed rate loan refinancing due to historically
low rates; and (v) various increases and decreases in other non-interest
income items. Service charge income and commission income is expected to
remain at these higher levels in fiscal 1999. Profits on sales of loans
is expected to remain at these higher levels in fiscal 1999 assuming home
loan interest rates remain at the current historically low levels.
Profits on sale of available-for-sale securities are more volatile. They
are based on several external factors which could cause the future
profits to be more or less than in fiscal 1998.
<PAGE> 21 continued
NON-INTEREST EXPENSE
Non-interest expense increased only slightly during fiscal 1998 when
compared to fiscal 1997, however, there were some major increases and
decreases within non-interest expense items between the two fiscal
periods. The changes were: (i) a decrease in insurance of $2.8 million
due to the payment in fiscal 1997 of the one-time SAIF assessment of
thrifts in September 1996; and (ii) a decrease in goodwill amortization
of $1 million due to the write-off in fiscal 1997 of goodwill remaining
from a 1982 failed thrift purchase; offset by (iii) an increase of
$470,000 in tax consulting fees paid to achieve a one-time $1.5 million
reduction of state financial institution taxes; (iv) an increase of $1.6
million in salaries and employee related costs due to increased staffing
levels in transaction processing areas and expanded consumer and
commercial lending, both resulting from substantial asset and customer
growth; (v) an increase of $633,000 in occupancy and equipment expense
primarily due to expansion of the Company's ATM network and other
technology related purchases; (vi) an increase of $300,000 in robbery and
bad check losses; (vii) an increase of $160,000 in audit, accounting and
supervisory exam fees from increased time in these areas and a previous
under accrual; (viii) an increase of $110,000 in package transaction
account benefit costs due to the increased number of personal checking
customers; and (ix) increases in the majority of other non-interest
expense items resulting from asset and earnings growth.
In conjunction with the Company's recent growth and the year 2000 issue
discussed previously in this document, the Company will be incurring
additional operating costs associated with the evaluation, purchase,
implementation and operation of new mainframe hardware and software as
well as other replacement computer and equipment items. In addition, it
is probable that the insurance, investment and travel subsidiaries will
incur costs in the evaluation, purchase, implementation and operation of
their systems to bring them into compliance to avoid potential year 2000
issues. While the exact impact of the cost to correct or convert the
various systems of the Company is not known at this time, management does
not feel it will be material to the overall operations or financial
condition of the Company.
PROVISION FOR INCOME TAXES
Provision for income taxes as a percentage of pre-tax income decreased
from 38.1% in fiscal 1997 to 32.4% in fiscal 1998. The 38.1% in fiscal
1997 would have been 35.5% without the non-deductible goodwill write-off
that occurred during the period. A large portion of the lower than
normal percentage in the June 30, 1998 period was due to a refund of
prior period state financial institution taxes of $1.1 million. The
refund was the result of a review of the Bank's state financial
institution tax returns by a consulting firm. The refund resulted from
the Bank's charter change from a state charter to a federal savings bank
charter in December 1994. An additional current year reduction of
$500,000 resulted from the Bank's charter change at June 30, 1998 from a
federal savings bank charter to a state trust company charter.
<PAGE> 21 continued and 22
RESULTS OF OPERATIONS AND COMPARISONS OF THE YEARS ENDED JUNE 30, 1997
AND 1996
The decrease in earnings for the year ended June 30, 1997 compared to
June 30, 1996 of $2 million, or 17.3%, was primarily due to an increase
in non-interest expense of $4.1 million and an increase in provision for
loan losses of $255,000, offset by an increase in net interest income of
$.9 million and a decrease in provision for income taxes of $1.4 million
during fiscal 1997.
INTEREST INCOME
Total interest income increased $1.6 million, or 3.0%, from fiscal 1996
primarily due to a $1.5 million, or 3.0%, increase in interest income on
loans combined with a $120,000, or 3.0%, 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 $537 million in fiscal 1996 to $561 million in fiscal 1997
as a result of loan growth, offset by a decrease in average yield from
9.29% in fiscal 1996 to 9.15% in fiscal 1997 as a result of slightly
lower rates during the fiscal year 1997.
The increase in interest income on investment securities and other
interest-bearing assets was the result of higher average balances from
$76 million in fiscal 1996 to $80 million in fiscal 1997 as a result of
available-for-sale securities acquired by the Company, offset by a
decrease in average yields from 5.34% in fiscal 1996 to 5.22% in fiscal
1997 as a result of lower market rates earned on the redeployment of
funds from maturing investments into new investments at current market
rates.
INTEREST EXPENSE
Total interest expense increased $690,000, or 2.5%, from fiscal 1996
primarily due to a $950,000, or 5.6%, increase in interest expense on
deposits offset by a $260,000, or 2.3%, decrease in interest expense on
FHLBank advances and other borrowings.
Interest expense on deposits increased primarily due to an increase in
higher average balances of time deposits from $239 million in fiscal 1996
to $262 million in fiscal 1997, offset by lower average rates on time
deposits from 5.69% in fiscal 1996 to 5.53% in fiscal 1997 as a result of
lower market rates on the average for such deposits.
Interest expense on FHLBank advances and other borrowings decreased
primarily due to lower average rates from 5.97% in fiscal 1996 to 5.88%
in fiscal 1997 and slightly lower average balances from $187 million in
fiscal 1996 to $185 million in fiscal 1997. The Company evaluates
various funding sources and generally uses the source that produces the
lowest overall cost in the current market environment. The main sources
evaluated are FHLBank advances, brokered CDs and retail deposits.
<PAGE> 22 continued
NET INTEREST INCOME
The Company's overall net interest margin decreased 4 basis points, or
1%, from 4.21% in fiscal 1996 to 4.17% in fiscal 1997. The decrease is
due to an overall decrease in the weighted average yield received on
interest-earning assets which was slightly greater than the overall
decrease in the weighted average rates paid on interest-bearing
liabilities.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $255,000, or 18%, in fiscal 1997
from fiscal 1996.
Non-performing assets decreased $3 million, or 17.8%, in fiscal 1997 from
$16.9 million at June 30, 1996 to $13.9 million at June 30, 1997. Non-
performing loans increased $2 million, or 33.4%, from $5.9 million at
June 30, 1996 to $7.9 million at June 30,1997, and foreclosed assets
decreased $4.9 million, or 45.5%, from $10.9 million at June 30, 1996 to
$6.0 million at June 30, 1997. Non-performing loans at June 30, 1996 and
1997, respectively, included $500,000 and $285,000 of loans in connection
with the sale of foreclosed assets. The majority of these loans are
currently performing according to their loan terms.
Potential problem loans increased $2.4 million during fiscal 1997 from
$4.7 million at June 30, 1996 to $7.1 million at June 30, 1997.
The allowance for loan losses at June 30, 1997 and 1996, respectively,
totaled $15.5 million and $14.4 million, representing 2.7% and 2.6% of
total loans, 197% and 243% of non-performing loans, and 103% and 135% of
non-performing loans and potential problem loans in total. The allowance
for foreclosed asset losses totaled $300,000 and $1.1 million at June 30,
1997 and 1996, respectively, representing 5.4% and 9.9% of total
foreclosed assets.
NON-INTEREST INCOME
Non-interest income increased $118,000, or 1.1%, in fiscal 1997. The
main changes in this area were: (i) an increase in commission income of
$555,000 from increased sales in the travel and investment subsidiaries;
(ii) an increase of $400,000 in service fees on deposit accounts
primarily from increased ATM and debit card fees along with increased
insufficient check fees; (iii) a decrease in income on foreclosed assets
of $442,000 primarily due to larger recoveries in fiscal 1996 versus
fiscal 1997 of previously recorded losses; (iv) a decrease in profit on
sale of loans and available-for-sale securities of $493,000 due to
reductions in gains on sale of available-for-sale securities in fiscal
1997; and (v) modest increases or decreases in other non-interest income
items.
<PAGE> 22 continued and 23
NON-INTEREST EXPENSE
Non-interest expense increased $4.1 million, or 25.1%, in fiscal 1997.
The increase was due primarily to: (i) a one-time deposit insurance
assessment of $2.5 million partially offset by a decrease in the ongoing
semi-annual deposit insurance assessment of $350,000; (ii) an increase in
goodwill amortization of $915,000 as a result of the write-off of
goodwill remaining from a 1982 failed thrift purchase; (iii) an increase
in salaries and employee benefits of $850,000, or 10.2%, primarily due to
asset and earnings growth in the Bank and increased sales volume in the
travel and investment subsidiaries; (iv) an increase of $190,000 in
supplies and printing due to ordering machine readable forms in
additional areas to streamline transaction processing and efficiency; (v)
an increase of $180,000, or 8.2%, in net occupancy expense primarily from
expansion and upgrade in technology related items such as ATMs; and (vi)
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 decreased
from 38.6% in fiscal 1996 to 38.1% in fiscal 1997 due to changes in
accrual estimates.
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 include 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.
<PAGE> 23 continued
<TABLE>
<CAPTION>
Table III Years Ended June 30,
----------------------------------------------------------------------
(Dollars in thousands) June 30, 1998 1997 1996
1998 ----------------------- ----------------------- -----------------------
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 8.96% $624,290 $57,537 9.22% $561,146 $51,365 9.15% $536,695 $49,884 9.29%
Investment securities and
other interest-earning assets 6.12 92,251 4,395 4.76 79,942 4,175 5.22 75,963 4,054 5.34
---- ------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning assets 8.73 $716,541 61,932 8.64 $641,088 55,540 8.66 $612,658 53,938 8.80
---- ======= ------ ---- ======= ------ ---- ======= ------ ----
Interest-bearing liabilities:
Demand deposits 2.25 $121,477 2,674 2.20 $108,750 2,571 2.36 $102,920 2,495 2.42
Savings deposits 2.51 34,874 859 2.46 35,252 867 2.46 36,901 914 2.48
Time deposits 5.53 312,077 17,418 5.58 262,214 14,513 5.53 238,791 13,594 5.69
---- ------- ------ ---- ------- ------ ---- ------- ------ ----
Total deposits 4.46 468,428 20,951 4.47 406,216 17,951 4.42 378,612 17,003 4.49
FHLBank advances
and other borrowings 6.09 191,260 11,041 5.77 184,917 10,871 5.88 186,522 11,129 5.97
---- ------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities 4.92 $659,688 31,992 4.85 $591,133 28,822 4.88 $565,134 28,132 4.98
---- ======= ------ ---- ======= ------ ---- ======= ------ ---
Net interest income:
Interest rate spread 3.81% $29,940 3.79% $26,718 3.79% $25,806 3.82%
==== ====== ==== ====== ==== ====== ====
Net interest margin* 4.18% 4.17% 4.21%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities 108.6% 108.5% 108.4%
===== ===== =====
<FN>
*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.
<PAGE> 23 continued and 24
<TABLE>
<CAPTION>
Table IV Years Ended June 30,
---------------------------------------------------------------
(Dollars in thousands) 1997 vs. 1998 1996 vs. 1997
---------------------------- ----------------------------
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 $355 $5,817 $6,172 $ (740) $2,221 $1,481
Investment securities and other
interest-earning assets (292) 512 220 (84) 205 121
--- ----- ----- --- ----- -----
Total interest-earning assets 63 6,329 6,392 (824) 2,426 1,602
--- ----- ----- --- ----- -----
Interest-bearing liabilities:
Demand deposits (147) 250 103 (59) 135 76
Savings deposits 1 (9) (8) (6) (41) (47)
Time deposits 123 2,782 2,905 (363) 1,282 919
--- ----- ----- --- ----- ---
Total deposits (23) 3,023 3,000 (428) 1,376 948
FHLBank advances
and other borrowings (189) 359 170 (163) (95) (258)
--- ----- ----- --- ----- ---
Total interest-bearing liabilities (212) 3,382 3,170 (591) 1,281 690
--- ----- ----- --- ----- ---
Net interest income $275 $2,947 $3,222 $(233) $1,145 $912
=== ===== ===== === ===== ===
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of the Company's ability to generate sufficient
cash to meet present and future financial obligations in a timely manner
through either the sale or maturity of existing assets or the acquisition
of additional funds through liability management. These obligations
include the credit needs of customers, funding deposit withdrawals, and
the day-to-day operations of the Company. Liquid assets include cash,
interest-bearing deposits with financial institutions and certain
investment securities and loans. As a result of the Company's management
of the ability to generate liquidity primarily through liability funding,
management believes that the Company maintains overall liquidity
sufficient to satisfy its depositors' requirements and meet its
customers' credit needs. At June 30, 1998, the Company had commitments
of approximately $110 million to fund loan originations, issued lines of
credit, outstanding letters of credit and unadvanced loans.
Management continuously reviews the capital position of the Company and
the Bank to insure compliance with minimum regulatory requirements, as
well as exploring ways to increase capital either by retained earnings or
other means.
<PAGE> 24
The Company's capital position remained strong, with stockholders' equity
at $67.4 million, or 8.5%, of total assets of $795 million at June 30,
1998 compared to equity at $60.3 million, or 8.5%, of total assets of
$708 million at June 30, 1997.
Banks are required to maintain minimum risk-based capital ratios. These
ratios compare capital, as defined by the risk-based regulations, to
assets adjusted for their relative risk as defined by the regulations.
Guidelines required banks to have a minimum Tier 1 capital ratio, as
defined, of 4.00% and a minimum Tier 2 capital ratio of 8.00%, and a
minimum 4.00% leverage capital ratio. On June 30, 1998, the Bank's Tier
1 capital ratio was 9.4% and Tier 2 capital ratio was 11.2% and leverage
ratio was 7.5%.
At June 30, 1998, the held-to-maturity investment portfolio included
$180,000 of gross unrealized gains and no gross unrealized losses. The
unrealized gains are not expected to have a material effect on future
earnings beyond the usual amortization of acquisition premium or
accretion of discount because no sale of the held-to-maturity investment
portfolio is foreseen.
The Company's primary sources of funds are savings deposits, FHLBank
advances, other borrowings, loan repayments, proceeds from sales of loans
and securities and funds provided from operations. The Company utilizes
particular sources of funds based on the comparative costs and
availability at the time. The Company has from time to time chosen not
to pay rates on deposits as high as the rates paid by certain of its
competitors and, when believed to be appropriate, supplements deposits
with less expensive alternative sources of funds.
Statements of Cash Flows. During the years ended June 30, 1998, 1997 and
1996, 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 each of the years
ended June 30, 1998, 1997 and 1996.
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 $9.1 million, $11.7 million and $11.6 million in
cash during the years ended June 30, 1998, 1997 and 1996, respectively.
During the years ended June 30, 1998, 1997 and 1996, investing activities
used cash of $71.5 million, $36.1 million and $34.4 million primarily due
to the net increase of loans in each period.
<PAGE> 24 continued
Changes in cash flows from financing activities during the periods
covered by the Statements of Cash Flows are due to changes in deposits
after interest credited, changes in FHLBank advances and changes in
short-term borrowings as well as purchases of treasury stock and dividend
payments to stockholders. Financing activities provided $75.7 million,
$27.3 million and $35.0 million in cash during the years ended June 30,
1998, 1997 and 1996. Financing activities in the future are expected to
primarily include changes in deposits and changes in FHLBank advances.
Dividends. During the year ended June 30, 1998, the Company declared and
paid dividends of $.43 per share, or 24% of net income, compared to
dividends declared and paid during the year ended June 30, 1997 of $.3875
per share, or 35% of net income. The Board of Directors meets regularly
to consider the level and the timing of dividend payments.
Common Stock Repurchases. The Company has been in various buy-back
programs since May 1990. During the year ended June 30, 1998, the
Company repurchased 156,888 shares of its common stock at an average
price of $23.55 per share and reissued 13,494 shares of treasury stock at
an average price of $6.57 per share to cover stock option exercises.
During the year ended June 30, 1997, the Company repurchased 961,967
shares of its common stock at an average price of $16.20 per share and
reissued 254,992 shares of treasury stock at an average price of $2.01
per share to cover stock option exercises.
Management intends to continue its stock buy-back programs as long as
repurchasing the stock contributes to the overall growth of shareholder
value. The number of shares of stock that will be repurchased and the
price that will be paid is the result of many factors, several of which
are outside of the control of the Company. The primary factors, however,
are the number of shares available in the market from sellers at any
given time and the price of the stock within the market as determined by
the market.
<PAGE> 25
<TABLE>
<CAPTION>
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
JUNE 30, 1998 AND 1997
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Cash $ 12,199,490 $ 8,176,763
Interest bearing deposits in other financial institutions 33,631,748 24,308,337
----------- -----------
Cash and cash equivalents 45,831,238 32,485,100
Available-for-sale securities 6,362,700 7,408,020
Held-to-maturity securities 50,362,963 49,756,978
Loans receivable, net 655,226,070 583,709,446
Foreclosed assets held for sale, net 4,750,910 5,650,962
Premises and equipment 9,457,015 7,433,073
Refundable income taxes 240,623 -
Accrued interest receivable
Loans 5,159,425 4,225,771
Investments 738,382 767,541
Investment in FHLB stock 9,454,100 10,792,600
Prepaid expenses and other assets 3,960,573 2,982,653
Excess of cost over fair value of net assets acquired, at amortized cost 626,465 -
Deferred income taxes 2,920,665 2,629,140
----------- ------------
Total Assets $795,091,129 $707,841,284
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $553,365,464 $459,235,746
Federal Home Loan Bank advances 169,563,052 151,881,100
Short-term borrowings - 28,744,191
Advances from borrowers for
taxes and insurance 2,176,662 2,488,397
Accounts payable and accrued expenses 2,577,058 1,873,824
Income taxes payable - 3,269,659
----------- -----------
Total Liabilities 727,682,236 647,492,917
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock
Serial preferred stock, $.01 par value; authorized 1,000,000 shares - -
Common stock, $.01 par value; authorized 20,000,000 shares,
issued 12,325,002 shares 123,250 123,250
Additional paid-in capital 17,110,496 17,058,326
Retained earnings - substantially restricted 84,955,740 73,980,259
Unrealized appreciation on available-for-sale securities, net of income
taxes of $669,921 and $870,860 at June 30, 1998 and 1997, respectively 1,047,824 1,362,116
Treasury stock, at cost; 1998 - 4,363,275 shares; 1997 - 4,219,881 shares (35,828,417) (32,175,584)
----------- -----------
Total Stockholders' Equity 67,408,893 60,348,367
----------- -----------
Total Liabilities and Stockholders' Equity $795,091,129 $707,841,284
=========== ===========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of income
FOR THE THREE YEARS ENDED JUNE 30, 1998 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 57,536,900 $ 51,365,481 $ 49,884,135
Investment securities 3,838,790 3,892,077 3,849,815
Other 555,995 282,889 204,415
----------- ----------- -----------
61,931,685 55,540,447 53,938,365
----------- ----------- -----------
INTEREST EXPENSE
Deposits 20,950,665 17,950,677 17,002,724
FHLB advances 9,904,520 10,229,111 10,585,178
Short-term borrowings 1,136,493 642,356 544,509
----------- ----------- -----------
31,991,678 28,822,144 28,132,411
----------- ----------- -----------
NET INTEREST INCOME 29,940,007 26,718,303 25,805,954
PROVISION FOR LOAN LOSSES 1,852,597 1,706,142 1,450,754
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 28,087,410 25,012,161 24,355,200
----------- ----------- -----------
NONINTEREST INCOME
Commissions 5,652,388 4,968,695 4,412,600
Service charge fees 3,840,564 2,784,719 2,381,455
Net realized gains on sales of loans
and available-for-sale securities 2,522,981 726,590 1,220,336
Income on foreclosed assets 326,197 285,543 727,995
Other income 1,407,470 1,676,510 1,581,553
----------- ----------- -----------
13,749,600 10,442,057 10,323,939
----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 10,828,683 9,233,943 8,381,708
Net occupancy expense 3,033,707 2,400,570 2,220,131
Tax consulting fees 469,157 - -
Postage 857,127 625,745 634,465
Insurance 637,339 3,428,428 1,267,765
Amortization of goodwill 65,410 1,106,961 192,845
Advertising 586,367 675,456 533,336
Office supplies and printing 665,878 562,668 435,427
Other operating expenses 3,325,593 2,329,382 2,608,707
----------- ----------- -----------
20,469,261 20,363,153 16,274,384
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 21,367,749 15,091,065 18,404,755
PROVISION FOR INCOME TAXES 6,923,700 5,751,200 7,110,800
----------- ----------- -----------
NET INCOME $ 14,444,049 $ 9,339,865 $ 11,293,955
=========== =========== ===========
EARNINGS PER COMMON SHARE - BASIC $ 1.79 $ 1.11 $ 1.27
=========== =========== ===========
EARNINGS PER COMMON SHARE - DILUTED $ 1.76 $ 1.10 $ 1.23
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
FOR THE THREE YEARS ENDED JUNE 30, 1998
Unrealized
Appreciation
(Depreciation)
Additional on Available-
Common Paid-in Retained for-Sale Treasury
Stock Capital Earnings Securities, Net Stock Total
-------- ------------ ----------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1995 $ 61,625 $ 16,692,966 $ 59,755,968 $ 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, $.35 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 96,129 (17,102,580) 67,807,569
Net income - - 9,339,865 - - 9,339,865
Stock issued under Stock
Option Plan - 285,444 - - 511,669 797,113
Dividends declared, $.3875 per share - - (3,277,494) - - (3,277,494)
Two-for-one stock split 61,625 (61,625) - - - -
Change in unrealized appreciation
on available-for-sale securities,
net of income taxes of $809,400 - - - 1,265,987 - 1,265,987
Treasury stock purchased - - - - (15,584,673) (15,584,673)
------- ---------- ---------- --------- ---------- ----------
BALANCE, JUNE 30, 1997 123,250 17,058,326 73,980,259 1,362,116 (32,175,584) 60,348,367
Net income - - 14,444,049 - - 14,444,049
Stock issued under Stock
Option Plan - 52,170 - - 41,948 94,118
Dividends declared, $.43 per share - - (3,468,568) - - (3,468,568)
Change in unrealized appreciation
on available-for-sale securities,
net of income taxes of $200,939 - - - (314,292) - (314,292)
Treasury stock purchased - - - - (3,694,781) (3,694,781)
------- ---------- ---------- --------- ---------- ----------
BALANCE, JUNE 30, 1998 $123,250 $ 17,110,496 $ 84,955,740 $1,047,824 $(35,828,417) $67,408,893
======= ========== ========== ========= ========== ==========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
FOR THE THREE YEARS ENDED JUNE 30, 1998 1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,444,049 $ 9,339,865 $ 11,293,955
Items not requiring (providing) cash:
Depreciation 1,333,423 1,003,243 980,290
Amortization 55,410 1,101,961 192,845
Provision for loan losses 1,852,597 1,706,142 1,450,754
Provision for losses on foreclosed assets 100,000 100,000 275,000
Gain on sale of loans (1,125,153) (521,165) (539,979)
FHLB stock dividends received - - (176,400)
Net realized gains on available-for-sale securities (1,397,828) (205,425) (680,357)
(Gain) loss on sale of premises and equipment (65,417) (9,585) 2,171
Gain on sale of foreclosed assets (576,783) (559,902) (1,316,887)
Amortization of deferred income, premiums and discounts (704,900) (894,292) (680,395)
Deferred income taxes (90,586) (350,000) 604,000
Changes in:
Accrued interest receivable (904,495) 363,110 (470,643)
Prepaid expenses and other assets (977,920) (1,208,214) 924,293
Accounts payable and accrued expenses 703,234 (557,683) 80,325
Income taxes refundable/payable (3,510,282) 2,382,241 (336,363)
----------- ----------- -----------
Net cash provided by operating activities 9,135,349 11,690,296 11,602,609
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (70,945,760) (33,203,579) (30,161,082)
Purchase of additional business units (681,875) - -
Purchase of premises and equipment (3,505,798) (1,771,232) (955,690)
Proceeds from sale of premises and equipment 213,850 31,455 2,875
Proceeds from sale of foreclosed assets 1,099,476 1,017,514 2,044,721
Capitalized costs on foreclosed assets (302,040) (198,090) (206,107)
Proceeds from maturing held-to-maturity securities 19,500,000 39,398,775 9,526,632
Purchase of held-to-maturity securities (20,119,994) (40,159,443) (11,971,929)
Proceeds from sale of available-for-sale securities 3,359,677 1,377,623 2,942,647
Purchase of available-for-sale securities (1,431,760) (1,849,015) (4,262,442)
(Purchase) redemption of FHLB stock 1,338,500 (769,800) (1,360,400)
----------- ----------- -----------
Net cash used in investing activities (71,475,724) (36,125,792) (34,400,775)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in certificates of deposit 39,497,048 55,356,409 4,484,912
Net increase in checking and savings accounts 54,632,670 6,824,821 8,242,392
Proceeds from FHLB advances 895,823,200 539,345,121 425,700,856
Repayments of FHLB advances (878,141,248) (568,261,064) (399,226,851)
Net increase (decrease) in short-term borrowings (28,744,191) 12,276,366 2,520,881
Advances to borrowers for taxes and insurance (311,735) (171,030) (565,797)
Purchase of treasury stock (3,694,781) (15,584,673) (3,350,388)
Dividends paid (3,468,568) (3,277,494) (3,132,035)
Stock options exercised 94,118 797,113 279,272
----------- ----------- -----------
Net cash provided by financing activities 75,686,513 27,305,569 34,953,242
----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 13,346,138 2,870,073 12,155,076
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 32,485,100 29,615,027 17,459,951
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 45,831,238 $ 32,485,100 $ 29,615,027
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 29
GREAT SOUTHERN BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998, 1997, and 1996
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-
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 the Company's and the Bank'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 June 1998, the Bank converted to a state-chartered trust company and
the Company became a one-bank holding company. Until that time the Bank
had been a stock savings bank and the Company was a savings bank holding
company.
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.
<PAGE> 29 continued
Principles of Consolidation
The consolidated financial statements include the accounts of Great
Southern Bancorp, Inc. and its wholly-owned subsidiaries, Great Southern
Capital Management and Great Southern Bank and its wholly-owned
subsidiaries, GSB One LLC, GSB Two LLC and Great Southern Financial
Corporation, and its wholly-owned subsidiary, Appraisal Services, Inc.
Significant intercompany accounts and transactions have been eliminated
in consolidation.
Reclassifications
Certain 1997 and 1996 amounts have been reclassified to conform to the
1998 financial statements presentation. These reclassifications had no
effect on net income.
Cash and Investment Securities
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 Federal Home Loan Bank (FHLB).
Investments in Debt and Equity Securities
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 assets
acquired were $626,465 and $0 at June 30, 1998 and 1997, respectively.
These costs are amortized on a straight-line basis for a period of five
years. As a result of a revision of the estimated future benefit, all
unamortized costs in excess of the fair value of underlying net tangible
assets at June 30, 1996, were fully expensed during 1997.
<PAGE> 29 continued and 30
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. Amounts paid to investors to obtain
forward commitments are deferred until such time as the related loans are
sold. The fair values of the forward commitments are not recognized in
the financial statements. 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, commitment fees 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,
1998 and 1997.
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off 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.
<PAGE> 30 continued
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.
<PAGE> 30 continued
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, 1998, that the Bank meets all capital adequacy
requirements to which it is subject.
As of June 30, 1998, the most recent notification from the Bank's
regulators 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 Company's and the Bank's actual capital amounts and ratios are also
presented in the table. No amount was deducted from capital for
interest-rate risk. The tangible capital ratio shown at June 30, 1997,
is specific to thrift institutions.
<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, 1998
Total Risk-Based Capital
Great Southern Bancorp, Inc. $74,065 12.2% >=$48,616 >=8.0% N/A N/A
Great Southern Bank $67,254 11.2% >=$48,203 >=8.0% >=$60,770 >=10.0%
Tier I Risk-Based Capital
Great Southern Bancorp, Inc. $66,361 10.9% >=$24,308 >=4.0% N/A N/A
Great Southern Bank $59,487 9.4% >=$25,269 >=4.0% >=$37,904 >= 6.0%
Core Capital
Great Southern Bancorp, Inc. $66,361 8.3% >=$31,862 >=4.0% N/A N/A
Great Southern Bank $59,487 7.5% >=$31,629 >=4.0% >=$39,537 >= 5.0%
As of June 30, 1997
Total Risk-Based Capital
(Great Southern Bank) $60,430 11.6% >=$41,511 >=8.0% >=$51,889 >=10.0%
Tier I Risk-Based Capital
(Great Southern Bank) $53,832 10.4% >=$20,756 >=4.0% >=$31,134 >= 6.0%
Core Capital
(Great Southern Bank) $53,832 7.7% >=$21,001 >=3.0% >=$35,001 >= 5.0%
Tangible Capital
(Great Southern Bank) $53,832 7.7% >=$10,500 >=1.5% N/A N/A
</TABLE>
<PAGE> 30 continued and 31
The Bank is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. At June 30, 1998
and 1997, the Bank exceeded its minimum capital requirements. The Bank
may not pay dividends which would reduce capital below the minimum
requirements shown above.
Earnings Per Share
Effective December 15, 1997, the Company adopted the provisions of SFAS
No. 128, Earnings Per Share (EPS), which requires dual presentation of
basic and diluted EPS for all entities with complex capital structures.
Basic earnings per share is computed based on the weighted average number
of shares outstanding during each year. Diluted earnings per share is
computed using the weighted average common shares and all potential
dilutive common shares outstanding during the period. All computations
have been adjusted for the stock split of October 21, 1996, (see Note
15).
The computation of per share earnings is as follows:
June 30,
--------------------------------------
1998 1997 1996
----------- ---------- -----------
Net income $14,444,049 $9,339,865 $11,293,955
========== ========= ==========
Average common shares
Outstanding 8,052,413 8,394,080 8,926,192
Average common share
stock options outstanding 151,162 93,682 269,412
---------- --------- ----------
Average diluted common shares 8,203,575 8,487,762 9,195,604
========== ========= ==========
Earnings per common
share - basic $ 1.79 $ 1.11 $ 1.27
========== ========= ==========
Earnings per common
share - diluted $ 1.76 $ 1.10 $ 1.23
========== ========= ==========
Options to purchase 19,250 shares of common stock were outstanding during
1998 but were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the
common shares. The options, which expire in 2008, were still outstanding
at the end of 1998.
Cash Equivalents
The Bank considers all liquid investments with original maturities of
three months or less to be cash equivalents. At June 30, 1998 and 1997,
cash equivalents consisted of interest bearing deposits in other
financial institutions.
<PAGE> 31 continued
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.
Impact of Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) recently adopted
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This statement was effective for transactions that occur
after December 31, 1997, and imposes new rules for determining when
transfers of financial assets are accounted for as sales versus when
transfers are accounted for as borrowings. Management believes that SFAS
125 does not have a material impact on the Company's financial
statements.
The FASB recently adopted SFAS 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of financial
statements. It does not address issues of recognition or measurement.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS 130 is not expected to have a material impact on the
Company's financial statements.
The FASB recently adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes
standards for the way that public business enterprises report information
about operating segments. The statement also establishes standards for
related disclosures about products and services, geographic areas and
major customers. SFAS 131 is effective for years beginning after
December 15, 1997. Management is in the process of evaluating the impact
of the adoption of SFAS 131 on the Company's financial statements.
The FASB recently adopted SFAS 133, "Accounting for Derivative Financial
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999, may be adopted early for
periods beginning after issuance of the Statement and may not be applied
retroactively. Management does not believe the adoption of SFAS 133 will
have a material impact on the Company's financial statements.
<PAGE> 31
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, 1998
----------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
Equity securities $ 4,644,955 $1,717,745 $ - $ 6,362,700
========= ========= ======= =========
June 30, 1997
---------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
Equity securities $ 5,175,044 $ 2,232,976 $ 7,408,020
========= ========= =========
The amortized cost and approximate fair value of held-to-maturity
securities are as follows:
June 30, 1998
-------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
U.S. Treasury $ 2,103,414 $ 3,586 $ - $ 2,107,000
U.S. Government agencies 48,259,549 174,451 - 48,434,000
---------- ------- ------ ----------
$50,362,963 $178,037 $ - $50,541,000
========== ======= ====== ==========
June 30, 1997
-------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
U.S. Treasury $ 7,057,218 $ 7,651 $ 3,869 $ 7,061,000
U.S. Government agencies 42,699,760 110,527 12,287 42,798,000
---------- ------- ------ ----------
$49,756,978 $118,178 $ 16,156 $49,859,000
========== ======= ====== ==========
<PAGE> 32
Maturities of held-to-maturity securities at June 30, 1998:
Amortized Cost Approximate Fair Value
-------------- ----------------------
One year or less $ 31,762,376 $ 31,894,000
After one through
five years 18,600,587 18,647,000
----------- -----------
$ 50,362,963 $ 50,541,000
=========== ===========
Proceeds of $3,359,677, $1,377,623 and $2,942,647 with resultant gross
gains of $1,397,828, $205,425 and $680,357, were realized from the sale
of available-for-sale securities in 1998, 1997 and 1996, respectively.
The book value of securities pledged as collateral to secure public
deposits amounted to $10,195,000 and $9,677,000 at June 30, 1998 and
1997, respectively, with approximate fair values of $10,231,000 and
$9,695,000. The book value of securities pledged as collateral to secure
collateralized borrowing accounts amounted to $-0- and $13,772,000 at
June 30, 1998 and 1997, respectively, with approximate fair values of $-
0- and $13,805,000. The book value of securities pledged as collateral
to secure Federal Home Loan Bank advances amounted to $22,683,000 and
$26,308,000 at June 30, 1998 and 1997, respectively, with approximate
fair values of $22,760,000 and $26,360,000.
NOTE 3:
LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at June 30, 1998 and 1997, include:
1998 1997
------------ ------------
One to four family residential loans $ 217,688,415 $ 243,006,249
Other residential mortgage loans 89,140,632 95,885,537
Commercial real estate loans 244,016,514 191,555,823
Other commercial loans 54,722,556 25,958,963
One to four family construction loans 16,031,577 9,528,872
Other residential construction loans 5,993,279 4,243,283
Commercial construction loans 27,156,092 21,931,695
Mortgage-backed securities 1,553,901 1,761,122
Installment and education loans 46,566,627 27,665,964
Discounts on loans purchased (1,031,702) (1,150,880)
Undisbursed portion of loans in process (28,496,979) (18,812,126)
Allowance for loan losses (16,372,700) (15,523,541)
Deferred loan fees and gains, net (1,742,142) (2,341,515)
----------- -----------
$ 655,226,070 $ 583,709,446
=========== ===========
<PAGE> 32 continued
Transactions in the allowance for loan losses were as follows
Years Ended June 30,
------------------------------------------
1998 1997 1996
------------- ------------- ------------
Balance, beginning of year $ 15,523,541 $ 14,356,147 $ 14,600,870
Provision charged to expense 1,852,597 1,706,142 1,450,754
Loans charged off (1,142,584) (676,714) (1,992,578)
Recoveries 139,146 137,966 297,101
---------- ---------- ----------
Balance, end of year $ 16,372,700 $ 15,523,541 $ 14,356,147
========== ========== ==========
The weighted average interest rate on loans receivable at June 30, 1998
and 1997, was 8.96% and 8.99%, respectively.
The Bank serviced whole mortgage loans and participations in mortgage
loans for others amounting to $60,047,000, $69,837,000 and $79,985,000 at
June 30, 1998, 1997 and 1996, respectively.
Impaired loans totaled $9,485,000, $10,163,000 and $5,455,000 at June 30,
1998, 1997 and 1996, respectively. An allowance for loan losses of
$1,501,000, $1,622,000 and $832,000 relates to these impaired loans at
June 30, 1998, 1997 and 1996, respectively. There were no impaired loans
at June 30, 1998, 1997 and 1996, without a related allowance for loan
loss assigned.
Interest of $1,009,000, $487,000 and $923,000 was recognized on average
impaired loans of $12,009,000, $9,362,000 and $9,210,000 for 1998, 1997
and 1996. Interest recognized on impaired loans on a cash basis during
1998, 1997 and 1996 was not materially different.
Certain of the Bank's real estate loans are pledged as collateral for
borrowings as set forth in Notes 7 and 8.
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, 1998 and 1997, loans outstanding to these directors
and executive officers are summarized as follows:
<PAGE> 32 continued
June 30,
---------------------------
1998 1997
----------- -----------
Balance, beginning of year $ 5,494,000 $ 1,382,000
New loans 1,048,000 4,353,000
Payments (397,000) (241,000)
--------- ---------
Balance, end of year $ 6,145,000 $ 5,494,000
========= =========
NOTE 4:
FORECLOSED ASSETS HELD FOR SALE
June 30,
---------------------------
1998 1997
----------- -----------
Foreclosed assets $ 4,750,910 $ 5,970,352
Valuation allowance - (319,390)
--------- ---------
$ 4,750,910 $ 5,650,962
========= =========
Transactions in the valuation allowance on foreclosed assets were as
follows:
Years Ended June 30,
------------------------------------
1998 1997 1996
--------- ----------- ----------
Balance, beginning of year $ 319,390 $ 1,085,602 $ 932,547
Provision charged to expense 100,000 100,000 275,000
Charge-offs, net of recoveries (419,390) (866,212) (121,945)
------- --------- ---------
Balance, end of year $ 0 $ 319,390 $1,085,602
======= ========= =========
NOTE 5:
PREMISES AND EQUIPMENT
Major classifications of premises and equipment stated at cost at June
30, 1998 and 1997, are as follows:
1998 1997
----------- -----------
Land $ 1,565,780 $ 1,628,981
Buildings and improvements 8,357,100 8,071,448
Furniture, fixtures and equipment 9,038,608 6,204,196
---------- ----------
18,961,488 15,904,625
Less accumulated depreciation 9,504,473 8,471,552
---------- ----------
$ 9,457,015 $ 7,433,073
========== ==========
Depreciation expense was $1,333,423, $1,003,243 and $980,290 for 1998,
1997 and 1996, respectively.
<PAGE> 33
NOTE 6:
DEPOSITS
Deposits at June 30, 1998 and 1997, are summarized as follows:
Weighted Average
Interest Rate 1998 1997
---------------- ------------ ------------
Noninterest-bearing accounts $ 29,374,778 $ 14,571,834
Interest-bearing checking 2.25% - 2.36% 155,485,084 115,231,966
Savings accounts 2.51% - 2.51% 34,644,369 35,064,843
----------- -----------
219,504,231 164,868,643
----------- -----------
Certificate accounts 0% - 3.99% 61,879 724,646
4% - 4.99% 17,476,479 14,165,816
5% - 5.99% 257,704,093 212,238,314
6% - 6.99% 51,064,400 51,540,038
7% - 7.99% 3,710,659 12,326,032
8% - 10.25% 250,971 506,619
----------- -----------
330,268,481 291,501,465
Accrued interest on deposits 3,592,752 2,865,638
----------- -----------
$ 553,365,464 $459,235,746
=========== ===========
The weighted average interest rate on certificates of deposit was 5.50%
and 5.53% at June 30, 1998 and 1997, respectively.
The aggregate amount of jumbo certificates of deposit in denominations of
$100,000 or more was approximately $48,675,000 and $44,489,000 at June
30, 1998 and 1997, respectively. From time to time the Bank purchases
brokered deposits. The aggregate amount of brokered deposits was
approximately $118,977,000 and $77,387,000 at June 30, 1998 and 1997,
respectively.
At June 30, 1998, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
1999 2000 2001 2002 Thereafter
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
0% to 3.99% $ 13,353 $ - $ - $ - $ 48,526
4% to 4.99% 17,467,458 7,989 1,032 - -
5% to 5.99% 234,685,215 16,183,095 3,019,801 941,300 2,874,682
6% to 6.99% 31,199,342 11,166,394 2,807,751 1,629,540 4,261,373
7% to 7.99% 294,968 769,847 67,646 1,881,683 696,515
8% to 10.25% 47,425 - - - 203,546
----------- ---------- ---------- --------- ---------
$283,707,761 $28,127,325 $ 5,896,230 $4,452,523 $8,084,642
=========== ========== ========== ========= =========
<PAGE> 33 continued
A summary of interest expense on deposits is as follows:
Years Ended June 30,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
Checking accounts $ 2,673,921 $ 2,570,966 $ 2,494,566
Savings accounts 858,880 866,810 914,310
Certificate accounts 17,485,313 14,579,734 13,667,688
Early withdrawal penalties (67,449) (66,833) (73,840)
----------- ----------- -----------
$ 20,950,665 $ 17,950,677 $ 17,002,724
=========== =========== ===========
NOTE 7:
ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consist of the following:
June 30,
------------------------------------------------------------
1998 1997
----------------------------- ------------------------------
Weighted Average Weighted Average
Amount Interest Rate Amount Interest Rate
------------ ---------------- ------------- ----------------
1998 $ - -% $ 117,602,967 6.18%
1999 69,220,415 6.04 4,890,593 6.14
2000 24,876,968 6.66 7,683,759 8.43
2001 13,453,605 5.75 3,248,520 6.33
2002 958,976 7.10 741,285 7.41
2003 11,041,651 5.66 810,579 7.42
2004 and
thereafter 49,957,237 5.75 16,844,616 7.16
----------- ---- ----------- ----
169,508,852 6.00 151,822,319 6.42
Accrued
interest on
advances 54,200 - 58,781 -
----------- ---- ----------- ----
$169,563,052 6.00% $151,881,100 6.42%
=========== ==== =========== ====
In addition to the above advances, the Bank had available a line of
credit amounting to $22,800,000 and $44,250,000 with the FHLB at June 30,
1998 and 1997, 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 values of $22,683,000
and $26,308,000, respectively, were specifically pledged as collateral
for advances at June 30, 1998 and 1997.
<PAGE> 33 continued and 34
NOTE 8:
SHORT-TERM BORROWINGS
Short-term borrowings at June 30, 1998 and 1997, are summarized as
follows:
1998 1997
------- ------------
United States government securities
sold under reverse repurchase
agreements $ - $10,342,523
Other borrowed money - 18,401,668
---- ----------
$ - $28,744,191
==== ==========
Prior to its conversion to a state trust charter, the Bank entered into
sales of securities under agreements to repurchase (reverse repurchase
agreements). Reverse repurchase agreements were treated as financings,
and the obligations to repurchase securities sold were reflected as a
liability in the statement of financial condition. The dollar amount of
securities underlying the agreements remained in the asset accounts. As
of June 30, 1998, short-term borrowings have been reclassified to
deposits.
Other borrowed money consisted of agreements with corporate entities
which are secured by a pledge of residential mortgage loans, and margin
loans with brokerage firms.
Securities sold under reverse repurchase agreements had a book value
including accrued interest of $14,012,000 and a fair value of $13,805,000
at June 30, 1997. Mortgage loans securing other borrowed money accounts
had a carrying value of $11,695,000 at June 30, 1997.
Short-term borrowings had weighted average interest rates of 3.24% at
June 30, 1997. Securities and mortgage loans underlying the agreements
were being held by the Bank during the agreement period. All agreements
were written on a one month or less term.
Short-term borrowings averaged $ 32,234,000, $18,894,000 and $17,344,000
for the years ended June 30, 1998, 1997 and 1996, respectively. The
maximum amounts outstanding at any month end were $ 41,176,000,
$28,744,000 and $20,132,000 during the years ended June 30, 1998, 1997
and 1996, respectively.
<PAGE> 34 continued
NOTE 9:
INCOME TAXES
The Company files a consolidated federal income tax return.
Historically, thrifts such as the Bank were allowed a percentage of
otherwise taxable income as a statutory bad debt deduction, subject to
limitations based on aggregate loans and savings balances. This
percentage was most recently 8%. In August 1996 this statutory bad debt
deduction was repealed and is no longer available for thrifts. In
addition, bad debt reserves accumulated after 1988, which are presently
included as a component of the net deferred tax liability, must be
recaptured over a six-year period beginning with the fiscal year ending
June 30, 1999. The amount of the deferred tax liability which must be
recaptured is $1,722,000 at June 30, 1998.
As of June 30, 1998 and 1997, retained earnings includes approximately
$17,500,000 for which no deferred income tax liability has been
recognized. This amount represents an allocation of income to bad-debt
deductions for tax purposes only for tax years prior to 1988. If the
Bank were to liquidate, the entire amount would have to be recaptured and
would create income for tax purposes only, which would be subject to the
then-current corporate income tax rate. The unrecorded deferred income
tax liability on the above amount was approximately $6,475,000 at June
30, 1998 and 1997.
The provision for income taxes consists of:
Years Ended June 30,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
Taxes currently payable $7,014,286 $6,101,200 $6,506,800
Deferred income taxes (90,586) (350,000) 604,000
--------- --------- ---------
$6,923,700 $5,751,200 $7,110,800
========= ========= =========
<PAGE> 34 continued
The tax effects of temporary differences related to deferred taxes shown
on the June 30, 1998 and 1997, statements of financial condition were:
1998 1997
---------- ----------
Deferred tax assets:
Allowance for loan and
foreclosed asset losses $5,746,586 $5,884,000
Accrued expenses 163,000 159,000
Partnership tax credits 46,000 24,000
Other 16,000 -
--------- ---------
5,971,586 6,067,000
--------- ---------
Deferred tax liabilities:
Tax loss reserve in excess
of base year (1,722,000) (1,922,000)
FHLB stock dividends (641,000) (641,000)
Unrealized appreciation on
available-for-sale securities (669,921) (870,860)
Other (18,000) (4,000)
--------- ---------
(3,050,921) (3,437,860)
--------- ---------
Net deferred tax asset $2,920,665 $2,629,140
========= =========
Reconciliations of the Company's provision for income taxes to the
statutory corporate tax rates are as follows:
Years Ended June 30,
------------------------------
1998 1997 1996
----- ----- -----
Tax at statutory rate 35.0% 35.0% 35.0%
State income taxes (3.1) 2.5 2.1
Other .5 .6 1.5
---- ---- ----
32.4% 38.1% 38.6%
==== ==== ====
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, 1994.
State legislation provides that savings banks will be taxed based on an
annual privilege tax of 7% of net income. The 1997 and 1996 state tax
included in the provision for income tax amounted to $652,000 and
$552,000, respectively. Because the Bank converted to a state chartered
trust company in June 1998, the Bank does not have to pay the privilege
tax for 1998. During 1998 the Bank received $1.1 million in state tax
refunds of previously paid taxes.
<PAGE> 34 continued
NOTE 10:
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.
<PAGE> 35
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.
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.
1998
---------------------------------
Carrying Amount Fair Value
--------------- ------------
Financial assets:
Cash and cash equivalents $ 45,831,238 $ 45,831,238
Available-for-sale securities 6,362,700 6,362,700
Held-to-maturity securities 50,362,963 50,541,000
Loans, net of allowance
for loan losses 655,226,090 660,187,000
Accrued interest receivable 5,897,807 5,897,807
Financial liabilities:
Deposits 553,365,464 552,400,000
FHLB advances 169,563,052 169,637,000
Short-term borrowings - -
Unrecognized financial instruments
(net of contractual value):
Commitments to extend credit 0 0
Standby letters of credit 0 0
Unused lines of credit 0 0
<PAGE> 35 continued
1997
---------------------------------
Carrying Amount Fair Value
--------------- ------------
Financial assets:
Cash and cash equivalents $ 32,485,100 $ 32,485,100
Available-for-sale securities 7,408,020 7,408,020
Held-to-maturity securities 49,756,978 49,859,000
Loans, net of allowance
for loan losses 583,709,446 591,041,000
Accrued interest receivable 4,993,312 4,993,312
Financial liabilities:
Deposits 459,235,746 460,673,000
FHLB advances 151,881,100 153,764,000
Short-term borrowings 28,744,191 28,744,191
Unrecognized financial instruments
(net of contractual value):
Commitments to extend credit 0 0
Standby letters of credit 0 0
Unused lines of credit 0 0
NOTE 11:
LEASES
The Bank has entered into various operating leases at several of its
branch locations. Some of the leases have renewal options. At June 30,
1998, future minimum lease payments are as follows:
1999 $ 154,030
2000 118,840
2001 92,900
2002 90,600
2003 66,200
Later Years 170,500
-------
$ 693,070
=======
Rental expense was $222,429, $203,675 and $188,188 for the years ended
June 30, 1998, 1997 and 1996, respectively.
<PAGE> 35 continued and 36
NOTE 12:
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, 1998 and 1997, the Bank had outstanding commitments to
originate loans and fund commercial construction aggregating
approximately $63,174,000 and $59,987,000 including $28,497,000 and
$18,812,000, 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 $7,075,000 and $479,000 with the remainder
at floating market rates at June 30, 1998 and 1997, 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 $10,365,000
and $9,206,000 at June 30, 1998 and 1997, respectively, with $2,118,000
and $959,000 of the letters of credit having terms ranging from seven
months to four years at June 30, 1998 and 1997, respectively. The
remaining $8,247,000 at June 30, 1998 and 1997, 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.
<PAGE> 36 continued
At June 30, 1998, the Bank had granted unused lines of credit to
borrowers aggregating approximately $30,385,000 and $5,313,000 for
commercial lines and open-end consumer lines, respectively. At June 30,
1997, the Bank had granted unused lines of credit to borrowers
aggregating approximately $7,517,000 and $3,731,000 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 $60.9 million and $56.9 million at June 30, 1998 and
1997, 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 $63.2 million and $66.3 million at June 30, 1998 and
1997, respectively.
Loans aggregating $90.1 million and $97.6 million or 13.8% and 16.7% of
the respective loan portfolios at June 30, 1998 and 1997, are secured by
multi-family real estate.
NOTE 13:
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.
NOTE 14:
ADDITIONAL CASH FLOW INFORMATION
Years Ended June 30,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
Noncash Investing and
Financing Activities
Conversion of loans to
foreclosed assets $ 4,068,122 $ 2,272,465 $ 7,014,308
Conversion of foreclosed
assets to loans $ 4,647,521 $ 6,255,412 $ 4,288,066
Additional Cash
Payment Information
Interest paid $ 31,323,755 $ 27,922,486 $ 27,791,991
Income taxes paid $ 8,640,000 $ 3,943,814 $ 6,045,000
<PAGE> 36 continued
NOTE 15:
STOCKHOLDERS' EQUITY
On October 1, 1996, 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 October 11, 1996. Each shareholder received
one additional share for each share owned on the record date. Historical
per share disclosures have been updated where applicable to account for
the stock split.
NOTE 16:
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, 1998. As a member of a
multi-employer pension plan, disclosures of plan assets and liabilities
for individual employers are not required or practicable.
Prior to 1998 the Company had established an Employee Stock Ownership
Plan (ESOP) for full-time employees age 21 years or older who had at
least one year of credited service. During fiscal 1996 the Company voted
to terminate the ESOP and distributed the assets of the Plan during
fiscal 1997.
There was no contribution expense for either of the years ended June 30,
1997 or 1996, respectively. Dividends declared on ESOP shares were
$184,610 and $334,210 for the years ended June 30, 1997 and 1996,
respectively.
The Company has 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 1998, 1997 and 1996 were $82,575, $69,691 and $134,674, respectively.
NOTE 17:
STOCK OPTION PLAN
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 1,232,496
shares of common stock.
In addition, the Board of Directors of the Company established the 1997
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 800,000 shares of common stock. No options
had been awarded under this plan at June 30, 1998.
<PAGE> 36 continued and 37
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
plans:
Shares
-------------------------------------
Weighted-
Available Under Average
to Grant Option Exercise Price
--------- ------- --------------
Balance, July 1, 1995 149,723 191,009 $ 1.684
Granted (68,000) 68,000 10.955
Exercised - (43,888) (1.581)
Forfeited 4,463 (4,463) 7.695
------- ------- ------
Balance, June 30, 1996 86,186 210,658 4.571
Granted (37,500) 37,500 15.635
Exercised - (2,595) (3.439)
Forfeited 2,090 (2,090) (10.938)
Effect of 2-for-1 Stock Split 50,776 243,473 6.232
Granted (16,600) 16,600 17.267
Exercised - (249,796) (1.973)
Forfeited 5,766 (5,766) 12.531
------- ------- ------
Balance, June 30, 1997 90,718 247,984 11.114
Granted (51,600) 51,600 21.950
Exercised - (12,714) (3.160)
Forfeited 5,979 (5,979) (13.547)
------- ------- ------
Balance, June 30, 1998 45,097 280,891 $13.413
======= ======= ======
The fair value of each option granted is estimated on the date of the
grant using the Black Scholes pricing model with the following weighted
average assumptions:
1998 1997
Dividends per share $0.42 $0.36
Risk-Free Interest Rate 5.85% 6.04%
Expected Life of Options 4 Years 4 Years
Weighted-Average Fair Value
of Options Granted During Year $8.11 $5.76
<PAGE> 37 continued
The following table further summarizes information about stock options
under the plan outstanding at June 30, 1998:
Options Outstanding
-------------------------------------------
Weighted- Weighted-
Average Average
Range of Number Remaining Exercise
Exercise Prices Outstanding Contractual Life Price
--------------------- ------------ ----------------- ----------
$1.271 to $5.021 39,062 2.04 years $2.20
$6.625 to $10.938 180,429 7.66 years $13.299
$7.00 to $8.70 32,000 8.93 years $17.783
$21.825 to $25.9375 29,400 8.19 years $24.965
Options Exercisable
----------------------------------------
Weighted-
Range of Number Average
Exercise Prices Exercisable Exercise Price
----------------- ----------- --------------
$1.271 to $5.021 39,062 $2.20
$6.625 to $10.938 22,747 $10.969
The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans, and no compensation cost has been recognized
for the Plan. Had compensation cost for the Company's Plan been
determined based on the fair value at the grant dates using Statement of
Financial Accounting Standards No. 123, the Company's net income would
have decreased by $154,900 and $90,800 and earnings per share would have
decreased by $.02 and $.01 for 1998 and 1997, respectively. The effects
of applying this statement for either recognizing compensation cost or
providing pro forma disclosures are not likely to be representative of
the effects on reported net income for future years because options vest
over several years and additional awards generally are made each year.
NOTE 18:
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
deposits and in the footnote on commitments and credit risk.
<PAGE> 37 continued
NOTE 19:
SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT
On September 30, 1996, federal legislation to recapitalize the Savings
Association Insurance Fund (SAIF) was passed requiring savings
institutions such as the Bank to pay a one-time assessment to the SAIF of
65.7 basis points, based on deposits as reported at March 31, 1995. The
assessment totaled $2,500,000 and has been included in noninterest
expense on the Company's consolidated financial statements for the year
ended June 30, 1997. This one-time assessment, net of income taxes,
reduced consolidated net income for the year ended June 30, 1997, by
approximately $1,525,000.
NOTE 20:
SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
Following is a summary of unaudited quarterly operating results for the
years ended June 30, 1998 and 1997:
1998
----------------------------------------------------
Three Months Ended
----------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- ----------- ------------
Interest income $ 14,933,696 $15,107,330 $15,858,000 $16,032,659
Interest expense 7,714,388 7,886,507 8,088,653 8,302,130
Provision for
loan losses 416,628 435,754 414,425 585,790
Net realized gains
on available-
for-sale securities 420,572 451,194 417,761 108,301
Net income 3,860,275 3,619,773 3,363,595 3,600,406
Earnings per
common share -
diluted $.47 $.44 $.41 $.44
1997
-----------------------------------------------------
Three Months Ended
-----------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- ----------- ------------
Interest income $ 13,705,391 $13,737,729 $13,941,471 $14,155,856
Interest expense 7,011,195 7,105,533 7,268,586 7,436,830
Provision for
loan losses 410,593 448,892 427,615 419,042
Net realized gains on
available-for-sale
securities 143,768 -0- 61,658 -0-
Net income 493,297 2,907,735 2,909,250 3,029,583
Earnings per
common share $.05 $.34 $.35 $.37
<PAGE> 38
NOTE 21:
CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at June 30, 1998 and 1997, and statements of
income and cash flows for the years ended June 30, 1998, 1997 and 1996,
for the parent company, Great Southern Bancorp, Inc., are as follows:
1998 1997
----------- -----------
BALANCE SHEETS
Assets
Cash $ 1,555,186 $ 51,526
Available-for-sale securities 6,347,526 7,397,168
Investment in subsidiary bank 59,487,798 53,831,963
Investment in other subsidiaries 473,351 1,564,573
Loans receivable 585,000 -
Dividends receivable - 3,000
Income taxes receivable - 283,072
Other 50,000 494,348
---------- ----------
$68,498,861 $63,625,650
========== ==========
1998 1997
----------- -----------
Liabilities and Stockholders' Equity
Income taxes payable $ 420,047 $ -
Short-term borrowings - 2,406,423
Deferred income taxes 669,921 870,860
Common stock 123,250 123,250
Additional paid-in capital 17,110,496 17,058,326
Retained earnings 84,955,740 73,980,259
Unrealized appreciation on
available-for-sale
securities, net 1,047,824 1,362,116
Treasury stock, at cost (35,828,417) (32,175,584)
---------- ----------
$68,498,861 $63,625,650
========== ==========
<PAGE> 38 continued
1998 1997 1996
----------- ----------- -----------
STATEMENTS OF INCOME
Income
Dividends from subsidiary bank $ 8,916,733 $11,952,241 $ 3,335,250
Dividends from other subsidiaries 469,109 274,913 1,227,210
Income (loss) on foreclosed assets - (24,077) 94,848
Interest and dividend income 227,200 217,360 337,122
Net realized gains on sales of
available-for-sale securities 1,397,828 205,225 680,357
Other income (loss) (69,266) 47,472 (11,655)
---------- ---------- ----------
Total income 10,941,604 12,673,134 5,663,132
---------- ---------- ----------
Expense
Operating expenses 199,972 197,677 204,967
Interest expense 25,285 39,066 -
---------- ---------- ----------
Total expense 225,257 236,743 204,967
---------- ---------- ----------
Income before income tax and
equity in undistributed
earnings of subsidiaries 10,716,347 12,436,391 5,458,165
Provision (credit) for income taxes 415,223 (40,848) 205,444
---------- ---------- ----------
Income before equity in
earnings of subsidiaries 10,301,124 12,477,239 5,252,721
Equity in undistributed
earnings of subsidiaries 4,142,925 (3,137,374) 6,041,234
---------- ---------- ----------
Net Income $14,444,049 $ 9,339,865 $11,293,955
========== ========== ==========
<PAGE> 38 continued
1998 1997 1996
STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities
Net income $14,444,049 $ 9,339,865 $11,293,955
Items not requiring (providing) cash:
Loss on low income
housing partnership 12,093 10,356 11,665
Equity in undistributed earnings
of subsidiaries (4,144,925) 3,137,376 (6,041,234)
Gain on sale of foreclosed assets - - (30,415)
Net realized gains on sales of
available-for-sale securities (1,397,828) (205,225) (680,357)
Changes in:
Dividends receivable 3,000 (3,000) 3,090
Other assets 57,505 (57,505) -
Income taxes 703,119 (340,577) (18,071)
---------- ---------- ----------
Net cash provided by
operating activities 9,677,013 11,881,290 4,538,633
---------- ---------- ----------
Cash Flows From Investing Activities
Net loans originated (585,000) - -
Proceeds from sale of
foreclosed assets - 324,900 138,799
Purchase of available-for-sale
Securities (1,427,438) (1,845,970) (4,262,729)
Proceeds from sale of
available-for-sale securities 3,359,677 1,376,123 2,942,647
Capitalized costs on
foreclosed assets - - (1,151)
Investment in trust company (50,000) - -
Partnership distribution 5,062 3,542 5,332
---------- ---------- ----------
Net cash provided by (used in)
investing activities 1,302,301 (141,405) (1,177,102)
---------- ---------- ----------
Cash Flows From Financing Activities
Net increase (decrease) in
short-term borrowings (2,406,423) 2,406,423 -
Dividends paid (3,468,568) (3,277,494) (3,132,035)
Stock options exercised 94,118 797,113 279,272
Treasury stock purchased (3,694,781) (15,584,673) (3,350,388)
Net cash used in financing activities(9,475,654) (15,658,631) (6,203,151)
---------- ---------- ----------
Increase (Decrease) in Cash 1,503,660 (3,918,746) (2,841,620)
Cash, Beginning of Year 51,526 3,970,272 6,811,892
---------- ---------- ----------
Cash, End of Year $ 1,555,186 $ 51,526 $ 3,970,272
========== ========== ==========
Additional Cash Payment Information
Income taxes paid (refunded) $ (250,772) $ 61,241 $ 127,570
<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, 1998 and
1997, 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, 1998. 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, 1998 and 1997, and
the results of its operations and its cash flows for each of the three
years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles.
/s/ Baird, Kurtz & Dobson
August 19, 1998
Springfield, Missouri
<PAGE> 40
Directors of Great Southern Bancorp, Inc.
(There is an individual photo of each director.)
William V. Turner
CHAIRMAN OF THE BOARD, PRESIDENT, and
CHIEF EXECUTIVE OFFICER
William E. Barclay
PREIDENT, AUTO MAGIC / JIFFY LUBE
SPRINGFIELD, MO
William K. Powell
PRESIDENT, HERRMAN LUMBER COMPANY
SPRINGFIELD, MO
Larry D. Frazier
GENERAL MANAGER, WHITE RIVER VALLEY
ELECTRIC COOPERATIVE, HOLLISTER, MO
Joseph W. Turner
EXECUTIVE VICE PRESIDENT and GENERAL COUNSEL
Officers of Great Southern Bancorp, Inc.
(This is a group picture of the officers.)
left to right:
Don M. Gibson
Executive Vice President
Chief Operating Officer and Secretary
Joseph W. Turner
Executive Vice President and General Counsel
William V. Turner
Chairman of the Board, President, and Chief Executive Officer
<PAGE> 41
Officers of Great Southern Bank
(There is an individual photo of each officer.)
William V. Turner
Chairman of the Board and
Chief Executive Officer
a native of Mansfield, MO
Don M. Gibson
Vice Chairman, Chief Financial Officer,
Chief Operating Officer & Secretary
a native of Springfield, MO
Joseph W. Turner
President
a native of Springfield, MO
Richard Wilson
Senior Vice President
and Controller
a native of Aurora, MO
Mike Lawson
First Vice President and
Commercial Business Development
a native of Monett, MO
Steve Mitchem
First Vice President and
Senior Lending Officer
a native of Cabool, MO
Darrin Newbold
President, Aurora Bank
a native of Aurora, MO
Bret Aegerter
Vice President,
Branch Administration
a native of Nebraska
Mary Allison
Vice President, Consumer Loans
a native of Northern Illinois
Gene Barnes
Vice president and
Residential Lending Manager
a native of Miami, OK
<PAGE> 41 continued
Teresa Chasteen
Vice President and
Director of Marketing
a native of Mountain Grove, MO
Tracy Crider
Vice President and
Construction Loan Officer
a native of Dixon, MO
Debbie Flowers
Vice President and
Commercial Loan Administration
a native of Lebanon, MO
Doug Marrs
Vice President, Operations
a native of Canyon City, CO
Bruce Menke
Vice President and
Commercial Loan Officer
a native of PoughKeepsie, NY
Bob Ogden
Vice President and
Commercial Loan Officer
a native of Licking, MO
Eric Piel
Vice President and
Commercial Business Development
a native of St. Louis, MO
Paul Potthoff
Vice President and
Commercial Loan Officer
a native of Dexter, MO
Matt Snyder
Vice President and
Director of Human Resources
a native of Springfield, MO
Lin Thomason
Vice President and
Corporate Business Development
a native of Deslodge, MO
<PAGE> Back Cover
(This is the back cover which was a smaller picture similar to the
picture that was on the front cover. The majority of the page is a solid
maroon.)
</TABLE>
