UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number 0-18082
GREAT SOUTHERN BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 43-1524856
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(State incorporation) (IRS Employer
Identification Number)
1451 E. Battlefield, Springfield, Missouri 65804
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(Address of principal executive offices) (Zip Code)
(417) 887-4400
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. / /
The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant on March 17, 2000, computed by reference to the
closing price of such shares, was $136,666,200. At March 17, 2000, 7,288,864
shares of Common Stock, par value $.01 per share, were outstanding.
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TABLE OF CONTENTS
Page
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PART I
ITEM 1. BUSINESS...............................................................................1
Great Southern Bancorp, Inc.....................................................................1
Great Southern Bank.............................................................................1
Forward-Looking Statements......................................................................2
Primary Market Area.............................................................................2
Lending Activities..............................................................................3
Loan Portfolio Composition......................................................................5
Originations, Purchases, Sales and Servicing of Loans..........................................11
Allowance for Losses on Loans and Foreclosed Assets............................................13
Loan Delinquencies and Defaults................................................................15
Classified Assets..............................................................................17
Investment Activities..........................................................................19
Sources of Funds...............................................................................21
Subsidiaries...................................................................................24
Competition....................................................................................25
Employees......................................................................................26
Government Supervision and Regulation..........................................................26
Federal and State Taxation.....................................................................32
ITEM 2. PROPERTIES............................................................................34
ITEM 3. LEGAL PROCEEDINGS.....................................................................35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................35
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT..................................................35
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..................................................................36
ITEM 6. SELECTED FINANCIAL DATA...............................................................37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION.........................................39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
INFORMATION .........................................................................56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..................................................104
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................104
ITEM 11. EXECUTIVE COMPENSATION...............................................................105
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..........................................................................108
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................110
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.................................................................110
SIGNATURES
INDEX TO EXHIBITS
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PART I
ITEM 1. BUSINESS.
THE COMPANY
GREAT SOUTHERN BANCORP, INC.
Great Southern Bancorp, Inc. ("Bancorp" or "Company") is a bank holding
company which, as of December 31, 1999, owned directly all of the stock of Great
Southern Bank ("Great Southern" or the "Bank") and other non-banking
subsidiaries. Bancorp was incorporated under the laws of the State of Delaware
in July 1989 as a unitary savings and loan holding company. After receiving the
approval of the Federal Reserve Bank of St. Louis (the "Federal Reserve" or
"FRB"), the Company became a one-bank holding company on June 30, 1998, upon the
conversion on June 30, 1998, of Great Southern to a Missouri-chartered trust
company.
As a Delaware corporation, the Company is authorized to engage in any
activity that is permitted by the Delaware General Corporation Law and is not
prohibited by law or regulatory policy. The Company currently conducts its
business as a bank holding company. Through the bank holding company structure,
it is possible to expand the size and scope of the financial services offered by
the Company beyond those offered by the Bank. The bank holding company structure
provides the Company with greater flexibility than the Bank would have to
diversify its business activities, through existing or newly formed
subsidiaries, or through acquisitions or mergers of other financial institutions
as well as other companies. At December 31, 1999, Bancorp's consolidated assets
were $965 million, consolidated net loans were $767 million, consolidated
deposits were $626 million and consolidated stockholders' equity was $69
million. The assets of the Company consist of the stock of Great Southern, the
stock of other financial services companies, interest in a local trust company
and cash.
Through subsidiaries of the Bank, the Company offers insurance, appraisal,
travel, discount brokerage and related services, which are discussed further
below. The activities of the Company are funded by retained earnings and through
dividends from Great Southern and borrowings from third parties. Activities of
the Company may also be funded through sales of additional securities or through
income generated by other activities of the Company. At this time, there are no
plans regarding such activities.
The executive offices of the Company are located at 1451 East Battlefield,
Springfield, Missouri 65804, and its telephone number at that address is (417)
887-4400.
GREAT SOUTHERN BANK
Great Southern was incorporated as a Missouri-chartered mutual savings and
loan association in 1923, and in 1989 was converted to a Missouri-chartered
stock savings and loan association. In 1994, Great Southern changed to a federal
savings bank charter and then on June 30, 1998, changed to a Missouri-chartered
trust company (the equivalent of a commercial bank charter). Headquartered in
Springfield, Missouri, Great Southern offers a broad range of banking services
through its 27 branches located in southwestern and central Missouri. At
December 31, 1999, the Bank had total assets of $958 million, deposits of $627
million and stockholders' equity of $69 million, or 7.3% of total assets. Its
deposits are insured by the Savings Association Insurance Fund ("SAIF") to the
maximum levels permitted by the Federal Deposit Insurance Corporation ("FDIC").
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Great Southern is principally engaged in the business of originating
residential and commercial real estate loans, other commercial and consumer
loans and funding these loans through attracting deposits from the general
public, originating brokered deposits and borrowing from the Federal Home Loan
Bank of Des Moines (the "FHLBank") and others.
For many years, Great Southern has followed a strategy of emphasizing
quality loan origination through residential, commercial and consumer lending
activities in its local market area. The goal of this strategy has been to
maintain its position as one of the leading providers of financial services in
its market area, while simultaneously diversifying assets and reducing interest
rate risk by originating and holding adjustable-rate loans in its portfolio and
selling fixed-rate loans in the secondary market. The Bank continues to place
primary emphasis on residential mortgage and other real estate lending while
also expanding and increasing its originations of commercial business and
consumer loans.
The main office of the Bank is located at 1451 East Battlefield,
Springfield, Missouri 65804 and its telephone number at that address is (417)
887-4400.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-K and in future filings by the Company with the
Securities and Exchange Commission (the "SEC"), in the Company's press releases
or other public or shareholder communications, and in oral statements made with
the approval of an authorized executive officer, the words or phrases "will
likely result" "are expected to," "will continue," "is anticipated," "estimate,"
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including, among other things, changes in economic conditions in the Company's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Company's market area and competition,
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to advise
readers that the factors listed above could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from any opinions or statements expressed with respect to
future periods in any current statements.
The Company does not undertake-and specifically declines any obligation- to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
PRIMARY MARKET AREA
Great Southern's primary market area encompasses 15 counties in
southwestern and central Missouri. The Bank's branches and ATMs support deposit
and lending activities throughout the region, serving such diversified markets
as Springfield, Joplin, the resort areas of Branson and Lake of the Ozarks, and
various smaller communities in the Bank's market area. Management believes that
the Bank's share of the deposit and lending markets in its market area is less
than 10% and its affiliates have an even smaller percent, with the exception of
the travel agency, which may have a larger percent.
Great Southern's largest concentration of loans and deposits is in the
Greater Springfield area. With a population of approximately 306,000, the
Greater Springfield area is the third largest metropolitan area in Missouri.
Employment in this area is diversified, including small and medium-sized
manufacturing concerns, service industries, especially in the resort and leisure
activities sectors, agriculture, the federal government,
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and a major state university. Springfield is also a regional health care center.
The unemployment rate in this area is, and has consistently been, below the
national average.
The next largest concentration of loans is in the Branson area, which is
located approximately 35 miles south of Springfield and is one of the fastest
growing areas in Missouri. The region is a vacation and entertainment center
attracting an estimated 6 million tourists annually to its theme parks, resorts,
country music shows and other recreational facilities. As a result of the rapid
growth of the Branson area, property values increased at unusually high rates in
the early 1990s. This has also provided for increased loan demand and a more
volatile lending market than has previously been present in the Branson area.
Property values have experienced downward pressure during the past few years,
partly as a result of this rapid increase.
A significant portion of the Bank's loan originations have been secured by
properties in the two county region that includes the Branson area.
Approximately $141 million, or 17%, of the total loan portfolio at December 31,
1999, was secured by commercial real estate, commercial construction, other
residential properties, one- to four-family residential properties, one- to
four-family construction properties, and consumer loans.
LENDING ACTIVITIES
GENERAL
From its beginnings in 1923 through the early 1980s, Great Southern
primarily made long-term, fixed-rate residential real estate loans that it
retained in its loan portfolio. Beginning in the early 1980s, Great Southern
increased its efforts to originate short-term and adjustable-rate loans.
Substantially all of the adjustable-rate mortgage loans originated by Great
Southern are held for its own portfolio and substantially all of the long-term
fixed-rate residential mortgage loans originated by Great Southern are sold
immediately in the secondary market.
Beginning in the mid-1990s, Great Southern increased its efforts to
originate commercial real estate and other residential loans, primarily with
adjustable rates or shorter-term fixed rates. During the past 24 months, some
competitor banking organizations have merged with larger institutions and
changed their business practices or moved operations away from the local area,
and others have consolidated operations from the local area to larger cities.
This has provided Great Southern expanded opportunity in these areas as well as
in the origination of commercial business and consumer loans, primarily the
indirect automobile area. In addition to origination of these loans, the Bank
has expanded and enlarged its relationships with smaller banks to purchase
participations (at par, with no servicing costs) in loans the smaller banks
originate but are unable to retain in their portfolios due to capital
limitations. The Bank uses the same underwriting guidelines in evaluating these
participations as it does in its direct loan originations.
One of the principal historical lending activities of Great Southern is the
origination of fixed and adjustable-rate conventional residential real estate
loans to enable borrowers to purchase or refinance owner-occupied homes. Great
Southern originates a variety of conventional, residential real estate mortgage
loans, principally in compliance with Freddie Mac and Fannie Mae standards for
resale in the secondary market. Great Southern promptly sells most of the
fixed-rate residential mortgage loans that it originates. Depending on market
conditions, the ongoing servicing of these loans is at times retained by Great
Southern and at other times released to the purchaser of the loan. Great
Southern retains substantially all of the adjustable-rate mortgage loans in its
portfolio.
Another principal lending activity of Great Southern, which has become more
prevalent in recent years, is the origination of commercial real estate and
construction loans. Since the early 1990s, this area
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of lending has been an increasing percentage of the loan portfolio and accounts
for approximately 38% of the portfolio at December 31, 1999.
In addition, Great Southern in recent years has increased its emphasis on
the origination of other commercial loans, home equity loans, consumer loans and
student loans, and is also an issuer of letters of credit. See "-- Other
Commercial Lending," "- Classified Assets," and "Loan Delinquencies and
Defaults" below. Letters of credit are contingent obligations and are not
included in the Bank's loan portfolio.
Great Southern has a policy of obtaining collateral for substantially all
real estate loans. The percentage of collateral value Great Southern will loan
on real estate and other property varies based on factors including, but not
limited to, the type of property and its location and the borrower's credit
history. As a general rule, Great Southern will loan up to 80% of the appraised
value on one- to four-family residential property and will loan up to an
additional 15% with private mortgage insurance for the loan amount above the 80%
level. For commercial real estate and other residential real property loans,
Great Southern generally loans up to a maximum of 80% of the appraised value.
The origination of loans secured by other property are considered and determined
on an individual basis by management with the assistance of any industry guides
and other information which may be available.
Loan applications are approved at various levels of authority, depending on
the type, amount and loan-to-value ratio of the loan. Loan commitments of more
than $500,000 ($350,000 in the case of fixed-rate one-to four-family residential
loans for resale) must be approved by Great Southern's loan committee. The loan
committee is comprised of the Chairman of the Bank, as chairman of the
committee, and other senior officers of the Bank involved in lending activities.
Although Great Southern is permitted under applicable regulations to
originate or purchase loans and loan participations secured by real estate
located in any part of the United States, the Bank has concentrated its lending
efforts in Missouri and Northern Arkansas, with the largest concentration of its
lending activity being in southwestern and central Missouri.
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LOAN PORTFOLIO COMPOSITION
The following table sets forth information concerning the composition of
the Bank's loan portfolio in dollar amounts and in percentages (before
deductions for loans in process, deferred fees and discounts and allowance for
loan losses) as of the dates indicated. The table is based on information
prepared in accordance with generally accepted accounting principles and is
qualified by reference to financial statements and the notes thereto.
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December 31, June 30,
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1999 1998 1998 1997 1996
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Amount % Amount % Amount % Amount % Amount %
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(Dollars in thousands)
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Real Estate Loans:
Residential
One- to four- family $208,466 25.3% $217,120 29.2% $217,688 31.0% $243,006 39.2% $247,294 42.3%
Other residential 76,926 9.4 85,828 11.5 89,141 12.7 95,886 15.5 81,191 13.9
Commercial 251,338 30.5 261,201 35.1 244,016 34.8 191,556 30.9 172,478 29.5
Residential Construction:
One- to four-family 39,795 4.8 33,292 4.4 16,032 2.3 9,529 1.5 13,455 2.3
Other residential 7,106 .9 6,553 .9 5,993 .9 4,243 .7 13,533 2.3
Commercial construction 63,722 7.8 19,952 2.7 27,156 3.9 21,932 3.5 16,518 2.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans 647,353 78.7 623,946 83.8 600,026 85.6 566,152 91.3 544,469 93.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Other Loans:
Consumer loans:
Guaranteed student loans 4,067 .5 15,931 2.1 12,736 1.8 11,592 1.9 11,256 1.9
Automobile 55,625 6.8 37,152 5.0 23,120 3.3 6,006 1.0 6,062 1.1
Home equity and improvement 14,431 1.8 9,292 1.3 5,849 .8 4,183 .7 3,688 0.6
Other 255 --- 992 .1 4,862 .7 5,885 .9 5,921 1.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total Consumer loans 74,378 9.1 63,367 8.5 46,567 6.6 27,666 4.5 26,927 4.6
Other commercial loans 100,419 12.2 57,179 7.7 54,722 7.8 25,959 4.2 13,737 2.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total other loans 174,797 21.3 120,546 16.2 101,290 14.4 53,625 8.7 40,664 6.9
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans 822,150 100.0% 744,492 100.0% 701,316 100.0% 619,777 100.0% 585,133 100.0%
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Less:
Loans in process 36,048 28,823 28,497 18,812 22,383
Deferred fees and discounts 2,002 1,779 2,774 3,493 3,689
Allowance for loan losses 17,293 16,928 16,373 15,524 14,356
-------- -------- -------- -------- --------
Total loans receivable, net $766,807 $696,962 $653,672 $581,948 $544,705
======== ======== ======== ======== ========
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The following table shows the fixed- and adjustable-rate composition of the
Bank's loan portfolio at the dates indicated. The table is based on information
prepared in accordance with generally accepted accounting principles.
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December 31, June 30,
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1999 1998 1998 1997 1996
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Amount % Amount % Amount % Amount % Amount %
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(Dollars in thousands)
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Fixed-Rate Loans:
Real Estate Loans
Residential
One- to four- family $ 5,960 .7% $ 11,659 1.6 $ 11,245 1.6% $ 10,544 1.7% $ 11,158 1.9%
Other Residential 37,079 4.5 39,661 5.3 34,757 5.0 34,467 5.6 34,413 5.9
Commercial 37,636 4.6 60,757 8.2 28,004 4.0 5,865 1.0 25,374 4.3
-------- ----- -------- ----- -------- ----- --------- ----- -------- ---
Total real estate loans 80,675 9.8 112,077 15.1 74,006 10.6 50,876 8.3 70,945 12.1
Consumer loans 54,829 6.7 37,080 5.0 27,319 3.9 10,769 1.7 12,844 2.2
Other commercial loans 4,266 .5 11,956 1.6 1,645 .2 502 .1 415 0.1
-------- ----- -------- ----- -------- ----- --------- ----- -------- ---
Total fixed-rate loans 139,770 17.0 161,113 21.7 102,970 14.7 62,147 10.1 84,204 14.4
-------- ----- -------- ----- -------- ----- --------- ----- -------- -----
Adjustable-Rate Loans:
Real Estate Loans
Residential
One- to four- family 202,506 24.6 205,461 27.6 206,443 29.4 232,462 37.5 236,136 40.4
Other Residential 39,847 4.9 46,167 6.2 54,384 7.8 61,419 9.9 46,778 8.0
Commercial 213,702 26.0 200,444 26.9 216,013 30.8 185,691 30.0 147,104 25.1
Residential construction:
One- to four-family 39,795 4.8 33,292 4.4 16,032 2.3 9,529 1.5 13,455 2.3
Other residential 7,106 .9 6,553 .9 5,993 .9 4,243 .7 13,533 2.3
Commercial construction 63,722 7.7 19,952 2.7 27,156 3.9 21,932 3.5 16,518 2.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans 566,678 68.9 511,869 68.7 526,021 75.1 515,276 83.1 473,524 80.9
Consumer loans 19,549 2.4 26,287 3.5 19,248 2.7 16,897 2.7 14,083 2.4
Other commercial loans 96,153 11.7 45,223 6.1 53,077 7.5 25,457 4.1 13,322 2.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- ---
Total adjustable-rate loans 682,380 83.0 583,339 78.3 598,346 85.3 557,630 89.9 500,929 85.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans 822,150 100.0% 744,492 100.0% 701,316 100.0% 619,777 100.0% 585,133 100.0%
===== ===== ===== ===== =====
Less:
Loans in process 36,048 28,823 28,497 18,812 22,383
Deferred fees and discounts 2,002 1,779 2,774 3,493 3,689
Allowance for loan losses 17,293 16,928 16,373 15,524 14,356
-------- -------- -------- -------- --------
Total loans receivable, net $766,807 $696,962 $653,672 $581,948 $544,705
======== ======== ======== ======== ========
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ENVIRONMENTAL ISSUES
Loans secured with real property, whether commercial, residential or other,
may have a material, negative effect on the financial position and results of
operations of the lender if the collateral is environmentally contaminated. The
result can be, but is not necessarily limited to, liability for the cost of
cleaning up the contamination imposed on the lender by certain federal and state
laws, a reduction in the borrower's ability to pay because of the liability
imposed upon it for any clean up costs, a reduction in the value of the
collateral because of the presence of contamination or a subordination of
security interests in the collateral to a super priority lien securing the clean
up costs by certain state laws.
Management of the Bank is aware of the risk that the Bank may be negatively
affected by environmentally contaminated collateral and attempts to control such
risk through commercially reasonable methods, consistent with guidelines arising
from applicable government or regulatory rules and regulations, and to a more
limited extent publications of the lending industry. Management currently is
unaware (without, in many circumstances specific inquiry or investigation of
existing collateral, some of which was accepted as collateral before risk
controlling measures were implemented) of any environmental contamination of
real property securing loans in the Bank's portfolio that would subject the Bank
to any material risk. No assurance can be made, however, that the Bank will not
be adversely affected by environmental contamination.
RESIDENTIAL REAL ESTATE LENDING
At December 31, 1999 and 1998, loans secured by residential real estate
totaled $285 million and $303 million, respectively, and represented
approximately 34.7% and 40.7%, respectively, of the Bank's total loan portfolio.
Compared to historical rate levels, fixed rates were low during the early
portion of the year ended December 31, 1999 and the short fiscal year ended
December 31, 1998. This caused a higher than normal level of refinancing of
adjustable-rate loans into fixed-rate loans during the two periods, and
accounted for the decline in the Bank's residential real estate loan portfolio
during these two periods.
The Bank currently is originating adjustable-rate residential mortgage
loans primarily with one-year adjustment periods. Rate adjustments are based
upon changes in prevailing rates for one-year U.S. Treasury securities, and are
generally limited to 2% maximum annual adjustments as well as a maximum
aggregate adjustment over the life of the loan. Accordingly, the interest rates
on these loans typically may not be as rate sensitive as is the Bank's cost of
funds. Generally, the Bank's adjustable-rate mortgage loans are not convertible
into fixed-rate loans, do not permit negative amortization of principal and
carry no prepayment penalty.
The Bank's portfolio of adjustable-rate mortgage loans also includes a
number of loans with different adjustment periods, without limitations on
periodic rate increases and rate increases over the life of the loans or which
are tied to other short-term market indices. These loans were originated prior
to the industry standardization of adjustable-rate loans. Since adjustable-rate
mortgage loans have not been subject to an interest rate environment which
causes them to adjust to the maximum, such loans entail unquantifiable risks
resulting from potential increased payment obligations on the borrower as a
result of upward repricing. Further, the adjustable-rate mortgages offered by
Great Southern, as well as by many other financial institutions, sometimes
provide for initial rates of interest below the rates which would prevail were
the index used for pricing applied initially. Compared to fixed-rate mortgage
loans, these loans are subject to increased risk of delinquency or default as
the higher, fully-indexed rate of interest subsequently comes into effect in
replacement of the lower initial rate. The Bank has not experienced a
significant increase in delinquencies in adjustable-rate mortgage loans due to a
relatively low interest rate environment in recent years.
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In underwriting one- to four-family residential real estate loans, Great
Southern evaluates the borrower's ability to make monthly payments and the value
of the property securing the loan. It is the policy of Great Southern that all
loans in excess of 80% of the appraised value of the property be insured by a
private mortgage insurance company approved by Great Southern for the amount of
the loan in excess of 80% of the appraised value. In addition, Great Southern
requires borrowers to obtain title and fire and casualty insurance in an amount
not less than the amount of the loan. Real estate loans originated by the Bank
generally contain a "due on sale" clause allowing the Bank to declare the unpaid
principal balance due and payable upon the sale of the property securing the
loan. In the case of fixed-rate loans, the Bank generally enforces these due on
sale clauses to the extent permitted by law.
COMMERCIAL REAL ESTATE AND CONSTRUCTION LENDING
Commercial real estate lending has traditionally been a part of Great
Southern's business activities. Beginning in fiscal 1986, Great Southern
expanded its commercial real estate lending in order to increase the yield on,
and the proportion of interest rate sensitive loans in, its portfolio. Starting
early in fiscal 1988, Great Southern reduced its originations of commercial real
estate loans due to the lower spreads available at that time and the Bank's
increased levels of problem loans in this area. In addition, the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") further
limited the Bank's commercial real estate lending, due to limits imposed on the
amounts and types of loans the Bank would be permitted to originate. See
"Regulation." Starting in fiscal 1992, Great Southern increased its origination
of commercial real estate and commercial business loans and has accelerated the
rate of increase in recent years.
Great Southern expects to continue to maintain or increase the current
percentage of commercial real estate loans in its total loan portfolio by
originating loans secured by commercial real estate, subject to commercial real
estate and other market conditions and to applicable regulatory restrictions.
See "Regulation" below.
At December 31, 1999 and 1998, loans secured by commercial real estate
totaled $251 million and $261 million, respectively, or approximately 30.5% and
35.1%, respectively, of the Bank's total loan portfolio. At December 31, 1999
and 1998, construction loans secured by projects under construction and the land
on which the projects are located aggregated $111 million and $60 million,
respectively, or 13.5% and 8.0%, respectively, of the Bank's total loan
portfolio. The majority of the Bank's commercial real estate loans have been
originated with adjustable rates of interest, the majority of which are tied to
the Bank's prime rate. At the date of origination, the amounts of the loan
commitments with respect to substantially all of these loans did not exceed 80%
of the appraised value of the properties securing the loans.
The Bank's construction loans generally have terms of one year or less. The
construction loan agreements for one- to four-family projects generally provide
that principal payments are required as individual condominium units or
single-family houses are built and sold to a third party. This insures the
remaining loan balance, as a proportion to the value of the remaining security,
does not increase. Loan proceeds are disbursed in increments as construction
progresses. Generally, the amount of each disbursement is based on the
construction cost estimate of an independent architect, engineer or qualified
fee inspector who inspects the project in connection with each disbursement
request. Normally, Great Southern's commercial real estate and other residential
construction loans are made either as the initial stage of a combination loan
(i.e., with a
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commitment from the Bank to provide permanent financing upon completion of the
project) or with a commitment from a third party to provide permanent financing.
The Bank's commercial real estate and construction loans generally involve
larger principal balances than do its residential loans. Current law subjects
state chartered banks to the same loans-to-one borrower restrictions that are
applicable to national banks with limited provisions for exceptions. In general,
the national bank standard restricts loans to a single borrower to no more than
15% of a bank's unimpaired capital and unimpaired surplus, plus an additional
10% if the loan is collateralized by certain readily marketable collateral.
(Real estate is not included in the definition of "readily marketable
collateral.") As computed on the basis of the Bank's unimpaired capital and
surplus at December 31, 1999, this limit was approximately $13.0 million. See
"Regulation." At December 31, 1999 the Bank was in compliance with the
loans-to-one borrower limit.
Commercial real estate and construction lending generally affords the Bank
an opportunity to receive interest at rates higher than those obtainable from
residential lending and to receive higher origination and other loan fees. In
addition, commercial real estate and construction loans are generally made with
adjustable rates of interest or, if made on a fixed-rate basis, for relatively
short terms. Nevertheless, commercial real estate lending entails significant
additional risks as compared with residential mortgage lending. Commercial real
estate loans typically involve large loan balances to single borrowers or groups
of related borrowers but generally involve lower loan-to-value ratios. In
addition, the payment experience on loans secured by commercial properties is
typically dependent on the successful operation of the related real estate
project and thus may be subject, to a greater extent, to adverse conditions in
the real estate market or in the economy generally.
Construction loans also involve additional risks attributable to the fact
that loan funds are advanced upon the security of the project under
construction, which is of uncertain value prior to the completion of
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, delays arising from labor problems, material shortages, and
other unpredictable contingencies, it is relatively difficult to evaluate
accurately the total loan funds required to complete a project, and the related
loan-to-value ratios. See also the discussion under the headings "- Classified
Assets" and "- Loan Delinquencies and Defaults" below.
OTHER COMMERCIAL LENDING
At December 31, 1999 and 1998, respectively, Great Southern had $100.4
million and $57.2 million in other commercial loans outstanding, or 12.2% and
7.7%, respectively, of the Bank's total loan portfolio. Great Southern's other
commercial lending activities encompass loans with a variety of purposes and
security, including loans to finance accounts receivable, inventory and
equipment.
Great Southern expects to continue to maintain or increase the current
percentage of other commercial loans in its total loan portfolio by originating
loans, subject to market conditions and to applicable regulatory restrictions.
See "Supervision and Regulation" below.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income and which are secured by real property whose value tends to be more
easily ascertainable, other commercial loans are of higher risk and typically
are made on the basis of the borrower's ability to make repayment from the cash
flow of the borrower's business. Commercial loans are generally secured by
business assets, such as accounts receivable, equipment and inventory. As a
result, the availability of funds for the repayment of other commercial loans
9
<PAGE>
may be substantially dependent on the success of the business itself. Further,
the collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business.
The Bank's management recognizes the generally increased risks associated
with other commercial lending. Great Southern's commercial lending policy
emphasizes complete credit file documentation and analysis of the borrower's
character, capacity to repay the loan, the adequacy of the borrower's capital
and collateral as well as an evaluation of the industry conditions affecting the
borrower. Analysis of the borrower's past, present and future cash flows is also
an important aspect of Great Southern's credit analysis. The majority of Great
Southern's commercial loans have been to borrowers in southwestern and central
Missouri. Great Southern intends to continue its commercial lending in this
geographic area.
As part of its commercial lending activities, Great Southern issues letters
of credit and receives fees averaging approximately 1% of the amount of the
letter of credit per year. At December 31, 1999, Great Southern had 68 letters
of credit outstanding in the aggregate amount of $13.6 million. Approximately
94% of the aggregate amount of these letters of credit were secured, including
one $8.2 million letter of credit, secured by real estate, which was issued to
enhance the issuance of housing revenue refunding bonds.
CONSUMER LENDING
Great Southern management views consumer lending as an important component
of its business strategy. Specifically, consumer loans generally have short
terms to maturity, adjustable rates or both, thus reducing Great Southern's
exposure to changes in interest rates, and carry higher rates of interest than
do residential mortgage loans. In addition, Great Southern believes that the
offering of consumer loan products helps to expand and create stronger ties to
its existing customer base.
Great Southern offers a variety of secured consumer loans, including
automobile loans, home equity loans and loans secured by savings deposits. In
addition, Great Southern also offers home improvement loans, guaranteed student
loans and unsecured consumer loans. Consumer loans totaled $74.4 million and
$63.4 million at December 31, 1999 and 1998, respectively, or 9.1% and 8.5%,
respectively, of the Bank's total loan portfolio.
The underwriting standards employed by the Bank for consumer loans include
a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. Although creditworthiness of the applicant is of primary consideration,
the underwriting process also includes a comparison of the value of the
security, if any, in relation to the proposed loan amount.
Beginning in fiscal year June 30, 1998, the Bank implemented indirect
lending relationships, primarily with automobile dealerships. Through these
dealer relationships, the dealer completes the application with the consumer and
then submits it to the Bank for credit approval. While the Bank's initial
concentrated effort has been on automobiles, the program is available for use
with most tangible products where financing of the product is provided through
the seller.
Student loans are underwritten in compliance with the regulations of the US
Department of Education for the Federal Family Education Loan Programs
("FFELP"). The FFELP loans are administered and guaranteed by the Missouri
Coordinating Board for Higher Education as long as the Bank complies with the
regulations. The Bank has contracted with the Missouri Higher Education Loan
Authority (the "MOHELA") to originate and service these loans and to purchase
these loans during the grace period
10
<PAGE>
immediately prior to the loans beginning their repayment period. This repayment
period is generally at the time the student graduates or does not maintain the
required hours of enrollment.
Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciable assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower. In addition,
consumer loan collections are dependent on the borrower's continuing financial
strength, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of various
federal and state laws, including federal and state consumer bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans. Such
loans may also give rise to claims and defenses by a consumer loan borrower
against an assignee of such loan such as the Bank, and a borrower may be able to
assert against such assignee claims and defenses which it has against the seller
of the underlying collateral.
ORIGINATIONS, PURCHASES, SALES AND SERVICING OF LOANS
The Bank originates loans through internal loan production personnel
located in the Bank's main bank and branch offices. Walk-in customers and
referrals from real estate brokers and builders are also important sources of
loan originations.
Management does not expect the high growth of originations experienced
during the past five years to continue. However, as long as the lower interest
rate environment continues, there is a higher level of financing and refinancing
expected than would exist in a higher rate environment.
Great Southern may also purchases whole real estate loans and participation
interests in real estate loans from private investors, such as other banks,
thrift institutions and life insurance companies. Great Southern may limit its
ability to control its credit risk when it purchases participations in such
loans. The terms of participation agreements vary; however, generally Great
Southern may not have direct access to the borrower or information about the
borrower, and the institution administering the loan may have some discretion in
the administration of performing loans and the collection of non-performing
loans.
Beginning in fiscal June 30, 1998, Great Southern increased the number and
amount of commercial real estate and commercial business loan participations.
Due to changes in the financial institutions market locally, there have been
several experienced bank executives start up new banks. These banks do not have
the capital to handle larger commercial credits. Great Southern subjects these
loans to the normal underwriting standards used for originated loans and rejects
any credits that do not meet those guidelines. The originating bank retains the
servicing of these loans. The bank purchased $3.1 million of these loans in the
fiscal year ended December 31, 1999 and $5.8 million in the six months ended
December 31, 1998.
There have been no whole loan purchases by the Bank in the last five years.
At December 31, 1999 and 1998, approximately $7.0 million, or .9% and $7.5
million, or 1.0%, respectively, of the Bank's total loan portfolio consisted of
purchased whole loans.
Great Southern also sells whole real estate loans and participation
interests in real estate loans to Freddie Mac as well as private investors, such
as other banks, thrift institutions and life insurance companies. These loans
and loan participations are generally sold without recourse and for cash in
amounts equal to the unpaid principal amount of the loans or loan participations
determined using present value yields to the
11
<PAGE>
buyer. The sale amounts generally produce gains to the Bank and allow a margin
for servicing income on loans when the servicing is retained by the Bank.
However, loan participations sold in recent years have primarily been with Great
Southern releasing control of the servicing of the loan.
The Bank sold one- to four-family whole real estate loans and loan
participations in aggregate amounts of $32.2 million, $26.1 million and $72.6
million during 1999, the short fiscal year ended December 31, 1998 and the
fiscal year ended June 30, 1998, respectively. Sales of whole real estate loans
and participations in real estate loans generally can be beneficial to the Bank
since these sales generally generate income at the time of sale, produce future
servicing income on loans where servicing is retained, provide funds for
additional lending and other investments, and increase liquidity.
Great Southern also sells guaranteed student loans to the MOHELA at the
time the borrower is scheduled to begin making repayments on the loans. These
loans are generally sold with limited recourse and for cash in amounts equal to
the unpaid principal amount of the loans and a premium based on average borrower
indebtedness. The premium is based on a sliding scale with a higher premium paid
for a larger average borrower indebtedness and a lower premium paid for a
smaller average borrower indebtedness.
The Bank sold guaranteed student loans in aggregate amounts of $20.8
million, $3.1 million and $9.7 million during 1999, the short fiscal year ended
December 31, 1998 and the fiscal year ended June 30, 1998, respectively. Sales
of guaranteed student loans generally can be beneficial to the Bank since these
sales remove the burdensome servicing requirements of these types of loans once
the borrower begins repayment.
Gains, losses and transfer fees on sales of loans and loan participations
are recognized at the time of the sale. When real estate loans and loan
participations sold have an average contractual interest rate that differs from
the agreed upon yield to the purchaser (less the agreed upon servicing fee),
resulting gains or losses are recognized in an amount equal to the present value
of the differential over the estimated remaining life of the loans. Any
resulting discount or premium is accreted or amortized over the same estimated
life using a method approximating the level yield interest method. When real
estate loans and loan participations are sold with servicing released, as the
Bank primarily does, an additional fee is received for the servicing rights. Net
gains and transfer fees on sales of loans for 1999, the short fiscal year ended
December 31, 1998 and fiscal year ended June 30, 1998 were $1,098,000, $386,000
and $1,125,000, respectively. Of these amounts, $268,000, $31,000 and $125,000,
respectively, were gains from the sale of guaranteed student loans and $830,000,
$355,000 and $1,000,000, respectively, were gains from the sale of fixed-rate
residential loans.
Prior to fiscal 1996, when whole real estate loans were sold, the Bank
primarily retained the responsibility for servicing the loans. The Bank receives
a servicing fee for performing these services. The Bank had the servicing rights
for approximately $56 million, $57 million and $60 million at December 31, 1999
and 1998 and June 30, 1998, respectively, of loans owned by others. The
servicing of these loans generated net servicing fees to the Bank for the year
ended December 31, 1999, the short year ended December 31, 1998 and the fiscal
year ended June 30, 1998 of $181,000, $107,000 and $261,000, respectively.
In addition to interest earned on loans and loan origination fees, the Bank
receives fees for loan commitments, letters of credit, prepayments,
modifications, late payments, transfers of loans due to changes of property
ownership and other miscellaneous services. The fees vary from time to time,
generally depending on the supply of funds and other competitive conditions in
the market. Fees from prepayments, commitments, letters of credit and late
payments totaled $961,000, $301,000 and $502,000 for the year ended December 31,
1999, the short year ended December 31, 1998 and the fiscal year ended June 30,
1998,
12
<PAGE>
respectively. Loan origination fees, net of related costs, are accounted for in
accordance with Statement of Financial Accounting Standards No. 91 "Accounting
for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases." Loan fees and certain direct loan
origination costs are deferred, and the net fee or cost is recognized in
interest income using the level-yield method over the contractual life of the
loan. For further discussion of this issue see Note 1 of Notes to Consolidated
Financial Statements.
ALLOWANCE FOR LOSSES ON LOANS AND FORECLOSED ASSETS
Management periodically reviews Great Southern's allowance for loan losses,
considering numerous factors, including, but not necessarily limited to, general
economic conditions, loan portfolio composition, prior loss experience, and
independent appraisals. Further allowances are established when management
determines that the value of the collateral is less than the amount of the
unpaid principal of the related loan plus estimated costs of the acquisition and
sale or when management determines a borrower of an unsecured loan will be
unable to make full repayment. Allowances for estimated losses on foreclosed
assets (real estate and other assets acquired through foreclosure) are charged
to expense, when in the opinion of management, any significant and permanent
decline in the market value of the underlying collateral reduces the market
value to less than the carrying value of the asset.
The Bank has maintained a strong lending presence in the Branson area
during recent years primarily due to the substantial growth in the area. While
management believes the loans it has funded have been originated pursuant to
sound underwriting standards, and individually have no unusual credit risk, the
short period of time in which the Branson area has grown, the reduction in
values of real estate and the lower than expected increase in tourists visiting
the area during recent years, causes some concern as to the credit risk
associated with the Branson area as a whole. Due to this concern and the overall
growth of the loan portfolio, and more specifically the growth of the commercial
business, consumer and commercial real estate loan portfolios, management
provided increased levels of loan loss allowances over the past few years.
The allowance for losses on loans and foreclosed assets are maintained at
an amount management considers adequate to provide for potential losses.
Although management believes that it uses the best information available to make
such determinations, future adjustments to the allowance for losses on loans and
foreclosed assets may be necessary, and net income could be significantly
affected, if circumstances differ substantially from the assumptions used in
making the initial determinations.
At December 31, 1999 and 1998, Great Southern had an allowance for losses
on loans of $17.3 million and $16.9 million, respectively, of which $2.7 million
and $3.3 million, respectively, had been allocated as an allowance for specific
loans and $0.8 million and $0.7 million, respectively, had been allocated for
impaired loans. The allowances are discussed further in Notes 3 and 4 of the
Notes to Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
13
<PAGE>
The allowance for losses on loans at the date indicated is summarized as
follows. The table is based on information prepared in accordance with generally
accepted accounting principles.
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------------- --------------------------------------------------
1999 1998 1998 1997 1996
------------------------------------------------------------------------------------
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
----------------- --------------- --------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Fixed-Rate Loans:
One- to four-family residential and
construction $ 798 30.1% $ 1,254 33.4% $ 811 33.5% $ 1,039 41.0% $ 757 44.8%
Other residential and construction 375 10.3 613 12.4 615 13.5 35 16.1 503 16.1
Commercial real estate and construction
and other commercial 12,003 50.5 9,719 45.7 11,348 46.4 9,699 38.5 7,875 34.5
Consumer 1,567 9.1 1,211 8.5 743 6.6 502 4.4 488 4.6
Unallocated 2,550 -- 4,131 -- 2,586 -- 4,249 -- 4,733 --
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total $17,293 100.0% $16,928 100.0% $16,373 100.0% $15,524 100.0% $14,356 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
14
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
losses on loans showing the details of the allowance by types of loans and the
allowance balance by loan type. The table is based on information prepared in
accordance with generally accepted accounting principles.
<TABLE>
<CAPTION>
December 31, June 30,
------------------ -----------------------------
1999 1998 1998 1997 1996
-------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $16,928 $16,373 $15,524 $14,356 $14,601
------- ------- ------- ------- -------
Charge-offs:
One- to four-family residential 114 -- 45 185 189
Other residential -- 187 67 34 1,072
Commercial real estate 131 185 529 364 509
Construction 375 -- 82 14 --
Consumer 1,870 1,077 287 70 198
Other commercial 316 50 133 9 25
------- ------- ------- ------- -------
Total charge-offs 2,806 1,499 1,143 676 1,993
------- ------- ------- ------- -------
Recoveries:
One- to four-family residential 33 147 22 -- 33
Other residential -- -- 1 11 --
Commercial real estate and construction 64 -- 68 88 136
Consumer 793 552 10 9 48
Other commercial 219 64 38 30 80
------- ------- ------- ------- -------
Total recoveries 1,109 763 139 138 297
------- ------- ------- ------- -------
Net charge-offs 1,697 736 1,004 538 1,696
Provision for losses on loans 2,062 1,291 1,853 1,706 1,451
------- ------- ------- ------- -------
Balance at end of period $17,293 $16,928 $16,373 $15,524 $14,356
======= ======= ======= ======= =======
Ratio of net charge-offs to average loans
outstanding 0.23% 0.23% 0.16% 0.09% 0.32%
======= ======= ======= ======= =======
</TABLE>
LOAN DELINQUENCIES AND DEFAULTS
When a borrower fails to make a required payment on a loan, the Bank
attempts to cause the delinquency to be cured by contacting the borrower. In the
case of loans secured by residential real estate, a late notice is sent 15 days
after the due date. If the delinquency is not cured by the 30th day, a
delinquent notice is sent to the borrower. Additional written contacts are made
with the borrower 45 and 60 days after the due date. If the delinquency
continues for a period of 65 days, the Bank usually institutes appropriate
action to foreclose on the collateral. The actual time it takes to foreclose on
the collateral varies depending on the particular circumstances and the
applicable governing law. If foreclosed, the property is sold at public auction
and may be purchased by the Bank. Delinquent consumer loans are handled in a
generally similar manner, except that initial contacts are made when the payment
is five days past due and appropriate action may be taken to collect any loan
payment that is delinquent for more than 15 days. The Bank's procedures for
repossession and sale of consumer collateral are subject to various requirements
under the applicable
15
<PAGE>
consumer protection laws as well as other applicable laws and the determination
by the Bank that it would be beneficial from a cost basis.
Delinquent commercial business loans and loans secured by commercial real
estate are initially handled by the loan officer in charge of the loan, who is
responsible for contacting the borrower. The President and Senior Lending
Officer also work with the commercial loan officers to see that necessary steps
are taken to collect such delinquent loans. In addition, the Bank has a Problem
Loan Committee which meets at least monthly and reviews all commercial loans 30
days or more delinquent as well as other loans not 30 days delinquent which
management feels may present possible collection problems. If an acceptable
workout of a delinquent commercial loan cannot be agreed upon, the Bank may
initiate foreclosure on any collateral securing the loan. However, in all cases,
whether a commercial or other loan, the prevailing circumstances may be such
that management may determine it is in the best interest of the Bank not to
foreclose on the collateral.
The following table sets forth our loans delinquent 30 - 89 days by type,
number, amount and percentage of type at December 31, 1999.
<TABLE>
<CAPTION>
Loans Delinquent for 30-89 Days
---------------------------------------------------------
Percent of
Total
Delinquent
Number Amount Loans
---------------------------------------------------------
<S> <C> <C> <C>
Real Estate:
One- to four-family 49 $ 2,732 20%
Other residential 3 390 3
Commercial 17 6,480 47
Construction or development 12 2,190 16
Consumer 175 1,403 10
Other commercial 11 493 4
----- ------- ----
Total 267 $13,688 100%
===== ======= ====
</TABLE>
16
<PAGE>
CLASSIFIED ASSETS
Federal regulations provide for the classification of loans and other
assets such as debt and equity securities considered to be of lesser quality as
"substandard," "doubtful" or "loss" assets. The regulations require insured
institutions to classify their own assets and to establish prudent general
allowances for losses from assets classified "substandard" or "doubtful." For
the portion of assets classified as "loss," an institution is required to either
establish specific allowances of 100% of the amount classified or charge such
amount off its books. Assets that do not currently expose the insured
institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess a potential weakness, are required to be
designated "special mention" by management. In addition, a bank's regulators may
require the establishment of a general allowance for losses based on assets
classified as "substandard" and "doubtful" or based on the general quality of
the asset portfolio of the bank. Following are the total classified assets per
the Bank's internal asset classification list. There were no significant off-
balance sheet items classified at December 31, 1999.
<TABLE>
<CAPTION>
Total Allowance
Asset Category Substandard Doubtful Loss Classified Losses
- --------------------------------- ----------------- ----------------- -----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans $15,687 $--- $--- $15,687 $17,293
Foreclosed assets 747 --- 14 761 ---
------- ----- ---- ------- -------
Total $16,434 $--- $14 $16,448 $17,293
======= ==== === ======= =======
</TABLE>
The table below sets forth the amounts and categories of gross
non-performing assets (classified loans which are not performing under
regulatory guidelines and all foreclosed assets, including assets acquired in
settlement of loans) in the Bank's loan portfolio at the times indicated. Loans
generally are placed on non-accrual status when the loan becomes 90 days
delinquent or when the collection of principal, interest, or both, otherwise
becomes doubtful. For all years presented, the Bank has not had any troubled
debt restructurings, which involve forgiving a portion of interest or principal
on any loans or making loans at a rate materially less than that of market
rates. It has been the Bank's practice to sell its foreclosed assets to new
borrowers and originate loans with higher loan-to-value ratios than those
generally allowed for the Bank's one- to four-family residential loans. For such
loans originated in fiscal 1993 or fiscal 1994, the Bank adopted a policy of
presenting such loans in the non-performing assets category until sufficient
payments of principal and interest are received or the loan has a 90%
loan-to-value ratio. The majority of the loans presented in this category are
performing and the Bank is accounting for the interest on these loans on the
accrual method.
17
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
----------------------------------------------------------------------------
1999 1998 1998 1997 1996
----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family residential $ 880 $ 137 $ 522 $ 2,018 $ 1,195
Other residential 1,002 2,554 4,535 3,826 934
Commercial real estate 4,371 2,496 1,687 316 1,407
One- to four-family construction 1 --- 91 655 121
Consumer 146 33 147 219 202
Other commercial 444 1,061 80 600 744
Commercial construction 2,377 1,137 --- --- 851
------- ------- ------- ------- -------
Total gross non-accruing loans 9,221 7,418 7,062 7,634 5,454
------- ------- ------- ------- -------
Loans over 90 days delinquent still accruing interest:
One- to four-family residential 49 2,243 --- --- ---
Consumer --- 244 --- --- ---
Other commercial --- 241 --- --- ---
------- ------- ------- ------- -------
Total over 90 days accruing loans 49 2,728 --- --- ---
------- ------- ------- ------- -------
Other impaired loans --- --- 2,278 --- ---
------- ------- ------- ------- -------
Loans in connection with sales of
foreclosed assets --- --- 145 246 453
------- ------- ------- ------- -------
Total gross non-performing loans 9,270 10,146 9,485 7,880 5,907
------- ------- ------- ------- -------
Foreclosed assets:
One- to four-family residential 167 438 400 544 517
Other residential --- 1,075 175 1,150 7,121
Commercial real estate 650 1,297 4,176 4,276 3,309
------- ------- ------- ------- -------
Total foreclosed assets 817 2,810 4,751 5,970 10,947
------- ------- ------- ------- -------
Total gross non-performing assets $10,087 $12,956 $14,236 $13,850 $16,854
======= ======= ======= ======= =======
Total gross non-performing assets as a
percentage of average total assets 1.09% 1.61% 1.90% 2.07% 2.45%
====== ====== ====== ====== ======
</TABLE>
Gross impaired loans totaled $9,270,000 at December 31, 1999 and
$10,146,000 at December 31, 1998.
For the year ended December 31, 1999, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $645,000. The amount that was included in
interest income on such loans was $487,000 for the year ended December 31, 1999.
The level of non-performing assets is primarily attributable to the Bank's
commercial real estate, other residential, commercial construction and
commercial business lending activities. These activities
18
<PAGE>
generally involve significantly greater credit risks than single-family
residential lending. The level of non-performing assets increased at a rate
greater than that of the Bank's commercial lending portfolio in fiscal June 30,
1996, and at a rate less than that of the Bank's commercial lending portfolio in
the year ended December 31, 1999, in the six months ended December 31, 1998 and
in fiscal years ended June 30, 1998 and 1997. For a discussion of the risks
associated with these activities, see the discussions under the heading "-
Commercial Real Estate and Construction Lending" and "- Other Commercial
Lending" above.
INVESTMENT ACTIVITIES
The Bank's investment securities portfolio at December 31, 1999 and 1998
contained one security with an aggregate book value in excess of 10% of the
Bank's retained earnings, excluding those issued by the United States
Government, or its agencies. This security was issued by The Missouri
Development Finance Board and has an aggregate book and market value of
approximately $9,960,000 at December 31, 1999.
As of December 31, 1999 and 1998, the Bank held approximately $37.6 million
and $60.4 million, respectively, in principal amount of investment securities
which the Bank intends to hold until maturity. As of such dates, these
securities had market values of approximately $37.4 million and $60.6 million,
respectively. In addition, as of December 31, 1999 and 1998, the Company held
approximately $79.9 million and $6.5 million, respectively, in principal amount
of investment securities which the Company classified as available-for-sale.
This issue is discussed further in Notes 1 and 2 of Notes to Consolidated
Financial Statements.
The amortized cost and approximate fair values of, and gross unrealized
gains and losses on, investment securities at the dates indicated are summarized
as follows. The table is based on information prepared in accordance with
generally accepted accounting principles. Yields on tax exempt obligations have
not been computed on a tax equivalent basis.
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- ----------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
U.S. government agencies $72,714 $ 65 $ 134 $72,645
Equity securities 8,153 --- 907 7,246
------- ----- ------ -------
Total available-for-sale securities $80,867 $ 65 $1,041 $79,891
======= ===== ====== =======
HELD-TO-MATURITY SECURITIES:
U.S. Treasury $ 100 $ --- $ --- $ 100
U.S. government agencies 24,242 --- 141 24,101
States and political subdivisions 11,470 --- 89 11,381
Corporate bonds 800 --- --- 800
Mortgage-backed securities 1,034 --- --- 1,034
------- ----- ------ -------
Total held-to-maturity securities $37,646 $ --- $ 230 $37,416
======= ===== ====== =======
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- ----------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
Equity securities $ 5,926 $550 $ --- $ 6,476
======== ==== ===== =======
HELD-TO-MATURITY SECURITIES:
U.S. Treasury $ 602 $ 2 $ --- $ 604
U.S. government agencies 46,966 177 10 47,133
States and political subdivisions 11,470 7 --- 11,477
Mortgage-backed securities 1,357 --- --- 1,357
-------- ---- ---- -------
Total held-to-maturity securities $60,395 $186 $ 10 $60,571
======= ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- ----------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
Equity securities $ 4,645 $1,718 $ --- $ 6,363
======= ====== ===== =======
HELD-TO-MATURITY SECURITIES:
U.S. Treasury $ 2,103 $ 4 $ --- $ 2,107
U.S. government agencies 48,260 174 --- 48,434
Mortgage-backed securities 1,554 --- --- 1,554
------- ------ ----- -------
Total held-to-maturity securities $51,917 $ 178 $ --- $52,095
======= ====== ===== =======
</TABLE>
The following table presents the contractual maturities and weighted
average yields of available - for-sale debt securities at December 31, 1999. The
table is based on information prepared in accordance with generally accepted
accounting principles.
Amortized Approximate
Cost Yield Fair Value
--------- ------------ ------------
(Dollars in thousands)
In one year or less $54,545 5.52% $54,558
After one through five years 18,169 5.68% 18,087
-------- -------
Total $72,714 $72,645
======= =======
20
<PAGE>
The following table presents the contractual maturities and weighted
average yields of held-to-maturity securities at December 31, 1999. The table is
based on information prepared in accordance with generally accepted accounting
principles.
Amortized Approximate
Cost Yield Fair Value
--------- ------------ ------------
(Dollars in thousands)
In one year or less $14,971 5.30% $14,901
After one through five years 19,331 5.51% 19,260
After five through ten years 1,510 5.00% 1,421
After ten years 800 9.40% 800
Securities not due on a single
maturity date 1,034 7.90% 1,034
------- -------
Total $37,646 $37,416
======= =======
SOURCES OF FUNDS
GENERAL. Deposit accounts have traditionally been the principal source of
the Bank's funds for use in lending and for other general business purposes. In
addition to deposits, the Bank obtains funds through advances from the Federal
Home Loan Bank of Des Moines, Iowa ("FHLBank"), loan repayments, loan sales, and
cash flows generated from operations. Scheduled loan payments are a relatively
stable source of funds, while deposit inflows and outflows and the related costs
of such funds have varied widely. Borrowings such as FHLBank advances may be
used on a short-term basis to compensate for seasonal reductions in deposits or
deposit inflows at less than projected levels and may be used on a longer-term
basis to support expanded lending activities. The availability of funds from
loan sales is influenced by general interest rates as well as the volume of
originations.
DEPOSITS. The Bank attracts both short-term and long-term deposits from the
general public by offering a wide variety of accounts and rates. In recent
years, the Bank has been required by market conditions to rely increasingly on
short-term accounts and other deposit alternatives that are more responsive to
market interest rates than the passbook accounts and regulated fixed-interest-
rate, fixed-term certificates that were the Bank's primary source of deposits
prior to 1978. The Bank offers regular passbook accounts, checking accounts,
various money market accounts, fixed-interest-rate certificates with varying
maturities, certificates of deposit in minimum amounts of $100,000 ("Jumbo"
accounts), brokered certificates and individual retirement accounts. The
composition of the Bank's deposits at the end of recent periods is set forth in
Note 6 of Notes to Consolidated Financial Statements.
BROKERED DEPOSITS. Brokered deposits are marketed through national
brokerage firms to their customers in $1,000 increments. The average investor is
estimated to have a balance of less than $20,000. The Bank maintains only one
account for the total deposit amount while the records of detailed owners are
maintained by the Depository Trust Company under the name of CEDE & Co. The
deposits are transferable just like a stock or bond investment and the customer
can open the account with only a phone call, just like buying a stock or bond.
This provides a large deposit for the Bank at a lower operating cost since the
Bank only has one account to maintain versus several accounts with multiple
interest and maturity checks.
Unlike non-brokered deposits where the deposit amount can be withdrawn with
a penalty for any reason, including increasing interest rates, a brokered
deposit can only be withdrawn in the event of the
21
<PAGE>
death, or court declared mental incompetence, of the depositor. This allows the
Bank to better manage the maturity of its deposits.
The following table sets forth the dollar amount of deposits, by interest
rate range, in the various types of deposit programs offered by the Company at
the dates indicated. The table is based on information prepared in accordance
with generally accepted accounting principles.
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998 June 30, 1998
------------------ ------------------ -------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- -------- ------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits:
0.00% - 3.99% $ 1,153 .18% $ 435 .07% $ 62 .01%
4.00% - 4.99% 79,429 12.69 69,178 11.58 17,476 3.18
5.00% - 5.99% 280,688 44.85 259,844 43.48 257,704 46.87
6.00% - 6.99% 69,525 11.11 32,262 5.40 51,064 9.29
7.00% - 7.99% 3,527 .56 3,845 .64 3,711 .68
8.00% - 10.25% 30 -- 240 .04 251 .05
-------- ------ -------- ------ -------- ------
Total Time deposits 434,352 69.39 365,804 61.21 330,268 60.08
Non-interest-bearing demand deposits 47,360 7.57 43,211 7.23 29,375 5.34
Savings deposits (2.50%-2.50%-2.51%) 29,613 4.73 32,190 15.39 34,644 6.30
Interest-bearing demand deposits
(1.86%-2.39%-2.25%) 114,575 18.31 156,420 26.17 155,485 28.28
-------- ------ -------- ------ -------- ------
Total Deposits $625,900 100.00% $597,625 100.00% $549,772 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
A table showing rate and maturity information for the Bank's time deposits
as of December 31, 1999 is presented in Note 6 of Notes to Consolidated
Financial Statements.
The variety of deposit accounts offered by the Bank has allowed it to be
competitive in obtaining funds and has allowed it to respond with flexibility to
changes in consumer demand. The Bank has become more susceptible to short-term
fluctuations in deposit flows, as customers have become more interest rate
conscious. The Bank manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, management believes that its passbook and certificate accounts are
relatively stable sources of deposits, while its checking accounts have proven
to be more volatile. However, the ability of the Bank to attract and maintain
deposits, and the rates paid on these deposits, has been and will continue to be
significantly affected by money market conditions.
22
<PAGE>
The following table sets forth the time remaining until maturity of the
Bank's time deposits as of December 31, 1999. The table is based on information
prepared in accordance with generally accepted accounting principles.
<TABLE>
<CAPTION>
Maturity
---------------------------------------------------------------------------------------------
3 Over 3 Over Over
Months or Months to 6 to 12 12
Less 6 Months Months Months Total
---------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Time deposits:
Less than $100,000 $51,667 $37,288 $33,757 $ 37,871 $160,583
$100,000 or more 21,117 13,033 13,508 9,921 57,579
Brokered 15,965 19,052 39,117 135,608 209,742
Public funds(1) 6,143 137 162 6 6,448
------- ------- ------- -------- --------
Total $94,892 $69,510 $86,544 $183,406 $434,352
======= ======= ======= ======== ========
- --------------
<FN>
(1) Deposits from governmental and other public entities.
</FN>
</TABLE>
BORROWINGS. Great Southern's other sources of funds include advances from
the FHLBank, Qualified Loan Review arrangement and treasury tax & loan note
option with the Federal Reserve Bank and other borrowngs.
As a member of the FHLBank, the Bank is required to own capital stock in
the FHLBank and is authorized to apply for advances from the FHLBank. FIRREA
requires that all long-term FHLBank advances be for the purpose of financing
residential housing. Pursuant to FIRREA, the Federal Housing Finance Board has
promulgated regulations that establish standards of community investment for
FHLBank members to maintain continued access to long-term advances. Each FHLBank
credit program has its own interest rate, which may be fixed or variable, and
range of maturities. The FHLBank may prescribe the acceptable uses for these
advances, as well as other risks on availability, limitations on the size of the
advances and repayment provisions. The Bank has a $50 million revolving line of
credit with the FHLBank, which provides for immediately available funds. At
December 31, 1999, none of the revolving line was in use with $50 million
remaining available. The Bank can draw these funds for lending or other
liquidity needs with some limitations.
The Federal Reserve Bank ("FRB") has a Qualified Loan Review ("QLR")
program where the Bank can borrow on a temporary basis using commercial loans
pledged to the FRB. Under the QLR program, the Bank can borrow any amount up to
a calculated collateral value of the commercial loans pledged, for virtually any
reason that creates a temporary cash need. Examples of this could be; (i) the
need to disburse one or several loans but the permanent source of funds will not
be available for a few days; (ii) a temporary spike in interest rates on other
fund sources that are being used; or (iii) the need to purchase a security for
collateral pledging purposes a few days prior to the funds becoming available on
an existing security that is maturing. The Bank had commercial loans pledged to
the FRB at December 31, 1999 that would have allowed approximately $155.3
million to be borrowed under the above arrangement.
The Company has borrowing arrangements in place with the brokerage firms it
conducts business with to borrow on margin against its available-for-sale
securities. Theses borrowings are limited to a percent of the market value of
the collateral, generally 50%, and are used by the Company for short-term cash
needs including the purchase of available-for-sale securities and the purchase
of the Company's stock.
23
<PAGE>
The following table sets forth the maximum month-end balances and average
daily balances of FHLBank advances and other borrowings during the periods
indicated. The table is based on information prepared in accordance with
generally accepted accounting principles.
<TABLE>
<CAPTION>
Short Period
Year Ended Ended
December 31, December 31, Year Ended
1999 1998 June 30, 1998
-------------------- -------------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum Balance:
FHLBank advances $200,531 $169,593 $211,270
Other borrowings 61,111 2,387 41,176
Average Balances:
FHLBank advances $165,192 $147,839 $161,913
Other borrowings 19,680 770 32,234
</TABLE>
The following table sets forth certain information as to the Company's
FHLBank advances and other borrowings at the dates indicated. The table is based
on information prepared in accordance with generally accepted accounting
principles.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1999 1998 June 30, 1998
-------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
FHLBank advances $200,531 $158,452 $169,509
Other borrowings 61,111 798 ---
-------- -------- --------
Total borrowings $261,642 $159,250 $169,509
======== ======== ========
Weighted average interest
rate of FHLBank advances 6.23% 5.60% 6.00%
==== ==== ====
Weighted average interest 5.03% 7.20% N/A
rate of other borrowings ==== ====
</TABLE>
SUBSIDIARIES
GREAT SOUTHERN. As a Missouri-chartered trust company, Great Southern may
invest up to 3% of its assets in service corporations. At December 31, 1999, the
Bank's total investment in Great Southern Financial Corporation ("GSFC") was
$1.3 million. GSFC is incorporated under the laws of the State of Missouri. This
subsidiary is primarily engaged in the following activities:
APPRAISAL SERVICES. Appraisal Services, Inc., incorporated in 1976, is a
wholly-owned subsidiary of GSFC and performs primarily residential real estate
appraisals for a number of clients, the majority of which is for the Bank and
its loan customers. Appraisal Services, Inc. had net income (loss) of $(12,000)
in the year ended December 31, 1999 and $6,000 and $3,000 in the six months
ended December 31, 1998 and 1997, respectively.
24
<PAGE>
GENERAL INSURANCE AGENCY. Great Southern Insurance, a division of GSFC, was
organized in 1974. It acts as a general property, casualty and life insurance
agency for a number of clients, including the Bank. Great Southern Insurance had
net income of $113,000 in the year ended December 31, 1999 and $58,000 and
$65,000 in the six months ended December 31, 1998 and 1997, respectively.
TRAVEL AGENCY. Great Southern Travel, a division of GSFC, was organized in
1976. At December 31, 1999, it was the largest travel agency based in
southwestern Missouri and estimated to be in the top 5% (based on gross revenue)
of travel agencies nation-wide. Great Southern Travel operates from 24 full-time
locations, including a facility at the Springfield-Branson Regional Airport, and
additional part-time locations. It engages in personal, commercial and group
travel services. Great Southern Travel had net income of $365,000 in the year
ended December 31, 1999 and$119,000 and $57,000 in the six months ended December
31, 1998 and 1997, respectively.
GSB ONE, L.L.C. At December 31, 1999 the Bank's total investment in GSB
One, L.L.C. ("GSB One") and GSB Two, L.L.C. ("GSB Two") was $264 million. The
capital contribution was made by transferring participations in loans to GSB
Two. GSB One is a Missouri limited liability company that was incorporated in
March of 1998. Currently the only activity of this company is the ownership of
GSB Two.
GSB TWO, L.L.C. This is a Missouri limited liability company that was
incorporated in March of 1998. GSB Two is a Real Estate Investment Trust
("REIT"). It holds participations in real estate mortgages from the Bank. The
Bank continues to service the loans in return for a management and servicing fee
from GSB Two. GSB Two had net income of $22.7 million in the year ended December
31, 1999 and $8.2 million in the six months ended December 31, 1998.
Great Southern Capital Management, Inc. At December 31, 1999, the Bank's
total investment in Great Southern Capital Management ("Capital Management") was
$257,000. Capital Management was incorporated and organized in 1988 under the
laws of the state of Missouri. Capital Management is a registered broker/dealer
and a member of the National Association of Securities Dealers, Inc. ("NASD")
and the Securities Investors Protection Corporation ("SIPC"). Capital Management
offers a full line of financial consultation, investment counseling and discount
brokerage services including execution of transactions involving stocks, bonds,
options, mutual funds and other securities. In addition, Capital Management is
registered as a municipal securities dealer. Capital Management operates through
Great Southern's branch office network. Capital Management had net income of
$295,000 in the year ended December 31, 1999 and $36,000 and $153,000 in the six
months ended December 31, 1998 and 1997, respectively.
COMPETITION
Great Southern faces strong competition both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other commercial banks, savings institutions and
mortgage bankers making loans secured by real estate located in the Bank's
market area. Commercial banks and finance companies provide vigorous competition
in commercial and consumer lending. The Bank competes for real estate and other
loans principally on the basis of the interest rates and loan fees it charges,
the types of loans it originates and the quality of services it provides to
borrowers. The other lines of business of the Bank, including loan servicing and
loan sales, as well as the Bank and Company subsidiaries, face significant
competition in their markets.
The Bank faces substantial competition in attracting deposits from other
commercial banks, savings institutions, money market and mutual funds, credit
unions and other investment vehicles. The Bank attracts a significant amount of
deposits through its branch offices primarily from the communities in which
those
25
<PAGE>
branch offices are located; therefore, competition for those deposits is
principally from other commercial banks and savings institutions located in the
same communities. The Bank competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours, and convenient
branch and ATM locations with inter-branch deposit and withdrawal privileges at
each branch location.
EMPLOYEES
At December 31, 1999, the Bank and its affiliates had a total of 833
employees, including 245 part-time employees. None of the Bank's employees is
represented by any collective bargaining agreement. Management considers its
employee relations to be good.
GOVERNMENT SUPERVISION AND REGULATION
GENERAL
On June 30, 1998, the Bank converted from a federal savings bank to a
Missouri-chartered trust company, with the approval of the Missouri Division of
Finance ("MDF") and the FRB. By converting, the Bank was able to expand its
consumer and commercial lending authority.
Bancorp and its subsidiaries are subject to supervision and examination by
applicable federal and state banking agencies. The earnings of the Bank's
subsidiaries, and therefore the earnings of Bancorp, are affected by general
economic conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the FRB, the Federal
Deposit Insurance Corporation ("FDIC") and the MDF. In addition, there are
numerous governmental requirements and regulations that affect the activities of
the Company and its subsidiaries. The following is a brief summary of certain
aspects of the regulation of the Company and Great Southern and does not purport
to fully discuss such regulation.
BANK HOLDING COMPANY REGULATION
As a result of the conversion, the Company became a bank holding company,
subject to comprehensive regulation by the FRB under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), and the regulations of the FRB. As a bank
holding company, the Company is required to file reports with the FRB and such
additional information as the FRB may require, and is subject to regular
inspections by the FRB. The FRB also has extensive enforcement authority over
bank holding companies, including, among others things, the ability to assess
civil money penalties, to issue cease and desist or removal orders and to
require that a holding company divest subsidiaries (including its bank
subsidiaries). In general, enforcement actions may be initiated for violations
of law and regulation as well as unsafe or unsound practices.
Under FRB policy, a bank holding company must serve as a source of strength
for its subsidiary banks. Under this policy the FRB may require, and has
required in the past, bank holding companies to contribute additional capital to
undercapitalized subsidiary banks. Under the BHCA, a bank holding company must
obtain FRB approval before, among other matters: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than 5%
of such shares (unless it already owns or controls the majority of such shares);
(ii) acquiring all or substantially all of the assets of another bank or bank
holding company; or (iii) merging or consolidating with another bank holding
company
26
<PAGE>
The BHCA prohibits a bank holding company, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank or bank holding company, or from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by FRB regulation or order, have been identified as
activities closely related to the business of banking or managing or controlling
banks. The list of activities permitted by the FRB includes, among other things,
operating a savings institution, mortgage company, finance company, credit card
company or factoring company; performing certain data processing operations;
providing certain investment and financial advice; underwriting and acting as an
insurance agent for certain types of credit-related insurance; leasing property
on a full-payout, non-operating basis; selling money orders, travelers' checks
and United States Savings Bonds; real estate and personal property appraising;
providing tax planning and preparation services; and providing securities
brokerage services for customers. The scope of permissible activities may be
expanded from time to time by the FRB. Such activities may also be affected by
federal legislation.
INTERSTATE BANKING AND BRANCHING
In 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") was enacted to ease restrictions on interstate
banking. Effective September 29, 1995, the Riegle-Neal Act allows the FRB to
approve an application of an adequately capitalized and adequately managed bank
holding company to acquire control of, or acquire all or substantially all of
the assets of, a bank located in a state other than such holding company's home
state, without regard to whether the transaction is prohibited by the laws of
any state. The FRB may not approve the acquisition of a bank that has not been
in existence for the minimum time period (not exceeding five years) specified by
the statutory law of the host state. The Riegle-Neal Act also prohibits the FRB
from approving an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. The Riegle-Neal Act
does not affect the authority of states to limit the percentage of total insured
deposits in the state which may be held or controlled by a bank or bank holding
company to the extent such limitation does not discriminate against out-of-state
banks or bank holding companies. Individual states may also waive the 30%
state-wide concentration limit contained in the Riegle-Neal Act.
Additionally, the federal banking agencies are authorized to approve
interstate merger transactions without regard to whether such transactions are
prohibited by the law of any state, unless the home state of one of the banks
opted out of the Riegle-Neal Act by adopting a law after the date of enactment
of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Texas and Montana have opted out. Interstate acquisitions of
branches are permitted only if the law of the state in which the branch is
located permits such acquisitions. Interstate mergers and branch acquisitions
are also subject to the nationwide and statewide insured deposit concentration
amounts described above.
The Riegle-Neal Act authorizes the OCC and the FDIC to approve interstate
branching de novo by national and state banks, respectively, only in states
which specifically allow for such branching. As required by the Riegle-Neal Act,
the OCC, FDIC and FRB have prescribed regulations which prohibit any
out-of-state bank from using the interstate branching authority primarily for
the purpose of deposit production, including guidelines to ensure that
interstate branches operated by an out-of-state bank in a host state reasonably
help to meet the credit needs of the communities which they serve.
27
<PAGE>
CERTAIN TRANSACTIONS WITH AFFILIATES AND OTHER PERSONS
Transactions involving a bank and its affiliates are subject to sections
23A and 23B of the Federal Reserve Act. Generally, these requirements and limits
restrict certain of these transactions to a percentage of the Bank's capital and
require all such transactions to be on terms at least as favorable to the Bank
as are available in transactions with non-affiliates. In addition, a bank
generally may not lend to any affiliate engaged in activities not permissible
for a bank holding company or acquire shares of an affiliate. These provisions
currently apply to transactions between the Bank and the Company or the Bank and
the Holding Company's non-bank subsidiary. Affiliates of Great Southern include,
without limitation, any company whose management is under a common controlling
influence with the management of the Bank, any company controlled by controlling
stockholders of the Bank, any company with a majority of interlocking directors
with the Bank, and any company sponsored and advised on a contractual basis by
the Bank or any of its affiliates.
Prior to the enactment of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") on August 9, 1989, Great Southern, like many
financial institutions, followed a policy of granting loans to certain of its
officers, directors and employees, generally for the financing of their personal
residences at favorable interest rates. Generally, residential loans were
granted at interest rates 1% above the Bank's cost of funds, subject to annual
adjustments. These loans were made in the ordinary course of business, on
substantially the same terms and collateral as those of comparable transactions
prevailing at the time, and did not involve more than the normal risk of
collectibility or present other unfavorable features. All loans by Great
Southern to its directors and executive officers are subject to FRB regulations
restricting loans and other transactions with affiliated persons of Great
Southern. FIRREA required that all such transactions be on terms and conditions
comparable to those for similar transactions with non-affiliates and also
provided that the Company could have a policy allowing favorable rate loans to
employees as long as it is an employee benefit available to a broad group of
employees within guidelines defined by the policy. The Bank has such a policy in
place that allows for loans to full-time employees with at least two years of
service. The terms are the same as those used prior to FIRREA.
DIVIDENDS
The FRB has issued a policy statement on the payment of cash dividends by
bank holding companies, which expresses the FRB's view that a bank holding
company should pay cash dividends only to the extent that its net income for the
past year is sufficient to cover both the cash dividends and a rate of earning
retention that is consistent with the holding company's capital needs, asset
quality and overall financial condition. The FRB also indicated that it would be
inappropriate for a company experiencing serious financial problems to borrow
funds to pay dividends. Furthermore, under the prompt corrective action
regulations adopted by the FRB, the FRB may prohibit a bank holding company from
paying any dividends if the holding company's bank subsidiary is classified as
"undercapitalized."
Bank holding companies are required to give the FRB prior written notice of
any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of their consolidated net worth. The FRB may
disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe or unsound practice or would violate any law,
regulation, FRB order, or any condition imposed by, or written agreement with,
the FRB. This notification requirement does not apply to any company that meets
the well-capitalized standard for commercial banks, has a safety and soundness
examination rating of at least a "2" and is not subject to
28
<PAGE>
any unresolved supervisory issues. Under Missouri law, the Bank may pay
dividends from certain undivided profits and may not pay dividends if its
capital is impaired.
The Federal banking agencies have adopted capital-related regulations.
Under those regulations, a bank will be well capitalized if it: (i) has a risk-
based capital ratio of 10% or greater; (ii) has a ratio of Tier I capital to
risk-adjusted assets of 6% or greater; (iii) has a ratio of Tier I capital to
adjusted total assets of 5% or greater; and (iv) is not subject to an order,
written agreement, capital directive or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure. A bank will
be adequately capitalized if it is not "well capitalized" and: (i) has a
risk-based capital ratio of 8% or greater; (ii) has a ratio of Tier I capital to
risk-adjusted assets of 4% or greater; and (iii) has a ratio of Tier I capital
to adjusted total assets of 4% or greater (except that certain associations
rated "Composite 1" under the federal banking agencies' CAMEL rating system may
be adequately capitalized if their ratios of core capital to adjusted total
assets are 3% or greater). As of December 31, 1999, the Bank was "well
capitalized."
Banking agencies have recently adopted final regulations that mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. This
evaluation will be made as part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, these banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk.
The FRB has established capital regulations for bank holding companies that
generally parallel the capital regulations for banks. As of December 31, 1999,
the Company was "well capitalized."
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
The FDIC maintains two separate deposit insurance funds: the Bank Insurance
Fund (the "BIF") and the Savings Association Insurance Fund (the "SAIF"). Great
Southern's depositors are insured by the SAIF up to $100,000 per insured account
(as defined by law and regulation). This insurance is backed by the full faith
and credit of the United States Government.
As insurer, the FDIC is authorized to conduct examinations of and to
require reporting by SAIF-insured associations. It also may prohibit any FDIC-
insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious threat to the SAIF. The FDIC also has the
authority to take enforcement actions against banks and savings associations.
Great Southern pays annual assessments for SAIF insurance. Under current
FDIC regulations, the annual SAIF assessment rate is based, in part, on the
degree of risk to the deposit insurance fund that, in the opinion of the FDIC,
is presented by a particular depository institution compared to other depository
institutions. The FDIC uses a matrix having as variables the level of
capitalization of a particular institution and the level of supervision that its
operations require; and the risk-based amendment rates determined in this
fashion range from 0.00% of deposits for the least risky to 0.27% for the most
risky. In establishing the SAIF assessment rate, the FDIC is required to
consider the SAIF's expected operating expenses, case resolution expenditures
and income and the effect of the assessment rate on SAIF members' earnings and
capital. There is no cap on the amount the FDIC may increase the SAIF assessment
rate. The Bank currently
29
<PAGE>
has a risk based assessment rate of 0.00%. In addition, the FDIC is authorized
to raise the assessment rates in certain instances. Any increases in the
assessments would negatively impact the earnings of Great Southern.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines, after a hearing, that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation,
order or any condition imposed by or an agreement with the FDIC. It also may
suspend deposit insurance temporarily during the hearing process for the
permanent termination of insurance, if the institution has no tangible capital.
If insurance of accounts is terminated, the accounts at the institution at the
time of the termination, less subsequent withdrawals, shall continue to be
insured for a period of six months to two years, as determined by the FDIC.
The FDIC collects assessments against BIF and SAIF assessable deposits to
be paid to the Financing Corporation (the FICO") to service interest on FICO
debt issued during the 1980's. Beginning January 1997, the FICO assessment rate
was set at .0648% for SAIF insured deposits and .013% on BIF insured deposits.
The Federal banking regulators are required to take prompt corrective
action if an institution fails to satisfy certain minimum capital requirements.
Under the law, capital requirements include a leverage limit, a risk-based
capital requirement, and a core capital requirement. All institutions,
regardless of their capital levels, will be restricted from making any capital
distribution or paying any management fees that would cause the institution to
fail to satisfy the minimum levels for any of its capital requirements. An
institution that fails to meet the minimum level for any relevant capital
measure (an "undercapitalized institution") will be: (i) subject to increased
monitoring by the appropriate Federal banking regulator; (ii) required to submit
an acceptable capital restoration plan within 45 days; (iii) subject to asset
growth limits; and (iv) required to obtain prior regulatory approval for
acquisitions, branching and new lines of business. The FDIC has jurisdiction
over the Bank for purposes of prompt corrective action.
Insured depository institutions that are not well-capitalized are
prohibited from accepting brokered deposits unless a waiver has been obtained
from the FDIC; and it limits the rate of interest that institutions receiving
such waivers may pay on brokered deposits.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to maintain
reserves against their transaction accounts (primarily NOW and Super NOW
checking accounts) and non-personal time deposits. Reserves of 3% must be
maintained against net transaction accounts of $47.0 million or less (subject to
adjustment by the Federal Reserve Board) and a reserve of 10% (subject to
adjustment by the Federal Reserve Board to a level between 8% and 14%) must be
maintained against the portion of total transaction accounts in excess of such
amount. In addition, a reserve of between 0% to 9% (subject to adjustment by the
Federal Reserve Board) must be maintained on non-personal time deposits. Under
current regulations, this reserve percentage is 0%. The Bank may elect not to
maintain reserves against approximately $4.7 million in accounts subject to
these reserve requirements. At December 31, 1999, the Bank was in compliance
with these reserve requirements.
Banks are authorized to borrow from the Federal Reserve Bank "discount
window," but Federal Reserve Board regulations only allow this borrowing for
short periods of time and generally require banks to exhaust other reasonable
alternative sources of funds where practical, including FHLBank advances, before
borrowing from the Federal Reserve Bank. See "Sources of Funds Borrowings"
above.
30
<PAGE>
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLBank of Des Moines, which is one of 12
regional FHLBanks that, prior to the enactment of FIRREA, were regulated by the
FHLBB. FIRREA separated the home financing credit function of the FHLBanks from
the regulation and insurance of accounts for savings associations by
transferring oversight over the FHLBanks to a new federal agency, the Federal
Home Financing Board (FHFB). As part of that separation, the savings association
supervisory and examination function performed by the FHLBanks was transferred
to the OTS.
As a member, Great Southern is required to purchase and maintain stock in
the FHLBank of Des Moines in an amount equal to the greater of 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year (if less than 30% of its assets were
so invested, the calculation must be made as if 30% of its assets were so
invested), or 5% (or such greater percentage as established by the FHLBank) of
its outstanding FHLBank advances. At December 31, 1999, Great Southern had $11
million in FHLBank stock, which was in compliance with this requirement. In past
years, the Bank has received substantial dividends on its FHLBank stock. Over
the past five and one-half years, such dividends have averaged 6.95% and were
6.35% for year the ended December 31, 1999. Certain provisions of FIRREA require
all 12 FHLBanks to provide financial assistance for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects.
These contributions could cause rates on the FHLBank advances to increase
and could affect adversely the level of FHLBank dividends paid and the value of
FHLBank stock in the future.
Each FHLBank serves as a reserve or central bank for its members within its
assigned region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLBank System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLBank. These policies and procedures are subject to the
regulation and oversight of the FHFB.
There are collateral requirements for FHLBank advances. First, all advances
must be fully secured by sufficient collateral as determined by the FHLBank.
FIRREA prescribed eligible collateral as fully disbursed, whole first mortgage
loans not more than 60 days delinquent or securities evidencing interests
therein, securities (including mortgage-backed securities) issued, insured or
guaranteed by the federal government or any agency thereof, FHLBank deposits
and, to a limited extent, real estate with readily ascertainable value in which
a perfected security interest may be obtained. All members' stock in the FHLBank
also serves as collateral for indebtedness to the FHLBank. Other forms of
collateral may be accepted as over collateralization or, under certain
circumstances, to renew advances outstanding on the date of enactment of FIRREA.
All long-term advances are required to be used to provide funds for residential
home financing. The FHFB has established standards of community service that
members must meet to maintain access to long-term advances. FIRREA authorizes
the FHLBanks to make short-term liquidity advances to solvent associations in
poor financial condition but with prospects of improving. In addition, pursuant
to FHFB regulations, each FHLBank is required to establish programs for
affordable housing that involve interest subsidies from the FHLBanks on advances
to members engaged in lending at subsidized interest rates for low- and
moderate-income, owner-occupied housing and affordable rental housing, and
certain other community purposes.
31
<PAGE>
LEGISLATIVE AND REGULATORY PROPOSALS
Any changes in the extensive regulatory scheme to which the Company or the
Bank is and will be subject, whether by any of the Federal banking agencies or
Congress, could have a material effect on the Company or the Bank, and they
cannot predict what, if any, future actions may be taken by legislative or
regulatory authorities or what impact such actions may have.
FEDERAL AND STATE TAXATION
The following discussion contains a summary of certain federal and state
income tax provisions applicable to the Company and the Bank. It is not a
comprehensive description of the federal income tax laws that may affect the
Company and the Bank. The following discussion is based upon current provisions
of the Internal Revenue Code of 1986 (the "Code") and Treasury and judicial
interpretations thereof.
GENERAL
The Company and its subsidiaries file a consolidated federal income tax
return using the accrual method of accounting, with the exception of GSB Two
which files a separate return as a REIT. All corporations joining in the
consolidated federal income tax return are jointly and severally liable for
taxes due and payable by the consolidated group. The following discussion
primarily focuses upon the taxation of the Bank, since the federal income tax
law contains certain special provisions with respect to banks.
Financial institutions, such as the Bank, are subject, with certain
exceptions, to the provisions of the Code generally applicable to corporations.
BAD DEBT RESERVES
Legislation passed by Congress and signed by the President repealed the bad
debt reserve method of accounting for bad debts by large thrifts for taxable
years beginning after 1995 (year ended June 30, 1997 for the Bank). The
legislation requires applicable excess reserves accumulated after 1987 (year
ended June 30, 1988 for the Bank) be recaptured and restored to income over a
six year period with the first year beginning after 1995 (year ended June 30,
1997 for the Bank), and eliminates recapture of the applicable excess reserves
accumulated prior to 1988 for thrifts converting to bank charters. The post 1987
recapture may be delayed for a one- or two-year period if certain residential
loan origination requirements are met. The Bank met the residential loan
origination requirements and delayed the recapture for two years. The amount of
post 1987 recapture for the Bank is estimated at $5.2 million which would create
tax of approximately $1.8 million, or $300,000 per year for each of the six
years. The $1.8 million of tax has been accrued by the Bank in previous periods
and would not be reflected in earnings when paid.
Beginning with the year ending June 30, 1997, the Bank is required to
follow the specific charge-off method which only allows a bad debt deduction
equal to actual charge-offs, net of recoveries, experienced during the fiscal
year of the deduction. In a year where recoveries exceed charge-offs, the Bank
would be required to include the net recoveries in taxable income.
INTEREST DEDUCTION
In the case of a financial institution, such as the Bank, no deduction is
allowed for the pro rata portion of its interest expense which is allocable to
tax-exempt interest on obligations acquired after August 7, 1986. A limited
class of tax-exempt obligations acquired after August 7, 1986 will not be
subject to this
32
<PAGE>
complete disallowance rule. For tax-exempt obligations acquired after December
31, 1982 and before August 8, 1986 and for obligations acquired after August 7,
1986 that are not subject to the complete disallowance rule, 80% of interest
incurred to purchase or carry such obligations will be deductible. No portion of
the interest expense allocable to tax-exempt obligations acquired by a financial
institution before January 1, 1983, which is otherwise deductible, will be
disallowed. The interest expense disallowance rules cited above do not
significantly impact the Bank.
ALTERNATIVE MINIMUM TAX
Corporations generally are subject to a 20% corporate alternative minimum
tax ("AMT"). A corporation must pay the AMT to the extent it exceeds that
corporation's regular federal income tax liability The AMT is imposed on
"alternative minimum taxable income," defined as taxable income with certain
adjustments and tax preference items, less any available exemption. Such
adjustments and items include, but are not limited to, (i) net interest received
on certain tax-exempt bonds issued after August 7, 1986; and (ii) 75% of the
difference between adjusted current earnings and alternative minimum taxable
income, as otherwise determined with certain adjustments. Net operating loss
carryovers may be utilized, subject to adjustment, to offset up to 90% of the
alternative minimum taxable income, as otherwise determined. A portion of the
AMT paid, if any, may be credited against future regular federal income tax
liability. In addition, for taxable years beginning after 1986 and before 1996,
corporations generally were also subject to an environmental tax equal to 0.12%
of the excess of the alternative minimum taxable income (computed without regard
to any net operating loss deduction) for a taxable year in excess of $2 million.
MISSOURI TAXATION
Missouri based banks, such as the Bank, are subject to a franchise tax
which is imposed on the larger of (i) the bank's net income at the rate of 7% of
the net income (determined without regard for any net operating losses); or (ii)
the banks assets at a rate of .05% of total assets less deposits and the
investment in greater than 50% owned subsidiaries. Missouri based banks are
entitled to a credit against the franchise tax for all other state or local
taxes on banks, except taxes on real and tangible personal property owned by the
Bank and held for lease or rental to others, contributions paid pursuant to the
Missouri unemployment compensation law, social security taxes and sales and use
taxes.
The Company and all subsidiaries are subject to an income tax that is
imposed on the corporation's net income at the rate of 6.25% for fiscal year
1999. The return is filed on a consolidated basis by all members of the
consolidated group including the Bank, but excluding GSB Two. As a REIT, GSB Two
files a separate Missouri income tax return.
DELAWARE TAXATION
As a Delaware corporation, the Company is required to file annual returns
with and pay annual fees to the State of Delaware. The Company is also subject
to an annual franchise tax imposed by the State of Delaware based on the number
of authorized shares of Company common stock.
EXAMINATIONS
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, 1996.
33
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth certain information concerning the main
office and each branch office of the Company at March 17, 2000. The aggregate
net book value of the Company's premises and equipment was $10 million at
December 31, 1999 and $10 million at December 31, 1998. See also Note 5 and Note
12 of the Notes to Consolidated Financial. Substantially all buildings owned are
free of encumbrances or mortgages. In the opinion of Management, the facilities
are adequate and suitable for the needs of the Company.
<TABLE>
<CAPTION>
Lease Expiration
Year Owned or (Including any
Location Opened Leased Renewal Option)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE HEADQUARTERS AND MAIN BANK:
1451 E. Battlefield Springfield, Missouri 1976 Owned N/A
BRANCH BANKS:
430 South Avenue Springfield, Missouri 1983 Owned N/A
Kearney at Kansas Springfield, Missouri 1976 Leased* 2000
2410 N. Glenstone Springfield, Missouri 1977 Leased* 2003
1955 S. Campbell Springfield, Missouri 1979 Leased* 2030
3961 S. Campbell Springfield, Missouri 1998 Leased 2028
2631 E. Sunshine Springfield, Missouri 1988 Leased* 2017
1580 W. Battlefield Springfield, Missouri 1985 Leased* 2018
723 N. Benton Springfield, Missouri 1985 Owned N/A
Highway 14 Nixa, Missouri 1995 Leased* 2019
1505 S. Elliot Aurora, Missouri 1985 Leased 2003
Jefferson & Washington Ava, Missouri 1982 Owned N/A
110 W. Hensley Branson, Missouri 1982 Owned N/A
919 W. Dallas Buffalo, Missouri 1976 Owned N/A
527 Ozark Cabool, Missouri 1989 Leased 2004
400 S. Garrison Carthage, Missouri 1990 Owned N/A
1710 E. 32nd Street Joplin, Missouri 1989 Leased* 2031
1232 S. Rangeline Joplin, Missouri 1998 Leased* 2018
Highway 00 and 13 Kimberling City, 1984 Owned N/A
Missouri
528 S. Jefferson Lebanon, Missouri 1978 Leased* 2018
714 S. Neosho Boulevard Neosho, Missouri 1991 Owned N/A
Highway 54 Osage Beach, Missouri 1987 Owned N/A
1701 W. Jackson Ozark, Missouri 1997 Owned N/A
208 South Street Stockton, Missouri 1988 Leased 2005
323 E. Walnut Thayer, Missouri 1978 Leased* 2011
1210 Parkway Shopping Center West Plains, Missouri 1975 Owned N/A
1729 W. Highway 76 Branson, Missouri 1983 Owned N/A
- -------------------
<FN>
* Building owned with land leased.
</FN>
</TABLE>
In addition, the travel division has offices in many of the above locations as
well as several small offices in other locations including some of its larger
corporate customer's headquarters.
The Bank maintains depositor and borrower customer files on an on-line
basis, utilizing a telecommunications network, portions of which are leased. The
book value of all data processing and computer equipment utilized by the Bank at
December 31, 1999 was $1.6 million compared to $2.4 million
34
<PAGE>
at December 31, 1998. Management has a disaster recovery plan in place with
respect to the data processing system as well as the Bank's operations as a
whole.
The Bank maintains a network of Automated Teller Machines ("ATMs"). The
Bank utilizes an external service for operation of the ATMs that also allows
access to the various national ATM networks. A total of 95 ATMs are located at
various branches and primarily convenience stores located throughout southwest
and central Missouri. The book value of all ATMs utilized by the Bank at
December 31, 1999 was $793,000 compared to $1.1 million at December 31, 1998.
The Bank will evaluate and relocate existing ATMs as needed, but has no plans in
the near future to materially increase its investment in the ATM network.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant and its subsidiaries are involved as plaintiff or defendant
in various legal actions arising in the normal course of their businesses. While
the ultimate outcome of the various legal proceedings involving the Registrant
and its subsidiaries cannot be predicted with certainty, it is the opinion of
management, after consultation with legal counsel, that these legal actions
currently are not material to the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's annual meeting of stockholders held on June 16, 1999, the
results of the matters voted upon were as follows:
(a) The following nominees for election as director were elected.
Affirmative Votes
Director Vote Withheld
- -----------------------------------------------------------------------------
William Barclay 6,863,237 90,341
Larry Frazier 6,872,234 81,344
(b) An affirmative vote in excess of the majority of the shares available
to vote was obtained to approve the appointment of Baird, Kurtz &
Dobson as auditors for the current fiscal year.
Affirmative Negative Abstentions
- -----------------------------------------------------------------------------
6,930,651 16,468 6,459
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) of Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K, the following list is included as an unnumbered item
in Part I of this Form 10-K in lieu of being included in the Registrant's
Definitive Proxy Statement.
The following information as to the business experience during the past
five years is supplied with respect to executive officers of the Company and its
subsidiaries who are not directors of the Company and its subsidiaries. There
are no arrangements or understandings between the persons named and any other
35
<PAGE>
person pursuant to which such officers were selected. The executive officers are
elected annually and serve at the discretion of their respective Boards of
Directors.
Richard L. Wilson. Mr. Wilson, age 40, is Senior Vice President and Controller
of the Bank. He joined the Bank in 1986 and is responsible for the internal and
external financial reporting of the Company and its subsidiaries. Mr. Wilson is
a Certified Public Accountant. Effective March 1, 2000, Mr. Wilson has resigned
from the Company.
Michael D. Lawson. Mr. Lawson, age 34, is First Vice President and Commercial
Business Development Officer in the commercial lending area at the Bank. Mr.
Lawson joined the Bank in 1996. Prior to joining the Bank, Mr. Lawson was a
lending officer and branch manager with a competing $1 billion bank. Effective
January 7, 2000, Mr. Lawson has resigned from the Company.
Steven G. Mitchem. Mr. Mitchem, age 48, is Senior Vice President and Chief
Lending Officer of the Bank. He joined the Bank in 1990 and is responsible for
all lending activities of the Bank. Prior to joining the Bank, Mr. Mitchem was a
Senior Bank Examiner for the Federal Deposit Insurance Corporation.
Rex A. Copeland. Mr. Copeland, age 35, is Treasurer of the Company and Senior
Vice President and Chief Financial Officer of the Bank. He joined the Bank in
2000 and is responsible for the financial functions of the Company, including
the internal and external financial reporting of the Company and its
subsidiaries. Mr. Copeland is a Certified Public Accountant. Prior to joining
the Bank, Mr. Copeland has served other financial services companies as
Accounting Director, Division Controller and Independent Auditor.
Doug W. Marrs. Mr. Marrs, age 42, is Vice President - Operations of the Bank. He
joined the Bank in 1996 and is responsible for all operations functions of the
Bank. Prior to joining the Bank, Mr. Marrs was a bank officer in the areas of
operations and data processing at a competing $1 billion bank.
PART II
Responses incorporated by reference into the items under Part II of this
Form 10-K are done so pursuant to Rule 12b-23 and General Instruction G(2) for
Form 10-K.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION. The Company's Common Stock is listed on The NASDAQ
Stock Market under the symbol "GSBC."
As of December 31, 1999 there were 7,489,112 total shares outstanding and
approximately 986 shareholders of record.
36
<PAGE>
HIGH/LOW STOCK PRICE
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year
Fiscal Year 1999 December 31, 1998 June 30, 1998
--------------------------------------------------------------------------------
High Low High Low High Low
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 24 1/2 23 1/4 25 1/4 21 1/2 19 9/16 16
Second Quarter 26 15/16 23 5/8 26 21 3/4 25 7/8 19 1/8
Third Quarter 27 1/2 20 3/4 n/a n/a 26 1/4 24
Fourth Quarter 22 3/4 21 1/4 n/a n/a 26 3/8 25
</TABLE>
The last inter-dealer bid for the Company's Common Stock on December 31, 1999
was $22.
DIVIDEND DECLARATIONS
December 31, December 31,
1999 1998 June 30, 1998
---------------------------------------------------
First Quarter .125 $.11 $.10
Second Quarter .125 .125 .11
Third Quarter .125 n/a .11
Fourth Quarter .125 n/a .11
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with
the Company's consolidated financial statements, the notes thereto and the
accompanying independent accountant's opinion, and the following information is
qualified by reference thereto.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended Year Ended June 30,
December 31, December 31, ------------------------------------------------
1999 1998 1998 1997 1996
-----------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Summary Statement of Condition Information:
Year-end assets $964,803 $836,498 $795,091 $707,841 $668,105
Year-end loans receivable, net 766,807 696,962 653,672 581,948 544,705
Year-end allowance for loan losses 17,293 16,928 16,373 15,524 14,356
Year-end available-for-sale securities 79,891 6,476 6,363 7,408 4,656
Year-end held-to-maturity securities 37,646 60,394 51,917 51,518 51,236
Year-end foreclosed assets held for sale, net 817 2,810 4,751 5,651 9,862
Year-end allowance for foreclosed asset losses --- --- --- 319 1,086
Year-end intangibles 404 543 626 --- 1,102
Year-end deposits 625,900 597,625 549,773 456,370 395,238
Year-end total borrowings 261,642 159,250 169,509 180,566 197,057
Year-end stockholders' equity (retained
earnings substantially restricted) 68,926 68,382 67,409 60,348 67,808
Average loans receivable, net 746,979 647,797 624,290 561,146 536,695
Average total assets 928,182 805,170 747,901 670,172 643,885
Average deposits 612,503 577,820 487,386 416,041 385,734
Average stockholders' equity 68,758 66,997 64,212 62,200 65,355
Year-end number of deposit accounts 73,932 74,375 74,070 69,762 60,649
Year-end number of full-service offices 27 27 27 25 25
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, Year Ended June 30,
December 31, -----------------------------------------------------------------------
1999 1998 1997 1998 1997 1996
----------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Summary Income Statement Information:
Interest income $68,038 $32,485 $30,041 $61,932 $55,540 $53,938
Interest expense 35,463 16,530 15,601 31,992 28,822 28,132
Net interest income 32,575 15,955 14,440 29,940 26,718 25,806
Provision for loan losses 2,062 1,291 852 1,853 1,706 1,451
Net interest income after provision
for loan losses 30,513 14,664 13,588 28,087 25,012 24,355
Service charge fees 4,502 2,390 1,753 3,841 2,785 2,382
Net realized gains on sales of
available-for-sale securities 316 356 872 1,398 205 680
Net realized gains on sales of loans 1,098 385 461 1,125 522 540
Income (expense) on foreclosed assets --- 420 383 326 286 728
Other non-interest income 9,433 4,307 3,364 7,109 6,721 5,994
Non-interest expenses 25,167 11,306 9,883 20,518 20,439 16,274
Income before income taxes 20,695 11,216 10,538 21,368 15,091 18,405
Provision for income taxes 7,018 3,858 3,058 6,924 5,751 7,111
Net income $13,677 $ 7,358 $ 7,480 $14,444 $ 9,340 $11,294
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, Year Ended June 30,
December 31, -----------------------------------------------------------------
1999 1998 1997 1998 1997 1996
----------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Per Common Share Data:
Net Income $1.79 $ .93 $ .93 $ 1.79 $ 1.11 $ 1.27
Diluted earnings per common share:
Net Income 1.76 .91 .91 1.76 1.10 1.23
Cash dividends declared .50 .235 .21 .43 .3875 .35
Book value 9.20 8.76 8.13 8.47 7.45 7.70
Average shares outstanding 7,620 7,897 8,082 8,052 8,394 8,926
Year-end actual shares outstanding 7,489 7,803 8,066 7,962 8,105 8,812
Year-end fully diluted shares outstanding 7,601 8,012 8,218 8,204 8,488 9,218
Earnings Performance Ratios:
Return on average assets 1.56% 1.83% 2.08% 1.93% 1.39% 1.75%
Return on average stockholders' equity 19.98 21.97 24.04 22.49 15.02 17.28
Non-interest expense to average total assets 2.87 2.81 2.75 2.74 3.04 2.53
Average interest rate spread 3.36 4.02 3.78 3.79 3.79 3.82
Year-end interest rate spread 3.40 3.62 3.75 3.81 3.90 3.72
Net interest margin(1) 3.86 4.32 4.18 4.18 4.17 4.21
Adjusted efficiency ratio (excl. foreclosed assets) 52.51 48.33 47.31 47.20 55.22 45.97
Average interest-earning assets as a percentage of 112.0 106.6 108.8 108.6 108.5 108.4
average interest-bearing liabilities
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, Year Ended June 30,
December 31, -----------------------------------------------------------------
1999 1998 1997 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses/year-end loans 2.26% 2.42% 2.54% 2.50% 2.66% 2.63%
Non-performing assets/year-end loans and
foreclosed assets 1.26 1.46 2.20 1.81 2.30 2.83
Allowance for loan losses/non-performing loans 194.48 228.20 155.26 227.18 197.01 243.03
Net charge-offs/average loans .23 .23 .09 .16 .10 .32
Gross non-performing assets/average total assets 1.09 1.61 1.91 1.90 2.07 2.45
Capital Ratios:
Average stockholders' equity to average assets 7.41% 8.32% 8.64% 8.59% 9.28% 10.15%
Year-end tangible stockholders' equity to assets 7.10 8.11 8.67 8.40 8.53 10.09
Common dividend pay-out ratio 28.0 27.2 24.4 24.0 35.2 28.6
- -----------------
<FN>
(1) For further discussion, refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations-Average Balances, Interest
Rates and Yields.
</FN>
</TABLE>
38
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
FORWARD-LOOKING STATEMENTS
When used in this Annual Report and in future filings by the Company with
the Securities and Exchange Commission (the "SEC"), in the Company's press
releases or other public or shareholder communications, and in oral statements
made with the approval of an authorized executive officer, the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including, among other things, changes in economic conditions in
the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans and deposits in the Company's
market area and competition, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to advise readers that the factors listed above
could affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Company does not undertake-and specifically declines any obligation-to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
GENERAL
The profitability of the Company and, more specifically, the profitability
of its primary subsidiary, Great Southern Bank (the "Bank"), depends primarily
on its net interest income. Net interest income is the difference between the
interest income it earns on its loans and investment portfolio, and the interest
it pays on interest-bearing liabilities, which consists mainly of interest paid
on deposits and borrowings.
The Company's profitability is also affected by the level of its
non-interest income and operating expenses. Non-interest income consists
primarily of gains on sales of loans and available-for-sale investments, service
charge fees, commissions earned by non-bank subsidiaries and other general
operating income. Operating expenses consist primarily of salaries and employee
benefits, occupancy-related expenses, postage, insurance, advertising, office
expenses and other general operating expenses.
The operations of the Bank, and banking institutions in general, are
significantly influenced by general economic conditions and related monetary and
fiscal policies of regulatory agencies. Deposit flows and the cost of deposits
and borrowings are influenced by interest rates on competing investments and
general market rates of interest. Lending activities are affected by the demand
for financing real estate and other types of loans, which in turn are affected
by the interest rates at which such financing may be offered and other factors
affecting loan demand and the availability of funds.
EFFECT OF FEDERAL LAWS AND REGULATIONS
Federal legislation and regulation significantly affect the banking
operations of the Company and have increased competition among commercial banks,
savings institutions, mortgage banking enterprises and other financial
institutions. In particular, the capital requirements and operations of
regulated depository
39
<PAGE>
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 one-bank holding company. This change brought with it an
additional set of regulations and new regulators for the Bank and Company. These
changes are not expected to be material to the overall operations or
profitability of the Company.
POTENTIAL IMPACT OF ACCOUNTING PRINCIPLES TO BE IMPLEMENTED IN THE FUTURE
The FASB recently adopted SFAS No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The effective date of SFAS No. 133 has been delayed by SFAS No. 137 until fiscal
years beginning after June 15, 2000, but may be implemented early as of the
beginning of any fiscal quarter after issuance. SFAS No. 133 may not be applied
retroactively. Management believes the adoption of SFAS No. 133, which the
Company expects to initially adopt for its year ending December 31, 2000, will
not have a material impact on the Company's financial statements.
YEAR 2000 ISSUE
The Year 2000 issue that confronted the Company and its suppliers,
customers and competitors, centered on the inability of computer systems to
recognize the year 2000. Many 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. With the new millennium, there was concern that
these programs and computers might recognize "00" as the year 1900 rather than
the year 2000.
The Company has had no significant problems relating to the Year 2000 date
change; however, management continues to monitor all systems for potential
problems. In addition, nothing has come to management's attention regarding any
Year 2000 problems experienced by its customers or suppliers that have
significantly impacted or are expected to significantly impact the Company.
ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
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. Since the Company uses
brokered deposits and Federal Home Loan Bank (the "FHLBank") advances with
various maturities to fund a portion of its loan growth, the Company's assets
tend to reprice more quickly than its liabilities.
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<PAGE>
OUR RISK WHEN INTEREST RATES CHANGE
The rates of interest we earn on assets and pay on liabilities generally
are established contractually for a period of time. Market interest rates change
over time. Accordingly, our results of operations, like those of other financial
institutions, are impacted by changes in interest rates and the interest rate
sensitivity of our assets and liabilities. The risk associated with changes in
interest rates and our ability to adapt to these changes is known as interest
rate risk and is Great Southern's most significant market risk.
HOW WE MEASURE THE RISK TO US ASSOCIATED WITH INTEREST RATE CHANGES
In an attempt to manage our exposure to changes in interest rates and
comply with applicable regulations, we monitor Great Southern's interest rate
risk. In monitoring interest rate risk we continually analyze and manage assets
and liabilities based on their payment streams and interest rates, the timing of
their maturities and their sensitivity to actual or potential changes in market
interest rates.
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained despite
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities repricing during the same period, and is considered
negative when the amount of interest-rate sensitive liabilities exceeds the
amount of interest-rate sensitive assets during the same period. Generally,
during a period of rising interest rates, a negative gap within shorter
repricing periods would adversely affect net interest income, while a positive
gap within shorter repricing periods would result in an increase in net interest
income. During a period of falling interest rates, the opposite would be true.
As of December 31, 1999, the ratio of Great Southern's one-year gap to total
assets was a positive 14.8% and its ratio of interest-earning assets to
interest-bearing liabilities maturing or repricing within one year was 1.24.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on Great Southern's results of operations,
Great Southern has adopted asset and liability management policies to better
match the maturities and repricing terms of Great Southern's interest-earning
assets and interest-bearing liabilities. Management recommends and the Board of
Directors sets the asset and liability policies of Great Southern which are
implemented by the asset and liability committee. The asset and liability
committee is chaired by the Chief Financial Officer and is comprised of members
of Great Southern's senior management. The purpose of the asset and liability
committee is to communicate, coordinate and control asset/liability management
consistent with Great Southern's business plan and board-approved policies. The
asset and liability committee establishes and monitors the volume and mix of
assets and funding sources taking into account relative costs and spreads,
interest rate sensitivity and liquidity needs. The objectives are to manage
assets and funding sources to produce results that are consistent with
liquidity, capital adequacy, growth, risk and profitability goals. The asset and
liability committee meets on a monthly basis to review, among other things,
economic conditions and interest rate outlook, current and projected liquidity
needs and capital positions and anticipated changes in the volume and mix of
assets and liabilities. At each meeting, the asset and liability committee
recommends appropriate strategy changes based on this review. The Chief
Financial Officer or his designee is responsible for reviewing and reporting on
the effects of the policy implementations and strategies to the board of
directors at their monthly meetings.
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<PAGE>
In order to manage its assets and liabilities and achieve the desired
liquidity, credit quality, interest rate risk, profitability and capital
targets, Great Southern has focused its strategies on originating adjustable
rate loans, and managing its deposits and borrowings to establish stable
relationships with both retail customers and wholesale funding sources.
At times, depending on the level of general interest rates, the
relationship between long- and short-term interest rates, market conditions and
competitive factors, the asset and liability committee may determine to increase
Great Southern's interest rate risk position somewhat in order to maintain its
net interest margin.
The asset and liability committee regularly reviews interest rate risk by
forecasting the impact of alternative interest rate environments on net interest
income and market value of portfolio equity, which is defined as the net present
value of an institution's existing assets, liabilities and off-balance sheet
instruments, and evaluating such impacts against the maximum potential changes
in net interest income and market value of portfolio equity that are authorized
by the board of directors of Great Southern.
Interest rate risk exposure estimates 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 cause a
change, which potentially could be material, in the Company's interest rate
risk.
Table I illustrates the expected maturities of the Bank's financial
instruments at December 31, 1999. This schedule does not reflect the effects of
possible prepayments or enforcement of due-on-sale clauses. The table is based
on information prepared in accordance with generally accepted accounting
principles.
CHANGE IN FISCAL YEAR
In 1998, the Company changed its fiscal year ended June 30 to a fiscal
year ended December 31. The six-month period ended December 31, 1998,
transitions between the Company's old and new fiscal year ends. Because of this
fiscal year change, the results of operations for the year ended December 31,
1999, have been compared to the results of operations for the year ended June
30, 1998. The results of operations for the six months ended December 31, 1998,
have been compared to the unaudited results of operations for the six months
ended December 31, 1997.
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<PAGE>
The following schedule illustrates the expected maturities of the Bank's
financial instruments at December 31, 1999. This schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses. The table
is based on information prepared in accordance with generally accepted
accounting principles.
TABLE I
- -------
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------- Fair
2000 2001 2002 2003 2004 Thereafter Total Value
------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Assets:
Interest bearing deposits $1,941 --- --- --- --- --- $1,941 $1,941
Weighted average rate 5.50% --- --- --- --- --- 5.50%
Available-for-sale securities $54,558 $18,087 --- --- --- --- $72,645 $72,645
Weighted average rate 5.52% 5.68% --- --- --- --- 5.56%
Held to maturity securities $14,971 $19,330 --- --- --- $3,344 $37,645 $37,416
Weighted average rate 5.30% 5.51% --- --- --- 6.95% 5.55%
Adjustable rate loans $160,373 $53,501 $60,790 $52,914 $83,662 $223,384 $634,624 $645,623
Weighted average rate 9.02% 8.81% 8.80% 8.88% 8.99% 8.04% 8.62%
Fixed rate loans $38,739 $24,516 $20,341 $21,276 $6,245 $39,737 $150,854 $148,171
Weighted average rate 9.42% 9.17% 9.81% 9.22% 9.47% 8.56% 9.18%
Federal Home Loan Bank stock --- --- --- --- --- $10,981 $10,981 $10,981
Weighted average rate --- --- --- --- --- 6.25% 6.25%
Financial Liabilities:
Savings deposits $29,613 --- --- --- --- --- $29,613 $29,613
Weighted average rate 2.50% --- --- --- --- --- 2.50%
Time deposits $250,946 $84,075 $36,597 $32,774 $10,969 $18,991 $434,352 $437,413
Weighted average rate 5.18% 5.64% 5.85% 5.79% 6.32% 5.92% 5.44%
Interest bearing demand $114,575 --- --- --- --- --- $114,575 $114,575
Weighted average rate 1.86% --- --- --- --- --- 1.86%
Non-interest bearing demand $47,360 --- --- --- --- --- $47,360 $47,360
Weighted average rate --- --- --- --- --- --- ---
Federal Home Loan Bank and short-
term borrowings $149,876 $11,135 $11,227 $31,327 $2,914 $47,275 $253,754 $252,356
Weighted average rate 5.41% 6.55% 5.66% 6.52% 7.43% 6.58% 5.89%
</TABLE>
43
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND
DECEMBER 31, 1998
During the year ended December 31, 1999, the Company increased total assets
by $128 million. A large portion of the increase was due to the increase in net
loans of $70 million. The main loan areas experiencing increases were
commercial, commercial construction and consumer. Total investment securities
increased by $51 million, which was primarily an increase in available-for-sale
United States government agency securities. Cash and cash equivalents increased
by $10 million primarily due to increased customer cash requirements
attributable to the Year 2000 Issue.
Total liabilities increased $128 million from December 31, 1998, to
December 31, 1999. FHLBank advances increased $42 million. Short-term borrowings
increased $53 million with the addition of $27 million in federal funds
purchased and $25 million in United States government agency securities sold
under reverse repurchase agreements. Deposits increased $28 million due
primarily to an increase in certificates of deposit of $68 million, of which $63
million related to brokered deposits. Brokered deposits are an attractive
funding source due to the ability to obtain large amounts quickly and the fact
that brokered deposits do not require the collateral pledging that FHLBank
advances do. The increase in certificates of deposit was partially offset by the
decrease in checking and savings accounts of $40 million. Note payable to bank
increased $7 million with the addition of a line of credit established by the
Company. The line is utilized by the Company to meet operating cash needs, and
as a source of funds to purchase shares of the Company's stock.
Stockholders' equity increased $543,000 from December 31, 1998, to December
31, 1999. Net income for fiscal year 1999 was $13.7 million and was offset by
dividends of $3.8 million, net treasury stock repurchases of $8.3 million, and a
reduction of $1.0 million in accumulated other comprehensive income. The Company
repurchased 367,758 shares of common stock during 1999.
RESULTS OF OPERATIONS AND COMPARISON FOR THE YEARS ENDED DECEMBER 31,
1999 AND JUNE 30, 1998
GENERAL
The decrease in earnings of $767,000, or 5.3%, during the year ended
December 31, 1999, compared to the year ended June 30, 1998, was primarily due
to an increase in salaries and employee benefits of $2.9 million, or 27.1%, and
an increase in net occupancy expenses of $1.1 million, or 36.0%, offset by an
increase in net interest income of $2.6 million, or 8.8%, and an increase in
non-interest income of $1.6 million, or 11.2%.
TOTAL INTEREST INCOME
Total interest income increased $6.1 million, or 9.9%, during the year
ended December 31, 1999, compared to the year ended June 30, 1998, primarily due
to a $5.8 million, or 10.2%, increase in interest income on loans.
INTEREST INCOME - LOANS
During the year ended December 31, 1999, compared to June 30, 1998,
interest income on loans increased primarily from higher average balances.
Interest income increased $9.8 million as the result of
44
<PAGE>
higher average loan balances from $624.3 million during the year ended June 30,
1998, to $747.0 million during the year ended December 31, 1999. The higher
average balance resulted principally from the Bank's increased commercial
business lending and indirect dealer consumer lending. This increase was
partially offset by a decrease in the interest income on loans of $3.9 million
as a result of lower average yields on loans from 9.22% during the year ended
June 30, 1998, to 8.49% during the year ended December 31, 1999.
INTEREST INCOME - INVESTMENTS AND OTHER INTEREST-EARNING DEPOSITS
Interest income on investments and interest-earning deposits increased
$257,000, or 5.9%, during the year ended December 31, 1999, when compared to the
year ended June 30, 1998. Interest income increased $240,000 as a result of
higher average balances from $92.3 million during the year ended June 30, 1998,
to $97.4 million in the year ended December 31, 1999. Interest income increased
$17,000 as a result of higher average yields from 4.76% during the year ended
June 30, 1998, to 4.78% during the year ended December 31, 1999.
TOTAL INTEREST EXPENSE
Total interest expense increased $3.5 million, or 10.9%, during the year
ended December 31, 1999 when compared with the year ended June 30, 1998,
primarily due to an increase in interest expense on deposits of $4.0 million, or
19.2%, offset by a decrease in interest expense on FHLBank advances of $500,000,
or 5.1%.
INTEREST EXPENSE - DEPOSITS
Interest expense on time deposits increased $4.8 million as a result of
higher average balances from $312.1 million during the year ended June 30, 1998,
to $401.7 million during the year ended December 31, 1999. 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. This increase was partially offset by a decrease in the
interest expense on time deposits of $628,000 as a result of lower average rates
from 5.58% during the year ended June 30, 1998, to 5.37% during the year ended
December 31, 1999.
INTEREST EXPENSE - FHLBANK AND OTHER BORROWINGS
Interest expense on FHLBank advances and other borrowings decreased
$544,000 principally due to lower average balances of $191.3 million during the
year ended June 30, 1998, compared to $184.9 million during the year ended
December 31, 1999. These lower average balances resulted from the increase in
deposits noted above that were used to repay maturing FHLBank advances. Average
rates were lower during the year ended December 31, 1999, at 5.68% compared to
5.77% during the year ended June 30, 1998.
NET INTEREST INCOME
The Company's overall interest rate spread decreased from 3.79% during the
year ended June 30, 1998, to 3.36% during the year ended December 31, 1999.
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<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $209,000, or 11.3%, during the year
ended December 31, 1999, from $1.9 million during the year ended June 30, 1998
to $2.1 million during the year ended December 31, 1999.
Management records a provision for loan losses in an amount sufficient to
result in an allowance for loan losses that will cover current net charge-offs
as well as risks believed to be inherent in the loan portfolio of the Bank. The
amount of provision charged against current income is based on several factors,
including, but not limited to, past loss experience, current portfolio mix,
actual and potential losses identified in the loan portfolio, economic
conditions and regular reviews by internal staff and regulatory examinations.
Weak economic conditions, higher inflation or interest rates, or other
factors may lead to increased losses in the portfolio. Management has
established various controls in an attempt to limit future losses, such as a
watch list of possible problem loans, documented loan administration policies
and a loan review staff to review the quality and anticipated collectibility of
the portfolio. Management determines which loans are potentially uncollectible,
or represent a greater risk of loss and makes additional provisions to expense,
if necessary, to maintain the allowance at a satisfactory level.
Non-performing assets decreased $2.9 million, or 23.2%, from $12.5 million
at December 31, 1998, to $9.6 million at December 31, 1999. Non-performing loans
decreased $900,000, or 9.3%, from $9.7 million at December 31, 1998, to $8.8
million at December 31, 1999, and foreclosed assets declined $2.0 million, or
70.9%, from $2.8 million at December 31, 1998, to $817,000 at December 31, 1999.
Potential problem loans decreased $1.4 million, or 11.5%, from $12.2
million at December 31, 1998, to $10.8 million at December 31, 1999. 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.
Management considers the allowance for loan losses adequate to cover losses
inherent in the Company's loan portfolio at this time, based on current economic
conditions. If economic conditions deteriorate significantly, it is possible
that additional assets would be classified as non-performing, and accordingly,
additional provision for losses would be required, thereby adversely affecting
future results of operations and financial condition.
NON-INTEREST INCOME
Non-interest income increased $1.6 million, or 11.2%, during the year
ended December 31, 1999, compared to the year ended June 30, 1998. The increase
was primarily due to: (i) an increase of $1.4 million, or 24.8%, in commission
income from the travel, insurance and investment subsidiaries from growth in
these areas; (ii) an increase in service charge income of $661,000, or 17.2%, on
transaction accounts due to an increase in overdraft charges; offset by (iii) a
decrease in net realized gains on sales of available-for-sale securities of $1.1
million, or 77.3%; (iv) a decline of $326,000, or 100.0%, of income on
foreclosed assets due to the sale of income-producing foreclosed assets; and (v)
various increases or decreases in other non-interest income items.
46
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense increased $4.6 million, or 22.7% during the year ended
December 31, 1999 when compared to the year ended June 30, 1998. The increase
was primarily due to: (i) an increase of $2.9 million, or 27.1%, in salaries and
employee benefits due to increased staffing levels in most areas of the Company
due to growth and the year 2000 issue; (ii) an increase of $1.1 million, or
36.0%, in net occupancy expense primarily due to the core computer conversion,
year 2000 testing of the Bank's systems and other technology-related purchases;
(iii) an increase of $325,000, or 48.8%, in office supplies and printing due to
the cost of replacing all debit cards prior to December 31, 1999 and additional
supplies purchased as a result of the year 2000 Issue; and (iv) various
increases or decreases in other non-interest expense items.
PROVISION FOR INCOME TAXES
Provision for income taxes as a percentage of pre-tax income increased
slightly from 32.4% for the year ended June 30, 1998 to 33.9% for the year ended
December 31, 1999.
RESULTS OF OPERATIONS AND COMPARISON FOR THE SIX MONTHS ENDED DECEMBER
31, 1998 AND 1997
GENERAL
The decrease in earnings of $122,000, or 1.6%, during the six months ended
December 31, 1998, compared to December 31, 1997, was primarily due to an
increase in non-interest expense of $1.4 million, or 14.4%, an increase in
provision for income taxes of $800,000, or 26.2%, and an increase in provision
for loan losses of $439,000, or 51.5%, offset by an increase in net interest
income of $1.5 million, or 10.5%, and an increase in non-interest income of $1.0
million, or 15.0% during the six months ended December 31, 1998.
TOTAL INTEREST INCOME
Total interest income increased $2.4 million, or 8.0%, during the six
months ended December 31, 1998, primarily due to a $2.5 million, or 9.0%,
increase in interest income on loans.
INTEREST INCOME - LOANS
During the six months ended December 31, 1998, compared to December 31,
1997, interest income on loans increased primarily from higher average balances.
Interest income increased $2.1 million as the result of higher average loan
balances from $602 million during the six months ended December 31, 1997, to
$648 million during the six months ended December 31, 1998. The higher average
balance resulted from the Bank's increased lending in commercial real estate,
commercial business lending and indirect dealer consumer lending. The average
yield on loans increased from 9.26% during the six months ended December 31,
1997, to 9.36% during the six months ended December 31, 1998, as a result of the
change in the mix of loan types to higher rate loans.
INTEREST INCOME - INVESTMENTS AND OTHER INTEREST-EARNING DEPOSITS
Interest income on investments and interest-earning deposits decreased
$10,000, or .5%, during the six months ended December 31, 1998, when compared to
the six months ended December 31, 1997. Interest
47
<PAGE>
income declined $68,000 as a result of lower average yields from 4.84% during
the six months ended December 31, 1997, to 4.71% during the six months ended
December 31, 1998, due to lower short term market rates. Interest income
increased $58,000 as a result of higher average balances from $89.4 million
during the six months ended December 31, 1997, to $91.5 million in the six
months ended December 31, 1998.
TOTAL INTEREST EXPENSE
Total interest expense increased $929,000, or 6.0%, during the six months
ended December 31, 1998, when compared with the six months ended December 31,
1997, primarily due to an increase in interest expense on deposits of $1.9
million, or 17.9%, offset by a decrease in interest expense on FHLBank advances
and other borrowings of $931,000, or 17.9%.
INTEREST EXPENSE - DEPOSITS
Interest expense on time deposits increased $1.45 million as a result of
higher average balances from $306 million during the six months ended December
31, 1997, to $358 million during the six months ended December 31, 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. This increase was partially offset by a
decrease in interest expense on time deposits of $95,000 as a result of lower
average rates from 5.61% during the six months ended December 31, 1997, to 5.55%
during the six months ended December 31, 1998.
Interest expense on deposits increased $438,000 as a result of higher
average balances of interest bearing demand deposits from $119 million during
the six months ended December 31, 1997, to $154 million during the six months
ended December 31, 1998, and increased $183,000 as a result of higher average
rates on interest bearing demand deposits from 2.33% during the six months ended
December 31, 1997, to 2.61% during the six months ended December 31, 1998. The
increase in balances was the result of the growth of checking customers and the
increase in rate was the result of a change in the mix of account types.
This increase was partially offset by a $99,000 decrease in interest
expense on savings accounts from slightly lower average rates from 2.48% in the
six months ended December 31, 1997, to 1.90% during the six months ended
December 31, 1998.
INTEREST EXPENSE - FHLBANK ADVANCES AND OTHER BORROWINGS
Interest expense on FHLBank advances and other borrowings decreased
$931,000 principally due to lower average balances from $176 million during the
six months ended December 31, 1997, to $149 million during the six months ended
December 31, 1998. These lower average balances resulted from the increase in
deposits noted above that were partially used to repay maturing FHLBank
advances. Average rates were lower during the six months ended December 31,
1998, at 5.76% compared to 5.92% during the six months ended December 31, 1997.
NET INTEREST INCOME
The Company's overall interest rate spread increased from 3.78% during the
six months ended December 31, 1997, to 4.02% during the six months ended
December 31, 1998.
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<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $439,000, or 51.5%, during the
six months ended December 31, 1998, from $852,000 during the six months ended
December 31, 1997, to $1.3 million during the six months ended December 31,
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.
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 $500,000, or 3.8%, from $13.0 million at
June 30, 1998, to $12.5 million at December 31, 1998. Non-performing loans
increased $1.5 million, or 20.7%, from $8.2 million at June 30, 1998, to $9.7
million at December 31, 1998, and foreclosed assets declined $2.0 million, or
41.7%, from $4.8 million at June 30, 1998, to $2.8 million at December 31, 1998.
Potential problem loans increased $3.2 million, or 35.6%, from $9 million
at June 30, 1998, to $12.2 million at December 31, 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.
Management considers the allowance for loan losses and the allowance for
foreclosed asset losses adequate to cover losses inherent 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
losses would be required, thereby adversely affecting future results of
operations and financial condition.
NON-INTEREST INCOME
Non-interest income increased $1 million, or 15%, during the six months
ended December 31, 1998, compared to the six months ended December 31, 1997. The
increase was primarily due to: (i) an increase in service charge income of
$637,000, or 36.3%, on transaction accounts and electronic transactions due to
increased volumes from ATM debit card usage; (ii) an increase of $550,000, or
21.3%, in commission income from the travel, insurance and investment
subsidiaries from growth in these areas; offset by, (iii) a decrease of
$516,000, or 59.2% in net realized gains on sales of available-for-sale
securities; (iv) various increases or decreases in other non-interest income
items.
49
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense increased $1.4 million, or 14.4% during the six months
ended December 31, 1998, when compared to the six months ended December 31,
1997. The increase was primarily due to: (i) an increase of $516,000, or 9.9% in
salaries and employee related costs due to increased staffing levels in most
areas of the Company due to growth and the year 2000 issue; (ii) an increase of
$423,000, or 31.3% in occupancy and equipment expense primarily due to computer
system upgrades and other technology related purchases partially due to the year
2000 issue; (iii) an increase of $477,000, or 497%, in transaction and bad check
losses from a regulatory recommendation to charge-off these losses at 90 days;
and (iv) various increases or decreases in other non-interest expense items.
PROVISION FOR INCOME TAXES
Provision for income taxes as a percentage of pre-tax income increased from
29.0% in the six months ended December 31, 1997, to 34.4% in the six months
ended December 31, 1998. The lower than normal percentage in the December 31,
1997, period was primarily due to a refund of prior period state financial
institution taxes within that period.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
Table II (on the following page) 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.
RATE/VOLUME ANALYSIS
Table III (on the following page) 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 rate.
50
<PAGE>
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table 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.
TABLE II
- --------
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, 1999 December 31, 1998
December 31, ----------------------------------------------------------
1999
Yield/ Average Interest Yield/ Average Interest Yield/
Rate Balance Rate Balance Rate
---------- --------- -------- ------- -------- -------- -----
(Dollars in Thousands)
<S> <C> <C>> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable 8.70% $746,979 $63,386 8.49% $647,797 $30,332 9.36%
Investment securities and other
interest-earning assets 5.55 97,402 4,652 4.78 91,514 2,153 4.71
------ --------- ------- ----- ---------- -------- -----
Total interest-earning assets 8.30 $844,381 68,038 8.06 $739,311 32,485 8.79
------ ======== ------- ----- ======== ------ ----
Interest-bearing liabilities:
Demand deposits 1.86 $135,026 2,542 1.88 $153,777 2,007 2.61
Savings deposits 2.50 32,634 842 2.58 33,663 319 1.90
Time deposits 5.44 401,683 21,583 5.37 357,793 9,929 5.55
----- --------- ------- ----- ------- ----- ----
Total deposits 4.42 569,343 24,967 4.39 545,233 12,255 4.50
FHLBank advances and other
borrowings 5.96 184,872 10,496 5.68 148,520 4,275 5.76
----- --------- ------- ----- ------- ----- ----
Total interest-bearing
liabilities 4.90% $754,215 35,463 4.70 $693,753 16,530 4.77
===== ======== ------- ----- ======== ------ ----
Net interest income:
Interest rate spread 3.40% $32,575 3.36% $15,955 4.02%
===== ======= ===== ======= ====
Net interest margin* 3.86% 4.32%
===== ====
Average interest-earning assets to
average interest-bearing liabilities 112.0% 106.6%
===== ======
</TABLE>
51
<PAGE>
Year Ended June 30,1997
----------------------------
Average Yield/
Balance Interest Rate
-------- -------- -------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable $624,290 $57,537 9.22%
Investment securities and other
interest-earning assets 92,251 4,395 4.76
-------- ------- ----
Total interest-earning assets $716,541 61,932 8.64
======== ------- ----
Interest-bearing liabilities:
Demand deposits $121,477 2,674 2.20
Savings deposits 34,874 859 2.46
Time deposits 312,077 17,418 5.58
------- ------ ----
Total deposits 468,428 20,951 4.47
FHLBank advances and other
borrowings 191,260 11,041 5.77
------- ------ ----
Total interest-bearing
liabilities $659,688 31,992 4.85
======== ------ ----
Net interest income:
Interest rate spread $29,940 3.79%
======= ====
Net interest margin* 4.18%
====
Average interest-earning assets to
average interest-bearing liabilities 108.6%
=====
- ----------------
* Defined as the Company's net interest income divided by total
interest-earning assets.
52
<PAGE>
RATE/VOLUME ANALYSIS
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities for the periods shown. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in rate (i.e., changes in rate
multiplied by old volume) and (ii) changes in volume (i.e., changes in volume
multiplied by old rate). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to volume and to rate.
TABLE III
- ---------
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 vs. December 31, 1998 vs
June 30, 1998 December 31, 1997
----------------------------------------------------------------------------------
Increase Total Increase
(Decrease) Increase (Decrease)
Due to (Decrease) Due to Total
----------------------------- ----------------------------- Increase
Rate Volume Rate Volume (Decrease)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $(3,946) $ 9,795 $5,849 $ 318 $2,136 $2,454
Investment securities and other
interest-earning assets 17 240 257 (68) 58 (10)
-------- --------- -------- -------- --------- ---------
Total interest-earning assets (3,929) 10,035 6,106 250 2,194 2,444
-------- ------- -------- ------- ------- --------
Interest-bearing liabilities:
Demand deposits (412) 280 (132) 183 438 621
Savings deposits 40 (58) (18) (99) (17) (116)
Time deposits (628) 4,793 4,165 (95) 1,450 1,355
-------- -------- -------- -------- ------- --------
Total deposits (1,000) 5,015 4,015 (11) 1,871 1,860
FHLBank advances and other
borrowings (173) (371) (544) (143) (788) (931)
-------- --------- --------- ------- -------- ---------
Total interest-bearing liabilities (1,173) 4,644 3,471 (154) 1,083 929
-------- -------- -------- ------- ------- ---------
Net interest income $(2,828) $ 5,463 $2,635 $ 404 $1,111 $1,515
======= ======= ====== ====== ====== ======
</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 December 31, 1999, the Company had commitments of
approximately $101.4 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.
53
<PAGE>
The Company's capital position remained strong, with stockholders' equity
at $68.9 million, or 7.1% of total assets of $964.8 million at December 31, 1999
compared to equity at $68.4 million, or 8.2%, of total assets of $836.5 million
at December 31, 1998.
Banks are required to maintain minimum risk-based capital ratios. These
ratios compare capital, as defined by the risk-based regulations, to assets
adjusted for their relative risk as defined by the regulations. Guidelines
required banks to have a minimum Tier 1 risk-based capital ratio, as defined, of
4.00% and a minimum Tier 2 total risk-based capital ratio of 8.00%, and a
minimum 4.00% Tier 1 leverage capital ratio. On December 31, 1999, the Bank's
Tier 1 risk-based capital ratio was 9.0%, total risk-based capital ratio was
10.2% and the core ratio was 7.4%.
At December 31, 1999, the held-to-maturity investment portfolio included
$230,000 of gross unrealized losses. The unrealized losses are not expected to
have a material effect on future earnings beyond the usual amortization of
acquisition premium or accretion of discount because no sale of the
held-to-maturity investment portfolio is foreseen.
The Company's primary sources of funds are deposits, FHLBank advances,
other borrowings, loan repayments, proceeds from sales of loans and
available-for-sale securities and funds provided from operations. The Company
utilizes particular sources of funds based on the comparative costs and
availability at the time. The Company has from time to time chosen not to pay
rates on deposits as high as the rates paid by certain of its competitors and,
when believed to be appropriate, supplements deposits with less expensive
alternative sources of funds.
STATEMENTS OF CASH FLOWS. During the years ended December 31, 1999 and June
30, 1998 and 1997, and the six months ended December 31, 1998, 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 these same time periods.
Cash flows from operating activities for the periods covered by the
Statements of Cash Flows have been primarily related to net income adjusted for
accrued assets and liabilities, the provision for loan losses and losses on
foreclosed assets, depreciation, sale of foreclosed assets and the amortization
of deferred loan 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 $19.5 million, $10.3 million, $12.2 million, and $6.0 million
during the years ended December 31, 1999,and June 30, 1998 and 1997, and the six
months ended December 31, 1998.
During the years ended December 31, 1999, and June 30, 1998 and 1997, and
the six months ended December 31, 1998, investing activities used cash of $126.7
million, $72.6 million, $36.6 million, and $51.3 million, respectively,
primarily due to the net increase of loans and the net purchase of investment
securities in each period.
Changes in cash flows from financing activities during the periods covered
by the Statements of Cash Flows are due to changes in deposits, 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 $117.2 million, $75.7 million, $27.3 million and $33.0 million for the
years ended December 31, 1999, and June 30, 1998 and 1997, and the six months
ended December 31, 1998, respectively. Financing activities in the future are
expected to primarily include changes in deposits and changes in FHLBank
advances.
54
<PAGE>
DIVIDENDS. During the year ended December 31, 1999, the Company declared
and paid dividends of $.50 per share, or 28.0% of net income, compared to
dividends declared and paid during the six months ended December 31, 1998 of
$.235 per share, or 25.1% 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 December 31, 1999, the Company repurchased
367,758 shares of its common stock at an average price of $23.91 per share and
reissued 58,166 shares of treasury stock at an average price of $7.14 per share
to cover stock option exercises. During the six months ended December 31, 1998,
the Company repurchased 169,428 shares of its common stock at an average price
of $23.29 per share and reissued 10,380 shares of treasury stock at an average
price of $12.29 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 increase 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.
55
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION.
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. as of December 31, 1999 and 1998, and June 30, 1998, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the year ended December 31, 1999, the six-month period ended
December 31, 1998, and the years ended June 30, 1998 and 1997. 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.
56
<PAGE>
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GREAT
SOUTHERN BANCORP, INC. as of December 31, 1999 and 1998, and June 30, 1998, and
the results of its operations and its cash flows for the year ended December 31,
1999, the six-month period ended December 31, 1998, and the years ended June 30,
1998 and 1997, in conformity with generally accepted accounting principles.
/s/ Baird, Kurtz & Dobson
Springfield, Missouri
February 11, 2000
57
<PAGE>
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998 June 30, 1998
------------------------------------------------------
<S> <C> <C> <C>
Cash $42,355,901 $24,115,015 $12,199,490
Interest-bearing deposits in other financial institutions 1,244,319 9,431,407 33,631,748
------------------------------------------------------
Cash and cash equivalents 43,600,220 33,546,422 45,831,238
Available-for-sale securities 79,891,460 6,475,897 6,362,700
Held-to-maturity securities 37,645,500 60,394,843 51,916,864
Loans receivable, net 766,806,940 696,961,552 653,672,169
Interest receivable:
Loans 4,971,646 4,854,247 5,159,425
Investments 882,848 651,993 738,382
Refundable income taxes --- --- 240,623
Prepaid expenses and other assets 4,027,242 6,571,841 3,960,573
Foreclosed assets held for sale, net 817,118 2,810,201 4,750,910
Premises and equipment, net 9,984,075 10,012,125 9,457,015
Investment in Federal Home Loan Bank stock 10,981,000 9,454,100 9,454,100
Excess of cost over fair value of net assets
acquired, at amortized cost 403,569 543,278 626,465
Deferred income taxes 4,791,784 4,221,203 2,920,665
------------------------------------------------------
Total Assets $964,803,402 $836,497,702 $795,091,129
======================================================
</TABLE>
See Notes to Consolidated Financial Statements
58
<PAGE>
GREAT SOUTHERN BANCORP, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998 June 30, 1998
----------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
Deposits $625,900,352 $597,624,994 $549,772,712
Federal Home Loan Bank advances 200,530,921 158,452,407 169,508,852
Short-term borrowings 53,594,090 798,247 ---
Note payable to bank 7,517,025 --- ---
Accrued interest payable 5,832,253 5,356,558 3,646,952
Advances from borrowers for taxes and insurance 309,100 1,582,298 2,176,662
Accounts payable and accrued expenses 1,995,369 2,442,368 2,577,058
Income taxes payable 198,401 1,858,343 ---
-------------------------------------------------------
Total Liabilities 895,877,511 768,115,215 727,682,236
-------------------------------------------------------
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 123,250 123,250 123,250
Additional paid-in capital 17,487,433 17,224,451 17,110,496
Retained earnings 100,310,493 90,459,992 84,955,740
Accumulated other comprehensive income:
Unrealized appreciation (depreciation) on available-
for-sale securities, net of income taxes of
$(381,970) and $214,410 at December 31, 1999
and 1998; $669,921 at June 30, 1998 (644,052) 335,359 1,047,824
-------------------------------------------------------
117,277,124 108,143,052 103,237,310
Less treasury common stock, at cost; December 31,
1999 and 1998 - 4,835,890 and 4,522,323 shares;
June 30, 1998 - 4,363,275 shares 48,351,233 39,760,565 35,828,417
-------------------------------------------------------
Total Stockholders' Equity 68,925,891 68,382,487 67,408,893
-------------------------------------------------------
Total Liabilities and Stockholders' Equity $964,803,402 $836,497,702 $795,091,129
=======================================================
</TABLE>
See Notes to Consolidated Financial Statements
59
<PAGE>
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, AND JUNE 30, 1998 AND 1997,
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended
December 31, Years Ended June 30, Six Months Ended December 31,
----------------------------------------------------------------------------------------
1999 1998 1997 1998 1997
----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $63,385,746 $57,536,900 $51,365,481 $30,332,255 $27,878,190
Investment securities and other 4,652,307 4,394,785 4,174,966 2,152,517 2,162,836
-------------------------------------------------------------------------------------
68,038,053 61,931,685 55,540,447 32,484,772 30,041,026
-------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 24,966,556 20,950,665 17,950,677 12,255,041 10,394,603
Federal Home Loan Bank advances 9,402,561 9,904,520 10,229,111 4,236,600 4,675,844
Short-term borrowings 1,093,973 1,136,493 642,356 38,180 530,448
-------------------------------------------------------------------------------------
35,463,090 31,991,678 28,822,144 16,529,821 15,600,895
-------------------------------------------------------------------------------------
NET INTEREST INCOME 32,574,963 29,940,007 26,718,303 15,954,951 14,440,131
PROVISION FOR LOAN LOSSES 2,062,000 1,852,597 1,706,142 1,290,712 852,382
-------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 30,512,963 28,087,410 25,012,161 14,664,239 13,587,749
-------------------------------------------------------------------------------------
NONINTEREST INCOME
Commissions 7,054,584 5,652,388 4,968,695 3,135,936 2,585,633
Service charge fees 4,501,765 3,840,564 2,784,719 2,389,892 1,753,255
Net realized gains on sales of loans 1,097,711 1,125,153 521,165 385,563 461,228
Net realized gains on sales of available-
for-sale securities 316,508 1,397,828 205,425 355,501 872,920
Income on foreclosed assets --- 326,197 285,543 420,104 383,092
Other income 2,379,274 1,456,437 1,751,861 1,170,728 776,975
-------------------------------------------------------------------------------------
15,349,842 13,798,567 10,517,408 7,857,724 6,833,103
-------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 13,764,902 10,828,683 9,233,943 5,743,429 5,227,302
Net occupancy expense 4,124,654 3,033,707 2,400,570 1,771,624 1,349,235
Postage 1,006,568 857,127 625,745 447,493 392,434
Insurance 638,660 637,339 3,428,428 291,897 351,626
Amortization of excess of cost over fair
value of net assets acquired 159,708 65,410 1,106,961 83,188 ---
Advertising 611,206 586,367 675,456 275,799 294,672
Office supplies and printing 990,607 665,878 562,668 395,995 322,987
Other operating expenses 3,870,919 3,843,717 2,404,733 2,296,644 1,944,848
-------------------------------------------------------------------------------------
25,167,224 20,518,228 20,438,504 11,306,069 9,883,104
-------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 20,695,581 21,367,749 15,091,065 11,215,894 10,537,748
PROVISION FOR INCOME TAXES 7,018,200 6,923,700 5,751,200 3,858,300 3,057,700
-------------------------------------------------------------------------------------
NET INCOME $13,677,381 $14,444,049 $9,339,865 $7,357,594 $7,480,048
=====================================================================================
EARNINGS PER COMMON SHARE
BASIC $1.79 $1.79 $1.11 $.93 $.93
=====================================================================================
DILUTED $1.76 $1.76 $1.10 $.91 $.91
=====================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
60
<PAGE>
<TABLE>
<CAPTION>
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, AND JUNE 30, 1998 AND 1997,
AND SIX MONTHS ENDED DECEMBER 31, 1998
Additional
Comprehensive Common Paid-in
Income Stock Capital
---------------------------------------------------
<S> <C> <C> <C>
BALANCE, JULY 1, 1996 $ --- $ 61,625 $16,834,507
Net income 9,339,865 --- ---
Stock issued under Stock Option Plan --- --- 285,444
Dividends declared, $.3875 per share --- --- ---
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 --- ---
Treasury stock purchased --- --- ---
---------------------------------------------------
Comprehensive Income $10,605,852
============
BALANCE, JUNE 30, 1997 $--- 123,250 17,058,326
Net income 14,444,049 --- ---
Stock issued under Stock Option Plan --- --- 52,170
Dividends declared, $.43 per share --- --- ---
Change in unrealized appreciation on available-
for-sale securities, net of income taxes of $200,939 (314,292) --- ---
Treasury stock purchased --- --- ---
---------------------------------------------------
Comprehensive Income $14,129,757
============
BALANCE, JUNE 30, 1998 $ --- 123,250 17,110,496
Net income 7,357,594 --- ---
Stock issued under Stock Option Plan --- --- 113,955
Dividends declared, $.235 per share --- --- ---
Change in unrealized appreciation on available-
for-sale securities, net of income taxes of $455,511 (712,465) --- ---
Treasury stock purchased --- --- ---
---------------------------------------------------
Comprehensive Income $ 6,645,129
============
BALANCE, DECEMBER 31, 1998 $ --- 123,250 17,224,451
Net income 13,677,381 --- ---
Stock issued under Stock Option Plan --- --- 262,982
Dividends declared, $.50 per share --- --- ---
Change in unrealized depreciation on available-
for-sale securities, net of income taxes of $596,380 (979,411) --- ---
Treasury stock purchased --- --- ---
---------------------------------------------------
Comprehensive Income $12,697,970
============
BALANCE, DECEMBER 31, 1999 $123,250 $17,487,433
======== ===========
</TABLE>
See Notes to Consolidated Financial Statements
61
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income
-------------------
Unrealized
Appreciation
(Depreciation)
on Available-
Retained for-Sale Treasury
Earnings Securities, Net Stock Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JULY 1, 1996 $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 --- --- 511,669 797,113
Dividends declared, $.3875 per share (3,277,494) --- --- (3,277,494)
Two-for-one stock split --- --- --- ---
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 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 --- --- 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 84,955,740 1,047,824 (35,828,417) 67,408,893
Net income 7,357,594 --- --- 7,357,594
Stock issued under Stock Option Plan --- --- 13,480 127,435
Dividends declared, $.235 per share (1,853,342) --- --- (1,853,342)
Change in unrealized appreciation on available-
for-sale securities, net of income taxes of $455,511 --- (712,465) --- (712,465)
Treasury stock purchased --- --- (3,945,628) (3,945,628)
----------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 90,459,992 335,359 (39,760,565) 68,382,487
Net income 13,677,381 --- --- 13,677,381
Stock issued under Stock Option Plan --- --- 201,454 464,436
Dividends declared, $.50 per share (3,826,880) --- --- (3,826,880)
Change in unrealized depreciation on available-
for-sale securities, net of income taxes of $596,380 --- (979,411) --- (979,411)
Treasury stock purchased --- --- (8,792,122) (8,792,122)
----------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $100,310,493 $ (644,052) $(48,351,233) $68,925,891
======================================================================
</TABLE>
See Notes to Consolidated Financial Statements
62
<PAGE>
<TABLE>
<CAPTION>
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, AND JUNE 30, 1998 AND 1997,
AND SIX MONTHS ENDED DECEMBER 31, 1998
Six Months
Year Ended Years Ended June 30, Ended
December 31, -------------------- December 31,
1999 1998 1997 1998
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RECLASSIFICATION DISCLOSURE:
Unrealized appreciation (depreciation) on
available-for-sale securities, net of income
taxes of $(486,419) for December 31, 1999;
$(317,783) for December 31, 1998;
$344,214 for June 30, 1998; $899,438 for
June 30, 1997 $(798,826) $538,383 $1,391,174 $(497,044)
Less: Reclassification adjustment for
appreciation included in net income, net of
income taxes of $(109,961) for December 31,
1999; $(137,728) for December 31, 1998;
$(545,153) for June 30, 1998; $(80,038)
for June 30, 1997 (180,585) (852,675) (125,187) (215,421)
-----------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
on available-for-sale securities, net of income
taxes $(979,411) $(314,292) $1,265,987 $(712,465)
=======================================================================
</TABLE>
See Notes to Consolidated Financial Statements
63
<PAGE>
<TABLE>
<CAPTION>
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, AND JUNE 30, 1998 AND 1997,
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
Year Ended Years Ended June 30, Six Months Ended December 31,
December 31, -------------------------------------------------------------------
1999 1998 1997 1998 1997
-------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $13,677,381 $14,444,049 $9,339,865 $7,357,594 $7,480,048
Items not requiring (providing) cash:
Depreciation 2,147,552 1,333,423 1,003,243 880,746 550,001
Amortization 139,709 55,410 1,101,961 83,187 ---
Provision for loan losses 2,062,000 1,852,597 1,706,142 1,290,712 852,382
Provision for losses on foreclosed
assets --- 100,000 100,000 --- ---
Gain on sale of loans (1,097,711) (1,125,153) (521,165) (385,563) (456,800)
Proceeds from sales of loans held
for sale 33,329,100 73,678,174 27,121,165 26,486,196 32,664,500
Originations of loans held for sale (29,401,317) (72,553,021) (26,600,000) (30,668,718) (32,207,700)
Net realized gains on available-
for-sale securities (316,508) (1,397,828) (205,425) (355,501) (872,920)
(Gain) loss on sale of premises
and equipment 207,273 (65,417) (9,585) (600) (80,272)
Gain on sale of foreclosed assets (136,647) (576,783) (559,902) (894,459) (529,338)
Amortization of deferred income,
premiums and discounts (1,629,309) (704,900) (894,292) (855,072) (348,297)
Deferred income taxes 21,040 (90,586) (350,000) (1,246,911) 50,000
Changes in:
Accrued interest receivable (348,254) (904,495) 363,110 391,567 73,690
Prepaid expenses and other assets 2,499,338 (977,920) (1,208,214) 1,569,791 (289,834)
Accounts payable and accrued
expenses 28,697 703,234 (557,683) (134,690) 983,683
Income taxes refundable/payable (1,659,942) (3,510,282) 2,382,241 2,500,850 (3,414,636)
------------------------------------------------------------------------------------
Net cash provided by operating
activities 19,522,402 10,260,502 12,211,461 6,019,129 4,454,507
------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
64
<PAGE>
<TABLE>
<CAPTION>
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, AND JUNE 30, 1998 AND 1997,
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
Year Ended Years Ended June 30, Six Months Ended December 31,
December 31, ------------------------------------------------------------------
1999 1998 1997 1998 1997
------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
INVESTING ACTIVITIES
Net increase in loans $(72,357,829) $(72,070,913) $(33,724,744) $(41,855,375) $(37,688,999)
Purchase of additional business units --- (681,875) --- --- (546,875)
Purchase of premises and equipment (2,358,165) (3,505,798) (1,771,232) (1,436,201) (1,627,421)
Proceeds from sale of premises
and equipment 31,390 213,850 31,455 945 201,008
Proceeds from sale of foreclosed assets 914,417 1,099,476 1,017,514 1,685,600 702,636
Capitalized costs on foreclosed assets (39,077) (302,040) (198,090) (140,750) (34,977)
Proceeds from maturing held-to-
maturity securities 32,918,012 19,500,000 39,398,775 21,375,000 4,250,000
Purchase of held-to-maturity securities (10,167,313) (20,119,994) (40,159,443) (30,046,746) (2,767,108)
Proceeds from sale of available-
for-sale securities 2,149,910 3,359,677 1,377,623 1,365,670 2,380,482
Proceeds from maturities of available-
for-sale securities 15,055,000 --- --- --- ---
Purchase of available-for-sale
securities (91,327,024) (1,431,760) (1,849,015) (2,289,879) ---
(Purchase) redemption of Federal 1,338,500 ---
Home Loan Bank stock (1,526,900) (769,800) ---
-----------------------------------------------------------------------------------
Net cash used in investing
activities (126,707,579) (72,600,877) (36,646,957) (51,341,736) (35,131,254)
-----------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
65
<PAGE>
<TABLE>
<CAPTION>
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, AND JUNE 30, 1998 AND 1997,
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
Year Ended Years Ended June 30, Six Months Ended December 31,
December 31, ------------------------------------------------------------------
1999 1998 1997 1998 1997
------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase (decrease) in certificates
of deposit $ 68,548,019 $ 39,497,048 $ 55,356,409 $ 32,006,537 $ (6,018,484)
Net increase (decrease) in checking
and savings accounts (40,272,661) 54,632,670 6,824,821 17,602,644 11,212,606
Proceeds from Federal Home Loan
Bank advances and notes payable
to banks 1,036,392,061 895,823,200 539,345,121 217,565,407 445,426,866
Repayments of Federal Home Loan
Bank advances (986,796,522) (878,141,248) (568,261,064) (228,669,145) (410,944,660)
Net increase (decrease) in short-term
borrowings 52,795,842 (28,744,191) 12,276,366 798,247 1,686,743
Advances to borrowers for taxes
and insurance (1,273,198) (311,735) (171,030) (594,364) (1,560,771)
Purchase of treasury stock (8,792,122) (3,694,781) (15,584,673) (3,945,628) (755,058)
Dividends paid (3,826,880) (3,468,568) (3,277,494) (1,853,342) (1,699,187)
Stock options exercised 464,436 94,118 797,113 127,435 2,476
------------------------------------------------------------------------------------
Net cash provided by financing
activities 117,238,975 75,686,513 27,305,569 33,037,791 37,350,531
------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 10,053,798 13,346,138 2,870,073 (12,284,816) 6,673,784
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 33,546,422 32,485,100 29,615,027 45,831,238 32,485,100
------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 43,600,220 $ 45,831,238 $ 32,485,100 $ 33,546,422 $ 39,158,884
====================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
66
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
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 and state 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 was 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.
67
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
FISCAL YEAR CHANGE
In 1998, the Company changed its fiscal year ended June 30 to a fiscal year
ended December 31. The six-month period ended December 31, 1998, transitions
between the Company's old and new fiscal year ends.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Great
Southern Bancorp, Inc., its wholly owned subsidiary, Great Southern Bank, and
the Bank's wholly owned subsidiaries, Great Southern Capital Management, GSB One
LLC (including its wholly owned subsidiary, GSB Two LLC) and Great Southern
Financial Corporation, (including its wholly owned subsidiary, Appraisal
Services, Inc.). Significant intercompany accounts and transactions have been
eliminated in consolidation.
RECLASSIFICATIONS
Certain prior periods amounts have been reclassified to conform to the
December 31, 1999, 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 (FHLB) 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 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.
68
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
INVESTMENTS IN DEBT AND EQUITY SECURITIES (CONTINUED)
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 $403,569, $543,278 and $626,465 at December 31, 1999 and 1998, and
June 30, 1998, respectively. These costs are amortized on a straight-line basis
for a period of five years.
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 and 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 December 31, 1999 and 1998, and June 30, 1998.
69
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
LOANS
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff 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 loans are amortized to income using the
interest method over the remaining period to contractual maturity, adjusted for
anticipated prepayments.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense
and reduced by loans charged off, net of recoveries. The allowance is maintained
at a level considered adequate to provide for potential loan losses, based on
management's evaluation of the loan portfolio, as well as on prevailing and
anticipated economic conditions and historical losses by loan category. General
allowances have been established, based upon the aforementioned factors and
allocated to the individual loan categories. Allowances are accrued on specific
loans evaluated for impairment for which the basis of each loan, including
accrued interest, exceeds the discounted amount of expected future collections
of interest and principal or, alternatively, the fair value of loan collateral.
A loan is considered impaired when it is probable that the Bank will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued and interest accrued and unpaid is removed at the time such amounts
are delinquent 90 days. Interest is recognized for nonaccrual loans only upon
receipt, and only after all principal amounts are current according to the terms
of the contract.
FORECLOSED ASSETS HELD FOR SALE
Assets acquired by foreclosure or in settlement of debt and held for sale
are valued at estimated fair value as of the date of foreclosure, and a related
valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Changes in the valuation allowance are charged or credited to noninterest
expense.
70
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line and accelerated
methods over the estimated useful lives of the assets. Leasehold improvements
are capitalized and amortized using the 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.
EARNINGS PER SHARE
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 16).
The computation of earnings per share is as follows:
<TABLE>
<CAPTION>
Year Ended Years Ended June 30, Six Months Ended December 31,
December 31, -----------------------------------------------------------------
1999 1998 1997 1998 1997
-----------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income $13,677,381 $14,444,049 $9,339,865 $7,357,594 $7,480,048
===================================================================================
Average common shares
outstanding 7,619,983 8,052,413 8,394,080 7,896,771 8,081,996
Average common share stock
options outstanding 166,167 151,162 93,682 163,382 143,082
----------------------------------------------------------------------------------
Average diluted common shares 7,786,150 8,203,575 8,487,762 8,060,153 8,225,078
==================================================================================
</TABLE>
71
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended Years Ended June 30, December 31,
December 31, -------------------------------------------------
1999 1998 1997 1998 1997
----------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Earnings per common share - basic $1.79 $1.79 $1.11 $.93 $.93
==== ==== ==== === ===
Earnings per common share - diluted $1.76 $1.76 $1.10 $.91 $.91
==== ==== ==== === ===
</TABLE>
Options to purchase 90,350, 43,250 and 19,250 shares of common stock were
outstanding during the periods ended December 31, 1999 and 1998, and June 30,
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
each period.
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At December 31, 1999 and 1998, and
June 30, 1998, cash equivalents consisted of interest-bearing deposits in other
financial institutions.
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 PRONOUNCEMENT
The Financial Accounting Standard Board (FASB) recently adopted Statement
of Financial Accounting Standards (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, 2000, may be adopted early for periods beginning after issuance of the
Statement and
72
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT (CONTINUED)
may not be applied retroactively. Management believes the adoption of SFAS 133,
which the Company presently expects to initially adopt for its year ending
December 31, 2000, will not have a material impact on the Company's financial
statements.
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities are as follows:
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government agencies $72,713,836 $ 65,236 $ (133,814) $72,645,258
Equity securities 8,153,626 --- (907,424) 7,246,202
-----------------------------------------------------------------------
$80,867,462 $ 65,236 $(1,041,238) $79,891,460
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity securities $ 5,926,128 $ 549,769 $ 0 $ 6,475,897
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity securities $ 4,644,955 $1,717,745 $0 $6,362,700
=======================================================================
</TABLE>
73
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
Maturities of available-for-sale debt securities at December 31, 1999, are:
Approximate
Amortized Fair
Cost Value
-------------------------------------
One year or less $54,544,533 $54,558,278
After one through five years 18,169,303 18,086,980
-------------------------------------
$72,713,836 $72,645,258
=====================================
The amortized cost and approximate fair value of held-to-maturity
securities are as follows:
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 99,988 $12 $ --- $ 100,000
U.S. government agencies 24,241,613 --- (140,713) 24,100,900
States and political subdivisions 11,469,800 --- (89,200) 11,380,600
Corporate bonds 800,000 --- --- 800,000
Mortgage-backed securities 1,034,099 1 --- 1,034,100
--------------------------------------------------------------
$37,645,500 $13 $(229,913) $37,415,600
==============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 601,594 $ 2,706 $ --- $ 604,300
U.S. government agencies 46,966,338 177,072 (10,410) 47,133,000
States and political subdivisions 11,469,600 6,800 --- 11,476,400
Mortgage-backed securities 1,357,311 --- (11) 1,357,300
--------------------------------------------------------------
$ 60,394,843 $186,578 $ (10,421) $60,571,000
==============================================================
</TABLE>
74
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
<TABLE>
<CAPTION>
June 30, 1998
------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 2,103,414 $ 3,586 $--- $2,107,000
U.S. government agencies 48,259,549 174,451 --- 48,434,000
Mortgage-backed securities 1,553,901 --- 1 1,553,900
------------------------------------------------------------
$51,916,864 $178,037 $1 $52,094,900
============================================================
</TABLE>
Maturities of held-to-maturity securities at December 31, 1999, are:
Approximate
Amortized Fair
Cost Value
------------------------------
One year or less $14,971,144 $14,900,400
After one through five years 19,330,257 19,260,300
After five through 10 years 1,510,000 1,420,800
After 10 years 800,000 800,000
Securities not due on a single maturity date 1,034,099 1,034,100
----------------------------
$37,645,500 $37,415,600
============================
Proceeds of $2,149,910, $3,359,677, $1,377,623 and $1,365,670 with
resultant gross gains of $316,508, $1,397,828, $205,425 and $355,501 were
realized from the sale of available- for-sale securities for the years ended
December 31, 1999, and June 30, 1998 and 1997, and for the six months ended
December 31, 1998, respectively. There were no sales resulting in losses for any
of the periods presented.
75
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
The book value of securities pledged as collateral to secure public
deposits amounted to approximately $14,766,000, $18,823,500 and $10,195,000 at
December 31, 1999 and 1998, and June 30, 1998, respectively, with approximate
fair values of $14,606,000, $18,887,800 and $10,231,000, respectively. The book
value of securities pledged as collateral to secure collateralized borrowing
accounts amounted to approximately $34,432,000 at December 31, 1999, with
approximate fair value of $34,447,000. There were no securities pledged as
collateral to secure collateralized borrowings at December 31, 1998 and June 30,
1998. The book value of securities pledged as collateral to secure Federal Home
Loan Bank advances amounted to approximately $46,205,000, $22,171,000 and
$22,683,000 at December 31, 1999 and 1998, and June 30, 1998, respectively, with
approximate fair values of $46,062,000, $22,243,900 and $22,760,000,
respectively.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 1999 and 1998, and June 30, 1998,
include:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998 June 30, 1998
----------------------------------------------------
<S> <C> <C> <C>
One to four family residential
mortgage loans $208,466,168 $217,119,697 $217,688,415
Other residential mortgage loans 76,926,151 85,828,254 89,140,632
Commercial real estate loans 251,338,147 261,200,938 244,016,514
Other commercial loans 100,419,036 57,178,749 54,722,556
Construction loans 110,622,944 59,797,292 49,180,948
Installment, education and other loans 73,067,358 62,707,820 46,076,849
Prepaid dealer premium 1,310,127 658,229 489,778
Discounts on loans purchased (623,990) (704,779) (1,031,702)
Undisbursed portion of loans in process (36,047,401) (28,822,880) (28,496,979)
Allowance for loan losses (17,293,320) (16,927,575) (16,372,700)
Deferred loan fees and gains, net (1,378,280) (1,074,193) (1,742,142)
--------------------------------------------------
$766,806,940 $696,961,552 $653,672,169
==================================================
</TABLE>
76
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended Years Ended June 30, Six Months Ended December 31,
December 31, -----------------------------------------------------------------
1999 1998 1997 1998 1997
-----------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $16,927,575 $15,523,541 $14,356,147 $16,372,700 $15,523,541
Provision charged to expense 2,062,000 1,852,597 1,706,142 1,290,712 852,382
Loans charged off (2,806,437) (1,142,584) (676,714) (1,498,525) (635,980)
Recoveries 1,110,182 139,146 137,966 762,688 98,504
------------------------------------------------------------------------------------
Balance, end of period $17,293,320 $16,372,700 $15,523,541 $16,927,575 $15,838,447
====================================================================================
</TABLE>
The weighted average interest rate on loans receivable at December 31, 1999
and 1998, and June 30, 1998, was 8.70%, 8.38% and 8.96%, respectively.
The Bank serviced loans and participations in loans for others amounting to
approximately $56,339,000, $56,670,000 and $60,047,000 at December 31, 1999 and
1998, and June 30, 1998, respectively.
Gross impaired loans totaled approximately $9,270,000, $10,146,000 and
$9,485,000 at December 31, 1999 and 1998, and June 30, 1998, respectively. An
allowance for loan losses of $846,382, $689,000 and $1,501,000 relates to these
impaired loans at December 31, 1999 and 1998, and June 30, 1998, respectively.
There were no impaired loans at December 31, 1999 and 1998, and June 30, 1998,
without a related allowance for loan loss assigned.
Interest of approximately $487,000, $1,009,000, $487,000 and $225,000 was
recognized on average impaired loans of $9,406,000, $12,009,000, $9,362,000 and
$9,819,000 for the years ended December 31 1999, and June 30, 1998 and 1997, and
for the six months ended December 31, 1998, respectively. Interest recognized on
impaired loans on a cash basis during these periods 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.
77
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Certain directors and executive officers of the Company and the Bank are
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 December 31, 1999, loans
outstanding to these directors and executive officers are summarized as follows:
December 31,
1999
-------------
Balance, beginning of year $5,791,000
New loans 1,016,000
Payments (875,000)
----------
Balance, end of year $5,932,000
==========
NOTE 4: FORECLOSED ASSETS HELD FOR SALE
December 31,
------------------------
1999 1998 June 30, 1998
-------------------------------------------
Foreclosed assets $817,118 $2,810,201 $4,750,910
Valuation allowance --- --- ---
-----------------------------------------
$817,118 $2,810,201 $4,750,910
=========================================
Transactions in the valuation allowance on foreclosed assets were as
follows:
Six Months
Year Ended Year Ended Ended
December 31, June 30, December 31,
1999 1998 1998
--------------------------------------------
Balance, beginning of period $--- $319,390 $---
Provision charged to expense --- 100,000 ---
Charge-offs, net of recoveries --- (419,390) ---
-----------------------------------------
Balance, end of period $--- $--- $---
=========================================
78
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 5: PREMISES AND EQUIPMENT
Major classifications of premises and equipment stated at cost at December
31, 1999 and 1998, and June 30, 1998, are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998 June 30, 1998
--------------------------------------------------
<S> <C> <C> <C>
Land $2,117,661 $1,565,780 $1,565,780
Buildings and improvements 9,165,858 8,730,367 8,357,100
Furniture, fixtures and equipment 9,133,948 10,069,717 9,038,608
-------------------------------------------------
20,417,467 20,365,864 18,961,488
Less accumulated depreciation 10,433,392 10,353,739 9,504,473
-------------------------------------------------
$9,984,075 $10,012,125 $9,457,015
=================================================
</TABLE>
NOTE 6: DEPOSITS
Deposits at December 31, 1999 and 1998, and June 30, 1998, are summarized
as follows:
<TABLE>
<CAPTION>
December 31,
Weighted-Average ---------------------------------------
Interest Rate 1999 1998 June 30, 1998
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing accounts --- $ 47,359,993 $ 43,211,233 $ 29,374,778
Interest-bearing checking 1.86% - 2.39% - 2.25% 114,575,019 156,419,923 155,485,084
Savings accounts 2.50% - 2.50% - 2.51% 29,613,353 32,189,870 34,644,369
-----------------------------------------------------------------
191,548,365 231,821,026 219,504,231
-----------------------------------------------------------------
Certificate accounts 0% - 3.99% 1,153,099 435,732 61,879
4% - 4.99% 79,428,843 69,178,221 17,476,479
5% - 5.99% 280,687,725 259,843,966 257,704,093
6% - 6.99% 69,525,326 32,261,682 51,064,400
7% - 7.99% 3,526,651 3,844,602 3,710,659
8% - 10.25% 30,343 239,765 250,971
-----------------------------------------------------------------
434,351,987 365,803,968 330,268,481
-----------------------------------------------------------------
$625,900,352 $597,624,994 $549,772,712
=================================================================
</TABLE>
79
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 6: DEPOSITS (Continued)
The weighted average interest rate on certificates of deposit was 5.44%,
5.35% and 5.50% at December 31, 1999 and 1998, and June 30, 1998, respectively.
The aggregate amount of certificates of deposit originated by the Bank in
denominations of $100,000 or more was approximately $63,472,000, $65,407,000 and
$48,675,000 at December 31, 1999 and 1998, and June 30, 1998, respectively. The
Bank utilizes brokered deposits as an additional funding source. The aggregate
amount of brokered deposits, which are primarily in denominations of $100,000 or
more, was approximately $209,742,000, $146,697,000 and $118,977,000 at December
31, 1999 and 1998, and June 30, 1998, respectively.
At December 31, 1999, scheduled maturities of certificates of deposit are
as follows:
2000 $250,946,015
2001 84,075,251
2002 36,596,774
2003 32,773,690
2004 10,968,755
Thereafter 18,991,502
------------
$434,351,987
============
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
Six Months
Year Ended Years Ended June 30, Ended
December 31, --------------------------------------- December 31,
1999 1998 1997 1998
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Checking accounts $ 2,541,365 $2,673,921 $ 2,570,966 $ 2,007,149
Savings accounts 841,903 858,880 866,810 318,651
Certificate accounts 21,642,134 17,485,313 14,579,734 9,960,599
Early withdrawal penalties (58,846) (67,449) (66,833) (31,358)
-------------------------------------------------------------------------
$24,966,556 $20,950,665 $17,950,677 $12,255,041
=========================================================================
</TABLE>
80
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 7: ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 June 30, 1998
------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Interest Interest Interest
Due In Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $ --- ---% $38,820,282 5.97% $ 69,220,415 6.04%
2000 96,652,917 5.96 30,527,518 5.82 24,876,968 6.66
2001 11,135,163 6.55 1,002,110 6.98 13,453,605 5.75
2002 11,227,136 5.66 11,085,961 5.65 958,976 7.10
2003 31,327,164 6.52 21,177,370 4.21 11,041,651 5.66
2004 2,913,899 7.43 2,754,959 7.51 1,131,626 7.13
2005 and
thereafter 47,274,642 6.58 53,084,207 5.61 48,825,611 5.72
------------------------------------------------------------------------------------------------------------
$200,530,921 6.23 $158,452,407 5.60 $169,508,852 6.00
============================================================================================================
</TABLE>
In addition to the above advances, the Bank had available a line of credit
with the FHLB amounting to $50,000,000 at December 31, 1999 and 1998, and
$22,800,000 at June 30, 1998.
The Bank has pledged FHLB stock, investment securities and first mortgage
loans free of pledges, liens and encumbrances as collateral for outstanding
advances. Investment securities with carrying values of $46,205,000, $22,171,000
and $22,683,000, respectively, were specifically pledged as collateral for
advances at December 31, 1999 and 1998, and June 30, 1998. Loans with carrying
values of $324,107,000, $288,013,000 and $290,473,000 were pledged as collateral
for outstanding advances at December 31, 1999 and 1998, and June 30, 1998,
respectively.
NOTE 8: SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1999 and 1998, and June 30, 1998, are
summarized as follows:
81
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 8: SHORT-TERM BORROWINGS (Continued)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1999 1998 June 30, 1998
--------------------------------------------------
<S> <C> <C> <C>
United States government agencies
securities sold under reverse
repurchase agreements $25,138,483 $ --- $---
Other 1,955,607 798,247 ---
Federal funds purchased 26,500,000 --- ---
--------------------------------------------------
$53,594,090 $798,247 $0
==================================================
</TABLE>
The Bank enters into sales of securities under agreements to repurchase
(reverse repurchase agreements). Reverse repurchase agreements are treated as
financings, and the obligations to repurchase securities sold are reflected as a
liability in the statement of financial condition. The dollar amount of
securities underlying the agreements remains in the asset accounts.
Other short-term borrowings consist of agreements with corporate entities
which are secured by a pledge of residential mortgage loans, and margin loans
with brokerage firms.
Short-term borrowings had weighted average interest rates of 4.71% and
7.20% at December 31, 1999 and 1998, respectively. Securities and mortgage loans
underlying the agreements are being held by the Bank during the agreement
period. All agreements are written on a one month or less term.
Short-term borrowings averaged $22,034,000 for the year ended December 31,
1999, $770,000 for the six months ended December 31, 1998, and $32,234,000 for
the year ended June 30, 1998, respectively. The maximum amounts outstanding at
any month end were $53,594,090, $2,386,670 and $41,176,000 during those same
periods.
NOTE 9: NOTE PAYABLE TO BANK
The Company entered into a line of credit with a commercial bank during
1999. The amount available under the line of credit is $15,000,000 and at
December 31, 1999, the amount outstanding was $7,517,025. The note payable bears
interest at the lender's prime rate minus 1.40%, due quarterly, is secured by
all of the common stock of the Bank and matures November 1, 2000.
82
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 9: NOTE PAYABLE TO BANK (Continued)
The Bank had a potentially available $155,315,000 line of credit under a
borrowing arrangement with the Federal Reserve Bank at December 31, 1999. The
line is secured primarily by commercial loans and was not drawn upon at December
31, 1999.
NOTE 10: INCOME TAXES
The Company files a consolidated federal income tax return. During the time
the Bank operated under a thrift charter, thrifts 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 allowances
accumulated after 1988, which are presently included as a component of the net
deferred tax asset, must be recaptured over a six-year period beginning with the
period ended December 31, 1998. The amount of the deferred tax liability which
must be recaptured is $1,244,000 at December 31, 1999.
As of December 31, 1999 and 1998, and June 30, 1998, 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 December 31, 1999 and 1998, and
June 30, 1998.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Six Months
Year Ended Years Ended June 30, Ended
December 31, --------------------------------------- December 31,
1999 1998 1997 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Taxes currently payable $6,997,160 $7,014,286 $6,101,200 $4,703,327
Deferred income taxes 21,040 (90,586) (350,000) (845,027)
-----------------------------------------------------------------------------
$7,018,200 $6,923,700 $5,751,200 $3,858,300
=============================================================================
</TABLE>
83
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 10: INCOME TAXES (Continued)
The tax effects of temporary differences related to deferred taxes shown on
the December 31, 1999 and 1998, and June 30, 1998, statements of financial
condition were:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1999 1998 June 30, 1998
-------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $6,053,000 $6,114,740 $5,746,586
Accrued expenses 123,000 182,000 163,000
Partnership tax credits 79,000 59,000 46,000
Excess of cost over fair value of net
assets acquired 74,000 36,000 16,000
Unrealized depreciation on available-for-
sale securities 381,970 --- ---
-------------------------------------------------------------------
6,710,970 6,391,740 5,971,586
-------------------------------------------------------------------
Deferred tax liabilities:
Tax bad debt allowance in excess
of base year allowance (1,244,000) (1,261,000) (1,722,000)
FHLB stock dividends (575,000) (641,000) (641,000)
Unrealized appreciation on available-for-
sale securities --- (214,410) (669,921)
Other (100,186) (54,127) (18,000)
---------------------------------------------------------------------
(1,919,186) (2,170,537) (3,050,921)
---------------------------------------------------------------------
Net deferred tax asset $4,791,784 $4,221,203 $2,920,665
=====================================================================
</TABLE>
84
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 10: INCOME TAXES (Continued)
Reconciliations of the Company's provision for income taxes to the
statutory corporate tax rates are as follows:
<TABLE>
<CAPTION>
Six Months
Year Ended Years Ended June 30, Ended
December 31, ------------------------- December 31,
1999 1998 1997 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax at statutory rate 35.0% 35.0% 35.0% 35.0%
State income taxes --- (3.1) 2.5 .1
Other (1.1) .5 .6 (.7)
---------------------------------------------------------------
33.9% 32.4% 38.1% 34.4%
===============================================================
</TABLE>
The income and other tax returns of the Company and its consolidated
subsidiaries are subject to but have not been audited recently by the Internal
Revenue Service and state taxing authorities. These returns have been closed
without audit through June 30, 1996.
State legislation provided that savings banks were taxed based on an annual
privilege tax on net income at a 7% rate. 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 was not subject to the savings bank privilege tax for the years ended
December 31, 1999, and June 30, 1998, and the six months ended December 31,
1998. Instead, the Bank was subject to a similar bank franchise tax for these
periods. The effective tax rate declined in 1998 due to organizational changes
undertaken by the Company.
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents
For these short-term instruments, the carrying amount approximates fair
value.
85
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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.
Federal Home Loan Bank Stock
The carrying amount approximates fair value.
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.
86
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
Short-Term Borrowings
The carrying amounts reported in the statements of financial condition for
short-term borrowings approximate those liabilities' fair value.
Note Payable to Bank
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
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 creditworthiness 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.
87
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1999 1998 June 30, 1998
---------------------------------------------------------------------------------------------------
Carrying Carrying Carrying
Amount Fair Value Amount Fair Value Amount Fair Value
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 43,600,220 $ 43,600,220 $ 33,546,422 $ 33,546,422 $ 45,831,238 $ 45,831,238
Available-for-sale
securities 79,891,460 79,891,460 6,475,897 6,475,897 6,362,700 6,362,700
Held-to-maturity securities 37,645,500 37,415,600 60,394,843 60,571,000 51,916,864 52,094,900
Loans, net of allowance
for loan losses 766,806,940 775,123,000 696,961,552 711,956,700 653,672,169 658,633,100
Accrued interest
receivable 5,854,494 5,854,494 5,506,240 5,506,240 5,897,807 5,897,807
Investment in FHLB stock 10,981,000 10,981,000 9,454,100 9,454,100 9,454,100 9,454,100
Financial liabilities:
Deposits 625,900,352 628,961,000 597,624,994 600,125,000 549,772,712 548,807,000
Accrued interest payable 5,832,253 5,832,253 5,356,558 5,356,558 3,646,952 3,646,952
FHLB advances 200,530,921 199,200,000 158,452,407 157,616,000 169,508,852 169,583,000
Short-term borrowings 53,594,090 53,594,000 798,247 798,247 --- ---
Note payable to bank 7,517,025 7,517,025 --- --- --- ---
Unrecognized financial instruments
(net of contractual value):
Commitments to extend
credit --- --- --- --- --- ---
Standby letters of credit --- --- --- --- --- ---
Unused lines of credit --- --- --- --- --- ---
</TABLE>
NOTE 12:OPERATING LEASES
The Company has entered into various operating leases at several of its
locations. Some of the leases have renewal options.
88
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 12: LEASES (Continued)
At December 31, 1999, future minimum lease payments are as follows:
2000 $307,999
2001 264,809
2002 253,736
2003 196,943
2004 121,772
Later Years 486,651
$1,631,910
Rental expense was $307,805, $222,429, $203,675 and $136,360 for the years
ended December 31, 1999, and June 30, 1998 and 1997, and the six months ended
December 31, 1998, respectively.
NOTE 13: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a significant portion of the commitments
may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness 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 counterparty. Collateral held varies but
may include accounts receivable, inventory, property and equipment, commercial
real estate and residential real estate.
At December 31, 1999 and 1998, and June 30, 1998, the Bank had outstanding
commitments to originate loans and fund commercial construction aggregating
approximately $27,760,000, $32,167,000 and $34,677,000, respectively. 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 approximately $3,172,000, $3,286,000 and $7,075,000 with
the remainder at floating market rates at December 31, 1999 and 1998, and June
30, 1998, respectively.
89
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 13: COMMITMENTS AND CREDIT RISK (Continued)
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 Company had total outstanding letters of credit amounting to
approximately $13,613,000, $9,832,000 and $10,365,000 at December 31, 1999 and
1998, and June 30, 1998, respectively, with $5,366,000, $1,585,000 and
$2,118,000, respectively, of the letters of credit having terms ranging from
seven months to five years. The remaining $8,247,000 at December 31, 1999 and
1998, and June 30, 1998, 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 creditworthiness 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 counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment, commercial real estate and residential real
estate. The Bank uses the same credit policies in granting lines of credit as it
does for on-balance-sheet instruments.
At December 31, 1999, the Bank had granted unused lines of credit to
borrowers aggregating approximately $59,994,000 and $9,942,000 for commercial
lines and open-end consumer lines, respectively. At December 31, 1998, the Bank
had granted unused lines of credit to borrowers aggregating approximately
$25,523,000 and $7,161,000 for commercial lines and open-end consumer lines,
respectively. 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.
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 approximately $140,745,000, $114,342,000 and $122,900,000
at December 31, 1999 and 1998, and June 30, 1998, respectively, are secured by
motels, restaurants, recreational facilities, other commercial properties and
residential mortgages in the Branson, Missouri, area.
90
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 14: CONTINGENT LIABILITIES
The Company and its subsidiaries are defendants in certain lawsuits arising
in the ordinary course of business. Management, after review with its legal
counsel, is presently of the opinion that the resolution of these legal matters
will not have a material adverse effect. However, events could occur in the near
term that would change the estimate of liability materially.
Customers of one of the Bank's subsidiaries may enter into margin loan
agreements with the subsidiary's outside clearing agent in accordance with
Regulation T of the Federal Reserve rules. The subsidiary is required to
indemnify the clearing agent against any losses suffered by the clearing agent
as a result of any margin loans with the subsidiary's customers. The outstanding
amount of margin loans that are subject to indemnity by the subsidiary at
December 31, 1999, was $453,845.
NOTE 15: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended June 30, Six Months
December 31, ------------------------------ December 31,
1999 1998 1997 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Noncash Investing and Financing Activities
Conversion of loans to foreclosed assets $1,376,725 $4,068,122 $2,272,465 $2,165,000
Conversion of foreclosed assets to loans $3,130,700 $4,647,521 $6,255,412 $2,727,000
Additional Cash Payment Information
Interest paid $34,945,373 $31,323,755 $27,922,486 $14,820,215
Income taxes paid $8,725,000 $8,640,000 $3,943,814 $2,600,000
</TABLE>
NOTE 16: STOCK SPLIT
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.
91
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 17: 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 years ended
December 31, 1999, or June 30, 1998 and 1997, or the six months ended December
31, 1998. As a member of a multi-employer pension plan, disclosures of plan
assets and liabilities for individual employers are not required or practicable.
The Company has a defined contribution pension plan covering substantially
all employees. The Company matches 100% of the employee's contribution on the
first 3% of the employee's compensation, and also matches 50% of the employee's
contribution on the next 2% of the employee's compensation. Employer
contributions charged to expense for the years ended December 31, 1999, and June
30, 1998 and 1997, and the six months ended December 31, 1998, were $191,581,
$82,575, $69,691 and $54,379, respectively.
NOTE 18: 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.
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 10-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.
92
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 18: STOCK OPTION PLAN (Continued)
The table below summarizes transactions under the Company's stock option
plans:
<TABLE>
<CAPTION>
Shares
-------------------------------------------------------------
Weighted
Available Average Exercise
to Grant Under Option Price
-------------------------------------------------------------
<S> <C> <C> <C>
Balance, July 1, 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
New Plan established 800,000 --- ---
Granted (51,600) 51,600 21.950
Exercised --- (12,714) (5.375)
Forfeited 5,979 (5,979) (13.547)
----------------------------------
Balance, June 30, 1998 845,097 280,891 13.488
Granted (45,700) 45,700 23.729
Exercised --- (10,230) (12.297)
Forfeited 6,725 (6,725) (19.622)
----------------------------------
Balance, December 31, 1998 806,122 309,636 12.564
Granted (74,100) 74,100 23.548
Exercised --- (58,166) (7.138)
Forfeited 19,800 (19,800) (22.352)
----------------------------------
Balance, December 31, 1999 751,822 305,770 17.933
==================================
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998 June 30, 1998
--------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends Per Share $0.50 $0.44 $0.42
Risk-Free Interest Rate 5.70% 4.99% 5.85%
Expected Life of Options 5 Years 4 Years 4 Years
Weighted-Average Fair Value
of Options Granted During Year $8.98 $8.71 $8.11
</TABLE>
93
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 18:STOCK OPTION PLAN (Continued)
The following table further summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------------------- Options Exercisable
Weighted -------------------------------------
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.271 to $5.021 9,785 2.64 Years $3.953 9,785 $3.953
$10.938 to $16.625 140,535 3.07 Years $13.623 97,966 $13.470
$17.00 to $18.70 25,900 5.12 Years $17.936 8,850 $18.331
$21.825 to $25.9375 129,550 8.265 Years $23.663 5,477 23.109
</TABLE>
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its stock options, and no compensation cost
has been recognized for the Plan. Had compensation cost 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
approximately $284,000, $154,900, $103,000 and $112,900 and basic and diluted
earnings per share earnings per share would have decreased by $.04, $.02, $.01
and $.01 for the years ended December 31, 1999, and June 30, 1998 and 1997, and
the six months ended December 31, 1998, 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 19: 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 and pending litigation are
reflected in the footnotes regarding loans and contingent liabilities. 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.
94
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 20: REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct and material effect on the Company's and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and 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 Company's and the Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I Capital (as defined) to adjusted
tangible assets (as defined). Management believes, as of December 31, 1999, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, 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 core
capital ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Bank's
category.
The Company's and the Bank's actual capital amounts and ratios are
presented in the following table. No amount was deducted from capital for
interest-rate risk.
95
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 20: REGULATORY MATTERS (Continued)
<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 December 31, 1999
Total Risk-Based Capital
Great Southern Bancorp, Inc. $78,308 10.2% $61,698 8.0% N/A N/A
Great Southern Bank $78,879 10.2% $61,725 8.0% $77,156 10.0%
Tier I Risk-Based Capital
Great Southern Bancorp, Inc. $68,573 8.9% $30,849 4.0% N/A N/A
Great Southern Bank $69,140 9.0% $30,862 4.0% $46,294 6.0%
Core Capital
Great Southern Bancorp, Inc. $68,573 7.4% $37,302 4.0% N/A N/A
Great Southern Bank $69,140 7.4% $37,127 4.0% $46,409 5.0%
As of December 31, 1998
Total Risk-Based Capital
Great Southern Bancorp, Inc. $76,660 11.7% $52,279 8.0% N/A N/A
Great Southern Bank $70,403 10.9% $51,546 8.0% $64,432 10.0%
Tier I Risk-Based Capital
Great Southern Bancorp, Inc. $68,383 10.5% $26,140 4.0% N/A N/A
Great Southern Bank $62,239 9.7% $25,773 4.0% $38,659 6.0%
Core Capital
Great Southern Bancorp, Inc. $68,383 8.2% $33,369 4.0% N/A N/A
Great Southern Bank $62,239 8.1% $30,556 4.0% $38,195 5.0%
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%
</TABLE>
96
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 20: REGULATORY MATTERS (Continued)
The Company and the Bank are subject to certain restrictions on the amount
of dividends that may be declared without prior regulatory approval. At December
31, 1999 and 1998, and June 30, 1998, the Company and the Bank exceeded their
minimum capital requirements. The entities may not pay dividends which would
reduce capital below the minimum requirements shown above.
NOTE 21: 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 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 22: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
Following is a summary of unaudited quarterly operating results for the
years ended December 31, 1999, and June 30, 1998 and 1997, and the six months
ended December 31, 1998:
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $15,924,308 $16,232,225 $17,499,295 $18,382,225
Interest expense 8,182,918 8,236,251 9,091,687 9,952,234
Provision for loan losses 576,410 573,590 450,000 462,000
Net realized gains on available-
for-sale securities 219,596 48,357 26,776 21,779
Net income 3,446,707 3,225,893 3,547,182 3,457,599
Earnings per common share - diluted $.44 $.42 $.46 $.44
</TABLE>
97
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 22: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS (Continued)
<TABLE>
<CAPTION>
June 30, 1998
----------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------
September 30 December 31 March 31 June 30
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------
September 30 December 31 March 31 June 30
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 143,767 --- 61,658 ---
Net income 493,297 2,907,735 2,909,250 3,029,583
Earnings per common share -
diluted $.05 $.34 $.35 $.36
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
Three Months Ended
--------------------------------------
September 30 December 31
--------------------------------------
<S> <C> <C>
Interest income $16,681,007 $15,803,765
Interest expense 8,378,787 8,151,034
Provision for loan losses 806,846 483,866
Net realized gains on available- for-sale securities 268,257 87,244
Net income 3,778,572 3,579,022
Earnings per common share - diluted $.47 $.44
</TABLE>
98
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 23: OPERATING SEGMENTS
The Company's banking operation is its only reportable segment. The banking
operation segment is principally engaged in the business of originating
residential and commercial real estate loans, commercial business loans and
consumer loans and funding these loans through attracting deposits from the
general public, originating brokered deposits and borrowing from the Federal
Home Loan Bank and others. The operating results of this segment are regularly
reviewed by management to make decisions about resource allocations and to
assess performance.
The following table provides information about segment profits and segment
assets and has been prepared using the same accounting policies as those
described in the summary of significant accounting policies in Note 1. There are
no material intersegment revenues. Thus, no reconciliations to amounts reported
in the consolidated financial statements are necessary. Revenue from segments
below the reportable segment threshold is attributable to four operating
segments of the Company. These segments include an insurance agency, a travel
agency, discount brokerage services and real estate appraisal services.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
---------------------------------------------------------------
Banking All Other Totals
---------------------------------------------------------------
<S> <C> <C> <C>
Interest income $67,779,777 $258,276 $68,038,053
Interest expense $35,263,345 $199,745 $35,463,090
Depreciation and amortization $2,040,954 $246,307 $2,287,261
Provision for income taxes $6,558,440 $459,760 $7,018,200
Segment profit $12,785,115 $892,266 $13,677,381
Segment assets $957,604,983 $7,198,419 $964,803,402
Expenditures for additions to
premises and equipment $1,937,700 $420,465 $2,358,165
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1998
---------------------------------------------------------------
Banking All Other Totals
---------------------------------------------------------------
<S> <C> <C> <C>
Interest income $61,704,485 $227,200 $61,931,685
Interest expense $31,966,393 $25,285 $31,991,678
Depreciation and amortization $1,254,209 $134,624 $1,388,833
Provision for income taxes $6,165,092 $758,608 $6,923,700
Segment profit $12,963,921 $1,480,128 $14,444,049
Segment assets $790,429,922 $4,661,207 $795,091,129
Expenditures for additions to
premises and equipment $3,379,898 $125,900 $3,505,798
</TABLE>
99
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 23: OPERATING SEGMENTS (Continued)
<TABLE>
<CAPTION>
Year Ended June 30, 1997
---------------------------------------------------------------
Banking All Other Totals
---------------------------------------------------------------
<S> <C> <C> <C>
Interest income $55,323,087 $217,360 $55,540,447
Interest expense $28,783,078 $39,066 $28,822,144
Depreciation and amortization $2,035,545 $69,659 $2,105,204
Provision for income taxes $5,532,275 $218,925 $5,751,200
Segment profit $8,674,280 $665,585 $9,339,865
Segment assets $700,802,725 $7,038,559 $707,841,284
Expenditures for additions to
premises and equipment $1,708,170 $63,062 $1,771,232
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended December 31, 1998
--------------------------------------------------------------
Banking All Other Totals
--------------------------------------------------------------
<S> <C> <C> <C>
Interest income $32,405,769 $79,003 $32,484,772
Interest expense $16,518,815 $11,006 $16,529,821
Depreciation and amortization $838,495 $125,438 $963,933
Provision for income taxes $3,711,169 $147,131 $3,858,300
Segment profit $7,077,022 $280,572 $7,357,594
Segment assets $829,674,056 $6,823,646 $836,497,702
Expenditures for additions to
premises and equipment $1,360,336 $75,865 $1,436,201
</TABLE>
NOTE 24: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at December 31, 1999 and 1998, and June 30,
1998, and statements of income and cash flows for the years ended December 31,
1999, and June 30, 1998 and 1997, and for the six months ended December 31,
1998, for the parent company, Great Southern Bancorp, Inc., are as follows:
100
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 24: CONDENSED PARENT COMPANY STATEMENTS (Continued)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1999 1998 June 30, 1998
---------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE SHEETS
Assets
Cash $--- $457,954 $1,555,186
Available-for-sale securities 7,245,296 6,471,865 6,347,526
Investment in subsidiary bank 69,492,824 62,239,234 59,487,798
Investment in other subsidiaries --- --- 473,351
Loans receivable --- 585,000 585,000
Dividends receivable 3 19,743 ---
Deferred income taxes 353,890 --- ---
Other 50,000 50,000 50,000
--------------------------------------------------------------
$77,142,013 $69,823,796 $68,498,861
==============================================================
Liabilities and Stockholders' Equity
Bank overdraft $15,722 $--- $---
Accounts payable and accrued expenses 42,100 10,000 ---
Income taxes payable 174,740 492,850 420,047
Short-term borrowings 7,938,298 724,050 ---
Deferred income taxes --- 214,410 669,921
Common stock 123,250 123,250 123,250
Additional paid-in capital 17,487,433 17,224,451 17,110,496
Retained earnings 100,310,493 90,459,992 84,955,740
Unrealized appreciation (depreciation)
on available-for-sale securities, net (598,790) 335,359 1,047,824
Treasury stock, at cost (48,351,233) (39,760,566) (35,828,417)
--------------------------------------------------------------
$77,142,013 $69,823,796 $68,498,861
==============================================================
</TABLE>
101
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 24: CONDENSED PARENT COMPANY STATEMENTS (Continued)
<TABLE>
<CAPTION>
Six Months
Year Ended Years Ended June 30, Ended
December 31, ---------------------------------- December 31,
1999 1998 1997 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME
Income
Dividends from subsidiary bank $9,250,000 $8,916,733 $11,952,241 $4,755,806
Dividends from other subsidiaries --- 469,109 274,913 51,281
Loss on foreclosed assets --- --- (24,077) ---
Interest and dividend income 247,929 227,200 217,360 101,172
Net realized gains on sales of
available-for-sale securities 296,041 1,397,828 205,225 353,149
Other income (loss) --- (69,266) 47,472 275
------------------------------------------------------------------
Total income 9,793,970 10,941,604 12,673,134 5,261,683
------------------------------------------------------------------
Expense
Operating expenses 214,211 199,972 197,677 103,668
Interest expense 215,432 25,285 39,066 11,006
------------------------------------------------------------------
Total expense 429,643 225,257 236,743 114,674
------------------------------------------------------------------
Income before income tax and equity in
undistributed earnings of subsidiaries 9, 364,327 10,716,347 12,436,391 5,147,009
Provision (credit) for income taxes (14,202) 415,223 (40,848 ) 59,350
------------------------------------------------------------------
Income before equity in earnings of subsidiaries 9,378,529 10,301,124 12,477,239 5,087,659
Equity in undistributed earnings of subsidiaries 4,298,852 4,142,925 (3,137,374) 2,269,935
------------------------------------------------------------------
Net Income $13,677,381 $14,444,049 $9,339,865 $7,357,594
==================================================================
</TABLE>
102
<PAGE>
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998,
AND JUNE 30, 1998 AND 1997
NOTE 24: CONDENSED PARENT COMPANY STATEMENTS (Continued)
<TABLE>
<CAPTION>
Six Months
Year Ended Years Ended June 30, Ended
December 31, ---------------------------------- December 31,
1999 1998 1997 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities
Net income 13,677,381 $14,444,049 $9,339,865 $7,357,594
Items not requiring (providing) cash:
Loss on low income housing partnership --- 12,093 10,356 ---
Equity in undistributed earnings of subsidiaries (4,298,851) (4,144,925) 3,137,376 (2,278,085)
Net realized gains on sales of
available-for-sale securities (296,041) (1,397,828) (205,225) (353,149)
Changes in:
Dividends receivable 19,740 3,000 (3,000) (19,744)
Other assets --- 57,505 (57,505) ---
Accounts payable 32,100 --- --- 10,000
Income taxes (318,110) 703,119 (340,577) 72,803
----------------------------------------------------------------
Net cash provided by operating activities 8,816,219 9,677,013 11,881,290 4,789,419
----------------------------------------------------------------
Cash Flows From Investing Activities
Net loans originated 585,000 (585,000) --- ---
Proceeds from sale of foreclosed assets --- --- 324,900 ---
Purchase of available-for-sale securities (4,084,488) (1,427,438) (1,845,970) (2,289,879)
Proceeds from sale of available-for-sale
securities 2,149,910 3,359,677 1,376,123 1,350,713
Investment in trust company --- (50,000) --- ---
Investment in subsidiary (3,000,000) --- --- ---
Partnership distribution --- 5,062 3,542 ---
----------------------------------------------------------------
Net cash provided by (used in) (4,349,578) 1,302,301 (141,405) (939,166)
investing activities
----------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from bank overdraft 15,722 --- --- ---
Net increase (decrease) in short-term
borrowings 7,214,248 (2,406,423) 2,406,423 724,050
Dividends paid (3,826,880) (3,468,568) (3,277,494) (1,853,342)
Stock options exercised 464,437 94,118 797,113 127,435
Treasury stock purchased (8,792,122) (3,694,781) (15,584,673) (3,945,628)
----------------------------------------------------------------
Net cash used in financing activities (4,924,595) (9,475,654) (15,658,631) (4,947,485)
----------------------------------------------------------------
Increase (Decrease) in Cash (457,954) 1,503,660 (3,918,746) (1,097,232)
Cash, Beginning of Period 457,954 51,526 3,970,272 1,555,186
----------------------------------------------------------------
Cash, End of Period $0 $1,555,186 $51,526 $457,954
================================================================
Additional Cash Payment Information
Interest paid $173,410 $11,006 $25,285 $39,066
Income taxes paid --- --- $61,241 ---
</TABLE>
103
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors of the Registrant
Directors Serving a Three-Year Term Expiring at the 2000 Annual Meeting
William K. Powell, age 78, was elected a Director of Great Southern in 1965
and Bancorp in 1989. Mr. Powell is President of Herrman Lumber Company in
Springfield, Missouri, where he has served since 1947. Mr. Powell is also
President of United Mill Works, Inc. and Herrman Realty Company in Springfield,
Missouri, both of which were founded by him in 1951. None of these entities are
affiliated with Bancorp.
Joseph W. Turner, age 35, joined Bancorp in 1995. He has been employed by
Great Southern since 1991. He currently serves as President and General Counsel
for Bancorp and Chief Executive Officer, President and General Counsel for Great
Southern. Prior to joining Great Southern Mr. J. Turner was an attorney with the
Kansas City, Missouri law firm of Stinson, Mag and Fizzell. Mr. J. Turner is the
son of William V. Turner.
Director Serving a Three-Year Term Expiring at the 2001 Annual Meeting
William V. Turner, age 67, has served as the Chairman of the Board and
Chief Executive Officer of Great Southern since 1974 and President of Great
Southern from 1974 to 1997. Mr. W. Turner has served in similar capacities with
Bancorp since incorporation in 1989. Mr. W. Turner has also served as Chairman
of the Board and President of Great Southern Financial Corporation (an affiliate
of Bancorp) since incorporation in 1974, Chairman of the Board and President of
Appraisal Services, Inc. (an affiliate of Bancorp) since incorporation in 1976
and Chairman of the Board of Great Southern Capital Management, Inc. (an
affiliate of Bancorp) since its formation in 1988. Mr. W. Turner is the father
of Joseph W. Turner who is a director, and the President and General Counsel of
Bancorp, and the Chief Executive Officer, President and General Counsel for
Great Southern.
Directors Serving a Three-Year Term Expiring at the 2002 Annual Meeting
William E. Barclay, age 70 was first elected a Director of Great Southern
in 1975 and of Bancorp in 1989. Mr. Barclay is the founder and has served as
President and/or Chairman of the Board of Auto-Magic Full Service Car Washes in
Springfield, Missouri since 1962. Mr. Barclay also founded Barclay Love Oil
Company in Springfield, Missouri in 1964 and founded a chain of Ye Ole Buggy
Bath Self-Service Car Washes in Springfield, Missouri in 1978 and opened a
franchise of Jiffy Lube in Springfield, Missouri in 1987. None of these entities
are affiliated with Bancorp.
Larry D. Frazier, age 62, was first elected a Director of Great Southern
and of Bancorp in 1992. Mr. Frazier was elected a Director of Great Southern
Financial Corporation (an affiliate of Bancorp) in 1976, where he served until
his election as Director of Great Southern and Bancorp. Mr. Frazier is retired
from White River Valley Electric Cooperative in Branson, Missouri where he
served as President and Chief Executive Officer from 1975 to 1998. This entity
is not affiliated with Bancorp.
104
<PAGE>
(b) Executive Officers of the Registrant
Included under Part I of this Form 10-K.
(c) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires Bancorp's directors, certain of
its officers and persons who own more than ten percent of the Common Stock, to
file reports detailing their ownership and changes of ownership in the Common
Stock with the SEC and to furnish Bancorp with copies of all such ownership
reports. Based solely on Bancorp's review of the copies of such ownership
reports furnished to Bancorp, and written representations relative to the filing
of certain forms, Bancorp is aware of one late filing for Ann S. Turner for one
transaction in December 1998 and one transaction in January 1999, one late
filing for Joseph W. Turner for ten transactions from April 1997 to April 1999,
one late filing for William V. Turner for one transaction in December 1998 and
one transaction in January 1999, one late filing for Don M. Gibson for three
transactions occurring in January 1999 to July 1999 and January 2000, and one
late filing by Richard L. Wilson for three transactions in December 1999.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Chief Executive Officer and the other executive officers who served in such
capacities during the Calendar Year 1999 with compensation of $100,000 or more.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------- ------------ -----------------
Options/ All Other
Salary Bonus SARS Compensation
Name and Principal Position Year ($) ($) (#)(1) ($)(2)
- ---------------------------------- ------------------ ------------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
William V. Turner Calendar 1999 260,061 100,000 5,000 38,140
Chairman of the Board Calendar 1998 285,922 215,000 5,000 34,114
and Chief Executive Officer Fiscal June 1998 289,593 191,732 7,500 5,290
Fiscal June 1997 263,394 131,951 30,000 3,632
Don M. Gibson Calendar 1999 151,352 50,000 5,000 21,940
Executive Vice President Calendar 1998 153,068 - 5,000 10,424
Chief Operating Officer and Fiscal June 1998 162,706 - 5,000 5,150
Secretary(3) Fiscal June 1997 138,321 - 15,000 3,596
Joseph W. Turner Calendar 1999 137,951 50,000 5,000 24,562
President and General Counsel Calendar 1998 133,303 - 5,000 13,425
Fiscal June 1998 145,000 - 5,000 4,611
Fiscal June 1997 122,583 - 15,000 3,130
- ------------------
<FN>
(1) Option numbers have been adjusted to reflect the October 21, 1996 2-for-1
stock split, where applicable.
(2) Calendar 1999 includes (a) directors fees (Mr. W. Turner $31,200, Mr.
Gibson $7,500 and Mr. J. Turner $10,500) paid by Bancorp and its
subsidiaries; (b) company matching contributions to Bancorp's 401K Plan
(Mr. W. Turner $2,374, Mr. Gibson $2,384 and Mr. J. Turner $2,385); and (c)
term life insurance premiums paid by Great Southern for the benefit of
Messrs. W. Turner, Gibson, and J. Turner of $540 each.
(3) Mr. Gibson retired on February 15, 2000.
</FN>
</TABLE>
105
<PAGE>
OPTION GRANTS DURING CALENDAR YEAR 1999
The following table sets forth options to acquire shares of Bancorp's
Common Stock which were granted to the executive officers named in the Summary
Compensation Table during the Calendar Year 1999.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1999
Individual Grants
----------------------------------------------------------------------------------------------
Number of Potential Realizable
Securities Value at Assumed
Underlying % of Total Annual Rate of
Options Options Stock Price
Granted Granted to Exercise or Appreciation for
(number of Employees Base Price Expiration Option-Term
Name shares)(1) in 1999 ($ per share) Date
- ----------------------------- ----------- -------------- --------------- ------------ -------------------------------
5% 10%
-------------------------------
<S> <C> <C> <C> <C> <C> <C>
William V. Turner 5,000 6.8% $24.1310 12-15-2004 $33,335 $73,661
Don M. Gibson 5,000 6.8 21.9375 12-15-2009 68,982 174,814
Joseph W. Turner 5,000 6.8 24.1310 12-15-2004 33,335 73,661
- ---------------
<FN>
(1) Shares for William V. Turner and Joseph W. Turner vest 25% per year after a
one year holding period beginning on the date of the grant (December 15,
1999) and must be exercised within five years of the grant. Shares for Don
M. Gibson vest 25% per year after a two year holding period beginning on
the date of the grant (December 15, 1999) and must be exercised within 10
years of the grant.
</FN>
</TABLE>
OPTION EXERCISES AND CALENDAR YEAR-END VALUES
The following table sets forth all stock options exercised by the named
executives during Calendar Year 1999 and the number and value of unexercised
options held by such executive officers at the calendar year-end.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Securities in the money
Acquired Value Underlying Unexercised Options at Calendar Year
on Exercise Realized(1) Options at Calendar Year End End(2)
-------------- ------------ ------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William V. Turner 28,152 $642,218 57,500 20,000 $441,383 $ 55,688
Don M. Gibson 8,750 73,826 3,750 25,000 41,483 123,358
Joseph W. Turner 2,000 24,063 34,560 15,000 324,176 29,906
- ------------------
<FN>
(1) Value realized is calculated based on the difference between the option
exercise price and the closing market price of Bancorp's Common Stock on
the date of exercise multiplied by the number of shares to which the
exercise relates.
(2) The value of unexercised options was calculated at a per share price of
$22.00 less the exercise price per share. The closing price of Bancorp's
Common Stock as reported on the NASDAQ National Market System on December
31, 1999 was $22.00 per share.
</FN>
</TABLE>
106
<PAGE>
EMPLOYMENT AGREEMENTS
William V. Turner, Don M. Gibson and Joseph W. Turner (the "Employees")
have entered into employment agreements with Great Southern (the "Employment
Agreements"). The Employment Agreements provide that Great Southern may
terminate the employment of any of the Employees for "cause," as defined in the
Employment Agreements, at any time. The Employment Agreements also provide that
in the event Great Southern chooses to terminate the employment of any of the
Employees for reasons other than for cause, or in the event any of the Employees
resigns from Great Southern upon the failure of the Great Southern Board of
Directors to reelect any of the Employees to his current office or upon a
material lessening of his functions, duties or responsibilities, such employee
would be entitled to the payments owed for the remaining term of the agreement.
If the employment of any of the Employees is terminated in connection with or
within 12 months of a "change in control" of Great Southern or Bancorp, each of
the Employees would be entitled to (i) a lump sum payment equal to 299% of the
employee's base amount of compensation as defined in Section 280G(b)(3) of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and
(ii) continued payment of his salary under the applicable Employment Agreement
for the term of the agreement. If Messrs. W. Turner, Gibson and J. Turner had
been entitled to the lump sum payments described in clause (i) of the preceding
sentence as of December 31, 1999, such payments would have amounted to
$1,277,283, $456,214 and $368,320, respectively. Mr. Gibson retired effective on
February 15, 2000, and his employment agreement is no longer in effect.
BENEFITS
PENSION PLAN. Great Southern's employees are included in the Pentegra
Retirement Fund, a multiple employer comprehensive pension plan. This
noncontributory defined benefit retirement plan covers all employees who have
met minimum service requirements.
The following table illustrates annual pension benefits payable upon
retirement, subject to limits established by Federal law, based on various
levels of compensation and years of service and assuming payment in the form of
a straight-life annuity. Covered compensation includes all regular and overtime
pay excluding bonuses and commissions. At December 31, 1999, Messrs. W. Turner,
Gibson and J. Turner had 24, 23 and 7 years, respectively, of credited service
under the pension plan. Since the pension plan is fully funded, there were no
contributions during the year ended December 31, 1999 for Messrs. W. Turner,
Gibson and J. Turner.
<TABLE>
<CAPTION>
Years of Service
-------------------------------------------------------------
Average Annual 10 20 30 40
Covered Compensation
- --------------------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
$ 50,000 $10,000 $ 20,000 $ 30,000 $ 40,000
100,000 20,000 40,000 60,000 80,000
150,000 30,000 60,000 90,000 120,000
200,000 40,000 80,000 120,000 130,000(1)
250,000 50,000 100,000 130,000(1) 130,000(1)
300,000 60,000 120,000 130,000(1) 130,000(1)
350,000 70,000 130,000(1) 130,000(1) 130,000(1)
- ----------------
<FN>
(1) The maximum retirement benefit currently permitted by federal law is
$130,000 per year for this type of plan.
</FN>
</TABLE>
107
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 17, 2000 as
to those persons believed by management of Bancorp to be beneficial owners of
more than five percent of Bancorp's outstanding shares of Common Stock. Persons,
legal or natural, and groups beneficially owning in excess of five percent of
Bancorp's Common Stock are required to file certain reports regarding such
ownership with Bancorp and with the United States Securities and Exchange
Commission (the "SEC") in accordance with the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Where appropriate, historical information set
forth below is based on the most recent Schedule 13D or 13G filed on behalf of
such person with Bancorp. Other than those persons listed below, management is
not aware of any person or group that owns more than five percent of Bancorp's
Common Stock as of March 17, 2000. The holders have sole voting and dispositive
power, unless otherwise noted.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial-Ownership(1)(4) Class(2)
- --------------------------------------------------- -------------------------- ------------------
<S> <C> <C>
William V. Turner 1,066,071(3) 14.51%
Ann S. Turner
Turner Family Limited Partnership
925 St. Andrews Circle
Springfield, MO 65809
Robert M. Mahoney 486,184 6.67
Joyce B. Mahoney
Tri-States Service Company
909 E. Trafficway
Springfield, MO 65802
Earl A. Steinert, Jr. 460,500 6.32
1736 E. Sunshine
Springfield, MO 65804
- -----------------
<FN>
(1) Under Rule 13d-3 under the Exchange Act, share amounts shown for Bancorp's
officers and directors include shares that they may acquire upon the
exercise of options that are exercisable at the reported date or will
become exercisable within 60 days of such date. The holders may disclaim
beneficial ownership of the included shares that are owned by or with
family members, trusts or other entities.
(2) The percentage ownership is based on the number of shares outstanding as of
March 17, 2000.
(3) This figure includes 77,500 shares that may be acquired through option
exercises by William V. Turner. This figure also includes 34,421 shares
held in various capacities by Ann S. Turner, Mr. W. Turner's wife, which
Mr. W. Turner may be deemed to beneficially own, 19,826 shares held by the
Turner Family Foundation which Mr. and Mrs. Turner may be deemed to
beneficially own and 783,012 shares held by the Turner Family Limited
Partnership which Mr. and Mrs. W. Turner may be deemed to beneficially own.
Mr. W. Turner disclaims beneficial ownership as to shares beneficially
owned by Ann S. Turner and the Turner Family Foundation. This figure also
includes 171,124 shares held in various capacities by William V. Turner,
Mrs. Turner's husband, which Mrs. Turner may be deemed to beneficially own.
Mrs. Turner disclaims beneficial ownership as to shares beneficially owned
by William V. Turner and the Turner Family Foundation.
(4) Due to the rules for determining beneficial ownership, the same securities
may be attributed as being beneficially owned by more than one person.
These disclosures are based on: (i) a 13D filing dated October 20, 1994 by
William V. Turner, Ann S. Turner and the Turner Family Limited Partnership;
(ii) a 13D filing dated November 11, 1994 by Earl A. Steinert, Jr.; and
(iii) a 13D filing dated April 22, 1997 by Robert M. Mahoney, Joyce B.
Mahoney and Tri- States Service Company.
</FN>
</TABLE>
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information as to shares of Common Stock
beneficially owned by the directors and the executive officers named in the
Summary Compensation Table above and the directors and all executive officers of
Bancorp as a group. Each beneficial owner listed has sole voting and dispositive
power with respect to the shares of Common Stock reported, except as otherwise
indicated.
108
<PAGE>
Amount and
Nature-of
Beneficial
Name Ownership(1) Percent of Class
- ---------------------------------------------------------------------------
William V. Turner 1,066,071(2) 14.51%
William E. Barclay 55,596(3) .76
Larry D. Frazier 62,500 .86
William K. Powell 194,940 2.67
Albert F. Turner 45,262(4) .62
Don M. Gibson 301,314 4.13
Joseph W. Turner 58,290(5) .80
Directors and Executive
Officers as a Group
(9 persons) 1,887,649(6) 25.55
- ------------------
(1) Under Rule 13d-3 under the Exchange Act, share amounts shown for Bancorp's
officers and directors include shares that they may acquire upon the
exercise of options that are exercisable at Mach 17, 2000 or will become
exercisable within 60 days of such date. The holders may disclaim
beneficial ownership of the included shares that are owned by or with
family members, trusts or other entities.
(2) For a detailed discussion of the nature of Mr. W. Turner's ownership, see
Footnote 1 to the table of beneficial owners set out above.
(3) Mr. Barclay shares voting and dispositive power with his spouse with
respect to all shares.
(4) Mr. Albert Turner shares voting and dispositive power with his spouse with
respect to all shares.
(5) This figure includes 34,560 shares that may be acquired through option
exercises.
(6) The figure includes 99,448 shares that may be acquired through option
exercises by all directors and executive officers as a group.
GENERAL VOTING RULES. Each stockholder of the Common Stock is entitled to
cast one vote for each share of Common Stock held on the Record Date on all
matters including the election of directors except that any stockholder that
beneficially owns in excess of 10 percent (the "Limit") of the then outstanding
shares of Common Stock is not entitled to vote shares in excess of the Limit.
In order for any proposals to be approved by Bancorp's stockholders, the
holders of a majority of the shares of Bancorp Common Stock entitled to vote
must constitute a quorum by being present at the meeting, either in person or
through a proxy, regardless of whether such stockholders vote their shares.
However, shares in excess of the Limit are not considered present for purposes
of determining a quorum. With respect to proposals other than the election of
directors, a majority of shares voted must be for approval. The directors must
be elected by a plurality of the shares voted.
In determining the percentage of shares that have been affirmatively voted
for a particular proposal, the affirmative votes are measured against the votes
for and against the proposal plus the abstentions from voting on the proposal. A
stockholder may abstain from voting on any proposal other than the election of
the directors, and shares for which the holders abstain from voting are not
considered to be votes affirmatively cast. Thus, abstaining will have the effect
of a vote against a proposal.
A director is elected by an affirmative vote of the plurality of the quorum
of shares of Common Stock entitled to vote on the election of the director. With
regard to the election of the director, votes may be cast in favor or withheld.
Votes that are withheld will be excluded entirely from the vote and will have no
effect.
SHARES HELD THROUGH A BROKER. Bancorp Common Stock is listed for trading on
the Nasdaq Stock Market. Under the rules of the National Association of
Securities Dealers (the "NASD"), member brokers who hold shares of Common Stock
in the broker's name for customers are required to forward, along with certain
other information, signed proxy cards to the customers for them to complete and
send to Bancorp, and such brokers may only vote shares of Common Stock if the
brokers are the beneficial owners or hold them in a fiduciary capacity with the
power to vote. Notwithstanding the restrictions on voting of the NASD rules, if
a NASD member broker is also a member of a national securities exchange, then
the broker can vote the shares of Common Stock held for customers in accordance
with the rules of that exchange. Under the rules of the New York Stock Exchange,
Inc. ("NYSE"), for example, NYSE member brokers who have not
109
<PAGE>
received direction on voting from their customers can vote shares of Common
Stock held for a customer on certain routine matters (as specified by the NYSE).
When a broker does not vote shares held for customers, it is referred to as
a "broker non-vote" (customer directed abstentions are directions to the broker
and therefore do not cause broker non-votes). Broker non-votes generally do not
affect the determination of whether a quorum is present at the Annual Meeting
because typically some of the shares held in the broker's name have usually been
voted on at least some proposals, and therefore, all of the shares held by the
broker are considered present at the Annual Meeting. Under applicable Delaware
law, a broker non-vote will have no effect on any proposal presented at the
Annual Meeting, including the election of directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Great Southern, like many financial institutions, has from time to time
extended loans to its officers, directors and employees, generally for the
financing of their personal residences, at favorable interest rates. Generally,
residential loans have been granted at interest rates 1% above Great Southern's
cost of funds, subject to annual adjustments. Other than the interest rate,
these loans have been made in the ordinary course of business, on substantially
the same terms and collateral as those of comparable transactions prevailing at
the time, and, in the opinion of management, do not involve more than the normal
risk of collectibility or present other unfavorable features. All loans by Great
Southern to its directors and executive officers are subject to regulations
restricting loans and other transactions with affiliated persons of Great
Southern. Great Southern may also grant loans to officers, directors and
employees, their related interest and their immediate family members in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those rates prevailing at the time for comparable
transactions with other persons which, in the opinion of management, did not
involve more than the normal risk of collectibility or present other unfavorable
features.
No directors, executive officers or their affiliates, had aggregate
indebtedness to Great Southern on such below market rate loans exceeding $60,000
at any time since January 1, 1999 except as noted below.
<TABLE>
<CAPTION>
Largest
Amount Interest
Date of Outstanding Balance as Rate at
Name Position Loan Since 1/1/99 of 12/31/99 12/31/99 Type
- ----------------------- ------------------------------- ---------- ------------- ------------ --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
William V. Turner Chairman and CEO 08/30/95 $323,169 $318,121 5.50% Home Mortgage
Don M. Gibson Executive Vice President, COO, 12/30/97 217,204 $214,172 5.45 Home Mortgage
and Secretary 10/20/98 29,859 29,426 8.50 Home Equity Line
Joseph W. Turner President and General Counsel 09/21/98 299,357 295,168 5.33 Home Mortgage
Richard L. Wilson Senior Vice President and 02/06/98 407,295 401,165 5.43 Home Mortgage
CFO of Great Southern Bank 10/31/98 51,510 --- n/a Home Equity Line
Steven G. Mitchem Senior Vice President and Chief 06/30/98 168,524 166,150 5.26 Home Mortgage
Lending Officer of Great 10/05/99 15,025 --- n/a Consumer
Southern Bank
</TABLE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) List of Documents Filed as Part of This Report
(1) Financial Statements
110
<PAGE>
The Consolidated Financial Statements and Independent Accountants' Report
are included in Item 8.
(2) Financial Statement Schedules
Inapplicable.
(3) List of Exhibits
Exhibits incorporated by reference below are incorporated by reference
pursuant to Rule 12b-32.
(2) Plan of acquisition, reorganization, arrangement,
liquidation, or succession
Inapplicable.
(3) Articles of incorporation and Bylaws
(i) The Registrant's Certificate of Incorporation
previously filed with the Commission (File no. 33-
30597) as Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 dated August 18,1989, is
incorporated herein by reference as Exhibit 3.1.
(ii) The Registrant's Certificate of Amendment of
Certificate of Incorporation previously field with the
Commission as Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended
June 30, 1997, is incorporated herein by reference as
Exhibit 3.2.
(iii) The Registrant's Bylaws, as amended, previously filed
with the Commission (File no. 33-30597) as Exhibit 3.2
to the Registrant's Annual Report on Form 10-K for
fiscal year ended June 30, 1990, is incorporated herein
by reference as Exhibit 3.3.
(4) Instruments defining the rights of security holders,
including indentures
Inapplicable.
(9) Voting trust agreement
Inapplicable.
(10) Material contracts
The Registrant's 1989 Stock Option and Incentive Plan
previously filed with the Commission (File no. 33- 30597) as
Exhibit 10.2 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1990, is incorporated
herein by reference as Exhibit 10.1.
An Employment Agreement dated February 1, 1990 between the
Registrant and William V. Turner previously filed with the
Commission (File no. 33-30597) as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 dated August
18, 1989, is incorporated herein by reference as Exhibit
10.2.
An Employment Agreement dated February 1, 1990 between the
Registrant and Don M. Gibson previously filed with the
Commission (File no. 33-30597) as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 dated August
18, 1989, is incorporated herein by reference as Exhibit
10.3.
111
<PAGE>
An Employment Agreement dated July 1, 1993 between the
Registrant and Joseph W. Turner previously filed with the
Commission (File no. 33-30597) as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, is incorporated herein by reference as
Exhibit 10.4.
The Registrant's 1997 Stock Option and Incentive Plan
previously filed with the Commission (File no. 33-30597) as
Annex A to the Registrant's Definitive Proxy Statement for
the fiscal year ended June 30, 1997, is incorporated herein
by reference as Exhibit 10.5.
(11) Statement re computation of per share earnings
The Statement re computation of per share earnings is
included in Note 1 of the Consolidated Financial Statements
under Part II, Item 8 above.
(12) Statements re computation of ratios
Inapplicable.
(13) Annual report to security holders, Form 10-Q or quarterly
report to security holders
Inapplicable.
(16) Letter re change in certifying accountant
Inapplicable.
(18) Letter re change in accounting principles
Inapplicable.
(21) Subsidiaries of the registrant
A listing of the Registrant's subsidiaries is attached
hereto as Exhibit 21.
(22) Published report regarding matters submitted to vote of
security holders
Inapplicable.
(23) Consents of experts and counsel
The consent of Baird, Kurtz & Dobson to the incorporation by
reference into the Form S-8 previously filed on December 16,
1992 with the Commission (File no. 33-55832) of their report
on the financial statements included in this Form 10-K, is
attached hereto as Exhibit 23.
(24) Power of attorney
Inapplicable.
(27) Financial Data Schedule
Information is attached hereto as exhibit 27.
112
<PAGE>
(28) Information from reports furnished to state insurance
regulatory authorities
Inapplicable.
(99) Additional Exhibits
Inapplicable.
(b) Reports on Form 8-K
None.
113
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GREAT SOUTHERN BANCORP, INC.
(Registrant)
Date: March 30, 2000 By: /s/ William V. Turner
---------------------------------------
William V. Turner
Chairman of the Board, Chief Executive
Officer and Director
(Principal Executive Officer)
POWER OF ATTORNEY
We, the undersigned officers and directors of Great Southern Bancorp, Inc.,
hereby severally and individually constitute and appoint William V. Turner and
Rex A. Copeland, and each of them, the true and lawful attorneys and agents of
each of us to execute in the name, place and stead of each of us (individually
and in any capacity stated below) any and all amendments to this Annual Report
on Form 10-K and all instruments necessary or advisable in connection therewith
and to file the same with the Securities and Exchange Commission, each of said
attorneys and agents to have the power to act with or without the others and to
have full power and authority to do and perform in the name and on behalf of
each of the undersigned every act whatsoever necessary or advisable to be done
in the premises as fully and to all intents and purposes as any of the
undersigned might or could do in person, and we hereby ratify and confirm our
signatures as they may be signed by our said attorneys and agents or each of
them to any and all such amendments and instruments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity in which signed Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ William V. Turner Chairman of the Board and Director March 30, 2000
- ------------------------------------------- (Principal Executive Officer)
William V. Turner
/s/ Rex A. Copeland Treasurer (Principal Financial Officer and March 30, 2000
- -------------------------------------------
Rex A. Copeland Principal Accounting Officer)
/s/ William E. Barclay Director March 30, 2000
- -------------------------------------------
William E. Barclay
/s/ Larry D. Frazier Director March 30, 2000
- -------------------------------------------
Larry D. Frazier
/s/ William K. Powell Director March 30, 2000
- -------------------------------------------
William K. Powell
/s/ Joseph W. Turner Director March 30, 2000
- -------------------------------------------
Joseph W. Turner
</TABLE>
114
<PAGE>
GREAT SOUTHERN BANCORP, INC.
INDEX TO EXHIBITS
Exhibit
No. Document
- --------------------------------------------------------------------------------
21 Subsidiaries of the Registrant
23 Consent of Baird, Kurtz & Dobson, Certified Public Accountants
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed
115
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of
Percentage of Incorporation or
Parent Subsidiary Ownership Organization
- --------------------------------------------- -----------------------------------------------------------------------------------
<S> <C> <C>
Great Southern Bancorp, Inc. Great Southern Bank 100% Missouri
Great Southern Bank Great Southern Capital Management, Inc. 100% Missouri
Great Southern Bank Great Southern Financial Corporation 100% Missouri
Great Southern Bank GSB One, L.L.C. 100% Missouri
GSB One, L.L.C. GSB Two, L.L.C. 100% Missouri
Great Southern Financial Corporation Appraisal Services, Inc. 100% Missouri
</TABLE>
116
Exhibit 23
We consent to the incorporation by reference in Registration Statement No.
33-55832 on Form S-8 dated December 16, 1992, of our report dated February 11,
2000, on the consolidated financial statements and schedules included in the
Annual Report on Form 10-K of GREAT SOUTHERN BANCORP, INC. for the year ended
December 31, 1999.
/s/ Baird, Kurtz & Dobson
March 29, 2000
Springfield, Missouri
117
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and the Consolidated Statement of Income filed as
part of the annual report on Form 10-K and is qualified in its entirety by
reference to such annual report on Form 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,356
<INT-BEARING-DEPOSITS> 1,244
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,891
<INVESTMENTS-CARRYING> 37,646
<INVESTMENTS-MARKET> 37,416
<LOANS> 766,807
<ALLOWANCE> 17,293
<TOTAL-ASSETS> 964,803
<DEPOSITS> 625,900
<SHORT-TERM> 157,764
<LIABILITIES-OTHER> 8,335
<LONG-TERM> 103,878
0
0
<COMMON> 123
<OTHER-SE> 68,803
<TOTAL-LIABILITIES-AND-EQUITY> 964,803
<INTEREST-LOAN> 63,386
<INTEREST-INVEST> 4,652
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 68,038
<INTEREST-DEPOSIT> 24,967
<INTEREST-EXPENSE> 35,463
<INTEREST-INCOME-NET> 32,575
<LOAN-LOSSES> 2,062
<SECURITIES-GAINS> 317
<EXPENSE-OTHER> 25,167
<INCOME-PRETAX> 20,695
<INCOME-PRE-EXTRAORDINARY> 20,695
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,677
<EPS-BASIC> 1.79
<EPS-DILUTED> 1.76
<YIELD-ACTUAL> 3.86
<LOANS-NON> 9,221
<LOANS-PAST> 49
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 10,800
<ALLOWANCE-OPEN> 16,928
<CHARGE-OFFS> 2,806
<RECOVERIES> 1,110
<ALLOWANCE-CLOSE> 17,293
<ALLOWANCE-DOMESTIC> 17,293
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,550
</TABLE>
