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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, 2000
Commission File Number 0-18082
GREAT SOUTHERN BANCORP, INC.
- --------------------------------------------------------------------------------
(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 16, 2001, computed by reference to the
closing price of such shares, was $101,054,590. At March 16, 2001, 6,895,927
shares of Common Stock, par value $.01 per share, were outstanding.
TABLE OF CONTENTS
Page
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 35
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION 57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 103
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 103
ITEM 11. EXECUTIVE COMPENSATION 105
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 108
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 109
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 110
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, 2000, owned directly all of the stock
of Great Southern Bank ("Great Southern" or the "Bank") and other non-banking
subsidiaries. Bancorp was incorporated under the laws of the State of Delaware
in July 1989 as a unitary savings and loan holding company. After receiving the
approval of the Federal Reserve Bank of St. Louis (the "Federal Reserve" or
"FRB"), the Company became a one-bank holding company on June 30, 1998, upon the
conversion on June 30, 1998, of Great Southern to a Missouri-chartered trust
company.
As a Delaware corporation, the Company is authorized to engage in any
activity that is permitted by the Delaware General Corporation Law and is not
prohibited by law or regulatory policy. The Company currently conducts its
business as a 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, 2000, Bancorp's
consolidated assets were $1.13 billion, consolidated net loans were $891
million, consolidated deposits were $751 million and consolidated stockholders'
equity was $71 million. The assets of the Company consist 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, appraisal,
travel, discount brokerage and related services, which are discussed further
below. The activities of the Company are funded by retained earnings and through
dividends from Great Southern and borrowings from third parties. Activities of
the Company may also be funded through sales of additional securities or through
income generated by other activities of the Company. The Company expects to
finance its future activities in a similar manner and is exploring several
alternative public and/or private financings that would provide it with a
significant increase in liquidity and capital to permit additional growth.
The executive offices of the Company are located at 1451 East Battlefield,
Springfield, Missouri 65804, and its telephone number at that address is (417)
887-4400.
Great Southern Bank
Great Southern was incorporated as a Missouri-chartered mutual savings and
loan association in 1923, and, in 1989, was converted to a Missouri-chartered
stock savings and loan association. In 1994, Great Southern changed to a federal
savings bank charter and then, on June 30, 1998, changed to a Missouri-chartered
trust company (the equivalent of a commercial bank charter). Headquartered in
Springfield, Missouri, Great Southern offers a broad range of banking services
through its 27 branches located in southwestern and central Missouri. At
December 31, 2000, the Bank had total assets of $1.12 billion, deposits of $752
million and stockholders' equity of $80 million, or 7.1% of total assets. Its
deposits
1
are insured by the Savings Association Insurance Fund ("SAIF") to the
maximum levels permitted by the Federal Deposit Insurance Corporation ("FDIC").
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 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.
2
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, 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 $149 million, or 16%, of the total loan portfolio at December 31,
2000, 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 $67 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
immediately in the secondary market.
Beginning in the mid-1990s, Great Southern increased its efforts to
originate commercial real estate and other residential loans, primarily with
adjustable rates or shorter-term fixed rates. 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, 2000, the balance of
participation loans purchased was $43.2 million, or 4.5% of the total loan
portfolio. None of these participation loans were non-performing loans at
December 31, 2000.
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.
3
Depending on market conditions, the ongoing servicing of these loans is at times
retained by Great Southern and at other times released to the purchaser of the
loan. Great Southern retains substantially all of the adjustable-rate mortgage
loans in its portfolio.
Another principal lending activity of Great Southern, which has become
more prevalent in recent years, is the origination of commercial real estate and
construction loans. Since the early 1990s, this area of lending has been an
increasing percentage of the loan portfolio and accounts for approximately 42%
of the portfolio at December 31, 2000.
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,
----------------------------------------------------------------------------------
2000 1999 1998
----------------------- ---------------------- -------------------------
Amount % Amount % Amount %
---------- --------- --------- --------- --------- ---------
(Dollars in thousands)
Real Estate Loans:
Residential
One- to four- family $226,136 23.6% $208,466 25.3% $217,120 29.2%
Other residential 81,143 8.5 76,926 9.4 85,828 11.5
Commercial 328,432 34.3 251,338 30.5 261,201 35.1
Residential Construction:
One- to four-family 47,241 4.9 39,795 4.8 33,292 4.4
Other residential 23,703 2.5 7,106 .9 6,553 .9
Commercial construction 73,398 7.7 63,722 7.8 19,952 2.7
-------- ----- -------- ----- -------- -----
Total real estate loans 780,053 81.5 647,353 78.7 623,946 83.8
-------- ----- -------- ----- -------- -----
Other Loans:
Consumer loans:
Guaranteed student loans 3,892 .5 4,067 .5 15,931 2.1
Automobile 67,356 7.0 55,625 6.8 37,152 5.0
Home equity and improvement 19,460 2.0 14,431 1.8 9,292 1.3
Other 491 .1 255 -- 992 .1
-------- ----- -------- ----- -------- -----
Total Consumer loans 91,199 9.6 74,378 9.1 63,367 8.5
Other commercial loans 85,334 8.9 100,419 12.2 57,179 7.7
-------- ----- -------- ----- -------- -----
Total other loans 176,533 18.5 174,797 21.3 120,546 16.2
-------- ----- -------- ----- -------- -----
Total loans 956,586 100.0% 822,150 100.0% 744,492 100.0%
===== ===== =====
Less:
Loans in process 45,834 36,048 28,823
Deferred fees and discounts 1,274 2,002 1,779
Allowance for loan losses 18,694 17,293 16,928
-------- -------- --------
Total loans receivable, net $890,784 $766,807 $696,962
======== ======== ========
June 30,
------------------------------------------------
1998 1997
---------------------- ----------------------
Amount % Amount %
---------- -------- --------- ---------
(Dollars in thousands)
Real Estate Loans:
Residential $217,688 31.0% $243,006 39.2%
One- to four-family 89,141 12.7 95,886 15.5
Other residential 244,016 34.8 191,556 30.9
Commercial
Residential Construction:
One- to four-family 16,032 2.3 9,529 1.5
Other residential 5,993 .9 4,243 .7
Commercial construction 27,156 3.9 21,932 3.5
-------- ----- -------- -----
Total real estate loans 600,026 85.6 566,152 91.3
-------- ----- -------- -----
Other Loans:
Consumer loans:
Guaranteed student loans 12,736 1.8 11,592 1.9
Automobile 23,120 3.3 6,006 1.0
Home equity and improvement 5,849 .8 4,183 .7
Other 4,862 .7 5,885 .9
-------- ----- -------- -----
Total Consumer loans 46,567 6.6 27,666 4.5
Other commercial loans 54,722 7.8 25,959 4.2
-------- ----- -------- -----
Total other loans 101,290 14.4 53,625 8.7
-------- ----- -------- -----
Total loans 701,316 100.0% 619,777 100.0%
===== =====
Less:
Loans in process 28,497 18,812
Deferred fees and discounts 2,774 3,493
Allowance for loan losses 16,373 15,524
-------- --------
Total loans receivable, net $653,672 $581,948
======== ========
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,
--------------------------------------------------------------------------------
2000 1999 1998
----------------------- ---------------------- ----------------------
Amount % Amount % Amount %
---------- --------- --------- --------- --------- ------
(Dollars in Thousands)
Fixed-Rate Loans:
Real Estate Loans
Residential
One- to four-family $ 6,414 .7% $ 5,960 .7% $ 11,659 1.6%
Other Residential 38,345 4.0 37,079 4.5 39,661 5.3
Residential construction:
One- to four-family 1,130 .1 -- -- -- --
Commercial 40,102 4.2 37,636 4.6 60,757 8.2
-------- ----- -------- ----- -------- -----
Total real estate loans 85,991 9.0 80,675 9.8 112,077 15.1
Consumer loans 66,751 7.0 54,829 6.7 37,080 5.0
Other commercial loans 10,526 1.1 4,266 .5 11,956 1.6
-------- ----- -------- ----- -------- -----
Total fixed-rate loans 163,268 17.1 139,770 17.0 161,113 21.7
-------- ----- -------- ----- -------- -----
Adjustable-Rate Loans:
Real Estate Loans
Residential
One- to four-family 219,722 23.0 202,506 24.6 205,461 27.6
Other Residential 42,798 4.5 39,847 4.9 46,167 6.2
Commercial 288,330 30.1 213,702 26.0 200,444 26.9
Residential construction:
One- to four-family 46,111 4.8 39,795 4.8 33,292 4.4
Other residential 23,703 2.5 7,106 .9 6,553 .9
Commercial construction 73,398 7.7 63,722 7.7 19,952 2.7
-------- ----- -------- ----- -------- -----
Total real estate loans 694,062 72.6 566,678 68.9 511,869 68.7
Consumer loans 24,448 2.5 19,549 2.4 26,287 3.5
Other commercial loans 74,808 7.8 96,153 11.7 45,223 6.1
-------- ----- -------- ----- -------- -----
Total adjustable-rate loans 793,318 82.9 682,380 83.0 583,339 78.3
-------- ----- -------- ----- -------- -----
Total loans 956,586 100.0% 822,150 100.0% 744,492 100.0%
===== ===== =====
Less:
Loans in process 45,834 36,048 28,823
Deferred fees and discounts 1,274 2,002 1,779
Allowance for loan losses 18,694 17,293 16,928
-------- -------- --------
Total loans receivable, net $890,784 $766,807 $696,962
======== ======== ========
June 30,
------------------------------------------------
1998 1997
---------------------- ----------------------
Amount % Amount %
---------- -------- --------- ---------
(Dollars in Thousands)
Fixed-Rate Loans:
Real Estate Loans $11,245 1.6% $10,544 1.7%
Residential 34,757 5.0 34,467 5.6
One- to four-family
Other Residential
Residential construction:
One- to four-family -- -- -- --
Commercial 28,004 4.0 5,865 1.0
------- ----- ------- -----
Total real estate loans 74,006 10.6 50,876 8.3
Consumer loans 27,319 3.9 10,769 1.7
Other commercial loans 1,645 .2 502 .1
------- ----- ------- -----
Total fixed-rate loans 102,970 14.7 62,147 10.1
------- ----- ------- -----
Adjustable-Rate Loans:
Real Estate Loans
Residential
One- to four-family 206,443 29.4 232,462 37.5
Other Residential 54,384 7.8 61,419 9.9
Commercial 216,013 30.8 185,691 30.0
Residential construction:
One- to four-family 16,032 2.3 9,529 1.5
Other residential 5,993 .9 4,243 .7
Commercial construction 27,156 3.9 21,932 3.5
------- ----- ------- -----
Total real estate loans 526,021 75.1 515,276 83.1
Consumer loans 19,248 2.7 16,897 2.7
Other commercial loans 53,077 7.5 25,457 4.1
------- ----- ------- -----
Total adjustable-rate loans 598,346 85.3 557,630 89.9
------- ----- ------- -----
Total loans 701,316 100.0% 619,777 100.0%
===== =====
Less:
Loans in process 28,497 18,812
Deferred fees and discounts 2,774 3,493
Allowance for loan losses 16,373 15,524
-------- --------
Total loans receivable, net $653,672 $581,948
======== ========
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, 2000 and 1999, loans secured by residential real estate
totaled $307 million and $285 million, respectively, and represented
approximately 32.1% and 34.7%, respectively, of the Bank's total loan portfolio.
Compared to historical levels, market rates for fixed rate mortgages were high
during the year ended December 31, 2000 and were low during the early portion of
the year ended December 31, 1999. This caused a higher than normal level of
refinancing of adjustable-rate loans into fixed-rate loans during 1999, most of
which were sold in the secondary market, and accounted for a decline in the
Bank's residential real estate loan portfolio during 1999. 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 are based
upon changes in prevailing rates for one-year U.S. Treasury securities, and are
generally limited to 2% maximum annual adjustments as well as a maximum
aggregate adjustment over the life of the loan. Accordingly, the interest rates
on these loans typically may not be as rate sensitive as is the Bank's cost of
funds. Generally, the Bank's adjustable-rate mortgage loans are not convertible
into fixed-rate loans, do not permit negative amortization of principal and
carry no prepayment penalty.
The Bank's portfolio of adjustable-rate mortgage loans also includes a
number of loans with different adjustment periods, without limitations on
periodic rate increases and rate increases over the life of the loans, or which
are tied to other short-term market indices. These loans were originated prior
to the industry standardization of adjustable-rate loans. Since adjustable-rate
mortgage loans have not been subject to an interest rate environment which
causes them to adjust to the maximum, 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 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
7
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, 2000 and 1999, loans secured by commercial real estate
totaled $328 million and $251 million, respectively, or approximately 34.3% and
30.5%, respectively, of the Bank's total loan portfolio. In addition, at
December 31, 2000 and 1999, construction loans secured by projects under
construction and the land on which the projects are located aggregated $144
million and $111 million, respectively, or 15.1% and 13.5%, 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. These collateral types
represent the three highest percentage concentrations of commercial real estate
and construction loan types to the total loan portfolio.
8
Loan to Value
Percentage of Ratio Based on Non-performing
Total Loan Internal Loans at
Collateral Type Loan Balance Portfolio Calculations December 31, 2000
- ----------------------------- ------------- --------- ------------ -----------------
(Dollars in thousands)
Motels $97,776 10.2% 57% $ 767
Health Care Facilities $51,750 5.4% 57% $ --
Recreational Facilities $35,362 3.7% 52% $2,362
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, 2000,
this limit was approximately $24.5 million. See "Government Supervision and
Regulation." At December 31, 2000 the Bank was in compliance with the
loans-to-one borrower limit. At December 31, 2000, the Bank's largest
relationship totaled $17.7 million. All loans included in this relationship were
current at December 31, 2000.
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, 2000 and 1999, respectively, Great Southern had $85.3
million and $100.4 million in other commercial loans outstanding, or 8.9% and
12.2%, respectively, of the Bank's total loan portfolio. Great Southern's other
commercial lending activities encompass loans with a variety of purposes and
security, including loans to finance accounts receivable, inventory and
equipment.
Great Southern expects to continue to maintain or increase the current
percentage of other commercial loans in its total loan portfolio by originating
loans, subject to market conditions and 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
9
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, 2000, Great Southern had 78
letters of credit outstanding in the aggregate amount of $12.4 million.
Approximately 88% 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 $91.2 million and
$74.4 million at December 31, 2000 and 1999, respectively, or 9.6% and 9.1%,
respectively, of the Bank's total loan portfolio.
The underwriting standards employed by the Bank for consumer loans include
a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. Although creditworthiness of the applicant is of primary consideration,
the underwriting process also includes a comparison of the value of the
security, if any, in relation to the proposed loan amount.
Beginning in fiscal year June 30, 1998, the Bank implemented indirect
lending relationships, primarily with automobile dealerships. Through these
dealer relationships, the dealer completes the application with the consumer and
then submits it to the Bank for credit approval. At December 31, 2000, the Bank
had $53.9 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.
10
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 the normal underwriting
standards used for originated loans and rejects any credits that do not meet
those guidelines. The originating bank retains the servicing of these loans. The
Bank purchased $13.9 million of these loans in the fiscal year ended December
31, 2000 and $3.1 million in the fiscal year ended December 31, 1999. Of the
total $43.2 million of purchased participation loans outstanding at December 31,
2000, $31.0 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, 2000.
11
There have been no whole loan purchases by the Bank in the last five
years. At December 31, 2000 and 1999, approximately $5.0 million, or .5% and
$7.0 million, or .9%, 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 $34.9 million, $32.2 million, $26.1
million and $72.6 million during the fiscal years 2000 and 1999, the short
fiscal year ended December 31, 1998 and the fiscal year ended June 30, 1998,
respectively. Sales of whole real estate loans and participations in real estate
loans 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 $12.4
million, $20.8 million, $3.1 million and $9.7 million during 2000 and 1999, the
short fiscal year ended December 31, 1998 and the fiscal year ended June 30,
1998, respectively. Sales of guaranteed student loans generally can be
beneficial to the Bank since these sales remove the burdensome servicing
requirements of these types of loans once the borrower begins repayment.
Gains, losses and transfer fees on sales of loans and loan participations
are recognized at the time of the sale. When real estate loans and loan
participations sold have an average contractual interest rate that differs from
the agreed upon yield to the purchaser (less the agreed upon servicing fee),
resulting gains or losses are recognized in an amount equal to the present value
of the differential over the estimated remaining life of the loans. Any
resulting discount or premium is accreted or amortized over the same estimated
life using a method approximating the level yield interest method. When real
estate loans and loan participations are sold with servicing released, as the
Bank primarily does, an additional fee is received for the servicing rights. Net
gains and transfer fees on sales of loans for 2000 and 1999, the short fiscal
year ended December 31, 1998 and fiscal year ended June 30, 1998 were $570,000,
$1,098,000, $386,000 and $1,125,000, respectively. Of these amounts, $103,000,
$268,000, $31,000 and $125,000, respectively, were gains from the sale of
guaranteed student loans and $467,000, $830,000, $355,000 and $1,000,000,
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 $48 million and
$56 million at December 31, 2000 and 1999, respectively, of loans owned by
others. The servicing of these loans generated net servicing fees to the Bank
for the years ended December 31, 2000 and 1999, of $180,000 and $181,000,
respectively.
12
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 $610,000, $961,000, $301,000 and $502,000 for the years ended
December 31, 2000 and 1999, the short year ended December 31, 1998 and the
fiscal year ended June 30, 1998, respectively. Loan origination fees, net of
related costs, are accounted for in accordance with Statement of Financial
Accounting Standards No. 91 "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases." Loan fees and certain direct loan origination costs are deferred, and
the net fee or cost is recognized in interest income using the level-yield
method over the contractual life of the loan. For further discussion of this
issue see Note 1 of 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, 2000.
Loans Delinquent for 30-89 Days
-----------------------------------
Percent of
Total
Delinquent
Number Amount Loans
--------- -------- -----------
(Dollars in thousands)
Real Estate:
One- to four-family 20 $ 826 7%
Other residential 1 1,036 9
Commercial 16 4,863 43
Construction or development 7 1,493 13
Consumer and overdrafts 616 1,890 17
Other commercial 11 1,211 11
--- ------- ---
Total 671 $11,319 100%
=== ======= ===
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, 2000.
Total Allowance for
Asset Category Substandard Doubtful Loss Classified Losses
- ------------------------------ ----------- ------------ -------- ---------- -------------
(Dollars in thousands)
Loans $19,268 $77 $ -- $19,345 $18,694
Foreclosed assets 2,688 -- -- 2,688 --
------- --- ---- ------- -------
Total $21,956 $77 $ -- $22,033 $18,694
======= === ==== ======= =======
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,
------------------------------------- ----------------------------
2000 1999 1998 1998 1997
-------- -------- -------- -------- --------
(Dollars in thousands)
Non-accruing loans:
One- to four-family residential $2,171 $ 880 $ 137 $ 522 $2,018
Other residential -- 1,002 2,554 4,535 3,826
Commercial real estate 4,112 4,371 2,496 1,687 316
One- to four-family construction -- 1 -- 91 655
Consumer 109 146 33 147 219
Other commercial 1,236 444 1,061 80 600
Commercial construction 4,858 2,377 1,137 -- --
------- -------- ------- ------- -------
Total gross non-accruing loans 12,486 9,221 7,418 7,062 7,634
------- -------- ------- ------- -------
Loans over 90 days delinquent
still accruing interest:
One- to four-family residential -- 49 2,243 -- --
Consumer -- -- 244 -- --
Other commercial -- -- 241 -- --
------- -------- ------- ------- -------
Total over 90 days accruing loans -- 49 2,728 -- --
------- -------- ------- ------- -------
Other impaired loans -- -- -- 2,278 --
------- -------- ------- ------- -------
Loans in connection with sales of
foreclosed assets -- -- -- 145 246
------- -------- ------- ------- -------
Total gross non-performing loans 12,486 9,270 10,146 9,485 7,880
------- -------- ------- ------- -------
Foreclosed assets:
One- to four-family residential 165 167 438 400 544
Other residential -- -- 1,075 175 1,150
One- to four-family construction 508 -- -- -- --
Commercial real estate 1,645 650 1,297 4,176 4,276
------- -------- ------- ------- -------
Total foreclosed assets 2,318 817 2,810 4,751 5,970
------- -------- ------- ------- -------
Repossessions 370 -- -- -- --
------- -------- ------- ------- -------
Total gross non-performing assets $15,174 $10,087 $12,956 $14,236 $13,850
======= ======= ======= ======= =======
Total gross non-performing assets as a
percentage of average total assets 1.50% 1.09% 1.61% 1.90% 2.07%
==== ==== ==== ==== ====
Gross impaired loans totaled $12,486,000 at December 31, 2000 and
$9,270,000 at December 31, 1999.
For the year ended December 31, 2000, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $2,637,000. The
15
amount that was included in interest income on these loans was $1,671,000 for
the year ended December 31, 2000.
The level of non-performing assets is primarily attributable to the Bank's
commercial real estate, other residential, commercial construction and
commercial business lending activities. These activities 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, 1999, in the six months ended December 31, 1998 and in fiscal years
ended June 30, 1998 and 1997. For a discussion of significant non-performing
assets, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Allowance for Losses on Loans and Foreclosed Assets
Management periodically reviews Great Southern's allowance for loan
losses, considering numerous factors, including, but not necessarily limited to,
general economic conditions, loan portfolio composition, prior loss experience,
and independent appraisals. Further allowances are established when management
determines that the value of the collateral is less than the amount of the
unpaid principal of the related loan plus estimated costs of the acquisition and
sale or when management determines a borrower of an unsecured loan will be
unable to make full repayment. Allowances for estimated losses on foreclosed
assets (real estate and other assets acquired through foreclosure) are charged
to expense, when in the opinion of management, any significant and permanent
decline in the market value of the underlying 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
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,
management provided increased levels of loan loss allowances over the past few
years.
The allowance for losses on loans and foreclosed assets are maintained at
an amount management considers adequate to provide for potential losses.
Although management believes that it uses the best information available to make
such determinations, future adjustments to the allowance for losses on loans and
foreclosed assets may be necessary, and net income could be significantly
affected, if circumstances differ substantially from the assumptions used in
making the initial determinations.
At December 31, 2000 and 1999, Great Southern had an allowance for losses
on loans of $18.7 million and $17.3 million, respectively, of which $3.0 million
and $2.7 million, respectively, had been allocated as an allowance for specific
loans, and $1.7 million and $0.8 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,
----------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------
% of % of % of
Loans to Loans to Loans to
Total Total Total
Amount Loans Amount Loans Amount Loans
---------- ------- -------- -------- ---------- ---------
(Dollars in thousands)
One- to four-family residential and
construction $ 1,164 28.5% $ 798 30.1% $ 1,254 33.4%
Other residential and construction 444 11.0 375 10.3 613 12.4
Commercial real estate and
construction and other commercial 12,647 50.9 12,003 50.5 9,719 45.7
Consumer and overdrafts 2,236 9.6 1,567 9.1 1,211 8.5
Unallocated 2,203 -- 2,550 -- 4,131 --
------- ----- ------- ----- ------- -----
Total $18,694 100.0% $17,293 100.0% $16,928 100.0%
======= ===== ======= ===== ======= =====
June 30,
-------------------------------------------------
1998 1997
---------------------- -------------------------
% of % of
Loans to Loans to
Total Total
Amount Loans Amount Loans
---------- --------- ---------- --------
(Dollars in thousands)
One- to four-family residential and
construction $ 811 33.5% $1,039 41.0%
Other residential and construction 615 13.5 35 16.1
Commercial real estate and
construction and other commercial 11,348 46.4 9,699 38.5
Consumer and overdrafts 743 6.6 502 4.4
Unallocated 2,586 -- 4,249 --
------- ----- ------- -----
Total $16,373 100.0% $15,524 100.0%
======= ===== ======= =====
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,
-------------------------------- --------------------
2000 1999 1998 1998 1997
------- ------- ------- ------- -------
(Dollars in thousands)
Balance at beginning of period $17,293 $16,928 $16,373 $15,524 $14,356
------- ------- ------- ------- -------
Charge-offs:
One- to four-family residential 254 114 --- 45 185
Other residential --- --- 187 67 34
Commercial real estate 260 131 185 529 364
Construction 218 375 --- 82 14
Consumer and overdrafts 2,116 1,870 1,077 287 70
Other commercial 303 316 50 133 9
------- ------- ------- ------- -------
Total charge-offs 3,151 2,806 1,499 1,143 676
------- ------- ------- ------- -------
Recoveries:
One- to four-family residential 66 33 147 22 ---
Other residential --- --- --- 1 11
Commercial real estate and construction 166 64 --- 68 88
Consumer and overdrafts 1,019 793 552 10 9
Other commercial 195 219 64 38 30
------- ------- ------- ------- -------
Total recoveries 1,446 1,109 763 139 138
------- ------- ------- ------- -------
Net charge-offs 1,705 1,697 736 1,004 538
Provision for losses on loans 3,106 2,062 1,291 1,853 1,706
------- ------- ------- ------- -------
Balance at end of period $18,694 $17,293 $16,928 $16,373 $15,524
======= ======= ======= ======= =======
Ratio of net charge-offs to average loans
outstanding 0.20% 0.23% 0.23% 0.16% 0.09%
==== ==== ==== ==== ====
Investment Activities
The Bank's investment securities portfolio at December 31, 2000 and 1999,
contained one security with an aggregate book value in excess of 10% of the
Bank's retained earnings, excluding those issued by the United States
Government, or its agencies. This security was issued by The Missouri
Development Finance Board and has an aggregate book and market value of
approximately $9,986,000 at December 31, 2000.
As of December 31, 2000 and 1999, the Bank held approximately $27.8
million and $37.6 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 $27.7 million and $37.4
million, respectively. In addition, as of December 31, 2000 and 1999, the
Company held approximately $126.4 million and $79.9 million, respectively, in
principal amount of investment securities which the Company classified as
available-for-sale.
18
This issue is discussed further in Notes 1 and 2 of Notes to Consolidated
Financial Statements.
The amortized cost and approximate fair values of, and gross unrealized
gains and losses on, investment securities at the dates indicated are summarized
as follows. The table is based on information prepared in accordance with
generally accepted accounting principles. Yields on tax exempt obligations have
not been computed on a tax equivalent basis.
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 $554 $ 99 $114,776
Collateralized mortgage obligations 3,424 14 --- 3,438
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 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
======= ==== ==== =======
December 31, 1999
------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ------------
(Dollars in thousands)
AVAILABLE-FOR-SALE SECURITIES:
U.S. government agencies $72,714 $65 $ 134 $72,645
Equity securities 8,153 --- 907 7,246
------- --- ------ -------
Total available-for-sale securities $80,867 $65 $1,041 $79,891
======= === ====== =======
HELD-TO-MATURITY SECURITIES:
U.S. Treasury $ 100 $ --- $ --- $ 100
U.S. government agencies 24,242 --- 141 24,101
States and political subdivisions 11,470 --- 89 11,381
Corporate bonds 800 --- --- 800
Mortgage-backed securities 1,034 --- --- 1,034
------- --- ------ -------
Total held-to-maturity securities $37,646 $ --- $230 $37,416
======= === ====== =======
19
The following table presents the contractual maturities and weighted
average yields of available-for-sale debt securities at December 31, 2000. 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 $20,165 5.86% $20,101
After one through five years 94,156 6.83% 94,674
Securities not due on a single maturity date 3,424 6.42% 3,439
-------- --------
Total $117,745 $118,214
======== ========
The following table presents the contractual maturities and weighted
average yields of held-to-maturity securities at December 31, 2000. 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 $16,996 6.28% $16,979
After ten years 9,909 8.87% 9,889
Securities not due on a single maturity date 853 15.13% 850
-------- --------
Total $27,758 $27,718
======== ========
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.
The composition of the Bank's deposits at the end of recent periods is set forth
below.
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 Company at
the dates indicated. The table is based on information prepared in accordance
with generally accepted accounting principles.
December 31,
--------------------------------------------------------------------------------------
2000 1999 1998
-------------------------- ------------------------ --------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
--------- -------- -------- ---------- --------- ----------
(Dollars in thousands)
Time deposits:
0.00% - 3.99% $ 94 .01% $ 1,153 .18% $ 435 .07%
4.00% - 4.99% 14,847 1.98 79,429 12.69 69,178 11.58
5.00% - 5.99% 123,103 16.39 280,688 44.85 259,844 43.48
6.00% - 6.99% 360,825 48.04 69,525 11.11 32,262 5.40
7.00% - 7.99% 46,221 6.15 3,527 .56 3,845 .64
8.00% and above 225 .03 30 --- 240 .04
-------- ------- -------- --------- -------- ---------
Total Time deposits 545,316 72.60 434,352 69.39 365,804 61.21
Non-interest-bearing demand deposits 60,353 8.04 47,360 7.57 43,211 7.23
Savings deposits
(2.51%-2.50%-2.50%-2.51%) 20,400 2.72 29,613 4.73 32,190 5.39
Interest-bearing demand deposits
(2.23%-1.86%-2.39%-2.25%) 124,973 16.64 114,575 18.31 156,420 26.17
-------- ------- ------- --------- -------- ---------
Total Deposits $751,042 100.00% $625,900 100.00% $597,625 100.00%
======== ======= ======== ====== ======== ======
June 30,
1998
------------------------
Percent of
Amount Total
-------- ----------
(Dollars in thousands)
Time deposits:
0.00% - 3.99% $ 62 .01%
4.00% - 4.99% 17,476 3.18
5.00% - 5.99% 257,704 46.87
6.00% - 6.99% 51,064 9.29
7.00% - 7.99% 3,711 .68
8.00% and above 251 .05
-------- ------
Total Time deposits 330,268 60.08
Non-interest-bearing demand deposits 29,375 5.34
Savings deposits
(2.51%-2.50%-2.50%-2.51%) 34,644 6.30
Interest-bearing demand deposits
(2.23%-1.86%-2.39%-2.25%) 155,485 28.28
-------- ------
Total Deposits $549,772 100.00%
======== ======
21
A table showing maturity information for the Bank's time deposits as of
December 31, 2000, is presented in Note 5 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.
The following table sets forth the time remaining until maturity of the
Bank's time deposits as of December 31, 2000. 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 $55,272 $50,636 $38,490 $36,566 $180,964
$100,000 or more 21,443 17,164 12,748 10,275 61,630
Brokered 42,528 35,338 67,521 141,317 286,704
Public funds(1) 10,178 4,659 552 629 16,018
---------- ---------- ---------- ---------- ----------
Total $129,421 $107,797 $119,311 $188,787 $545,316
========== ========== ========== ========== ==========
- --------------
(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, 2000, the Bank had approximately
$286.7 million in brokered deposits.
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 2000, the Company began using interest rate swaps to manage its
interest rate risks from recorded financial assets and liabilities. During 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.
22
Borrowings. Great Southern's other sources of funds include advances from
the FHLBank and a Qualified Loan Review ("QLR") arrangement with the Federal
Reserve Bank ("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 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, 2000 that would have
allowed approximately $61.0 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 $25,000,000. At December 31, 2000,
the amount outstanding was $15,500,000.
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 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, 2000, the amount outstanding was
$2,340,000.
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 Year Ended Short Period
December 31, December 31, Ended December 31, Year Ended June
2000 1999 1998 30, 1998
------------ ------------- ------------------- ----------------
(Dollars in thousands)
Maximum Balance:
FHLBank advances $267,968 $200,531 $169,593 $211,270
Other borrowings 57,195 61,111 2,387 41,176
Average Balances:
FHLBank advances $218,725 $165,192 $147,839 $161,913
Other borrowings 37,973 19,680 770 32,234
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,
--------------------------------------------------
2000 1999 1998 June 30, 1998
----------- ----------- ----------- ----------------
(Dollars in thousands)
FHLBank advances $234,378 $200,531 $158,452 $169,509
Other borrowings 57,195 61,111 798 ---
-------- -------- -------- --------
Total borrowings $291,573 $261,642 $159,250 $169,509
======== ======== ======== ========
Weighted average interest 6.41% 6.23% 5.60% 6.00%
rate of FHLBank advances ==== ==== ==== ====
Weighted average interest 6.99% 5.03% 7.20% N/A
==== ==== ====
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, 2000, the
Bank's total investment in Great Southern Financial Corporation ("GSFC") was
$1.7 million. GSFC is incorporated under the laws of the State of Missouri. This
subsidiary is primarily engaged in the following activities:
Great Southern Capital Management, Inc. At December 31, 2000, the Bank's
total investment in Great Southern Capital Management ("Capital Management") was
$729,000. Capital Management was incorporated and organized in 1988 under the
laws of the state of Missouri. Capital Management is a registered broker/dealer
and a member of the National Association of Securities Dealers, Inc. ("NASD")
and the Securities Investors Protection Corporation ("SIPC"). Capital Management
offers a full line of financial consultation, investment counseling and discount
brokerage services including execution of transactions involving stocks, bonds,
options, mutual funds and other securities. In addition, Capital Management is
registered as a municipal securities dealer. Capital Management operates through
Great Southern's branch office network. Capital Management had net income of
$297,000 and $295,000 in the years ended December 31, 2000 and 1999,
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 $141,000 and $113,000 in the years ended December
31, 2000 and 1999, respectively.
Travel Agency. Great Southern Travel, a division of GSFC, was organized in
1976. At December 31, 2000, 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 of $276,000 and
$365,000 in the years ended December 31, 2000 and 1999, respectively.
GSB One, L.L.C. At December 31, 2000 the Bank's total investment in GSB
One, L.L.C. ("GSB One") and GSB Two, L.L.C. ("GSB Two") was $282 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 $26.9 million and $22.7 million in the
years ended December 31, 2000 and 1999, respectively.
Appraisal Services. Appraisal Services, Inc., incorporated in 1976, is a
wholly-owned subsidiary of GSFC and performs primarily residential real estate
appraisals for a number of clients, the majority of which are for the Bank and
its loan customers. Appraisal Services, Inc. had net income (loss) of $12,000
and $(12,000) in the years ended December 31, 2000 and 1999, respectively.
Competition
Great Southern faces strong competition both in originating real estate
and other loans and in attracting deposits. Competition in originating real
estate loans comes primarily from other commercial banks, savings institutions
and mortgage bankers making loans secured by real estate located in the Bank's
market area. Commercial banks and finance companies provide vigorous competition
in commercial and consumer lending. The Bank competes for real estate and other
loans principally on the basis of the interest rates and loan fees it charges,
the types of loans it originates and the quality of services it provides to
borrowers. The other lines of business of the Bank, including loan servicing and
loan sales, as well as the Bank and Company subsidiaries, face significant
competition in their markets.
The Bank faces substantial competition in attracting deposits from other
commercial banks, savings institutions, money market and mutual funds, credit
unions and other investment vehicles. The Bank attracts a significant amount of
deposits through its branch offices primarily from the communities in which
those 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, 2000, the Bank and its affiliates had a total of 540
employees, including 149 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
25
affected by general economic conditions, management policies and the legislative
and governmental actions of various regulatory authorities, including the FRB,
the Federal Deposit Insurance Corporation ("FDIC") and the MDF. In addition,
there are numerous governmental requirements and regulations that affect the
activities of the Company and its subsidiaries. The following is a brief summary
of certain aspects of the regulation of the Company and Great Southern and does
not purport to fully discuss such regulation.
Bank Holding Company Regulation
The Company is a bank holding company that has elected to be treated as a
financial holding company by the Federal Reserve Board. Financial holding
companies are subject to comprehensive regulation by the Federal Reserve Board
under the Bank Holding Company Act, and the regulations of the Federal Reserve
Board. As a financial holding company, the Company is required to file reports
with the Federal Reserve Board and such additional information as the Federal
Reserve Board may require, and is subject to regular examinations by the Federal
Reserve Board. The Federal Reserve Board 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 Federal Reserve Board policy, a financial holding company must serve
as a source of strength for its subsidiary banks. Under this policy the Federal
Reserve Board 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 Federal Reserve Board 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, 2000, the Company owned approximately 16% 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.
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 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
26
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 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. The 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 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
27
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, 2000, 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,
2000, the Company was "well capitalized" under the two Tier I capital ratios
described above and was "adequately capitalized" under the Total Risk-Based
capital ratio described above.
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 has a risk based assessment rate of 0.00%. In addition,
the FDIC is authorized to raise the assessment rates
28
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 during the 1980's to resolve the thrift bailout. For
the quarter ended December 31, 2000, the assessment rate for both BIF and SAIF
insured institutions was 2.02 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 Federal Reserve Board requires all depository institutions to maintain
reserves against their transaction accounts (primarily NOW and Super NOW
checking accounts) and non-personal time deposits. At December 31, 2000, the
Bank was in compliance with these reserve requirements.
Banks are authorized to borrow from the Federal Reserve Bank "discount
window," but Federal Reserve Board regulations only allow this borrowing for
short periods of time and generally require banks to exhaust other reasonable
alternative sources of funds where practical, including FHLBank advances, before
borrowing from the Federal Reserve Bank. See "Sources of Funds Borrowings"
above.
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
aggregate unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year, or 5% (or such greater percentage as
established by the FHLBank) of its outstanding FHLBank advances. At December 31,
2000, Great Southern had $14.1 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 6.81% and were 6.92% for year the ended December 31,
2000.
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 we 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 would create
tax of approximately $1.8 million, or $300,000 per year for each of the six
years. The $1.8 million of tax has been accrued by the Bank in previous periods
and would not be reflected in earnings when paid. At December 31, 2000, the
Company's net deferred tax asset included a deferred tax liability of
approximately $900,000 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 do not significantly impact 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, 1997.
ITEM 2. PROPERTIES
The following table sets forth certain information concerning the main
corporate office and each branch office of the Company at March 16, 2001. The
aggregate net book value of the Company's premises and equipment was $10 million
at December 31, 2000 and $10 million at December 31, 1999. See also Note 4 and
Note 11 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
Leased
Expiration
Year Owned or (Including any
Location Opened Lease 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
Kearney at Kansas Springfield, Missouri 1976 Leased* 2022
2410 N. Glenstone Springfield, Missouri 1977 Leased* 2003
1955 S. Campbell Springfield, Missouri 1979 Leased* 2020
3961 S. Campbell Springfield, Missouri 1998 Leased 2028
2631 E. Sunshine Springfield, Missouri 1988 Leased* 2002
1580 W. Battlefield Springfield, Missouri 1985 Leased* 2017
723 N. Benton Springfield, Missouri 1985 Owned N/A
Highway 14 Nixa, Missouri 1995 Leased* 2019
1505 S. Elliot Aurora, Missouri 1985 Leased 2006
Jefferson & Washington Ava, Missouri 1982 Owned N/A
110 W. Hensley Branson, Missouri 1982 Owned N/A
919 W. Dallas Buffalo, Missouri 1976 Owned N/A
527 Ozark Cabool, Missouri 1989 Leased 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, 1984 Owned N/A
Missouri
528 S. Jefferson Lebanon, Missouri 1978 Leased* 2028
714 S. Neosho Boulevard Neosho, Missouri 1991 Owned N/A
Highway 54 Osage Beach, Missouri 1987 Owned N/A
1701 W. Jackson Ozark, Missouri 1997 Owned N/A
208 South Street Stockton, Missouri 1988 Leased 2006
323 E. Walnut Thayer, Missouri 1978 Leased* 2011
1210 Parkway Shopping Center West Plains, Missouri 1975 Owned N/A
1729 W. Highway 76 Branson, Missouri 1983 Owned N/A
- ----------
* 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, 2000 was $974,000 compared to $1.6 million at December 31, 1999.
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 108 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, 2000 and 1999 was $511,000 compared to $793,000 at December 31,
1999. 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 49, 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 36, 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 Baird, Kurtz and Dobson, prior to that.
Doug W. Marrs. Mr. Marrs, age 43, 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 60, is Secretary of the Company and
Secretary, Vice President B 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.
34
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, 2000 there were 6,897,332 total shares outstanding and
approximately 1,015 shareholders of record.
High/Low Stock Price
2000 1999 1998
--------------------------- -------------------------- --------------------------
High Low High Low High Low
------------- ------------- ------------ ------------- ------------ -------------
First Quarter $22 1/4 $17 1/4 $24 1/2 $23 1/4 $26 1/4 $24
Second Quarter 19 25/32 15 5/16 26 15/16 23 5/8 26 3/8 25
Third Quarter 17 1/4 14 7/8 27 1/2 20 3/4 25 1/4 21 1/2
Fourth Quarter 16 1/8 14 5/8 22 3/4 21 1/4 26 21 3/4
The last inter-dealer bid for the Company's Common Stock on December 31, 2000
was $15.625.
Dividend Declarations
December 31, December 31, December 31,
2000 1999 1998
---------------- ----------------- ----------------
First Quarter $.125 $.125 $.110
Second Quarter .125 .125 .110
Third Quarter .125 .125 .110
Fourth Quarter .125 .125 .125
35
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,
2000 and 1999, to the six months ended December 31, 1998 and to the years ended
June 30, 1998, 1997 and 1996 are derived from our consolidated financial
statements, which have been audited by Baird, Kurtz and Dobson. 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,
--------------------------------- -------------------------------
2000 1999 1998(1) 1998 1997 1996
---------- -------- -------- -------- -------- --------
(Dollars in thousands)
Summary Statement of Condition Information:
Assets...................................... $1,130,178 $964,803 $836,498 $795,091 $707,841 $668,105
Loans receivable, net....................... 890,784 766,807 696,962 653,672 581,948 544,705
Allowance for loan losses................... 18,694 17,293 16,928 16,373 15,524 14,356
Available-for-sale securities............... 126,409 79,891 6,476 6,363 7,408 4,656
Held-to-maturity securities................. 27,758 37,646 60,394 51,917 51,518 51,236
Foreclosed assets held for sale, net........ 2,688 817 2,810 4,751 5,651 9,862
Allowance for foreclosed asset losses....... --- --- --- --- 319 1,086
Intangibles................................. 264 404 543 626 --- 1,102
Deposits.................................... 751,042 625,900 597,625 549,773 456,370 395,238
Total borrowings............................ 291,573 261,642 159,250 169,509 180,566 197,057
Stockholders' equity (retained
earnings substantially restricted)........ 71,049 68,926 68,382 67,409 60,348 67,808
Average loans receivable.................... 843,170 746,979 647,797 624,290 561,146 536,695
Average total assets........................ 1,013,963 928,182 805,170 747,901 670,172 643,885
Average deposits............................ 676,633 612,503 577,820 487,386 416,041 385,734
Average stockholders' equity................ 69,208 68,758 66,997 64,212 62,200 65,355
Number of deposit accounts.................. 73,394 73,932 74,375 74,070 69,762 60,649
Number of full-service offices.............. 27 27 27 27 25 25
36
For the For the For the
Year Ended Six Months Ended Year Ended
December 31, December 31, June 30,
------------------ ------------------- -----------------------------
2000 1999 1998(1) 1997 1998 1997 1996
------- ------- ------- ------ -------- ------- -------
(Dollars in thousands)
Summary Income Statement
Information:
Interest income:
Loans............................ $76,671 $63,386 $30,332 $27,878 $57,537 $51,365 $49,884
Investment securities and other.. 8,751 4,652 2,153 2,163 4,395 4,175 4,054
------- ------- ------- ------- -------- ------- -------
85,422 68,038 32,485 30,041 61,932 55,540 53,938
------- ------- ------- ------- -------- ------- -------
Interest expense:
Deposits......................... 32,244 24,966 12,255 10,395 20,951 17,951 17,003
Federal Home Loan Bank advances.. 14,312 9,403 4,237 4,676 9,905 10,229 10,585
Short-term borrowings............ 2,305 1,094 38 530 1,136 642 544
------- ------- ------- ------- -------- ------- -------
48,861 35,463 16,530 15,601 31,992 28,822 28,132
------- ------- ------- ------- -------- ------- -------
Net interest income................ 36,561 32,575 15,955 14,440 29,940 26,718 25,806
Provision for loan losses.......... 3,106 2,062 1,291 852 1,853 1,706 1,451
------- ------- ------- ------- -------- ------- -------
Net interest income after
provision for loan losses........ 33,455 30,513 14,664 13,588 28,087 25,012 24,355
------- ------- ------- ------- -------- ------- -------
Noninterest income:
Commissions...................... 7,024 7,054 3,136 2,586 5,652 4,969 4,413
Service charges and ATM fees..... 5,968 4,502 2,390 1,753 3,841 2,785 2,381
Net realized gains on sales of loans 570 1,098 386 461 1,125 521 540
Net realized gains (losses) on sales
of available-for-sale securities (9) 316 355 873 1,398 205 680
Income on foreclosed assets...... 295 --- 420 383 326 285 728
Other income..................... 1,863 2,379 1,171 777 1,457 1,752 1,582
------- ------- ------- ------- -------- ------- -------
15,711 15,349 7,858 6,833 13,799 10,517 10,324
------- ------- ------- ------- -------- ------- -------
Noninterest expense:
Salaries and employee benefits... 13,642 13,765 5,743 5,227 10,829 9,234 8,382
Net occupancy expense............ 4,529 4,124 1,772 1,349 3,034 2,400 2,220
Postage.......................... 1,152 1,006 447 392 857 626 634
Insurance........................ 521 639 292 352 637 3,428 1,268
Amortization of excess of cost over
fair value of net assets acquired 160 160 83 --- 65 1,107 193
Advertising...................... 713 611 276 295 586 675 533
Office supplies and printing..... 703 991 396 323 666 563 435
Other operating expenses......... 4,084 3,871 2,297 1,945 3,844 2,405 2,609
------- ------- ------- ------- -------- ------- -------
25,504 25,167 11,306 9,883 20,518 20,438 16,274
------- ------- ------- ------- -------- ------- -------
Income before income taxes......... 23,662 20,695 11,216 10,538 21,368 15,091 18,405
Provision for income taxes......... 8,184 7,018 3,858 3,058 6,924 5,751 7,111
------- ------- ------- ------- -------- ------- -------
Net income......................... $15,478 $13,677 $7,358 $7,480 $14,444 $9,340 $11,294
======= ======= ====== ====== ======= ====== =======
37
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,
---------------- ---------------- -------------------------
2000 1999 1998(1) 1997 1998 1997 1996
------ ------ ------ ------ ------ ------ ------
(Dollars in thousands, except per share data)
Per Common Share Data:
Basic earnings per common share...................... $ 2.16 $ 1.79 $ .93 $ .93 $ 1.79 $ 1.11 $ 1.27
Diluted earnings per common share.................... 2.12 1.76 .91 .91 1.76 1.10 1.23
Cash dividends declared ............................. .50 .50 .24 .21 .43 .39 .35
Book value........................................... 10.30 9.20 8.76 8.13 8.47 7.45 7.70
Average shares outstanding........................... 7,166 7,620 7,897 8,082 8,052 8,394 8,926
Year-end actual shares outstanding................... 6,897 7,489 7,803 8,066 7,962 8,105 8,812
Year-end fully diluted shares outstanding............ 7,098 7,601 8,012 8,218 8,204 8,488 9,218
Earnings Performance Ratios:(2)
Return on average assets(3)......................... 1.53% 1.56% 1.83% 2.08% 1.93% 1.39% 1.75%
Return on average stockholders' equity(4)........... 22.36 19.98 21.97 24.04 22.49 15.02 17.28
Non-interest income to average total assets ........ 1.55 1.65 1.95 1.90 1.85 1.57 1.60
Non-interest expense to average total assets ....... 2.52 2.87 2.81 2.75 2.74 3.04 2.53
Average interest rate spread(5)..................... 3.18 3.36 4.02 3.78 3.79 3.79 3.82
Year-end interest rate spread....................... 3.26 3.40 3.62 3.75 3.81 3.90 3.72
Net interest margin(6).............................. 3.74 3.86 4.32 4.18 4.18 4.17 4.21
Adjusted efficiency ratio (excl. foreclosed assets)(7) 49.07 52.51 48.33 47.31 47.20 55.22 45.97
Net overhead ratio(8)............................... .97 1.06 .87 .85 .90 1.48 .92
Common dividend pay-out ratio....................... 23.58 28.41 25.82 23.08 24.43 35.23 28.46
Asset Quality Ratios:(2)
Allowance for loan losses/year-end loans............ 2.06% 2.21% 2.37% 2.48% 2.44% 2.60% 2.56%
Non-performing assets/year-end loans and foreclosed assets 1.66 1.26 1.46 2.20 1.81 2.30 2.83
Allowance for loan losses/non-performing loans 149.72 194.48 228.20 155.26 227.18 197.01 243.03
Net charge-offs/average loans....................... .20 .23 .23 .09 .16 .10 .32
Gross non-performing assets/year end assets 1.34 1.05 1.55 1.84 1.79 1.96 2.52
Non-performing loans/year-end loans................. 1.37 1.18 1.42 1.60 1.42 1.32 1.06
Balance Sheet Ratios:
Loans to deposits................................... 118.61 122.51 116.62 134.11 118.90 127.52 137.82
Average interest-earning assets as a percentage
of average interest-bearing liabilities............ 111.06 111.95 106.57 108.82 108.62 108.45 108.41
Capital Ratios:
Average stockholders' equity to average assets 6.83% 7.41% 8.32% 8.64% 8.59% 9.28% 10.15%
Year-end tangible stockholders' equity to assets 6.26 7.10 8.11 8.67 8.40 8.53 9.98
Great Southern Bank:
Tier 1 risk-based capital ratio.................. 8.91 8.97 9.65 9.95 9.71 10.37 11.77
Total risk-based capital ratio................... 10.17 10.23 10.92 11.22 10.98 11.65 13.02
Tier 1 leverage ratio............................ 7.36 7.45 8.15 7.49 7.52 7.69 8.47
Ratio of Earnings to Fixed Charges:(9)
Including deposit interest.......................... 1.48x 1.58x 1.68x 1.68x 1.67x 1.52x 1.65x
Excluding deposit interest.......................... 2.42x 2.97x 3.62x 3.02x 2.94x 2.39x 2.65x
- ----------
(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.
(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.
38
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 and losses 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.
39
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 Company will adopt 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 Hedging
Activities, in the first quarter of the year ending December 31, 2001. The
principal effects of adoption of SFAS 133 and SFAS 138 relate 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 will not have a material impact 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.
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
40
liabilities which either reprice or mature within a given period of time. The
difference, or the interest rate repricing "gap," provides an indication of the
extent to which an institution's interest rate spread will be affected by
changes in interest rates. A gap is considered positive when the amount of
interest-rate sensitive assets exceeds the amount of interest-rate sensitive
liabilities repricing during the same period, and is considered negative when
the amount of interest-rate sensitive liabilities exceeds the amount of
interest-rate sensitive assets during the same period. Generally, during a
period of rising interest rates, a negative gap within shorter repricing periods
would adversely affect net interest income, while a positive gap within shorter
repricing periods would result in an increase in net interest income. During a
period of falling interest rates, the opposite would be true. As of December 31,
2000, the ratio of Great Southern's one-year gap to total assets was a negative
3.7% and its ratio of interest-earning assets to interest-bearing liabilities
maturing or repricing within one year was 0.95.
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
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 as necessary 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.
41
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 assets and 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.
42
The following tables illustrate the expected maturities and repricing,
respectively, of the Bank's financial instruments at December 31, 2000. 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 2002 2003 2004 2005
-------- -------- ------- ------- -------
(Dollars in thousands)
Financial Assets:
Interest bearing deposits $905 --- --- --- ---
Weighted average rate 5.73% --- --- --- ---
Available-for-sale equity securities $8,195 --- --- --- ---
Weighted average rate 3.99% --- --- --- ---
Available-for-sale debt securities $20,101 $72,287 $9,776 $6,993 $5,618
Weighted average rate 5.86% 6.67% 6.65% 6.46% 6.65%
Held to maturity securities $16,996 --- --- --- ---
Weighted average rate 6.28% --- --- --- ---
Adjustable rate loans $193,965 $81,106 $51,029 $88,341 $71,397
Weighted average rate 9.84% 9.88% 9.86% 9.84% 9.67%
Fixed rate loans $43,075 $30,591 $33,327 12,866 $15,227
Weighted average rate 9.61% 10.45% 10.05% 10.56% 10.67%
Federal Home Loan Bank stock --- --- --- --- ---
Weighted average rate --- --- --- --- ---
Financial Liabilities:
Savings deposits $20,400 --- --- --- ---
Weighted average rate 2.51% --- --- --- ---
Time deposits $357,019 $112,538 $39,433 $11,401 $19,631
Weighted average rate 6.32% 6.47% 5.99% 6.36% 6.27%
Interest bearing demand $124,973 --- --- --- ---
Weighted average rate 2.23% --- --- --- ---
Non-interest bearing demand $60,353 --- --- --- ---
Weighted average rate --- --- --- --- ---
Federal Home Loan Bank and short-
term borrowings $157,831 $1,227 $31,327 $25,914 $3,280
Weighted average rate 6.69% 6.79% 6.66% 6.85% 6.64%
2000
Fair
Thereafter Total Value
---------- --------- --------
(Dollars in thousands)
Financial Assets:
Interest bearing deposits --- $905 $905
Weighted average rate --- 5.73% ---
Available-for-sale equity securities --- $8,195 $8,195
Weighted average rate --- 3.99% ---
Available-for-sale debt securities $3,439 $118,214 $118,214
Weighted average rate 6.42% 6.51% ---
Held to maturity securities $10,762 $27,758 $27,718
Weighted average rate 9.37% 7.48% ---
Adjustable rate loans $246,616 $732,454 $746,289
Weighted average rate 8.87% 9.50% ---
Fixed rate loans 41,938 $177,024 $172,684
Weighted average rate 8.80% 9.81% --
Federal Home Loan Bank stock $14,095 $14,095 $14,095
Weighted average rate 7.08% 7.08% ---
Financial Liabilities:
Savings deposits --- $20,400 $20,400
Weighted average rate --- 2.51% ---
Time deposits $ 5,294 $545,316 $546,008
Weighted average rate 6.03% 6.33% --
Interest bearing demand --- $124,973 $124,973
Weighted average rate --- 2.23% ---
Non-interest bearing demand --- $60,353 $60,353
Weighted average rate --- --- ---
Federal Home Loan Bank and short-
term borrowings $71,994 $291,573 $295,649
Weighted average rate 5.97% 6.52% ---
43
Repricing
December 31,
-----------------------------------------------------------------
2001 2002 2003 2004 2005
--------- -------- ------- ------- -------
(Dollars in thousands)
Financial Assets:
Interest bearing deposits $905 --- --- --- ---
Weighted average rate 5.73% --- --- --- ---
Available-for-sale equity securities $8,195 --- --- --- ---
Weighted average rate 3.99% --- --- --- ---
Available-for-sale debt securities $65,412 $33,570 $9,799 $5,994 ---
Weighted average rate 6.55% 6.93% 6.81% 6.46% ---
Held to maturity securities $16,996 --- --- --- ---
Weighted average rate 6.28% --- --- --- ---
Adjustable rate loans $709,282 $7,825 $7,999 $736 $6,493
Weighted average rate 9.55% 7.45% 8.06% 7.42% 8.22%
Fixed rate loans $43,075 $30,591 $33,327 $12.886 15,227
Weighted average rate 9.63% 10.45% 9.98% 10.56% 10.67%
Federal Home Loan Bank stock $14,095 --- --- --- ---
Weighted average rate 7.08% --- --- --- ---
Financial Liabilities:
Savings deposits $20,400 --- --- --- ---
Weighted average rate 2.51% --- --- --- ---
Time deposits $462,556 $63,342 $8,421 $4,412 $3,885
Weighted average rate 6.26% 6.63% 6.87% 6.30% 7.12%
Interest bearing demand $124,973 --- --- --- ---
Weighted average rate 2.23% --- --- --- ---
Non-interest bearing demand $60,353 --- --- --- ---
Weighted average rate --- --- --- --- ---
Federal Home Loan Bank and short- $263,010 $1,227 $1,327 $2,914 $3,280
term borrowings
Weighted average rate 6.51% 6.79% 6.89% 7.32% 6.64%
2000
Fair
Thereafter Total Value
------------- ---------- ---------
(Dollars in thousands)
Financial Assets:
Interest bearing deposits --- $905 $905
Weighted average rate --- 5.73% ---
Available-for-sale equity securities --- $8,195 $8,195
Weighted average rate --- 3.99% ---
Available-for-sale debt securities $3,439 $118,214 $118,214
Weighted average rate 6.42% 6.51% ---
Held to maturity securities $10,762 $27,758 $27,718
Weighted average rate 9.37% 7.48% ---
Adjustable rate loans $119 $732,454 $746,289
Weighted average rate 8.13% 9.50% ---
Fixed rate loans $41,938 $177,024 $172,684
Weighted average rate 8.83% 9.81% ---
Federal Home Loan Bank stock --- $14,095 $14,095
Weighted average rate --- 7.08% ---
Financial Liabilities:
Savings deposits --- $20,400 $20,400
Weighted average rate --- 2.51% ---
Time deposits $ 2,700 $545,316 $546,008
Weighted average rate 6.47% 6.33% ---
Interest bearing demand --- $124,973 $124,973
Weighted average rate --- 2.23% ---
Non-interest bearing demand --- $60,353 $60,353
Weighted average rate --- --- ---
Federal Home Loan Bank and short-
term borrowings $19,815 $291,573 $295,649
Weighted average rate 6.54% 6.52% ---
44
Change in Fiscal Year
In 1998, the Company changed its fiscal year end from June 30 to December
31. The six-month period ended December 31, 1998 transitions between the
Company's old and new fiscal year ends. Because of this fiscal year change, the
results of operations for the year ended December 31, 1999 have been compared to
the results of operations for the year ended June 30, 1998.
Comparison of Financial Condition at December 31, 2000 and December 31, 1999
During the year ended December 31, 2000, the Company increased total
assets by $165 million to $1.13 billion. A large portion of the increase was due
to the increase in net loans of $124 million. The main loan areas experiencing
increases were commercial real estate, commercial construction, consumer and
one- to four-family residential. Total investment securities increased by $37
million, which was primarily an increase in available-for-sale United States
government agency securities. Additionally, investment in FHLBank stock
increased $3 million.
Total liabilities increased $163 million from December 31, 1999 to
December 31, 2000, to $1.06 billion. FHLBank advances increased $34 million.
Short-term borrowings decreased $12 million, due to a decrease in securities
sold under repurchase agreements with retail customers, primarily due to the
loss of one customer. Generally, the interest rates paid on these repurchase
accounts was lower than rates paid on FHLBank advances or brokered certificates
of deposit in 2000. While these types of deposits are generally less expensive,
there is limited availability of these funds in our market. Deposits increased
$125 million due primarily to an increase in certificates of deposit of $111
million, of which $77 million related to brokered deposits. Total brokered
deposits were $287 million at December 31, 2000. The weighted average cost of
these deposits was approximately 20 basis points higher than the rest of the
certificate of deposit portfolio. 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. Checking accounts increased $23 million, with an
increase of $13 million in non-interest bearing accounts and an increase of $10
million in interest bearing accounts. The increase in certificates of deposit
and checking accounts was partially offset by the decrease in savings accounts
of $9 million. A good portion of this $9 million decrease was actually moved
into other Bank products, primarily checking accounts, with the remainder
leaving the Bank.
Stockholders' equity increased $2 million from December 31, 1999 to
December 31, 2000, to $71.0 million. Net income for fiscal year 2000 was $15.5
million and accumulated other comprehensive income increased by $1.0 million.
These items were offset by dividends of $3.6 million and net treasury stock
repurchases of $10.8 million. The Company repurchased 630,282 shares of common
stock at an average price of $17.85 per share during 2000.
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%.
45
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.
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
46
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.
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
47
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 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.
48
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 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.
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
December 31, 2000
----------------------------------------
December
31, 2000 Average
Yield/Rate Balance Interest Yield/Rate
---------- -------- --------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable 9.50% $843,170 $76,671 9.09%
Investment securities and other interest-
earning assets 6.63 135,148 8,751 6.47
----- -------- ------- -----
Total interest-earning assets 9.04 $978,318 85,422 8.73
----- -------- ------- -----
Interest-bearing liabilities:
Interest-bearing demand 2.23 $122,392 2,617 2.14
Savings 2.51 25,400 631 2.48
Time deposits 6.33 476,386 28,996 6.09
----- -------- ------- -----
Total deposits 5.47 624,178 32,244 5.17
FHLB advances and other borrowings 6.52 256,698 16,617 6.47
----- -------- ------- -----
Total interest-bearing liabilities 5.78 $880,876 48,861 5.55
----- ======== ------- -----
Net interest income:
Interest rate spread 3.26% $36,561 3.18%
===== ======= =====
Net interest margin* 3.74%
=====
Average interest-earning assets to average
interest-bearing liabilities 111.1%
========
Year Ended
December 31, 1999
-----------------
Average
Balance Interest Yield/Rate
--------- ---------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable $746,979 $63,386 8.49%
Investment securities and other interest-
earning assets 97,402 4,652 4.78
-------- ------- -----
Total interest-earning assets $844,381 68,038 8.06
======== ======= =====
Interest-bearing liabilities:
Interest-bearing demand $135,026 2,542 1.88
Savings 32,634 842 2.58
Time deposits 401,683 21,583 5.37
-------- ------- -----
Total deposits 569,343 24,967 4.39
FHLB advances and other borrowings 184,872 10,496 5.68
-------- ------- -----
Total interest-bearing liabilities $754,215 35,463 4.70
======== ======= =====
Net interest income:
Interest rate spread $32,575 3.36%
======= =====
Net interest margin* 3.86%
=====
Average interest-earning assets to average
interest-bearing liabilities 112.0%
========
*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, 2000 vs. December 31, 1999 vs
December 31, 1999 June 30, 1998
------------------------------------- ---------------------------------------
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 $4,747 $ 8,538 $13,285 $(3,946) $9,795 $5,849
Investment securities and other
interest-earning assets 1,961 2,138 4,099 17 240 257
------ ------- ------ ------- ------ ------
Total interest-earning assets 6,708 10,676 17,384 (3,929) 10,035 6,106
------ ------- ------ ------- ------ ------
Interest-bearing liabilities:
Demand deposits 242 (166) 76 (412) 280 (132)
Savings deposits (31) (180) (211) 40 (58) (18)
Time deposits 3,089 4,324 7,413 (628) 4,793 4,165
------ ------- ------ ------- ------ ------
Total deposits 3,300 3,978 7,278 (1,000) 5,015 4,015
FHLBank advances and other
borrowings 1,622 4,498 6,120 (173) (371) (544)
------ ------- ------ ------- ------ ------
Total interest-bearing liabilities 4,922 8,476 13,398 (1,173) 4,644 3,471
------ ------- ------ ------- ------ ------
Net interest income $1,786 $ 2,200 $3,986 $(2,828) $5,463 $2,635
====== ======= ====== ======= ====== ======
RESULTS OF OPERATIONS AND COMPARISON FOR THE YEARS ENDED DECEMBER 31, 1999 AND
JUNE 30, 1998
General
The decrease in earnings of $767,000, or 5.3%, during the year ended
December 31, 1999, compared to the year ended June 30, 1998, was primarily due
to an increase in salaries and employee benefits of $2.9 million, or 27.1%, and
an increase in net occupancy expenses of $1.1 million, or 36.0%, offset by an
increase in net interest income of $2.6 million, or 8.8%, and an increase in
non-interest income of $1.6 million, or 11.2%. The remaining decrease is
attributed to additional non-interest expense items, provision for loan losses
and provision for income taxes.
Total Interest Income
Total interest income increased $6.1 million, or 9.9%, during the year
ended December 31, 1999, compared to the year ended June 30, 1998, primarily due
to a $5.8 million, or 10.2%, increase in interest income on loans.
51
Interest Income - Loans
During the year ended December 31, 1999, compared to June 30, 1998,
interest income on loans increased primarily from higher average balances.
Interest income increased $9.8 million as the result of higher average loan
balances from $624.3 million during the year ended June 30, 1998, to $747.0
million during the year ended December 31, 1999. The higher average balance
resulted principally from the Bank's increased commercial business lending and
indirect consumer lending. This increase was partially offset by a decrease in
the interest income on loans of $3.9 million as a result of lower average yields
on loans from 9.22% during the year ended June 30, 1998, to 8.49% during the
year ended December 31, 1999.
Interest Income - Investments and Other Interest-Earning Deposits
Interest income on investments and interest-earning deposits increased
$257,000, or 5.9%, during the year ended December 31, 1999, when compared to the
year ended June 30, 1998. Interest income increased $240,000 as a result of
higher average balances from $92.3 million during the year ended June 30, 1998,
to $97.4 million in the year ended December 31, 1999. Interest income increased
$17,000 as a result of higher average yields from 4.76% during the year ended
June 30, 1998, to 4.78% during the year ended December 31, 1999.
Total Interest Expense
Total interest expense increased $3.5 million, or 10.9%, during the year
ended December 31, 1999 when compared with the year ended June 30, 1998,
primarily due to an increase in interest expense on deposits of $4.0 million, or
19.2%, offset by a decrease in interest expense on FHLBank advances of $500,000,
or 5.1%.
Interest Expense - Deposits
Interest expense on time deposits increased $4.8 million as a result of
higher average balances from $312.1 million during the year ended June 30, 1998,
to $401.7 million during the year ended December 31, 1999. The average balances
of time deposits increased primarily as a result of the Company's use of
brokered and other time deposits to fund loan growth. In recent years, brokered
deposit rates have become competitive with rates on FHLBank advances and larger
retail deposits. This increase was partially offset by a decrease in the
interest expense on time deposits of $628,000 as a result of lower average rates
from 5.58% during the year ended June 30, 1998, to 5.37% during the year ended
December 31, 1999.
Interest Expense - FHLBank and Other Borrowings
Interest expense on FHLBank advances and other borrowings decreased
$544,000 principally due to lower average balances of $191.3 million during the
year ended June 30, 1998, compared to $184.9 million during the year ended
December 31, 1999. These lower average balances resulted from the increase in
deposits noted above that were used to repay maturing FHLBank advances. Average
rates were lower during the year ended December 31, 1999, at 5.68% compared to
5.77% during the year ended June 30, 1998.
Net Interest Income
The Company's overall interest rate spread decreased from 3.79% during the
year ended June 30, 1998, to 3.36% during the year ended December 31, 1999.
52
Provision for Loan Losses
The provision for loan losses increased $209,000, or 11.3%, during the
year ended December 31, 1999, from $1.9 million during the year ended June 30,
1998 to $2.1 million during the year ended December 31, 1999.
Management records a provision for loan losses in an amount 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 and regular reviews by internal staff and regulatory
examinations.
Weak economic conditions, higher inflation or interest rates, or other
factors may lead to increased losses in the portfolio. Management has
established various controls in an attempt to limit future losses, such as a
watch list of possible problem loans, documented loan administration policies
and a loan review staff to review the quality and anticipated collectibility of
the portfolio. Management determines which loans are potentially uncollectible,
or represent a greater risk of loss and makes additional provisions to expense,
if necessary, to maintain the allowance at a satisfactory level.
Non-performing assets decreased $2.9 million, or 23.2%, from $12.5 million
at December 31, 1998, to $9.6 million at December 31, 1999. Non-performing loans
decreased $900,000, or 9.3%, from $9.7 million at December 31, 1998, to $8.8
million at December 31, 1999, and foreclosed assets declined $2.0 million, or
70.9%, from $2.8 million at December 31, 1998, to $817,000 at December 31, 1999.
Potential problem loans decreased $1.4 million, or 11.5%, from $12.2
million at December 31, 1998, to $10.8 million at December 31, 1999. These are
loans which management has identified through routine internal review procedures
as having possible credit problems which may cause the borrowers difficulty in
complying with current loan repayment terms. These loans are not reflected in
the non-performing loans.
Management considers the allowance for loan losses adequate to cover
losses inherent in the Company's loan portfolio at this time, based on current
economic conditions. If economic conditions deteriorate significantly, it is
possible that additional assets would be classified as non-performing, and
accordingly, additional provision for losses would be required, thereby
adversely affecting future results of operations and financial condition.
Non-Interest Income
Non-interest income increased $1.6 million, or 11.2%, during the year
ended December 31, 1999, compared to the year ended June 30, 1998. The increase
was primarily due to: (i) an increase of $1.4 million, or 24.8%, in commission
income from the travel, insurance and investment subsidiaries from growth in
these areas; (ii) an increase in service charges income of $661,000, or 17.2%,
on transaction accounts due to an increase in overdraft charges; offset by (iii)
a decrease in net realized gains on sales of available-for-sale securities of
$1.1 million, or 77.3%; (iv) a decline of $326,000, or 100.0%, of income on
foreclosed assets due to the sale of income-producing foreclosed assets; and (v)
various increases or decreases in other non-interest income items.
53
Non-Interest Expense
Non-interest expense increased $4.6 million, or 22.7% during the year
ended December 31, 1999 when compared to the year ended June 30, 1998. The
increase was primarily due to: (i) an increase of $2.9 million, or 27.1%, in
salaries and employee benefits due to increased staffing levels in most areas of
the Company due to growth and the year 2000 issue; (ii) an increase of $1.1
million, or 36.0%, in net occupancy expense primarily due to the core computer
conversion, year 2000 testing of the Bank's systems and other technology-related
purchases; (iii) an increase of $325,000, or 48.8%, in office supplies and
printing due to the cost of replacing all debit cards prior to December 31, 1999
and additional supplies purchased as a result of the year 2000 issue; and (iv)
various increases or decreases in other non-interest expense items.
Provision for Income Taxes
Provision for income taxes as a percentage of pre-tax income increased
slightly from 32.4% for the year ended June 30, 1998 to 33.9% for the year ended
December 31, 1999.
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, 2000, the Company had commitments of
approximately $132.3 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 $71.0 million, or 6.3% of total
assets of $1.13 billion at December 31, 2000, compared to equity of $68.9
million, or 7.1% of total assets of $964.8 million at December 31, 1999.
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, 2000, 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 7.4%. As of December 31, 2000, the Bank was "well capitalized" as
defined by the Federal banking agencies' capital-related regulations. The
Federal Reserve Bank has established capital regulations for bank holding
companies that generally parallel the capital regulations for banks. As of
December 31, 2000, the Company was "well capitalized" under the two Tier I
capital ratios described above and was "adequately capitalized" under the total
risk-based capital ratio described above.
54
At December 31, 2000, the held-to-maturity investment portfolio included
$155,000 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, 2000 and
1999, and June 30 1998, and the six months ended December 31, 1998, the Company
had positive cash flows from operating activities and positive cash flows from
financing activities. The Company experienced negative cash flows from investing
activities during each of these same time periods.
Cash flows from operating activities for the periods covered by the
Statements of Cash Flows have been primarily related to net income adjusted for
accrued assets and liabilities, the 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 $26.3 million, $19.5 million, $10.3 million, and $6.0 million
during the years ended December 31, 2000 and 1999, and June 30, 1998, and the
six months ended December 31, 1998, respectively.
During the years ended December 31, 2000 and 1999, and June 30, 1998, and
the six months ended December 31, 1998, investing activities used cash of $170.5
million, $126.7 million, $72.6 million, and $51.3 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 purchases of treasury stock and dividend payments to stockholders.
Financing activities provided $140.7 million, $117.2 million, $75.7 million, and
$33.0 million for the years ended December 31, 2000 and 1999, and June 30, 1998,
and the six months ended December 31, 1998, 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, 2000, the Company declared
and paid dividends of $.50 per share, or 23.6% of net income, compared to
dividends declared and paid during the year ended December 31, 1999 of $.50 per
share, or 28.4% 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, 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. During the year ended December 31,
1999, the
55
Company repurchased 371,808 shares of its common stock at an average price of
$23.61 per share and reissued 58,241 shares of treasury stock at an average
price of $7.18 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.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
INFORMATION
Independent Accountants' Report
Board of Directors
Great Southern Bancorp, Inc.
Springfield, Missouri
We have audited the consolidated statements of financial condition of
GREAT SOUTHERN BANCORP, INC. as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years ended December 31, 2000 and 1999, the six-month period ended
December 31, 1998, and the year ended June 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GREAT
SOUTHERN BANCORP, INC. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years ended December 31, 2000 and 1999,
the six-month period ended December 31, 1998, and the year ended June 30, 1998,
in conformity with generally accepted accounting principles.
/s/ BAIRD, KURTZ & DOBSON
Springfield, Missouri
February 2, 2001
57
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
---- ----
Cash $ 39,192,978 $ 42,355,901
Interest-bearing deposits in other financial
institutions 907,765 1,244,319
-------------- ------------
Cash and cash equivalents 40,100,743 43,600,220
Available-for-sale securities 126,409,164 79,891,460
Held-to-maturity securities 27,758,280 37,645,500
Loans receivable, net 890,783,678 766,806,940
Interest receivable:
Loans 6,352,762 4,971,646
Investments 2,558,403 882,848
Prepaid expenses and other assets 3,678,579 4,027,242
Foreclosed assets held for sale, net 2,688,485 817,118
Premises and equipment, net 10,316,193 9,984,075
Investment in Federal Home Loan Bank stock 14,094,900 10,981,000
Excess of cost over fair value of net assets
acquired, at amortized cost 263,861 403,569
Deferred income taxes 5,173,010 4,791,784
-------------- ------------
Total Assets $1,130,178,058 $964,803,402
============== ============
See Notes to Consolidated Financial Statements
58
GREAT SOUTHERN BANCORP, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
---- ----
LIABILITIES
Deposits $ 751,041,996 $ 625,900,352
Federal Home Loan Bank advances 234,378,004 200,530,921
Short-term borrowings 41,695,373 53,594,090
Note payable to bank 15,500,000 7,517,025
Accrued interest payable 6,117,661 5,832,253
Advances from borrowers for taxes and insurance 344,093 309,100
Accounts payable and accrued expenses 2,983,695 1,995,369
Income taxes payable 7,068,547 198,401
-------------- -------------
Total Liabilities 1,059,129,369 895,877,511
-------------- -------------
STOCKHOLDERS' EQUITY
Capital stock
Serial preferred stock, $.01 par value; authorized
1,000,000 shares -- --
Common stock, $.01 par value; authorized
20,000,000 shares, issued 12,325,002 shares 123,250 123,250
Additional paid-in capital 17,461,445 17,487,433
Retained earnings 112,176,579 100,310,493
Accumulated other comprehensive income:
Unrealized appreciation (depreciation) on available-
for-sale securities, net of income taxes of $199,651
and $(381,970) at December 31, 2000 and 1999 384,183 (644,052)
-------------- -------------
130,145,457 117,277,124
Less treasury common stock, at cost; December 31,
2000 and 1999 - 5,427,670 and 4,835,890 shares 59,096,768 48,351,233
-------------- -------------
Total Stockholders' Equity 71,048,689 68,925,891
-------------- -------------
Total Liabilities and Stockholders' Equity $1,130,178,058 $ 964,803,402
============== =============
See Notes to Consolidated Financial Statements
59
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998
AND SIX MONTHS ENDED DECEMBER 31, 1998
Years Ended December 31, Six Months
------------------------ Ended Year Ended
2000 1999 December 31, 1998 June 30, 1998
---- ---- ----------------- -------------
INTEREST INCOME
Loans $ 76,671,111 $ 63,385,746 $ 30,332,255 $ 57,536,900
Investment securities and other 8,750,590 4,652,307 2,152,517 4,394,785
------------ ------------ ------------ ------------
85,421,701 68,038,053 32,484,772 61,931,685
------------ ------------ ------------ ------------
INTEREST EXPENSE
Deposits 32,244,045 24,966,556 12,255,041 20,950,665
Federal Home Loan Bank advances 14,312,278 9,402,561 4,236,600 9,904,520
Short-term borrowings 2,304,450 1,093,973 38,180 1,136,493
------------ ------------ ------------ ------------
48,860,773 35,463,090 16,529,821 31,991,678
------------ ------------ ------------ ------------
NET INTEREST INCOME 36,560,928 32,574,963 15,954,951 29,940,007
PROVISION FOR LOAN LOSSES 3,105,600 2,062,000 1,290,712 1,852,597
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 33,455,328 30,512,963 14,664,239 28,087,410
------------ ------------ ------------ ------------
NONINTEREST INCOME
Commissions 7,024,290 7,054,584 3,135,936 5,652,388
Service charge and ATM fees 5,968,518 4,501,765 2,389,892 3,840,564
Net realized gains on sales of
loans 570,053 1,097,711 385,563 1,125,153
Net realized gains (losses) on
sales of available-for-sale
securities (9,312) 316,508 355,501 1,397,828
Income on foreclosed assets 294,638 -- 420,104 326,197
Other income 1,862,871 2,379,274 1,170,728 1,456,437
------------ ------------ ------------ ------------
15,711,058 15,349,842 7,857,724 13,798,567
------------ ------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits 13,641,901 13,764,902 5,743,429 10,828,683
Net occupancy expense 4,529,251 4,124,654 1,771,624 3,033,707
Postage 1,152,228 1,006,568 447,493 857,127
Insurance 520,746 638,660 291,897 637,339
Amortization of excess of cost
over fair value of net assets
acquired 159,708 159,708 83,188 65,410
Advertising 713,382 611,206 275,799 586,367
Office supplies and printing 703,247 990,607 395,995 665,878
Other operating expenses 4,084,281 3,870,919 2,296,644 3,843,717
------------ ------------ ------------ ------------
25,504,744 25,167,224 11,306,069 20,518,228
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 23,661,642 20,695,581 11,215,894 21,367,749
PROVISION FOR INCOME TAXES 8,184,000 7,018,200 3,858,300 6,923,700
------------ ------------ ------------ ------------
NET INCOME $ 15,477,642 $ 13,677,381 $ 7,357,594 $ 14,444,049
============ ============ ============ ============
EARNINGS PER COMMON SHARE
BASIC $ 2.16 $ 1.79 $ .93 $ 1.79
============ ============ ============ ============
DILUTED $ 2.12 $ 1.76 $ .91 $ 1.76
============ ============ ============ ============
See Notes to Consolidated Financial Statements
60
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998
AND SIX MONTHS ENDED DECEMBER 31, 1998
Additional
Comprehensive Common Paid-in
Income Stock Capital
------------- ------------- -------------
BALANCE, JULY 1, 1997 $ -- $ 123,250 $ 17,058,326
Net income 14,444,049 -- --
Stock issued under Stock Option Plan -- -- 52,170
Dividends declared, $.43 per share -- -- --
Change in unrealized appreciation on available-
for-sale securities, net of income taxes
of $200,939 (314,292) -- --
Treasury stock purchased -- -- --
------------- ------------- -------------
Comprehensive Income $ 14,129,757
=============
BALANCE, JUNE 30, 1998 $ -- 123,250 17,110,496
Net income 7,357,594 -- --
Stock issued under Stock Option Plan -- -- 113,955
Dividends declared, $.235 per share -- -- --
Change in unrealized appreciation on available-
for-sale securities, net of income taxes
of $455,511 (712,465) -- --
Treasury stock purchased -- -- --
------------- ------------- -------------
Comprehensive Income $ 6,645,129
=============
BALANCE, DECEMBER 31, 1998 $ -- 123,250 17,224,451
Net income 13,677,381 -- --
Stock issued under Stock Option Plan -- -- 262,982
Dividends declared, $.50 per share -- -- --
Change in unrealized depreciation on available-
for-sale securities, net of income taxes
of $596,380 (979,411) -- --
Treasury stock purchased -- -- --
------------- ------------- -------------
Comprehensive Income $ 12,697,970
=============
BALANCE, DECEMBER 31, 1999 $ -- 123,250 17,487,433
Net income 15,477,642 -- --
Stock issued under Stock Option Plan -- -- (25,988)
Dividends declared, $.50 per share -- -- --
Change in unrealized appreciation on available-
for-sale securities, net of income taxes
of $581,621 1,028,235 -- --
Treasury stock purchased -- -- --
------------- ------------- -------------
Comprehensive Income $ 16,505,877
=============
BALANCE, DECEMBER 31, 2000 $ 123,250 $ 17,461,445
============= =============
See Notes to Consolidated Financial Statements
61
GREAT SOUTHERN BANCORP, INC.
Accumulated
Other
Comprehensive
Income
------
Unrealized
Appreciation
(Depreciation)
on Available-
Retained for-Sale Treasury
Earnings Securities, Net Stock Total
---------- --------------- ---------- -----
BALANCE, JULY 1, 1997 $ 73,980,259 $ 1,362,116 $ (32,175,584) $ 60,348,367
Net income 14,444,049 -- -- 14,444,049
Stock issued under Stock Option Plan -- -- 41,948 94,118
Dividends declared, $.43 per share (3,468,568) -- -- (3,468,568)
Change in unrealized appreciation on available-
for-sale securities, net of income taxes
of $200,939 -- (314,292) -- (314,292)
Treasury stock purchased -- -- (3,694,781) (3,694,781)
------------- ------------- ------------- -------------
Comprehensive Income 84,955,740 1,047,824 (35,828,417) 67,408,893
BALANCE, JUNE 30, 1998 7,357,594 -- -- 7,357,594
Net income -- -- 13,480 127,435
Stock issued under Stock Option Plan (1,853,342) -- -- (1,853,342)
Dividends declared, $.235 per share
Change in unrealized appreciation on available-
for-sale securities, net of income taxes
of $455,511 -- (712,465) -- (712,465)
Treasury stock purchased -- -- (3,945,628) (3,945,628)
------------- ------------- ------------- -------------
Comprehensive Income
BALANCE, DECEMBER 31, 1998 90,459,992 335,359 (39,760,565) 68,382,487
Net income 13,677,381 -- -- 13,677,381
Stock issued under Stock Option Plan -- -- 201,454 464,436
Dividends declared, $.50 per share (3,826,880) -- -- (3,826,880)
Change in unrealized depreciation on available-
for-sale securities, net of income taxes
of $596,380 -- (979,411) -- (979,411)
Treasury stock purchased -- -- (8,792,122) (8,792,122)
------------- ------------- ------------- -------------
Comprehensive Income
BALANCE, DECEMBER 31, 1999 100,310,493 (644,052) (48,351,233) 68,925,891
Net income 15,477,642 -- -- 15,477,642
Stock issued under Stock Option Plan -- -- 507,218 481,230
Dividends declared, $.50 per share (3,611,556) -- -- (3,611,556)
Change in unrealized appreciation on available-
for-sale securities, net of income taxes
of $581,621 -- 1,028,235 -- 1,028,235
Treasury stock purchased -- -- (11,252,753) (11,252,753)
------------- ------------- ------------- -------------
Comprehensive Income
BALANCE, DECEMBER 31, 2000 $ 112,176,579 $ 384,183 $ (59,096,768) $ 71,048,689
============= ============= ============= =============
See Notes to Consolidated Financial Statements
62
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998
AND SIX MONTHS ENDED DECEMBER 31, 1998
Six Months
Years Ended December 31, Ended Year
----------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
RECLASSIFICATION DISCLOSURE:
Unrealized appreciation (depreciation) on
available-for-sale securities, net of
income taxes of $584,880 for December
31, 2000; $(486,419) for December 31,
1999; $(317,783) for December 31, 1998;
$344,214 for June 30, 1998 $ 1,034,288 $ (798,826) $ (497,044) $ 538,383
Less: Reclassification adjustment for
depreciation (appreciation) included in
net income, net of income taxes of
$3,259 for December 31, 2000;
$(109,961) for December 31, 1999;
$(137,728) for December 31, 1998;
$(545,153) for June 30, 1998 6,053 (180,585) (215,421) (852,675)
--------- --------- --------- ---------
Change in unrealized appreciation
(depreciation) on available-for-sale
securities, net of income taxes $ 1,028,235 $ (979,411) $ (712,465) $ (314,292)
========= ========= ========= =========
See Notes to Consolidated Financial Statements
63
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998
AND SIX MONTHS ENDED DECEMBER 31, 1998
Six Months
Years Ended December 31, Ended Year
----------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $15,477,642 $13,677,381 $ 7,357,594 $14,444,049
Items not requiring (providing) cash:
Depreciation 2,191,355 2,147,552 880,745 1,333,423
Amortization 159,708 139,709 83,188 55,410
Provision for loan losses 3,105,600 2,062,000 1,290,712 1,852,597
Provision for losses on
foreclosed assets -- -- -- 100,000
Net gain on sale of loans (570,053) (1,097,711) (385,563) (1,125,153)
Proceeds from sales of loans
held for sale 35,511,421 33,329,100 26,486,196 73,678,174
Originations of loans held for sale (32,959,645) (29,401,317) (30,668,718) (72,553,021)
Net realized (gains) losses on
available-for-sale securities 9,312 (316,508) (355,501) (1,397,828)
(Gain) loss on sale of premises
and equipment 205,843 207,273 (600) (65,417)
Gain on sale of foreclosed assets (495,089) (136,647) (894,459) (576,783)
Amortization of deferred income,
premiums and discounts (789,698) (1,629,309) (855,072) (704,900)
Deferred income taxes (958,000) 21,040 (1,246,911) (90,586)
Changes in:
Accrued interest receivable (3,056,671) (348,254) 391,567 (904,495)
Prepaid expenses and other assets 328,663 2,499,338 1,569,791 (977,920)
Accounts payable and accrued
expenses 1,273,734 28,697 (134,690) 703,234
Income taxes refundable/payable 6,870,146 (1,659,942) 2,500,850 (3,510,282)
----------- ----------- ----------- -----------
Net cash provided by
operating activities 26,304,268 19,522,402 6,019,129 10,260,502
----------- ----------- ----------- -----------
See Notes to Consolidated Financial Statements
64
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998
AND SIX MONTHS ENDED DECEMBER 31, 1998
Six Months
Years Ended December 31, Ended Year
------------------------ December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Net increase in loans $(128,982,064) $ (72,357,829) $ (41,855,375) $ (72,070,913)
Purchase of additional business units -- -- -- (681,875)
Purchase of premises and equipment (2,729,316) (2,358,165) (1,436,201) (3,505,798)
Proceeds from sale of premises
and equipment -- 31,390 945 213,850
Proceeds from sale of foreclosed assets 436,649 914,417 1,685,600 1,099,476
Capitalized costs on foreclosed assets (359,294) (39,077) (140,750) (302,040)
Proceeds from maturing held-to-
maturity securities 17,354,137 32,918,012 21,375,000 19,500,000
Purchase of held-to-maturity securities (7,473,865) (10,167,313) (30,046,746) (20,119,994)
Proceeds from sale of available-
for-sale securities 19,981,981 2,149,910 1,365,670 3,359,677
Proceeds from maturities of available-
for-sale securities 60,230,000 15,055,000 -- --
Purchase of available-for-sale
securities (125,872,972) (91,327,024) (2,289,879) (1,431,760)
(Purchase) redemption of Federal
Home Loan Bank stock (3,113,900) (1,526,900) -- 1,338,500
------------- ------------- ------------- -------------
Net cash used in investing
activities (170,528,644) (126,707,579) (51,341,736) (72,600,877)
------------- ------------- ------------- -------------
See Notes to Consolidated Financial Statements
65
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998
AND SIX MONTHS ENDED DECEMBER 31, 1998
Six Months
Years Ended December 31, Ended Year
----------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase in certificates of deposit $ 110,963,592 $ 68,548,019 $ 32,006,537 $ 39,497,048
Net increase (decrease) in checking
and savings accounts 14,178,052 (40,272,661) 17,602,644 54,632,670
Proceeds from Federal Home Loan
Bank advances and note payable
to bank 3,966,482,975 1,036,392,061 217,565,407 895,823,200
Repayments of Federal Home Loan
Bank advances (3,924,652,917) (986,796,522) (228,669,145) (878,141,248)
Net increase (decrease) in short-term
borrowings (11,898,717) 52,795,842 798,247 (28,744,191)
Advances (to) from borrowers for taxes
and insurance 34,993 (1,273,198) (594,364) (311,735)
Purchase of treasury stock (11,252,753) (8,792,122) (3,945,628) (3,694,781)
Dividends paid (3,611,556) (3,826,880) (1,853,342) (3,468,568)
Stock options exercised 481,230 464,436 127,435 94,118
--------------- -------------- ------------- -------------
Net cash provided by financing
activities 140,724,899 117,238,975 33,037,791 75,686,513
--------------- -------------- ------------- -------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,499,477) 10,053,798 (12,284,816) 13,346,138
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 43,600,220 33,546,422 45,831,238 32,485,100
--------------- -------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 40,100,743 $ 43,600,220 $ 33,546,422 $ 45,831,238
=============== ============== ============= =============
See Notes to Consolidated Financial Statements
66
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Great Southern Bancorp, Inc. ("GSBC" or the "Company") operates as a
one-bank holding company. GSBC's business primarily consists of the business of
Great Southern Bank (the "Bank"), which provides a full range of financial
services; as well as travel, insurance, investment services, loan closings and
appraisals through the Company's and the Bank's other wholly owned subsidiaries;
to customers primarily in southwest and central Missouri. The Company and the
Bank are subject to the regulation of certain federal and state agencies and
undergo periodic examinations by those regulatory agencies.
In June 1998, the Bank converted to a state-chartered trust company, and
the Company became a one-bank holding company. Until that time the Bank was a
stock savings bank, and the Company was a savings bank holding company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the valuation of foreclosed assets held for sale, management obtains independent
appraisals for significant properties.
Management believes that the allowances for losses on loans and the
valuation of foreclosed assets held for sale are adequate. While management uses
available information to recognize losses on loans and foreclosed assets held
for sale, changes in economic conditions may necessitate revision of these
estimates in future years. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowances for losses on loans and valuation of foreclosed assets held for sale.
Such agencies may require the Bank to recognize additional losses based on their
judgments of information available to them at the time of their examination.
67
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Fiscal Year Change
In 1998, the Company changed its fiscal year ended June 30 to a fiscal
year ended December 31. The six-month period ended December 31, 1998,
transitions between the Company's old and new fiscal year ends.
Principles of Consolidation
The consolidated financial statements include the accounts of Great
Southern Bancorp, Inc., its wholly owned subsidiary, Great Southern Bank, and
the Bank's wholly owned subsidiaries, Great Southern Capital Management, Inc.,
GSB One LLC (including its wholly owned subsidiary, GSB Two LLC), Great Southern
Financial Corporation, (including its wholly owned subsidiary, Appraisal
Services, Inc.) and GS Air, Inc. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Reclassifications
Certain prior periods amounts have been reclassified to conform to the
2000 financial statements presentation. These reclassifications had no effect on
net income.
Cash and Investment Securities
The Bank is a member of the Federal Home Loan Bank system. As a member of
this system, it is required to maintain an investment in capital stock of the
Federal Home Loan Bank (FHLB) in an amount equal to the greater of 1% of its
outstanding home loans, 0.3% of its total assets, or one-twentieth of its
outstanding advances from the FHLB.
Investments in Debt and Equity Securities
Available-for-sale securities, which include any security for which the
Company has no immediate plan to sell but which may be sold in the future, are
carried at fair value. Realized gains and losses, based on specifically
identified amortized cost of the specific security, are included in noninterest
income. Unrealized gains and losses are recorded, net of related income tax
effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income using the level-yield method over the
period to maturity.
68
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Investments in Debt and Equity Securities (Continued)
Held-to-maturity securities, which include any security for which the
Company has the positive intent and ability to hold until maturity, are carried
at historical cost adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted, respectively, to
interest income using the level-yield method over the period to maturity.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
Excess of Cost Over Fair Value of Net Assets Acquired
Unamortized costs in excess of the fair value of underlying net assets
acquired were $263,861 and $403,569 at December 31, 2000 and 1999, respectively.
These costs are amortized on a straight-line basis for a period of five years.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or fair
value, determined using an aggregate basis. Write-downs to fair value are
recognized as a charge to earnings at the time the decline in value occurs.
Forward commitments to sell mortgage loans are acquired to reduce market risk on
mortgage loans in the process of origination and mortgage loans held for sale.
Amounts paid to investors to obtain forward commitments are deferred until such
time as the related loans are sold. The fair values of the forward commitments
are not recognized in the financial statements. Gains and losses resulting from
sales of mortgage loans are recognized when the respective loans are sold to
investors. Gains and losses are determined by the difference between the selling
price and the carrying amount of the loans sold, net of discounts collected or
paid and commitment fees paid and considering a normal servicing rate. Fees
received from borrowers to guarantee the funding of mortgage loans held for sale
and fees paid to investors to ensure the ultimate sale of such mortgage loans
are recognized as income or expense when the loans are sold or when it becomes
evident that the commitment will not be used. There were no material loans held
for sale at December 31, 2000 and 1999.
69
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
principal adjusted for any charge-offs, the allowance for loan losses and any
deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans.
Discounts and premiums on purchased loans are amortized to income using
the interest method over the remaining period to contractual maturity, adjusted
for anticipated prepayments.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to
expense and reduced by loans charged off, net of recoveries. The allowance is
maintained at a level considered adequate to provide for potential loan losses,
based on management's evaluation of the loan portfolio, as well as on prevailing
and anticipated economic conditions and historical losses by loan category.
General allowances have been established, based upon the aforementioned factors
and allocated to the individual loan categories. Allowances are accrued on
specific loans evaluated for impairment for which the basis of each loan,
including accrued interest, exceeds the discounted amount of expected future
collections of interest and principal or, alternatively, the fair value of loan
collateral.
A loan is considered impaired when it is probable that the Bank will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued and interest accrued and unpaid is removed at the time such amounts
are delinquent 90 days. Interest is recognized for nonaccrual loans only upon
receipt, and only after all principal amounts are current according to the terms
of the contract.
Foreclosed Assets Held for Sale
Assets acquired by foreclosure or in settlement of debt and held for sale
are valued at estimated fair value as of the date of foreclosure, and a related
valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Changes in the valuation allowance are charged or credited to noninterest
expense.
70
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line and accelerated
methods over the estimated useful lives of the assets. Leasehold improvements
are capitalized and amortized using the straight-line and accelerated methods
over the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter.
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.
The computation of earnings per share is as follows:
Six Months
Years Ended December 31, Ended Year
------------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- -------- -------------
Net income $15,477,642 $13,677,381 $7,357,594 $14,444,049
=========== =========== ========== ===========
Average common shares
outstanding 7,166,020 7,619,983 7,896,771 8,052,413
Average common share stock
options outstanding 146,660 166,167 163,382 151,162
----------- ----------- ----------- -----------
Average diluted common shares 7,312,680 7,786,150 8,060,153 8,203,575
=========== =========== =========== ===========
71
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Earnings Per Share (Continued)
Six Months
Years Ended December 31, Ended Year
----------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
Earnings per common share - basic $ 2.16 $ 1.79 $ .93 $ 1.79
====== ====== ====== ======
Earnings per common share - diluted $ 2.12 $ 1.76 $ .91 $ 1.76
====== ====== ====== ======
Options to purchase 130,075, 90,350, 43,250 and 19,250 shares of common
stock were outstanding during the periods ended December 31, 2000, 1999 and
1998, and June 30, 1998, 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. The options, which expire in 2006 or
after, were still outstanding at the end of each period.
Cash Equivalents
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At December 31, 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 effect of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
Interest Rate Swaps
Beginning in 2000 the Company uses interest rate swaps to manage its
interest rate risks from recorded financial assets and liabilities. These
instruments 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. 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
72
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Interest Rate Swaps (Continued)
asset or liability. Gains and losses on early termination of these instruments
are deferred and amortized as an adjustment to the yield on the related asset or
liability over the shorter of the remaining contract life or the maturity of the
related asset or liability. If the related asset or liability is sold or
otherwise liquidated, the instrument is marked to market, with the resultant
gains and losses recognized in noninterest income.
Future Change in Accounting Principle
The Company will adopt 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 Hedging
Activities, in the first quarter of the year ending December 31, 2001. The
principal effects of adoption of SFAS 133 and SFAS 138 relate 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 will not have a material impact on the Company's financial statements.
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities are as follows:
December 31, 2000
---------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
U.S. government agencies
obligations $ 114,321,051 $ 553,881 $ (99,402) $ 114,775,530
Collateralized mortgage
obligations 3,424,153 14,537 -- 3,438,690
Equity securities 8,080,126 114,818 -- 8,194,944
------------- ------------- ------------- -------------
$ 125,825,330 $ 683,236 $ (99,402) $ 126,409,164
============= ============= ============= =============
73
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
December 31, 1999
------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- ------------
U.S. government agencies
obligations $ 72,713,836 $ 65,236 $ (133,814) $ 72,645,258
Equity securities 8,153,626 -- (907,424) 7,246,202
------------- ------------- ------------- ------------
$ 80,867,462 $ 65,236 $ (1,041,238) $ 79,891,460
============= ============= ============= ============
Maturities of available-for-sale debt securities at December 31, 2000,
are:
Approximate
Amortized Fair
Cost Value
------------- -------------
One year or less $ 20,164,622 $ 20,101,111
After one through five years 94,156,429 94,674,419
Securities not due on a single maturity date 3,424,153 3,438,690
------------- -------------
$ 117,745,204 $ 118,214,220
============= =============
The amortized cost and approximate fair value of held-to-maturity
securities are as follows:
December 31, 2000
-------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- --------- -------- -----------
U.S. government agencies $ 6,999,424 $ -- $ (17,624) $ 6,981,800
States and political subdivisions 17,101,375 16,731 (106,906) 17,011,200
Corporate bonds 2,805,000 94,600 (25,000) 2,874,600
Mortgage-backed securities 852,481 3,593 (5,874) 850,200
------------- ----------- ----------- ------------
$ 27,758,280 $ 114,924 $ (155,404) $ 27,717,800
============= =========== =========== ============
74
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
December 31, 1999
----------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ --------- ---------- ------------
U.S. Treasury $ 99,988 $ 12 $ -- $ 100,000
U.S. government agencies 24,241,613 -- (140,713) 24,100,900
States and political subdivisions 11,469,800 -- (89,200) 11,380,600
Corporate bonds 800,000 -- -- 800,000
Mortgage-backed securities 1,034,099 1 -- 1,034,100
------------ --------- ---------- ------------
$ 37,645,500 $ 13 $ (229,913) $ 37,415,600
============ ========= ========== ============
Maturities of held-to-maturity securities at December 31, 2000, are:
Approximate
Amortized Fair
Cost Value
------------ ------------
One year or less $ 16,996,331 $ 16,978,800
After 10 years 9,909,468 9,888,800
Securities not due on a single maturity date 852,481 850,200
------------ ------------
$ 27,758,280 $ 27,717,800
============ ============
Proceeds of $19,981,981, $2,149,910, $3,359,677 and $1,365,670 with
resultant gross gains (losses) of $(9,312), $316,508, $1,397,828 and $355,501
were realized from the sale of available-for-sale securities for the years ended
December 31, 2000 and 1999, and June 30, 1998, and for the six months ended
December 31, 1998, respectively.
75
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
The book value of securities pledged as collateral to secure public
deposits amounted to approximately $29,627,900 and $14,766,000 at December 31,
2000 and 1999, respectively, with approximate fair values of $29,641,000 and
$14,606,000, respectively. The book value of securities pledged as collateral to
secure collateralized borrowing accounts amounted to approximately $25,490,300
and $34,432,000 at December 31, 2000 and 1999, respectively, with approximate
fair values of $25,587,300 and $34,447,000, respectively. The book value of
securities pledged as collateral to secure Federal Home Loan Bank advances
amounted to approximately $67,168,500 and $46,205,000 at December 31, 2000 and
1999, respectively, with approximate fair values of $67,431,800 and $46,062,000,
respectively.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 2000 and 1999, include:
2000 1999
---- ----
One to four family residential
mortgage loans $ 226,136,244 $ 208,466,168
Other residential mortgage loans 81,142,626 76,926,151
Commercial real estate loans 328,432,478 251,338,147
Other commercial loans 85,334,442 100,419,036
Construction loans 144,341,810 110,622,944
Installment, education and other loans 89,475,814 73,067,358
Prepaid dealer premium 1,722,885 1,310,127
Discounts on loans purchased (379,532) (623,990)
Undisbursed portion of loans in process (45,834,213) (36,047,401)
Allowance for loan losses (18,693,971) (17,293,320)
Deferred loan fees and gains, net (894,905) (1,378,280)
-------------- --------------
$ 890,783,678 $ 766,806,940
============== ==============
76
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Transactions in the allowance for loan losses were as follows:
Six Months
Years Ended December 31, Ended Year
----------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- ------------
Balance, beginning of period $17,293,320 $16,927,575 $16,372,700 $15,523,541
Provision charged to expense 3,105,600 2,062,000 1,290,712 1,852,597
Loans charged off (3,151,172) (2,806,437) (1,498,525) (1,142,584)
Recoveries 1,446,223 1,110,182 762,688 139,146
----------- ----------- ----------- -----------
Balance, end of period $18,693,971 $17,293,320 $16,927,575 $16,372,700
=========== =========== =========== ===========
The weighted average interest rate on loans receivable at December 31,
2000 and 1999, was 9.48% and 8.70%, respectively.
The Bank serviced loans and participations in loans for others amounting
to approximately $45,758,000 and $56,339,000 at December 31, 2000 and 1999,
respectively.
Gross impaired loans totaled approximately $12,486,000 and $9,270,000 at
December 31, 2000 and 1999, respectively. An allowance for loan losses of
$1,693,549 and $846,382 relates to these impaired loans at December 31, 2000 and
1999, respectively. There were no impaired loans at December 31, 2000 and 1999,
without a related allowance for loan losses assigned.
Interest of approximately $1,671,000, $487,000, $1,009,000 and $225,000
was recognized on average impaired loans of $13,394,000, $9,406,000, $12,009,000
and $9,819,000 for the years ended December 31, 2000 and 1999, and June 30,
1998, and for the six months ended December 31, 1998, respectively. Interest
recognized on impaired loans on a cash basis during these periods was not
materially different.
Certain of the Bank's real estate loans are pledged as collateral for
borrowings as set forth in Notes 6 and 7.
77
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Certain directors and executive officers of the Company and the Bank are
customers of and had transactions with the Bank in the ordinary course of
business. In the opinion of management, all loans included in such transactions
were made on substantially the same terms as those prevailing at the time for
comparable transactions with unrelated parties. At December 31, 2000 and 1999,
loans outstanding to these directors and executive officers are summarized as
follows:
December 31, December 31,
2000 1999
-------------- --------------
Balance, beginning of year $ 5,932,000 $ 5,791,000
New loans 1,334,000 1,016,000
Payments (1,535,000) (875,000)
-------------- --------------
Balance, end of year $ 5,731,000 $ 5,932,000
============== ==============
NOTE 4: PREMISES AND EQUIPMENT
Major classifications of premises and equipment stated at cost at December
31, 2000 and 1999, are as follows:
December 31,
-------------------------------
2000 1999
---- ----
Land $ 2,120,450 $ 2,117,661
Buildings and improvements 10,222,118 9,165,858
Furniture, fixtures and equipment 10,096,004 9,133,948
-------------- --------------
22,438,572 20,417,467
Less accumulated depreciation 12,122,379 10,433,392
-------------- --------------
$ 10,316,193 $ 9,984,075
============== ==============
78
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 5: DEPOSITS
Deposits at December 31, 2000 and 1999, are summarized as follows:
December 31,
Weighted-Average --------------------------
Interest Rate 2000 1999
---------------- ---- ----
Noninterest-bearing accounts -- $ 60,353,340 $ 47,359,993
Interest-bearing checking 2.23% - 1.86% 124,972,676 114,575,019
Savings accounts 2.51% - 2.50% 20,400,401 29,613,353
------------ ------------
205,726,417 191,548,365
------------ ------------
Certificate accounts 0% - 3.99% 94,646 1,153,099
4% - 4.99% 14,847,243 79,428,843
5% - 5.99% 123,103,034 280,687,725
6% - 6.99% 360,824,834 69,525,326
7% - 7.99% 46,220,971 3,526,651
8% and above 224,851 30,343
------------ ------------
545,315,579 434,351,987
------------ ------------
$751,041,996 $625,900,352
============ ============
The weighted average interest rate on certificates of deposit was 6.33%
and 5.44% at December 31, 2000 and 1999, respectively.
The aggregate amount of certificates of deposit originated by the Bank in
denominations of $100,000 or more was approximately $76,523,000 and $63,472,000
at December 31, 2000 and 1999, 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
$286,704,000 and $209,742,000 at December 31, 2000 and 1999, respectively.
At December 31, 2000, scheduled maturities of certificates of deposit are
as follows:
2001 $ 356,529,290
2002 113,027,204
2003 39,432,920
2004 11,401,253
2005 19,631,133
Thereafter 5,293,779
---------------
$ 545,315,579
===============
79
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 5: DEPOSITS (Continued)
A summary of interest expense on deposits is as follows:
Six Months
Years Ended December 31, Ended Year
----------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
Checking accounts $ 2,616,818 $ 2,541,365 $ 2,007,149 $ 2,673,921
Savings accounts 630,787 841,903 318,651 858,880
Certificate accounts 29,096,188 21,642,134 9,960,599 17,485,313
Early withdrawal penalties (99,748) (58,846) (31,358) (67,449)
----------- ----------- ----------- -----------
$32,244,045 $24,966,556 $12,255,041 $20,950,665
=========== =========== =========== ===========
NOTE 6: ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consist of the following:
December 31, 2000 December 31, 1999
------------------------------- --------------------------
Weighted Weighted
Average Average
Interest Interest
Due In Amount Rate Amount Rate
- ------ ------ ---------- ------ -------
2000 $ -- --% $ 96,652,917 5.96%
2001 100,635,163 6.52 11,135,163 6.55
2002 1,227,136 6.79 11,227,136 5.66
2003 31,327,164 6.66 31,327,164 6.52
2004 25,913,899 6.85 2,913,899 7.43
2005 3,280,264 6.64 3,280,264 6.64
2006 and
thereafter 71,994,378 5.97 43,994,378 6.58
-------------- --------------
$ 234,378,004 6.41 $ 200,530,921 6.23
============== ==============
80
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 6: ADVANCES FROM FEDERAL HOME LOAN BANK (Continued)
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 quarterly call provision
that allows the Federal Home Loan Bank of Des Moines to call the advance on any
quarter end after December 17, 2001.
The Bank has pledged FHLB stock, investment securities and first mortgage
loans free of pledges, liens and encumbrances as collateral for outstanding
advances. Investment securities with carrying values of $67,168,500 and
$46,205,000, respectively, were specifically pledged as collateral for advances
at December 31, 2000 and 1999. Loans with carrying values of $344,449,000 and
$324,107,000 were pledged as collateral for outstanding advances at December 31,
2000 and 1999, respectively.
NOTE 7: SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 2000 and 1999, are summarized as
follows:
December 31,
-------------------------------
2000 1999
---- ----
Federal funds purchased $ 25,000,000 $ 26,500,000
United States government agencies
securities sold under reverse
repurchase agreements 12,869,017 25,138,483
Other 3,826,356 1,955,607
-------------- --------------
$ 41,695,373 $ 53,594,090
============== ==============
The Bank enters into sales of securities under agreements to repurchase
(reverse repurchase agreements). Reverse repurchase agreements are treated as
financings, and the obligations to repurchase securities sold are reflected as a
liability in the statement of financial condition. The dollar amount of
securities underlying the agreements remains in the asset accounts.
Other short-term borrowings consist of borrowings from the Federal Reserve
Bank and margin loans with brokerage firms.
Short-term borrowings had weighted average interest rates of 6.67% and
4.71% at December 31, 2000 and 1999, respectively. 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.
81
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 7: SHORT-TERM BORROWINGS (Continued)
Short-term borrowings averaged $29,642,000 and $22,034,000 for the years
ended December 31, 2000 and 1999, respectively. The maximum amounts outstanding
at any month end were $42,646,000 and $53,594,090 during those same periods.
NOTE 8: NOTE PAYABLE TO BANK
The Company entered into a line of credit with a commercial bank during
1999. The amount available under the line of credit is $25,000,000 and
$15,000,000 at December 31, 2000 and 1999, respectively. The amount outstanding
was $15,500,000 and $7,517,025 at December 31, 2000 and 1999, 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, 2001.
The Bank has a potentially available $61,018,000 line of credit under a
borrowing arrangement with the Federal Reserve Bank at December 31, 2000. The
line is secured primarily by commercial loans and was not drawn upon at December
31, 2000.
NOTE 9: 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 $907,000 at December 31, 2000.
As of December 31, 2000 and 1999, 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, 2000 and 1999.
82
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 9: INCOME TAXES (Continued)
The provision for income taxes consists of:
Six Months
Years Ended December 31, Ended Year
----------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
Taxes currently payable $9,142,000 $6,997,160 $4,703,327 $7,014,286
Deferred income taxes (958,000) 21,040 (845,027) (90,586)
---------- ---------- ---------- ----------
$8,184,000 $7,018,200 $3,858,300 $6,923,700
========== ========== ========== ==========
The tax effects of temporary differences related to deferred taxes shown
on the December 31, 2000 and 1999, statements of financial condition were:
December 31,
----------------------------
2000 1999
---- ----
Deferred tax assets:
Allowance for loan losses $ 6,543,000 $ 6,053,000
Accrued expenses 118,000 123,000
Partnership tax credits 107,000 79,000
Excess of cost over fair value of net
assets acquired 112,000 74,000
Unrealized depreciation on available-for-
sale securities -- 381,970
------------ ------------
6,880,000 6,710,970
------------ ------------
Deferred tax liabilities:
Tax bad debt allowance in excess
of base year allowance (907,000) (1,244,000)
FHLB stock dividends (575,000) (575,000)
Unrealized appreciation on available-for-
sale securities (199,651) --
Other (25,339) (100,186)
------------ ------------
(1,706,990) (1,919,186)
------------ ------------
Net deferred tax asset $ 5,173,010 $ 4,791,784
============ =============
83
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 9: INCOME TAXES (Continued)
Reconciliations of the Company's provision for income taxes to the
statutory corporate tax rates are as follows:
Years Ended Six Months Year
December 31, Ended Ended
-------------------------- December 31, June 30,
2000 1999 1998 1998
---- ---- ------------- ------
Tax at statutory rate 35.0% 35.0% 35.0% 35.0%
State income taxes -- -- .1 (3.1)
Other (.4) (1.1) (.7) .5
------- ------- ------- -------
34.6% 33.9% 34.4% 32.4%
======= ======= ======= =======
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, 1997.
NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents
For these short-term instruments, the carrying amount approximates fair
value.
Available-for-Sale Securities
Fair values for available-for-sale securities, which also are the amounts
recognized in the statements of financial condition, equal quoted market prices,
if available. If quoted market prices are not available, fair values are
estimated based on quoted market prices of similar securities.
84
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Held-to-Maturity Securities
Fair values for held-to-maturity securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
Federal Home Loan Bank Stock
The carrying amount approximates fair value.
Loans
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Loans with similar
characteristics are aggregated for purposes of the calculations. The carrying
amount of accrued interest receivable approximates its fair value.
Deposits
The fair value of demand deposits and savings accounts is the amount
payable on demand at the reporting date, i.e., their carrying amounts. The fair
value of fixed-maturity certificates of deposit is estimated using a discounted
cash flow calculation that applies the rates currently offered for deposits of
similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.
Federal Home Loan Bank Advances
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing advances.
Short-Term Borrowings
The carrying amounts reported in the statements of financial condition for
short-term borrowings approximate those liabilities' fair value.
85
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Note Payable to Bank
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value
of letters of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
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.
86
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
December 31,
-----------------------------------------------------
2000 1999
-------------------------- ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Financial assets:
Cash and cash equivalents $ 40,100,743 $ 40,100,743 $ 43,600,220 $ 43,600,220
Available-for-sale securities 126,409,164 126,409,164 79,891,460 79,891,460
Held-to-maturity securities 27,758,280 27,717,800 37,645,500 37,415,600
Loans, net of allowance
for loan losses 890,783,678 900,279,000 766,806,940 775,123,000
Accrued interest receivable 8,911,165 8,911,165 5,854,494 5,854,494
Investment in FHLB stock 14,094,900 14,094,900 10,981,000 10,981,000
Financial liabilities:
Deposits 751,041,996 751,734,000 625,900,352 628,961,000
Accrued interest payable 6,117,661 6,117,661 5,832,253 5,832,253
FHLB advances 234,378,004 238,454,000 200,530,921 199,200,000
Short-term borrowings 41,695,373 41,695,373 53,594,090 53,594,000
Note payable to bank 15,500,000 15,500,000 7,517,025 7,517,025
Unrecognized financial
instruments (net of
contractual value):
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
Unused lines of credit -- -- -- --
Interest rate swaps -- 2,400,000 -- --
NOTE 11: OPERATING LEASES
The Company has entered into various operating leases at several of its
locations. Some of the leases have renewal options.
87
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 11: OPERATING LEASES (Continued)
At December 31, 2000, future minimum lease payments are as follows:
2001 $ 295,642
2002 237,595
2003 162,890
2004 129,648
2005 107,648
Later Years 479,043
-----------
$ 1,412,466
===========
Rental expense was $297,274, $307,805, $222,429 and $136,360 for the years
ended December 31, 2000 and 1999, and June 30, 1998, and the six months ended
December 31, 1998, respectively.
NOTE 12: COMMITMENTS AND CREDIT RISK
During 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. The swap agreements provide for the Company to pay a
variable rate of interest based on a spread to the 30-day London Interbank
Offering Rate (LIBOR) and to receive a fixed rate of interest. Under the swap
agreements the Company is to pay or receive interest monthly, semi-annually or
at maturity.
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, 2000, in terms of notional amounts (in millions) and their average
pay and receive rates were as follows:
Expected Maturity Date
-------------------------------------------------
2001 2002 2003 2004 2005 2008 Total
---- ---- ---- ---- ---- ---- -----
Interest Rate Derivatives
Interest Rate Swaps:
Fixed to Variable $32.5 $49.2 $31.0 $7.0 $15.8 $2.6 $138.1
Average Pay Rate 6.53% 6.33% 5.83% 6.52% 6.17% 5.60% 6.24%
Average Receive Rate 6.52% 6.36% 5.88% 6.57% 6.20% 5.80% 6.27%
88
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 12: COMMITMENTS AND CREDIT RISK (Continued)
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, 2000 and 1999, the Bank had outstanding commitments to
originate loans and fund commercial construction aggregating approximately
$34,185,000 and $27,760,000, 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
$1,319,000 and $3,172,000 with the remainder at floating market rates at
December 31, 2000 and 1999, 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 $12,404,000 and $13,613,000, at December 31, 2000 and 1999,
respectively, with $4,557,000 and $5,366,000, respectively, of the letters of
credit having terms ranging from seven months to five years. The remaining
$7,847,000 and $8,247,000 at December 31, 2000 and 1999, respectively, 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
89
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 12: COMMITMENTS AND CREDIT RISK (Continued)
by the Bank upon extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment, commercial real estate and residential real
estate. The Bank uses the same credit policies in granting lines of credit as it
does for on-balance-sheet instruments.
At December 31, 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. At December 31, 1999, the Bank
had granted unused lines of credit to borrowers aggregating approximately
$59,994,000 and $9,942,000 for commercial lines and open-end consumer lines,
respectively.
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 $149,460,000 and $140,745,000 at December 31,
2000 and 1999, respectively, are secured by motels, restaurants, recreational
facilities, other commercial properties and residential mortgages in the
Branson, Missouri, area. Residential mortgages account for approximately
$66,764,000 and $59,746,000 of this total at December 31, 2000 and 1999,
respectively.
NOTE 13: CONTINGENT LIABILITIES
The Company and its subsidiaries are defendants in certain lawsuits
arising in the ordinary course of business. Management, after review with its
legal counsel, is presently of the opinion that the resolution of these legal
matters will not have a material adverse effect. However, events could occur in
the near term that would change the estimate of liability materially.
Customers of one of the Bank's subsidiaries may enter into margin loan
agreements with the subsidiary's outside clearing agent in accordance with
Regulation T of the Federal Reserve rules. The subsidiary is required to
indemnify the clearing agent against any losses suffered by the clearing agent
as a result of any margin loans with the subsidiary's customers. The outstanding
amount of margin loans that are subject to indemnity by the subsidiary at
December 31, 2000, was $430,491.
90
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 14: ADDITIONAL CASH FLOW INFORMATION
Six Months
Years Ended December 31, Ended Year
----------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ------------ -------------
Noncash Investing and Financing Activities
Conversion of loans to foreclosed assets $3,458,309 $1,376,725 $2,165,000 $4,068,122
Conversion of foreclosed assets to loans $1,704,871 $3,130,700 $2,727,000 $4,647,521
Additional Cash Payment Information
Interest paid $48,575,365 $34,945,373 $14,820,215 $31,323,755
Income taxes paid $2,300,000 $8,725,000 $2,600,000 $8,640,000
NOTE 15: EMPLOYEE BENEFIT PLANS
The Company participates in a multi-employer defined benefit plan covering
all employees who have met minimum service requirements. The Company's policy is
to fund pension cost accrued. No contribution was required for the years ended
December 31, 2000 and 1999, and June 30, 1998, and the six months ended December
31, 1998. As a member of a multi-employer pension plan, disclosures of plan
assets and liabilities for individual employers are not required or practicable.
The Company has a defined contribution pension plan covering substantially
all employees. The Company matches 100% of the employee's contribution on the
first 3% of the employee's compensation, and also matches 50% of the employee's
contribution on the next 2% of the employee's compensation. Employer
contributions charged to expense for the years ended December 31, 2000 and 1999,
and June 30, 1998, and the six months ended December 31, 1998, were $308,743,
$191,581, $82,575 and $54,379, respectively.
NOTE 16: 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.
91
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 16: STOCK OPTION PLAN (Continued)
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.
The table below summarizes transactions under the Company's stock option
plans:
Shares
----------------------------------------------
Weighted
Available Average Exercise
to Grant Under Option Price
-------- ------------ ----------------
Balance, June 30, 1997 90,718 247,984 $11.114
New Plan established 800,000 -- --
Granted (51,600) 51,600 21.950
Exercised -- (12,714) (5.375)
Forfeited 5,979 (5,979) (13.547)
------- --------
Balance, June 30, 1998 845,097 280,891 13.488
Granted (45,700) 45,700 23.729
Exercised -- (10,230) (12.297)
Forfeited 6,725 (6,725) (19.622)
------- --------
Balance, December 31, 1998 806,122 309,636 12.564
Granted (74,100) 74,100 23.548
Exercised -- (58,166) (7.138)
Forfeited 19,800 (19,800) (22.352)
------- --------
Balance, December 31, 1999 751,822 305,770 17.933
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
======= =======
92
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 16: STOCK OPTION PLAN (Continued)
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, June 30,
2000 1999 1998 1998
----------- ----------- ----------- ------
Dividends Per Share $0.50 $0.50 $0.44 $0.42
Risk-Free Interest Rate 5.93% 5.70% 4.99% 5.85%
Expected Life of Options 5 Years 5 Years 4 Years 4 Years
Weighted-Average Fair Value
of Options Granted During Year $10.11 $8.98 $8.71 $8.11
The following table further summarizes information about stock options
outstanding at December 31, 2000:
Options Outstanding
----------------------------------------- Options Exercisable
Weighted --------------------------
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- -------- ----------- --------
$3.500 to $5.021 7,660 1.48 years $3.718 7,660 $3.718
$10.938 to $16.875 95,723 4.85 years 15.320 57,010 15.149
$17.00 to $18.70 38,325 4.51 years 17.942 13,025 18.352
$21.500 to $28.1875 92,850 6.88 years 24.100 19,211 24.399
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
$303,000, $284,000, $154,900 and $112,900 and basic and diluted earnings per
share would have decreased by $.04, $.04, $.02 and $.01 for the years ended
December 31, 2000 and 1999, and June 30, 1998, and the six months ended December
31, 1998, respectively. The effects of applying this Statement for either
recognizing compensation cost or providing pro forma disclosures are not likely
to be representative of the effects on reported net income for future years
because options vest over several years and additional awards generally are made
each year.
93
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 17: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Estimates related to the allowance for loan losses and pending litigation are
reflected in the footnotes regarding loans and contingent liabilities. Current
vulnerabilities due to certain concentrations of credit risk are discussed in
the footnotes on deposits and on commitments and credit risk.
NOTE 18: REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct and material effect on the Company's and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the 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.
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, 2000, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2000, 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.
94
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 18: REGULATORY MATTERS (Continued)
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, 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%
As of December 31, 1999
Total Risk-Based Capital
Great Southern Bancorp, Inc. $78,308 10.2% >=$61,698 >=8.0% N/A N/A
Great Southern Bank $78,879 10.2% >=$61,725 >=8.0% >=$77,156 >=10.0%
Tier I Risk-Based Capital
Great Southern Bancorp, Inc. $68,573 8.9% >=$30,849 >=4.0% N/A N/A
Great Southern Bank $69,140 9.0% >=$30,862 >=4.0% >=$46,294 >=6.0%
Core Capital
Great Southern Bancorp, Inc. $68,573 7.4% >=$37,302 >=4.0% N/A N/A
Great Southern Bank $69,140 7.4% >=$37,127 >=4.0% >=$46,409 >=5.0%
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, 2000 and 1999, 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.
95
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 19: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
Following is a summary of unaudited quarterly operating results for the
years ended December 31, 2000 and 1999, and June 30, 1998, and the six months
ended December 31, 1998:
December 31, 2000
--------------------------------------------------------
Three Months Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Interest income $19,142,886 $20,387,899 $22,268,238 $23,622,678
Interest expense 10,607,522 11,434,381 12,809,529 14,009,341
Provision for loan losses 475,600 600,000 900,000 1,130,000
Net realized gains (losses) on
available-for-sale securities 130 (6,001) -- (3,441)
Net income 3,658,806 3,884,120 3,991,825 3,942,891
Earnings per common share - diluted .48 .53 .55 .56
December 31, 1999
--------------------------------------------------------
Three Months Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Interest income $15,924,308 $16,232,225 $17,499,295 $18,382,225
Interest expense 8,182,918 8,236,251 9,091,687 9,952,234
Provision for loan losses 576,410 573,590 450,000 462,000
Net realized gains on available-
for-sale securities 219,596 48,357 26,776 21,779
Net income 3,446,707 3,225,893 3,547,182 3,457,599
Earnings per common share - diluted $.44 $.42 $.46 $.44
December 31, 1998
---------------------------
Three Months Ended
---------------------------
September 30 December 31
------------ -----------
Interest income $ 16,681,007 $ 15,803,765
Interest expense 8,378,787 8,151,034
Provision for loan losses 806,846 483,866
Net realized gains on available-for-sale securities 268,257 87,244
Net income 3,778,572 3,579,022
Earnings per common share - diluted $.47 $.44
96
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 19: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS (Continued)
June 30, 1998
-------------------------------------------------------
Three Months Ended
-------------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
Interest income $14,933,696 $15,107,330 $15,858,000 $16,032,659
Interest expense 7,714,388 7,886,507 8,088,653 8,302,130
Provision for loan losses 416,628 435,754 414,425 585,790
Net realized gains on available-
for-sale securities 420,572 451,194 417,761 108,301
Net income 3,860,275 3,619,773 3,363,595 3,600,406
Earnings per common share - diluted $.47 $.44 $.41 $.44
NOTE 20: 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.
97
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 20: OPERATING SEGMENTS (Continued)
Year Ended December 31, 2000
-----------------------------------------------
Banking All Other Totals
------- --------- ------
Interest income $85,375,389 $46,312 $85,421,701
Interest expense $48,848,863 $11,910 $48,860,773
Depreciation and amortization $2,054,831 $296,232 $2,351,063
Provision for income taxes $7,820,752 $363,248 $8,184,000
Segment profit $14,765,682 $711,960 $15,477,642
Segment assets $1,126,413,469 $3,764,589 $1,130,178,058
Expenditures for additions to
premises and equipment $2,276,120 $453,196 $2,729,316
Year Ended December 31, 1999
-----------------------------------------------
Banking All Other Totals
------- --------- ------
Interest income $67,779,777 $258,276 $68,038,053
Interest expense $35,263,345 $199,745 $35,463,090
Depreciation and amortization $2,040,954 $246,307 $2,287,261
Provision for income taxes $6,558,440 $459,760 $7,018,200
Segment profit $12,785,115 $892,266 $13,677,381
Segment assets $957,604,983 $7,198,419 $964,803,402
Expenditures for additions to
premises and equipment $1,937,700 $420,465 $2,358,165
Six Months Ended December 31, 1998
-----------------------------------------------
Banking All Other Totals
------- --------- ------
Interest income $32,405,769 $79,003 $32,484,772
Interest expense $16,518,815 $11,006 $16,529,821
Depreciation and amortization $838,495 $125,438 $963,933
Provision for income taxes $3,711,169 $147,131 $3,858,300
Segment profit $7,077,022 $280,572 $7,357,594
Segment assets $829,674,056 $6,823,646 $836,497,702
Expenditures for additions to
premises and equipment $1,360,336 $75,865 $1,436,201
98
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 20: OPERATING SEGMENTS (Continued)
Year Ended June 30, 1998
-------------------------------------------
Banking All Other Totals
------- --------- ------
Interest income $61,704,485 $227,200 $61,931,685
Interest expense $31,966,393 $25,285 $31,991,678
Depreciation and amortization $1,254,209 $134,624 $1,388,833
Provision for income taxes $6,165,092 $758,608 $6,923,700
Segment profit $12,963,921 $1,480,128 $14,444,049
Segment assets $790,429,922 $4,661,207 $795,091,129
Expenditures for additions to
premises and equipment $3,379,898 $125,900 $3,505,798
NOTE 21: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at December 31, 2000 and 1999, and statements
of income and cash flows for the years ended December 31, 2000 and 1999, and
June 30, 1998, and for the six months ended December 31, 1998, for the parent
company, Great Southern Bancorp, Inc., are as follows:
December 31,
--------------------------------
2000 1999
---- ----
BALANCE SHEETS
Assets
Cash $ 644,096 $ --
Available-for-sale securities 8,190,739 7,245,296
Investment in subsidiary bank 79,901,864 69,492,824
Income taxes receivable 136,894 --
Deferred income taxes -- 353,890
Other 100,458 50,003
-------------- --------------
$ 88,974,051 $ 77,142,013
============== ==============
99
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 21: CONDENSED PARENT COMPANY STATEMENTS (Continued)
December 31,
--------------------------------
2000 1999
---- ----
Liabilities and Stockholders' Equity
Bank overdraft $ -- $ 15,722
Accounts payable and accrued expenses 44,690 42,100
Income taxes payable -- 174,740
Short-term borrowings 17,840,481 7,938,298
Deferred income taxes 40,191 --
Common stock 123,250 123,250
Additional paid-in capital 17,461,445 17,487,433
Retained earnings 112,176,579 100,310,493
Unrealized appreciation (depreciation)
on available-for-sale securities, net 384,183 (598,790)
Treasury stock, at cost (59,096,768) (48,351,233)
-------------- --------------
$ 88,974,051 $ 77,142,013
============== ==============
Six Months
Years Ended December 31, Ended Year
------------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
STATEMENTS OF INCOME
Income
Dividends from subsidiary bank $ 7,000,000 $ 9,250,000 $ 4,755,806 $ 8,916,733
Dividends from other subsidiaries -- -- 51,281 469,109
Interest and dividend income 323,593 247,929 101,172 227,200
Net realized gains (losses) on sales
of available-for-sale securities (11,497) 296,041 353,149 1,397,828
Other income (loss) -- -- 275 (69,266)
----------- ----------- ----------- -----------
Total income 7,312,096 9,793,970 5,261,683 10,941,604
----------- ----------- ----------- -----------
Expense
Operating expenses 219,120 214,211 103,668 199,972
Interest expense 1,040,574 215,432 11,006 25,285
----------- ----------- ----------- -----------
Total expense 1,259,694 429,643 114,674 225,257
----------- ----------- ----------- -----------
Income before income tax and equity in
undistributed earnings of subsidiaries 6,052,402 9,364,327 5,147,009 10,716,347
Provision (credit) for income taxes (371,012) (14,202) 59,350 415,223
------------ ------------ ----------- -----------
Income before equity in earnings of subsidiaries 6,423,414 9,378,529 5,087,659 10,301,124
Equity in undistributed earnings of subsidiaries 9,054,228 4,298,852 2,269,935 4,142,925
----------- ----------- ----------- -----------
Net Income $15,477,642 $13,677,381 $ 7,357,594 $14,444,049
=========== =========== =========== ===========
100
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 21: CONDENSED PARENT COMPANY STATEMENTS (Continued)
Six Months
Years Ended December 31, Ended Year
------------------------ December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities
Net income $15,477,642 $13,677,381 $ 7,357,594 $14,444,049
Items not requiring (providing) cash:
Loss on low income housing partnership -- -- -- 12,093
Equity in undistributed earnings
of subsidiaries (9,054,228) (4,298,851) (2,278,085) (4,144,925)
Net realized (gains) losses on sales
of available-for-sale securities 11,497 (296,041) (353,149) (1,397,828)
Changes in:
Dividends receivable -- 19,740 (19,744) 3,000
Other assets (455) -- -- 57,505
Accounts payable 2,590 32,100 10,000 --
Income taxes (311,634) (318,110) 72,803 703,119
----------- ----------- ----------- -----------
Net cash provided by operating
activities 6,125,412 8,816,219 4,789,419 9,677,013
----------- ----------- ----------- -----------
Cash Flows From Investing Activities
Net loans originated -- 585,000 -- (585,000)
Purchase of available-for-sale
securities -- (4,084,488) (2,289,879) (1,427,438)
Proceeds from sale of available-for-sale
securities 65,302 2,149,910 1,350,713 3,359,677
Other investments (50,000) -- -- (50,000)
Investment in subsidiary (1,000,000) (3,000,000) -- --
Partnership distribution -- -- -- 5,062
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (984,698) (4,349,578) (939,166) 1,302,301
----------- ----------- ----------- -----------
Cash Flows From Financing Activities
Proceeds from bank overdraft -- 15,722 -- --
Repayment of bank overdraft (15,722) -- -- --
Net increase (decrease) in short-term
borrowings 9,902,183 7,214,248 724,050 (2,406,423)
Dividends paid (3,611,556) (3,826,880) (1,853,342) (3,468,568)
Stock options exercised 481,230 464,437 127,435 94,118
Treasury stock purchased (11,252,753) (8,792,122) (3,945,628) (3,694,781)
----------- ----------- ----------- -----------
Net cash used in financing
activities (4,496,618) (4,924,595) (4,947,485) (9,475,654)
----------- ----------- ----------- -----------
Increase (Decrease) in Cash 644,096 (457,954) (1,097,232) 1,503,660
Cash, Beginning of Period -- 457,954 1,555,186 51,526
----------- ----------- ----------- -----------
Cash, End of Period $ 644,096 $ 0 $ 457,954 $ 1,555,186
=========== =========== =========== ===========
101
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998,
AND JUNE 30, 1998
NOTE 21: CONDENSED PARENT COMPANY STATEMENTS (Continued)
Six Months
Years Ended December 31, Ended Year
----------------------- December 31, Ended
2000 1999 1998 June 30, 1998
---- ---- ----------- -------------
Additional Cash Payment Information
Interest paid $1,038,377 $173,410 $39,066 $11,006
102
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
Nominee to Serve a Three-Year Term Expiring at the 2004 Annual Meeting
William V. Turner, age 68, has served as the Chairman of the Board of
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 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 incorporation in
1974, Chairman of the Board and President of Appraisal Services, Inc. (a
subsidiary of Great Southern) since incorporation in 1976 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.
Information with Respect to the Continuing Directors
In addition to the nominee 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 2002 Annual Meeting
William E. Barclay, age 71, 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 and 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 63, 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.
103
Directors Serving a Three-Year Term Expiring at the 2003 Annual Meeting
Thomas J. Carlson, age 48, 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.
Joseph W. Turner, age 36, joined Great Southern in 1991 and Bancorp in
1995 and became a Director in 1997. He 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.
(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 three late filings for Ann S. Turner for
one transaction in June 1998, one transaction in June 1999 and one transaction
in September 2000, four late filings for Joseph W. Turner for one transaction in
October 1999, one transaction in December 1999, one transaction in September
2000 and one transaction in December 2000, three late filing for William V.
Turner for one transaction in June 1998, one transaction in June 1999 and one
transaction in September 2000, one late filing for Steven G. Mitchem for one
transaction in September 2000, one late filing for Rex A. Copeland for one
transaction in September 2000, two late filings for Douglas W. Marrs for one
transaction in September 2000 and one transaction in April 2000 and two late
filings for Larry A. Larimore for one transaction in April 2000 and one
transaction in July 2000.
104
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation of
Joseph W. Turner, the President and Chief Executive Officer, and William V.
Turner, the Chairman of the Board. No other executive officer earned a salary
and bonus in excess of $100,000 for fiscal 2000.
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------- ------------
All Other
Name and Principal Position Year Salary Bonus Options Compensation
($)(1) ($) (#) ($)(2)
- --------------------------- --------------- ------- ------- ------------ ------------
William V. Turner Fiscal 2000 226,494 120,000 7,500 6,960
Chairman of the Board Fiscal 1999 291,261 100,000 5,000 6,940
Calendar 1998 317,122 215,000 5,000 2,914
Fiscal June 1998 320,793 191,732 7,500 5,290
Joseph W. Turner Fiscal 2000 179,714 120,000 7,500 6,581
Chief Executive Officer Fiscal 1999 148,451 50,000 5,000 14,062
and President Calendar 1998 143,803 --- 5,000 2,925
Fiscal June 1998 145,000 --- 5,000 4,611
(1) Includes directors' fees for Mr. W. Turner of $31,200 for Fiscal 2000,
Fiscal 1999, Calendar 1998 and Fiscal June 1998 and for Mr. J. Turner of
$18,000, $10,500 and $10,500 for Fiscal 2000, Fiscal 1999 and Calendar
1998, respectively.
(2) Fiscal 2000 includes: (a) company matching contributions to Bancorp's
401(k) plan (Mr. W. Turner - $6,420 and Mr. J. Turner - $6,041) and (b)
term life insurance premiums paid by Great Southern for the benefit of Mr.
W. Turner - $540 and Mr. J. Turner - $540.
105
Option Grants During the Fiscal Year Ended December 31, 2000
The following table sets forth options to acquire shares of Common Stock
which were granted to the executive officers named in the Summary Compensation
Table during fiscal 2000.
OPTIONS GRANTS IN FISCAL 2000
Individual Grants
---------------------------------------------------------------------------
% of Total
Number of Options Potential Realizable
Securities Granted to Exercise Value at Assumed
Underlying All or Base Annual Rate of
Options Employees Price Stock Price
Granted in Fiscal ($ per Expiration Appreciation for
Name (#)(1) 2000 share) Date Option Term
- ----------------- --------- --------- -------- ---------- ----------------------
5% ($) 10% ($)
------- -------
William V. 7,500 12.0% $17.4284 9-20-2005 $20,948 $60,664
Turner
Joseph W. 7,500 12.0 17.4284 9-20-2005 $20,948 $60,664
Turner
(1) Shares for William V. Turner and Joseph W. Turner vest 25% per year after
a one year holding period beginning on the date of the grant (September
20, 2000) and must be exercised within 5 years of the grant.
Option Exercises and Fiscal Year-End Values
The following table sets forth all stock options exercised by the named
executives during fiscal 2000 and the number and value of unexercised options
held by such executive officers at December 31, 2000.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Shares Value Year-End (#) at Fiscal Year-End ($)(2)
Acquired on Realized -------------------------- --------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---------- -------- ----------- ------------- ----------- -------------
William V. Turner 30,000 $98,445 39,375 15,625 $ --- $ ---
Joseph W. Turner 13,000 41,847 29,060 15,000 79,540 ---
(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
$15.625, based on the closing price of the Common Stock as reported on the
Nasdaq National Market System on December 31, 2000, less the exercise price
per share.
106
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 any of the Employees for "cause," as
defined in the Employment Agreements, at any time. The Employment Agreements
also provide that in the event Great Southern chooses to terminate the
employment of any of the Employees for reasons other than for cause, or in the
event any of the Employees resigns from Great Southern upon the failure of the
Great Southern Board of Directors to reelect any of the Employees to his current
office or upon a material lessening of his functions, duties or
responsibilities, such employee would be entitled to the payments owed for the
remaining term of the agreement. If the employment of any of the Employees is
terminated in connection with or within 12 months of a "change in control" of
Great Southern or Bancorp, each of the Employees would be entitled to (i) a lump
sum payment equal to 299% of the employee's base amount of compensation as
defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended,
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, 2000, such payments would have amounted to
$1,306,888 and $430,716, 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.
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, 2000, Messrs. W. Turner
and J. Turner had 25 and 8 years, respectively, of credited service under the
pension plan. Since the pension plan is fully funded, there were no
contributions during fiscal 2000 for Messrs. W. Turner and J. Turner.
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 80,000 120,000 135,000(1)
250,000.............. 50,000 100,000 135,000(1) 135,000(1)
300,000.............. 60,000 120,000 135,000(1) 135,000(1)
350,000.............. 70,000 135,000(1) 135,000(1) 135,000(1)
(1) The maximum retirement benefit currently permitted by federal law is
$135,000 per year for this type of plan.
107
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 1,046,701(3) 15.09%
Ann S. Turner
Turner Family Limited Partnership
Turner Family Foundation
925 St. Andrews Circle
Springfield, MO 65809
Robert M. Mahoney 486,184(4) 7.05
Joyce B. Mahoney
Tri-States Company
4940 S. Farm Road 189
Suite 500
Rogersville, MO 65742
Earl A. Steinert, Jr. 460,500(5) 6.68
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 such date. This figure includes 39,375
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 174,120 shares held
in various capacities by William V. Turner, Mrs. Turner's husband, which
Mrs. Turner may be deemed to beneficially own. Mrs. Turner disclaims
beneficial ownership as to shares beneficially owned by William V. Turner
and the Turner Family Foundation, and 258,678 shares owned by the Turner
Family Limited Partnership.
108
(4) As reported by Robert M. Mahoney, Joyce B. Mahoney and Tri-States Service
Company 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.
(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 1,046,701(3) 15.09%
Larry D. Frazier 62,500 .91
Joseph W. Turner 55,505(4) .80
William E. Barclay 8,048(5) .12
Thomas J. Carlson 1,500 .02
Directors and Executive Officers
as a Group (9 persons) 1,213,265(6) 17.41
(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 such 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 29,060 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 71,336 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 of business, on substantially
the same terms and collateral as those of comparable transactions prevailing
109
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 such below market rate loans exceeding $60,000
at any time since January 1, 2000 except as noted below.
Largest
Amount
Outstanding Balance Interest
Date of Since as of Rate at
Name Position Loan 01/01/00 12/31/00 12/31/00 Type
- ------------------ ------------------------- -------- ---------- -------- -------- ----------------
William V. Turner Chairman of the Board of 08/25/95 $318,121 $312,349 6.33% Home Mortgage
Bancorp and Great Southern
Joseph W. Turner CEO and President of 08/31/00 56,277 56,277 9.50% Home Equity Line
Bancorp and Great Southern 09/14/98 295,168 290,354 6.22% Home Mortgage
Rex A. Copeland Treasurer of Bancorp; 06/01/00 188,000 185,993 6.09% Home Mortgage
Senior Vice President and
CFO of Great Southern
Steven G. Mitchem Senior Vice President and 06/22/98 166,150 163,697 5.93% Home Mortgage
Chief Lending Officer of
Great Southern
Larry A. Larimore Secretary of Bancorp and 08/17/00 215,000 214,382 6.22% Home Mortgage
Great Southern; Vice 08/12/98 18,837 17,753 9.50% Home Equity Line
President of Great
Southern
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
Inapplicable.
110
(3) List of Exhibits
Exhibits incorporated by reference below are incorporated by reference
pursuant to Rule 12b-32.
(2) Plan of acquisition, reorganization, arrangement, liquidation, or
succession
Inapplicable.
(3) Articles of incorporation and Bylaws
(i) The Registrant's Certificate of Incorporation previously filed
with the Commission (File no. 33- 30597) as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 dated August
18,1989, is incorporated herein by reference as Exhibit 3.1.
(ii) The Registrant's Certificate of Amendment of Certificate of
Incorporation previously field with the Commission as Exhibit
3.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, is incorporated herein by
reference as Exhibit 3.2.
(iii) The Registrant's Bylaws, as amended, previously filed with the
Commission (File no. 33-30597) as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for fiscal year ended
June 30, 1990, is incorporated herein by reference as Exhibit
3.3.
(4) Instruments defining the rights of security holders, including
indentures
Inapplicable.
(9) Voting trust agreement
Inapplicable.
(10) Material contracts
The Registrant's 1989 Stock Option and Incentive Plan previously
filed with the Commission (File no. 33- 30597) as Exhibit 10.2 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1990, is incorporated herein by reference as Exhibit
10.1.
An Employment Agreement dated February 1, 1990 between the
Registrant and William V. Turner previously filed with the
Commission (File no. 33-30597) as Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 dated August 18, 1989, is
incorporated herein by reference and a January 19, 2000 amendment is
attached hereto 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, is incorporated herein
by reference and a January 19, 2000 amendment is attached hereto as
Exhibit 10.4.
The Registrant's 1997 Stock Option and Incentive Plan previously
filed with the Commission (File no. 33-30597) as Annex A to the
Registrant's Definitive Proxy Statement for the fiscal year ended
June 30, 1997, is incorporated herein by reference as Exhibit 10.5.
The Registrant's $25,000,000 Revolving Note, as modified, with a
commercial bank is attached hereto as Exhibit 10.6.
111
(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 Baird, Kurtz & Dobson to the incorporation by
reference into the Form S-8 previously filed on December 16, 1992
with the Commission (File no. 33-55832) of their report on the
financial statements included in this Form 10-K, is attached hereto
as Exhibit 23.
(24) Power of attorney
Included as part of signature page.
(99) Additional Exhibits
Inapplicable.
(b) Reports on Form 8-K
None.
112
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, 2001 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 and March 28, 2001
- ------------------------------------- Director (Principal Executive Officer)
Joseph W. Turner
/s/ William V. Turner Chairman of the Board March 28, 2001
- -------------------------------------
William V. Turner
/s/ Rex A. Copeland Treasurer March 28, 2001
- ------------------------------------- (Principal Financial Officer and
Rex A. Copeland Principal Accounting Officer)
/s/ William E. Barclay Director March 28, 2001
- -------------------------------------
William E. Barclay
/s/ Larry D. Frazier Director March 28, 2001
- -------------------------------------
Larry D. Frazier
/s/ Thomas J. Carlson Director March 28, 2001
- -------------------------------------
Thomas J. Carlson
113
GREAT SOUTHERN BANCORP, INC.
INDEX TO EXHIBITS
Exhibit No. Document
- -------------- ----------------------------------------------------------------
10.2 Amendment dated January 19, 2000 to Employment Agreement with
William V. Turner
10.4 Amendment dated January 19, 2000 to Employment Agreement with
Joseph W. Turner
10.6 Revolving Note With Commercial Bank
12 Statement of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Registrant
23 Consent of Baird, Kurtz & Dobson, Certified Public Accountants
114