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, 2001
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 of 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 22, 2002, computed by reference to
the closing price of such shares, was $186,349,679. At March 22, 2002, 6,868,631
shares of Common Stock, par value $.01 per share, were outstanding.
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
Loan Delinquencies and Defaults 13
Classified Assets 14
Investment Activities 18
Sources of Funds 20
Subsidiaries 24
Competition 25
Employees 25
Government Supervision and Regulation 25
Federal and State Taxation 30
ITEM 2. PROPERTIES 31
ITEM 3. LEGAL PROCEEDINGS 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 33
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 33
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 34
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 99
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 99
ITEM 11. EXECUTIVE COMPENSATION 101
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 105
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 106
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 107
SIGNATURES
INDEX TO EXHIBITS
PART I
ITEM 1. BUSINESS.
THE COMPANY
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc. ("Bancorp" or "Company") is a financial
holding company which, as of December 31, 2001, 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 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 financial holding company. Through the financial 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 financial 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, 2001, Bancorp's
consolidated assets were $1.32 billion, consolidated net loans were $965
million, consolidated deposits were $887 million and consolidated stockholders'
equity was $85 million. The assets of the Company consist primarily of the stock
of Great Southern, the stock of other financial services companies, interests in
a local trust company and a merchant banking company and cash.
Through subsidiaries of the Bank, the Company offers insurance, 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. The Company expects to finance its
future activities in a similar manner.
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 28 branches located in southwestern and
central Missouri. At December 31, 2001, the Bank had total assets of $1.31
billion, deposits of $887 million and stockholders' equity of $92 million, or
7.0% 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").
1
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 borrowings 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 single-family mortgage 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 corporate 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 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.
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 308,000, 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,
2
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. The
region is a vacation and entertainment center, attracting tourists to its theme
parks, resorts, country music and novelty shows and other recreational
facilities. As a result of the rapid growth of the Branson area in the early
1990's, property values increased at unusually high rates. This growth also
provided for increased loan demand and a more volatile lending market than had
previously been present in that area. Due to overbuilding of commercial
properties during the mid-1990's, property values have experienced downward
pressure during the past few years. Reduced demand for residential properties
has similarly created downward pressure on one- to four- family and
multi-family, primary and vacation residences in this area.
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 $156 million, or 15%, of the total loan portfolio at December 31,
2001, was secured by commercial real estate, commercial construction, other
residential properties, one- to four-family residential properties, and one- to
four-family construction properties, and consumer loans in the Branson area.
Residential mortgages account for approximately $68 million of this total.
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 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. In recent years, 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. At December 31, 2001, the balance of
participation loans purchased was $64.1 million, or 6.2% of the total loan
portfolio. None of these participation loans were non-performing loans at
December 31, 2001.
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
3
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 of lending has been an
increasing percentage of the loan portfolio and accounts for approximately 46%
of the portfolio at December 31, 2001.
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 is 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. In addition, the
Bank has made some loans, secured primarily by commercial real estate, in other
states, primarily Oklahoma, Kansas and Iowa.
4
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.
December 31, June 30,
--------------------------------------------------------------------------------- ------------------
2001 2000 1999 1998 1998
-------------------- ------------------- ------------------- -------------------- ------------------
Amount % Amount % Amount % Amount % Amount %
---------- --------- ---------- -------- ---------- -------- ----------- -------- ---------- -------
(Dollars in thousands)
Real Estate Loans:
Residential
One- to four- family $ 190,556 18.4% $226,136 23.6% $208,466 25.3% $217,120 29.2% $217,688 31.0%
Other residential 88,274 8.5 81,143 8.5 76,926 9.4 85,828 11.5 89,141 12.7
Commercial 351,037 34.0 328,432 34.3 251,338 30.5 261,201 35.1 244,016 34.8
Residential Construction:
One- to four-family 49,306 4.8 47,241 4.9 39,795 4.8 33,292 4.4 16,032 2.3
Other residential 30,408 2.9 23,703 2.5 7,106 .9 6,553 .9 5,993 .9
Commercial construction 127,171 12.3 73,398 7.7 63,722 7.8 19,952 2.7 27,156 3.9
--------- ------ --------- ------- ---------- ------- ---------- ------- ---------- ------
Total real estate loans 836,752 80.9 780,053 81.5 647,353 78.7 623,946 83.8 600,026 85.6
--------- ------ -------- ------ --------- ------- --------- ------- --------- ------
Other Loans:
Consumer loans:
Guaranteed student loans 3,818 .4 3,892 .5 4,067 .5 15,931 2.1 12,736 1.8
Automobile 67,909 6.6 67,356 7.0 55,625 6.8 37,152 5.0 23,120 3.3
Home equity and improvement 27,198 2.6 19,460 2.0 14,431 1.8 9,292 1.3 5,849 .8
Other 630 .1 491 .1 255 -- 992 .1 4,862 .7
--------- ------- ---------- ------- --------- ------- ---------- ------- --------- ------
Total Consumer loans 99,555 9.7 91,199 9.6 74,378 9.1 63,367 8.5 46,567 6.6
Other commercial loans 97,557 9.4 85,334 8.9 100,419 12.2 57,179 7.7 54,722 7.8
--------- ------- ------- ------ --------- ------- ---------- ------- --------- ------
Total other loans 197,112 19.1 176,533 18.5 174,797 21.3 120,546 16.2 101,290 14.4
--------- ------ -------- ------ --------- ----- ---------- ------ --------- ------
Total loans 1,033,864 100.0% 956,586 100.0% 822,150 100.0% 744,492 100.0% 701,316 100.0%
===== ===== ===== ===== =====
Less:
Loans in process 46,744 45,834 36,048 28,823 28,497
Deferred fees and discounts 906 1,274 2,002 1,779 2,774
Allowance for loan losses 21,328 18,694 17,293 16,928 16,373
--------- ---------- --------- ---------- ---------
Total loans receivable, net $ 964,886 $890,784 $766,807 $696,962 $653,672
========= ========== ========= ========== =========
5
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.
December 31, June 30,
-------------------------------------------------------------------------------- -----------------
2001 2000 1999 1998 1998
--------------------- ------------------ ------------------ -------------------- -----------------
Amount % Amount % Amount % Amount % Amount %
----------- --------- ---------- ------- ---------- ------- ----------- -------- ---------- ------
(Dollars in thousands)
Fixed-Rate Loans:
Real Estate Loans
Residential
One- to four- family $ 10,477 1.0% $ 6,414 .7% $ 5,960 .7% $ 11,659 1.6% $ 11,245 1.6%
Other Residential 48,518 4.7 38,345 4.0 37,079 4.5 39,661 5.3 34,757 5.0
Residential construction:
One- to four- family 5,925 .6 1,130 .1 --- --- --- --- --- ---
Commercial 50,039 4.8 40,102 4.2 37,636 4.6 60,757 8.2 28,004 4.0
---------- ------- ---------- ------ --------- ------ ---------- ------- ---------- -------
Total real estate loans 114,959 11.1 85,991 9.0 80,675 9.8 112,077 15.1 74,006 10.6
Consumer loans 67,496 6.5 66,751 7.0 54,829 6.7 37,080 5.0 27,319 3.9
Other commercial loans 14,465 1.4 10,526 1.1 4,266 .5 11,956 1.6 1,645 .2
---------- ------- ---------- ------ --------- ------ ---------- ------- ---------- -------
Total fixed-rate loans 196,920 19.0 163,268 17.1 139,770 17.0 161,113 21.7 102,970 14.7
---------- -------- --------- ----- --------- ----- --------- ------ --------- ------
Adjustable-Rate Loans:
Real Estate Loans
Residential
One- to four- family 180,079 17.4 219,722 23.0 202,506 24.6 205,461 27.6 206,443 29.4
Other Residential 39,756 3.9 42,798 4.5 39,847 4.9 46,167 6.2 54,384 7.8
Commercial 300,998 29.1 288,330 30.1 213,702 26.0 200,444 26.9 216,013 30.8
Residential construction:
One- to four-family 43,381 4.2 46,111 4.8 39,795 4.8 33,292 4.4 16,032 2.3
Other residential 30,408 2.9 23,703 2.5 7,106 .9 6,553 .9 5,993 .9
Commercial construction 127,171 12.3 73,398 7.7 63,722 7.7 19,952 2.7 27,156 3.9
---------- ------ ---------- ------ ---------- ------ ---------- ------- ---------- -------
Total real estate loans 721,793 69.8 694,062 72.6 566,678 68.9 511,869 68.7 526,021 75.1
Consumer loans 32,059 3.1 24,448 2.5 19,549 2.4 26,287 3.5 19,248 2.7
Other commercial loans 83,092 8.1 74,808 7.8 96,153 11.7 45,223 6.1 53,077 7.5
---------- ------- ---------- ----- ---------- ------ ---------- ------- ---------- -------
Total adjustable-rate loans 836,944 81.0 793,318 82.9 682,380 83.0 583,339 78.3 598,346 85.3
---------- ------ --------- ------ --------- ------ -------- ------ --------- ------
Total loans 1,033,864 100.0% 956,586 100.0% 822,150 100.0% 744,492 100.0% 701,316 100.0%
===== ===== ===== ===== =====
Less:
Loans in process 46,744 45,834 36,048 28,823 28,497
Deferred fees and discounts 906 1,274 2,002 1,779 2,774
Allowance for loan losses 21,328 18,694 17,293 16,928 16,373
---------- ---------- ---------- ---------- ----------
Total loans receivable, net $ 964,886 $890,784 $766,807 $696,962 $653,672
========== ======== ======== ======== ========
6
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, 2001 and 2000, loans secured by residential real estate
totaled $279 million and $307 million, respectively, and represented
approximately 26.9% and 32.1%, respectively, of the Bank's total loan portfolio.
Compared to historical levels, market rates for fixed rate mortgages were low
during the year ended December 31, 2001 and were high during the year ended
December 31, 2000. This caused a higher than normal level of refinancing of
adjustable-rate loans into fixed-rate loans during 2001, most of which were sold
in the secondary market, and accounted for a decline in the Bank's residential
real estate loan portfolio during 2001. The rising interest rate environment in
2000 had the opposite effect, causing the generation of more adjustable-rate
loans, which the Bank generally retains in its portfolio.
The Bank currently is originating adjustable-rate residential mortgage
loans primarily with one-year adjustment periods. Rate adjustments on loans
originated prior to July 2001 are based upon changes in prevailing rates for
one-year U.S. Treasury securities. Rate adjustments on loans originated since
July 2001 are based upon changes in the average of interbank offered rates for
twelve months U.S. Dollar-denominated deposits in the London Market. Rate
adjustments 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, these 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
7
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.
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
generally 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 may
enforce 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. Since fiscal 1986, Great Southern has expanded
its commercial real estate lending in order to increase the yield on, and the
proportion of interest rate sensitive loans in, its portfolio. 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 "Government
Supervision and Regulation" below.
At December 31, 2001 and 2000, loans secured by commercial real estate
totaled $351 million and $328 million, respectively, or approximately 34.0% and
34.3%, respectively, of the Bank's total loan portfolio. In addition, at
December 31, 2001 and 2000, construction loans secured by projects under
construction and the land on which the projects are located aggregated $207
million and $144 million, respectively, or 20.0% and 15.1%, 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, most of which are
tied to the Bank's prime rate. Substantially all of these loans were originated
with loan commitments which 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 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 loan portfolio
consists of loans with diverse collateral types. The following table sets forth
loans that are secured by certain types of collateral at December 31, 2001.
These collateral types represent the three highest percentage concentrations of
commercial real estate and construction loan types to the total loan portfolio.
8
Average
Loan to Value
Percentage of Ratio Based on Non Performing
Loan Total Loan Internal Loans at
Collateral Type Balance Portfolio Calculations December 31, 2001
- ---------------------------------- ---------------- -------------------- ------------------- ------------------------
(Dollars in thousands)
Motels $ 103,251 10.0% 43% $ 1,270
Health Care Facilities $ 59,532 5.8% 59% $ ---
Recreational Facilities $ 40,674 3.9% 42% $ 408
The Bank's commercial real estate and construction loans generally
involve larger principal balances than do its residential loans. In general,
state banking laws restrict loans to a single borrower to no more than 25% 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, 2001,
this limit was approximately $28.3 million. See "Government Supervision and
Regulation." At December 31, 2001, the Bank was in compliance with the
loans-to-one borrower limit. At December 31, 2001, the Bank's largest
relationship totaled $18.6 million. All loans included in this relationship were
current at December 31, 2001.
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. 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, 2001 and 2000, respectively, Great Southern had $97.6
million and $85.3 million in other commercial loans outstanding, or 9.4% and
8.9%, 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.
9
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 applicable regulatory restrictions. See
"Government 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
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. In
addition, the Bank generally obtains personal guarantees from the borrowers on
these types of loans. 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, 2001, Great Southern had 79
letters of credit outstanding in the aggregate amount of $11.9 million.
Approximately 72% of the aggregate amount of these letters of credit were
secured, including one $7.8 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 $99.6 million and
$91.2 million at December 31, 2001 and 2000, respectively, or 9.7% and 9.6%,
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.
10
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. At December 31, 2001, the Bank
had $52.5 million of indirect auto loans in its portfolio. 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 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 these loans.
These loans may also give rise to claims and defenses by a consumer loan
borrower against an assignee of these loan such as the Bank, and a borrower may
be able to assert against the 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 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 level 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 purchase whole real estate loans and
participation interests in real estate loans from private investors, such as
other banks, thrift institutions and life insurance companies. This may limit
Great Southern's ability to control its credit risk when it purchases
participations in these loans. For instance, 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.
A number of banks, both locally and regionally, do not have the capital
to handle large commercial credits. In order to take advantage of this
situation, beginning in fiscal June 30, 1998, Great Southern increased the
number and amount of participations purchased in commercial real estate and
commercial business loans. Great Southern subjects these loans to its normal
underwriting standards used for originated loans and rejects any credits that do
not meet those guidelines. The originating bank retains the servicing
11
of these loans. The Bank purchased $34.3 million of these loans in the fiscal
year ended December 31, 2001 and $13.9 million in the fiscal year ended December
31, 2000. Of the total $64.1 million of purchased participation loans
outstanding at December 31, 2001, $30.1 million was purchased from one other
institution, all of which was secured by property located in northern Arkansas.
None of these loans were non-performing at December 31, 2001.
There have been no whole loan purchases by the Bank in the last five
years. At December 31, 2001 and 2000, approximately $1.9 million, or .2% and
$5.0 million, or .5%, 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 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 $103.4 million, $35.0 million and $32.5
million during fiscal 2001, 2000 and 1999, respectively. Sales of whole real
estate loans and participations in real estate loans 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 $11.7
million, $12.4 million and $20.8 million during fiscal 2001, 2000 and 1999,
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 fiscal 2001, 2000 and
1999 were $1.8 million, $570,000 and $1.1 million, respectively. Of these
amounts, $179,000, $103,000 and $268,000, respectively, were gains from the sale
of guaranteed student loans and $1.6 million, $467,000 and $830,000,
respectively, were gains from the sale of fixed-rate residential loans.
Although most loans currently sold by the Bank are sold with servicing
released, the Bank had the servicing rights for approximately $39.5 million and
$45.8 million at December 31, 2001 and 2000,
12
respectively, of loans owned by others. The servicing of these loans generated
net servicing fees to the Bank for the years ended December 31, 2001 and 2000,
of $164,000 and $180,000, 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 $784,000, $610,000 and $961,000 for the years ended December
31, 2001, 2000 and 1999, 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 matter see Note 1
of the Notes to Consolidated Financial Statements.
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 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 delinquent loans. In addition, the Bank has a Problem Loan
Committee which meets at least monthly and reviews all classified assets, as
well as other loans 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 proceedings 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.
13
The following table sets forth our loans delinquent 30 - 89 days by
type, number, amount and percentage of type at December 31, 2001.
Loans Delinquent for 30-89 Days
---------------------------------------------
Percent of
Total
Delinquent
Number Amount Loans
--------------- -------------- --------------
(Dollars in thousands)
Real Estate:
One- to four-family 85 $ 6,260 29%
Other residential 2 1,275 6
Commercial 12 8,242 39
Construction or development 15 1,295 6
Consumer and overdrafts 694 2,353 11
Other commercial 19 1,891 9
----- --------- -----
Total 827 $21,316 100%
==== ======= =====
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, 2001.
Total Allowance
Asset Category Substandard Doubtful Loss Classified for Losses
- ------------------------------ ---------- ------------ ----------- -------------- ------------
(Dollars in thousands)
Loans $27,669 $--- $--- $27,669 $21,328
Foreclosed assets 3,207 --- --- 3,207 150
---------- ----- ----- --------- ----------
Total $30,876 $--- $--- $30,876 $21,478
======= ==== ==== ======= =======
Non-Performing Assets
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
14
to new borrowers and occasionally to originate loans with higher loan-to-value
ratios than those generally allowed for the Bank's one- to four-family
residential loans.
December 31,
------------------------------------------------------------------ June 30,
2001 2000 1999 1998 1998
---- ---- ---- ---- ----
(Dollars in thousands)
Non-accruing loans:
One- to four-family residential $ 1,333 $ 2,171 $ 880 $ 137 $ 522
Other residential --- --- 1,002 2,554 4,535
Commercial real estate 3,407 4,112 4,371 2,496 1,687
One- to four-family construction --- --- 1 --- 91
Consumer 393 109 146 33 147
Other commercial 1,021 1,236 444 1,061 80
Commercial construction 2,844 4,858 2,377 1,137 ---
---------- ------------ ------------ ------------ ------------
Total gross non-accruing loans 8,998 12,486 9,221 7,418 7,062
---------- ------------ ------------ ------------ ------------
Loans over 90 days delinquent
still accruing interest:
One- to four-family residential --- --- 49 2,243 ---
Consumer --- --- --- 244 ---
Other commercial --- --- --- 241 ---
Commercial construction 59 --- --- --- ---
Commercial real estate 489 --- --- --- ---
---------- ------------ ------------ ------------ ------------
Total over 90 days accruing loans 548 --- 49 2,728 ---
---------- ------------ ------------ ------------ ------------
Other impaired loans --- --- --- --- 2,278
---------- ------------ ------------ ------------ ------------
Loans in connection with sales of
foreclosed assets --- --- --- --- 145
---------- ------------ ------------ ------------ ------------
Total gross non-performing loans 9,546 12,486 9,270 10,146 9,485
---------- ------------ ------------ ------------ ------------
Foreclosed assets:
One- to four-family residential 460 165 167 438 400
Other residential --- --- --- 1,075 175
One- to four-family construction 468 508 --- --- ---
Commercial real estate 1,280 1,645 650 1,297 4,176
---------- ------------ ------------ ------------ ------------
Total foreclosed assets 2,208 2,318 817 2,810 4,751
---------- ------------ ------------ ------------ ------------
Repossessions 849 370 --- --- ---
---------- ------------ ------------ ------------ ------------
Total gross non-performing assets $12,603 $15,174 $10,087 $12,956 $14,236
========== ============ ============ ============ ============
Total gross non-performing assets as a 1.06% 1.50% 1.09% 1.61% 1.90%
percentage of average total assets ========== ============ ============ ============ ============
Gross impaired loans totaled $9.0 million at December 31, 2001 and
$12.5 million at December 31, 2000.
For the year ended December 31, 2001, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $1.8 million. The amount that was included in
interest income on these loans was $1.3 million for the year ended December 31,
2001.
15
The level of non-performing assets is primarily attributable to the
Bank's commercial real estate, commercial construction, commercial business and
one- to four-family residential lending activities. Commercial activities
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 December
31, 2000, and at a rate less than that of the Bank's commercial lending
portfolio in the year ended December 31, 2001 and 1999, in the six months ended
December 31, 1998 and in fiscal year ended June 30, 1998. For a discussion of
significant non- performing assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Allowances 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 asset 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
relatively 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 due more specifically to the
growth of the commercial business, consumer and commercial real estate loan
portfolios, and the related inherent risks, management provided increased levels
of loan loss allowances over the past few years.
The allowances 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, 2001 and 2000, Great Southern had an allowance for
losses on loans of $21.3 million and $18.7 million, respectively, of which $4.0
million and $3.0 million, respectively, had been allocated as an allowance for
specific loans, and $1.2 million and $1.7 million, respectively, had been
allocated for impaired loans. The allowance is discussed further in Note 3 of
the Notes to Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
16
The allowance for losses on loans at the dates indicated is summarized
as follows. The table is based on information prepared in accordance with
generally accepted accounting principles.
December 31, June 30,
-----------------------------------------------------------------------------------------------
2001 2000 1999 1998 1998
-------------------- ----------------- ------------------ -------------------- ----------------
% 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)
One- to four-family residential and
construction $ 1,388 23.2% $ 1,164 28.5% $ 798 30.1% $ 1,254 33.4% $ 811 33.5%
Other residential and construction 182 11.4 444 11.0 375 10.3 613 12.4 615 13.5
Commercial real estate and construction
and other commercial 15,480 55.7 12,647 50.9 12,003 50.5 9,719 45.7 11,348 46.4
Consumer and overdrafts 2,335 9.7 2,236 9.6 1,567 9.1 1,211 8.5 743 6.6
Other 1,943 -- 2,203 -- 2,550 -- 4,131 -- 2,586 --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $21,328 100.0% $18,694 100.0% $17,293 100.0% $16,928 100.0% $16,373 100.0%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
17
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.
December 31, June 30,
------------------------------------------- -----------
2001 2000 1999 1998 1998
---------- ---------- ---------- ---------- -----------
(Dollars in thousands)
Balance at beginning of period $18,694 $17,293 $16,928 $16,373 $15,524
------- ------- ------- ------- -------
Charge-offs:
One- to four-family residential 338 254 114 -- 45
Other residential -- -- -- 187 67
Commercial real estate 961 260 131 185 529
Construction 171 218 375 -- 82
Consumer and overdrafts 2,473 2,116 1,870 1,077 287
Other commercial 958 303 316 50 133
------- ------- ------- ------- -------
Total charge-offs 4,901 3,151 2,806 1,499 1,143
------- ------- ------- ------- -------
Recoveries:
One- to four-family residential 30 66 33 147 22
Other residential -- -- -- -- 1
Commercial real estate and construction 692 166 64 -- 68
Consumer and overdrafts 1,270 1,019 793 552 10
Other commercial 343 195 219 64 38
------- ------- ------- ------- -------
Total recoveries 2,335 1,446 1,109 763 139
------- ------- ------- ------- -------
Net charge-offs 2,566 1,705 1,697 736 1,004
Provision for losses on loans 5,200 3,106 2,062 1,291 1,853
------- ------- ------- ------- -------
Balance at end of period $21,328 $18,694 $17,293 $16,928 $16,373
======= ======= ======= ======= =======
Ratio of net charge-offs to average loans 0.27% 0.20% 0.23% 0.23% 0.16%
outstanding ======= ======= ======= ======= =======
Investment Activities
The Bank's investment securities portfolio at December 31, 2001 and
2000, 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 $10,000,000 and $9,986,000 at December 31, 2001 and 2000,
respectively.
As of December 31, 2001 and 2000, the Bank held approximately $37.5
million and $27.8 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 $40.7 million and $27.7
million, respectively. In addition, as of December 31, 2001 and 2000, the
Company held approximately $233.8 million and $126.4 million, respectively, in
principal amount of investment securities which the Company classified as
available-for-sale. See Notes 1 and 2 of the Notes to Consolidated Financial
Statements.
18
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.
December 31, 2001
--------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollars in thousands)
AVAILABLE-FOR-SALE SECURITIES:
U.S. government agencies $ 84,719 $ 669 $ --- $ 85,388
Collateralized mortgage obligations 5,188 --- 71 5,117
Mortgage-backed securities 120,544 28 1,147 119,425
Corporate bonds 8,311 417 --- 8,728
Equity securities 13,967 1,214 34 15,147
---------- ---------- ---------- ----------
Total available-for-sale securities $232,729 $2,328 $1,252 $233,805
========== ========== ========== ==========
HELD-TO-MATURITY SECURITIES:
States and political subdivisions and
industrial revenue bonds $ 37,465 $ 3,283 $ 45 $ 40,703
--------- ---------- ---------- ----------
Total held-to-maturity securities $ 37,465 $ 3,283 $ 45 $ 40,703
========= ========== ========== ==========
December 31, 2000
--------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollars in thousands)
AVAILABLE-FOR-SALE SECURITIES:
U.S. government agencies $114,321 $ 553 $ 99 $ 114,775
Collateralized mortgage obligations 3,424 15 --- 3,439
Equity securities 8,080 115 --- 8,195
-------- ------- -------- ---------
Total available-for-sale securities $125,825 $ 683 $ 99 $ 126,409
======== ======= ======== =========
HELD-TO-MATURITY SECURITIES:
U.S. government agencies $ 6,999 $ --- $ 17 $ 6,982
States and political subdivisions
and industrial revenue bonds 17,101 17 107 17,011
Corporate bonds 2,805 95 25 2,875
Mortgage-backed securities 853 3 6 850
-------- --------- -------- ---------
Total held-to-maturity securities $27,758 $ 115 $ 155 $ 27,718
======= ========= ======== =========
19
The following table presents the contractual maturities and weighted
average yields of available-for- sale debt securities at December 31, 2001. 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 $ --- --- $ ---
After one through five years 58,107 5.79% 58,837
After five through ten years 26,612 5.88% 26,551
After ten years 8,311 8.98% 8,728
Securities not due on a single maturity date 125,732 5.49% 124,542
-------- --------
Total $218,762 $218,658
======== ========
The following table presents the contractual maturities and weighted
average yields of held-to-maturity securities at December 31, 2001. 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 $10,000 6.90% $ 10,455
After ten years 27,465 8.59% 30,248
------- --------
Total $37,465 $ 40,703
======= ========
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") and other borrowings,
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. The Bank offers regular savings 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.
20
The following table sets forth the dollar amount of deposits, by
interest rate range, in the various types of deposit programs offered by the
Bank at the dates indicated. The table is based on information prepared in
accordance with generally accepted accounting principles.
December 31,
-------------------------------------------------------------------------------------
2001 2000 1999
-------------------------------- -------------------------- -------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Time deposits:
0.00% - 1.99% $ 7,538 .85% $ --- ---% $ --- ---%
2.00% - 2.99% 59,443 6.73 --- --- --- ---
3.00% - 3.99% 94,097 10.65 94 .01 1,153 .18
4.00% - 4.99% 145,515 16.47 14,847 1.98 79,429 12.69
5.00% - 5.99% 118,769 13.44 123,103 16.39 280,688 44.85
6.00% - 6.99% 212,617 24.06 360,825 48.04 69,525 11.11
7.00% - 7.99% 24,302 2.75 46,221 6.15 3,527 .56
8.00% and above 225 .02 225 .03 30 ---
----------- ------- --------- ------- --------- -------
Total Time deposits 662,506 74.97 545,316 72.60 434,352 69.39
Non-interest-bearing demand deposits 62,131 7.03 60,353 8.04 47,360 7.57
Savings deposits
(1.37%-2.51%-2.50%) 980 .11 20,400 2.72 29,613 4.73
Interest-bearing demand deposits
(1.02%-2.23%-1.86%) 158,067 17.89 124,973 16.64 114,575 18.31
--------- ------- --------- ------- --------- -----
883,684 100.00% 751,042 100.00% 625,900 100.00%
====== ====== ======
Interest rate swap fair value
adjustment 3,186 --- ---
----------- --------- ----------
Total Deposits $886,870 $751,042 $625,900
======== ======== ========
A table showing maturity information for the Bank's time deposits as of
December 31, 2001, is presented in Note 6 of the 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.
21
The following table sets forth the time remaining until maturity of the
Bank's time deposits as of December 31, 2001. The table is based on information
prepared in accordance with generally accepted accounting principles.
Maturity
-------------------------------------------------------------------------------------------
3 Over 3 Over Over
Months or Months to 6 to 12 12
Less 6 Months Months Months Total
------------- ------------------ -------------------- ------------------ ------------------
(Dollars in thousands)
Time deposits:
Less than $100,000 $ 83,291 $ 52,053 $ 57,863 $ 33,319 $226,526
$100,000 or more 25,508 19,363 18,650 8,925 72,446
Brokered 59,517 42,163 52,502 201,279 355,461
Public funds(1) 6,938 809 326 --- 8,073
---------- ------------ ------------ ------------ -----------
Total $175,254 $114,388 $129,341 $242,523 $662,506
======== ======== ======== ======== ========
- --------------
(1) Deposits from governmental and other public entities.
Brokered deposits. Brokered deposits are marketed through national
brokerage firms to their customers in $1,000 increments. 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. At December 31, 2001 and 2000, the Bank had
approximately $355.5 million and $286.7 million in brokered deposits,
respectively.
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 death, or court declared
mental incompetence, of the depositor. This allows the Bank to better manage the
maturity of its deposits.
In fiscal 2000, the Company began using interest rate swaps to manage
its interest rate risks from recorded financial liabilities. During fiscal 2001
and 2000, the Company entered into interest rate swap agreements with the
objective of hedging against the effects of changes in the fair value of its
liabilities for fixed rate brokered certificates of deposit caused by changes in
market interest rates. In fiscal 2001, the Company's interest rate swaps reduced
interest expense on deposits by approximately $4.2 million due to declining
interest rates.
Borrowings. Great Southern's other sources of funds include advances
from the FHLBank and a Qualified Loan Review ("QLR") arrangement with the FRB
and other borrowings.
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. 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 FRB has a 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
22
collateral value of the commercial loans pledged, for virtually any reason that
creates a temporary cash need. Examples of this could be: (1) the need to
disburse one or several loans but the permanent source of funds will not be
available for a few days; (2) a temporary spike in interest rates on other
funding sources that are being used; or (3) 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, 2001 that would have allowed approximately $96.9 million
to be borrowed under the above arrangement.
The Company has a line of credit available with a commercial bank. The
amount available under the line of credit is $12,000,000. At December 31, 2001,
the amount outstanding was $0.
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. These borrowings are limited to a percent of the
market value of the collateral, generally 40-50%, and are used by the Company
for short-term cash needs including the purchase of available-for-sale
securities and the repurchase of the Company's stock. At December 31, 2001, the
amount outstanding was $0.
During 2001 GSBCP, a newly-formed Delaware business trust subsidiary of
the Company, issued 1,725,000 shares of unsecured 9.00% Cumulative Trust
Preferred Securities at $10 per share in an underwritten public offering. The
gross proceeds of the offering were used to purchase a 9.00% Subordinated
Debenture from the Company. The Company's proceeds from the issuance of the
Subordinated Debentures to GSBCP, net of underwriting fees and offering
expenses, were $16.3 million. The Company records distributions payable on the
trust preferred securities as interest expense for financial reporting purposes.
The proceeds from the offering were used to reduce the Company's indebtedness
under the existing note payable to bank to $0. The trust preferred securities
mature in 2031 and are redeemable at the Company's option beginning in 2006. The
trust preferred securities qualify as Tier I capital for regulatory purposes.
During 2001 the Company entered into an interest rate swap agreement to
effectively convert this fixed rate debt to variable rates of interest. The
variable rate is three-month LIBOR plus 202 basis points, adjusting quarterly.
The initial rate was 6.25% and the rate at December 31, 2001, was 4.62%.
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.
Year Ended December 31,
---------------------------------------------------------
2001 2000 1999
------------------ -------------------- -----------------
(Dollars in thousands)
Maximum Balance:
FHLBank advances $265,321 $267,968 $200,531
Other borrowings 144,586 57,195 61,111
Average Balances:
FHLBank advances $214,325 $218,725 $165,192
Other borrowings 78,799 37,973 19,680
23
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.
December 31,
-----------------------------------------------------
2001 2000 1999
---------------- -------------------- ---------------
(Dollars in thousands)
FHLBank advances $258,743 $234,378 $200,531
Other borrowings 74,923 57,195 61,111
--------- ---------- ----------
Total borrowings $333,666 $291,573 $261,642
======== ======== ========
Weighted average interest
rate of FHLBank advances 3.03% 6.41% 6.23%
==== ==== ====
Weighted average interest 2.32% 6.99% 5.03%
rate of other borrowings ==== ==== ====
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, 2001,
the Bank's total investment in Great Southern Capital Management ("Capital
Management") was $764,000. Capital Management was incorporated and organized in
1988 under the laws of the state of Missouri. At December 31, 2001, the Bank's
total investment in Great Southern Financial Corporation ("GSFC") was $1.5
million. GSFC is incorporated under the laws of the State of Missouri, and does
business as Great Southern Insurance and Great Southern Travel. These
subsidiaries are primarily engaged in the activities described below.
Great Southern Capital Management, Inc. 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 $35,000 and $297,000 in the
years ended December 31, 2001 and 2000, respectively.
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 $149,000 and $141,000 in the years ended December
31, 2001 and 2000, respectively.
Travel Agency. Great Southern Travel, a division of GSFC, was organized
in 1976. At December 31, 2001, it was the largest travel agency based in
southwestern Missouri and was estimated to be in the top 5% (based on gross
revenue) of travel agencies nationwide. Great Southern Travel operates from 19
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 (loss) of
$(339,000) and $276,000 in the years ended December 31, 2001 and 2000,
respectively.
GSB One, L.L.C. At December 31, 2001 the Bank's total investment in GSB
One, L.L.C. ("GSB One") and GSB Two, L.L.C. ("GSB Two") was $299 million. The
capital contribution was made by
24
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 $27.3 million and $26.9 million in the
years ended December 31, 2001 and 2000, respectively.
Appraisal Services. Appraisal Services, Inc., incorporated in 1976, was
a wholly-owned subsidiary of GSFC and performed primarily residential real
estate appraisals for a number of clients, the majority of which were for the
Bank and its loan customers. The Company closed Appraisal Services, Inc. during
2001.
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 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, 2001, the Bank and its affiliates had a total of 508
employees, including 135 part-time employees. None of the Bank's employees are
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")
25
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
The Company is a bank holding company that has elected to be treated as
a financial holding company by the FRB. Financial holding companies are subject
to comprehensive regulation by the FRB under the Bank Holding Company Act, and
the regulations of the FRB. As a financial 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 examinations by the FRB. The FRB also has
extensive enforcement authority over financial holding companies, including,
among other 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 regulations and unsafe or unsound
practices.
Under FRB policy, a financial 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, a holding company to contribute additional capital to
an undercapitalized subsidiary bank.
Under the Bank Holding Company Act, a financial holding company must
obtain FRB approval before: (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 or financial holding
company; or (iii) merging or consolidating with another bank or financial
holding company.
The Bank Holding Company Act also prohibits a financial holding company
generally from engaging directly or indirectly in activities other than those
involving banking, activities closely related to banking that are permitted for
a bank holding company, securities, insurance or merchant banking.
Currently, the Company has permission from the FRB to hold up to 20% of
the common stock of an unaffiliated financial institution holding company. At
December 31, 2001, the Company owned approximately 18% of the outstanding common
shares of this financial institution holding company, with recent increases
having been the sole result of stock repurchases by that company. On December
10, 2001, the Company attempted to sell all its holdings of the common stock of
this publicly traded company at a price that would not have resulted in a loss
to the Company. On December 13, 2001, the counterparty refused to complete and
rescinded the transaction. As a result, the Company is still the owner of record
of and continues to hold the stock it attempted to sell, which it continues to
report as an equity security available for sale carried at fair value.
Management believes the attempted sale transaction is valid and enforceable and
is consulting with legal counsel to determine what, if any, course of action to
take in this matter.
Interstate Banking and Branching
Federal law 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.
Federal law also prohibits the FRB from approving an application if the
applicant (and
26
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. Federal law 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.
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. 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.
Federal law also authorizes the Office of the Comptroller of the
Currency ("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 federal law, 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.
Certain Transactions with Affiliates and Other Persons
Transactions involving the Bank and its affiliates are subject to
sections 23A and 23B of the Federal Reserve Act, which impose certain
quantitative limits and collateral requirements on such transactions, and
require all such transactions to be on terms at least as favorable to the Bank
as are available in transactions with non-affiliates.
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. Transactions involving such persons must
be on terms and conditions comparable to those for similar transactions with
non-affiliates. A company may 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.
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 the Company's consolidated net worth. The FRB
may disapprove
27
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 bank holding companies, is well-managed, and is
not subject to 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; and (iii) has a ratio of Tier I capital
to adjusted total assets of 5% or greater. 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. As of December 31, 2001, 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,
2001, 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
28
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 collects assessments against BIF and SAIF assessable deposits
to service the debt on bonds issued during the 1980's to resolve the thrift
bailout. For the quarter ended December 31, 2001, the assessment rate for both
BIF and SAIF insured institutions was 1.82 basis points per $100 of assessable
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.
Federal Reserve System
The FRB requires all depository institutions to maintain reserves
against their transaction accounts (primarily NOW and Super NOW checking
accounts) and non-personal time deposits. At December 31, 2001, the Bank was in
compliance with these reserve requirements.
Banks are authorized to borrow from the FRB "discount window," but FRB
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 FRB. See
"Sources of Funds Borrowings" above.
Federal Home Loan Bank System
The Bank is a member of the FHLBank of Des Moines, which is one of 12
regional FHLBanks.
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
outstanding home loans or 5% of its outstanding FHLBank advances. At December
31, 2001, Great Southern had $15.0 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 6.37% and were 4.54% for year the ended
December 31, 2001.
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 the
Company and the Bank cannot predict what, if any, future actions may be taken by
legislative or regulatory authorities or what impact such actions may have.
29
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 Deduction
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 created 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. At December 31, 2001, the
Company's net deferred tax asset included a deferred tax liability of
approximately $600,000 for this bad debt allowance recapture.
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 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 have not significantly impacted the Bank.
30
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.
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 bank's assets at a rate of .033% 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 estate, unemployment taxes, bank tax, and
taxes on tangible personal property owned by the Bank and held for lease or
rental to others.
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%. 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, 1998.
ITEM 2. PROPERTIES.
The following table sets forth certain information concerning the main
corporate office and each branch office of the Company at December 31, 2001. The
aggregate net book value of the Company's premises and equipment was $12.8
million at December 31, 2001 and $10.3 million at December 31, 2000. See also
Note 5 and Note 13 of the Notes to Consolidated Financial Statements.
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.
31
Lease Expiration
Year Owned or (Including any
Location Opened Leased Renewal Option)
- ------------------------------------------------------------------- ----------------- ---------- ---------------
CORPORATE HEADQUARTERS AND BANK:
1451 E. Battlefield Springfield, Missouri 1976 Owned N/A
BRANCH BANKS:
430 South Avenue Springfield, Missouri 1983 Owned N/A
1607 W. Kearney Springfield, Missouri 1976 Leased* 2022
1615 W. Sunshine Springfield, Missouri 2001 Owned N/A
2410 N. Glenstone Springfield, Missouri 1977 Leased* 2003
1955 S. Campbell Springfield, Missouri 1979 Leased* 2020
3961 S. Campbell Springfield, Missouri 1998 Leased 2028
2609 A E. Sunshine Springfield, Missouri 2001 Owned N/A
2631 E. Sunshine (subleased to tenant) Springfield, Missouri 1988 Leased* 2002
1580 W. Battlefield Springfield, Missouri 1985 Leased* 2017
723 N. Benton Springfield, Missouri 1985 Owned N/A
1505 S. Elliot Aurora, Missouri 1985 Leased 2003
102 N. Jefferson Ava, Missouri 1982 Owned N/A
110 W. Hensley Branson Missouri 1982 Owned N/A
1729 W. Highway 76 Branson, Missouri 1983 Owned N/A
919 W. Dallas Buffalo Missouri 1976 Owned N/A
527 Ozark Cabool, Missouri 1989 Leased 2006
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 2016
Highway 00 and 13 Kimberling City, Missouri 1984 Owned N/A
528 S. Jefferson Lebanon, Missouri 1978 Leased* 2028
714 S. Neosho Boulevard Neosho, Missouri 1991 Owned N/A
717 W. Mt. Vernon Nixa, Missouri 1995 Owned N/A
4571 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 2006
323 E. Walnut Thayer, Missouri 1978 Leased* 2011
1210 Parkway Shopping Center West Plains, Missouri 1975 Owned N/A
- -----------------
* Building owned with land leased.
32
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, 2001 was $588,000 compared to $974,000 at December 31, 2000.
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 120 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, 2001 was $563,000 compared to $511,000 at December 31, 2000. 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.
None.
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
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.
Steven G. Mitchem. Mr. Mitchem, age 50, 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 37, 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 served other financial services companies. He was
Accounting Director of a division of H&R Block from 1999 to 2000,
33
Division Controller of Bank One Corporation from 1996 to 1999 and an auditor
with BKD, LLP, prior to that.
Doug W. Marrs. Mr. Marrs, age 44, 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.
Larry A. Larimore. Mr. Larimore, age 61, is Secretary of the Company and
Secretary, Vice President - Compliance Officer of the Bank. He joined the Bank
in 1998 and is responsible for Compliance and Internal Audit for the Company and
Bank. Prior to joining the Bank, Mr. Larimore was a bank officer in the areas of
lending, compliance and internal audit at a competing area bank from 1990 to
1998.
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, 2001 there were 6,862,535 total shares outstanding
and approximately 1,000 shareholders of record.
High/Low Stock Price
2001 2000 1999
----------------------------- ------------------------------ -------------------------------
High Low High Low High Low
-------------- -------------- ---------------- ------------- --------------- ---------------
First Quarter 23.00 15.63 22.25 17.25 24.50 23.25
Second Quarter 27.10 20.63 19.78 15.31 26.94 23.63
Third Quarter 33.95 25.41 17.25 14.88 27.50 20.75
Fourth Quarter 33.10 25.75 16.13 14.63 22.75 21.25
The last inter-dealer bid for the Company's Common Stock on December 31, 2001
was $30.50.
Dividend Declarations
December 31, December 31, December 31,
2001 2000 1999
-------------- ------------------ ------------------
First Quarter $.125 $.125 $.125
Second Quarter .125 .125 .125
Third Quarter .125 .125 .125
Fourth Quarter .125 .125 .125
34
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial
information and other financial data of the Company. The selected balance sheet
and statement of income data, insofar as they relate to the years ended December
31, 2001, 2000 and 1999, to the six months ended December 31, 1998 and to the
years ended June 30, 1998 and 1997 are derived from our consolidated financial
statements, which have been audited by BKD, LLP. The selected consolidated
financial data as of and for the six months ended December 31, 1997 are derived
from unaudited consolidated financial statements. In our opinion, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of results as of and for the six months ended December 31, 1997
have been included. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Item 8, Financial Statements
and Supplementary Data." Results for past periods are not necessarily indicative
of results that may be expected for any future period.
December 31, June 30,
------------------------------------------------- ---------------------
2001 2000 1999 1998(1) 1998 1997
---- ---- ---- ------- ---- ----
(Dollars in thousands)
Summary Statement of Condition Information:
Assets....................................... $1,323,103 $1,130,178 $964,803 $836,498 $795,091 $707,841
Loans receivable, net........................ 964,886 890,784 766,807 696,962 653,672 581,948
Allowance for loan losses.................... 21,328 18,694 17,293 16,928 16,373 15,524
Available-for-sale securities................ 233,805 126,409 79,891 6,476 6,363 7,408
Held-to-maturity securities.................. 37,465 27,758 37,646 60,394 51,917 51,518
Foreclosed assets held for sale, net......... 3,057 2,688 817 2,810 4,751 5,651
Allowance for foreclosed asset losses........ 150 --- --- --- --- 319
Intangibles.................................. --- 264 404 543 626 ---
Deposits..................................... 886,870 751,042 625,900 597,625 549,773 456,370
Total borrowings............................. 333,666 291,573 261,642 159,250 169,509 180,566
Stockholders' equity (retained
earnings substantially restricted)......... 85,254 71,049 68,926 68,382 67,409 60,348
Average loans receivable..................... 936,117 843,170 746,979 647,797 624,290 561,146
Average total assets......................... 1,193,772 1,013,963 928,182 805,170 747,901 670,172
Average deposits............................. 802,286 676,633 612,503 577,820 487,386 416,041
Average stockholders' equity................. 79,484 69,208 68,758 66,997 64,212 62,200
Number of deposit accounts................... 71,998 73,394 73,932 74,375 74,070 69,762
Number of full-service offices............... 28 27 27 27 27 25
35
For the For the For the
Year Ended Six Months Ended Year Ended
December 31, December 31, June 30,
---------------------------------- ---------------------- ----------------------
2001 2000 1999 1998(1) 1997 1998 1997
---------------------------------- ---------------------- ----------------------
(Dollars in thousands)
Summary Income Statement
Information:
Interest income:
Loans............................. $75,312 $76,671 $63,386 $30,332 $27,878 $57,537 $51,365
Investment securities and other... 13,390 8,751 4,652 2,153 2,163 4,395 4,175
-------- --------- --------- --------- --------- --------- ---------
88,702 85,422 68,038 32,485 30,041 61,932 55,540
-------- -------- -------- -------- -------- -------- --------
Interest expense:
Deposits.......................... 32,405 32,244 24,966 12,255 10,395 20,951 17,951
Federal Home Loan Bank advances... 10,339 14,312 9,403 4,237 4,676 9,905 10,229
Short-term borrowings and trust
preferred securities........... 3,163 2,305 1,094 38 530 1,136 642
--------- --------- --------- ---------- -------- --------- ----------
45,907 48,861 35,463 16,530 15,601 31,992 28,822
-------- -------- -------- -------- -------- -------- --------
Net interest income................. 42,795 36,561 32,575 15,955 14,440 29,940 26,718
Provision for loan losses........... 5,200 3,106 2,062 1,291 852 1,853 1,706
--------- --------- --------- --------- ---------- --------- ---------
Net interest income after
provision for loan losses......... 37,595 33,455 30,513 14,664 13,588 28,087 25,012
-------- -------- -------- -------- -------- -------- --------
Noninterest income:
Commissions....................... 5,765 7,024 7,054 3,136 2,586 5,652 4,969
Service charges and ATM fees...... 8,352 5,968 4,502 2,390 1,753 3,841 2,785
Net realized gains on sales of loans 1,756 570 1,098 386 461 1,125 521
Net realized gains (losses) on sales
of available-for-sale securities 139 (9) 316 355 873 1,398 205
Income (expense) on foreclosed
assets......................... (216) 295 --- 420 383 326 285
Other income...................... 2,032 1,863 2,379 1,171 777 1,457 1,752
--------- --------- --------- --------- ---------- --------- ---------
17,828 15,711 15,349 7,858 6,833 13,799 10,517
-------- -------- -------- --------- --------- -------- --------
Noninterest expense:
Salaries and employee benefits.... 15,126 13,642 13,765 5,743 5,227 10,829 9,234
Net occupancy expense............. 4,730 4,529 4,124 1,772 1,349 3,034 2,400
Postage........................... 1,233 1,152 1,006 447 392 857 626
Insurance......................... 485 521 639 292 352 637 3,428
Amortization of excess of cost over
fair value of net assets acquired 284 160 160 83 --- 65 1,107
Advertising....................... 686 713 611 276 295 586 675
Office supplies and printing...... 774 703 991 396 323 666 563
Other operating expenses.......... 3,872 4,084 3,871 2,297 1,945 3,844 2,405
--------- --------- --------- --------- --------- --------- ---------
27,190 25,504 25,167 11,306 9,883 20,518 20,438
-------- -------- -------- -------- --------- -------- --------
Income before income taxes.......... 28,233 23,662 20,695 11,216 10,538 21,368 15,091
Provision for income taxes.......... 9,475 8,184 7,018 3,858 3,058 6,924 5,751
--------- --------- --------- --------- --------- --------- ---------
Net income.......................... $18,758 $15,478 $13,677 $ 7,358 $ 7,480 $14,444 $ 9,340
======= ======= ======= ======== ======== ======= ========
36
At or For the At or For the At or For the
Year Ended Six Months Ended Year Ended
December 31, December 31, June 30,
---------------------------------- ---------------------- ------------------
2001 2000 1999 1998(1) 1997 1998 1997
---------------------------------- ---------------------- ------------------
(Dollars in thousands, except per share data)
Per Common Share Data:
Basic earnings per common share ............... $ 2.72 $ 2.16 $ 1.79 $ .93 $ .93 $ 1.79 $ 1.11
Diluted earnings per common share ............. 2.70 2.12 1.76 .91 .91 1.76 1.10
Cash dividends declared ....................... .50 .50 .50 .24 .21 .43 .39
Book value .................................... 12.42 10.30 9.20 8.76 8.13 8.47 7.45
Average shares outstanding .................... 6,890 7,166 7,620 7,897 8,082 8,052 8,394
Year-end actual shares outstanding ............ 6,863 6,897 7,489 7,803 8,066 7,962 8,105
Year-end fully diluted shares outstanding ..... 6,929 7,098 7,601 8,012 8,218 8,204 8,488
Earnings Performance Ratios:(2)
Return on average assets(3) ................... 1.57% 1.53% 1.56% 1.83% 2.08% 1.93% 1.39%
Return on average stockholders' equity(4) ..... 23.60 22.36 19.98 21.97 24.04 22.49 15.02
Non-interest income to average total assets ... 1.49 1.55 1.65 1.95 1.90 1.85 1.57
Non-interest expense to average total assets .. 2.28 2.52 2.87 2.81 2.75 2.74 3.04
Average interest rate spread(5) ............... 3.30 3.18 3.36 4.02 3.78 3.79 3.79
Year-end interest rate spread ................. 3.44 3.26 3.40 3.62 3.75 3.81 3.90
Net interest margin(6) ........................ 3.73 3.74 3.86 4.32 4.18 4.18 4.17
Adjusted efficiency ratio (excl. foreclosed
assets)(7) ................................... 44.69 49.07 52.51 48.33 47.31 47.20 55.22
Net overhead ratio(8) ......................... .78 .97 1.06 .87 .85 .90 1.48
Common dividend pay-out ratio ................. 18.52 23.58 28.41 25.82 23.08 24.43 35.23
Asset Quality Ratios:(2)
Allowance for loan losses/year-end loans ...... 2.16% 2.06% 2.21% 2.37% 2.48% 2.44% 2.60%
Non-performing assets/year-end loans and
foreclosed assets ........................... 1.22 1.66 1.26 1.46 2.20 1.81 2.30
Allowance for loan losses/non-performing
loans ....................................... 237.03 149.72 194.48 228.20 155.26 227.18 197.01
Net charge-offs/average loans ................. .27 .20 .23 .23 .09 .16 .10
Gross non-performing assets/year end assets ... .91 1.34 1.05 1.55 1.84 1.79 1.96
Non-performing loans/year-end loans ........... .91 1.37 1.18 1.42 1.60 1.42 1.32
Balance Sheet Ratios:
Loans to deposits ............................. 108.80 118.61 122.51 116.62 134.11 118.90 127.52
Average interest-earning assets as a percentage
of average interest-bearing liabilities ...... 110.76 111.06 111.95 106.57 108.82 108.62 108.45
Capital Ratios:
Average stockholders' equity to average assets 6.66% 6.83% 7.41% 8.32% 8.64% 8.59% 9.28%
Year-end tangible stockholders' equity to
assets ....................................... 6.44 6.26 7.10 8.11 8.67 8.40 8.53
Great Southern Bank:
Tier 1 risk-based capital ratio ............ 8.93 8.91 8.97 9.65 9.95 9.71 10.37
Total risk-based capital ratio ............. 10.20 10.17 10.23 10.92 11.22 10.98 11.65
Tier 1 leverage ratio ...................... 7.18 7.36 7.45 8.15 7.49 7.52 7.69
Ratio of Earnings to Fixed Charges:(9)
Including deposit interest .................... 1.62x 1.48x 1.58x 1.68x 1.68x 1.67x 1.52x
Excluding deposit interest .................... 3.09x 2.42x 2.97x 3.62x 3.02x 2.94x 2.39x
- ---------------------
(1) In 1998, we changed our fiscal year-end from June 30 to December 31.
(2) Certain financial ratios for interim periods have been annualized.
(3) Earnings divided by average total assets.
(4) Earnings divided by average stockholders' equity.
(5) Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
(6) Net interest income divided by average interest-earning assets.
(7) Non-interest expense divided by the sum of net interest income, on a tax
equivalent basis, plus non-interest income.
(8) Non-interest expense less non-interest income divided by average total
assets.
37
(9) In computing the ratio of earnings to fixed charges: (a) earnings have been
based on income before income taxes and fixed charges, and (b) fixed
charges consist of interest and amortization of debt discount and expense
including amounts capitalized and the estimated interest portion of rents.
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. Net interest income
is affected by the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on these
balances. When interest-earning assets approximate or exceed interest- bearing
liabilities, any positive interest rate spread will generate net interest
income.
The Company's profitability is also affected by the level of its
non-interest income and operating expenses. Non-interest income consists
primarily of gains on sales of loans and available-for-sale investments, service
charges and ATM 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.
38
Effect of Federal Laws and Regulations
Federal legislation and regulation significantly affect the banking
operations of the Company and the Bank, and have increased competition among
commercial banks, savings institutions, mortgage banking enterprises and other
financial institutions. In particular, the capital requirements and operations
of regulated depository institutions such as the Company and the Bank have been
and will be subject to changes in applicable statutes and regulations from time
to time, which changes could, under certain circumstances, adversely affect the
Company or the Bank.
Potential Impact of Accounting Principles to Be Implemented in the Future
The Financial Accounting Standards Board (FASB) recently adopted
Statement of Financial Accounting Standards (SFAS) 141, "Business Combinations."
This Statement establishes new standards for financial accounting and reporting
for business combinations. This Statement eliminates the pooling-of- interests
method and requires that all business combinations be accounted for using the
purchase method. The provisions of this Statement apply to all business
combinations initiated after June 30, 2001 and to all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later. Initial adoption of SFAS 141 had no effect on the
Company's financial statements.
The FASB recently adopted SFAS 142, "Goodwill and Other Intangible
Assets." This Statement establishes new financial accounting and reporting
standards for acquired goodwill and other intangible assets. The Statement
addresses how intangible assets that are acquired individually or with a group
of other assets (but not those acquired in a business combination) should be
accounted for in financial statements upon their acquisition. It also addresses
how goodwill and other intangible assets (including those acquired in a business
combination) should be accounted for after they have been initially recognized
in the financial statements. SFAS 142 is effective for fiscal years beginning
after December 15, 2001. The Company expects to first apply SFAS 142 in the
first quarter of its fiscal year ending December 31, 2002. Initial adoption of
SFAS 142 will have no effect on the Company's financial statements.
The FASB recently adopted SFAS 144, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
addresses how and when to measure impairment on long-lived assets and how to
account for long-lived assets that an entity plans to dispose of either through
sale, abandonment, exchange or distribution to owners. The Statement also
requires expected future operating losses from discontinued operations to be
recorded in the period in which the losses are incurred rather than at the
measurement date. SFAS 144 is effective for fiscal years beginning after
December 15, 2001. The Company will first apply SFAS 144 in the first quarter of
its year ending December 31, 2002. Initial adoption of SFAS 144 will have no
effect on the Company's financial statements.
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 to
maturity and the purchase of other shorter term interest-earning assets. Since
the Company uses laddered brokered deposits and FHLBank advances to fund a
portion of its loan growth, the Company's assets tend to reprice more quickly
than its liabilities.
39
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 regularly 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 repricing 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, 2001, Great Southern's internal interest rate risk
models indicate a one-year interest rate sensitivity gap that is slightly
positive.
Interest rate risk exposure estimates (the sensitivity gap) are not
exact measures of an institution's actual interest rate risk. They are only
indicators of interest rate risk exposure produced in a simplified modeling
environment designed to allow management to gauge the Bank's sensitivity to
changes in interest rates. They do not necessarily indicate the impact of
general interest rate movements on the Bank's net interest income because the
repricing of certain categories of assets and liabilities is subject to
competitive and other factors beyond the Bank's control. As a result, certain
assets and liabilities indicated as maturing or otherwise repricing within a
stated period may in fact mature or reprice at different times and in different
amounts and cause a change, which potentially could be material, in the Bank's
interest rate risk.
In order to minimize the potential for adverse effects of material and
prolonged increases and decreases 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
40
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.
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, we may determine to increase our interest rate risk
position somewhat in order to maintain our 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.
In 2000, the Company began using interest rate swap derivatives to
manage its interest rate risks from recorded financial liabilities. These
derivatives are utilized when they can be demonstrated to effectively hedge a
designated asset or liability and such asset or liability exposes the Company to
interest rate risk.
Beginning in 2001, interest rate swaps are carried at fair value
determined using quoted dealer prices and are recognized in the statement of
financial condition in the prepaid expenses and other assets caption. The
Company uses interest rate swaps to help manage its interest rate risks from
recorded financial liabilities. These instruments are utilized when they can be
demonstrated to effectively hedge a designated liability and such liability
exposes the Company to interest rate risk. Amounts to be paid or received under
interest rate swaps are accounted for on the accrual basis and recognized as
interest income or expense of the related liability. Gains and losses on early
termination of these instruments are deferred and amortized as an adjustment to
the yield on the related liability over the shorter of the remaining contract
life or the maturity of the related asset or liability. If the related liability
is sold or otherwise liquidated, the instrument is marked to market, with the
resultant gains and losses recognized in noninterest income. Fair values of
interest rate swaps are estimated based on quoted dealer prices.
The Company has entered into interest rate swap agreements with the
objective of hedging against the effects of changes in the fair value of its
liabilities for fixed rate brokered certificates of deposit and trust preferred
securities caused by changes in market interest rates. The swap agreements
generally provide for the Company to pay a variable rate of interest based on a
spread to the one-month or three-month London Interbank Offering Rate (LIBOR)
and to receive a fixed rate of interest equal to that of the hedged instrument.
Under the swap agreements the Company is to pay or receive interest monthly,
quarterly, semiannually or at maturity.
At December 31, 2001, the notional amount of interest rate swaps
outstanding was approximately $257,490,000, all consisting of swaps in a
receivable position. At December 31, 2000, the notional amount of interest rate
swaps outstanding was approximately $138,063,000, consisting of swaps in a
receivable position of approximately $107,924,000 and swaps in a payable
position of approximately $30,139,000. The maturities of interest rate swaps
outstanding at December 31, 2001 and 2000, in terms of notional amounts and
their average pay and receive rates is discussed further in Note 14 of the Notes
to Consolidated Financial Statements.
41
The following tables illustrate the expected maturities and repricing,
respectively, of the Bank's financial instruments at December 31, 2001. These
schedules do not reflect the effects of possible prepayments or enforcement of
due-on-sale clauses. The tables are based on information prepared in accordance
with generally accepted accounting principles.
Maturities
December 31, 2001
-------------------------------------------------------- Fair
2002 2003 2004 2005 2006 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
(Dollars in thousands)
Financial Assets:
Interest bearing deposits $5,474 --- --- --- --- --- $5,474 $5,474
Weighted average rate 1.62% --- --- --- --- --- 1.62%
Available-for-sale equity securities $9,198 $3,490 --- --- --- $2,459 $15,147 $15,147
Weighted average rate 4.03% 4.32% --- --- --- 5.70% 4.37%
Available-for-sale debt securities $27,727 $15,286 $14,039 $21,482 $47,308 $92,816 $218,658 $218,658
Weighted average rate 5.62% 5.11% 5.41% 5.38% 5.69% 5.95% 5.70%
Held to maturity securities $10,000 --- --- --- --- $27,465 $37,465 $40,703
Weighted average rate 6.90% --- --- --- --- 8.48% 8.06%
Adjustable rate loans $221,584 $48,249 $78,936 $61,057 $92,176 $257,766 $759,768 $769,945
Weighted average rate 5.40% 5.40% 5.45% 5.29% 5.62% 6.82% 5.91%
Fixed rate loans $33,744 $17,829 $44,356 $33,532 $36,904 $60,081 $226,446 $238,300
Weighted average rate 6.50% 9.81% 8.95% 9.95% 9.03% 8.63% 8.73%
Federal Home Loan Bank stock --- --- --- --- --- $14,962 $14,962 $14,962
Weighted average rate --- --- --- --- --- 4.00% 4.00%
Financial Liabilities:
Savings deposits $980 --- --- --- --- --- $980 $980
Weighted average rate 1.37% --- --- --- --- --- 1.37%
Time deposits $418,982 $65,303 $16,465 $20,416 $11,177 $130,162 $662,506 $665,478
Weighted average rate 4.01% 3.07% 3.90% 2.65% 2.27% 2.16% 3.48%
Interest bearing demand $158,067 --- --- --- --- --- $158,067 $158,067
Weighted average rate 1.02% --- --- --- --- --- 1.02%
Non-interest bearing demand $62,131 --- --- --- --- --- $62,131 $62,131
Weighted average rate --- --- --- --- --- --- ---
Federal Home Loan Bank and other
borrowings $158,990 $31,327 $25,914 $3,280 $1,514 $112,641 $333,666 $333,296
Weighted average rate 1.93% 2.06% 2.58% 6.64% 6.78% 4.33% 2.87%
42
Repricing
Repricing on or Before:
December 31, 2001
-------------------------------------------------------------------------- Fair
2002 2003 2004 2005 2006 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
(Dollars in thousands)
Financial Assets:
Interest bearing deposits $5,474 --- --- --- --- --- $5,474 $5,474
Weighted average rate 1.62% --- --- --- --- --- 1.62%
Available-for-sale equity securities $9,198 $3,490 --- --- --- $2,459 $15,147 $15,147
Weighted average rate 4.03% 4.32% --- --- --- 5.70% 4.37%
Available-for-sale debt securities $27,727 $15,286 $14,039 $21,482 $47,308 $92,816 $218,658 $218,658
Weighted average rate 5.62% 5.11% 5.41% 5.38% 5.69% 5.95% 5.70%
Held to maturity securities $15,505 --- --- --- --- $21,960 $37,465 $40,703
Weighted average rate 7.88% --- --- --- --- 8.18% 8.06%
Adjustable rate loans $740,145 $7,211 $4,873 $4,142 $3,250 $147 $759,768 $769,945
Weighted average rate 5.86% 7.70% 7.29% 8.24% 7.54% 7.88% 5.91%
Fixed rate loans $33,744 $17,829 $44,356 $33,532 $36,904 $60,081 $226,446 $238,300
Weighted average rate 6.50% 9.81% 8.95% 9.95% 9.03% 8.63% 8.73%
Federal Home Loan Bank stock --- --- --- --- --- $14,962 $14,962 $14,962
Weighted average rate --- --- --- --- --- 4.00% 4.00%
Financial Liabilities:
Savings deposits $980 --- --- --- --- --- $980 $980
Weighted average rate 1.37% --- --- --- --- --- 1.37%
Time deposits $610,036 $34,301 $9,476 $4,938 $1,177 $2,578 $662,506 $665,478
Weighted average rate 3.33% 4.88% 5.40% 6.30% 5.12% 6.18% 3.48%
Interest bearing demand $158,067 --- --- --- --- --- $158,067 $158,067
Weighted average rate 1.02% --- --- --- --- --- 1.02%
Non-interest bearing demand $62,131 --- --- --- --- --- $62,131 $62,131
Weighted average rate --- --- --- --- --- --- ---
Federal Home Loan Bank and other
borrowings $256,329 $1,327 $2,914 $3,280 $1,514 $68,302 $333,666 $333,296
Weighted average rate 2.10% 6.81% 7.33% 6.64% 6.78% 5.23% 2.87%
43
Comparison of Financial Condition at December 31, 2001 and December 31, 2000
During the year ended December 31, 2001, the Company increased total
assets by $193 million to $1.32 billion. Net loans increased by $74 million. The
main loan areas experiencing increases were commercial real estate, commercial
construction, consumer and commercial business. Total investment securities
increased by $117 million, which was primarily an increase in available-for-sale
United States government agency mortgage-backed securities.
Total liabilities increased $179 million from December 31, 2000 to
December 31, 2001, to $1.24 billion. Deposits increased $136 million, FHLBank
advances increased $24 million, short-term borrowings increased $16 million, and
trust preferred securities increased $17 million, partially offset by a decrease
in the note payable to bank of $16 million. The increase in short-term
borrowings was the result of increases in securities sold under repurchase
agreements and the utilization of federal funds purchased lines available from
commercial banks. Management utilized these short-term funding sources to take
advantage of the falling interest rate environment throughout 2001 and better
match the repricing characteristics of the Company's assets. The note payable to
a third-party bank was paid down to $-0- with the proceeds from the trust
preferred securities issued in April 2001. This $12 million line of credit
remains in place to meet operating cash needs, and for use from time to time as
a source of funds to repurchase shares of the Company's stock. During 2001, the
Company issued trust preferred securities with net proceeds of $16.3 million.
These securities qualify as Tier I capital for regulatory purposes. Deposits
increased $136 million due primarily to an increase in certificates of deposit
of $120 million, of which $72 million related to brokered deposits. Total
brokered deposits were $356 million at December 31, 2001. The weighted average
cost of these deposits was approximately 120 basis points higher than the retail
certificate of deposit portfolio, excluding the effect of the Company's interest
rate swaps on a portion of these brokered certificates of deposit. The interest
rate swaps reduced the weighted average cost of the brokered certificate of
deposit portfolio to a rate that is approximately 160 basis points lower than
the retail certificate of deposit portfolio. Checking accounts increased $35
million, with an increase of $2 million in non-interest bearing accounts and an
increase of $33 million in interest-bearing accounts. There was a related
decrease in savings balances of $19 million due to the Company's change of
product offerings and the reclassification of certain account types. Management
continues to feel that FHLBank advances and brokered deposits are viable
alternatives to retail deposits when factoring in all the costs associated with
the generation and maintenance of additional retail deposits.
Stockholders' equity increased $14.3 million from $71.0 million at
December 31, 2000 to $85.3 million at December 31, 2001. Net income for fiscal
year 2001 was $18.8 million and accumulated other comprehensive income increased
by $0.3 million. These items were offset by dividends of $3.4 million and net
treasury stock repurchases of $1.4 million. The Company repurchased 61,267
shares of common stock at an average price of $26.75 per share during 2001.
Results of Operations and Comparison for the Years Ended December 31, 2001 and
2000
General
The increase in earnings of $3.3 million, or 21.2%, during the year
ended December 31, 2001, compared to the year ended December 31, 2000, was
primarily due to an increase in net interest income of $6.2 million, or 17.1%,
and an increase in non-interest income of $2.1 million, or 13.5%, partially
offset by an increase in non-interest expense of $1.7 million, or 6.6%, an
increase in provision for loan losses of $2.1 million, or 67.4%, and an increase
in provision for income taxes of $1.3 million, or 15.8%.
44
Total Interest Income
Total interest income increased $3.3 million, or 3.8%, during the year
ended December 31, 2001 compared to the year ended December 31, 2000. The
increase was due to a $4.6 million, or 53.0%, increase in interest income on
investments and other interest-earning assets, partially offset by a $1.4
million, or 1.8%, decrease in interest income on loans. Interest income for both
loans and investment securities and other interest-earning assets increased due
to higher average balances, while interest on loans was negatively impacted by
significantly lower average rates.
In addition, interest income in 2001 was higher due to the following
items:
o Interest income was positively impacted by recoveries of $420,000
and $635,000 of interest on two unrelated commercial real estate
loans that were charged off in a prior year.
o Interest income was positively impacted by a recovery of $280,000
of interest on a loan relationship that was removed from
non-performing status. This $7.3 million relationship is further
discussed under "Provision for Loan Losses" and was described in
the December 31, 2000 Annual Report on Form 10-K.
o Interest income was positively impacted by yield increases due to
securities being purchased at a discount and being called at par
value. This resulted in an increase of approximately $500,000.
Interest Income - Loans
During the year ended December 31, 2001 compared to December 31, 2000,
interest income on loans decreased from lower average interest rates, partially
offset by higher average balances. Interest income decreased $9.3 million as the
result of lower average interest rates. The average yield on loans decreased
from 9.09% during the year ended December 31, 2000, to 8.05% during the year
ended December 31, 2001, as a result of decreases in market rates of interest,
primarily the "prime rate" of interest. A large portion of the Bank's loan
portfolio adjusts with changes to the "prime rate" of interest.
Interest income increased $8.0 million as the result of higher average
loan balances from $843 million during the year ended December 31, 2000 to $936
million during the year ended December 31, 2001. The higher average balance
resulted principally from the Bank's increased commercial real estate and
construction lending, commercial business lending and indirect dealer consumer
lending. The Bank's one- to four-family residential loan portfolio has decreased
since December 31, 2000, due to the origination of a greater dollar amount of
fixed-rate rather than adjustable-rate loans. The Bank generally sells these
fixed- rate loans in the secondary market.
Interest Income - Investments and Other Interest-earning Deposits
Interest income on investments and other interest-earning assets
increased mainly as a result of higher average balances during the year ended
December 31, 2001, when compared to the year ended December 31, 2000. Interest
income increased $4.8 million as a result of an increase in average balances
from $135 million during the year ended December 31, 2000, to $211 million
during the year ended December 31, 2001. This increase was primarily in
available-for-sale securities, where additional securities were acquired for
liquidity and pledging to deposit accounts under repurchase agreements. The
increase in interest income was offset by $197,000 as a result of a decrease in
average yields from 6.47% during the year ended December 31, 2000, to 6.33%
during the year ended December 31, 2001.
45
Total Interest Expense
Total interest expense decreased $3.0 million, or 6.0%, during the year
ended December 31, 2001, when compared with the year ended December 31, 2000,
primarily due to a decrease in interest expense on FHLBank advances of $4.0
million, or 27.8%, partially offset by an increase in interest expense on
deposits of $0.2 million, or 0.5%, and an increase in interest expense on
short-term borrowings and trust preferred securities of $0.9 million, or 37.2%.
Interest Expense - Deposits
Interest expense on deposits increased $6.4 million as a result of an
increase in average balances of time deposits from $476 million during the year
ended December 31, 2000, to $593 million during the year ended December 31,
2001, and decreased $5.6 million due to a decrease in average interest rates on
time deposits from 6.09% during the year ended December 31, 2000, to 5.03%
during the year ended December 31, 2001. 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 and investment securities growth. In recent years,
brokered deposit rates have become competitive with rates on FHLBank advances
and larger retail deposits. The average interest rates decreased due to lower
overall market rates of interest in 2001 and the effects of the Company's
interest rate swaps.
Interest on demand deposits decreased $598,000 due to a decrease in
average rates from 2.14% during the year ended December 31, 2000, to 1.69%
during the year ended December 31, 2001, and increased $424,000 due to an
increase in average balances from $122 million during the year ended December
31, 2000, to $144 million during the year ended December 31, 2001. The other
deposit category, savings, experienced a $506,000 decrease due primarily to a
decrease in average balances. The changes in average balances for demand
deposits and savings deposits approximately offset each other and resulted from
the Company's change of product offerings and the reclassification of certain
account types.
Interest Expense - FHLBank Advances, Short-term Borrowings and Trust Preferred
Securities
Interest expense on FHLBank advances, short-term borrowings and trust
preferred securities decreased $3.1 million due to a decrease in average rates
from 6.47% in the year ended December 31, 2000, to 4.61% in the year ended
December 31, 2001. This was partially offset by an increase in average balances
from $257 million during the year ended December 31, 2000, to $293 million
during the year ended December 31, 2001, resulting in increased interest expense
of $2.1 million due to higher average balances. The average balance increase was
used to fund growth in loans and investment securities. Average interest rates
decreased due to lower overall market rates during 2001. The Company's use of
FHLBank advances, short-term borrowings and trust preferred securities which
reprice daily, monthly or quarterly contributed to the significant decrease in
average rates of interest.
Net Interest Income
The Company's overall interest rate spread increased 12 basis points,
or 3.8%, from 3.18% during the year ended December 31, 2000, to 3.30% during the
year ended December 31, 2001. The increase was due to a 112 basis point decrease
in the weighted average rate paid on interest-bearing liabilities partially
offset by a 100 basis point decrease in the weighted average yield received on
interest-earning assets. The Company's overall net interest margin decreased 1
basis point, or 0.3%, from 3.74% during the year ended December 31, 2000, to
3.73% during the year ended December 31, 2001. In comparing the two years, the
yield on loans decreased 104 basis points while the yield on investment
securities and other interest-earning
46
assets decreased 14 basis points. The rate paid on deposits decreased 81 basis
points, while the rate paid on FHLBank advances and other borrowings decreased
186 basis points.
The prime rate of interest averaged 9.23% during the year ended
December 31, 2000, compared to an average of 6.92% during the year ended
December 31, 2001. As a large percentage of the Bank's loans are tied to prime,
this decrease was the primary reason for the decrease in the weighted average
yield received on interest-earning assets.
Interest rates paid on deposits, FHLBank advances and other borrowings
decreased significantly during 2001 compared to 2000. As market rates of
interest declined during 2001, the Company reduced rates paid to depositors. In
addition in 2001, the Company utilized interest rate swaps and FHLBank advances
which repriced daily, monthly or quarterly to reduce interest expense.
Provision for Loan Losses
The provision for loan losses increased $2.1 million, or 67.4%, during
the year ended December 31, 2001, from $3.1 million during the year ended
December 31, 2000 to $5.2 million during the year ended December 31, 2001.
Management records a provision for loan losses in an amount it believes
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, 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 $2.6 million, or 16.9%, from $15.2
million at December 31, 2000, to $12.6 million at December 31, 2001.
Non-performing loans decreased $3.0 million, or 23.5%, from $12.5 million at
December 31, 2000, to $9.5 million at December 31, 2001, and foreclosed assets
increased $0.4 million, or 13.7%, from $2.7 million at December 31, 2000, to
$3.1 million at December 31, 2001.
Commercial loans comprise $7.8 million, or 82%, of the total $9.5
million non-performing loans at December 31, 2001. Three unrelated commercial
real estate credit relationships, totaling $2.4 million, $1.7 million and $1.1
million, respectively, account for a majority of this non-performing total. The
$2.4 million relationship is secured by a motel, condominium units and vacant
land in the Branson, Missouri area. This relationship was placed in a
non-accrual status in the fourth quarter of 2001. The $1.7 million relationship
is secured primarily by condominium buildings and lots, single-family residences
and lots, and other developed land near the Lake of the Ozarks, Missouri. This
credit is part of the $7.3 million relationship described in the 2000 Annual
Report on Form 10-K. The $1.1 million relationship is secured by the real estate
and business assets of a restaurant in Branson, Missouri. A portion of this
credit is guaranteed by the Small Business Administration. This relationship was
placed in a non-accrual status in the fourth quarter of 2001.
47
Of the total $3.1 million of foreclosed assets at December 31, 2001,
three relationships account for $2.0 million. The first relationship involves a
planned golf course and undeveloped lots near the Lake of the Ozarks, Missouri.
The golf course is not operating and is listed for sale with a broker. The
second relationship involves a single-family residence located near Springfield,
Missouri. The property is listed for sale with a broker. The third relationship
involves a single-family residence located in Springfield, Missouri. The house
was under construction at the time of foreclosure and is now near completion.
Potential problem loans increased $11.2 million, or 150%, from $7.5
million at December 31, 2000, to $18.7 million at December 31, 2001. 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. Potential problem loans increased primarily as a
result of one large commercial real estate credit relationship, totaling $7.8
million, which was removed from non-performing status, although this
relationship remains on the problem asset watch list currently. This
relationship was described in the December 31, 2000 Annual Report on Form 10-K
and is secured by a golf course, condominium buildings and lots, single-family
residences and lots, and other developed and undeveloped land. The loan
relationship has been strengthened through a participation in this credit with
another financial institution, which resulted in additional collateral being
provided for the loan.
The Bank's allowance for loan losses as a percentage of total loans was
2.16% and 2.06% at December 31, 2001 and 2000, respectively. Management
considers the allowance for loan losses adequate to cover losses inherent in the
Company's loan portfolio at this time, based on current economic conditions. If
economic conditions deteriorate significantly, it is possible that additional
assets would be classified as non-performing, and accordingly, additional
provision for losses would be required, thereby adversely affecting future
results of operations and financial condition.
Non-interest Income
Non-interest income increased $2.1 million, or 13.5%, in the year ended
December 31, 2001, when compared to the year ended December 31, 2000. The
increase was primarily due to: (i) an increase in service charges and ATM fees
of $2.4 million, or 39.9%; (ii) an increase in net realized gains on sales of
fixed rate residential and other loans of $1.2 million, or 208%; and (iii) an
increase of $148,000 in profits on sales of available-for-sale investment
securities. The increase in service charge income resulted from new products
introduced, increased activity and a larger number of deposit accounts. The
increase in ATM fees is related to an increase in overall usage by customers and
non-customers. During the year ended December 31, 2001, the Bank sold
significantly more residential and student loans than in 2000. During 2001,
interest rates were conducive to the generation of fixed-rate mortgages, which
the Bank typically sells, rather than adjustable- rate mortgages, which the Bank
typically retains in its portfolio. During the year ended December 31, 2001, the
Company sold some of its investments in debt securities to restructure its
portfolio and realized the resulting gains and losses.
This increase was partially offset by: (i) a decrease in commissions
revenues of $1.3 million, or 17.9%; and (ii) expenses on foreclosed assets of
$216,000 in 2001 versus gains on foreclosed assets of $295,000 in 2000. In 2001,
the Company incurred expenses to prepare properties for sale, primarily related
to two properties. Both the travel and investment subsidiaries have experienced
decreased sales activity as a result of general economic conditions prevailing
in 2001. The investment subsidiary has been adversely affected by declining
activity by investors in the U. S. stock markets. The travel subsidiary has been
adversely affected by the merger of American Airlines and Trans World Airlines
(TWA). Special incentives negotiated between the travel subsidiary and TWA were
discontinued in 2001 as a result of the merger. In addition, the terrorist
attacks on September 11, 2001, caused the cancellation of many travel
activities,
48
resulting in commission refunds by the travel subsidiary. Due to the current
instability in the travel industry, the travel subsidiary likely will continue
to generate little net income.
Non-Interest Expense
Non-interest expense increased $1.7 million, or 6.6%, in the year ended
December 31, 2001, when compared to the year ended December 31, 2000. The
increase was primarily due to: (i) an increase of $1.5 million, or 10.9%, in
salaries and employee benefits; and (ii) an increase of $201,000, or 4.4%, in
net occupancy and equipment expense due primarily to renovation work (and the
related depreciation) at the Company's main office and operations center and
other branch locations. The increase in salaries and employee benefits primarily
relates to normal merit increases for existing employees and the hiring of
additional experienced personnel to fill key supervisory and customer sales
positions.
This was partially offset by smaller increases and decreases in other
expense categories.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income decreased
slightly from 34.6% for the year ended December 31, 2000, to 33.6% for the year
ended December 31, 2001. This decrease primarily relates to the Company's
increase in average balances in tax-exempt investments.
49
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.
Year Ended Year Ended
December 31, 2001 December 31, 2000
--------------------------------- -------------------------------
December
31, 2001 Average Average
Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable 6.54% $ 936,117 $75,312 8.05% $843,170 $76,671 9.09%
Investment securities and other interest-
earning assets 5.96 211,461 13,390 6.33 135,148 8,751 6.47
---- ---------- ------- ---- -------- ------- ----
Total interest-earning assets 6.40 $1,147,578 88,702 7.73 $978,318 85,422 8.73
---- ========== ------- ---- ======== ------- ----
Interest-bearing liabilities:
Interest-bearing demand 1.02 $ 144,374 2,443 1.69 $122,392 2,617 2.14
Savings 1.37 5,358 125 2.33 25,400 631 2.48
Time deposits 3.48 593,265 29,837 5.03 476,386 28,996 6.09
---- ---------- ------- ---- -------- ------- ----
Total deposits 3.00 742,997 32,405 4.36 624,178 32,244 5.17
FHLB advances and other borrowings 2.87 293,124 13,502 4.61 256,698 16,617 6.47
---- ---------- ------- ---- -------- ------- ----
Total interest-bearing liabilities 2.96 $1,036,121 45,907 4.43 $880,876 48,861 5.55
---- ========== ------- ---- ======== ------- ----
Net interest income:
Interest rate spread 3.44% $ 42,795 3.30% $36,561 3.18%
===== ======== ==== ======= ====
Net interest margin* 3.73% 3.74%
==== ====
Average interest-earning assets to average
interest-bearing liabilities 110.8% 111.1%
===== =====
*Defined as the Company's net interest income divided by total interest-earning
assets.
50
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 rate.
Year Ended Year Ended
December 31, 2001 vs. December 31, 2000 vs.
December 31, 2000 December 31, 1999
-------------------------------------------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
-------------------------- Increase ------------------- Increase
Rate Volume (Decrease) Rate Volume (Decrease)
---- ------ ---------- ---- ------ ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ (9,335) $ 7,976 $(1,359) $ 4,747 $ 8,538 $ 13,285
Investment securities and other
interest-earning assets (197) 4,836 4,639 1,961 2,138 4,099
-------- -------- ------- ------- -------- --------
Total interest-earning assets (9,532) 12,812 3,280 6,708 10,676 17,384
-------- -------- ------- ------- -------- --------
Interest-bearing liabilities:
Demand deposits (598) 424 (174) 242 (166) 76
Savings deposits (41) (465) (506) (31) (180) (211)
Time deposits (5,550) 6,391 841 3,089 4,324 7,413
-------- -------- ------- ------- -------- --------
Total deposits (6,189) 6,350 161 3,300 3,978 7,278
FHLBank advances and other
borrowings (5,248) 2,133 (3,115) 1,622 4,498 6,120
-------- -------- ------- ------- -------- --------
Total interest-bearing liabilities (11,437) 8,483 (2,954) 4,922 8,476 13,398
-------- -------- ------- ------- -------- --------
Net interest income $ 1,905 $ 4,329 $ 6,234 $ 1,786 $ 2,200 $ 3,986
======== ======== ======= ======= ======== ========
Results of Operations and Comparison for the Years Ended December 31, 2000 and
1999
General
The increase in earnings of $1.8 million, or 13.2%, during the year
ended December 31, 2000, compared to the year ended December 31, 1999, was
primarily due to an increase in net interest income of $4.0 million, or 12.2%,
and an increase in non-interest income of $361,000, or 2.4%, partially offset by
an increase in non-interest expense of $338,000, or 1.3%, an increase in
provision for loan losses of $1.0 million, or 50.6%, and an increase in
provision for income taxes of $1.2 million, or 16.6%.
Total Interest Income
Total interest income increased $17.4 million, or 25.5%, during the
year ended December 31, 2000 compared to the year ended December 31, 1999. The
increase was due to a $13.3 million, or 21.0%, increase in interest income on
loans and a $4.1 million, or 88.1%, increase in interest income on investments
and other interest-earning assets.
51
Interest Income - Loans
During the year ended December 31, 2000 compared to the year ended
December 31, 1999, interest income on loans increased from both higher average
balances and higher average rates of interest. Interest income increased $8.5
million as the result of an increase in average loan balances from $747 million
during the year ended December 31, 1999 to $843 million during the year ended
December 31, 2000. The higher average balance resulted principally from the
Bank's increased commercial real estate and construction lending and indirect
consumer lending.
Interest income also increased $4.8 million as the result of higher
average interest rates. The average yield on loans increased from 8.49% during
the year ended December 31, 1999, to 9.09% during the year ended December 31,
2000, as a result of the increases in the aforementioned loan types which
generally bear higher rates than other loan types and due to higher market rates
of interest. A large portion of the Bank's loan portfolio adjusts with changes
to the "prime rate" of interest.
Interest Income - Investments And Other Interest-earning Assets
Interest income on investments and other interest-earning assets
increased mainly as a result of higher average balances during the year ended
December 31, 2000, when compared to the year ended December 31, 1999. Interest
income increased $2.1 million as a result of an increase in average balances
from $97 million during the year ended December 31, 1999, to $135 million during
the year ended December 31, 2000. This increase was primarily in
available-for-sale securities, where additional securities were acquired for
liquidity and pledging to deposit accounts under repurchase agreements. Interest
income increased $2.0 million as a result of an increase in average yields from
4.78% during the year ended December 31, 1999, to 6.47% during the year ended
December 31, 2000.
Total Interest Expense
Total interest expense increased $13.4 million, or 37.8%, during the
year ended December 31, 2000, when compared with the year ended December 31,
1999, primarily due to an increase in interest expense on deposits of $7.3
million, or 29.1%, an increase in interest expense on FHLBank advances of $4.9
million, or 52.2%, and an increase in interest expense on short-term borrowings
of $1.2 million, or 110%.
Interest Expense - Deposits
Interest expense on deposits increased $4.3 million as a result of an
increase in average balances of time deposits from $402 million during the year
ended December 31, 1999, to $476 million during the year ended December 31,
2000, and increased $3.1 million due to an increase in average interest rates on
time deposits from 5.37% during the year ended December 31, 1999, to 6.09%
during the year ended December 31, 2000. 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.
The average interest rates increased due to higher overall market rates of
interest.
Interest on demand deposits decreased $166,000 due to a decrease in
average balances from $135 million during the year ended December 31, 1999, to
$122 million during the year ended December 31, 2000, and increased $242,000 due
to an increase in average rates from 1.88% during the year ended December 31,
1999, to 2.14% during the year ended December 31, 2000. The other deposit
category, savings, experienced a $211,000 decrease due to both lower balances
and lower market interest rates.
52
Interest Expense - FHLBank And Other Borrowings
Interest expense on FHLBank advances and short-term borrowings
increased $4.5 million due to an increase in average balances from $185 million
in the year ended December 31, 1999, to $257 million in the year ended December
31, 2000. Average rates increased from 5.68% during the year ended December 31,
1999, to 6.47% during the year ended December 31, 2000, resulting in increased
interest expense of $1.6 million due to higher rates. The average balance
increase was used to fund growth in loans and securities. Average interest rates
increased due to higher overall market rates during 2000.
Net Interest Income
The Company's overall interest rate spread decreased 18 basis points,
or 5.4%, from 3.36% during the year ended December 31, 1999, to 3.18% during the
year ended December 31, 2000. The decrease was due to an 85 basis point increase
in the weighted average rate paid on interest-bearing liabilities partially
offset by a 67 basis point increase in the weighted average yield received on
interest-earning assets. The Company's overall net interest margin decreased 12
basis points, or 3.1%, from 3.86% during the year ended December 31, 1999, to
3.74% during the year ended December 31, 2000.
The prime rate of interest averaged 8.00% during the year ended
December 31, 1999, compared to an average of 9.23% during the year ended
December 31, 2000. As a large percentage of the Bank's loans are tied to prime,
this increase was the primary reason for the increase in the weighted average
yield received on interest-earning assets.
Interest rates paid on deposits and FHLBank advances increased during
2000 compared to 1999. As the Company has grown the assets of the Bank, the
brokered and other time deposits and advances needed to fund that growth have
increased the average cost of deposits since time deposits are higher cost
deposits for the Bank than are interest-bearing demand and savings. In addition,
overall interest rates were higher during 2000.
Provision For Loan Losses
The provision for loan losses increased $1.0 million, or 50.6%, during
the year ended December 31, 2000, from $2.1 million during the year ended
December 31, 1999 to $3.1 million during the year ended December 31, 2000.
Management records a provision for loan losses in an amount it believes
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, 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.
53
Non-performing assets increased $5.6 million, or 57.1%, from $9.6
million at December 31, 1999, to $15.2 million at December 31, 2000.
Non-performing loans increased $3.7 million, or 41.2%, from $8.8 million at
December 31, 1999, to $12.5 million at December 31, 2000, and foreclosed assets
increased $1.9 million, or 229%, from $817,000 at December 31, 1999, to $2.7
million at December 31, 2000.
Commercial loans comprise $11.7 million, or 94%, of the total $12.5
million non-performing loans at December 31, 2000. Two large commercial real
estate credit relationships, totaling $7.3 million and $2.4 million,
respectively, account for a majority of this non-performing total. The $7.3
million relationship is secured primarily by condominium buildings and lots,
single-family residences and lots, and other developed land near the Lake of the
Ozarks, Missouri. This relationship was placed in a non-accrual status in the
fourth quarter of 2000. Bank management is working with the borrower and another
bank to explore possible modifications to the loan terms and to secure
additional collateral for the loans. The $2.4 million relationship is secured by
a golf course and undeveloped lots near the Lake of the Ozarks, Missouri. This
relationship was placed on non-accrual status in the fourth quarter of 1999.
Subsequent to December 31, 2000, the Bank has commenced foreclosure on the
collateral. Bank management is communicating frequently with these borrowers to
determine the status of the projects and to develop action plans for these
loans.
Of the total $2.7 million of foreclosed assets at December 31, 2000,
three relationships account for $1.8 million. The first relationship involves a
theater in Branson, Missouri. The theater was leased through December 31, 2000,
and is now vacant and is listed for sale with a broker. The second relationship
involves two retail commercial buildings in Springfield, Missouri. The buildings
are vacant and are listed for sale with a broker. The third relationship
involves a single-family residence located near Joplin, Missouri. The house was
under construction at the time of foreclosure and is now near completion.
Potential problem loans decreased $3.3 million, or 30.6%, from $10.8
million at December 31, 1999, to $7.5 million at December 31, 2000. These are
loans which management has identified through routine internal review procedures
as having possible credit problems which may cause the borrowers difficulty in
complying with current loan repayment terms. These loans are not reflected in
the non-performing loans.
The Bank's allowance for loan losses as a percentage of total loans was
2.06% and 2.20% at December 31, 2000 and 1999, respectively. Management
considers the allowance for loan losses adequate to cover losses inherent in the
Company's loan portfolio at this time, based on current economic conditions. If
economic conditions deteriorate significantly, it is possible that additional
assets would be classified as non-performing and, accordingly, additional
provision for losses would be required, thereby adversely affecting future
results of operations and financial condition.
Non-interest Income
Non-interest income increased $361,000, or 2.4%, in the year ended
December 31, 2000, when compared to the year ended December 31, 1999. The
increase was primarily due to: (i) an increase in service charges and ATM fees
of $1.5 million, or 32.6%; and (ii) an increase in income on foreclosed assets
of $295,000. The increase in service charges fees resulted from increased rates
and a larger number of deposit accounts. The increase in ATM fees is related to
an increased number of ATMs in the Company's market area along with a nominal
increase in transaction charges, resulting in increased fees from use by non-
customers. The increased income on foreclosed assets in 2000 is primarily the
result of recognizing a deferred gain of $299,000 upon partial repayment of a
loan made in connection with the sale of other real estate.
This increase was partially offset by: (i) a decrease in net realized
gains on sales of fixed rate residential and other loans of $528,000, or 48.1%;
(ii) a decrease of $326,000, or 103%, in profits on sales
54
of available-for-sale securities; and (iii) a decrease of $326,000, or 40.2%, in
late charges, prepayment penalties, and other loan fees. During the year ended
December 31, 2000, the Bank recognized less gains on the sale of residential and
student loans than in 1999. During 1999, interest rates were conducive to the
generation of fixed-rate mortgages, which the Bank typically sells, rather than
adjustable-rate mortgages, which the Bank typically retains in its portfolio.
During the year ended December 31, 1999, the Company sold some of its
investments in equity securities and realized the gains.
Non-interest Expense
Non-interest expense increased $338,000, or 1.3%, in the year ended
December 31, 2000, when compared to the year ended December 31, 1999. The
increase was primarily due to: (i) an increase of $405,000, or 9.8%, in net
occupancy and equipment expense due primarily to renovation work at the
Company's main office and operations center; (ii) an increase of $146,000, or
14.5%, in postage expense; (iii) an increase of $102,000, or 16.7%, in marketing
and advertising expense due primarily to the Company's introduction of its new
online banking product and other new products; and (iv) an increase of $227,000,
or 36.8%, in professional fees primarily due to fees paid to consultants who
assisted in the implementation of new products during the fourth quarter of
2000. These payments to the consultants will cease after February 2001.
This was partially offset by: (i) a decrease of $123,000, or .9%, in
salaries and employee benefits; (ii) a decrease of $287,000, or 29.0%, in office
supplies and printing expense; and (iii) a decrease of $118,000, or 18.5%, in
insurance expense due to lower FDIC premiums. The higher amounts of expenses in
1999 for office supplies and printing were related to the Company's core
computer conversion, "Year 2000" issues and other technology related items.
Provision For Income Taxes
Provision for income taxes as a percentage of pre-tax income increased
slightly from 33.9% for the year ended December 31, 1999, to 34.6% for the year
ended December 31, 2000.
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, 2001, the Company had commitments of
approximately $114 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 ensure compliance with minimum regulatory requirements, as well as
to explore ways to increase capital either by retained earnings or other means.
The Company's stockholders' equity was $85.3 million, or 6.4% of total
assets of $1.32 billion at December 31, 2001, compared to equity of $71.0
million, or 6.3% of total assets of $1.13 billion at December 31, 2000.
55
Banks are required to maintain minimum risk-based capital ratios. These
ratios compare capital, as defined by the risk-based regulations, to assets
adjusted for their relative risk as defined by the regulations. Guidelines
require banks to have a minimum Tier 1 risk-based capital ratio, as defined, of
4.00%, a minimum total risked-based capital ratio of 8.00%, and a minimum 4.00%
core capital ratio. On December 31, 2001, the Bank's Tier 1 risk-based capital
ratio was 8.9%, total risk-based capital ratio was 10.2% and the core capital
ratio was 7.2%. As of December 31, 2001, the Bank was "well capitalized" as
defined by the Federal banking agencies' capital-related regulations. The FRB
has established capital regulations for bank holding companies that generally
parallel the capital regulations for banks. As of December 31, 2001, the Company
was "well capitalized" under the capital ratios described above.
At December 31, 2001, the held-to-maturity investment portfolio
included $45,000 of gross unrealized losses. The unrealized losses are not
expected to have a material effect on future earnings beyond the usual
amortization of acquisition premium or accretion of discount because no sale of
the held-to- maturity investment portfolio is foreseen.
The Company's primary sources of funds are certificates of deposit,
FHLBank advances, other borrowings, loan repayments, proceeds from sales of
loans and available-for-sale securities and funds provided from operations. The
Company utilizes particular sources of funds based on the comparative costs and
availability at the time. The Company has from time to time chosen not to pay
rates on deposits as high as the rates paid by certain of its competitors and,
when believed to be appropriate, supplements deposits with less expensive
alternative sources of funds.
Statements of Cash Flows. During the years ended December 31, 2001,
2000 and 1999, 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 provisions 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 $23.5 million, $26.3 million and $19.5 million during the years
ended December 31, 2001, 2000 and 1999, respectively.
During the years ended December 31, 2001, 2000 and 1999, investing
activities used cash of $197.4 million, $170.5 million and $126.7 million,
primarily due to the net increase of loans and the net purchases 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 after
interest credited, changes in FHLBank advances and changes in short-term
borrowings, as well as the issuance of trust preferred securities, purchases of
treasury stock and dividend payments to stockholders. Financing activities
provided $168.9 million, $140.7 million and $117.2 million for the years ended
December 31, 2001, 2000 and 1999, respectively. Financing activities in the
future are expected to primarily include changes in deposits, changes in FHLBank
advances, changes in short-term borrowings, purchases of treasury stock and
dividend payments to stockholders.
Dividends. During the year ended December 31, 2001, the Company
declared and paid dividends of $.50 per share, or 18.5% of net income, compared
to dividends declared and paid during the year ended
56
December 31, 2000 of $.50 per share, or 23.6% 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, 2001, the Company
repurchased 61,267 shares of its common stock at an average price of $26.75 per
share and reissued 26,470 shares of treasury stock at an average price of $15.62
per share to cover stock option exercises. During the year ended December 31,
2000, the Company repurchased 630,282 shares of its common stock at an average
price of $17.85 per share and reissued 38,502 shares of treasury stock at an
average price of $12.39 per share to cover stock option exercises.
Management intends to continue its stock buy-back programs from time to
time as long as repurchasing the stock contributes to the overall growth of
shareholder value. The number of shares of stock that will be repurchased and
the price that will be paid is the result of many factors, several of which are
outside of the control of the Company. The primary factors, however, are the
number of shares available in the market from sellers at any given time and the
price of the stock within the market as determined by the market.
57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 2001 and 2000, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Great Southern
Bancorp, Inc. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
/s/ BKD, LLP
Springfield, Missouri
February 7, 2002
58
Great Southern Bancorp, Inc.
Consolidated Statements of Financial Condition
December 31, 2001 and 2000
(In Thousands, Except Per Share Data)
Assets
2001 2000
---------- ----------
Cash $ 29,646 $ 39,193
Interest-bearing deposits in other
financial institutions 5,474 908
---------- ----------
Cash and cash equivalents 35,120 40,101
Available-for-sale securities 233,805 126,409
Held-to-maturity securities 37,465 27,758
Mortgage loans held for sale 7,135 4,610
Loans receivable, net 957,751 886,174
Interest receivable
Loans 5,147 6,353
Investments 2,063 2,558
Prepaid expenses and other assets 7,464 3,679
Foreclosed assets held for sale, net 3,057 2,688
Premises and equipment, net 12,839 10,316
Investment in Federal Home Loan Bank stock 14,962 14,095
Excess of cost over fair value of net assets
acquired, at amortized cost -- 264
Deferred income taxes 6,295 5,173
---------- ----------
Total assets $ 1,323,103 $ 1,130,178
========== ==========
See Notes to Consolidated Financial Statements
59
Liabilities and Stockholders' Equity
2001 2000
--------------- --------------
Liabilities
Deposits $ 886,870 $ 751,042
Federal Home Loan Bank advances 258,743 234,378
Short-term borrowings 57,763 41,695
Note payable to bank -- 15,500
Trust preferred securities 17,160 --
Accrued interest payable 5,186 6,118
Advances from borrowers for taxes and insurance 295 344
Accounts payable and accrued expenses 2,983 2,984
Income taxes payable 8,849 7,068
----------- -----------
Total liabilities 1,237,849 1,059,129
----------- -----------
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 123 123
Additional paid-in capital 17,160 17,461
Retained earnings 127,489 112,177
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes of $384 and $200 at December 31, 2001
and 2000 710 384
----------- -----------
145,482 130,145
Less treasury common stock, at cost; December 31, 2001 and 2000
- 5,462,467 and 5,427,670 shares 60,228 59,096
----------- -----------
Total stockholders' equity 85,254 71,049
----------- -----------
Total liabilities and stockholders' equity $ 1,323,103 $ 1,130,178
=========== ===========
60
Great Southern Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2001, 2000 and 1999
(In Thousands, Except Per Share Data)
2001 2000 1999
---------------- ----------------- ----------------
Interest Income
Loans $ 75,312 $ 76,671 $ 63,386
Investment securities and other 13,390 8,751 4,652
------------- ------------- -------------
88,702 85,422 68,038
------------- ------------- -------------
Interest Expense
Deposits 32,405 32,244 24,966
Federal Home Loan Bank advances 10,339 14,312 9,403
Short-term borrowings and trust preferred securities 3,163 2,305 1,094
------------- ------------- -------------
45,907 48,861 35,463
------------- ------------- -------------
Net Interest Income 42,795 36,561 32,575
Provision For Loan Losses 5,200 3,106 2,062
------------- ------------- -------------
Net Interest Income After Provision For Loan Losses 37,595 33,455 30,513
------------- ------------- -------------
Noninterest Income
Commissions 5,765 7,024 7,055
Service charges and ATM fees 8,352 5,968 4,502
Net realized gains on sales of loans 1,756 570 1,097
Net realized gains (losses) on sales of
available-for-sale securities 139 (9) 317
Income (expense) on foreclosed assets (216) 295 --
Other income 2,032 1,863 2,379
------------- ------------- -------------
17,828 15,711 15,350
------------- ------------- -------------
Noninterest Expense
Salaries and employee benefits 15,126 13,642 13,765
Net occupancy expense 4,730 4,529 4,125
Postage 1,233 1,152 1,006
Insurance 485 521 639
Amortization of excess of cost over fair value of net
assets acquired 284 160 160
Advertising 686 713 611
Office supplies and printing 774 703 991
Other operating expenses 3,872 4,084 3,871
------------- ------------- -------------
27,190 25,504 25,168
------------- ------------- -------------
Income Before Income Taxes 28,233 23,662 20,695
Provision For Income Taxes 9,475 8,184 7,018
------------- ------------- -------------
Net Income $ 18,758 $ 15,478 $ 13,677
============= ============= =============
Earnings Per Common Share
Basic $ 2.72 $ 2.16 $ 1.79
============= ============= =============
Diluted $ 2.70 $ 2.12 $ 1.76
============= ============= =============
See Notes to Consolidated Financial Statements
61
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2001, 2000 and 1999
(In Thousands, Except Per Share Data)
Additional
Comprehensive Common Paid-in
Income Stock Capital
------------------------ ------------------ ------------------
Balance, January 1, 1999 $ -- $ 123 $ 17,224
Net income 13,677 -- --
Stock issued under Stock Option Plan -- -- 263
Dividends declared, $.50 per share -- -- --
Change in unrealized depreciation on
available-for-sale securities, net of income
taxes of $596 (979) -- --
Treasury stock purchased -- -- --
--------------- -------------- --------------
Comprehensive income $ 12,698
===============
Balance, December 31, 1999 $ -- 123 17,487
Net income 15,478 -- --
Stock issued under Stock Option Plan -- -- (26)
Dividends declared, $.50 per share -- -- --
Change in unrealized appreciation on
available-for-sale securities, net of income
taxes of $582 1,028 -- --
Treasury stock purchased -- -- --
--------------- -------------- --------------
Comprehensive income $ 16,506
===============
Balance, December 31, 2000 $ -- 123 17,461
Net income 18,758 -- --
Stock issued under Stock Option Plan -- -- (301)
Dividends declared, $.50 per share -- -- --
Change in unrealized appreciation on
available-for-sale securities, net of income
taxes of $184 326 -- --
Treasury stock purchased -- -- --
--------------- -------------- --------------
Comprehensive income $ 19,084
===============
Balance, December 31, 2001 $ 123 $ 17,160
============== ==============
See Notes to Consolidated Financial Statements
62
Accumulated
Other
Comprehensive
Retained Income Treasury
Earnings (Loss) Stock Total
- ----------------------- ------------------------ -------------------- --------------------
$ 90,460 $ 335 $ (39,760) $ 68,382
13,677 -- -- 13,677
-- -- 201 464
(3,827) -- -- (3,827)
-- (979) -- (979)
-- -- (8,792) (8,792)
-------------- ------------- --------------- ---------------
100,310 (644) (48,351) 68,925
15,478 -- -- 15,478
-- -- 507 481
(3,611) -- -- (3,611)
-- 1,028 -- 1,028
-- -- (11,252) (11,252)
-------------- ------------- --------------- ---------------
112,177 384 (59,096) 71,049
18,758 -- -- 18,758
-- -- 507 206
(3,446) -- -- (3,446)
-- 326 -- 326
-- -- (1,639) (1,639)
-------------- ------------- --------------- ---------------
$ 127,489 $ 710 $ (60,228) $ 85,254
=============== ============= =============== ===============
63
Great Southern Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2001, 2000 and 1999
(In Thousands)
2001 2000 1999
----------------- ---------------- -----------------
Reclassification Disclosure
Unrealized appreciation (depreciation) on available-for-sale
securities, net of income taxes of $231 for December 31,
2001; $585 for December 31, 2000; $(486) for December 31,
1999 $ 418 $ 1,022 $ (799)
Less reclassification adjustment for (depreciation)
appreciation included in net income, net of income
taxes of $47 for December 31, 2001; $(3) for December 31,
2000; $110 for December 31, 1999 92 (6) 180
----------- ----------- -----------
Change in unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes $ 326 $ 1,028 $ (979)
=========== =========== ===========
See Notes to Consolidated Financial Statements
64
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
(In Thousands)
2001 2000 1999
------------------ ------------------ -------------------
Operating Activities
Net income $ 18,758 $ 15,478 $ 13,677
Items not requiring (providing) cash
Depreciation 2,259 2,191 2,148
Amortization 409 160 140
Provision for loan losses 5,200 3,106 2,062
Provision for losses on foreclosed assets 150 -- --
Net gain on sale of loans (1,756) (570) (1,098)
Proceeds from sales of loans held for sale 104,997 35,511 33,329
Originations of loans held for sale (105,766) (32,960) (29,401)
Net realized (gains) losses on available-for-sale
securities (139) 9 (317)
Loss on sale of premises and equipment 87 206 207
Gain on sale of foreclosed assets (576) (495) (137)
Amortization of deferred income, premiums and discounts (1,493) (790) (1,629)
Deferred income taxes (1,306) (958) 21
Changes in
Accrued interest receivable 1,701 (3,057) (348)
Prepaid expenses and other assets 90 329 2,499
Accounts payable and accrued expenses (933) 1,274 29
Income taxes refundable/payable 1,781 6,870 (1,660)
-------------- -------------- --------------
Net cash provided by operating activities 23,463 26,304 19,522
-------------- -------------- --------------
See Notes to Consolidated Financial Statements
65
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
(In Thousands)
2001 2000 1999
------------------- ------------------ ------------------
Investing Activities
Net increase in loans $ (60,666) $ (127,482) $ (90,058)
Purchase of loans (34,300) (13,900) (3,100)
Proceeds from sale of student loans 11,700 12,400 20,800
Purchase of premises and equipment (4,956) (2,729) (2,358)
Proceeds from sale of premises and equipment 87 -- 31
Proceeds from sale of foreclosed assets 5,060 437 914
Capitalized costs on foreclosed assets (523) (359) (39)
Proceeds from maturing held-to-maturity securities 5 17,354 32,918
Purchase of held-to-maturity securities (17,315) (7,474) (10,167)
Proceeds from sale of available-for-sale securities 106,292 19,982 2,150
Proceeds from maturities, calls and repayments of
available-for-sale securities 161,828 60,230 15,055
Purchase of available-for-sale securities (363,762) (125,873) (91,327)
Purchase of Federal Home Loan Bank stock (867) (3,114) (1,527)
------------- ------------- -------------
Net cash used in investing activities (197,417) (170,528) (126,708)
------------- ------------- -------------
See Notes to Consolidated Financial Statements
66
Great Southern Bancorp, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
(In Thousands)
2001 2000 1999
------------------ ------------------ -------------------
Financing Activities
Net increase in certificates of deposit $ 117,190 $ 110,964 $ 68,548
Net increase (decrease) in checking and savings accounts 15,452 14,178 (40,273)
Proceeds from Federal Home Loan Bank advances and note
payable to bank 1,459,300 3,966,483 1,036,392
Repayments of Federal Home Loan Bank advances and note
payable to bank (1,450,435) (3,924,653) (986,797)
Net increase (decrease) in short-term borrowings 16,068 (11,899) 52,796
Proceeds from issuance of trust preferred securities 17,250 -- --
Payment of financing costs on trust preferred securities (924) -- --
Advances (to) from borrowers for taxes and insurance (49) 34 (1,272)
Purchase of treasury stock (1,639) (11,252) (8,792)
Dividends paid (3,446) (3,611) (3,827)
Stock options exercised 206 481 464
-------------- -------------- --------------
Net cash provided by financing activities 168,973 140,725 117,239
-------------- -------------- --------------
Increase (Decrease) in Cash and Cash Equivalents (4,981) (3,499) 10,053
Cash and Cash Equivalents, Beginning of Year 40,101 43,600 33,547
-------------- -------------- --------------
Cash and Cash Equivalents, End of Year $ 35,120 $ 40,101 $ 43,600
============== ============== ==============
See Notes to Consolidated Financial Statements
67
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
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 and investment
services 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 accounting
principles generally accepted in the United States of America 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. In
connection with the determination of the allowance for loan losses,
management obtains independent appraisals for significant properties.
Principles of Consolidation
The consolidated financial statements include the accounts of Great
Southern Bancorp, Inc., its wholly owned subsidiaries, Great Southern
Capital Trust I and Great Southern Bank and the Bank's wholly owned
subsidiaries, Great Southern Capital Management, Inc., GSB One LLC
(including its wholly owned subsidiary, GSB Two LLC) and Great Southern
Financial Corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Reclassifications
Certain prior periods amounts have been reclassified to conform to the
2001 financial statements presentation. These reclassifications had no
effect on net income.
68
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Federal Home Loan Bank Stock
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 or one-twentieth of its
outstanding advances from the FHLB.
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
amortized cost of the specific security, are included in other income.
Unrealized gains and losses are recorded, net of related income tax
effects, in stockholders' equity. Premiums and discounts are amortized
and accreted, respectively, to interest income using the level-yield
method over the period to maturity.
Held-to-maturity securities, which include any security for which the
Company has the positive intent and ability to hold until maturity, are
carried at historical cost adjusted for amortization of premiums and
accretion of discounts. Premiums and discounts are amortized and
accreted, respectively, to interest income using the level-yield method
over the period to maturity.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
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. Nonbinding forward commitments to sell individual 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.
69
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
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 balances adjusted for any charge-offs, the
allowance for loan losses, 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 established as losses are estimated to
have occurred through a provision for loan losses charged to earnings.
Loan losses are charged against the allowance when management believes
the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available.
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral
value and the probability of collecting scheduled principal and interest
payments when due. Loans that experience insignificant payment delays
and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower's prior
payment record and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan-by-loan
basis for commercial and construction loans by either the present value
of expected future cash flows discounted at the loan's effective
interest rate, the loan's obtainable market price or the fair value of
the collateral if the loan is collateral dependent.
Large groups of smaller balance homogenous loans are collectively
evaluated for impairment. Accordingly, the Bank does not separately
identify consumer and residential loans for impairment disclosures.
70
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Foreclosed Assets Held For Sale
Assets acquired through, or in lieu of, loan foreclosure are held for
sale and are initially recorded at fair value at the date of
foreclosure, establishing a new cost basis. Subsequent to foreclosure,
valuations are periodically performed by management and the assets are
carried at the lower of carrying amount or fair value less estimated
cost to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in net expenses from foreclosed assets.
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.
Loan Servicing and Origination 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.
Earnings per share (EPS) were computed as follows:
2001 2000 1999
------------------ ------------------- ------------------
(In Thousands, Except Per Share Data)
Net income $ 18,758 $ 15,478 $ 13,677
============== ============== ==============
Average common shares outstanding 6,889 7,166 7,620
Average common share stock options outstanding 67 147 166
-------------- -------------- --------------
Average diluted common shares 6,956 7,313 7,786
============== ============== ==============
Earnings per common share - basic $ 2.72 $ 2.16 $ 1.79
============== ============== ==============
Earnings per common share - diluted $ 2.70 $ 2.12 $ 1.76
============== ============== ==============
71
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Options to purchase 130,075 and 90,350 shares of common stock were
outstanding during the years ended December 31, 2000 and 1999, but were
not included in the computation of diluted earnings per share because
the options' exercise price was greater than the average market price of
the common shares.
Cash Equivalents
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At December 31, 2001, 2000
and 1999, cash equivalents consisted of interest-bearing deposits in
other financial institutions.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects
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.
Interest Rate Swaps
Beginning in 2001, interest rate swaps are carried at fair value
determined using quoted dealer prices and are recognized in the
statement of financial condition in the prepaid expenses and other
assets caption. The Company uses interest rate swaps to help manage its
interest rate risks from recorded financial liabilities. These
instruments are utilized when they can be demonstrated to effectively
hedge a designated liability and such liability exposes the Company to
interest rate risk. Amounts to be paid or received under interest rate
swaps are accounted for on the accrual basis and recognized as interest
income or expense of the related liability. Gains and losses on early
termination of these instruments are deferred and amortized as an
adjustment to the yield on the related liability over the shorter of the
remaining contract life or the maturity of the related asset or
liability. If the related liability is sold or otherwise liquidated, the
instrument is marked to market, with the resultant gains and losses
recognized in noninterest income.
Change in Accounting Principle
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, as of January 1, 2001. The
principal effects of adoption of SFAS 133 and SFAS 138 were related to
reclassification as available for sale of certain debt securities
previously classified as held to maturity and recognition of outstanding
interest rate swaps as hedges against changes in the fair value of
certain fixed rate brokered certificates of deposit caused by changes in
market rates of interest. These changes did not have a material impact
on the Company's financial statements.
72
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Impact of New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) recently adopted
Statement of Financial Accounting Standards (SFAS) 141, Business
Combinations. This Statement establishes new standards for financial
accounting and reporting for business combinations. This Statement
eliminates the pooling-of-interests method and requires that all
business combinations be accounted for using the purchase method. The
provisions of this Statement apply to all business combinations
initiated after June 30, 2001, and to all business combinations
accounted for using the purchase method for which the date of
acquisition is July 1, 2001, or later. Initial adoption of SFAS 141 had
no effect on the Company's financial statements.
The FASB recently adopted SFAS 142, Goodwill and Other Intangible
Assets. This Statement establishes new financial accounting and
reporting standards for acquired goodwill and other intangible assets.
The Statement addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in
a business combination) should be accounted for in financial statements
upon their acquisition. It also addresses how goodwill and other
intangible assets (including those acquired in a business combination)
should be accounted for after they have been initially recognized in the
financial statements. SFAS 142 is effective for fiscal years beginning
after December 15, 2001. The Company will first apply SFAS 142 in the
first quarter of its year ending December 31, 2002. Initial adoption of
SFAS 142 will have no effect on the Company's financial statements.
The FASB recently adopted SFAS 144, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This
Statement addresses how and when to measure impairment on long-lived
assets and how to account for long-lived assets that an entity plans to
dispose of either through sale, abandonment, exchange or distribution to
owners. The Statement also requires expected future operating losses
from discontinued operations to be recorded in the period in which the
losses are incurred rather than at the measurement date. SFAS 144 is
effective for fiscal years beginning after December 15, 2001. The
Company will first apply SFAS 144 in the first quarter of its year
ending December 31, 2002. Initial adoption of SFAS 144 will have no
effect on the Company's financial statements.
73
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Note 2: Investments in Debt and Equity Securities
The amortized cost and approximate fair values of securities classified
as available for sale are as follows:
December 31, 2001
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ ------------------- ------------------ ------------------
(In Thousands)
U.S. government agencies
obligations $ 84,719 $ 669 $ -- $ 85,388
Collateralized mortgage
obligations 5,188 -- 71 5,117
Mortgage-backed securities 120,544 28 1,147 119,425
Corporate bonds 8,311 417 -- 8,728
Equity securities 13,967 1,214 34 15,147
--------------- --------------- --------------- ---------------
$ 232,729 $ 2,328 $ 1,252 $ 233,805
=============== =============== =============== ===============
December 31, 2000
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ ------------------- ------------------ ------------------
(In Thousands)
U.S. government agencies
obligations $ 114,321 $ 553 $ 99 $ 114,775
Collateralized mortgage
obligations 3,424 15 -- 3,439
Equity securities 8,080 115 -- 8,195
--------------- --------------- --------------- ---------------
$ 125,825 $ 683 $ 99 $ 126,409
=============== =============== =============== ===============
74
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Maturities of available-for-sale debt securities at December 31, 2001,
are:
Approximate
Amortized Fair
Cost Value
------------------ ------------------
(In Thousands)
After one through five years $ 58,107 $ 58,837
After five through ten years 26,612 26,551
After ten years 8,311 8,728
Securities not due on a single maturity date 125,732 124,542
-------------- --------------
$ 218,762 $ 218,658
============== ==============
The amortized cost and approximate fair values of securities classified
as held to maturity are as follows:
December 31, 2001
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ ------------------- ------------------ ------------------
(In Thousands)
States and political
subdivisions and
industrial revenue bonds $ 37,465 $ 3,283 $ 45 $ 40,703
================ ============== ============= ================
December 31, 2000
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ ------------------- ------------------ ------------------
(In Thousands)
U.S. government agencies $ 6,999 $ -- $ 17 $ 6,982
States and political
subdivisions and
industrial revenue bonds 17,101 17 107 17,011
Corporate bonds 2,805 95 25 2,875
Mortgage-backed securities 853 3 6 850
---------------- -------------- ------------- ----------------
$ 27,758 $ 115 $ 155 $ 27,718
================ ============== ============= ================
75
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Maturities of held-to-maturity securities at December 31, 2001, are:
Approximate
Amortized Fair
Cost Value
------------------ ------------------
(In Thousands)
One year or less $ 10,000 $ 10,455
After 10 years 27,465 30,248
--------------- ---------------
$ 37,465 $ 40,703
=============== ===============
The book value of securities pledged as collateral to secure public
deposits and for other purposes amounted to approximately $17,899,700
and $29,627,900 at December 31, 2001 and 2000, respectively, with
approximate fair values of $18,107,200 and $29,641,000, respectively.
The book value of securities pledged as collateral to secure
collateralized borrowing accounts amounted to approximately $25,865,400
and $25,490,300 at December 31, 2001 and 2000, respectively, with
approximate fair values of $26,081,600 and $25,587,300, respectively.
The book value of securities pledged as collateral to secure Federal
Home Loan Bank advances amounted to approximately $144,928,400 and
$67,168,500 at December 31, 2001 and 2000, respectively, with
approximate fair values of $145,800,700 and $67,431,800, respectively.
Note 3: Loans and Allowance For Loan Losses
Categories of loans at December 31, 2001 and 2000, include:
2001 2000
------------------ ------------------
(In Thousands)
One-to-four family residential mortgage loans $ 183,421 $ 221,526
Other residential mortgage loans 88,274 81,143
Commercial real estate loans 351,037 328,432
Other commercial loans 97,557 85,334
Construction loans 206,885 144,342
Installment, education and other loans 97,745 89,476
Prepaid dealer premium 1,810 1,723
Discounts on loans purchased (43) (379)
Undisbursed portion of loans in process (46,744) (45,834)
Allowance for loan losses (21,328) (18,694)
Deferred loan fees and gains, net (863) (895)
-------------- --------------
$ 957,751 $ 886,174
============== ==============
76
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Transactions in the allowance for loan losses were as follows:
2001 2000 1999
------------------- ------------------ ------------------
(In Thousands)
Balance, beginning of year $ 18,694 $ 17,293 $ 16,927
Provision charged to expense 5,200 3,106 2,062
Loans charged off, net of recoveries of
$2,335 for 2001, $1,446 for 2000 and $1,110
for 1999 (2,566) (1,705) (1,696)
-------------- -------------- --------------
Balance, end of year $ 21,328 $ 18,694 $ 17,293
============== ============== ==============
The weighted average interest rate on loans receivable at December 31,
2001 and 2000, was 6.54% and 9.48%, respectively.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal
balances of loans serviced for others was $39,511,000 and $45,758,000 at
December 31, 2001 and 2000, respectively.
Gross impaired loans totaled approximately $8,998,000 and $12,486,000 at
December 31, 2001 and 2000, respectively. An allowance for loan losses
of $1,205,837 and $1,693,549 relates to these impaired loans at December
31, 2001 and 2000, respectively. There were no impaired loans at
December 31, 2001 and 2000, without a related allowance for loan losses
assigned.
Interest of approximately $1,283,000, $1,671,000 and $487,000 was
received on average impaired loans of approximately $8,056,000,
$12,132,000 and $9,406,000 for the years ended December 31, 2001, 2000
and 1999, respectively. Interest of approximately $1,756,000 would have
been recognized on an accrual basis during the year ended December 31,
2001. Interest that would have been recognized on impaired loans on an
accrual basis during 2000 and 1999 was not materially different than
interest received on a cash basis.
Certain of the Bank's real estate loans are pledged as collateral for
borrowings as set forth in Notes 7 and 9.
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, 2001 and 2000, loans outstanding to these
directors and executive officers are summarized as follows:
77
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
December 31, December 31,
2001 2000
-------------------- --------------------
(In Thousands)
Balance, beginning of year $ 5,731 $ 5,932
New loans 14,617 1,334
Payments (10,275) (1,535)
-------------- --------------
Balance, end of year $ 10,073 $ 5,731
============== ==============
Included in the amount of new loans originated to directors and
executive officers of the Company and the Bank during 2001 is
approximately $13,400,000 of loans to a newly appointed director during
2001. The amount represents the outstanding balance of the loans as of
the date that this individual was elected to the Board.
Note 4: Foreclosed Assets Held For Sale
Activity in the allowance for losses on foreclosed assets was as
follows:
2001 2000 1999
------------------ ------------------- ------------------
(In Thousands)
Balance, beginning of year $ -- $ -- $ --
Provision charged to expense 150 -- --
Charge-offs, net of recoveries -- -- --
-------------- -------------- --------------
Balance, end of year $ 150 $ 0 $ 0
============== ============== ==============
Note 5: Premises and Equipment
Major classifications of premises and equipment stated at cost at
December 31, 2001 and 2000, are as follows:
December 31,
2001 2000
----------------- ---------------
(In Thousands)
Land $ 2,978 $ 2,120
Buildings and improvements 11,120 10,222
Furniture, fixtures and equipment 12,341 10,096
----------- -----------
26,439 22,438
Less accumulated depreciation 13,600 12,122
----------- -----------
$ 12,839 $ 10,316
=========== ===========
78
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Note 6: Deposits
Deposits at December 31, 2001 and 2000, are summarized as follows:
Weighted Average December 31,
Interest Rate 2001 2000
--------------------- -------------------- --------------------
(In Thousands, Except
Interest Rates)
Noninterest-bearing accounts -- $ 62,131 $ 60,353
Interest-bearing checking 1.02% - 2.23% 158,067 124,973
Savings accounts 1.37% - 2.51% 980 20,400
----------------- -----------------
221,178 205,726
----------------- -----------------
Certificate accounts 0% - 1.99% 7,538 --
2% - 2.99% 59,443 --
3% - 3.99% 94,097 99
4% - 4.99% 145,515 14,847
5% - 5.99% 118,769 123,103
6% - 6.99% 212,617 360,825
7% and above 24,527 46,442
----------------- -----------------
662,506 545,316
----------------- -----------------
Interest rate swap fair value
adjustment 3,186 --
----------------- -----------------
$ 886,870 $ 751,042
================= =================
The weighted average interest rate on certificates of deposit was 3.48%
and 6.33% at December 31, 2001 and 2000, respectively.
The aggregate amount of certificates of deposit originated by the Bank
in denominations of $100,000 or more was approximately $79,664,000 and
$76,523,000 at December 31, 2001 and 2000, 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 $355,461,000 and
$286,704,000 at December 31, 2001 and 2000, respectively.
79
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
At December 31, 2001, scheduled maturities of certificates of deposit
are as follows (in thousands):
2002 $ 418,983
2003 65,303
2004 16,465
2005 20,416
2006 11,177
Thereafter 130,162
----------
$ 662,506
==========
A summary of interest expense on deposits is as follows:
2001 2000 1999
------------------- ------------------ ------------------
(In Thousands)
Checking accounts $ 2,443 $ 2,617 $ 2,541
Savings accounts 125 631 841
Certificate accounts 29,905 29,096 21,642
Early withdrawal penalties (68) (100) (58)
-------------- -------------- --------------
$ 32,405 $ 32,244 $ 24,966
============== ============== ==============
Note 7: Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank consist of the following:
December 31, 2001 December 31, 2000
Weighted Weighted
Average Average
Interest Interest
Due In Amount Rate Amount Rate
- ---------------------------- ---------------- ------------------- ------------------ ------------------
(In Thousands, Except Interest Rates)
2001 $ -- --% $ 100,635 6.52%
2002 101,227 2.11 1,227 6.79
2003 31,327 2.06 31,327 6.66
2004 25,914 2.58 25,914 6.85
2005 3,280 6.64 3,280 6.64
2006 1,514 6.78 1,514 6.78
2007 and thereafter 95,481 4.27 70,481 5.96
------------- --------------
$ 258,743 3.03 $ 234,378 6.41
============= ==============
80
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Included in the Bank's FHLB advances is a $25,000,000 advance with a
maturity date of December 16, 2010. The advance has a call provision
that allows the Federal Home Loan Bank of Des Moines to call the advance
on December 17, 2001, and quarterly thereafter.
Included in the Bank's FHLB advances is a $25,000,000 advance with a
maturity date of January 20, 2011. The advance has a call provision that
allows the Federal Home Loan Bank of Des Moines to call the advance on
January 20, 2003, and quarterly thereafter.
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 approximate carrying
values of $144,928,400 and $67,168,500, respectively, were specifically
pledged as collateral for advances at December 31, 2001 and 2000. Loans
with carrying values of approximately $452,919,000 and $344,449,000 were
pledged as collateral for outstanding advances at December 31, 2001 and
2000, respectively.
Note 8: Short-Term Borrowings
Short-term borrowings at December 31, 2001 and 2000, are summarized as
follows:
December 31,
2001 2000
-------------- ---------------
(In Thousands)
Federal funds purchased $ 37,900 $ 25,000
United States government agencies
securities sold under reverse
repurchase agreements 19,863 12,869
Other -- 3,826
------------ -------------
$ 57,763 $ 41,695
============ =============
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. Securities underlying the agreements are being held by
the Bank during the agreement period. All agreements are written on a
one month or less term.
Other short-term borrowings at December 31, 2000, consisted of
borrowings from the Federal Reserve Bank and margin loans with brokerage
firms.
Short-term borrowings had weighted average interest rates of 1.63% and
6.67% at December 31, 2001 and 2000, respectively. Short-term borrowings
averaged $66,833,000 and $29,642,000 for the years ended December 31,
2001 and 2000, respectively. The maximum amounts outstanding at any
month end were $127,336,000 and $42,646,000 during those same periods.
81
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Note 9: Note Payable to Bank
The Company has a line of credit with a commercial bank. The amount
available under the line of credit is $12,000,000 and $25,000,000 at
December 31, 2001 and 2000, respectively. The amount outstanding was $0
and $15,500,000 at December 31, 2001 and 2000, respectively. The note
payable bears interest at LIBOR plus 1.25% due quarterly, is secured by
all of the common stock of the Bank and matures November 1, 2002.
The Bank has a potentially available $96,900,000 line of credit under a
borrowing arrangement with the Federal Reserve Bank at December 31,
2001. The line is secured primarily by commercial loans and was not
drawn upon at December 31, 2001.
Note 10: Trust Preferred Securities
During 2001 GSBCP, a newly formed Delaware business trust subsidiary of
the Company, issued 1,725,000 shares of unsecured 9.00% Cumulative Trust
Preferred Securities at $10 per share in an underwritten public
offering. The gross proceeds of the offering were used to purchase a
9.00% Subordinated Debenture from the Company. The Company's proceeds
from the issuance of the Subordinated Debentures to GSBCP, net of
underwriting fees and offering expenses, were $16.3 million. The Company
records distributions payable on the trust preferred securities as
interest expense for financial reporting purposes. The proceeds from the
offering were used to reduce the Company's indebtedness under the
existing note payable to bank to $0. The trust preferred securities
mature in 2031 and are redeemable at the Company's option beginning in
2006. The trust preferred securities qualify as Tier I capital for
regulatory purposes.
During 2001 the Company entered into an interest rate swap agreement to
effectively convert this fixed rate debt to variable rates of interest.
The variable rate is three-month LIBOR plus 202 basis points, adjusting
quarterly. The initial rate was 6.25% and the rate at December 31, 2001,
was 4.62%.
Trust preferred securities includes the following at December 31, 2001:
Trust preferred securities $ 17,250,000
Interest rate swap fair value adjustment (90,000)
--------------
$ 17,160,000
==============
Note 11: 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 approximately $605,000 at December 31, 2001.
82
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
As of December 31, 2001 and 2000, 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, 2001 and 2000.
The provision for income taxes includes these components:
2001 2000 1999
--------------------- -------------------- --------------------
(In Thousands)
Taxes currently payable $ 10,781 $ 9,142 $ 6,997
Deferred income taxes (1,306) (958) 21
-------------- -------------- --------------
Income tax expense $ 9,475 $ 8,184 $ 7,018
============== ============== ==============
The tax effects of temporary differences related to deferred taxes shown
on the December 31, 2001 and 2000, statements of financial condition
were:
December 31,
2001 2000
-------------------- --------------------
(In Thousands)
Deferred tax assets
Allowance for loan losses $ 7,465 $ 6,543
Accrued expenses 113 118
Partnership tax credits 139 107
Excess of cost over fair value of net assets acquired 126 112
Other 16 --
----------------- -----------------
7,859 6,880
----------------- -----------------
Deferred tax liabilities
Tax bad debt allowance in excess of base year allowance (605) (907)
FHLB stock dividends (575) (575)
Unrealized appreciation on available-for-sale securities (384) (200)
Other -- (25)
----------------- -----------------
(1,564) (1,707)
----------------- -----------------
Net deferred tax asset $ 6,295 $ 5,173
================= =================
83
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Reconciliations of the Company's provision for income taxes to the
statutory corporate tax rates are as follows:
2001 2000 1999
------------ ------------- -------------
Tax at statutory rate 35.0% 35.0% 35.0%
Other (1.4) (.4) (1.1)
------ ------ ------
33.6% 34.6% 33.9%
====== ====== ======
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, 1998.
Note 12: 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.
Securities
Fair values for securities equal quoted market prices, if available. If
quoted market prices are not available, fair value is estimated based on
quoted market prices of similar securities.
Federal Home Loan Bank Stock
The carrying amount approximates fair value.
Loans and Interest Receivable
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.
84
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Deposits and Accrued Interest Payable
The fair value of demand deposits and savings accounts is the amount
payable on demand at the reporting date, i.e., their carrying amounts.
The fair value of fixed-maturity certificates of deposit is estimated
using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining maturities. The
carrying amount of accrued interest payable approximates its fair value.
Federal Home Loan Bank Advances
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing
advances.
Short-Term Borrowings
The carrying amounts reported in the statements of financial condition
for short-term borrowings approximate those liabilities' fair value.
Note Payable to Bank and Trust Preferred Securities
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.
Interest Rate Swaps
Fair values of interest rate swaps are estimated based on quoted dealer
prices.
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.
85
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
December 31,
2001 2000
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- ----------------- ---------------- -----------------
(In Thousands)
Financial assets
Cash and cash equivalents $ 35,120 $ 35,120 $ 40,101 $ 40,101
Available-for-sale securities 233,805 233,805 126,409 126,409
Held-to-maturity securities 37,465 40,703 27,758 27,718
Mortgage loans held for sale 7,135 7,135 4,610 4,610
Loans, net of allowance for loan
losses 957,751 979,782 886,174 895,669
Accrued interest receivable 7,210 7,210 8,911 8,911
Investment in FHLB stock 14,962 14,962 14,095 14,095
Interest rate swaps 3,096 3,096 -- 2,400
Financial liabilities
Deposits 886,870 886,656 751,042 751,734
FHLB advances 258,743 258,373 234,378 238,454
Short-term borrowings 57,763 57,763 41,695 41,695
Note payable to bank -- -- 15,500 15,500
Trust preferred securities 17,160 17,160 -- --
Accrued interest payable 5,186 5,186 6,118 6,118
Unrecognized financial instruments
(net of contractual value)
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
Unused lines of credit -- -- -- --
Note 13: Operating Leases
The Company has entered into various operating leases at several of its
locations. Some of the leases have renewal options.
At December 31, 2001, future minimum lease payments are as follows (in
thousands):
2002 $ 216
2003 141
2004 91
2005 84
2006 83
Later Years 421
-----------
$ 1,036
===========
86
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Rental expense was $250,161, $297,274 and $307,805 for the years ended
December 31, 2001, 2000 and 1999, respectively.
Note 14: Commitments and Credit Risk
The Company has entered into interest rate swap agreements with the
objective of hedging against the effects of changes in the fair value of
its liabilities for fixed rate brokered certificates of deposit and
trust preferred securities caused by changes in market interest rates.
The swap agreements generally provide for the Company to pay a variable
rate of interest based on a spread to the one-month or three-month
London Interbank Offering Rate (LIBOR) and to receive a fixed rate of
interest equal to that of the hedged instrument. Under the swap
agreements the Company is to pay or receive interest monthly, quarterly,
semiannually or at maturity.
At December 31, 2001, the notional amount of interest rate swaps
outstanding was approximately $257,490,000, all consisting of swaps in a
receivable position. At December 31, 2000, the notional amount of
interest rate swaps outstanding was approximately $138,063,000,
consisting of swaps in a receivable position of approximately
$107,924,000 and swaps in a payable position of approximately
$30,139,000. The maturities of interest rate swaps outstanding at
December 31, 2001 and 2000, in terms of notional amounts and their
average pay and receive rates were as follows:
2001 2000
Fixed Average Average Fixed Average Average
to Pay Receive to Pay Receive
Variable Rate Rate Variable Rate Rate
------------- ------------- ------------- ------------- ------------- -------------
(In Millions)
Interest Rate Swaps
Expected Maturity Date
2001 $ -- --% --% $ 32.5 6.53% 6.52%
2002 49.2 1.61 6.36 49.2 6.33 6.36
2003 31.0 1.08 5.88 31.0 5.83 5.88
2004 7.0 1.85 6.57 7.0 6.52 6.57
2005 15.5 1.49 6.20 15.8 6.17 6.20
2006 10.0 1.93 5.30 -- -- --
2007 20.0 2.10 4.00 -- -- --
2008 7.6 1.54 5.93 2.6 5.60 5.80
2009 25.0 2.20 6.06 -- -- --
2011 15.0 2.13 6.17 -- -- --
2016 60.0 2.08 6.22 -- -- --
2031 17.2 4.68 9.00 -- -- --
------- -------
$ 257.5 2.00% 6.16% $ 138.1 6.24% 6.27%
======= =======
87
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
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, 2001 and 2000, the Bank had outstanding commitments to
originate loans and fund commercial construction aggregating
approximately $11,691,000 and $34,185,000, 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 $5,475,000 and $1,319,000 with the
remainder at floating market rates at December 31, 2001 and 2000,
respectively.
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
The Company had total outstanding letters of credit amounting to
approximately $11,923,000 and $12,404,000, at December 31, 2001 and
2000, respectively, with $4,076,000 and $4,557,000, respectively, of the
letters of credit having terms ranging from seven months to three years.
The remaining $7,847,000 at December 31, 2001 and 2000, 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.
88
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
At December 31, 2001, the Bank had granted unused lines of credit to
borrowers aggregating approximately $72,971,000 and $17,514,000 for
commercial lines and open-end consumer lines, respectively. At December
31, 2000, the Bank had granted unused lines of credit to borrowers
aggregating approximately $73,438,000 and $12,319,000 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 $155,626,000 and
$149,460,000 at December 31, 2001 and 2000, respectively, are secured by
motels, restaurants, recreational facilities, other commercial
properties and residential mortgages in the Branson, Missouri, area.
Residential mortgages account for approximately $67,870,000 and
$66,764,000 of this total at December 31, 2001 and 2000, respectively.
On December 10, 2001, the Company attempted to sell all its holdings of
the common stock of a publicly traded company at a price that would not
have resulted in a loss to the Company. On December 13, 2001, the
counterparty refused to complete and rescinded the transaction. As a
result, the Company is still the owner of record of and continues to
hold the stock it attempted to sell, which it continues to report as an
equity security available for sale carried at fair value. Management
believes the attempted sale transaction is valid and enforceable and, as
of February 7, 2002, is consulting with legal counsel to determine what,
if any, course of action to take in this matter.
Note 15: Contingent Liabilities
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, 2001, was approximately
$262,000.
Note 16: Additional Cash Flow Information
2001 2000 1999
----------------- ----------------- ----------------
(In Thousands)
Noncash Investing and Financing Activities
Real estate acquired in settlement of loans $6,959 $3,458 $1,377
Sale and financing of foreclosed assets $2,479 $1,705 $3,131
Additional Cash Payment Information
Interest paid $46,839 $48,575 $34,945
Income taxes paid $9,000 $2,300 $8,725
89
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
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. Employer contributions
charged to expense for the years ended December 31, 2001, 2000 and 1999,
were $230,000, $0 and $0, respectively. 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, 2001, 2000 and 1999, were $543,121,
$308,743 and $191,581, 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.
90
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
The table below summarizes transactions under the Company's stock option
plans:
Shares Weighted
Available Under Average Exercise
to Grant Option Price
------------------ ------------------ ------------------
Balance, January 1, 1999 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
Granted (62,513) 62,513 16.383
Exercised -- (71,205) (12.140)
Forfeited 62,520 (62,520) (19.974)
-------------- --------------
Balance, December 31, 2000 751,829 234,558 16.510
Granted (62,075) 62,075 26.291
Exercised -- (54,932) (16.052)
Forfeited 15,849 (15,849) (20.134)
-------------- --------------
Balance, December 31, 2001 705,603 225,852 21.480
============== ==============
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:
December 31, December 31, December 31,
2001 2000 1999
--------------------- -------------------- --------------------
Dividends per share $0.50 $0.50 $0.50
Risk-free interest rate 3.91% 5.93% 5.70%
Expected life of options 5 Years 5 Years 5 Years
Weighted average fair value of options
granted during year $19.57 $10.11 $8.98
91
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
The following table further summarizes information about stock options
outstanding at December 31, 2001:
Options Outstanding
-------------------------------------------------------
Weighted Options Exercisable
------------------------------------
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
------------------------- ------------------ ----------------- ------------------ ------------------ -----------------
$3.50 6,560 .38 years $3.500 6,560 $3.500
$10.938 to $16.875 39,668 7.74 years $14.725 7,955 $11.023
$17.00 to $18.70 37,100 3.56 years $17.973 19,425 $18.256
$21.500 to $28.375 142,524 6.90 years $25.101 36,444 $24.269
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 them. 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 $358,000, $303,000 and $284,000 and basic and
diluted earnings per share would have decreased by $.05, $.04 and $.04
for the years ended December 31, 2001, 2000 and 1999, 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 are
reflected in the footnote regarding loans. Current vulnerabilities due
to certain concentrations of credit risk are discussed in the footnotes
on deposits and on commitments and credit risk.
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
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 Company's and 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.
92
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
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, 2001, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 2001, 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.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------
(In Thousands)
As of December 31, 2001
Total Risk-Based Capital
Great Southern Bancorp, Inc. $113,274 10.9% =>$82,986 =>8.0% N/A N/A
Great Southern Bank $104,610 10.2% =>$82,087 =>8.0% =>$102,609 =>10%
Tier I Risk-Based Capital
Great Southern Bancorp, Inc. $100,204 9.7% =>$41,493 =>4.0% N/A N/A
Great Southern Bank $91,679 8.9% =>$41,043 =>4.0% =>$61,565 =>6.0%
Core Capital
Great Southern Bancorp, Inc. $100,204 7.8% =>$51,101 =>4.0% N/A N/A
Great Southern Bank $91,679 7.2% =>$50,642 =>4.0% =>$63,302 =>5.0%
As of December 31, 2000
Total Risk-Based Capital
Great Southern Bancorp, Inc. $81,772 9.1% =>$71,853 =>8.0% N/A N/A
Great Southern Bank $90,610 10.2% =>$71,280 =>8.0% =>$89,100 =>10.0%
Tier I Risk-Based Capital
Great Southern Bancorp, Inc. $70,453 7.8% =>$35,927 =>4.0% N/A N/A
Great Southern Bank $79,380 8.9% =>$35,640 =>4.0% =>$53,460 =>6.0%
Core Capital
Great Southern Bancorp, Inc. $70,453 6.5% =>$43,415 =>4.0% N/A N/A
Great Southern Bank $79,380 7.4% =>$43,121 =>4.0% =>$53,901 =>5.0%
93
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
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, 2001 and 2000, 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: Summary of Unaudited Quarterly Operating Results
Following is a summary of unaudited quarterly operating results for the
years 2001, 2000 and 1999:
2001
Three Months Ended
March 31 June 30 September 30 December 31
---------------- ----------------- ---------------- -----------------
(In Thousands, Except Per Share Data)
Interest income $24,637 $21,888 $21,951 $20,226
Interest expense 13,571 12,408 10,504 9,424
Provision for loan losses 1,650 1,050 1,050 1,450
Net realized gains (losses) on
available-for-sale securities -- 268 99 (228)
Net income 4,727 4,532 4,850 4,649
Earnings per common share -diluted .67 .65 .70 .68
2000
Three Months Ended
March 31 June 30 September 30 December 31
---------------- ----------------- ---------------- -----------------
(In Thousands, Except Per Share Data)
Interest income $19,143 $20,388 $22,268 $23,623
Interest expense 10,608 11,434 12,810 14,009
Provision for loan losses 476 600 900 1,130
Net realized gains (losses) on
available-for-sale securities -- (6) -- (3)
Net income 3,659 3,884 3,992 3,943
Earnings per common share -diluted .48 .53 .55 .56
1999
Three Months Ended
March 31 June 30 September 30 December 31
---------------- ----------------- ---------------- -----------------
(In Thousands, Except Per Share Data)
Interest income $15,924 $16,232 $17,499 $18,383
Interest expense 8,183 8,236 9,092 9,952
Provision for loan losses 576 574 450 462
Net realized gains (losses) on
available-for-sale securities 220 48 27 22
Net income 3,447 3,226 3,547 3,457
Earnings per common share - diluted .44 .42 .46 .44
94
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Note 22: 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 (2000 and
1999 only).
Year Ended December 31, 2001
Banking All Other Totals
-------------------- -------------------- --------------------
(In Thousands)
Interest income $88,630 $72 $88,702
Interest expense $45,907 -- $45,907
Depreciation and amortization $2,246 $422 $2,668
Provision for income taxes $9,570 $(95) $9,475
Segment profit $18,924 $(166) $18,758
Segment assets $1,319,989 $3,114 $1,323,103
Expenditures for additions to premises and equipment $4,781 $175 $4,956
Year Ended December 31, 2000
Banking All Other Totals
-------------------- -------------------- --------------------
(In Thousands)
Interest income $85,375 $46 $85,422
Interest expense $48,849 $12 $48,861
Depreciation and amortization $2,055 $296 $2,351
Provision for income taxes $7,821 $363 $8,184
Segment profit $14,766 $712 $15,478
Segment assets $1,126,413 $3,765 $1,130,178
Expenditures for additions to premises and
equipment $2,276 $453 $2,729
95
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Year Ended December 31, 1999
Banking All Other Totals
-------------------- -------------------- --------------------
(In Thousands)
Interest income $67,780 $258 $68,038
Interest expense $35,263 $200 $35,463
Depreciation and amortization $2,041 $246 $2,287
Provision for income taxes $6,558 $460 $7,018
Segment profit $12,785 $892 $13,677
Segment assets $957,605 $7,198 $964,803
Expenditures for additions to premises
and equipment $1,938 $420 $2,358
Note 23: Condensed Parent Company Statements
The condensed balance sheets at December 31, 2001 and 2000, and
statements of income and cash flows for the years ended December 31,
2001, 2000 and 1999, for the parent company, Great Southern Bancorp,
Inc., are as follows:
December 31,
2001 2000
------------------ ------------------
(In Thousands)
Balance Sheets
Assets
Cash $ 491 $ 644
Available-for-sale securities 9,190 8,191
Investment in subsidiary bank 91,580 79,902
Income taxes receivable 535 137
Premises and equipment 130 --
Prepaid expenses 909 --
Other assets 544 100
-------------- --------------
$ 103,379 $ 88,974
============== ==============
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $ 540 $ 45
Trust preferred securities 17,160 --
Short-term borrowings -- 17,841
Deferred income taxes 425 40
Common stock 123 123
Additional paid-in capital 17,160 17,461
Retained earnings 127,489 112,177
Unrealized appreciation on
available-for-sale securities, net 710 384
Treasury stock, at cost (60,228) (59,097)
-------------- --------------
$ 103,379 $ 88,974
============== ==============
96
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
2001 2000 1999
------------- ------------ ----------
(In Thousands)
Statements of Income
Income
Dividends from subsidiary bank $ 7,300 $ 7,000 $ 9,250
Interest and dividend income 348 324 248
Net realized gains (losses) on
sales of available-for-sale
securities 29 (11) 296
---------- ---------- ----------
7,677 7,313 9,794
---------- ---------- ----------
Expense
Operating expenses 370 219 214
Interest expense 1,146 1,041 216
---------- ---------- ----------
1,516 1,260 430
---------- ---------- ----------
Income before income tax and equity in
undistributed earnings of
subsidiaries 6,161 6,053 9,364
Credit for income taxes (398) (371) (14)
---------- ---------- ----------
Income before equity in earnings of
subsidiaries 6,559 6,424 9,378
Equity in undistributed earnings of
subsidiaries 12,199 9,054 4,299
---------- ---------- ----------
$ 18,758 $ 15,478 $ 13,677
========== ========== ==========
97
Great Southern Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
2001 2000 1999
------------- ------------ -------------
(In Thousands)
Statements of Cash Flows
Operating Activities
Net income $ 18,758 $ 15,478 $ 13,677
Items not requiring (providing) cash
Equity in undistributed earnings of
subsidiaries (12,199) (9,054) (4,299)
Depreciation 2 -- --
Amortization of trust preferred issuance costs 34 -- --
Net realized (gains) losses on sales of
available-for-sale securities (29) 11 (296)
Changes in
Dividends receivable -- -- 20
Prepaid expenses and other assets (942) -- --
Accounts payable and accrued expenses 496 3 32
Income taxes (398) (312) (318)
---------- ---------- ----------
Net cash provided by operating activities 5,722 6,126 8,816
---------- ---------- ----------
Investing Activities
Net loans originated -- -- 585
Purchase of available-for-sale securities -- -- (4,084)
Proceeds from sale of available-for-sale
securities 129 65 2,150
Other investments -- (50) --
Investment in subsidiary (534) (1,000) (3,000)
---------- ---------- ----------
Net cash used in investing activities (405) (985) (4,349)
---------- ---------- ----------
Financing Activities
Proceeds from bank overdraft -- -- 16
Repayment of bank overdraft -- (16) --
Proceeds from issuance of trust preferred
securities 17,250 -- --
Net increase (decrease) in short-term borrowings (17,841) 9,902 7,214
Dividends paid (3,446) (3,611) (3,827)
Stock options exercised 206 481 464
Treasury stock purchased (1,639) (11,253) (8,792)
---------- ---------- ----------
Net cash used in financing activities (5,470) (4,497) (4,925)
---------- ---------- ----------
Increase (Decrease) in Cash (153) 644 (458)
Cash, Beginning of Year 644 -- 458
---------- ---------- ----------
Cash, End of Year $ 491 $ 644 $ 0
========== ========== ==========
Additional Cash Payment Information
Interest paid $1,186 $1,038 $173
98
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
Nominees to Serve a Three-Year Term Expiring at the 2002 Annual Meeting
William E. Barclay, age 72, 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 Auto-Magic Full Service Car Washes in
Springfield, Missouri since 1962. Mr. Barclay also founded Barclay Love Oil
Company in Springfield, Missouri in 1964, founded a chain of Ye Ole Buggy Bath
Self-Service Car Washes in Springfield, Missouri in 1978 and opened a Jiffy Lube
franchise in Springfield, Missouri in 1987. None of these entities are
affiliated with Bancorp.
Larry D. Frazier, age 64, was first elected a Director of Great
Southern and of Bancorp in May 1992. Mr. Frazier was elected a Director of Great
Southern Financial Corporation (a subsidiary of Great Southern) 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.
Information with Respect to the Continuing Directors
In addition to the nominees proposed to serve on the Bancorp Board of
Directors, the following individuals are also members of the Bancorp Board, for
a term ending on the date of the annual meeting of stockholders in the year
indicated. The principal occupation and business experience for the last five
years and certain other information with respect to each continuing director of
Bancorp is set forth below. The information concerning the continuing directors
has been furnished by them to Bancorp.
Directors Serving a Three-Year Term Expiring at the 2003 Annual Meeting
Thomas J. Carlson, age 49, was first appointed a Director of Bancorp in
January 2001. He is the co- owner of Carlson Gardner, Inc., a development
company that has been in business since 1993. Mr. Carlson is also a shareholder
of Woodco, Inc., a real estate construction company. He co-owns and is a member
of Missouri Equity Partners, L.L.C. and Mid America Property Management, L.L.C.
He is the President and Chief Executive Officer of Pointe Royale Development,
Inc. and Resorts Management, Inc., both real estate development companies. Mr.
Carlson serves on the Board of Directors of ITEC Attractions, Inc., which owns
the IMAX Theater in Branson, Missouri. He also serves on the Board of Ozarks
Counseling Center and The Kitchen, both not-for-profit organizations in
Springfield, Missouri. Mr. Carlson, an attorney, is active in local political
and civic affairs. He was a member of the Springfield City Council from 1983 to
1985, serving as Mayor Pro Tem from 1985 to 1987. He was Mayor of the City of
Springfield from 1987 to 1993. Thereafter, he served on the Springfield-Branson
Regional Airport Board. In 1997, he was again re-elected to the Springfield City
Council. None of these entities are affiliated with Bancorp.
99
Joseph W. Turner, age 37, joined Great Southern in 1991 and became an
officer of Bancorp in 1995. Mr. J. Turner became a Director in 1997 and
currently serves as President and Chief Executive Officer of Bancorp and 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 2004 Annual Meeting
William V. Turner, age 69, has served as the Chairman of the Board of
Great Southern Bank ("Great Southern") since 1974, Chief Executive Officer of
Great Southern from 1974 to 2000, and President of Great Southern from 1974 to
1997. Mr. W. Turner has served in similar capacities with Bancorp since its
incorporation in 1989. Mr. W. Turner has also served as Chairman of the Board
and President of Great Southern Financial Corporation (a subsidiary of Great
Southern) since its incorporation in 1974 and Chairman of the Board of Great
Southern Capital Management, Inc. (a subsidiary of Great Southern) since its
formation in 1988. Mr. W. Turner is the father of Joseph W. Turner, who is a
Director and the Chief Executive Officer and President of Bancorp and Great
Southern.
(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 two late filings for Ann S. Turner for one
transaction in June 2001 and one transaction in September 2001; one late filing
for Joseph W. Turner for one transaction in September 2001; two late filings for
William V. Turner for one transaction in June 2001 and one transaction in
September 2001; one late filing for Steven G. Mitchem for one transaction in
September 2001; one late filing for Rex A. Copeland for one transaction in
September 2001; one late filing for Douglas W. Marrs for one transaction in
September 2001; and two late filings for Larry A. Larimore for one transaction
in September 2001 and one transaction in October 2001.
100
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth information concerning the compensation
of William V. Turner, the Chairman of the Board; Joseph W. Turner, the President
and Chief Executive Officer; Rex A. Copeland, the Treasurer; and Steven G.
Mitchem, the Chief Lending Officer of Great Southern Bank. No other executive
officer earned a salary and bonus in excess of $100,000 for fiscal 2001.
Long Term
Compensation
Annual Compensation Awards
----------------------------------------------------- --------------------
All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($)(1) ($) (#) ($)(2)
- --------------------------- ---- ------ --- --- ------
William V. Turner Fiscal 2001 232,329 140,308 7,500 7,297
Chairman of the Board Fiscal 2000 226,494 120,000 7,500 6,960
Fiscal 1999 291,261 100,000 5,000 6,940
Joseph W. Turner Fiscal 2001 188,370 140,308 7,500 13,751
Chief Executive Officer and Fiscal 2000 179,714 120,000 7,500 6,581
President Fiscal 1999 148,451 50,000 5,000 14,062
Rex A. Copeland Fiscal 2001 110,750 12,210 3,000 497
Treasurer Fiscal 2000 84,570 --- 7,080 39,781
Fiscal 1999 --- --- --- ---
Steven G. Mitchem Fiscal 2001 104,583 11,550 3,000 4,292
Chief Lending Officer Fiscal 2000 94,667 --- 2,500 4,335
Fiscal 1999 87,363 --- 1,200 4,043
- ---------------------
(1) Includes directors' fees for Mr. W. Turner of $32,100, $31,200 and $31,200
for Fiscal 2001, Fiscal 2000 and Fiscal 1999, respectively; and for Mr. J.
Turner of $19,500, $18,000 and $10,500 for Fiscal 2001, Fiscal 2000 and
Fiscal 1999, respectively.
(2) Fiscal 2001 includes: (a) company matching contributions to Bancorp's
401(k) plan (Mr. W. Turner - $6,800, Mr. J. Turner - $6,800, Mr. R.
Copeland - $ -0- and Mr. S. Mitchem - $3,795), (b) term life insurance
premiums paid by Great Southern for the benefit of Mr. W. Turner - $497,
Mr. J. Turner - $497, Mr. R. Copeland - $497 and Mr. S. Mitchem - $497, (c)
country club assessments paid by Great Southern for the benefit of Mr. J.
Turner - $5,500 and (d) personal use of Great Southern's aircraft by Mr. J.
Turner - $860.
101
Option Grants During the Fiscal Year Ended December 31, 2001
The following table sets forth options to acquire shares of Common
Stock which were granted during fiscal 2001 to the executive officers named in
the Summary Compensation Table.
OPTIONS GRANTS IN FISCAL 2001
Individual Grants
-----------------------------------------------------------------------------------------------------
% of Total
Number of Options Potential Realizable
Securities Granted to Value at Assumed
Underlying All Annual Rate of
Options Employees Exercise or Stock Price
Granted in Fiscal Base Price Expiration Appreciation for
Name (#)(1) 2001 ($ per share) Date Option Term
---- ------ ---- ------------- ---- -----------
5%($) 10%($)
----- ------
William V. Turner 7,500 12.1% $28.3745 9-24-2006 $53,450 $118,111
Joseph W. Turner 7,500 12.1 28.3745 9-24-2006 $53,450 $118,111
Rex A. Copeland 3,000 4.8 25.7950 9-24-2011 $48,667 $123,332
Steven G. Mitchem 3,000 4.8 25.7950 9-24-2011 $48,667 $123,332
- -------------------------
(1) Options for William V. Turner and Joseph W. Turner were granted at 110% of
the market price on the date of grant, vest 25% per year after a one year
holding period beginning on the date of grant (September 24, 2001), and
must be exercised within 5 years of the grant. Options for Rex A. Copeland
and Steven G. Mitchem vest 25% per year after a two year holding period
beginning on the date of grant (September 24, 2001), and must be exercised
within 10 years of the grant.
Option Exercises and Fiscal Year-End Values
The following table sets forth all stock options exercised by the named
executives during fiscal 2001 and the number and value of unexercised options
held by such executive officers at December 31, 2001.
Number of Securities Value of Unexercised
Underlying Unexercised In the Money Options
Shares Value Options at Fiscal Year End (#) at Fiscal Year End ($)(2)
Acquired on Realized -------------------------------- ----------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------ ----------- ------------- ----------- -------------
William V. Turner 30,000 $322,650 15,625 16,875 $152,041 $113,095
Joseph W. Turner 15,000 161,325 19,685 16,875 299,661 113,095
Rex A. Copeland --- --- --- 10,080 --- 106,317
Steven G. Mitchem 1,650 13,538 250 7,000 3,250 59,539
- --------------------------
(1) Value realized is calculated based on the difference between the option
exercise price and the closing market price of the 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
$30.50, based on the closing price of the Common Stock as reported on the
Nasdaq National Market System on December 31, 2001, less the exercise price
per share.
102
Employment Agreements
William V. Turner and Joseph W. Turner (the "Employees") have entered
into employment agreements with Great Southern (the "Employment Agreements").
The Employment Agreements provide for an annual base salary in an amount not
less than the Employee's then-current salary and an initial term of five years
with respect to Mr. W. Turner, and three years with respect to Mr. J. Turner.
The Employment Agreements provide for an extension of one year, in addition to
the then-remaining term, on each anniversary of the effective date of the
agreements subject to the Board's discretion. The Employment Agreements provide
that Great Southern may terminate the employment of either 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 either of the Employees for reasons other than for cause, or
in the event either of the Employees resigns from Great Southern upon the
failure of the Great Southern Board of Directors to reelect the Employee to his
current office or upon a material lessening of his functions, duties or
responsibilities, the employee would be entitled to the payments owed for the
remaining term of the agreement. If the employment of either 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,
and (ii) continued payment of his salary under the applicable Employment
Agreement for the term of the agreement. If Messrs. W. Turner and J. Turner had
been entitled to the lump sum payments described in clause (i) of the preceding
sentence as of December 31, 2001, the payments would have amounted to $1,356,983
and $619,892, respectively.
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.
103
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, 2001, Messrs. J. Turner,
R. Copeland and S. Mitchem had 9, 1 and 10 years, respectively, of credited
service under the pension plan. Mr. W. Turner is no longer accruing additional
benefits under the plan and, in 2001, received annual benefit payments of
$106,420 under the pension plan.
PENSION PLAN TABLE
Years of Service
Average Annual ---------------------------------------------------------------------
Covered Compensation 10 20 30 40
- ------------------------------ --------------- -------------------- ---------------- ---------------
$ 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 80,000 120,000 140,000(1)
250,000...................... 50,000 100,000 140,000(1) 140,000(1)
300,000...................... 60,000 120,000 140,000(1) 140,000(1)
350,000...................... 70,000 140,000(1) 140,000(1) 140,000(1)
400,000...................... 80,000 140,000(1) 140,000(1) 140,000(1)
450,000...................... 90,000 140,000(1) 140,000(1) 140,000(1)
- ----------------
(1) The maximum retirement benefit currently permitted by federal law is
$140,000 per year for this type of plan.
104
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table sets forth certain information, as of the Record
Date as to those persons believed by management of Bancorp to be beneficial
owners of more than five percent of the outstanding shares of Common Stock.
Persons, legal or natural, and groups beneficially owning in excess of five
percent of the 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 the Common
Stock as of the Record Date.
Amount and
Name and Address Nature of Beneficial Percent of
of Beneficial Owner Ownership(1) Class(2)
- ---------------------------------- ----------------------- ---------------
William V. Turner 1,029,352(3) 14.97%
Ann S. Turner
Turner Family Limited Partnership
Turner Family Foundation
925 St. Andrews Circle
Springfield, MO 65809
Robert M. Mahoney 527,384(4) 7.68
Joyce B. Mahoney
Tri-States Company
4940 S. Farm Road 189
Suite 500
Rogersville, MO 65742
Earl A. Steinert, Jr. 460,500(5) 6.70
1736 E. Sunshine
Springfield, MO 65804
- --------------------
(1) Due to the rules for determining beneficial ownership, the same securities
may be attributed as being beneficially owned by more than one person. The
holders may disclaim beneficial ownership of the included shares which 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
the Record Date.
(3) 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 Record Date or will become
exercisable within 60 days of that date. This figure includes 8,125 shares
which may be acquired through option exercises by William V. Turner. This
figure also includes 35,368 shares held in various capacities by Ann S.
Turner, Mr. W. Turner's wife, which Mr. W. Turner may be deemed to
beneficially own, 14,826 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, and 258,678 shares owned by the Turner Family Limited
Partnership. This figure also includes 188,021 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 258,678
shares owned by the Turner Family Limited Partnership.
105
(4) Robert M. Mahoney, Joyce B. Mahoney and Tri-States Service Company reported
ownership of 486,184 shares in a Schedule 13D filed on July 3, 1997. The
Schedule 13D was a joint filing pursuant to Rule 13d-1(k)(1) of the
Exchange Act. Joyce B. Mahoney and Tri-States Service Company disclaim
beneficial ownership as to all shares. Robert M. Mahoney reported sole
voting and dispositive power as to all shares. Robert M. Mahoney notified
the Company that he purchased an additional 41,200 shares during 2001,
reporting total ownership as Robert Mahoney Trust - 215,867 shares, Joyce
Mahoney Trust - 215,867 shares and Tri-States Service Company - 95,650
shares.
(5) As reported by Earl A. Steinert, Jr. in a Schedule 13D filed on March 13,
1997. Earl A. Steinert, Jr. reported sole voting and dispositive power as
to 391,500 shares and shared voting and dispositive power as to 69,000
shares. The 69,000 shares include 54,000 shares held by Earl A. Steinert,
Jr. Trustee of the Earl A. Steinert Trust II and 15,000 shares held by
Dorothy E. Steinert, Earl A. Steinert and Barbara Lee Stole, Joint Tenants.
Earl A. Steinert, Jr. disclaims beneficial ownership as to these 69,000
shares.
Stock Ownership of Management
The following table sets forth information, as of the Record Date, as
to shares of Common Stock beneficially owned by the directors and nominees named
under "Election of Directors" and "The Board of Directors" above, 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.
Amount and
Nature of Beneficial Percent of
Name Ownership(1) Class(2)
- -------------------------------------- ------------------------ ---------------
William V. Turner 1,029,352(3) 14.97%
Larry D. Frazier 55,000 .80
Joseph W. Turner 47,690(4) .69
William E. Barclay 8,048(5) .12
Thomas J. Carlson 1,500 .02
Rex A. Copeland 1,250 .02
Steven G. Mitchem 34,410 .50
Directors and Executive Officers
as a Group (9 persons) 1,180,501(6) 17.14
- ---------------
(1) Under Rule 13d-3 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 Record Date or will become
exercisable within 60 days of that date. Due to the rules for determining
beneficial ownership, the same securities may be attributed as being
beneficially owned by more than one person. The holders may disclaim
beneficial ownership of the included shares which 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
the Record Date.
(3) For a detailed discussion of the nature of Mr. W. Turner's ownership, see
Footnote 3 to the table of beneficial owners set out above.
(4) This figure includes 8,125 shares that may be acquired through option
exercises.
(5) Mr. Barclay shares voting and dispositive power with his spouse with
respect to all shares.
(6) The figure includes an aggregate of 19,364 shares that may be acquired
through option exercises by all directors and executive officers as a
group.
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
106
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 interests and
their immediate family members in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons which, in
the opinion of management, do 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 below market rate loans exceeding $60,000 at
any time since January 1, 2001 except as noted below.
Largest
Amount
Outstanding Balance Interest
Date of Since as of Rate at
Name Position Loan 01/01/01 12/31/01 12/31/01 Type
---- -------- ---- -------- -------- -------- ----
William V. Turner Chairman of the Board of 08/25/95 $312,349 $ --- ---% Home Mortgage
Bancorp and Great Southern
Joseph W. Turner CEO and President of Bancorp 08/31/00 94,574 92,847 4.75% Home Equity Line
and Great Southern 09/14/98 290,354 286,168 4.96% Home Mortgage
Rex A. Copeland Treasurer of Bancorp; Senior 06/01/00 185,993 181,795 5.71% Home Mortgage
Vice President and CFO of
Great Southern
Steven G. Mitchem Senior Vice President and Chief 06/22/98 163,697 141,624 4.27% Home Mortgage
Lending Officer of Great
Southern
Larry A. Larimore Secretary of Bancorp and Great 08/17/00 215,000 211,640 5.28% Home Mortgage
Southern; Vice President of 08/12/98 17,753 --- 4.75% Home Equity Line
Great Southern
Douglas W. Marrs Vice President - Operations of 08/06/01 100,000 99,384 4.96% Home Mortgage
Great Southern 02/25/98 22,935 --- ---% Home Equity Line
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
The Consolidated Financial Statements and Independent Accountants'
Report are included in Item 8.
(2) Financial Statement Schedules
107
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, and a
January 19, 2000 amendment previously filed as Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 are incorporated herein by reference as Exhibit
10.2.
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, and a January
19, 2000 amendment previously filed as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 are incorporated herein by reference as Exhibit
10.4.
108
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.
The Registrant's Revolving Note, as modified, with a commercial
bank is attached hereto as Exhibit 10.6.
(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
The Statement re computation of ratio of earnings to fixed charges
is attached hereto as Exhibit 12.
(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 BKD, LLP 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
Included as part of signature page.
(99) Additional Exhibits
Inapplicable.
109
(b) Reports on Form 8-K
None.
110
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.
Date: March 28, 2002 By: /s/ Joseph W. Turner
-------------------------------------------
Joseph W. Turner
President, Chief Executive Officer and Director
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned officers and directors of Great Southern Bancorp,
Inc., hereby severally and individually constitute and appoint Joseph W. 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.
Signature Capacity in Which Signed Date
- ------------------------ ---------------------------------- --------------
/s/ Joseph W. Turner President, Chief Executive Officer March 28, 2002
- ------------------------ and Director
Joseph W. Turner (Principal Executive Officer)
/s/ William V. Turner Chairman of the Board March 28, 2002
- ------------------------
William V. Turner
/s/ Rex A. Copeland Treasurer March 28, 2002
- ------------------------ (Principal Financial Officer and
Rex A. Copeland Principal Accounting Officer)
/s/ William E. Barclay Director March 28, 2002
- ------------------------
William E. Barclay
/s/ Larry D. Frazier Director March 28, 2002
- ------------------------
Larry D. Frazier
/s/ Thomas J. Carlson Director March 28, 2002
- ------------------------
Thomas J. Carlson
111
GREAT SOUTHERN BANCORP, INC.
INDEX TO EXHIBITS
Exhibit
No. Document
- ------- ---------------------------------------------------------------------
10.6 Revolving Note, as modified
12 Statement of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Registrant
23 Consent of BKD, LLP, Certified Public Accountants
112