ITEM 1. BUSINESS.
THE COMPANY
GREAT SOUTHERN BANCORP, INC.
Great Southern Bancorp, Inc. ("Bancorp" or "Company") is a bank holding company which, as of December 31, 1999, owned directly all of the stock of Great Southern Bank ("Great Southern" or the "Bank") and other non-banking subsidiaries. Bancorp was incorporated under the laws of the State of Delaware in July 1989 as a unitary savings and loan holding company. After receiving the approval of the Federal Reserve Bank of St. Louis (the "Federal Reserve" or "FRB"), the Company became a one-bank holding company on June 30, 1998, upon the conversion on June 30, 1998, of Great Southern to a Missouri-chartered trust company.
As a Delaware corporation, the Company is authorized to engage in any activity that is permitted by the Delaware General Corporation Law and is not prohibited by law or regulatory policy. The Company currently conducts its business as a bank holding company. Through the bank holding company structure, it is possible to expand the size and scope of the financial services offered by the Company beyond those offered by the Bank. The bank holding company structure provides the Company with greater flexibility than the Bank would have to diversify its business activities, through existing or newly formed subsidiaries, or through acquisitions or mergers of other financial institutions as well as other companies. At December 31, 1999, Bancorp's consolidated assets were $965 million, consolidated net loans were $767 million, consolidated deposits were $626 million and consolidated stockholders' equity was $69 million. The assets of the Company consist of the stock of Great Southern, the stock of other financial services companies, interest in a local trust company and cash.
Through subsidiaries of the Bank, the Company offers insurance, appraisal, travel, discount brokerage and related services, which are discussed further below. The activities of the Company are funded by retained earnings and through dividends from Great Southern and borrowings from third parties. Activities of the Company may also be funded through sales of additional securities or through income generated by other activities of the Company. At this time, there are no plans regarding such activities.
The executive offices of the Company are located at 1451 East Battlefield, Springfield, Missouri 65804, and its telephone number at that address is (417) 887-4400.
GREAT SOUTHERN BANK
Great Southern was incorporated as a Missouri-chartered mutual savings and loan association in 1923, and in 1989 was converted to a Missouri-chartered stock savings and loan association. In 1994, Great Southern changed to a federal savings bank charter and then on June 30, 1998, changed to a Missouri-chartered trust company (the equivalent of a commercial bank charter). Headquartered in Springfield, Missouri, Great Southern offers a broad range of banking services through its 27 branches located in southwestern and central Missouri. At December 31, 1999, the Bank had total assets of $958 million, deposits of $627 million and stockholders' equity of $69 million, or 7.3% of total assets. Its deposits are insured by the Savings Association Insurance Fund ("SAIF") to the maximum levels permitted by the Federal Deposit Insurance Corporation ("FDIC").
Great Southern is principally engaged in the business of originating residential and commercial real estate loans, other commercial and consumer loans and funding these loans through attracting deposits from the general public, originating brokered deposits and borrowing from the Federal Home Loan Bank of Des Moines (the "FHLBank") and others.
For many years, Great Southern has followed a strategy of emphasizing quality loan origination through residential, commercial and consumer lending activities in its local market area. The goal of this strategy has been to maintain its position as one of the leading providers of financial services in its market area, while simultaneously diversifying assets and reducing interest rate risk by originating and holding adjustable-rate loans in its portfolio and selling fixed-rate loans in the secondary market. The Bank continues to place primary emphasis on residential mortgage and other real estate lending while also expanding and increasing its originations of commercial business and consumer loans.
The main office of the Bank is located at 1451 East Battlefield, Springfield, Missouri 65804 and its telephone number at that address is (417) 887-4400.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-K and in future filings by the Company with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result" "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.
The Company does not undertake-and specifically declines any obligation- to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
PRIMARY MARKET AREA
Great Southern's primary market area encompasses 15 counties in southwestern and central Missouri. The Bank's branches and ATMs support deposit and lending activities throughout the region, serving such diversified markets as Springfield, Joplin, the resort areas of Branson and Lake of the Ozarks, and various smaller communities in the Bank's market area. Management believes that the Bank's share of the deposit and lending markets in its market area is less than 10% and its affiliates have an even smaller percent, with the exception of the travel agency, which may have a larger percent.
Great Southern's largest concentration of loans and deposits is in the Greater Springfield area. With a population of approximately 306,000, the Greater Springfield area is the third largest metropolitan area in Missouri. Employment in this area is diversified, including small and medium-sized manufacturing concerns, service industries, especially in the resort and leisure activities sectors, agriculture, the federal government,
and a major state university. Springfield is also a regional health care center. The unemployment rate in this area is, and has consistently been, below the national average.
The next largest concentration of loans is in the Branson area, which is located approximately 35 miles south of Springfield and is one of the fastest growing areas in Missouri. The region is a vacation and entertainment center attracting an estimated 6 million tourists annually to its theme parks, resorts, country music shows and other recreational facilities. As a result of the rapid growth of the Branson area, property values increased at unusually high rates in the early 1990s. This has also provided for increased loan demand and a more volatile lending market than has previously been present in the Branson area. Property values have experienced downward pressure during the past few years, partly as a result of this rapid increase.
A significant portion of the Bank's loan originations have been secured by properties in the two county region that includes the Branson area. Approximately $141 million, or 17%, of the total loan portfolio at December 31, 1999, was secured by commercial real estate, commercial construction, other residential properties, one- to four-family residential properties, one- to four-family construction properties, and consumer loans.
LENDING ACTIVITIES
GENERAL
From its beginnings in 1923 through the early 1980s, Great Southern primarily made long-term, fixed-rate residential real estate loans that it retained in its loan portfolio. Beginning in the early 1980s, Great Southern increased its efforts to originate short-term and adjustable-rate loans. Substantially all of the adjustable-rate mortgage loans originated by Great Southern are held for its own portfolio and substantially all of the long-term fixed-rate residential mortgage loans originated by Great Southern are sold immediately in the secondary market.
Beginning in the mid-1990s, Great Southern increased its efforts to originate commercial real estate and other residential loans, primarily with adjustable rates or shorter-term fixed rates. During the past 24 months, some competitor banking organizations have merged with larger institutions and changed their business practices or moved operations away from the local area, and others have consolidated operations from the local area to larger cities. This has provided Great Southern expanded opportunity in these areas as well as in the origination of commercial business and consumer loans, primarily the indirect automobile area. In addition to origination of these loans, the Bank has expanded and enlarged its relationships with smaller banks to purchase participations (at par, with no servicing costs) in loans the smaller banks originate but are unable to retain in their portfolios due to capital limitations. The Bank uses the same underwriting guidelines in evaluating these participations as it does in its direct loan originations.
One of the principal historical lending activities of Great Southern is the origination of fixed and adjustable-rate conventional residential real estate loans to enable borrowers to purchase or refinance owner-occupied homes. Great Southern originates a variety of conventional, residential real estate mortgage loans, principally in compliance with Freddie Mac and Fannie Mae standards for resale in the secondary market. Great Southern promptly sells most of the fixed-rate residential mortgage loans that it originates. Depending on market conditions, the ongoing servicing of these loans is at times retained by Great Southern and at other times released to the purchaser of the loan. Great Southern retains substantially all of the adjustable-rate mortgage loans in its portfolio.
Another principal lending activity of Great Southern, which has become more prevalent in recent years, is the origination of commercial real estate and construction loans. Since the early 1990s, this area
of lending has been an increasing percentage of the loan portfolio and accounts for approximately 38% of the portfolio at December 31, 1999.
In addition, Great Southern in recent years has increased its emphasis on the origination of other commercial loans, home equity loans, consumer loans and student loans, and is also an issuer of letters of credit. See "-- Other Commercial Lending," "- Classified Assets," and "Loan Delinquencies and Defaults" below. Letters of credit are contingent obligations and are not included in the Bank's loan portfolio.
Great Southern has a policy of obtaining collateral for substantially all real estate loans. The percentage of collateral value Great Southern will loan on real estate and other property varies based on factors including, but not limited to, the type of property and its location and the borrower's credit history. As a general rule, Great Southern will loan up to 80% of the appraised value on one- to four-family residential property and will loan up to an additional 15% with private mortgage insurance for the loan amount above the 80% level. For commercial real estate and other residential real property loans, Great Southern generally loans up to a maximum of 80% of the appraised value. The origination of loans secured by other property are considered and determined on an individual basis by management with the assistance of any industry guides and other information which may be available.
Loan applications are approved at various levels of authority, depending on the type, amount and loan-to-value ratio of the loan. Loan commitments of more than $500,000 ($350,000 in the case of fixed-rate one-to four-family residential loans for resale) must be approved by Great Southern's loan committee. The loan committee is comprised of the Chairman of the Bank, as chairman of the committee, and other senior officers of the Bank involved in lending activities.
Although Great Southern is permitted under applicable regulations to originate or purchase loans and loan participations secured by real estate located in any part of the United States, the Bank has concentrated its lending efforts in Missouri and Northern Arkansas, with the largest concentration of its lending activity being in southwestern and central Missouri.
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.
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.
ENVIRONMENTAL ISSUES
Loans secured with real property, whether commercial, residential or other, may have a material, negative effect on the financial position and results of operations of the lender if the collateral is environmentally contaminated. The result can be, but is not necessarily limited to, liability for the cost of cleaning up the contamination imposed on the lender by certain federal and state laws, a reduction in the borrower's ability to pay because of the liability imposed upon it for any clean up costs, a reduction in the value of the collateral because of the presence of contamination or a subordination of security interests in the collateral to a super priority lien securing the clean up costs by certain state laws.
Management of the Bank is aware of the risk that the Bank may be negatively affected by environmentally contaminated collateral and attempts to control such risk through commercially reasonable methods, consistent with guidelines arising from applicable government or regulatory rules and regulations, and to a more limited extent publications of the lending industry. Management currently is unaware (without, in many circumstances specific inquiry or investigation of existing collateral, some of which was accepted as collateral before risk controlling measures were implemented) of any environmental contamination of real property securing loans in the Bank's portfolio that would subject the Bank to any material risk. No assurance can be made, however, that the Bank will not be adversely affected by environmental contamination.
RESIDENTIAL REAL ESTATE LENDING
At December 31, 1999 and 1998, loans secured by residential real estate totaled $285 million and $303 million, respectively, and represented approximately 34.7% and 40.7%, respectively, of the Bank's total loan portfolio. Compared to historical rate levels, fixed rates were low during the early portion of the year ended December 31, 1999 and the short fiscal year ended December 31, 1998. This caused a higher than normal level of refinancing of adjustable-rate loans into fixed-rate loans during the two periods, and accounted for the decline in the Bank's residential real estate loan portfolio during these two periods.
The Bank currently is originating adjustable-rate residential mortgage loans primarily with one-year adjustment periods. Rate adjustments are based upon changes in prevailing rates for one-year U.S. Treasury securities, and are generally limited to 2% maximum annual adjustments as well as a maximum aggregate adjustment over the life of the loan. Accordingly, the interest rates on these loans typically may not be as rate sensitive as is the Bank's cost of funds. Generally, the Bank's adjustable-rate mortgage loans are not convertible into fixed-rate loans, do not permit negative amortization of principal and carry no prepayment penalty.
The Bank's portfolio of adjustable-rate mortgage loans also includes a number of loans with different adjustment periods, without limitations on periodic rate increases and rate increases over the life of the loans or which are tied to other short-term market indices. These loans were originated prior to the industry standardization of adjustable-rate loans. Since adjustable-rate mortgage loans have not been subject to an interest rate environment which causes them to adjust to the maximum, such loans entail unquantifiable risks resulting from potential increased payment obligations on the borrower as a result of upward repricing. Further, the adjustable-rate mortgages offered by Great Southern, as well as by many other financial institutions, sometimes provide for initial rates of interest below the rates which would prevail were the index used for pricing applied initially. Compared to fixed-rate mortgage loans, these loans are subject to increased risk of delinquency or default as the higher, fully-indexed rate of interest subsequently comes into effect in replacement of the lower initial rate. The Bank has not experienced a significant increase in delinquencies in adjustable-rate mortgage loans due to a relatively low interest rate environment in recent years.
In underwriting one- to four-family residential real estate loans, Great Southern evaluates the borrower's ability to make monthly payments and the value of the property securing the loan. It is the policy of Great Southern that all loans in excess of 80% of the appraised value of the property be insured by a private mortgage insurance company approved by Great Southern for the amount of the loan in excess of 80% of the appraised value. In addition, Great Southern requires borrowers to obtain title and fire and casualty insurance in an amount not less than the amount of the loan. Real estate loans originated by the Bank generally contain a "due on sale" clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the property securing the loan. In the case of fixed-rate loans, the Bank generally enforces these due on sale clauses to the extent permitted by law.
COMMERCIAL REAL ESTATE AND CONSTRUCTION LENDING
Commercial real estate lending has traditionally been a part of Great Southern's business activities. Beginning in fiscal 1986, Great Southern expanded its commercial real estate lending in order to increase the yield on, and the proportion of interest rate sensitive loans in, its portfolio. Starting early in fiscal 1988, Great Southern reduced its originations of commercial real estate loans due to the lower spreads available at that time and the Bank's increased levels of problem loans in this area. In addition, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") further limited the Bank's commercial real estate lending, due to limits imposed on the amounts and types of loans the Bank would be permitted to originate. See "Regulation." Starting in fiscal 1992, Great Southern increased its origination of commercial real estate and commercial business loans and has accelerated the rate of increase in recent years.
Great Southern expects to continue to maintain or increase the current percentage of commercial real estate loans in its total loan portfolio by originating loans secured by commercial real estate, subject to commercial real estate and other market conditions and to applicable regulatory restrictions. See "Regulation" below.
At December 31, 1999 and 1998, loans secured by commercial real estate totaled $251 million and $261 million, respectively, or approximately 30.5% and 35.1%, respectively, of the Bank's total loan portfolio. At December 31, 1999 and 1998, construction loans secured by projects under construction and the land on which the projects are located aggregated $111 million and $60 million, respectively, or 13.5% and 8.0%, respectively, of the Bank's total loan portfolio. The majority of the Bank's commercial real estate loans have been originated with adjustable rates of interest, the majority of which are tied to the Bank's prime rate. At the date of origination, the amounts of the loan commitments with respect to substantially all of these loans did not exceed 80% of the appraised value of the properties securing the loans.
The Bank's construction loans generally have terms of one year or less. The construction loan agreements for one- to four-family projects generally provide that principal payments are required as individual condominium units or single-family houses are built and sold to a third party. This insures the remaining loan balance, as a proportion to the value of the remaining security, does not increase. Loan proceeds are disbursed in increments as construction progresses. Generally, the amount of each disbursement is based on the construction cost estimate of an independent architect, engineer or qualified fee inspector who inspects the project in connection with each disbursement request. Normally, Great Southern's commercial real estate and other residential construction loans are made either as the initial stage of a combination loan (i.e., with a
commitment from the Bank to provide permanent financing upon completion of the project) or with a commitment from a third party to provide permanent financing.
The Bank's commercial real estate and construction loans generally involve larger principal balances than do its residential loans. Current law subjects state chartered banks to the same loans-to-one borrower restrictions that are applicable to national banks with limited provisions for exceptions. In general, the national bank standard restricts loans to a single borrower to no more than 15% of a bank's unimpaired capital and unimpaired surplus, plus an additional 10% if the loan is collateralized by certain readily marketable collateral. (Real estate is not included in the definition of "readily marketable collateral.") As computed on the basis of the Bank's unimpaired capital and surplus at December 31, 1999, this limit was approximately $13.0 million. See "Regulation." At December 31, 1999 the Bank was in compliance with the loans-to-one borrower limit.
Commercial real estate and construction lending generally affords the Bank an opportunity to receive interest at rates higher than those obtainable from residential lending and to receive higher origination and other loan fees. In addition, commercial real estate and construction loans are generally made with adjustable rates of interest or, if made on a fixed-rate basis, for relatively short terms. Nevertheless, commercial real estate lending entails significant additional risks as compared with residential mortgage lending. Commercial real estate loans typically involve large loan balances to single borrowers or groups of related borrowers but generally involve lower loan-to-value ratios. In addition, the payment experience on loans secured by commercial properties is typically dependent on the successful operation of the related real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or in the economy generally.
Construction loans also involve additional risks attributable to the fact that loan funds are advanced upon the security of the project under construction, which is of uncertain value prior to the completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, delays arising from labor problems, material shortages, and other unpredictable contingencies, it is relatively difficult to evaluate accurately the total loan funds required to complete a project, and the related loan-to-value ratios. See also the discussion under the headings "- Classified Assets" and "- Loan Delinquencies and Defaults" below.
OTHER COMMERCIAL LENDING
At December 31, 1999 and 1998, respectively, Great Southern had $100.4 million and $57.2 million in other commercial loans outstanding, or 12.2% and 7.7%, respectively, of the Bank's total loan portfolio. Great Southern's other commercial lending activities encompass loans with a variety of purposes and security, including loans to finance accounts receivable, inventory and equipment.
Great Southern expects to continue to maintain or increase the current percentage of other commercial loans in its total loan portfolio by originating loans, subject to market conditions and to applicable regulatory restrictions. See "Supervision and Regulation" below.
Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, other commercial loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. Commercial loans are generally secured by business assets, such as accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of other commercial loans
may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.
The Bank's management recognizes the generally increased risks associated with other commercial lending. Great Southern's commercial lending policy emphasizes complete credit file documentation and analysis of the borrower's character, capacity to repay the loan, the adequacy of the borrower's capital and collateral as well as an evaluation of the industry conditions affecting the borrower. Analysis of the borrower's past, present and future cash flows is also an important aspect of Great Southern's credit analysis. The majority of Great Southern's commercial loans have been to borrowers in southwestern and central Missouri. Great Southern intends to continue its commercial lending in this geographic area.
As part of its commercial lending activities, Great Southern issues letters of credit and receives fees averaging approximately 1% of the amount of the letter of credit per year. At December 31, 1999, Great Southern had 68 letters of credit outstanding in the aggregate amount of $13.6 million. Approximately 94% of the aggregate amount of these letters of credit were secured, including one $8.2 million letter of credit, secured by real estate, which was issued to enhance the issuance of housing revenue refunding bonds.
CONSUMER LENDING
Great Southern management views consumer lending as an important component of its business strategy. Specifically, consumer loans generally have short terms to maturity, adjustable rates or both, thus reducing Great Southern's exposure to changes in interest rates, and carry higher rates of interest than do residential mortgage loans. In addition, Great Southern believes that the offering of consumer loan products helps to expand and create stronger ties to its existing customer base.
Great Southern offers a variety of secured consumer loans, including automobile loans, home equity loans and loans secured by savings deposits. In addition, Great Southern also offers home improvement loans, guaranteed student loans and unsecured consumer loans. Consumer loans totaled $74.4 million and $63.4 million at December 31, 1999 and 1998, respectively, or 9.1% and 8.5%, respectively, of the Bank's total loan portfolio.
The underwriting standards employed by the Bank for consumer loans include a determination of the applicant's payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is of primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.
Beginning in fiscal year June 30, 1998, the Bank implemented indirect lending relationships, primarily with automobile dealerships. Through these dealer relationships, the dealer completes the application with the consumer and then submits it to the Bank for credit approval. While the Bank's initial concentrated effort has been on automobiles, the program is available for use with most tangible products where financing of the product is provided through the seller.
Student loans are underwritten in compliance with the regulations of the US Department of Education for the Federal Family Education Loan Programs ("FFELP"). The FFELP loans are administered and guaranteed by the Missouri Coordinating Board for Higher Education as long as the Bank complies with the regulations. The Bank has contracted with the Missouri Higher Education Loan Authority (the "MOHELA") to originate and service these loans and to purchase these loans during the grace period
immediately prior to the loans beginning their repayment period. This repayment period is generally at the time the student graduates or does not maintain the required hours of enrollment.
Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower's continuing financial strength, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state consumer bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. Such loans may also give rise to claims and defenses by a consumer loan borrower against an assignee of such loan such as the Bank, and a borrower may be able to assert against such assignee claims and defenses which it has against the seller of the underlying collateral.
ORIGINATIONS, PURCHASES, SALES AND SERVICING OF LOANS
The Bank originates loans through internal loan production personnel located in the Bank's main bank and branch offices. Walk-in customers and referrals from real estate brokers and builders are also important sources of loan originations.
Management does not expect the high growth of originations experienced during the past five years to continue. However, as long as the lower interest rate environment continues, there is a higher level of financing and refinancing expected than would exist in a higher rate environment.
Great Southern may also purchases whole real estate loans and participation interests in real estate loans from private investors, such as other banks, thrift institutions and life insurance companies. Great Southern may limit its ability to control its credit risk when it purchases participations in such loans. The terms of participation agreements vary; however, generally Great Southern may not have direct access to the borrower or information about the borrower, and the institution administering the loan may have some discretion in the administration of performing loans and the collection of non-performing loans.
Beginning in fiscal June 30, 1998, Great Southern increased the number and amount of commercial real estate and commercial business loan participations. Due to changes in the financial institutions market locally, there have been several experienced bank executives start up new banks. These banks do not have the capital to handle larger commercial credits. Great Southern subjects these loans to the normal underwriting standards used for originated loans and rejects any credits that do not meet those guidelines. The originating bank retains the servicing of these loans. The bank purchased $3.1 million of these loans in the fiscal year ended December 31, 1999 and $5.8 million in the six months ended December 31, 1998.
There have been no whole loan purchases by the Bank in the last five years. At December 31, 1999 and 1998, approximately $7.0 million, or .9% and $7.5 million, or 1.0%, respectively, of the Bank's total loan portfolio consisted of purchased whole loans.
Great Southern also sells whole real estate loans and participation interests in real estate loans to Freddie Mac as well as private investors, such as other banks, thrift institutions and life insurance companies. These loans and loan participations are generally sold without recourse and for cash in amounts equal to the unpaid principal amount of the loans or loan participations determined using present value yields to the
buyer. The sale amounts generally produce gains to the Bank and allow a margin for servicing income on loans when the servicing is retained by the Bank. However, loan participations sold in recent years have primarily been with Great Southern releasing control of the servicing of the loan.
The Bank sold one- to four-family whole real estate loans and loan participations in aggregate amounts of $32.2 million, $26.1 million and $72.6 million during 1999, the short fiscal year ended December 31, 1998 and the fiscal year ended June 30, 1998, respectively. Sales of whole real estate loans and participations in real estate loans generally can be beneficial to the Bank since these sales generally generate income at the time of sale, produce future servicing income on loans where servicing is retained, provide funds for additional lending and other investments, and increase liquidity.
Great Southern also sells guaranteed student loans to the MOHELA at the time the borrower is scheduled to begin making repayments on the loans. These loans are generally sold with limited recourse and for cash in amounts equal to the unpaid principal amount of the loans and a premium based on average borrower indebtedness. The premium is based on a sliding scale with a higher premium paid for a larger average borrower indebtedness and a lower premium paid for a smaller average borrower indebtedness.
The Bank sold guaranteed student loans in aggregate amounts of $20.8 million, $3.1 million and $9.7 million during 1999, the short fiscal year ended December 31, 1998 and the fiscal year ended June 30, 1998, respectively. Sales of guaranteed student loans generally can be beneficial to the Bank since these sales remove the burdensome servicing requirements of these types of loans once the borrower begins repayment.
Gains, losses and transfer fees on sales of loans and loan participations are recognized at the time of the sale. When real estate loans and loan participations sold have an average contractual interest rate that differs from the agreed upon yield to the purchaser (less the agreed upon servicing fee), resulting gains or losses are recognized in an amount equal to the present value of the differential over the estimated remaining life of the loans. Any resulting discount or premium is accreted or amortized over the same estimated life using a method approximating the level yield interest method. When real estate loans and loan participations are sold with servicing released, as the Bank primarily does, an additional fee is received for the servicing rights. Net gains and transfer fees on sales of loans for 1999, the short fiscal year ended December 31, 1998 and fiscal year ended June 30, 1998 were $1,098,000, $386,000 and $1,125,000, respectively. Of these amounts, $268,000, $31,000 and $125,000, respectively, were gains from the sale of guaranteed student loans and $830,000, $355,000 and $1,000,000, respectively, were gains from the sale of fixed-rate residential loans.
Prior to fiscal 1996, when whole real estate loans were sold, the Bank primarily retained the responsibility for servicing the loans. The Bank receives a servicing fee for performing these services. The Bank had the servicing rights for approximately $56 million, $57 million and $60 million at December 31, 1999 and 1998 and June 30, 1998, respectively, of loans owned by others. The servicing of these loans generated net servicing fees to the Bank for the year ended December 31, 1999, the short year ended December 31, 1998 and the fiscal year ended June 30, 1998 of $181,000, $107,000 and $261,000, respectively.
In addition to interest earned on loans and loan origination fees, the Bank receives fees for loan commitments, letters of credit, prepayments, modifications, late payments, transfers of loans due to changes of property ownership and other miscellaneous services. The fees vary from time to time, generally depending on the supply of funds and other competitive conditions in the market. Fees from prepayments, commitments, letters of credit and late payments totaled $961,000, $301,000 and $502,000 for the year ended December 31, 1999, the short year ended December 31, 1998 and the fiscal year ended June 30, 1998,
respectively. Loan origination fees, net of related costs, are accounted for in accordance with Statement of Financial Accounting Standards No. 91 "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases." Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized in interest income using the level-yield method over the contractual life of the loan. For further discussion of this issue see Note 1 of Notes to Consolidated Financial Statements.
ALLOWANCE FOR LOSSES ON LOANS AND FORECLOSED ASSETS
Management periodically reviews Great Southern's allowance for loan losses, considering numerous factors, including, but not necessarily limited to, general economic conditions, loan portfolio composition, prior loss experience, and independent appraisals. Further allowances are established when management determines that the value of the collateral is less than the amount of the unpaid principal of the related loan plus estimated costs of the acquisition and sale or when management determines a borrower of an unsecured loan will be unable to make full repayment. Allowances for estimated losses on foreclosed assets (real estate and other assets acquired through foreclosure) are charged to expense, when in the opinion of management, any significant and permanent decline in the market value of the underlying collateral reduces the market value to less than the carrying value of the asset.
The Bank has maintained a strong lending presence in the Branson area during recent years primarily due to the substantial growth in the area. While management believes the loans it has funded have been originated pursuant to sound underwriting standards, and individually have no unusual credit risk, the short period of time in which the Branson area has grown, the reduction in values of real estate and the lower than expected increase in tourists visiting the area during recent years, causes some concern as to the credit risk associated with the Branson area as a whole. Due to this concern and the overall growth of the loan portfolio, and more specifically the growth of the commercial business, consumer and commercial real estate loan portfolios, management provided increased levels of loan loss allowances over the past few years.
The allowance for losses on loans and foreclosed assets are maintained at an amount management considers adequate to provide for potential losses. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for losses on loans and foreclosed assets may be necessary, and net income could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations.
At December 31, 1999 and 1998, Great Southern had an allowance for losses on loans of $17.3 million and $16.9 million, respectively, of which $2.7 million and $3.3 million, respectively, had been allocated as an allowance for specific loans and $0.8 million and $0.7 million, respectively, had been allocated for impaired loans. The allowances are discussed further in Notes 3 and 4 of the Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.
The allowance for losses on loans at the date indicated is summarized as follows. The table is based on information prepared in accordance with generally accepted accounting principles.
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.
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 such delinquent loans. In addition, the Bank has a Problem Loan Committee which meets at least monthly and reviews all commercial loans 30 days or more delinquent as well as other loans not 30 days delinquent which management feels may present possible collection problems. If an acceptable workout of a delinquent commercial loan cannot be agreed upon, the Bank may initiate foreclosure on any collateral securing the loan. However, in all cases, whether a commercial or other loan, the prevailing circumstances may be such that management may determine it is in the best interest of the Bank not to foreclose on the collateral.
The following table sets forth our loans delinquent 30 - 89 days by type, number, amount and percentage of type at December 31, 1999.
CLASSIFIED ASSETS
Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered to be of lesser quality as "substandard," "doubtful" or "loss" assets. The regulations require insured institutions to classify their own assets and to establish prudent general allowances for losses from assets classified "substandard" or "doubtful." For the portion of assets classified as "loss," an institution is required to either establish specific allowances of 100% of the amount classified or charge such amount off its books. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess a potential weakness, are required to be designated "special mention" by management. In addition, a bank's regulators may require the establishment of a general allowance for losses based on assets classified as "substandard" and "doubtful" or based on the general quality of the asset portfolio of the bank. Following are the total classified assets per the Bank's internal asset classification list. There were no significant off- balance sheet items classified at December 31, 1999.
The table below sets forth the amounts and categories of gross non-performing assets (classified loans which are not performing under regulatory guidelines and all foreclosed assets, including assets acquired in settlement of loans) in the Bank's loan portfolio at the times indicated. Loans generally are placed on non-accrual status when the loan becomes 90 days delinquent or when the collection of principal, interest, or both, otherwise becomes doubtful. For all years presented, the Bank has not had any troubled debt restructurings, which involve forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates. It has been the Bank's practice to sell its foreclosed assets to new borrowers and originate loans with higher loan-to-value ratios than those generally allowed for the Bank's one- to four-family residential loans. For such loans originated in fiscal 1993 or fiscal 1994, the Bank adopted a policy of presenting such loans in the non-performing assets category until sufficient payments of principal and interest are received or the loan has a 90% loan-to-value ratio. The majority of the loans presented in this category are performing and the Bank is accounting for the interest on these loans on the accrual method.
Gross impaired loans totaled $9,270,000 at December 31, 1999 and $10,146,000 at December 31, 1998.
For the year ended December 31, 1999, gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $645,000. The amount that was included in interest income on such loans was $487,000 for the year ended December 31, 1999.
The level of non-performing assets is primarily attributable to the Bank's commercial real estate, other residential, commercial construction and commercial business lending activities. These activities
generally involve significantly greater credit risks than single-family residential lending. The level of non-performing assets increased at a rate greater than that of the Bank's commercial lending portfolio in fiscal June 30, 1996, and at a rate less than that of the Bank's commercial lending portfolio in the year ended December 31, 1999, in the six months ended December 31, 1998 and in fiscal years ended June 30, 1998 and 1997. For a discussion of the risks associated with these activities, see the discussions under the heading "- Commercial Real Estate and Construction Lending" and "- Other Commercial Lending" above.
INVESTMENT ACTIVITIES
The Bank's investment securities portfolio at December 31, 1999 and 1998 contained one security with an aggregate book value in excess of 10% of the Bank's retained earnings, excluding those issued by the United States Government, or its agencies. This security was issued by The Missouri Development Finance Board and has an aggregate book and market value of approximately $9,960,000 at December 31, 1999.
As of December 31, 1999 and 1998, the Bank held approximately $37.6 million and $60.4 million, respectively, in principal amount of investment securities which the Bank intends to hold until maturity. As of such dates, these securities had market values of approximately $37.4 million and $60.6 million, respectively. In addition, as of December 31, 1999 and 1998, the Company held approximately $79.9 million and $6.5 million, respectively, in principal amount of investment securities which the Company classified as available-for-sale.
This issue is discussed further in Notes 1 and 2 of Notes to Consolidated Financial Statements.
The amortized cost and approximate fair values of, and gross unrealized gains and losses on, investment securities at the dates indicated are summarized as follows. The table is based on information prepared in accordance with generally accepted accounting principles. Yields on tax exempt obligations have not been computed on a tax equivalent basis.
The following table presents the contractual maturities and weighted average yields of available - for-sale debt securities at December 31, 1999. The table is based on information prepared in accordance with generally accepted accounting principles.
Amortized Approximate Cost Yield Fair Value --------- ------------ ------------ (Dollars in thousands)
In one year or less $54,545 5.52% $54,558 After one through five years 18,169 5.68% 18,087 -------- ------- Total $72,714 $72,645 ======= =======
The following table presents the contractual maturities and weighted average yields of held-to-maturity securities at December 31, 1999. The table is based on information prepared in accordance with generally accepted accounting principles.
Amortized Approximate Cost Yield Fair Value --------- ------------ ------------ (Dollars in thousands)
In one year or less $14,971 5.30% $14,901 After one through five years 19,331 5.51% 19,260 After five through ten years 1,510 5.00% 1,421 After ten years 800 9.40% 800 Securities not due on a single maturity date 1,034 7.90% 1,034 ------- ------- Total $37,646 $37,416 ======= =======
SOURCES OF FUNDS
GENERAL. Deposit accounts have traditionally been the principal source of the Bank's funds for use in lending and for other general business purposes. In addition to deposits, the Bank obtains funds through advances from the Federal Home Loan Bank of Des Moines, Iowa ("FHLBank"), loan repayments, loan sales, and cash flows generated from operations. Scheduled loan payments are a relatively stable source of funds, while deposit inflows and outflows and the related costs of such funds have varied widely. Borrowings such as FHLBank advances may be used on a short-term basis to compensate for seasonal reductions in deposits or deposit inflows at less than projected levels and may be used on a longer-term basis to support expanded lending activities. The availability of funds from loan sales is influenced by general interest rates as well as the volume of originations.
DEPOSITS. The Bank attracts both short-term and long-term deposits from the general public by offering a wide variety of accounts and rates. In recent years, the Bank has been required by market conditions to rely increasingly on short-term accounts and other deposit alternatives that are more responsive to market interest rates than the passbook accounts and regulated fixed-interest- rate, fixed-term certificates that were the Bank's primary source of deposits prior to 1978. The Bank offers regular passbook accounts, checking accounts, various money market accounts, fixed-interest-rate certificates with varying maturities, certificates of deposit in minimum amounts of $100,000 ("Jumbo" accounts), brokered certificates and individual retirement accounts. The composition of the Bank's deposits at the end of recent periods is set forth in Note 6 of Notes to Consolidated Financial Statements.
BROKERED DEPOSITS. Brokered deposits are marketed through national brokerage firms to their customers in $1,000 increments. The average investor is estimated to have a balance of less than $20,000. The Bank maintains only one account for the total deposit amount while the records of detailed owners are maintained by the Depository Trust Company under the name of CEDE & Co. The deposits are transferable just like a stock or bond investment and the customer can open the account with only a phone call, just like buying a stock or bond. This provides a large deposit for the Bank at a lower operating cost since the Bank only has one account to maintain versus several accounts with multiple interest and maturity checks.
Unlike non-brokered deposits where the deposit amount can be withdrawn with a penalty for any reason, including increasing interest rates, a brokered deposit can only be withdrawn in the event of the
death, or court declared mental incompetence, of the depositor. This allows the Bank to better manage the maturity of its deposits.
The following table sets forth the dollar amount of deposits, by interest rate range, in the various types of deposit programs offered by the Company at the dates indicated. The table is based on information prepared in accordance with generally accepted accounting principles.
A table showing rate and maturity information for the Bank's time deposits as of December 31, 1999 is presented in Note 6 of Notes to Consolidated Financial Statements.
The variety of deposit accounts offered by the Bank has allowed it to be competitive in obtaining funds and has allowed it to respond with flexibility to changes in consumer demand. The Bank has become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. The Bank manages the pricing of its deposits in keeping with its asset/liability management and profitability objectives. Based on its experience, management believes that its passbook and certificate accounts are relatively stable sources of deposits, while its checking accounts have proven to be more volatile. However, the ability of the Bank to attract and maintain deposits, and the rates paid on these deposits, has been and will continue to be significantly affected by money market conditions.
The following table sets forth the time remaining until maturity of the Bank's time deposits as of December 31, 1999. The table is based on information prepared in accordance with generally accepted accounting principles.
BORROWINGS. Great Southern's other sources of funds include advances from the FHLBank, Qualified Loan Review arrangement and treasury tax & loan note option with the Federal Reserve Bank and other borrowngs.
As a member of the FHLBank, the Bank is required to own capital stock in the FHLBank and is authorized to apply for advances from the FHLBank. FIRREA requires that all long-term FHLBank advances be for the purpose of financing residential housing. Pursuant to FIRREA, the Federal Housing Finance Board has promulgated regulations that establish standards of community investment for FHLBank members to maintain continued access to long-term advances. Each FHLBank credit program has its own interest rate, which may be fixed or variable, and range of maturities. The FHLBank may prescribe the acceptable uses for these advances, as well as other risks on availability, limitations on the size of the advances and repayment provisions. The Bank has a $50 million revolving line of credit with the FHLBank, which provides for immediately available funds. At December 31, 1999, none of the revolving line was in use with $50 million remaining available. The Bank can draw these funds for lending or other liquidity needs with some limitations.
The Federal Reserve Bank ("FRB") has a Qualified Loan Review ("QLR") program where the Bank can borrow on a temporary basis using commercial loans pledged to the FRB. Under the QLR program, the Bank can borrow any amount up to a calculated collateral value of the commercial loans pledged, for virtually any reason that creates a temporary cash need. Examples of this could be; (i) the need to disburse one or several loans but the permanent source of funds will not be available for a few days; (ii) a temporary spike in interest rates on other fund sources that are being used; or (iii) the need to purchase a security for collateral pledging purposes a few days prior to the funds becoming available on an existing security that is maturing. The Bank had commercial loans pledged to the FRB at December 31, 1999 that would have allowed approximately $155.3 million to be borrowed under the above arrangement.
The Company has borrowing arrangements in place with the brokerage firms it conducts business with to borrow on margin against its available-for-sale securities. Theses borrowings are limited to a percent of the market value of the collateral, generally 50%, and are used by the Company for short-term cash needs including the purchase of available-for-sale securities and the purchase of the Company's stock.
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.
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.
SUBSIDIARIES
GREAT SOUTHERN. As a Missouri-chartered trust company, Great Southern may invest up to 3% of its assets in service corporations. At December 31, 1999, the Bank's total investment in Great Southern Financial Corporation ("GSFC") was $1.3 million. GSFC is incorporated under the laws of the State of Missouri. This subsidiary is primarily engaged in the following activities:
APPRAISAL SERVICES. Appraisal Services, Inc., incorporated in 1976, is a wholly-owned subsidiary of GSFC and performs primarily residential real estate appraisals for a number of clients, the majority of which is for the Bank and its loan customers. Appraisal Services, Inc. had net income (loss) of $(12,000) in the year ended December 31, 1999 and $6,000 and $3,000 in the six months ended December 31, 1998 and 1997, respectively.
GENERAL INSURANCE AGENCY. Great Southern Insurance, a division of GSFC, was organized in 1974. It acts as a general property, casualty and life insurance agency for a number of clients, including the Bank. Great Southern Insurance had net income of $113,000 in the year ended December 31, 1999 and $58,000 and $65,000 in the six months ended December 31, 1998 and 1997, respectively.
TRAVEL AGENCY. Great Southern Travel, a division of GSFC, was organized in 1976. At December 31, 1999, it was the largest travel agency based in southwestern Missouri and estimated to be in the top 5% (based on gross revenue) of travel agencies nation-wide. Great Southern Travel operates from 24 full-time locations, including a facility at the Springfield-Branson Regional Airport, and additional part-time locations. It engages in personal, commercial and group travel services. Great Southern Travel had net income of $365,000 in the year ended December 31, 1999 and$119,000 and $57,000 in the six months ended December 31, 1998 and 1997, respectively.
GSB ONE, L.L.C. At December 31, 1999 the Bank's total investment in GSB One, L.L.C. ("GSB One") and GSB Two, L.L.C. ("GSB Two") was $264 million. The capital contribution was made by transferring participations in loans to GSB Two. GSB One is a Missouri limited liability company that was incorporated in March of 1998. Currently the only activity of this company is the ownership of GSB Two.
GSB TWO, L.L.C. This is a Missouri limited liability company that was incorporated in March of 1998. GSB Two is a Real Estate Investment Trust ("REIT"). It holds participations in real estate mortgages from the Bank. The Bank continues to service the loans in return for a management and servicing fee from GSB Two. GSB Two had net income of $22.7 million in the year ended December 31, 1999 and $8.2 million in the six months ended December 31, 1998.
Great Southern Capital Management, Inc. At December 31, 1999, the Bank's total investment in Great Southern Capital Management ("Capital Management") was $257,000. Capital Management was incorporated and organized in 1988 under the laws of the state of Missouri. Capital Management is a registered broker/dealer and a member of the National Association of Securities Dealers, Inc. ("NASD") and the Securities Investors Protection Corporation ("SIPC"). Capital Management offers a full line of financial consultation, investment counseling and discount brokerage services including execution of transactions involving stocks, bonds, options, mutual funds and other securities. In addition, Capital Management is registered as a municipal securities dealer. Capital Management operates through Great Southern's branch office network. Capital Management had net income of $295,000 in the year ended December 31, 1999 and $36,000 and $153,000 in the six months ended December 31, 1998 and 1997, respectively.
COMPETITION
Great Southern faces strong competition both in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other commercial banks, savings institutions and mortgage bankers making loans secured by real estate located in the Bank's market area. Commercial banks and finance companies provide vigorous competition in commercial and consumer lending. The Bank competes for real estate and other loans principally on the basis of the interest rates and loan fees it charges, the types of loans it originates and the quality of services it provides to borrowers. The other lines of business of the Bank, including loan servicing and loan sales, as well as the Bank and Company subsidiaries, face significant competition in their markets.
The Bank faces substantial competition in attracting deposits from other commercial banks, savings institutions, money market and mutual funds, credit unions and other investment vehicles. The Bank attracts a significant amount of deposits through its branch offices primarily from the communities in which those
branch offices are located; therefore, competition for those deposits is principally from other commercial banks and savings institutions located in the same communities. The Bank competes for these deposits by offering a variety of deposit accounts at competitive rates, convenient business hours, and convenient branch and ATM locations with inter-branch deposit and withdrawal privileges at each branch location.
EMPLOYEES
At December 31, 1999, the Bank and its affiliates had a total of 833 employees, including 245 part-time employees. None of the Bank's employees is represented by any collective bargaining agreement. Management considers its employee relations to be good.
GOVERNMENT SUPERVISION AND REGULATION
GENERAL
On June 30, 1998, the Bank converted from a federal savings bank to a Missouri-chartered trust company, with the approval of the Missouri Division of Finance ("MDF") and the FRB. By converting, the Bank was able to expand its consumer and commercial lending authority.
Bancorp and its subsidiaries are subject to supervision and examination by applicable federal and state banking agencies. The earnings of the Bank's subsidiaries, and therefore the earnings of Bancorp, are affected by general economic conditions, management policies and the legislative and governmental actions of various regulatory authorities, including the FRB, the Federal Deposit Insurance Corporation ("FDIC") and the MDF. In addition, there are numerous governmental requirements and regulations that affect the activities of the Company and its subsidiaries. The following is a brief summary of certain aspects of the regulation of the Company and Great Southern and does not purport to fully discuss such regulation.
BANK HOLDING COMPANY REGULATION
As a result of the conversion, the Company became a bank holding company, subject to comprehensive regulation by the FRB under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and the regulations of the FRB. As a bank holding company, the Company is required to file reports with the FRB and such additional information as the FRB may require, and is subject to regular inspections by the FRB. The FRB also has extensive enforcement authority over bank holding companies, including, among others things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulation as well as unsafe or unsound practices.
Under FRB policy, a bank holding company must serve as a source of strength for its subsidiary banks. Under this policy the FRB may require, and has required in the past, bank holding companies to contribute additional capital to undercapitalized subsidiary banks. Under the BHCA, a bank holding company must obtain FRB approval before, among other matters: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares); (ii) acquiring all or substantially all of the assets of another bank or bank holding company; or (iii) merging or consolidating with another bank holding company
The BHCA prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks. The list of activities permitted by the FRB includes, among other things, operating a savings institution, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers' checks and United States Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and providing securities brokerage services for customers. The scope of permissible activities may be expanded from time to time by the FRB. Such activities may also be affected by federal legislation.
INTERSTATE BANKING AND BRANCHING
In 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") was enacted to ease restrictions on interstate banking. Effective September 29, 1995, the Riegle-Neal Act allows the FRB to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than such holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. The FRB may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state. The Riegle-Neal Act also prohibits the FRB from approving an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. The Riegle-Neal Act does not affect the authority of states to limit the percentage of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit contained in the Riegle-Neal Act.
Additionally, the federal banking agencies are authorized to approve interstate merger transactions without regard to whether such transactions are prohibited by the law of any state, unless the home state of one of the banks opted out of the Riegle-Neal Act by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Texas and Montana have opted out. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions. Interstate mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration amounts described above.
The Riegle-Neal Act authorizes the OCC and the FDIC to approve interstate branching de novo by national and state banks, respectively, only in states which specifically allow for such branching. As required by the Riegle-Neal Act, the OCC, FDIC and FRB have prescribed regulations which prohibit any out-of-state bank from using the interstate branching authority primarily for the purpose of deposit production, including guidelines to ensure that interstate branches operated by an out-of-state bank in a host state reasonably help to meet the credit needs of the communities which they serve.
CERTAIN TRANSACTIONS WITH AFFILIATES AND OTHER PERSONS
Transactions involving a bank and its affiliates are subject to sections 23A and 23B of the Federal Reserve Act. Generally, these requirements and limits restrict certain of these transactions to a percentage of the Bank's capital and require all such transactions to be on terms at least as favorable to the Bank as are available in transactions with non-affiliates. In addition, a bank generally may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire shares of an affiliate. These provisions currently apply to transactions between the Bank and the Company or the Bank and the Holding Company's non-bank subsidiary. Affiliates of Great Southern include, without limitation, any company whose management is under a common controlling influence with the management of the Bank, any company controlled by controlling stockholders of the Bank, any company with a majority of interlocking directors with the Bank, and any company sponsored and advised on a contractual basis by the Bank or any of its affiliates.
Prior to the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") on August 9, 1989, Great Southern, like many financial institutions, followed a policy of granting loans to certain of its officers, directors and employees, generally for the financing of their personal residences at favorable interest rates. Generally, residential loans were granted at interest rates 1% above the Bank's cost of funds, subject to annual adjustments. These loans were made in the ordinary course of business, on substantially the same terms and collateral as those of comparable transactions prevailing at the time, and did not involve more than the normal risk of collectibility or present other unfavorable features. All loans by Great Southern to its directors and executive officers are subject to FRB regulations restricting loans and other transactions with affiliated persons of Great Southern. FIRREA required that all such transactions be on terms and conditions comparable to those for similar transactions with non-affiliates and also provided that the Company could have a policy allowing favorable rate loans to employees as long as it is an employee benefit available to a broad group of employees within guidelines defined by the policy. The Bank has such a policy in place that allows for loans to full-time employees with at least two years of service. The terms are the same as those used prior to FIRREA.
DIVIDENDS
The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB's view that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company's capital needs, asset quality and overall financial condition. The FRB also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the FRB, the FRB may prohibit a bank holding company from paying any dividends if the holding company's bank subsidiary is classified as "undercapitalized."
Bank holding companies are required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of their consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order, or any condition imposed by, or written agreement with, the FRB. This notification requirement does not apply to any company that meets the well-capitalized standard for commercial banks, has a safety and soundness examination rating of at least a "2" and is not subject to
any unresolved supervisory issues. Under Missouri law, the Bank may pay dividends from certain undivided profits and may not pay dividends if its capital is impaired.
The Federal banking agencies have adopted capital-related regulations. Under those regulations, a bank will be well capitalized if it: (i) has a risk- based capital ratio of 10% or greater; (ii) has a ratio of Tier I capital to risk-adjusted assets of 6% or greater; (iii) has a ratio of Tier I capital to adjusted total assets of 5% or greater; and (iv) is not subject to an order, written agreement, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. A bank will be adequately capitalized if it is not "well capitalized" and: (i) has a risk-based capital ratio of 8% or greater; (ii) has a ratio of Tier I capital to risk-adjusted assets of 4% or greater; and (iii) has a ratio of Tier I capital to adjusted total assets of 4% or greater (except that certain associations rated "Composite 1" under the federal banking agencies' CAMEL rating system may be adequately capitalized if their ratios of core capital to adjusted total assets are 3% or greater). As of December 31, 1999, the Bank was "well capitalized."
Banking agencies have recently adopted final regulations that mandate that regulators take into consideration concentrations of credit risk and risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. This evaluation will be made as part of the institution's regular safety and soundness examination. Banking agencies also have recently adopted final regulations requiring regulators to consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off-balance-sheet position) in the evaluation of a bank's capital adequacy. Concurrently, banking agencies have proposed a methodology for evaluating interest rate risk. After gaining experience with the proposed measurement process, these banking agencies intend to propose further regulations to establish an explicit risk-based capital charge for interest rate risk.
The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. As of December 31, 1999, the Company was "well capitalized."
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
The FDIC maintains two separate deposit insurance funds: the Bank Insurance Fund (the "BIF") and the Savings Association Insurance Fund (the "SAIF"). Great Southern's depositors are insured by the SAIF up to $100,000 per insured account (as defined by law and regulation). This insurance is backed by the full faith and credit of the United States Government.
As insurer, the FDIC is authorized to conduct examinations of and to require reporting by SAIF-insured associations. It also may prohibit any FDIC- insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the SAIF. The FDIC also has the authority to take enforcement actions against banks and savings associations.
Great Southern pays annual assessments for SAIF insurance. Under current FDIC regulations, the annual SAIF assessment rate is based, in part, on the degree of risk to the deposit insurance fund that, in the opinion of the FDIC, is presented by a particular depository institution compared to other depository institutions. The FDIC uses a matrix having as variables the level of capitalization of a particular institution and the level of supervision that its operations require; and the risk-based amendment rates determined in this fashion range from 0.00% of deposits for the least risky to 0.27% for the most risky. In establishing the SAIF assessment rate, the FDIC is required to consider the SAIF's expected operating expenses, case resolution expenditures and income and the effect of the assessment rate on SAIF members' earnings and capital. There is no cap on the amount the FDIC may increase the SAIF assessment rate. The Bank currently
has a risk based assessment rate of 0.00%. In addition, the FDIC is authorized to raise the assessment rates in certain instances. Any increases in the assessments would negatively impact the earnings of Great Southern.
The FDIC may terminate the deposit insurance of any insured depository institution if it determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order or any condition imposed by or an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC.
The FDIC collects assessments against BIF and SAIF assessable deposits to be paid to the Financing Corporation (the FICO") to service interest on FICO debt issued during the 1980's. Beginning January 1997, the FICO assessment rate was set at .0648% for SAIF insured deposits and .013% on BIF insured deposits.
The Federal banking regulators are required to take prompt corrective action if an institution fails to satisfy certain minimum capital requirements. Under the law, capital requirements include a leverage limit, a risk-based capital requirement, and a core capital requirement. All institutions, regardless of their capital levels, will be restricted from making any capital distribution or paying any management fees that would cause the institution to fail to satisfy the minimum levels for any of its capital requirements. An institution that fails to meet the minimum level for any relevant capital measure (an "undercapitalized institution") will be: (i) subject to increased monitoring by the appropriate Federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45 days; (iii) subject to asset growth limits; and (iv) required to obtain prior regulatory approval for acquisitions, branching and new lines of business. The FDIC has jurisdiction over the Bank for purposes of prompt corrective action.
Insured depository institutions that are not well-capitalized are prohibited from accepting brokered deposits unless a waiver has been obtained from the FDIC; and it limits the rate of interest that institutions receiving such waivers may pay on brokered deposits.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to maintain reserves against their transaction accounts (primarily NOW and Super NOW checking accounts) and non-personal time deposits. Reserves of 3% must be maintained against net transaction accounts of $47.0 million or less (subject to adjustment by the Federal Reserve Board) and a reserve of 10% (subject to adjustment by the Federal Reserve Board to a level between 8% and 14%) must be maintained against the portion of total transaction accounts in excess of such amount. In addition, a reserve of between 0% to 9% (subject to adjustment by the Federal Reserve Board) must be maintained on non-personal time deposits. Under current regulations, this reserve percentage is 0%. The Bank may elect not to maintain reserves against approximately $4.7 million in accounts subject to these reserve requirements. At December 31, 1999, the Bank was in compliance with these reserve requirements.
Banks are authorized to borrow from the Federal Reserve Bank "discount window," but Federal Reserve Board regulations only allow this borrowing for short periods of time and generally require banks to exhaust other reasonable alternative sources of funds where practical, including FHLBank advances, before borrowing from the Federal Reserve Bank. See "Sources of Funds Borrowings" above.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLBank of Des Moines, which is one of 12 regional FHLBanks that, prior to the enactment of FIRREA, were regulated by the FHLBB. FIRREA separated the home financing credit function of the FHLBanks from the regulation and insurance of accounts for savings associations by transferring oversight over the FHLBanks to a new federal agency, the Federal Home Financing Board (FHFB). As part of that separation, the savings association supervisory and examination function performed by the FHLBanks was transferred to the OTS.
As a member, Great Southern is required to purchase and maintain stock in the FHLBank of Des Moines in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year (if less than 30% of its assets were so invested, the calculation must be made as if 30% of its assets were so invested), or 5% (or such greater percentage as established by the FHLBank) of its outstanding FHLBank advances. At December 31, 1999, Great Southern had $11 million in FHLBank stock, which was in compliance with this requirement. In past years, the Bank has received substantial dividends on its FHLBank stock. Over the past five and one-half years, such dividends have averaged 6.95% and were 6.35% for year the ended December 31, 1999. Certain provisions of FIRREA require all 12 FHLBanks to provide financial assistance for the resolution of troubled savings associations and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects.
These contributions could cause rates on the FHLBank advances to increase and could affect adversely the level of FHLBank dividends paid and the value of FHLBank stock in the future.
Each FHLBank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLBank System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the FHLBank. These policies and procedures are subject to the regulation and oversight of the FHFB.
There are collateral requirements for FHLBank advances. First, all advances must be fully secured by sufficient collateral as determined by the FHLBank. FIRREA prescribed eligible collateral as fully disbursed, whole first mortgage loans not more than 60 days delinquent or securities evidencing interests therein, securities (including mortgage-backed securities) issued, insured or guaranteed by the federal government or any agency thereof, FHLBank deposits and, to a limited extent, real estate with readily ascertainable value in which a perfected security interest may be obtained. All members' stock in the FHLBank also serves as collateral for indebtedness to the FHLBank. Other forms of collateral may be accepted as over collateralization or, under certain circumstances, to renew advances outstanding on the date of enactment of FIRREA. All long-term advances are required to be used to provide funds for residential home financing. The FHFB has established standards of community service that members must meet to maintain access to long-term advances. FIRREA authorizes the FHLBanks to make short-term liquidity advances to solvent associations in poor financial condition but with prospects of improving. In addition, pursuant to FHFB regulations, each FHLBank is required to establish programs for affordable housing that involve interest subsidies from the FHLBanks on advances to members engaged in lending at subsidized interest rates for low- and moderate-income, owner-occupied housing and affordable rental housing, and certain other community purposes.
LEGISLATIVE AND REGULATORY PROPOSALS
Any changes in the extensive regulatory scheme to which the Company or the Bank is and will be subject, whether by any of the Federal banking agencies or Congress, could have a material effect on the Company or the Bank, and they cannot predict what, if any, future actions may be taken by legislative or regulatory authorities or what impact such actions may have.
FEDERAL AND STATE TAXATION
The following discussion contains a summary of certain federal and state income tax provisions applicable to the Company and the Bank. It is not a comprehensive description of the federal income tax laws that may affect the Company and the Bank. The following discussion is based upon current provisions of the Internal Revenue Code of 1986 (the "Code") and Treasury and judicial interpretations thereof.
GENERAL
The Company and its subsidiaries file a consolidated federal income tax return using the accrual method of accounting, with the exception of GSB Two which files a separate return as a REIT. All corporations joining in the consolidated federal income tax return are jointly and severally liable for taxes due and payable by the consolidated group. The following discussion primarily focuses upon the taxation of the Bank, since the federal income tax law contains certain special provisions with respect to banks.
Financial institutions, such as the Bank, are subject, with certain exceptions, to the provisions of the Code generally applicable to corporations.
BAD DEBT RESERVES
Legislation passed by Congress and signed by the President repealed the bad debt reserve method of accounting for bad debts by large thrifts for taxable years beginning after 1995 (year ended June 30, 1997 for the Bank). The legislation requires applicable excess reserves accumulated after 1987 (year ended June 30, 1988 for the Bank) be recaptured and restored to income over a six year period with the first year beginning after 1995 (year ended June 30, 1997 for the Bank), and eliminates recapture of the applicable excess reserves accumulated prior to 1988 for thrifts converting to bank charters. The post 1987 recapture may be delayed for a one- or two-year period if certain residential loan origination requirements are met. The Bank met the residential loan origination requirements and delayed the recapture for two years. The amount of post 1987 recapture for the Bank is estimated at $5.2 million which would create tax of approximately $1.8 million, or $300,000 per year for each of the six years. The $1.8 million of tax has been accrued by the Bank in previous periods and would not be reflected in earnings when paid.
Beginning with the year ending June 30, 1997, the Bank is required to follow the specific charge-off method which only allows a bad debt deduction equal to actual charge-offs, net of recoveries, experienced during the fiscal year of the deduction. In a year where recoveries exceed charge-offs, the Bank would be required to include the net recoveries in taxable income.
INTEREST DEDUCTION
In the case of a financial institution, such as the Bank, no deduction is allowed for the pro rata portion of its interest expense which is allocable to tax-exempt interest on obligations acquired after August 7, 1986. A limited class of tax-exempt obligations acquired after August 7, 1986 will not be subject to this
complete disallowance rule. For tax-exempt obligations acquired after December 31, 1982 and before August 8, 1986 and for obligations acquired after August 7, 1986 that are not subject to the complete disallowance rule, 80% of interest incurred to purchase or carry such obligations will be deductible. No portion of the interest expense allocable to tax-exempt obligations acquired by a financial institution before January 1, 1983, which is otherwise deductible, will be disallowed. The interest expense disallowance rules cited above do not significantly impact the Bank.
ALTERNATIVE MINIMUM TAX
Corporations generally are subject to a 20% corporate alternative minimum tax ("AMT"). A corporation must pay the AMT to the extent it exceeds that corporation's regular federal income tax liability The AMT is imposed on "alternative minimum taxable income," defined as taxable income with certain adjustments and tax preference items, less any available exemption. Such adjustments and items include, but are not limited to, (i) net interest received on certain tax-exempt bonds issued after August 7, 1986; and (ii) 75% of the difference between adjusted current earnings and alternative minimum taxable income, as otherwise determined with certain adjustments. Net operating loss carryovers may be utilized, subject to adjustment, to offset up to 90% of the alternative minimum taxable income, as otherwise determined. A portion of the AMT paid, if any, may be credited against future regular federal income tax liability. In addition, for taxable years beginning after 1986 and before 1996, corporations generally were also subject to an environmental tax equal to 0.12% of the excess of the alternative minimum taxable income (computed without regard to any net operating loss deduction) for a taxable year in excess of $2 million.
MISSOURI TAXATION
Missouri based banks, such as the Bank, are subject to a franchise tax which is imposed on the larger of (i) the bank's net income at the rate of 7% of the net income (determined without regard for any net operating losses); or (ii) the banks assets at a rate of .05% of total assets less deposits and the investment in greater than 50% owned subsidiaries. Missouri based banks are entitled to a credit against the franchise tax for all other state or local taxes on banks, except taxes on real and tangible personal property owned by the Bank and held for lease or rental to others, contributions paid pursuant to the Missouri unemployment compensation law, social security taxes and sales and use taxes.
The Company and all subsidiaries are subject to an income tax that is imposed on the corporation's net income at the rate of 6.25% for fiscal year 1999. The return is filed on a consolidated basis by all members of the consolidated group including the Bank, but excluding GSB Two. As a REIT, GSB Two files a separate Missouri income tax return.
DELAWARE TAXATION
As a Delaware corporation, the Company is required to file annual returns with and pay annual fees to the State of Delaware. The Company is also subject to an annual franchise tax imposed by the State of Delaware based on the number of authorized shares of Company common stock.
EXAMINATIONS
The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service with respect to consolidated federal income tax returns, and as such, these returns have been closed without audit through June 30, 1996.
ITEM 2.
ITEM 2. PROPERTIES.
The following table sets forth certain information concerning the main office and each branch office of the Company at March 17, 2000. The aggregate net book value of the Company's premises and equipment was $10 million at December 31, 1999 and $10 million at December 31, 1998. See also Note 5 and Note 12 of the Notes to Consolidated Financial. Substantially all buildings owned are free of encumbrances or mortgages. In the opinion of Management, the facilities are adequate and suitable for the needs of the Company.
In addition, the travel division has offices in many of the above locations as well as several small offices in other locations including some of its larger corporate customer's headquarters.
The Bank maintains depositor and borrower customer files on an on-line basis, utilizing a telecommunications network, portions of which are leased. The book value of all data processing and computer equipment utilized by the Bank at December 31, 1999 was $1.6 million compared to $2.4 million
at December 31, 1998. Management has a disaster recovery plan in place with respect to the data processing system as well as the Bank's operations as a whole.
The Bank maintains a network of Automated Teller Machines ("ATMs"). The Bank utilizes an external service for operation of the ATMs that also allows access to the various national ATM networks. A total of 95 ATMs are located at various branches and primarily convenience stores located throughout southwest and central Missouri. The book value of all ATMs utilized by the Bank at December 31, 1999 was $793,000 compared to $1.1 million at December 31, 1998. The Bank will evaluate and relocate existing ATMs as needed, but has no plans in the near future to materially increase its investment in the ATM network.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's annual meeting of stockholders held on June 16, 1999, the results of the matters voted upon were as follows:
(a) The following nominees for election as director were elected.
Affirmative Votes Director Vote Withheld - -----------------------------------------------------------------------------
William Barclay 6,863,237 90,341 Larry Frazier 6,872,234 81,344
(b) An affirmative vote in excess of the majority of the shares available to vote was obtained to approve the appointment of Baird, Kurtz & Dobson as auditors for the current fiscal year.
Affirmative Negative Abstentions - -----------------------------------------------------------------------------
6,930,651 16,468 6,459
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, the following list is included as an unnumbered item in Part I of this Form 10-K in lieu of being included in the Registrant's Definitive Proxy Statement.
The following information as to the business experience during the past five years is supplied with respect to executive officers of the Company and its subsidiaries who are not directors of the Company and its subsidiaries. There are no arrangements or understandings between the persons named and any other
person pursuant to which such officers were selected. The executive officers are elected annually and serve at the discretion of their respective Boards of Directors.
Richard L. Wilson. Mr. Wilson, age 40, is Senior Vice President and Controller of the Bank. He joined the Bank in 1986 and is responsible for the internal and external financial reporting of the Company and its subsidiaries. Mr. Wilson is a Certified Public Accountant. Effective March 1, 2000, Mr. Wilson has resigned from the Company.
Michael D. Lawson. Mr. Lawson, age 34, is First Vice President and Commercial Business Development Officer in the commercial lending area at the Bank. Mr. Lawson joined the Bank in 1996. Prior to joining the Bank, Mr. Lawson was a lending officer and branch manager with a competing $1 billion bank. Effective January 7, 2000, Mr. Lawson has resigned from the Company.
Steven G. Mitchem. Mr. Mitchem, age 48, is Senior Vice President and Chief Lending Officer of the Bank. He joined the Bank in 1990 and is responsible for all lending activities of the Bank. Prior to joining the Bank, Mr. Mitchem was a Senior Bank Examiner for the Federal Deposit Insurance Corporation.
Rex A. Copeland. Mr. Copeland, age 35, is Treasurer of the Company and Senior Vice President and Chief Financial Officer of the Bank. He joined the Bank in 2000 and is responsible for the financial functions of the Company, including the internal and external financial reporting of the Company and its subsidiaries. Mr. Copeland is a Certified Public Accountant. Prior to joining the Bank, Mr. Copeland has served other financial services companies as Accounting Director, Division Controller and Independent Auditor.
Doug W. Marrs. Mr. Marrs, age 42, is Vice President - Operations of the Bank. He joined the Bank in 1996 and is responsible for all operations functions of the Bank. Prior to joining the Bank, Mr. Marrs was a bank officer in the areas of operations and data processing at a competing $1 billion bank.
PART II
Responses incorporated by reference into the items under Part II of this Form 10-K are done so pursuant to Rule 12b-23 and General Instruction G(2) for Form 10-K.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION. The Company's Common Stock is listed on The NASDAQ Stock Market under the symbol "GSBC."
As of December 31, 1999 there were 7,489,112 total shares outstanding and approximately 986 shareholders of record.
HIGH/LOW STOCK PRICE
The last inter-dealer bid for the Company's Common Stock on December 31, 1999 was $22.
DIVIDEND DECLARATIONS
December 31, December 31, 1999 1998 June 30, 1998 ---------------------------------------------------
First Quarter .125 $.11 $.10 Second Quarter .125 .125 .11 Third Quarter .125 n/a .11 Fourth Quarter .125 n/a .11
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with the Company's consolidated financial statements, the notes thereto and the accompanying independent accountant's opinion, and the following information is qualified by reference thereto.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
FORWARD-LOOKING STATEMENTS
When used in this Annual Report and in future filings by the Company with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans and deposits in the Company's market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.
The Company does not undertake-and specifically declines any obligation-to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
GENERAL
The profitability of the Company and, more specifically, the profitability of its primary subsidiary, Great Southern Bank (the "Bank"), depends primarily on its net interest income. Net interest income is the difference between the interest income it earns on its loans and investment portfolio, and the interest it pays on interest-bearing liabilities, which consists mainly of interest paid on deposits and borrowings.
The Company's profitability is also affected by the level of its non-interest income and operating expenses. Non-interest income consists primarily of gains on sales of loans and available-for-sale investments, service charge fees, commissions earned by non-bank subsidiaries and other general operating income. Operating expenses consist primarily of salaries and employee benefits, occupancy-related expenses, postage, insurance, advertising, office expenses and other general operating expenses.
The operations of the Bank, and banking institutions in general, are significantly influenced by general economic conditions and related monetary and fiscal policies of regulatory agencies. Deposit flows and the cost of deposits and borrowings are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing real estate and other types of loans, which in turn are affected by the interest rates at which such financing may be offered and other factors affecting loan demand and the availability of funds.
EFFECT OF FEDERAL LAWS AND REGULATIONS
Federal legislation and regulation significantly affect the banking operations of the Company and have increased competition among commercial banks, savings institutions, mortgage banking enterprises and other financial institutions. In particular, the capital requirements and operations of regulated depository
institutions such as the Company and the Bank have been and will be subject to changes in applicable statutes and regulations from time to time, which changes could, under certain circumstances, adversely affect the Company or the Bank.
On June 30, 1998, the Bank became a state chartered trust company and the Company became a one-bank holding company. This change brought with it an additional set of regulations and new regulators for the Bank and Company. These changes are not expected to be material to the overall operations or profitability of the Company.
POTENTIAL IMPACT OF ACCOUNTING PRINCIPLES TO BE IMPLEMENTED IN THE FUTURE
The FASB recently adopted SFAS No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The effective date of SFAS No. 133 has been delayed by SFAS No. 137 until fiscal years beginning after June 15, 2000, but may be implemented early as of the beginning of any fiscal quarter after issuance. SFAS No. 133 may not be applied retroactively. Management believes the adoption of SFAS No. 133, which the Company expects to initially adopt for its year ending December 31, 2000, will not have a material impact on the Company's financial statements.
YEAR 2000 ISSUE
The Year 2000 issue that confronted the Company and its suppliers, customers and competitors, centered on the inability of computer systems to recognize the year 2000. Many computer programs and systems were originally programmed with six digit dates that provided only two digits to identify the calendar year in the date field. With the new millennium, there was concern that these programs and computers might recognize "00" as the year 1900 rather than the year 2000.
The Company has had no significant problems relating to the Year 2000 date change; however, management continues to monitor all systems for potential problems. In addition, nothing has come to management's attention regarding any Year 2000 problems experienced by its customers or suppliers that have significantly impacted or are expected to significantly impact the Company.
ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
A principal operating objective of the Company is to produce stable earnings by achieving a favorable interest rate spread that can be sustained during fluctuations in prevailing interest rates. The Company has sought to reduce its exposure to adverse changes in interest rates by attempting to achieve a closer match between the periods in which its interest-bearing liabilities and interest-earning assets can be expected to reprice through the origination of adjustable-rate mortgages and loans with shorter terms and the purchase of other shorter term interest-earning assets. Since the Company uses brokered deposits and Federal Home Loan Bank (the "FHLBank") advances with various maturities to fund a portion of its loan growth, the Company's assets tend to reprice more quickly than its liabilities.
OUR RISK WHEN INTEREST RATES CHANGE
The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is Great Southern's most significant market risk.
HOW WE MEASURE THE RISK TO US ASSOCIATED WITH INTEREST RATE CHANGES
In an attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor Great Southern's interest rate risk. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities and their sensitivity to actual or potential changes in market interest rates.
The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that can be sustained despite fluctuations in prevailing interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference, or the interest rate repricing "gap," provides an indication of the extent to which an institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities repricing during the same period, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets during the same period. Generally, during a period of rising interest rates, a negative gap within shorter repricing periods would adversely affect net interest income, while a positive gap within shorter repricing periods would result in an increase in net interest income. During a period of falling interest rates, the opposite would be true. As of December 31, 1999, the ratio of Great Southern's one-year gap to total assets was a positive 14.8% and its ratio of interest-earning assets to interest-bearing liabilities maturing or repricing within one year was 1.24.
In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on Great Southern's results of operations, Great Southern has adopted asset and liability management policies to better match the maturities and repricing terms of Great Southern's interest-earning assets and interest-bearing liabilities. Management recommends and the Board of Directors sets the asset and liability policies of Great Southern which are implemented by the asset and liability committee. The asset and liability committee is chaired by the Chief Financial Officer and is comprised of members of Great Southern's senior management. The purpose of the asset and liability committee is to communicate, coordinate and control asset/liability management consistent with Great Southern's business plan and board-approved policies. The asset and liability committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk and profitability goals. The asset and liability committee meets on a monthly basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital positions and anticipated changes in the volume and mix of assets and liabilities. At each meeting, the asset and liability committee recommends appropriate strategy changes based on this review. The Chief Financial Officer or his designee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the board of directors at their monthly meetings.
In order to manage its assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, Great Southern has focused its strategies on originating adjustable rate loans, and managing its deposits and borrowings to establish stable relationships with both retail customers and wholesale funding sources.
At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the asset and liability committee may determine to increase Great Southern's interest rate risk position somewhat in order to maintain its net interest margin.
The asset and liability committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by the board of directors of Great Southern.
Interest rate risk exposure estimates are not exact measures of an institution's actual interest rate risk. They are only indicators of interest rate risk exposure produced in a simplified modeling environment designed to allow management to gauge the Company's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on the Company's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other factors beyond the Company's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated period may in fact mature or reprice at different times and in different amounts and cause a change, which potentially could be material, in the Company's interest rate risk.
Table I illustrates the expected maturities of the Bank's financial instruments at December 31, 1999. This schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. The table is based on information prepared in accordance with generally accepted accounting principles.
CHANGE IN FISCAL YEAR
In 1998, the Company changed its fiscal year ended June 30 to a fiscal year ended December 31. The six-month period ended December 31, 1998, transitions between the Company's old and new fiscal year ends. Because of this fiscal year change, the results of operations for the year ended December 31, 1999, have been compared to the results of operations for the year ended June 30, 1998. The results of operations for the six months ended December 31, 1998, have been compared to the unaudited results of operations for the six months ended December 31, 1997.
The following schedule illustrates the expected maturities of the Bank's financial instruments at December 31, 1999. This schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. The table is based on information prepared in accordance with generally accepted accounting principles.
TABLE I - -------
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND DECEMBER 31, 1998
During the year ended December 31, 1999, the Company increased total assets by $128 million. A large portion of the increase was due to the increase in net loans of $70 million. The main loan areas experiencing increases were commercial, commercial construction and consumer. Total investment securities increased by $51 million, which was primarily an increase in available-for-sale United States government agency securities. Cash and cash equivalents increased by $10 million primarily due to increased customer cash requirements attributable to the Year 2000 Issue.
Total liabilities increased $128 million from December 31, 1998, to December 31, 1999. FHLBank advances increased $42 million. Short-term borrowings increased $53 million with the addition of $27 million in federal funds purchased and $25 million in United States government agency securities sold under reverse repurchase agreements. Deposits increased $28 million due primarily to an increase in certificates of deposit of $68 million, of which $63 million related to brokered deposits. Brokered deposits are an attractive funding source due to the ability to obtain large amounts quickly and the fact that brokered deposits do not require the collateral pledging that FHLBank advances do. The increase in certificates of deposit was partially offset by the decrease in checking and savings accounts of $40 million. Note payable to bank increased $7 million with the addition of a line of credit established by the Company. The line is utilized by the Company to meet operating cash needs, and as a source of funds to purchase shares of the Company's stock.
Stockholders' equity increased $543,000 from December 31, 1998, to December 31, 1999. Net income for fiscal year 1999 was $13.7 million and was offset by dividends of $3.8 million, net treasury stock repurchases of $8.3 million, and a reduction of $1.0 million in accumulated other comprehensive income. The Company repurchased 367,758 shares of common stock during 1999.
RESULTS OF OPERATIONS AND COMPARISON FOR THE YEARS ENDED DECEMBER 31, 1999 AND JUNE 30, 1998
GENERAL
The decrease in earnings of $767,000, or 5.3%, during the year ended December 31, 1999, compared to the year ended June 30, 1998, was primarily due to an increase in salaries and employee benefits of $2.9 million, or 27.1%, and an increase in net occupancy expenses of $1.1 million, or 36.0%, offset by an increase in net interest income of $2.6 million, or 8.8%, and an increase in non-interest income of $1.6 million, or 11.2%.
TOTAL INTEREST INCOME
Total interest income increased $6.1 million, or 9.9%, during the year ended December 31, 1999, compared to the year ended June 30, 1998, primarily due to a $5.8 million, or 10.2%, increase in interest income on loans.
INTEREST INCOME - LOANS
During the year ended December 31, 1999, compared to June 30, 1998, interest income on loans increased primarily from higher average balances. Interest income increased $9.8 million as the result of
higher average loan balances from $624.3 million during the year ended June 30, 1998, to $747.0 million during the year ended December 31, 1999. The higher average balance resulted principally from the Bank's increased commercial business lending and indirect dealer consumer lending. This increase was partially offset by a decrease in the interest income on loans of $3.9 million as a result of lower average yields on loans from 9.22% during the year ended June 30, 1998, to 8.49% during the year ended December 31, 1999.
INTEREST INCOME - INVESTMENTS AND OTHER INTEREST-EARNING DEPOSITS
Interest income on investments and interest-earning deposits increased $257,000, or 5.9%, during the year ended December 31, 1999, when compared to the year ended June 30, 1998. Interest income increased $240,000 as a result of higher average balances from $92.3 million during the year ended June 30, 1998, to $97.4 million in the year ended December 31, 1999. Interest income increased $17,000 as a result of higher average yields from 4.76% during the year ended June 30, 1998, to 4.78% during the year ended December 31, 1999.
TOTAL INTEREST EXPENSE
Total interest expense increased $3.5 million, or 10.9%, during the year ended December 31, 1999 when compared with the year ended June 30, 1998, primarily due to an increase in interest expense on deposits of $4.0 million, or 19.2%, offset by a decrease in interest expense on FHLBank advances of $500,000, or 5.1%.
INTEREST EXPENSE - DEPOSITS
Interest expense on time deposits increased $4.8 million as a result of higher average balances from $312.1 million during the year ended June 30, 1998, to $401.7 million during the year ended December 31, 1999. The average balances of time deposits increased primarily as a result of the Company's use of brokered and other time deposits to fund loan growth. In recent years, brokered deposit rates have become competitive with rates on FHLBank advances and larger retail deposits. This increase was partially offset by a decrease in the interest expense on time deposits of $628,000 as a result of lower average rates from 5.58% during the year ended June 30, 1998, to 5.37% during the year ended December 31, 1999.
INTEREST EXPENSE - FHLBANK AND OTHER BORROWINGS
Interest expense on FHLBank advances and other borrowings decreased $544,000 principally due to lower average balances of $191.3 million during the year ended June 30, 1998, compared to $184.9 million during the year ended December 31, 1999. These lower average balances resulted from the increase in deposits noted above that were used to repay maturing FHLBank advances. Average rates were lower during the year ended December 31, 1999, at 5.68% compared to 5.77% during the year ended June 30, 1998.
NET INTEREST INCOME
The Company's overall interest rate spread decreased from 3.79% during the year ended June 30, 1998, to 3.36% during the year ended December 31, 1999.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $209,000, or 11.3%, during the year ended December 31, 1999, from $1.9 million during the year ended June 30, 1998 to $2.1 million during the year ended December 31, 1999.
Management records a provision for loan losses in an amount sufficient to result in an allowance for loan losses that will cover current net charge-offs as well as risks believed to be inherent in the loan portfolio of the Bank. The amount of provision charged against current income is based on several factors, including, but not limited to, past loss experience, current portfolio mix, actual and potential losses identified in the loan portfolio, economic conditions and regular reviews by internal staff and regulatory examinations.
Weak economic conditions, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio. Management has established various controls in an attempt to limit future losses, such as a watch list of possible problem loans, documented loan administration policies and a loan review staff to review the quality and anticipated collectibility of the portfolio. Management determines which loans are potentially uncollectible, or represent a greater risk of loss and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level.
Non-performing assets decreased $2.9 million, or 23.2%, from $12.5 million at December 31, 1998, to $9.6 million at December 31, 1999. Non-performing loans decreased $900,000, or 9.3%, from $9.7 million at December 31, 1998, to $8.8 million at December 31, 1999, and foreclosed assets declined $2.0 million, or 70.9%, from $2.8 million at December 31, 1998, to $817,000 at December 31, 1999.
Potential problem loans decreased $1.4 million, or 11.5%, from $12.2 million at December 31, 1998, to $10.8 million at December 31, 1999. These are loans which management has identified through routine internal review procedures as having possible credit problems which may cause the borrowers difficulty in complying with current loan repayment terms. These loans are not reflected in the non-performing loans.
Management considers the allowance for loan losses adequate to cover losses inherent in the Company's loan portfolio at this time, based on current economic conditions. If economic conditions deteriorate significantly, it is possible that additional assets would be classified as non-performing, and accordingly, additional provision for losses would be required, thereby adversely affecting future results of operations and financial condition.
NON-INTEREST INCOME
Non-interest income increased $1.6 million, or 11.2%, during the year ended December 31, 1999, compared to the year ended June 30, 1998. The increase was primarily due to: (i) an increase of $1.4 million, or 24.8%, in commission income from the travel, insurance and investment subsidiaries from growth in these areas; (ii) an increase in service charge income of $661,000, or 17.2%, on transaction accounts due to an increase in overdraft charges; offset by (iii) a decrease in net realized gains on sales of available-for-sale securities of $1.1 million, or 77.3%; (iv) a decline of $326,000, or 100.0%, of income on foreclosed assets due to the sale of income-producing foreclosed assets; and (v) various increases or decreases in other non-interest income items.
NON-INTEREST EXPENSE
Non-interest expense increased $4.6 million, or 22.7% during the year ended December 31, 1999 when compared to the year ended June 30, 1998. The increase was primarily due to: (i) an increase of $2.9 million, or 27.1%, in salaries and employee benefits due to increased staffing levels in most areas of the Company due to growth and the year 2000 issue; (ii) an increase of $1.1 million, or 36.0%, in net occupancy expense primarily due to the core computer conversion, year 2000 testing of the Bank's systems and other technology-related purchases; (iii) an increase of $325,000, or 48.8%, in office supplies and printing due to the cost of replacing all debit cards prior to December 31, 1999 and additional supplies purchased as a result of the year 2000 Issue; and (iv) various increases or decreases in other non-interest expense items.
PROVISION FOR INCOME TAXES
Provision for income taxes as a percentage of pre-tax income increased slightly from 32.4% for the year ended June 30, 1998 to 33.9% for the year ended December 31, 1999.
RESULTS OF OPERATIONS AND COMPARISON FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
GENERAL
The decrease in earnings of $122,000, or 1.6%, during the six months ended December 31, 1998, compared to December 31, 1997, was primarily due to an increase in non-interest expense of $1.4 million, or 14.4%, an increase in provision for income taxes of $800,000, or 26.2%, and an increase in provision for loan losses of $439,000, or 51.5%, offset by an increase in net interest income of $1.5 million, or 10.5%, and an increase in non-interest income of $1.0 million, or 15.0% during the six months ended December 31, 1998.
TOTAL INTEREST INCOME
Total interest income increased $2.4 million, or 8.0%, during the six months ended December 31, 1998, primarily due to a $2.5 million, or 9.0%, increase in interest income on loans.
INTEREST INCOME - LOANS
During the six months ended December 31, 1998, compared to December 31, 1997, interest income on loans increased primarily from higher average balances. Interest income increased $2.1 million as the result of higher average loan balances from $602 million during the six months ended December 31, 1997, to $648 million during the six months ended December 31, 1998. The higher average balance resulted from the Bank's increased lending in commercial real estate, commercial business lending and indirect dealer consumer lending. The average yield on loans increased from 9.26% during the six months ended December 31, 1997, to 9.36% during the six months ended December 31, 1998, as a result of the change in the mix of loan types to higher rate loans.
INTEREST INCOME - INVESTMENTS AND OTHER INTEREST-EARNING DEPOSITS
Interest income on investments and interest-earning deposits decreased $10,000, or .5%, during the six months ended December 31, 1998, when compared to the six months ended December 31, 1997. Interest
income declined $68,000 as a result of lower average yields from 4.84% during the six months ended December 31, 1997, to 4.71% during the six months ended December 31, 1998, due to lower short term market rates. Interest income increased $58,000 as a result of higher average balances from $89.4 million during the six months ended December 31, 1997, to $91.5 million in the six months ended December 31, 1998.
TOTAL INTEREST EXPENSE
Total interest expense increased $929,000, or 6.0%, during the six months ended December 31, 1998, when compared with the six months ended December 31, 1997, primarily due to an increase in interest expense on deposits of $1.9 million, or 17.9%, offset by a decrease in interest expense on FHLBank advances and other borrowings of $931,000, or 17.9%.
INTEREST EXPENSE - DEPOSITS
Interest expense on time deposits increased $1.45 million as a result of higher average balances from $306 million during the six months ended December 31, 1997, to $358 million during the six months ended December 31, 1998. The average balances of time deposits increased primarily as a result of the Company's use of brokered and other time deposits to fund loan growth. In recent years, brokered deposit rates have become competitive with rates on FHLBank advances and larger retail deposits. This increase was partially offset by a decrease in interest expense on time deposits of $95,000 as a result of lower average rates from 5.61% during the six months ended December 31, 1997, to 5.55% during the six months ended December 31, 1998.
Interest expense on deposits increased $438,000 as a result of higher average balances of interest bearing demand deposits from $119 million during the six months ended December 31, 1997, to $154 million during the six months ended December 31, 1998, and increased $183,000 as a result of higher average rates on interest bearing demand deposits from 2.33% during the six months ended December 31, 1997, to 2.61% during the six months ended December 31, 1998. The increase in balances was the result of the growth of checking customers and the increase in rate was the result of a change in the mix of account types.
This increase was partially offset by a $99,000 decrease in interest expense on savings accounts from slightly lower average rates from 2.48% in the six months ended December 31, 1997, to 1.90% during the six months ended December 31, 1998.
INTEREST EXPENSE - FHLBANK ADVANCES AND OTHER BORROWINGS
Interest expense on FHLBank advances and other borrowings decreased $931,000 principally due to lower average balances from $176 million during the six months ended December 31, 1997, to $149 million during the six months ended December 31, 1998. These lower average balances resulted from the increase in deposits noted above that were partially used to repay maturing FHLBank advances. Average rates were lower during the six months ended December 31, 1998, at 5.76% compared to 5.92% during the six months ended December 31, 1997.
NET INTEREST INCOME
The Company's overall interest rate spread increased from 3.78% during the six months ended December 31, 1997, to 4.02% during the six months ended December 31, 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $439,000, or 51.5%, during the six months ended December 31, 1998, from $852,000 during the six months ended December 31, 1997, to $1.3 million during the six months ended December 31, 1998.
Management records a provision for loan losses in an amount sufficient to result in an allowance for loan losses that will cover current net charge-offs as well as risks believed to be inherent in the loan portfolio of the Bank. The amount of provision charged against current income is based on several factors, including, but not limited to, past loss experience, current portfolio mix, actual and potential losses identified in the loan portfolio, economic conditions and regular reviews by internal staff and regulatory examinations.
Weak economic conditions, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio. Management has established various controls in an attempt to limit future losses, such as a watch list of possible problem loans, documented loan administration policies and a loan review staff to review the quality and anticipated collectibility of the portfolio. Management determines which loans are potentially uncollectible, or represent a greater risk of loss and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level.
Non-performing assets decreased $500,000, or 3.8%, from $13.0 million at June 30, 1998, to $12.5 million at December 31, 1998. Non-performing loans increased $1.5 million, or 20.7%, from $8.2 million at June 30, 1998, to $9.7 million at December 31, 1998, and foreclosed assets declined $2.0 million, or 41.7%, from $4.8 million at June 30, 1998, to $2.8 million at December 31, 1998.
Potential problem loans increased $3.2 million, or 35.6%, from $9 million at June 30, 1998, to $12.2 million at December 31, 1998. These are loans which management has identified through routine internal review procedures as having possible credit problems which may cause the borrowers difficulty in complying with current loan repayment terms. These loans are not reflected in the non-performing loans.
Management considers the allowance for loan losses and the allowance for foreclosed asset losses adequate to cover losses inherent in the Company's assets at this time, based on current economic conditions. If economic conditions deteriorate significantly, it is possible that additional assets would be classified as non-performing, and accordingly, additional provision for losses would be required, thereby adversely affecting future results of operations and financial condition.
NON-INTEREST INCOME
Non-interest income increased $1 million, or 15%, during the six months ended December 31, 1998, compared to the six months ended December 31, 1997. The increase was primarily due to: (i) an increase in service charge income of $637,000, or 36.3%, on transaction accounts and electronic transactions due to increased volumes from ATM debit card usage; (ii) an increase of $550,000, or 21.3%, in commission income from the travel, insurance and investment subsidiaries from growth in these areas; offset by, (iii) a decrease of $516,000, or 59.2% in net realized gains on sales of available-for-sale securities; (iv) various increases or decreases in other non-interest income items.
NON-INTEREST EXPENSE
Non-interest expense increased $1.4 million, or 14.4% during the six months ended December 31, 1998, when compared to the six months ended December 31, 1997. The increase was primarily due to: (i) an increase of $516,000, or 9.9% in salaries and employee related costs due to increased staffing levels in most areas of the Company due to growth and the year 2000 issue; (ii) an increase of $423,000, or 31.3% in occupancy and equipment expense primarily due to computer system upgrades and other technology related purchases partially due to the year 2000 issue; (iii) an increase of $477,000, or 497%, in transaction and bad check losses from a regulatory recommendation to charge-off these losses at 90 days; and (iv) various increases or decreases in other non-interest expense items.
PROVISION FOR INCOME TAXES
Provision for income taxes as a percentage of pre-tax income increased from 29.0% in the six months ended December 31, 1997, to 34.4% in the six months ended December 31, 1998. The lower than normal percentage in the December 31, 1997, period was primarily due to a refund of prior period state financial institution taxes within that period.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
Table II (on the following page) presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Average balances of loans receivable include the average balances of non-accrual loans for each period. Interest income on loans includes interest received on non-accrual loans on a cash basis. The table does not reflect any effect of income taxes.
RATE/VOLUME ANALYSIS
Table III (on the following page) presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to volume and rate.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Average balances of loans receivable include the average balances of non-accrual loans for each period. Interest income on loans includes interest received on non-accrual loans on a cash basis. The table does not reflect any effect of income taxes.
TABLE II - --------
Year Ended June 30,1997 ---------------------------- Average Yield/ Balance Interest Rate -------- -------- ------- (Dollars in Thousands) Interest-earning assets: Loans receivable $624,290 $57,537 9.22% Investment securities and other interest-earning assets 92,251 4,395 4.76 -------- ------- ----
Total interest-earning assets $716,541 61,932 8.64 ======== ------- ----
Interest-bearing liabilities: Demand deposits $121,477 2,674 2.20 Savings deposits 34,874 859 2.46 Time deposits 312,077 17,418 5.58 ------- ------ ----
Total deposits 468,428 20,951 4.47 FHLBank advances and other borrowings 191,260 11,041 5.77 ------- ------ ----
Total interest-bearing liabilities $659,688 31,992 4.85 ======== ------ ----
Net interest income: Interest rate spread $29,940 3.79% ======= ====
Net interest margin* 4.18% ==== Average interest-earning assets to average interest-bearing liabilities 108.6% =====
- ----------------
* Defined as the Company's net interest income divided by total interest-earning assets.
RATE/VOLUME ANALYSIS
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to volume and to rate.
TABLE III - ---------
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of the Company's ability to generate sufficient cash to meet present and future financial obligations in a timely manner through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. These obligations include the credit needs of customers, funding deposit withdrawals, and the day-to-day operations of the Company. Liquid assets include cash, interest-bearing deposits with financial institutions and certain investment securities and loans. As a result of the Company's management of the ability to generate liquidity primarily through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. At December 31, 1999, the Company had commitments of approximately $101.4 million to fund loan originations, issued lines of credit, outstanding letters of credit and unadvanced loans.
Management continuously reviews the capital position of the Company and the Bank to insure compliance with minimum regulatory requirements, as well as exploring ways to increase capital either by retained earnings or other means.
The Company's capital position remained strong, with stockholders' equity at $68.9 million, or 7.1% of total assets of $964.8 million at December 31, 1999 compared to equity at $68.4 million, or 8.2%, of total assets of $836.5 million at December 31, 1998.
Banks are required to maintain minimum risk-based capital ratios. These ratios compare capital, as defined by the risk-based regulations, to assets adjusted for their relative risk as defined by the regulations. Guidelines required banks to have a minimum Tier 1 risk-based capital ratio, as defined, of 4.00% and a minimum Tier 2 total risk-based capital ratio of 8.00%, and a minimum 4.00% Tier 1 leverage capital ratio. On December 31, 1999, the Bank's Tier 1 risk-based capital ratio was 9.0%, total risk-based capital ratio was 10.2% and the core ratio was 7.4%.
At December 31, 1999, the held-to-maturity investment portfolio included $230,000 of gross unrealized losses. The unrealized losses are not expected to have a material effect on future earnings beyond the usual amortization of acquisition premium or accretion of discount because no sale of the held-to-maturity investment portfolio is foreseen.
The Company's primary sources of funds are deposits, FHLBank advances, other borrowings, loan repayments, proceeds from sales of loans and available-for-sale securities and funds provided from operations. The Company utilizes particular sources of funds based on the comparative costs and availability at the time. The Company has from time to time chosen not to pay rates on deposits as high as the rates paid by certain of its competitors and, when believed to be appropriate, supplements deposits with less expensive alternative sources of funds.
STATEMENTS OF CASH FLOWS. During the years ended December 31, 1999 and June 30, 1998 and 1997, and the six months ended December 31, 1998, the Company had positive cash flows from operating activities and positive cash flows from financing activities. The Company experienced negative cash flows from investing activities during each of these same time periods.
Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to net income adjusted for accrued assets and liabilities, the provision for loan losses and losses on foreclosed assets, depreciation, sale of foreclosed assets and the amortization of deferred loan fees and discounts (premiums) on loans and investments, all of which are non-cash or non-operating adjustments to operating cash flows. As a result, net income adjusted for non-cash and non-operating items was the primary source of cash flows from operating activities. Operating activities provided cash flows of $19.5 million, $10.3 million, $12.2 million, and $6.0 million during the years ended December 31, 1999,and June 30, 1998 and 1997, and the six months ended December 31, 1998.
During the years ended December 31, 1999, and June 30, 1998 and 1997, and the six months ended December 31, 1998, investing activities used cash of $126.7 million, $72.6 million, $36.6 million, and $51.3 million, respectively, primarily due to the net increase of loans and the net purchase of investment securities in each period.
Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows are due to changes in deposits, changes in FHLBank advances and changes in short-term borrowings as well as purchases of treasury stock and dividend payments to stockholders. Financing activities provided $117.2 million, $75.7 million, $27.3 million and $33.0 million for the years ended December 31, 1999, and June 30, 1998 and 1997, and the six months ended December 31, 1998, respectively. Financing activities in the future are expected to primarily include changes in deposits and changes in FHLBank advances.
DIVIDENDS. During the year ended December 31, 1999, the Company declared and paid dividends of $.50 per share, or 28.0% of net income, compared to dividends declared and paid during the six months ended December 31, 1998 of $.235 per share, or 25.1% of net income. The Board of Directors meets regularly to consider the level and the timing of dividend payments.
COMMON STOCK REPURCHASES. The Company has been in various buy-back programs since May 1990. During the year ended December 31, 1999, the Company repurchased 367,758 shares of its common stock at an average price of $23.91 per share and reissued 58,166 shares of treasury stock at an average price of $7.14 per share to cover stock option exercises. During the six months ended December 31, 1998, the Company repurchased 169,428 shares of its common stock at an average price of $23.29 per share and reissued 10,380 shares of treasury stock at an average price of $12.29 per share to cover stock option exercises.
Management intends to continue its stock buy-back programs as long as repurchasing the stock contributes to the overall increase of shareholder value. The number of shares of stock that will be repurchased and the price that will be paid is the result of many factors, several of which are outside of the control of the Company. The primary factors, however, are the number of shares available in the market from sellers at any given time and the price of the stock within the market as determined by the market.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION.
Independent Accountants' Report
Board of Directors Great Southern Bancorp, Inc. Springfield, Missouri
We have audited the consolidated statements of financial condition of GREAT SOUTHERN BANCORP, INC. as of December 31, 1999 and 1998, and June 30, 1998, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year ended December 31, 1999, the six-month period ended December 31, 1998, and the years ended June 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GREAT SOUTHERN BANCORP, INC. as of December 31, 1999 and 1998, and June 30, 1998, and the results of its operations and its cash flows for the year ended December 31, 1999, the six-month period ended December 31, 1998, and the years ended June 30, 1998 and 1997, in conformity with generally accepted accounting principles.
/s/ Baird, Kurtz & Dobson
Springfield, Missouri February 11, 2000
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998
ASSETS
See Notes to Consolidated Financial Statements
GREAT SOUTHERN BANCORP, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
See Notes to Consolidated Financial Statements
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, AND JUNE 30, 1998 AND 1997, AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Great Southern Bancorp, Inc. ("GSBC" or the "Company") operates as a one-bank holding company. GSBC's business primarily consists of the business of Great Southern Bank (the "Bank"), which provides a full range of financial services; as well as travel, insurance, investment services, loan closings and appraisals through the Company's and the Bank's other wholly owned subsidiaries; to customers primarily in southwest and central Missouri. The Company and the Bank are subject to the regulation of certain federal and state agencies and undergo periodic examinations by those regulatory agencies.
In June 1998, the Bank converted to a state-chartered trust company and the Company became a one-bank holding company. Until that time the Bank was a stock savings bank and the Company was a savings bank holding company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets held for sale, management obtains independent appraisals for significant properties.
Management believes that the allowances for losses on loans and the valuation of foreclosed assets held for sale are adequate. While management uses available information to recognize losses on loans and foreclosed assets held for sale, changes in economic conditions may necessitate revision of these estimates in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowances for losses on loans and valuation of foreclosed assets held for sale. Such agencies may require the Bank to recognize additional losses based on their judgments of information available to them at the time of their examination.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FISCAL YEAR CHANGE
In 1998, the Company changed its fiscal year ended June 30 to a fiscal year ended December 31. The six-month period ended December 31, 1998, transitions between the Company's old and new fiscal year ends.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Great Southern Bancorp, Inc., its wholly owned subsidiary, Great Southern Bank, and the Bank's wholly owned subsidiaries, Great Southern Capital Management, GSB One LLC (including its wholly owned subsidiary, GSB Two LLC) and Great Southern Financial Corporation, (including its wholly owned subsidiary, Appraisal Services, Inc.). Significant intercompany accounts and transactions have been eliminated in consolidation.
RECLASSIFICATIONS
Certain prior periods amounts have been reclassified to conform to the December 31, 1999, financial statements presentation. These reclassifications had no effect on net income.
CASH AND INVESTMENT SECURITIES
The Bank is a member of the Federal Home Loan Bank system. As a member of this system, it is required to maintain an investment in capital stock of the Federal Home Loan Bank (FHLB) in an amount equal to the greater of 1% of its outstanding home loans, 0.3% of its total assets, or one-twentieth of its outstanding advances from the FHLB.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the specific security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders' equity. Premiums and discounts are amortized and accreted, respectively, to interest income using the level-yield method over the period to maturity.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENTS IN DEBT AND EQUITY SECURITIES (CONTINUED)
Held-to-maturity securities, which include any security for which the Company has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the level-yield method over the period to maturity.
Interest and dividends on investments in debt and equity securities are included in income when earned.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Unamortized costs in excess of the fair value of underlying net assets acquired were $403,569, $543,278 and $626,465 at December 31, 1999 and 1998, and June 30, 1998, respectively. These costs are amortized on a straight-line basis for a period of five years.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Write-downs to fair value are recognized as a charge to earnings at the time the decline in value occurs. Forward commitments to sell mortgage loans are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. Amounts paid to investors to obtain forward commitments are deferred until such time as the related loans are sold. The fair values of the forward commitments are not recognized in the financial statements. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid and commitment fees paid and considering a normal servicing rate. Fees received from borrowers to guarantee the funding of mortgage loans held for sale and fees paid to investors to ensure the ultimate sale of such mortgage loans are recognized as income or expense when the loans are sold or when it becomes evident that the commitment will not be used. There were no material loans held for sale at December 31, 1999 and 1998, and June 30, 1998.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.
Discounts and premiums on purchased loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense and reduced by loans charged off, net of recoveries. The allowance is maintained at a level considered adequate to provide for potential loan losses, based on management's evaluation of the loan portfolio, as well as on prevailing and anticipated economic conditions and historical losses by loan category. General allowances have been established, based upon the aforementioned factors and allocated to the individual loan categories. Allowances are accrued on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral.
A loan is considered impaired when it is probable that the Bank will not receive all amounts due according to the contractual terms of the loan. This includes loans that are delinquent 90 days or more (nonaccrual loans) and certain other loans identified by management. Accrual of interest is discontinued and interest accrued and unpaid is removed at the time such amounts are delinquent 90 days. Interest is recognized for nonaccrual loans only upon receipt, and only after all principal amounts are current according to the terms of the contract.
FORECLOSED ASSETS HELD FOR SALE
Assets acquired by foreclosure or in settlement of debt and held for sale are valued at estimated fair value as of the date of foreclosure, and a related valuation allowance is provided for estimated costs to sell the assets. Management evaluates the value of foreclosed assets held for sale periodically and increases the valuation allowance for any subsequent declines in fair value. Changes in the valuation allowance are charged or credited to noninterest expense.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line and accelerated methods over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized using the straight-line and accelerated methods over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter.
FEE INCOME
Loan servicing income represents fees earned for servicing real estate mortgage loans owned by various investors. The fees are generally calculated on the outstanding principal balances of the loans serviced and are recorded as income when earned. Loan origination fees, net of direct loan origination costs, are recognized as income using the level-yield method over the contractual life of the loan.
EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. All computations have been adjusted for the stock split of October 21, 1996 (see Note 16).
The computation of earnings per share is as follows:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
EARNINGS PER SHARE (CONTINUED)
Options to purchase 90,350, 43,250 and 19,250 shares of common stock were outstanding during the periods ended December 31, 1999 and 1998, and June 30, 1998, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options, which expire in 2008, were still outstanding at the end of each period.
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 1999 and 1998, and June 30, 1998, cash equivalents consisted of interest-bearing deposits in other financial institutions.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effect of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standard Board (FASB) recently adopted Statement of Financial Accounting Standards (SFAS) 133, Accounting for Derivative Financial Instruments and Hedging Activities. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000, may be adopted early for periods beginning after issuance of the Statement and
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT (CONTINUED)
may not be applied retroactively. Management believes the adoption of SFAS 133, which the Company presently expects to initially adopt for its year ending December 31, 2000, will not have a material impact on the Company's financial statements.
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost and approximate fair value of available-for-sale securities are as follows:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
Maturities of available-for-sale debt securities at December 31, 1999, are:
Approximate Amortized Fair Cost Value -------------------------------------
One year or less $54,544,533 $54,558,278 After one through five years 18,169,303 18,086,980 -------------------------------------
$72,713,836 $72,645,258 =====================================
The amortized cost and approximate fair value of held-to-maturity securities are as follows:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
Maturities of held-to-maturity securities at December 31, 1999, are:
Approximate Amortized Fair Cost Value ------------------------------
One year or less $14,971,144 $14,900,400 After one through five years 19,330,257 19,260,300 After five through 10 years 1,510,000 1,420,800 After 10 years 800,000 800,000 Securities not due on a single maturity date 1,034,099 1,034,100 ----------------------------
$37,645,500 $37,415,600 ============================
Proceeds of $2,149,910, $3,359,677, $1,377,623 and $1,365,670 with resultant gross gains of $316,508, $1,397,828, $205,425 and $355,501 were realized from the sale of available- for-sale securities for the years ended December 31, 1999, and June 30, 1998 and 1997, and for the six months ended December 31, 1998, respectively. There were no sales resulting in losses for any of the periods presented.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
The book value of securities pledged as collateral to secure public deposits amounted to approximately $14,766,000, $18,823,500 and $10,195,000 at December 31, 1999 and 1998, and June 30, 1998, respectively, with approximate fair values of $14,606,000, $18,887,800 and $10,231,000, respectively. The book value of securities pledged as collateral to secure collateralized borrowing accounts amounted to approximately $34,432,000 at December 31, 1999, with approximate fair value of $34,447,000. There were no securities pledged as collateral to secure collateralized borrowings at December 31, 1998 and June 30, 1998. The book value of securities pledged as collateral to secure Federal Home Loan Bank advances amounted to approximately $46,205,000, $22,171,000 and $22,683,000 at December 31, 1999 and 1998, and June 30, 1998, respectively, with approximate fair values of $46,062,000, $22,243,900 and $22,760,000, respectively.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 1999 and 1998, and June 30, 1998, include:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Transactions in the allowance for loan losses were as follows:
The weighted average interest rate on loans receivable at December 31, 1999 and 1998, and June 30, 1998, was 8.70%, 8.38% and 8.96%, respectively.
The Bank serviced loans and participations in loans for others amounting to approximately $56,339,000, $56,670,000 and $60,047,000 at December 31, 1999 and 1998, and June 30, 1998, respectively.
Gross impaired loans totaled approximately $9,270,000, $10,146,000 and $9,485,000 at December 31, 1999 and 1998, and June 30, 1998, respectively. An allowance for loan losses of $846,382, $689,000 and $1,501,000 relates to these impaired loans at December 31, 1999 and 1998, and June 30, 1998, respectively. There were no impaired loans at December 31, 1999 and 1998, and June 30, 1998, without a related allowance for loan loss assigned.
Interest of approximately $487,000, $1,009,000, $487,000 and $225,000 was recognized on average impaired loans of $9,406,000, $12,009,000, $9,362,000 and $9,819,000 for the years ended December 31 1999, and June 30, 1998 and 1997, and for the six months ended December 31, 1998, respectively. Interest recognized on impaired loans on a cash basis during these periods was not materially different.
Certain of the Bank's real estate loans are pledged as collateral for borrowings as set forth in Notes 7 and 8.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Certain directors and executive officers of the Company and the Bank are customers of and had transactions with the Bank in the ordinary course of business. In the opinion of management, all loans included in such transactions were made on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties. At December 31, 1999, loans outstanding to these directors and executive officers are summarized as follows:
December 31, -------------
Balance, beginning of year $5,791,000 New loans 1,016,000 Payments (875,000) ----------
Balance, end of year $5,932,000 ==========
NOTE 4: FORECLOSED ASSETS HELD FOR SALE
December 31, ------------------------ 1999 1998 June 30, 1998 ------------------------------------------- Foreclosed assets $817,118 $2,810,201 $4,750,910 Valuation allowance --- --- --- -----------------------------------------
$817,118 $2,810,201 $4,750,910 =========================================
Transactions in the valuation allowance on foreclosed assets were as follows:
Six Months Year Ended Year Ended Ended December 31, June 30, December 31, 1999 1998 1998 --------------------------------------------
Balance, beginning of period $--- $319,390 $--- Provision charged to expense --- 100,000 --- Charge-offs, net of recoveries --- (419,390) --- -----------------------------------------
Balance, end of period $--- $--- $--- =========================================
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 5: PREMISES AND EQUIPMENT
Major classifications of premises and equipment stated at cost at December 31, 1999 and 1998, and June 30, 1998, are as follows:
NOTE 6: DEPOSITS
Deposits at December 31, 1999 and 1998, and June 30, 1998, are summarized as follows:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 6: DEPOSITS (Continued)
The weighted average interest rate on certificates of deposit was 5.44%, 5.35% and 5.50% at December 31, 1999 and 1998, and June 30, 1998, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations of $100,000 or more was approximately $63,472,000, $65,407,000 and $48,675,000 at December 31, 1999 and 1998, and June 30, 1998, respectively. The Bank utilizes brokered deposits as an additional funding source. The aggregate amount of brokered deposits, which are primarily in denominations of $100,000 or more, was approximately $209,742,000, $146,697,000 and $118,977,000 at December 31, 1999 and 1998, and June 30, 1998, respectively.
At December 31, 1999, scheduled maturities of certificates of deposit are as follows:
2000 $250,946,015 2001 84,075,251 2002 36,596,774 2003 32,773,690 2004 10,968,755 Thereafter 18,991,502 ------------ $434,351,987 ============
A summary of interest expense on deposits is as follows:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 7: ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consist of the following:
In addition to the above advances, the Bank had available a line of credit with the FHLB amounting to $50,000,000 at December 31, 1999 and 1998, and $22,800,000 at June 30, 1998.
The Bank has pledged FHLB stock, investment securities and first mortgage loans free of pledges, liens and encumbrances as collateral for outstanding advances. Investment securities with carrying values of $46,205,000, $22,171,000 and $22,683,000, respectively, were specifically pledged as collateral for advances at December 31, 1999 and 1998, and June 30, 1998. Loans with carrying values of $324,107,000, $288,013,000 and $290,473,000 were pledged as collateral for outstanding advances at December 31, 1999 and 1998, and June 30, 1998, respectively.
NOTE 8: SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1999 and 1998, and June 30, 1998, are summarized as follows:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 8: SHORT-TERM BORROWINGS (Continued)
The Bank enters into sales of securities under agreements to repurchase (reverse repurchase agreements). Reverse repurchase agreements are treated as financings, and the obligations to repurchase securities sold are reflected as a liability in the statement of financial condition. The dollar amount of securities underlying the agreements remains in the asset accounts.
Other short-term borrowings consist of agreements with corporate entities which are secured by a pledge of residential mortgage loans, and margin loans with brokerage firms.
Short-term borrowings had weighted average interest rates of 4.71% and 7.20% at December 31, 1999 and 1998, respectively. Securities and mortgage loans underlying the agreements are being held by the Bank during the agreement period. All agreements are written on a one month or less term.
Short-term borrowings averaged $22,034,000 for the year ended December 31, 1999, $770,000 for the six months ended December 31, 1998, and $32,234,000 for the year ended June 30, 1998, respectively. The maximum amounts outstanding at any month end were $53,594,090, $2,386,670 and $41,176,000 during those same periods.
NOTE 9: NOTE PAYABLE TO BANK
The Company entered into a line of credit with a commercial bank during 1999. The amount available under the line of credit is $15,000,000 and at December 31, 1999, the amount outstanding was $7,517,025. The note payable bears interest at the lender's prime rate minus 1.40%, due quarterly, is secured by all of the common stock of the Bank and matures November 1, 2000.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 9: NOTE PAYABLE TO BANK (Continued)
The Bank had a potentially available $155,315,000 line of credit under a borrowing arrangement with the Federal Reserve Bank at December 31, 1999. The line is secured primarily by commercial loans and was not drawn upon at December 31, 1999.
NOTE 10: INCOME TAXES
The Company files a consolidated federal income tax return. During the time the Bank operated under a thrift charter, thrifts were allowed a percentage of otherwise taxable income as a statutory bad debt deduction, subject to limitations based on aggregate loans and savings balances. This percentage was most recently 8%. In August 1996 this statutory bad debt deduction was repealed and is no longer available for thrifts. In addition, bad debt allowances accumulated after 1988, which are presently included as a component of the net deferred tax asset, must be recaptured over a six-year period beginning with the period ended December 31, 1998. The amount of the deferred tax liability which must be recaptured is $1,244,000 at December 31, 1999.
As of December 31, 1999 and 1998, and June 30, 1998, retained earnings includes approximately $17,500,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad-debt deductions for tax purposes only for tax years prior to 1988. If the Bank were to liquidate, the entire amount would have to be recaptured and would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $6,475,000 at December 31, 1999 and 1998, and June 30, 1998.
The provision for income taxes consists of:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 10: INCOME TAXES (Continued)
The tax effects of temporary differences related to deferred taxes shown on the December 31, 1999 and 1998, and June 30, 1998, statements of financial condition were:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 10: INCOME TAXES (Continued)
Reconciliations of the Company's provision for income taxes to the statutory corporate tax rates are as follows:
The income and other tax returns of the Company and its consolidated subsidiaries are subject to but have not been audited recently by the Internal Revenue Service and state taxing authorities. These returns have been closed without audit through June 30, 1996.
State legislation provided that savings banks were taxed based on an annual privilege tax on net income at a 7% rate. The 1997 and 1996 state tax included in the provision for income tax amounted to $652,000 and $552,000, respectively. Because the Bank converted to a state chartered trust company in June 1998, the Bank was not subject to the savings bank privilege tax for the years ended December 31, 1999, and June 30, 1998, and the six months ended December 31, 1998. Instead, the Bank was subject to a similar bank franchise tax for these periods. The effective tax rate declined in 1998 due to organizational changes undertaken by the Company.
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and Cash Equivalents
For these short-term instruments, the carrying amount approximates fair value.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Available-for-Sale Securities
Fair values for available-for-sale securities, which also are the amounts recognized in the statements of financial condition, equal quoted market prices, if available. If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities.
Held-to-Maturity Securities
Fair values for held-to-maturity securities equal quoted market prices, if available. If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities.
Federal Home Loan Bank Stock
The carrying amount approximates fair value.
Loans
The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics are aggregated for purposes of the calculations. The carrying amount of accrued interest receivable approximates its fair value.
Deposits
The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date, i.e., their carrying amounts. The fair value of fixed-maturity certificates of deposit is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.
Federal Home Loan Bank Advances
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing advances.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Short-Term Borrowings
The carrying amounts reported in the statements of financial condition for short-term borrowings approximate those liabilities' fair value.
Note Payable to Bank
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.
The following table presents estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
NOTE 12:OPERATING LEASES
The Company has entered into various operating leases at several of its locations. Some of the leases have renewal options.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 12: LEASES (Continued)
At December 31, 1999, future minimum lease payments are as follows:
2000 $307,999 2001 264,809 2002 253,736 2003 196,943 2004 121,772 Later Years 486,651 $1,631,910
Rental expense was $307,805, $222,429, $203,675 and $136,360 for the years ended December 31, 1999, and June 30, 1998 and 1997, and the six months ended December 31, 1998, respectively.
NOTE 13: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a significant portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate.
At December 31, 1999 and 1998, and June 30, 1998, the Bank had outstanding commitments to originate loans and fund commercial construction aggregating approximately $27,760,000, $32,167,000 and $34,677,000, respectively. The commitments extend over varying periods of time with the majority being disbursed within a 30- to 180-day period. Loan commitments at fixed rates of interest amounted to approximately $3,172,000, $3,286,000 and $7,075,000 with the remainder at floating market rates at December 31, 1999 and 1998, and June 30, 1998, respectively.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 13: COMMITMENTS AND CREDIT RISK (Continued)
Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
The Company had total outstanding letters of credit amounting to approximately $13,613,000, $9,832,000 and $10,365,000 at December 31, 1999 and 1998, and June 30, 1998, respectively, with $5,366,000, $1,585,000 and $2,118,000, respectively, of the letters of credit having terms ranging from seven months to five years. The remaining $8,247,000 at December 31, 1999 and 1998, and June 30, 1998, consisted of an outstanding letter of credit to guarantee the payment of principal and interest on a Multifamily Housing Refunding Revenue Bond Issue. The Federal Home Loan Bank has issued a letter of credit backing the Bank's letter of credit.
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate. The Bank uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.
At December 31, 1999, the Bank had granted unused lines of credit to borrowers aggregating approximately $59,994,000 and $9,942,000 for commercial lines and open-end consumer lines, respectively. At December 31, 1998, the Bank had granted unused lines of credit to borrowers aggregating approximately $25,523,000 and $7,161,000 for commercial lines and open-end consumer lines, respectively. At June 30, 1998, the Bank had granted unused lines of credit to borrowers aggregating approximately $30,385,000 and $5,313,000 for commercial lines and open-end consumer lines, respectively.
The Bank grants collateralized commercial, real estate and consumer loans primarily to customers in the southwest and central portions of Missouri. Although the Bank has a diversified portfolio, loans (including loans in process) aggregating approximately $140,745,000, $114,342,000 and $122,900,000 at December 31, 1999 and 1998, and June 30, 1998, respectively, are secured by motels, restaurants, recreational facilities, other commercial properties and residential mortgages in the Branson, Missouri, area.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 14: CONTINGENT LIABILITIES
The Company and its subsidiaries are defendants in certain lawsuits arising in the ordinary course of business. Management, after review with its legal counsel, is presently of the opinion that the resolution of these legal matters will not have a material adverse effect. However, events could occur in the near term that would change the estimate of liability materially.
Customers of one of the Bank's subsidiaries may enter into margin loan agreements with the subsidiary's outside clearing agent in accordance with Regulation T of the Federal Reserve rules. The subsidiary is required to indemnify the clearing agent against any losses suffered by the clearing agent as a result of any margin loans with the subsidiary's customers. The outstanding amount of margin loans that are subject to indemnity by the subsidiary at December 31, 1999, was $453,845.
NOTE 15: ADDITIONAL CASH FLOW INFORMATION
NOTE 16: STOCK SPLIT
On October 1, 1996, the Board of Directors of GSBC declared a stock split effected in the form of a dividend on the outstanding common stock for shareholders of record on October 11, 1996. Each shareholder received one additional share for each share owned on the record date. Historical per share disclosures have been updated where applicable to account for the stock split.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 17: EMPLOYEE BENEFIT PLANS
The Company participates in a multi-employer defined benefit plan covering all employees who have met minimum service requirements. The Company's policy is to fund pension cost accrued. No contribution was required for the years ended December 31, 1999, or June 30, 1998 and 1997, or the six months ended December 31, 1998. As a member of a multi-employer pension plan, disclosures of plan assets and liabilities for individual employers are not required or practicable.
The Company has a defined contribution pension plan covering substantially all employees. The Company matches 100% of the employee's contribution on the first 3% of the employee's compensation, and also matches 50% of the employee's contribution on the next 2% of the employee's compensation. Employer contributions charged to expense for the years ended December 31, 1999, and June 30, 1998 and 1997, and the six months ended December 31, 1998, were $191,581, $82,575, $69,691 and $54,379, respectively.
NOTE 18: STOCK OPTION PLAN
The Company established the 1989 Stock Option and Incentive Plan for employees and directors of the Company and its subsidiaries. Under the plan, stock options or awards may be granted with respect to 1,232,496 shares of common stock.
In addition, the Board of Directors of the Company established the 1997 Stock Option and Incentive Plan for employees and directors of the Company and its subsidiaries. Under the plan, stock options or awards may be granted with respect to 800,000 shares of common stock.
Stock options may be either incentive stock options or nonqualified stock options, and the option price must be at least equal to the fair value of the Company's common stock on the date of grant. Options are granted for a 10-year term and become exercisable in four cumulative annual installments of 25% commencing two years from the date of grant. The Stock Option Committee may accelerate a participant's right to purchase shares under the plan.
Stock awards may be granted to key officers and employees upon terms and conditions determined solely at the discretion of the Stock Option Committee.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 18: STOCK OPTION PLAN (Continued)
The table below summarizes transactions under the Company's stock option plans:
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:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 18:STOCK OPTION PLAN (Continued)
The following table further summarizes information about stock options outstanding at December 31, 1999:
The Company applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for its stock options, and no compensation cost has been recognized for the Plan. Had compensation cost been determined based on the fair value at the grant dates using Statement of Financial Accounting Standards No. 123, the Company's net income would have decreased by approximately $284,000, $154,900, $103,000 and $112,900 and basic and diluted earnings per share earnings per share would have decreased by $.04, $.02, $.01 and $.01 for the years ended December 31, 1999, and June 30, 1998 and 1997, and the six months ended December 31, 1998, respectively. The effects of applying this Statement for either recognizing compensation cost or providing pro forma disclosures are not likely to be representative of the effects on reported net income for future years because options vest over several years and additional awards generally are made each year.
NOTE 19: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses and pending litigation are reflected in the footnotes regarding loans and contingent liabilities. Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on deposits and in the footnote on commitments and credit risk.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 20: REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if undertaken, could have a direct and material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I Capital (as defined) to adjusted tangible assets (as defined). Management believes, as of December 31, 1999, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Bank's regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based and core capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's category.
The Company's and the Bank's actual capital amounts and ratios are presented in the following table. No amount was deducted from capital for interest-rate risk.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 20: REGULATORY MATTERS (Continued)
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 20: REGULATORY MATTERS (Continued)
The Company and the Bank are subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 1999 and 1998, and June 30, 1998, the Company and the Bank exceeded their minimum capital requirements. The entities may not pay dividends which would reduce capital below the minimum requirements shown above.
NOTE 21: SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT
On September 30, 1996, federal legislation to recapitalize the Savings Association Insurance Fund (SAIF) was passed requiring savings institutions such as the Bank to pay a one-time assessment to the SAIF of 65.7 basis points, based on deposits as reported at March 31, 1995. The assessment totaled $2,500,000 and has been included in noninterest expense for the year ended June 30, 1997. This one-time assessment, net of income taxes, reduced consolidated net income for the year ended June 30, 1997, by approximately $1,525,000.
NOTE 22: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
Following is a summary of unaudited quarterly operating results for the years ended December 31, 1999, and June 30, 1998 and 1997, and the six months ended December 31, 1998:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 22: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS (Continued)
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 23: OPERATING SEGMENTS
The Company's banking operation is its only reportable segment. The banking operation segment is principally engaged in the business of originating residential and commercial real estate loans, commercial business loans and consumer loans and funding these loans through attracting deposits from the general public, originating brokered deposits and borrowing from the Federal Home Loan Bank and others. The operating results of this segment are regularly reviewed by management to make decisions about resource allocations and to assess performance.
The following table provides information about segment profits and segment assets and has been prepared using the same accounting policies as those described in the summary of significant accounting policies in Note 1. There are no material intersegment revenues. Thus, no reconciliations to amounts reported in the consolidated financial statements are necessary. Revenue from segments below the reportable segment threshold is attributable to four operating segments of the Company. These segments include an insurance agency, a travel agency, discount brokerage services and real estate appraisal services.
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 23: OPERATING SEGMENTS (Continued)
NOTE 24: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at December 31, 1999 and 1998, and June 30, 1998, and statements of income and cash flows for the years ended December 31, 1999, and June 30, 1998 and 1997, and for the six months ended December 31, 1998, for the parent company, Great Southern Bancorp, Inc., are as follows:
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 24: CONDENSED PARENT COMPANY STATEMENTS (Continued)
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 24: CONDENSED PARENT COMPANY STATEMENTS (Continued)
GREAT SOUTHERN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998, AND JUNE 30, 1998 AND 1997
NOTE 24: CONDENSED PARENT COMPANY STATEMENTS (Continued)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors of the Registrant
Directors Serving a Three-Year Term Expiring at the 2000 Annual Meeting
William K. Powell, age 78, was elected a Director of Great Southern in 1965 and Bancorp in 1989. Mr. Powell is President of Herrman Lumber Company in Springfield, Missouri, where he has served since 1947. Mr. Powell is also President of United Mill Works, Inc. and Herrman Realty Company in Springfield, Missouri, both of which were founded by him in 1951. None of these entities are affiliated with Bancorp.
Joseph W. Turner, age 35, joined Bancorp in 1995. He has been employed by Great Southern since 1991. He currently serves as President and General Counsel for Bancorp and Chief Executive Officer, President and General Counsel for Great Southern. Prior to joining Great Southern Mr. J. Turner was an attorney with the Kansas City, Missouri law firm of Stinson, Mag and Fizzell. Mr. J. Turner is the son of William V. Turner.
Director Serving a Three-Year Term Expiring at the 2001 Annual Meeting
William V. Turner, age 67, has served as the Chairman of the Board and Chief Executive Officer of Great Southern since 1974 and President of Great Southern from 1974 to 1997. Mr. W. Turner has served in similar capacities with Bancorp since incorporation in 1989. Mr. W. Turner has also served as Chairman of the Board and President of Great Southern Financial Corporation (an affiliate of Bancorp) since incorporation in 1974, Chairman of the Board and President of Appraisal Services, Inc. (an affiliate of Bancorp) since incorporation in 1976 and Chairman of the Board of Great Southern Capital Management, Inc. (an affiliate of Bancorp) since its formation in 1988. Mr. W. Turner is the father of Joseph W. Turner who is a director, and the President and General Counsel of Bancorp, and the Chief Executive Officer, President and General Counsel for Great Southern.
Directors Serving a Three-Year Term Expiring at the 2002 Annual Meeting
William E. Barclay, age 70 was first elected a Director of Great Southern in 1975 and of Bancorp in 1989. Mr. Barclay is the founder and has served as President and/or Chairman of the Board of Auto-Magic Full Service Car Washes in Springfield, Missouri since 1962. Mr. Barclay also founded Barclay Love Oil Company in Springfield, Missouri in 1964 and founded a chain of Ye Ole Buggy Bath Self-Service Car Washes in Springfield, Missouri in 1978 and opened a franchise of Jiffy Lube in Springfield, Missouri in 1987. None of these entities are affiliated with Bancorp.
Larry D. Frazier, age 62, was first elected a Director of Great Southern and of Bancorp in 1992. Mr. Frazier was elected a Director of Great Southern Financial Corporation (an affiliate of Bancorp) in 1976, where he served until his election as Director of Great Southern and Bancorp. Mr. Frazier is retired from White River Valley Electric Cooperative in Branson, Missouri where he served as President and Chief Executive Officer from 1975 to 1998. This entity is not affiliated with Bancorp.
(b) Executive Officers of the Registrant
Included under Part I of this Form 10-K.
(c) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires Bancorp's directors, certain of its officers and persons who own more than ten percent of the Common Stock, to file reports detailing their ownership and changes of ownership in the Common Stock with the SEC and to furnish Bancorp with copies of all such ownership reports. Based solely on Bancorp's review of the copies of such ownership reports furnished to Bancorp, and written representations relative to the filing of certain forms, Bancorp is aware of one late filing for Ann S. Turner for one transaction in December 1998 and one transaction in January 1999, one late filing for Joseph W. Turner for ten transactions from April 1997 to April 1999, one late filing for William V. Turner for one transaction in December 1998 and one transaction in January 1999, one late filing for Don M. Gibson for three transactions occurring in January 1999 to July 1999 and January 2000, and one late filing by Richard L. Wilson for three transactions in December 1999.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of the Chief Executive Officer and the other executive officers who served in such capacities during the Calendar Year 1999 with compensation of $100,000 or more.
OPTION GRANTS DURING CALENDAR YEAR 1999
The following table sets forth options to acquire shares of Bancorp's Common Stock which were granted to the executive officers named in the Summary Compensation Table during the Calendar Year 1999.
OPTION EXERCISES AND CALENDAR YEAR-END VALUES
The following table sets forth all stock options exercised by the named executives during Calendar Year 1999 and the number and value of unexercised options held by such executive officers at the calendar year-end.
EMPLOYMENT AGREEMENTS
William V. Turner, Don M. Gibson and Joseph W. Turner (the "Employees") have entered into employment agreements with Great Southern (the "Employment Agreements"). The Employment Agreements provide that Great Southern may terminate the employment of any of the Employees for "cause," as defined in the Employment Agreements, at any time. The Employment Agreements also provide that in the event Great Southern chooses to terminate the employment of any of the Employees for reasons other than for cause, or in the event any of the Employees resigns from Great Southern upon the failure of the Great Southern Board of Directors to reelect any of the Employees to his current office or upon a material lessening of his functions, duties or responsibilities, such employee would be entitled to the payments owed for the remaining term of the agreement. If the employment of any of the Employees is terminated in connection with or within 12 months of a "change in control" of Great Southern or Bancorp, each of the Employees would be entitled to (i) a lump sum payment equal to 299% of the employee's base amount of compensation as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and (ii) continued payment of his salary under the applicable Employment Agreement for the term of the agreement. If Messrs. W. Turner, Gibson and J. Turner had been entitled to the lump sum payments described in clause (i) of the preceding sentence as of December 31, 1999, such payments would have amounted to $1,277,283, $456,214 and $368,320, respectively. Mr. Gibson retired effective on February 15, 2000, and his employment agreement is no longer in effect.
BENEFITS
PENSION PLAN. Great Southern's employees are included in the Pentegra Retirement Fund, a multiple employer comprehensive pension plan. This noncontributory defined benefit retirement plan covers all employees who have met minimum service requirements.
The following table illustrates annual pension benefits payable upon retirement, subject to limits established by Federal law, based on various levels of compensation and years of service and assuming payment in the form of a straight-life annuity. Covered compensation includes all regular and overtime pay excluding bonuses and commissions. At December 31, 1999, Messrs. W. Turner, Gibson and J. Turner had 24, 23 and 7 years, respectively, of credited service under the pension plan. Since the pension plan is fully funded, there were no contributions during the year ended December 31, 1999 for Messrs. W. Turner, Gibson and J. Turner.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 17, 2000 as to those persons believed by management of Bancorp to be beneficial owners of more than five percent of Bancorp's outstanding shares of Common Stock. Persons, legal or natural, and groups beneficially owning in excess of five percent of Bancorp's Common Stock are required to file certain reports regarding such ownership with Bancorp and with the United States Securities and Exchange Commission (the "SEC") in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Where appropriate, historical information set forth below is based on the most recent Schedule 13D or 13G filed on behalf of such person with Bancorp. Other than those persons listed below, management is not aware of any person or group that owns more than five percent of Bancorp's Common Stock as of March 17, 2000. The holders have sole voting and dispositive power, unless otherwise noted.
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information as to shares of Common Stock beneficially owned by the directors and the executive officers named in the Summary Compensation Table above and the directors and all executive officers of Bancorp as a group. Each beneficial owner listed has sole voting and dispositive power with respect to the shares of Common Stock reported, except as otherwise indicated.
Amount and Nature-of Beneficial Name Ownership(1) Percent of Class - ---------------------------------------------------------------------------
William V. Turner 1,066,071(2) 14.51% William E. Barclay 55,596(3) .76 Larry D. Frazier 62,500 .86 William K. Powell 194,940 2.67 Albert F. Turner 45,262(4) .62 Don M. Gibson 301,314 4.13 Joseph W. Turner 58,290(5) .80 Directors and Executive Officers as a Group (9 persons) 1,887,649(6) 25.55 - ------------------
(1) Under Rule 13d-3 under the Exchange Act, share amounts shown for Bancorp's officers and directors include shares that they may acquire upon the exercise of options that are exercisable at Mach 17, 2000 or will become exercisable within 60 days of such date. The holders may disclaim beneficial ownership of the included shares that are owned by or with family members, trusts or other entities.
(2) For a detailed discussion of the nature of Mr. W. Turner's ownership, see Footnote 1 to the table of beneficial owners set out above.
(3) Mr. Barclay shares voting and dispositive power with his spouse with respect to all shares.
(4) Mr. Albert Turner shares voting and dispositive power with his spouse with respect to all shares.
(5) This figure includes 34,560 shares that may be acquired through option exercises.
(6) The figure includes 99,448 shares that may be acquired through option exercises by all directors and executive officers as a group.
GENERAL VOTING RULES. Each stockholder of the Common Stock is entitled to cast one vote for each share of Common Stock held on the Record Date on all matters including the election of directors except that any stockholder that beneficially owns in excess of 10 percent (the "Limit") of the then outstanding shares of Common Stock is not entitled to vote shares in excess of the Limit.
In order for any proposals to be approved by Bancorp's stockholders, the holders of a majority of the shares of Bancorp Common Stock entitled to vote must constitute a quorum by being present at the meeting, either in person or through a proxy, regardless of whether such stockholders vote their shares. However, shares in excess of the Limit are not considered present for purposes of determining a quorum. With respect to proposals other than the election of directors, a majority of shares voted must be for approval. The directors must be elected by a plurality of the shares voted.
In determining the percentage of shares that have been affirmatively voted for a particular proposal, the affirmative votes are measured against the votes for and against the proposal plus the abstentions from voting on the proposal. A stockholder may abstain from voting on any proposal other than the election of the directors, and shares for which the holders abstain from voting are not considered to be votes affirmatively cast. Thus, abstaining will have the effect of a vote against a proposal.
A director is elected by an affirmative vote of the plurality of the quorum of shares of Common Stock entitled to vote on the election of the director. With regard to the election of the director, votes may be cast in favor or withheld. Votes that are withheld will be excluded entirely from the vote and will have no effect.
SHARES HELD THROUGH A BROKER. Bancorp Common Stock is listed for trading on the Nasdaq Stock Market. Under the rules of the National Association of Securities Dealers (the "NASD"), member brokers who hold shares of Common Stock in the broker's name for customers are required to forward, along with certain other information, signed proxy cards to the customers for them to complete and send to Bancorp, and such brokers may only vote shares of Common Stock if the brokers are the beneficial owners or hold them in a fiduciary capacity with the power to vote. Notwithstanding the restrictions on voting of the NASD rules, if a NASD member broker is also a member of a national securities exchange, then the broker can vote the shares of Common Stock held for customers in accordance with the rules of that exchange. Under the rules of the New York Stock Exchange, Inc. ("NYSE"), for example, NYSE member brokers who have not
received direction on voting from their customers can vote shares of Common Stock held for a customer on certain routine matters (as specified by the NYSE).
When a broker does not vote shares held for customers, it is referred to as a "broker non-vote" (customer directed abstentions are directions to the broker and therefore do not cause broker non-votes). Broker non-votes generally do not affect the determination of whether a quorum is present at the Annual Meeting because typically some of the shares held in the broker's name have usually been voted on at least some proposals, and therefore, all of the shares held by the broker are considered present at the Annual Meeting. Under applicable Delaware law, a broker non-vote will have no effect on any proposal presented at the Annual Meeting, including the election of directors.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Great Southern, like many financial institutions, has from time to time extended loans to its officers, directors and employees, generally for the financing of their personal residences, at favorable interest rates. Generally, residential loans have been granted at interest rates 1% above Great Southern's cost of funds, subject to annual adjustments. Other than the interest rate, these loans have been made in the ordinary course of business, on substantially the same terms and collateral as those of comparable transactions prevailing at the time, and, in the opinion of management, do not involve more than the normal risk of collectibility or present other unfavorable features. All loans by Great Southern to its directors and executive officers are subject to regulations restricting loans and other transactions with affiliated persons of Great Southern. Great Southern may also grant loans to officers, directors and employees, their related interest and their immediate family members in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those rates prevailing at the time for comparable transactions with other persons which, in the opinion of management, did not involve more than the normal risk of collectibility or present other unfavorable features.
No directors, executive officers or their affiliates, had aggregate indebtedness to Great Southern on such below market rate loans exceeding $60,000 at any time since January 1, 1999 except as noted below.
PART IV
ITEM 14.
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.
(3) List of Exhibits
Exhibits incorporated by reference below are incorporated by reference pursuant to Rule 12b-32.
(2) Plan of acquisition, reorganization, arrangement, liquidation, or succession
Inapplicable.
(3) Articles of incorporation and Bylaws
(i) The Registrant's Certificate of Incorporation previously filed with the Commission (File no. 33- 30597) as Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 dated August 18,1989, is incorporated herein by reference as Exhibit 3.1.
(ii) The Registrant's Certificate of Amendment of Certificate of Incorporation previously field with the Commission as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, is incorporated herein by reference as Exhibit 3.2.
(iii) The Registrant's Bylaws, as amended, previously filed with the Commission (File no. 33-30597) as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for fiscal year ended June 30, 1990, is incorporated herein by reference as Exhibit 3.3.
(4) Instruments defining the rights of security holders, including indentures
Inapplicable.
(9) Voting trust agreement
Inapplicable.
(10) Material contracts
The Registrant's 1989 Stock Option and Incentive Plan previously filed with the Commission (File no. 33- 30597) as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, is incorporated herein by reference as Exhibit 10.1.
An Employment Agreement dated February 1, 1990 between the Registrant and William V. Turner previously filed with the Commission (File no. 33-30597) as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 dated August 18, 1989, is incorporated herein by reference as Exhibit 10.2.
An Employment Agreement dated February 1, 1990 between the Registrant and Don M. Gibson previously filed with the Commission (File no. 33-30597) as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 dated August 18, 1989, is incorporated herein by reference as Exhibit 10.3.
An Employment Agreement dated July 1, 1993 between the Registrant and Joseph W. Turner previously filed with the Commission (File no. 33-30597) as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, is incorporated herein by reference as Exhibit 10.4.
The Registrant's 1997 Stock Option and Incentive Plan previously filed with the Commission (File no. 33-30597) as Annex A to the Registrant's Definitive Proxy Statement for the fiscal year ended June 30, 1997, is incorporated herein by reference as Exhibit 10.5.
(11) Statement re computation of per share earnings
The Statement re computation of per share earnings is included in Note 1 of the Consolidated Financial Statements under Part II, Item 8 above.
(12) Statements re computation of ratios
Inapplicable.
(13) Annual report to security holders, Form 10-Q or quarterly report to security holders
Inapplicable.
(16) Letter re change in certifying accountant
Inapplicable.
(18) Letter re change in accounting principles
Inapplicable.
(21) Subsidiaries of the registrant
A listing of the Registrant's subsidiaries is attached hereto as Exhibit 21.
(22) Published report regarding matters submitted to vote of security holders
Inapplicable.
(23) Consents of experts and counsel
The consent of Baird, Kurtz & Dobson to the incorporation by reference into the Form S-8 previously filed on December 16, 1992 with the Commission (File no. 33-55832) of their report on the financial statements included in this Form 10-K, is attached hereto as Exhibit 23.
(24) Power of attorney
Inapplicable.
(27) Financial Data Schedule
Information is attached hereto as exhibit 27.
(28) Information from reports furnished to state insurance regulatory authorities
Inapplicable.
(99) Additional Exhibits
Inapplicable.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GREAT SOUTHERN BANCORP, INC. (Registrant)
Date: March 30, 2000 By: /s/ William V. Turner --------------------------------------- William V. Turner Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer)
POWER OF ATTORNEY
We, the undersigned officers and directors of Great Southern Bancorp, Inc., hereby severally and individually constitute and appoint William V. Turner and Rex A. Copeland, and each of them, the true and lawful attorneys and agents of each of us to execute in the name, place and stead of each of us (individually and in any capacity stated below) any and all amendments to this Annual Report on Form 10-K and all instruments necessary or advisable in connection therewith and to file the same with the Securities and Exchange Commission, each of said attorneys and agents to have the power to act with or without the others and to have full power and authority to do and perform in the name and on behalf of each of the undersigned every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any of the undersigned might or could do in person, and we hereby ratify and confirm our signatures as they may be signed by our said attorneys and agents or each of them to any and all such amendments and instruments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
GREAT SOUTHERN BANCORP, INC.
INDEX TO EXHIBITS
Exhibit No. Document - -------------------------------------------------------------------------------- 21 Subsidiaries of the Registrant
23 Consent of Baird, Kurtz & Dobson, Certified Public Accountants
27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only and not filed