-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GjTqjea7y6FpHWNjyaYCu4yO6IpngTE4PFaMiRh+78/bl1qZDZrhMPNr74NBMz8I qxbofjPJ96aeoNp9N6335A== 0001005477-01-002260.txt : 20010330 0001005477-01-002260.hdr.sgml : 20010330 ACCESSION NUMBER: 0001005477-01-002260 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT SOUTHERN BANCORP INC CENTRAL INDEX KEY: 0000854560 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 431524856 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-18082 FILM NUMBER: 1583046 BUSINESS ADDRESS: STREET 1: 1451 E BATTLEFIELD CITY: SPRINGFIELD STATE: MO ZIP: 65804 BUSINESS PHONE: 4178874400 MAIL ADDRESS: STREET 1: P O BOX 9009 STREET 2: P O BOX 9009 CITY: SPRINGFIELD STATE: MO ZIP: 65808-9009 10-K 1 0001.txt FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File Number 0-18082 GREAT SOUTHERN BANCORP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 43-1524856 - -------------------------------------------------------------------------------- (State of incorporation) (IRS Employer Identification Number) 1451 E. Battlefield, Springfield, Missouri 65804 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (417) 887-4400 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.01 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. / / The aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant on March 16, 2001, computed by reference to the closing price of such shares, was $101,054,590. At March 16, 2001, 6,895,927 shares of Common Stock, par value $.01 per share, were outstanding. TABLE OF CONTENTS Page PART I ITEM 1. BUSINESS 1 Great Southern Bancorp, Inc. 1 Great Southern Bank 1 Forward-Looking Statements 2 Primary Market Area 2 Lending Activities 3 Loan Portfolio Composition 5 Originations, Purchases, Sales and Servicing of Loans 11 Loan Delinquencies and Defaults 13 Classified Assets 14 Investment Activities 18 Sources of Funds 20 Subsidiaries 24 Competition 25 Employees 25 Government Supervision and Regulation 25 Federal and State Taxation 30 ITEM 2. PROPERTIES 31 ITEM 3. LEGAL PROCEEDINGS 33 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 33 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 33 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 35 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 36 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 39 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION 57 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 103 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 103 ITEM 11. EXECUTIVE COMPENSATION 105 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 108 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 109 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 110 SIGNATURES INDEX TO EXHIBITS PART I ITEM 1. BUSINESS THE COMPANY Great Southern Bancorp, Inc. Great Southern Bancorp, Inc. ("Bancorp" or "Company") is a financial holding company which, as of December 31, 2000, owned directly all of the stock of Great Southern Bank ("Great Southern" or the "Bank") and other non-banking subsidiaries. Bancorp was incorporated under the laws of the State of Delaware in July 1989 as a unitary savings and loan holding company. After receiving the approval of the Federal Reserve Bank of St. Louis (the "Federal Reserve" or "FRB"), the Company became a one-bank holding company on June 30, 1998, upon the conversion on June 30, 1998, of Great Southern to a Missouri-chartered trust company. As a Delaware corporation, the Company is authorized to engage in any activity that is permitted by the Delaware General Corporation Law and is not prohibited by law or regulatory policy. The Company currently conducts its business as a financial holding company. Through the financial holding company structure, it is possible to expand the size and scope of the financial services offered by the Company beyond those offered by the Bank. The financial holding company structure provides the Company with greater flexibility than the Bank would have to diversify its business activities, through existing or newly formed subsidiaries, or through acquisitions or mergers of other financial institutions as well as other companies. At December 31, 2000, Bancorp's consolidated assets were $1.13 billion, consolidated net loans were $891 million, consolidated deposits were $751 million and consolidated stockholders' equity was $71 million. The assets of the Company consist of the stock of Great Southern, the stock of other financial services companies, interests in a local trust company and a merchant banking company and cash. Through subsidiaries of the Bank, the Company offers insurance, appraisal, travel, discount brokerage and related services, which are discussed further below. The activities of the Company are funded by retained earnings and through dividends from Great Southern and borrowings from third parties. Activities of the Company may also be funded through sales of additional securities or through income generated by other activities of the Company. The Company expects to finance its future activities in a similar manner and is exploring several alternative public and/or private financings that would provide it with a significant increase in liquidity and capital to permit additional growth. The executive offices of the Company are located at 1451 East Battlefield, Springfield, Missouri 65804, and its telephone number at that address is (417) 887-4400. Great Southern Bank Great Southern was incorporated as a Missouri-chartered mutual savings and loan association in 1923, and, in 1989, was converted to a Missouri-chartered stock savings and loan association. In 1994, Great Southern changed to a federal savings bank charter and then, on June 30, 1998, changed to a Missouri-chartered trust company (the equivalent of a commercial bank charter). Headquartered in Springfield, Missouri, Great Southern offers a broad range of banking services through its 27 branches located in southwestern and central Missouri. At December 31, 2000, the Bank had total assets of $1.12 billion, deposits of $752 million and stockholders' equity of $80 million, or 7.1% of total assets. Its deposits 1 are insured by the Savings Association Insurance Fund ("SAIF") to the maximum levels permitted by the Federal Deposit Insurance Corporation ("FDIC"). Great Southern is principally engaged in the business of originating residential and commercial real estate loans, other commercial and consumer loans and funding these loans through attracting deposits from the general public, originating brokered deposits and borrowings from the Federal Home Loan Bank of Des Moines (the "FHLBank") and others. For many years, Great Southern has followed a strategy of emphasizing quality loan origination through residential, commercial and consumer lending activities in its local market area. The goal of this strategy has been to maintain its position as one of the leading providers of financial services in its market area, while simultaneously diversifying assets and reducing interest rate risk by originating and holding adjustable-rate loans in its portfolio and selling fixed-rate loans in the secondary market. The Bank continues to place primary emphasis on residential mortgage and other real estate lending while also expanding and increasing its originations of commercial business and consumer loans. The corporate office of the Bank is located at 1451 East Battlefield, Springfield, Missouri 65804 and its telephone number at that address is (417) 887-4400. Forward-Looking Statements When used in this Form 10-K and in future filings by the Company with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result" "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans and deposits in the Company's market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake-and specifically declines any obligation- to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Primary Market Area Great Southern's primary market area encompasses 15 counties in southwestern and central Missouri. The Bank's branches and ATMs support deposit and lending activities throughout the region, serving such diversified markets as Springfield, Joplin, the resort areas of Branson and Lake of the Ozarks, and various smaller communities in the Bank's market area. Management believes that the Bank's share of the deposit and lending markets in its market area is less than 10% and its affiliates have an even smaller percent, with the exception of the travel agency which may have a larger percent. 2 Great Southern's largest concentration of loans and deposits is in the Greater Springfield area. With a population of approximately 308,000, the Greater Springfield area is the third largest metropolitan area in Missouri. Employment in this area is diversified, including small and medium-sized manufacturing concerns, service industries, especially in the resort and leisure activities sectors, agriculture, the federal government, and a major state university. Springfield is also a regional health care center. The unemployment rate in this area is, and has consistently been, below the national average. The next largest concentration of loans is in the Branson area. The region is a vacation and entertainment center, attracting tourists to its theme parks, resorts, country music and novelty shows and other recreational facilities. As a result of the rapid growth of the Branson area in the early 1990's, property values increased at unusually high rates. This growth also provided for increased loan demand and a more volatile lending market than had previously been present in that area. Due to overbuilding of commercial properties during the mid-1990's, property values have experienced downward pressure during the past few years. Reduced demand for residential properties has similarly created downward pressure on one- to four-family and multi-family, primary and vacation residences in this area. A significant portion of the Bank's loan originations have been secured by properties in the two county region that includes the Branson area. Approximately $149 million, or 16%, of the total loan portfolio at December 31, 2000, was secured by commercial real estate, commercial construction, other residential properties, one- to four-family residential properties, and one- to four-family construction properties, and consumer loans in the Branson area. Residential mortgages account for approximately $67 million of this total. Lending Activities General From its beginnings in 1923 through the early 1980s, Great Southern primarily made long-term, fixed-rate residential real estate loans that it retained in its loan portfolio. Beginning in the early 1980s, Great Southern increased its efforts to originate short-term and adjustable-rate loans. Substantially all of the adjustable-rate mortgage loans originated by Great Southern are held for its own portfolio and substantially all of the long-term fixed-rate residential mortgage loans originated by Great Southern are sold immediately in the secondary market. Beginning in the mid-1990s, Great Southern increased its efforts to originate commercial real estate and other residential loans, primarily with adjustable rates or shorter-term fixed rates. In recent years, some competitor banking organizations have merged with larger institutions and changed their business practices or moved operations away from the local area, and others have consolidated operations from the local area to larger cities. This has provided Great Southern expanded opportunity in these areas as well as in the origination of commercial business and consumer loans, primarily the indirect automobile area. In addition to origination of these loans, the Bank has expanded and enlarged its relationships with smaller banks to purchase participations (at par, with no servicing costs) in loans the smaller banks originate but are unable to retain in their portfolios due to capital limitations. The Bank uses the same underwriting guidelines in evaluating these participations as it does in its direct loan originations. At December 31, 2000, the balance of participation loans purchased was $43.2 million, or 4.5% of the total loan portfolio. None of these participation loans were non-performing loans at December 31, 2000. One of the principal historical lending activities of Great Southern is the origination of fixed and adjustable-rate conventional residential real estate loans to enable borrowers to purchase or refinance owner-occupied homes. Great Southern originates a variety of conventional, residential real estate mortgage loans, principally in compliance with Freddie Mac and Fannie Mae standards for resale in the secondary market. Great Southern promptly sells most of the fixed-rate residential mortgage loans that it originates. 3 Depending on market conditions, the ongoing servicing of these loans is at times retained by Great Southern and at other times released to the purchaser of the loan. Great Southern retains substantially all of the adjustable-rate mortgage loans in its portfolio. Another principal lending activity of Great Southern, which has become more prevalent in recent years, is the origination of commercial real estate and construction loans. Since the early 1990s, this area of lending has been an increasing percentage of the loan portfolio and accounts for approximately 42% of the portfolio at December 31, 2000. In addition, Great Southern in recent years has increased its emphasis on the origination of other commercial loans, home equity loans, consumer loans and student loans, and is also an issuer of letters of credit. See "-- Other Commercial Lending," "- Classified Assets," and "Loan Delinquencies and Defaults" below. Letters of credit are contingent obligations and are not included in the Bank's loan portfolio. Great Southern has a policy of obtaining collateral for substantially all real estate loans. The percentage of collateral value Great Southern will loan on real estate and other property varies based on factors including, but not limited to, the type of property and its location and the borrower's credit history. As a general rule, Great Southern will loan up to 80% of the appraised value on one- to four-family residential property and will loan up to an additional 15% with private mortgage insurance for the loan amount above the 80% level. For commercial real estate and other residential real property loans, Great Southern generally loans up to a maximum of 80% of the appraised value. The origination of loans secured by other property is considered and determined on an individual basis by management with the assistance of any industry guides and other information which may be available. Loan applications are approved at various levels of authority, depending on the type, amount and loan-to-value ratio of the loan. Loan commitments of more than $500,000 ($350,000 in the case of fixed-rate one-to four-family residential loans for resale) must be approved by Great Southern's loan committee. The loan committee is comprised of the Chairman of the Bank, as chairman of the committee, and other senior officers of the Bank involved in lending activities. Although Great Southern is permitted under applicable regulations to originate or purchase loans and loan participations secured by real estate located in any part of the United States, the Bank has concentrated its lending efforts in Missouri and Northern Arkansas, with the largest concentration of its lending activity being in southwestern and central Missouri. In addition, the Bank has made some loans, secured primarily by commercial real estate, in other states, primarily Oklahoma, Kansas and Iowa. 4 Loan Portfolio Composition The following table sets forth information concerning the composition of the Bank's loan portfolio in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowance for loan losses) as of the dates indicated. The table is based on information prepared in accordance with generally accepted accounting principles and is qualified by reference to financial statements and the notes thereto.
December 31, ---------------------------------------------------------------------------------- 2000 1999 1998 ----------------------- ---------------------- ------------------------- Amount % Amount % Amount % ---------- --------- --------- --------- --------- --------- (Dollars in thousands) Real Estate Loans: Residential One- to four- family $226,136 23.6% $208,466 25.3% $217,120 29.2% Other residential 81,143 8.5 76,926 9.4 85,828 11.5 Commercial 328,432 34.3 251,338 30.5 261,201 35.1 Residential Construction: One- to four-family 47,241 4.9 39,795 4.8 33,292 4.4 Other residential 23,703 2.5 7,106 .9 6,553 .9 Commercial construction 73,398 7.7 63,722 7.8 19,952 2.7 -------- ----- -------- ----- -------- ----- Total real estate loans 780,053 81.5 647,353 78.7 623,946 83.8 -------- ----- -------- ----- -------- ----- Other Loans: Consumer loans: Guaranteed student loans 3,892 .5 4,067 .5 15,931 2.1 Automobile 67,356 7.0 55,625 6.8 37,152 5.0 Home equity and improvement 19,460 2.0 14,431 1.8 9,292 1.3 Other 491 .1 255 -- 992 .1 -------- ----- -------- ----- -------- ----- Total Consumer loans 91,199 9.6 74,378 9.1 63,367 8.5 Other commercial loans 85,334 8.9 100,419 12.2 57,179 7.7 -------- ----- -------- ----- -------- ----- Total other loans 176,533 18.5 174,797 21.3 120,546 16.2 -------- ----- -------- ----- -------- ----- Total loans 956,586 100.0% 822,150 100.0% 744,492 100.0% ===== ===== ===== Less: Loans in process 45,834 36,048 28,823 Deferred fees and discounts 1,274 2,002 1,779 Allowance for loan losses 18,694 17,293 16,928 -------- -------- -------- Total loans receivable, net $890,784 $766,807 $696,962 ======== ======== ======== June 30, ------------------------------------------------ 1998 1997 ---------------------- ---------------------- Amount % Amount % ---------- -------- --------- --------- (Dollars in thousands) Real Estate Loans: Residential $217,688 31.0% $243,006 39.2% One- to four-family 89,141 12.7 95,886 15.5 Other residential 244,016 34.8 191,556 30.9 Commercial Residential Construction: One- to four-family 16,032 2.3 9,529 1.5 Other residential 5,993 .9 4,243 .7 Commercial construction 27,156 3.9 21,932 3.5 -------- ----- -------- ----- Total real estate loans 600,026 85.6 566,152 91.3 -------- ----- -------- ----- Other Loans: Consumer loans: Guaranteed student loans 12,736 1.8 11,592 1.9 Automobile 23,120 3.3 6,006 1.0 Home equity and improvement 5,849 .8 4,183 .7 Other 4,862 .7 5,885 .9 -------- ----- -------- ----- Total Consumer loans 46,567 6.6 27,666 4.5 Other commercial loans 54,722 7.8 25,959 4.2 -------- ----- -------- ----- Total other loans 101,290 14.4 53,625 8.7 -------- ----- -------- ----- Total loans 701,316 100.0% 619,777 100.0% ===== ===== Less: Loans in process 28,497 18,812 Deferred fees and discounts 2,774 3,493 Allowance for loan losses 16,373 15,524 -------- -------- Total loans receivable, net $653,672 $581,948 ======== ========
5 The following table shows the fixed- and adjustable-rate composition of the Bank's loan portfolio at the dates indicated. The table is based on information prepared in accordance with generally accepted accounting principles.
December 31, -------------------------------------------------------------------------------- 2000 1999 1998 ----------------------- ---------------------- ---------------------- Amount % Amount % Amount % ---------- --------- --------- --------- --------- ------ (Dollars in Thousands) Fixed-Rate Loans: Real Estate Loans Residential One- to four-family $ 6,414 .7% $ 5,960 .7% $ 11,659 1.6% Other Residential 38,345 4.0 37,079 4.5 39,661 5.3 Residential construction: One- to four-family 1,130 .1 -- -- -- -- Commercial 40,102 4.2 37,636 4.6 60,757 8.2 -------- ----- -------- ----- -------- ----- Total real estate loans 85,991 9.0 80,675 9.8 112,077 15.1 Consumer loans 66,751 7.0 54,829 6.7 37,080 5.0 Other commercial loans 10,526 1.1 4,266 .5 11,956 1.6 -------- ----- -------- ----- -------- ----- Total fixed-rate loans 163,268 17.1 139,770 17.0 161,113 21.7 -------- ----- -------- ----- -------- ----- Adjustable-Rate Loans: Real Estate Loans Residential One- to four-family 219,722 23.0 202,506 24.6 205,461 27.6 Other Residential 42,798 4.5 39,847 4.9 46,167 6.2 Commercial 288,330 30.1 213,702 26.0 200,444 26.9 Residential construction: One- to four-family 46,111 4.8 39,795 4.8 33,292 4.4 Other residential 23,703 2.5 7,106 .9 6,553 .9 Commercial construction 73,398 7.7 63,722 7.7 19,952 2.7 -------- ----- -------- ----- -------- ----- Total real estate loans 694,062 72.6 566,678 68.9 511,869 68.7 Consumer loans 24,448 2.5 19,549 2.4 26,287 3.5 Other commercial loans 74,808 7.8 96,153 11.7 45,223 6.1 -------- ----- -------- ----- -------- ----- Total adjustable-rate loans 793,318 82.9 682,380 83.0 583,339 78.3 -------- ----- -------- ----- -------- ----- Total loans 956,586 100.0% 822,150 100.0% 744,492 100.0% ===== ===== ===== Less: Loans in process 45,834 36,048 28,823 Deferred fees and discounts 1,274 2,002 1,779 Allowance for loan losses 18,694 17,293 16,928 -------- -------- -------- Total loans receivable, net $890,784 $766,807 $696,962 ======== ======== ======== June 30, ------------------------------------------------ 1998 1997 ---------------------- ---------------------- Amount % Amount % ---------- -------- --------- --------- (Dollars in Thousands) Fixed-Rate Loans: Real Estate Loans $11,245 1.6% $10,544 1.7% Residential 34,757 5.0 34,467 5.6 One- to four-family Other Residential Residential construction: One- to four-family -- -- -- -- Commercial 28,004 4.0 5,865 1.0 ------- ----- ------- ----- Total real estate loans 74,006 10.6 50,876 8.3 Consumer loans 27,319 3.9 10,769 1.7 Other commercial loans 1,645 .2 502 .1 ------- ----- ------- ----- Total fixed-rate loans 102,970 14.7 62,147 10.1 ------- ----- ------- ----- Adjustable-Rate Loans: Real Estate Loans Residential One- to four-family 206,443 29.4 232,462 37.5 Other Residential 54,384 7.8 61,419 9.9 Commercial 216,013 30.8 185,691 30.0 Residential construction: One- to four-family 16,032 2.3 9,529 1.5 Other residential 5,993 .9 4,243 .7 Commercial construction 27,156 3.9 21,932 3.5 ------- ----- ------- ----- Total real estate loans 526,021 75.1 515,276 83.1 Consumer loans 19,248 2.7 16,897 2.7 Other commercial loans 53,077 7.5 25,457 4.1 ------- ----- ------- ----- Total adjustable-rate loans 598,346 85.3 557,630 89.9 ------- ----- ------- ----- Total loans 701,316 100.0% 619,777 100.0% ===== ===== Less: Loans in process 28,497 18,812 Deferred fees and discounts 2,774 3,493 Allowance for loan losses 16,373 15,524 -------- -------- Total loans receivable, net $653,672 $581,948 ======== ========
6 Environmental Issues Loans secured with real property, whether commercial, residential or other, may have a material, negative effect on the financial position and results of operations of the lender if the collateral is environmentally contaminated. The result can be, but is not necessarily limited to, liability for the cost of cleaning up the contamination imposed on the lender by certain federal and state laws, a reduction in the borrower's ability to pay because of the liability imposed upon it for any clean up costs, a reduction in the value of the collateral because of the presence of contamination or a subordination of security interests in the collateral to a super priority lien securing the clean up costs by certain state laws. Management of the Bank is aware of the risk that the Bank may be negatively affected by environmentally contaminated collateral and attempts to control such risk through commercially reasonable methods, consistent with guidelines arising from applicable government or regulatory rules and regulations, and to a more limited extent publications of the lending industry. Management currently is unaware (without, in many circumstances, specific inquiry or investigation of existing collateral, some of which was accepted as collateral before risk controlling measures were implemented) of any environmental contamination of real property securing loans in the Bank's portfolio that would subject the Bank to any material risk. No assurance can be made, however, that the Bank will not be adversely affected by environmental contamination. Residential Real Estate Lending At December 31, 2000 and 1999, loans secured by residential real estate totaled $307 million and $285 million, respectively, and represented approximately 32.1% and 34.7%, respectively, of the Bank's total loan portfolio. Compared to historical levels, market rates for fixed rate mortgages were high during the year ended December 31, 2000 and were low during the early portion of the year ended December 31, 1999. This caused a higher than normal level of refinancing of adjustable-rate loans into fixed-rate loans during 1999, most of which were sold in the secondary market, and accounted for a decline in the Bank's residential real estate loan portfolio during 1999. The rising interest rate environment in 2000 had the opposite effect, causing the generation of more adjustable-rate loans, which the Bank generally retains in its portfolio. The Bank currently is originating adjustable-rate residential mortgage loans primarily with one-year adjustment periods. Rate adjustments are based upon changes in prevailing rates for one-year U.S. Treasury securities, and are generally limited to 2% maximum annual adjustments as well as a maximum aggregate adjustment over the life of the loan. Accordingly, the interest rates on these loans typically may not be as rate sensitive as is the Bank's cost of funds. Generally, the Bank's adjustable-rate mortgage loans are not convertible into fixed-rate loans, do not permit negative amortization of principal and carry no prepayment penalty. The Bank's portfolio of adjustable-rate mortgage loans also includes a number of loans with different adjustment periods, without limitations on periodic rate increases and rate increases over the life of the loans, or which are tied to other short-term market indices. These loans were originated prior to the industry standardization of adjustable-rate loans. Since adjustable-rate mortgage loans have not been subject to an interest rate environment which causes them to adjust to the maximum, these loans entail unquantifiable risks resulting from potential increased payment obligations on the borrower as a result of upward repricing. Further, the adjustable-rate mortgages offered by Great Southern, as well as by many other financial institutions, sometimes provide for initial rates of interest below the rates which would prevail were the index used for pricing applied initially. Compared to fixed-rate mortgage loans, these loans are subject to increased risk of delinquency or default as the higher, fully-indexed rate of interest subsequently comes into effect in replacement of the lower initial rate. The Bank has not experienced a significant increase in 7 delinquencies in adjustable-rate mortgage loans due to a relatively low interest rate environment in recent years. In underwriting one- to four-family residential real estate loans, Great Southern evaluates the borrower's ability to make monthly payments and the value of the property securing the loan. It is the policy of Great Southern that generally all loans in excess of 80% of the appraised value of the property be insured by a private mortgage insurance company approved by Great Southern for the amount of the loan in excess of 80% of the appraised value. In addition, Great Southern requires borrowers to obtain title and fire and casualty insurance in an amount not less than the amount of the loan. Real estate loans originated by the Bank generally contain a "due on sale" clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the property securing the loan. In the case of fixed-rate loans, the Bank may enforce these due on sale clauses to the extent permitted by law. Commercial Real Estate and Construction Lending Commercial real estate lending has traditionally been a part of Great Southern's business activities. Since fiscal 1986, Great Southern has expanded its commercial real estate lending in order to increase the yield on, and the proportion of interest rate sensitive loans in, its portfolio. Great Southern expects to continue to maintain or increase the current percentage of commercial real estate loans in its total loan portfolio by originating loans secured by commercial real estate, subject to commercial real estate and other market conditions and to applicable regulatory restrictions. See "Government Supervision and Regulation" below. At December 31, 2000 and 1999, loans secured by commercial real estate totaled $328 million and $251 million, respectively, or approximately 34.3% and 30.5%, respectively, of the Bank's total loan portfolio. In addition, at December 31, 2000 and 1999, construction loans secured by projects under construction and the land on which the projects are located aggregated $144 million and $111 million, respectively, or 15.1% and 13.5%, respectively, of the Bank's total loan portfolio. The majority of the Bank's commercial real estate loans have been originated with adjustable rates of interest, most of which are tied to the Bank's prime rate. Substantially all of these loans were originated with loan commitments which did not exceed 80% of the appraised value of the properties securing the loans. The Bank's construction loans generally have terms of one year or less. The construction loan agreements for one- to four-family projects generally provide that principal payments are required as individual condominium units or single-family houses are built and sold to a third party. This insures the remaining loan balance, as a proportion to the value of the remaining security, does not increase. Loan proceeds are disbursed in increments as construction progresses. Generally, the amount of each disbursement is based on the construction cost estimate of an independent architect, engineer or qualified fee inspector who inspects the project in connection with each disbursement request. Normally, Great Southern's commercial real estate and other residential construction loans are made either as the initial stage of a combination loan (i.e., with a commitment from the Bank to provide permanent financing upon completion of the project) or with a commitment from a third party to provide permanent financing. The Bank's commercial real estate and construction loan portfolio consists of loans with diverse collateral types. The following table sets forth loans that are secured by certain types of collateral. These collateral types represent the three highest percentage concentrations of commercial real estate and construction loan types to the total loan portfolio. 8
Loan to Value Percentage of Ratio Based on Non-performing Total Loan Internal Loans at Collateral Type Loan Balance Portfolio Calculations December 31, 2000 - ----------------------------- ------------- --------- ------------ ----------------- (Dollars in thousands) Motels $97,776 10.2% 57% $ 767 Health Care Facilities $51,750 5.4% 57% $ -- Recreational Facilities $35,362 3.7% 52% $2,362
The Bank's commercial real estate and construction loans generally involve larger principal balances than do its residential loans. In general, state banking laws restrict loans to a single borrower to no more than 25% of a bank's unimpaired capital and unimpaired surplus, plus an additional 10% if the loan is collateralized by certain readily marketable collateral. (Real estate is not included in the definition of "readily marketable collateral.") As computed on the basis of the Bank's unimpaired capital and surplus at December 31, 2000, this limit was approximately $24.5 million. See "Government Supervision and Regulation." At December 31, 2000 the Bank was in compliance with the loans-to-one borrower limit. At December 31, 2000, the Bank's largest relationship totaled $17.7 million. All loans included in this relationship were current at December 31, 2000. Commercial real estate and construction lending generally affords the Bank an opportunity to receive interest at rates higher than those obtainable from residential lending and to receive higher origination and other loan fees. In addition, commercial real estate and construction loans are generally made with adjustable rates of interest or, if made on a fixed-rate basis, for relatively short terms. Nevertheless, commercial real estate lending entails significant additional risks as compared with residential mortgage lending. Commercial real estate loans typically involve large loan balances to single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by commercial properties is typically dependent on the successful operation of the related real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or in the economy generally. Construction loans also involve additional risks attributable to the fact that loan funds are advanced upon the security of the project under construction, which is of uncertain value prior to the completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, delays arising from labor problems, material shortages, and other unpredictable contingencies, it is relatively difficult to evaluate accurately the total loan funds required to complete a project, and the related loan-to-value ratios. See also the discussion under the headings "- Classified Assets" and "- Loan Delinquencies and Defaults" below. Other Commercial Lending At December 31, 2000 and 1999, respectively, Great Southern had $85.3 million and $100.4 million in other commercial loans outstanding, or 8.9% and 12.2%, respectively, of the Bank's total loan portfolio. Great Southern's other commercial lending activities encompass loans with a variety of purposes and security, including loans to finance accounts receivable, inventory and equipment. Great Southern expects to continue to maintain or increase the current percentage of other commercial loans in its total loan portfolio by originating loans, subject to market conditions and applicable regulatory restrictions. See "Government Supervision and Regulation" below. Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, other commercial loans are of higher risk and typically 9 are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. Commercial loans are generally secured by business assets, such as accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of other commercial loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. The Bank's management recognizes the generally increased risks associated with other commercial lending. Great Southern's commercial lending policy emphasizes complete credit file documentation and analysis of the borrower's character, capacity to repay the loan, the adequacy of the borrower's capital and collateral as well as an evaluation of the industry conditions affecting the borrower. Analysis of the borrower's past, present and future cash flows is also an important aspect of Great Southern's credit analysis. In addition, the Bank generally obtains personal guarantees from the borrowers on these types of loans. The majority of Great Southern's commercial loans have been to borrowers in southwestern and central Missouri. Great Southern intends to continue its commercial lending in this geographic area. As part of its commercial lending activities, Great Southern issues letters of credit and receives fees averaging approximately 1% of the amount of the letter of credit per year. At December 31, 2000, Great Southern had 78 letters of credit outstanding in the aggregate amount of $12.4 million. Approximately 88% of the aggregate amount of these letters of credit were secured, including one $7.8 million letter of credit, secured by real estate, which was issued to enhance the issuance of housing revenue refunding bonds. Consumer Lending Great Southern management views consumer lending as an important component of its business strategy. Specifically, consumer loans generally have short terms to maturity, adjustable rates or both, thus reducing Great Southern's exposure to changes in interest rates, and carry higher rates of interest than do residential mortgage loans. In addition, Great Southern believes that the offering of consumer loan products helps to expand and create stronger ties to its existing customer base. Great Southern offers a variety of secured consumer loans, including automobile loans, home equity loans and loans secured by savings deposits. In addition, Great Southern also offers home improvement loans, guaranteed student loans and unsecured consumer loans. Consumer loans totaled $91.2 million and $74.4 million at December 31, 2000 and 1999, respectively, or 9.6% and 9.1%, respectively, of the Bank's total loan portfolio. The underwriting standards employed by the Bank for consumer loans include a determination of the applicant's payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is of primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. Beginning in fiscal year June 30, 1998, the Bank implemented indirect lending relationships, primarily with automobile dealerships. Through these dealer relationships, the dealer completes the application with the consumer and then submits it to the Bank for credit approval. At December 31, 2000, the Bank had $53.9 million of indirect auto loans in its portfolio. While the Bank's initial concentrated effort has been on automobiles, the program is available for use with most tangible products where financing of the product is provided through the seller. 10 Student loans are underwritten in compliance with the regulations of the US Department of Education for the Federal Family Education Loan Programs ("FFELP"). The FFELP loans are administered and guaranteed by the Missouri Coordinating Board for Higher Education as long as the Bank complies with the regulations. The Bank has contracted with the Missouri Higher Education Loan Authority (the "MOHELA") to originate and service these loans and to purchase these loans during the grace period immediately prior to the loans beginning their repayment period. This repayment period is generally at the time the student graduates or does not maintain the required hours of enrollment. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower's continuing financial strength, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state consumer bankruptcy and insolvency laws, may limit the amount which can be recovered on these loans. These loans may also give rise to claims and defenses by a consumer loan borrower against an assignee of these loan such as the Bank, and a borrower may be able to assert against the assignee claims and defenses which it has against the seller of the underlying collateral. Originations, Purchases, Sales and Servicing of Loans The Bank originates loans through internal loan production personnel located in the Bank's main and branch offices. Walk-in customers and referrals from real estate brokers and builders are also important sources of loan originations. Management does not expect the high level of originations experienced during the past five years to continue. However, as long as the lower interest rate environment continues, there is a higher level of financing and refinancing expected than would exist in a higher rate environment. Great Southern may also purchase whole real estate loans and participation interests in real estate loans from private investors, such as other banks, thrift institutions and life insurance companies. This may limit Great Southern's ability to control its credit risk when it purchases participations in these loans. For instance, the terms of participation agreements vary; however, generally Great Southern may not have direct access to the borrower or information about the borrower, and the institution administering the loan may have some discretion in the administration of performing loans and the collection of non-performing loans. A number of banks, both locally and regionally, do not have the capital to handle large commercial credits. In order to take advantage of this situation, beginning in fiscal June 30, 1998, Great Southern increased the number and amount of participations purchased in commercial real estate and commercial business loans. Great Southern subjects these loans to the normal underwriting standards used for originated loans and rejects any credits that do not meet those guidelines. The originating bank retains the servicing of these loans. The Bank purchased $13.9 million of these loans in the fiscal year ended December 31, 2000 and $3.1 million in the fiscal year ended December 31, 1999. Of the total $43.2 million of purchased participation loans outstanding at December 31, 2000, $31.0 million was purchased from one other institution, all of which was secured by property located in northern Arkansas. None of these loans were non-performing at December 31, 2000. 11 There have been no whole loan purchases by the Bank in the last five years. At December 31, 2000 and 1999, approximately $5.0 million, or .5% and $7.0 million, or .9%, respectively, of the Bank's total loan portfolio consisted of purchased whole loans. Great Southern also sells whole real estate loans and participation interests in real estate loans to Freddie Mac as well as private investors, such as other banks, thrift institutions and life insurance companies. These loans and loan participations are generally sold without recourse and for cash in amounts equal to the unpaid principal amount of the loans or loan participations determined using present value yields to the buyer. The sale amounts generally produce gains to the Bank and allow a margin for servicing income on loans when the servicing is retained by the Bank. However, loan participations sold in recent years have primarily been with Great Southern releasing control of the servicing of the loan. The Bank sold one- to four-family whole real estate loans and loan participations in aggregate amounts of $34.9 million, $32.2 million, $26.1 million and $72.6 million during the fiscal years 2000 and 1999, the short fiscal year ended December 31, 1998 and the fiscal year ended June 30, 1998, respectively. Sales of whole real estate loans and participations in real estate loans can be beneficial to the Bank since these sales generally generate income at the time of sale, produce future servicing income on loans where servicing is retained, provide funds for additional lending and other investments, and increase liquidity. Great Southern also sells guaranteed student loans to the MOHELA at the time the borrower is scheduled to begin making repayments on the loans. These loans are generally sold with limited recourse and for cash in amounts equal to the unpaid principal amount of the loans and a premium based on average borrower indebtedness. The premium is based on a sliding scale with a higher premium paid for a larger average borrower indebtedness and a lower premium paid for a smaller average borrower indebtedness. The Bank sold guaranteed student loans in aggregate amounts of $12.4 million, $20.8 million, $3.1 million and $9.7 million during 2000 and 1999, the short fiscal year ended December 31, 1998 and the fiscal year ended June 30, 1998, respectively. Sales of guaranteed student loans generally can be beneficial to the Bank since these sales remove the burdensome servicing requirements of these types of loans once the borrower begins repayment. Gains, losses and transfer fees on sales of loans and loan participations are recognized at the time of the sale. When real estate loans and loan participations sold have an average contractual interest rate that differs from the agreed upon yield to the purchaser (less the agreed upon servicing fee), resulting gains or losses are recognized in an amount equal to the present value of the differential over the estimated remaining life of the loans. Any resulting discount or premium is accreted or amortized over the same estimated life using a method approximating the level yield interest method. When real estate loans and loan participations are sold with servicing released, as the Bank primarily does, an additional fee is received for the servicing rights. Net gains and transfer fees on sales of loans for 2000 and 1999, the short fiscal year ended December 31, 1998 and fiscal year ended June 30, 1998 were $570,000, $1,098,000, $386,000 and $1,125,000, respectively. Of these amounts, $103,000, $268,000, $31,000 and $125,000, respectively, were gains from the sale of guaranteed student loans and $467,000, $830,000, $355,000 and $1,000,000, respectively, were gains from the sale of fixed-rate residential loans. Although most loans currently sold by the Bank are sold with servicing released, the Bank had the servicing rights for approximately $48 million and $56 million at December 31, 2000 and 1999, respectively, of loans owned by others. The servicing of these loans generated net servicing fees to the Bank for the years ended December 31, 2000 and 1999, of $180,000 and $181,000, respectively. 12 In addition to interest earned on loans and loan origination fees, the Bank receives fees for loan commitments, letters of credit, prepayments, modifications, late payments, transfers of loans due to changes of property ownership and other miscellaneous services. The fees vary from time to time, generally depending on the supply of funds and other competitive conditions in the market. Fees from prepayments, commitments, letters of credit and late payments totaled $610,000, $961,000, $301,000 and $502,000 for the years ended December 31, 2000 and 1999, the short year ended December 31, 1998 and the fiscal year ended June 30, 1998, respectively. Loan origination fees, net of related costs, are accounted for in accordance with Statement of Financial Accounting Standards No. 91 "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases." Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized in interest income using the level-yield method over the contractual life of the loan. For further discussion of this issue see Note 1 of the Notes to Consolidated Financial Statements. Loan Delinquencies and Defaults When a borrower fails to make a required payment on a loan, the Bank attempts to cause the delinquency to be cured by contacting the borrower. In the case of loans secured by residential real estate, a late notice is sent 15 days after the due date. If the delinquency is not cured by the 30th day, a delinquent notice is sent to the borrower. Additional written contacts are made with the borrower 45 and 60 days after the due date. If the delinquency continues for a period of 65 days, the Bank usually institutes appropriate action to foreclose on the collateral. The actual time it takes to foreclose on the collateral varies depending on the particular circumstances and the applicable governing law. If foreclosed, the property is sold at public auction and may be purchased by the Bank. Delinquent consumer loans are handled in a generally similar manner, except that initial contacts are made when the payment is five days past due and appropriate action may be taken to collect any loan payment that is delinquent for more than 15 days. The Bank's procedures for repossession and sale of consumer collateral are subject to various requirements under the applicable consumer protection laws as well as other applicable laws and the determination by the Bank that it would be beneficial from a cost basis. Delinquent commercial business loans and loans secured by commercial real estate are initially handled by the loan officer in charge of the loan, who is responsible for contacting the borrower. The President and Senior Lending Officer also work with the commercial loan officers to see that necessary steps are taken to collect delinquent loans. In addition, the Bank has a Problem Loan Committee which meets at least monthly and reviews all classified assets, as well as other loans which management feels may present possible collection problems. If an acceptable workout of a delinquent commercial loan cannot be agreed upon, the Bank may initiate foreclosure proceedings on any collateral securing the loan. However, in all cases, whether a commercial or other loan, the prevailing circumstances may be such that management may determine it is in the best interest of the Bank not to foreclose on the collateral. 13 The following table sets forth our loans delinquent 30 - 89 days by type, number, amount and percentage of type at December 31, 2000.
Loans Delinquent for 30-89 Days ----------------------------------- Percent of Total Delinquent Number Amount Loans --------- -------- ----------- (Dollars in thousands) Real Estate: One- to four-family 20 $ 826 7% Other residential 1 1,036 9 Commercial 16 4,863 43 Construction or development 7 1,493 13 Consumer and overdrafts 616 1,890 17 Other commercial 11 1,211 11 --- ------- --- Total 671 $11,319 100% === ======= ===
Classified Assets Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered to be of lesser quality as "substandard," "doubtful" or "loss" assets. The regulations require insured institutions to classify their own assets and to establish prudent general allowances for losses from assets classified "substandard" or "doubtful." For the portion of assets classified as "loss," an institution is required to either establish specific allowances of 100% of the amount classified or charge such amount off its books. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess a potential weakness, are required to be designated "special mention" by management. In addition, a bank's regulators may require the establishment of a general allowance for losses based on assets classified as "substandard" and "doubtful" or based on the general quality of the asset portfolio of the bank. Following are the total classified assets per the Bank's internal asset classification list. There were no significant off- balance sheet items classified at December 31, 2000.
Total Allowance for Asset Category Substandard Doubtful Loss Classified Losses - ------------------------------ ----------- ------------ -------- ---------- ------------- (Dollars in thousands) Loans $19,268 $77 $ -- $19,345 $18,694 Foreclosed assets 2,688 -- -- 2,688 -- ------- --- ---- ------- ------- Total $21,956 $77 $ -- $22,033 $18,694 ======= === ==== ======= =======
The table below sets forth the amounts and categories of gross non-performing assets (classified loans which are not performing under regulatory guidelines and all foreclosed assets, including assets acquired in settlement of loans) in the Bank's loan portfolio at the times indicated. Loans generally are placed on non-accrual status when the loan becomes 90 days delinquent or when the collection of principal, interest, or both, otherwise becomes doubtful. For all years presented, the Bank has not had any troubled debt restructurings, which involve forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates. It has been the Bank's practice to sell its foreclosed assets 14 to new borrowers and occasionally to originate loans with higher loan-to-value ratios than those generally allowed for the Bank's one- to four-family residential loans.
December 31, June 30, ------------------------------------- ---------------------------- 2000 1999 1998 1998 1997 -------- -------- -------- -------- -------- (Dollars in thousands) Non-accruing loans: One- to four-family residential $2,171 $ 880 $ 137 $ 522 $2,018 Other residential -- 1,002 2,554 4,535 3,826 Commercial real estate 4,112 4,371 2,496 1,687 316 One- to four-family construction -- 1 -- 91 655 Consumer 109 146 33 147 219 Other commercial 1,236 444 1,061 80 600 Commercial construction 4,858 2,377 1,137 -- -- ------- -------- ------- ------- ------- Total gross non-accruing loans 12,486 9,221 7,418 7,062 7,634 ------- -------- ------- ------- ------- Loans over 90 days delinquent still accruing interest: One- to four-family residential -- 49 2,243 -- -- Consumer -- -- 244 -- -- Other commercial -- -- 241 -- -- ------- -------- ------- ------- ------- Total over 90 days accruing loans -- 49 2,728 -- -- ------- -------- ------- ------- ------- Other impaired loans -- -- -- 2,278 -- ------- -------- ------- ------- ------- Loans in connection with sales of foreclosed assets -- -- -- 145 246 ------- -------- ------- ------- ------- Total gross non-performing loans 12,486 9,270 10,146 9,485 7,880 ------- -------- ------- ------- ------- Foreclosed assets: One- to four-family residential 165 167 438 400 544 Other residential -- -- 1,075 175 1,150 One- to four-family construction 508 -- -- -- -- Commercial real estate 1,645 650 1,297 4,176 4,276 ------- -------- ------- ------- ------- Total foreclosed assets 2,318 817 2,810 4,751 5,970 ------- -------- ------- ------- ------- Repossessions 370 -- -- -- -- ------- -------- ------- ------- ------- Total gross non-performing assets $15,174 $10,087 $12,956 $14,236 $13,850 ======= ======= ======= ======= ======= Total gross non-performing assets as a percentage of average total assets 1.50% 1.09% 1.61% 1.90% 2.07% ==== ==== ==== ==== ====
Gross impaired loans totaled $12,486,000 at December 31, 2000 and $9,270,000 at December 31, 1999. For the year ended December 31, 2000, gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $2,637,000. The 15 amount that was included in interest income on these loans was $1,671,000 for the year ended December 31, 2000. The level of non-performing assets is primarily attributable to the Bank's commercial real estate, other residential, commercial construction and commercial business lending activities. These activities generally involve significantly greater credit risks than single-family residential lending. The level of non-performing assets increased at a rate greater than that of the Bank's commercial lending portfolio in fiscal December 31, 2000, and at a rate less than that of the Bank's commercial lending portfolio in the year ended December 31, 1999, in the six months ended December 31, 1998 and in fiscal years ended June 30, 1998 and 1997. For a discussion of significant non-performing assets, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." Allowance for Losses on Loans and Foreclosed Assets Management periodically reviews Great Southern's allowance for loan losses, considering numerous factors, including, but not necessarily limited to, general economic conditions, loan portfolio composition, prior loss experience, and independent appraisals. Further allowances are established when management determines that the value of the collateral is less than the amount of the unpaid principal of the related loan plus estimated costs of the acquisition and sale or when management determines a borrower of an unsecured loan will be unable to make full repayment. Allowances for estimated losses on foreclosed assets (real estate and other assets acquired through foreclosure) are charged to expense, when in the opinion of management, any significant and permanent decline in the market value of the underlying asset reduces the market value to less than the carrying value of the asset. The Bank has maintained a strong lending presence in the Branson area during recent years, primarily due to the substantial growth in the area. While management believes the loans it has funded have been originated pursuant to sound underwriting standards, and individually have no unusual credit risk, the short period of time in which the Branson area has grown, the reduction in values of real estate and the lower than expected increase in tourists visiting the area during recent years, causes some concern as to the credit risk associated with the Branson area as a whole. Due to this concern and the overall growth of the loan portfolio, and due more specifically to the growth of the commercial business, consumer and commercial real estate loan portfolios, management provided increased levels of loan loss allowances over the past few years. The allowance for losses on loans and foreclosed assets are maintained at an amount management considers adequate to provide for potential losses. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for losses on loans and foreclosed assets may be necessary, and net income could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations. At December 31, 2000 and 1999, Great Southern had an allowance for losses on loans of $18.7 million and $17.3 million, respectively, of which $3.0 million and $2.7 million, respectively, had been allocated as an allowance for specific loans, and $1.7 million and $0.8 million, respectively, had been allocated for impaired loans. The allowance is discussed further in Note 3 of the Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 16 The allowance for losses on loans at the dates indicated is summarized as follows. The table is based on information prepared in accordance with generally accepted accounting principles.
December 31, ---------------------------------------------------------------------- 2000 1999 1998 ---------------------------------------------------------------------- % of % of % of Loans to Loans to Loans to Total Total Total Amount Loans Amount Loans Amount Loans ---------- ------- -------- -------- ---------- --------- (Dollars in thousands) One- to four-family residential and construction $ 1,164 28.5% $ 798 30.1% $ 1,254 33.4% Other residential and construction 444 11.0 375 10.3 613 12.4 Commercial real estate and construction and other commercial 12,647 50.9 12,003 50.5 9,719 45.7 Consumer and overdrafts 2,236 9.6 1,567 9.1 1,211 8.5 Unallocated 2,203 -- 2,550 -- 4,131 -- ------- ----- ------- ----- ------- ----- Total $18,694 100.0% $17,293 100.0% $16,928 100.0% ======= ===== ======= ===== ======= ===== June 30, ------------------------------------------------- 1998 1997 ---------------------- ------------------------- % of % of Loans to Loans to Total Total Amount Loans Amount Loans ---------- --------- ---------- -------- (Dollars in thousands) One- to four-family residential and construction $ 811 33.5% $1,039 41.0% Other residential and construction 615 13.5 35 16.1 Commercial real estate and construction and other commercial 11,348 46.4 9,699 38.5 Consumer and overdrafts 743 6.6 502 4.4 Unallocated 2,586 -- 4,249 -- ------- ----- ------- ----- Total $16,373 100.0% $15,524 100.0% ======= ===== ======= =====
17 The following table sets forth an analysis of the Bank's allowance for losses on loans showing the details of the allowance by types of loans and the allowance balance by loan type. The table is based on information prepared in accordance with generally accepted accounting principles.
December 31, June 30, -------------------------------- -------------------- 2000 1999 1998 1998 1997 ------- ------- ------- ------- ------- (Dollars in thousands) Balance at beginning of period $17,293 $16,928 $16,373 $15,524 $14,356 ------- ------- ------- ------- ------- Charge-offs: One- to four-family residential 254 114 --- 45 185 Other residential --- --- 187 67 34 Commercial real estate 260 131 185 529 364 Construction 218 375 --- 82 14 Consumer and overdrafts 2,116 1,870 1,077 287 70 Other commercial 303 316 50 133 9 ------- ------- ------- ------- ------- Total charge-offs 3,151 2,806 1,499 1,143 676 ------- ------- ------- ------- ------- Recoveries: One- to four-family residential 66 33 147 22 --- Other residential --- --- --- 1 11 Commercial real estate and construction 166 64 --- 68 88 Consumer and overdrafts 1,019 793 552 10 9 Other commercial 195 219 64 38 30 ------- ------- ------- ------- ------- Total recoveries 1,446 1,109 763 139 138 ------- ------- ------- ------- ------- Net charge-offs 1,705 1,697 736 1,004 538 Provision for losses on loans 3,106 2,062 1,291 1,853 1,706 ------- ------- ------- ------- ------- Balance at end of period $18,694 $17,293 $16,928 $16,373 $15,524 ======= ======= ======= ======= ======= Ratio of net charge-offs to average loans outstanding 0.20% 0.23% 0.23% 0.16% 0.09% ==== ==== ==== ==== ====
Investment Activities The Bank's investment securities portfolio at December 31, 2000 and 1999, contained one security with an aggregate book value in excess of 10% of the Bank's retained earnings, excluding those issued by the United States Government, or its agencies. This security was issued by The Missouri Development Finance Board and has an aggregate book and market value of approximately $9,986,000 at December 31, 2000. As of December 31, 2000 and 1999, the Bank held approximately $27.8 million and $37.6 million, respectively, in principal amount of investment securities which the Bank intends to hold until maturity. As of such dates, these securities had market values of approximately $27.7 million and $37.4 million, respectively. In addition, as of December 31, 2000 and 1999, the Company held approximately $126.4 million and $79.9 million, respectively, in principal amount of investment securities which the Company classified as available-for-sale. 18 This issue is discussed further in Notes 1 and 2 of Notes to Consolidated Financial Statements. The amortized cost and approximate fair values of, and gross unrealized gains and losses on, investment securities at the dates indicated are summarized as follows. The table is based on information prepared in accordance with generally accepted accounting principles. Yields on tax exempt obligations have not been computed on a tax equivalent basis.
December 31, 2000 --------------------------------------------------------------- Gross Gross Approximate Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------- --------------- --------------- --------------- (Dollars in thousands) AVAILABLE-FOR-SALE SECURITIES: U.S. government agencies $114,321 $554 $ 99 $114,776 Collateralized mortgage obligations 3,424 14 --- 3,438 Equity securities 8,080 115 --- 8,195 -------- ---- ---- -------- Total available-for-sale securities $125,825 $683 $ 99 $126,409 ======== ==== ==== ======== HELD-TO-MATURITY SECURITIES: U.S. government agencies $6,999 $ --- $ 17 $ 6,982 States and political subdivisions 17,101 17 107 17,011 Corporate bonds 2,805 95 25 2,875 Mortgage-backed securities 853 3 6 850 ------- ---- ---- ------- Total held-to-maturity securities $27,758 $115 $155 $27,718 ======= ==== ==== ======= December 31, 1999 ------------------------------------------------------------ Gross Gross Approximate Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------- --------------- --------------- ------------ (Dollars in thousands) AVAILABLE-FOR-SALE SECURITIES: U.S. government agencies $72,714 $65 $ 134 $72,645 Equity securities 8,153 --- 907 7,246 ------- --- ------ ------- Total available-for-sale securities $80,867 $65 $1,041 $79,891 ======= === ====== ======= HELD-TO-MATURITY SECURITIES: U.S. Treasury $ 100 $ --- $ --- $ 100 U.S. government agencies 24,242 --- 141 24,101 States and political subdivisions 11,470 --- 89 11,381 Corporate bonds 800 --- --- 800 Mortgage-backed securities 1,034 --- --- 1,034 ------- --- ------ ------- Total held-to-maturity securities $37,646 $ --- $230 $37,416 ======= === ====== =======
19 The following table presents the contractual maturities and weighted average yields of available-for-sale debt securities at December 31, 2000. The table is based on information prepared in accordance with generally accepted accounting principles.
Amortized Approximate Cost Yield Fair Value -------- --------- ----------- (Dollars in thousands) In one year or less $20,165 5.86% $20,101 After one through five years 94,156 6.83% 94,674 Securities not due on a single maturity date 3,424 6.42% 3,439 -------- -------- Total $117,745 $118,214 ======== ========
The following table presents the contractual maturities and weighted average yields of held-to-maturity securities at December 31, 2000. The table is based on information prepared in accordance with generally accepted accounting principles.
Amortized Approximate Cost Yield Fair Value -------- --------- ----------- (Dollars in thousands) In one year or less $16,996 6.28% $16,979 After ten years 9,909 8.87% 9,889 Securities not due on a single maturity date 853 15.13% 850 -------- -------- Total $27,758 $27,718 ======== ========
Sources of Funds General. Deposit accounts have traditionally been the principal source of the Bank's funds for use in lending and for other general business purposes. In addition to deposits, the Bank obtains funds through advances from the Federal Home Loan Bank of Des Moines, Iowa ("FHLBank") and other borrowings, loan repayments, loan sales, and cash flows generated from operations. Scheduled loan payments are a relatively stable source of funds, while deposit inflows and outflows and the related costs of such funds have varied widely. Borrowings such as FHLBank advances may be used on a short-term basis to compensate for seasonal reductions in deposits or deposit inflows at less than projected levels and may be used on a longer-term basis to support expanded lending activities. The availability of funds from loan sales is influenced by general interest rates as well as the volume of originations. Deposits. The Bank attracts both short-term and long-term deposits from the general public by offering a wide variety of accounts and rates. In recent years, the Bank has been required by market conditions to rely increasingly on short-term accounts and other deposit alternatives that are more responsive to market interest rates. The Bank offers regular savings accounts, checking accounts, various money market accounts, fixed-interest rate certificates with varying maturities, certificates of deposit in minimum amounts of $100,000 ("Jumbo" accounts), brokered certificates and individual retirement accounts. The composition of the Bank's deposits at the end of recent periods is set forth below. 20 The following table sets forth the dollar amount of deposits, by interest rate range, in the various types of deposit programs offered by the Company at the dates indicated. The table is based on information prepared in accordance with generally accepted accounting principles.
December 31, -------------------------------------------------------------------------------------- 2000 1999 1998 -------------------------- ------------------------ -------------------------- Percent of Percent of Percent of Amount Total Amount Total Amount Total --------- -------- -------- ---------- --------- ---------- (Dollars in thousands) Time deposits: 0.00% - 3.99% $ 94 .01% $ 1,153 .18% $ 435 .07% 4.00% - 4.99% 14,847 1.98 79,429 12.69 69,178 11.58 5.00% - 5.99% 123,103 16.39 280,688 44.85 259,844 43.48 6.00% - 6.99% 360,825 48.04 69,525 11.11 32,262 5.40 7.00% - 7.99% 46,221 6.15 3,527 .56 3,845 .64 8.00% and above 225 .03 30 --- 240 .04 -------- ------- -------- --------- -------- --------- Total Time deposits 545,316 72.60 434,352 69.39 365,804 61.21 Non-interest-bearing demand deposits 60,353 8.04 47,360 7.57 43,211 7.23 Savings deposits (2.51%-2.50%-2.50%-2.51%) 20,400 2.72 29,613 4.73 32,190 5.39 Interest-bearing demand deposits (2.23%-1.86%-2.39%-2.25%) 124,973 16.64 114,575 18.31 156,420 26.17 -------- ------- ------- --------- -------- --------- Total Deposits $751,042 100.00% $625,900 100.00% $597,625 100.00% ======== ======= ======== ====== ======== ====== June 30, 1998 ------------------------ Percent of Amount Total -------- ---------- (Dollars in thousands) Time deposits: 0.00% - 3.99% $ 62 .01% 4.00% - 4.99% 17,476 3.18 5.00% - 5.99% 257,704 46.87 6.00% - 6.99% 51,064 9.29 7.00% - 7.99% 3,711 .68 8.00% and above 251 .05 -------- ------ Total Time deposits 330,268 60.08 Non-interest-bearing demand deposits 29,375 5.34 Savings deposits (2.51%-2.50%-2.50%-2.51%) 34,644 6.30 Interest-bearing demand deposits (2.23%-1.86%-2.39%-2.25%) 155,485 28.28 -------- ------ Total Deposits $549,772 100.00% ======== ======
21 A table showing maturity information for the Bank's time deposits as of December 31, 2000, is presented in Note 5 of the Notes to Consolidated Financial Statements. The variety of deposit accounts offered by the Bank has allowed it to be competitive in obtaining funds and has allowed it to respond with flexibility to changes in consumer demand. The Bank has become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. The Bank manages the pricing of its deposits in keeping with its asset/liability management and profitability objectives. Based on its experience, management believes that its passbook and certificate accounts are relatively stable sources of deposits, while its checking accounts have proven to be more volatile. However, the ability of the Bank to attract and maintain deposits, and the rates paid on these deposits, has been and will continue to be significantly affected by money market conditions. The following table sets forth the time remaining until maturity of the Bank's time deposits as of December 31, 2000. The table is based on information prepared in accordance with generally accepted accounting principles.
Maturity -------------------------------------------------------------------------------------- 3 Over 3 Over Over Months or Months to 6 to 12 12 Less 6 Months Months Months Total ---------------- ---------------- --------------- --------------- --------------- (Dollars in thousands) Time deposits: Less than $100,000 $55,272 $50,636 $38,490 $36,566 $180,964 $100,000 or more 21,443 17,164 12,748 10,275 61,630 Brokered 42,528 35,338 67,521 141,317 286,704 Public funds(1) 10,178 4,659 552 629 16,018 ---------- ---------- ---------- ---------- ---------- Total $129,421 $107,797 $119,311 $188,787 $545,316 ========== ========== ========== ========== ==========
- -------------- (1) Deposits from governmental and other public entities. Brokered deposits. Brokered deposits are marketed through national brokerage firms to their customers in $1,000 increments. The Bank maintains only one account for the total deposit amount while the records of detailed owners are maintained by the Depository Trust Company under the name of CEDE & Co. The deposits are transferable just like a stock or bond investment and the customer can open the account with only a phone call, just like buying a stock or bond. This provides a large deposit for the Bank at a lower operating cost since the Bank only has one account to maintain versus several accounts with multiple interest and maturity checks. At December 31, 2000, the Bank had approximately $286.7 million in brokered deposits. Unlike non-brokered deposits where the deposit amount can be withdrawn with a penalty for any reason, including increasing interest rates, a brokered deposit can only be withdrawn in the event of the death, or court declared mental incompetence, of the depositor. This allows the Bank to better manage the maturity of its deposits. In 2000, the Company began using interest rate swaps to manage its interest rate risks from recorded financial assets and liabilities. During 2000 the Company entered into interest rate swap agreements with the objective of hedging against the effects of changes in the fair value of its liabilities for fixed rate brokered certificates of deposit caused by changes in market interest rates. 22 Borrowings. Great Southern's other sources of funds include advances from the FHLBank and a Qualified Loan Review ("QLR") arrangement with the Federal Reserve Bank ("FRB") and other borrowings. As a member of the FHLBank, the Bank is required to own capital stock in the FHLBank and is authorized to apply for advances from the FHLBank. Each FHLBank credit program has its own interest rate, which may be fixed or variable, and range of maturities. The FHLBank may prescribe the acceptable uses for these advances, as well as other risks on availability, limitations on the size of the advances and repayment provisions. The FRB has a QLR program where the Bank can borrow on a temporary basis using commercial loans pledged to the FRB. Under the QLR program, the Bank can borrow any amount up to a calculated collateral value of the commercial loans pledged, for virtually any reason that creates a temporary cash need. Examples of this could be: (1) the need to disburse one or several loans but the permanent source of funds will not be available for a few days; (2) a temporary spike in interest rates on other funding sources that are being used; or (3) the need to purchase a security for collateral pledging purposes a few days prior to the funds becoming available on an existing security that is maturing. The Bank had commercial loans pledged to the FRB at December 31, 2000 that would have allowed approximately $61.0 million to be borrowed under the above arrangement. The Company has a line of credit available with a commercial bank. The amount available under the line of credit is $25,000,000. At December 31, 2000, the amount outstanding was $15,500,000. The Company has borrowing arrangements in place with the brokerage firms it conducts business with to borrow on margin against its available-for-sale securities. These borrowings are limited to a percent of the market value of the collateral, generally 50%, and are used by the Company for short-term cash needs including the purchase of available-for-sale securities and the repurchase of the Company's stock. At December 31, 2000, the amount outstanding was $2,340,000. The following table sets forth the maximum month-end balances and average daily balances of FHLBank advances and other borrowings during the periods indicated. The table is based on information prepared in accordance with generally accepted accounting principles.
Year Ended Year Ended Short Period December 31, December 31, Ended December 31, Year Ended June 2000 1999 1998 30, 1998 ------------ ------------- ------------------- ---------------- (Dollars in thousands) Maximum Balance: FHLBank advances $267,968 $200,531 $169,593 $211,270 Other borrowings 57,195 61,111 2,387 41,176 Average Balances: FHLBank advances $218,725 $165,192 $147,839 $161,913 Other borrowings 37,973 19,680 770 32,234
23 The following table sets forth certain information as to the Company's FHLBank advances and other borrowings at the dates indicated. The table is based on information prepared in accordance with generally accepted accounting principles.
December 31, -------------------------------------------------- 2000 1999 1998 June 30, 1998 ----------- ----------- ----------- ---------------- (Dollars in thousands) FHLBank advances $234,378 $200,531 $158,452 $169,509 Other borrowings 57,195 61,111 798 --- -------- -------- -------- -------- Total borrowings $291,573 $261,642 $159,250 $169,509 ======== ======== ======== ======== Weighted average interest 6.41% 6.23% 5.60% 6.00% rate of FHLBank advances ==== ==== ==== ==== Weighted average interest 6.99% 5.03% 7.20% N/A ==== ==== ==== rate of other borrowings
Subsidiaries Great Southern. As a Missouri-chartered trust company, Great Southern may invest up to 3% of its assets in service corporations. At December 31, 2000, the Bank's total investment in Great Southern Financial Corporation ("GSFC") was $1.7 million. GSFC is incorporated under the laws of the State of Missouri. This subsidiary is primarily engaged in the following activities: Great Southern Capital Management, Inc. At December 31, 2000, the Bank's total investment in Great Southern Capital Management ("Capital Management") was $729,000. Capital Management was incorporated and organized in 1988 under the laws of the state of Missouri. Capital Management is a registered broker/dealer and a member of the National Association of Securities Dealers, Inc. ("NASD") and the Securities Investors Protection Corporation ("SIPC"). Capital Management offers a full line of financial consultation, investment counseling and discount brokerage services including execution of transactions involving stocks, bonds, options, mutual funds and other securities. In addition, Capital Management is registered as a municipal securities dealer. Capital Management operates through Great Southern's branch office network. Capital Management had net income of $297,000 and $295,000 in the years ended December 31, 2000 and 1999, respectively. General Insurance Agency. Great Southern Insurance, a division of GSFC, was organized in 1974. It acts as a general property, casualty and life insurance agency for a number of clients, including the Bank. Great Southern Insurance had net income of $141,000 and $113,000 in the years ended December 31, 2000 and 1999, respectively. Travel Agency. Great Southern Travel, a division of GSFC, was organized in 1976. At December 31, 2000, it was the largest travel agency based in southwestern Missouri and was estimated to be in the top 5% (based on gross revenue) of travel agencies nationwide. Great Southern Travel operates from 19 full-time locations, including a facility at the Springfield-Branson Regional Airport, and additional part-time locations. It engages in personal, commercial and group travel services. Great Southern Travel had net income of $276,000 and $365,000 in the years ended December 31, 2000 and 1999, respectively. GSB One, L.L.C. At December 31, 2000 the Bank's total investment in GSB One, L.L.C. ("GSB One") and GSB Two, L.L.C. ("GSB Two") was $282 million. The capital contribution was made by 24 transferring participations in loans to GSB Two. GSB One is a Missouri limited liability company that was incorporated in March of 1998. Currently the only activity of this company is the ownership of GSB Two. GSB Two, L.L.C. This is a Missouri limited liability company that was incorporated in March of 1998. GSB Two is a Real Estate Investment Trust ("REIT"). It holds participations in real estate mortgages from the Bank. The Bank continues to service the loans in return for a management and servicing fee from GSB Two. GSB Two had net income of $26.9 million and $22.7 million in the years ended December 31, 2000 and 1999, respectively. Appraisal Services. Appraisal Services, Inc., incorporated in 1976, is a wholly-owned subsidiary of GSFC and performs primarily residential real estate appraisals for a number of clients, the majority of which are for the Bank and its loan customers. Appraisal Services, Inc. had net income (loss) of $12,000 and $(12,000) in the years ended December 31, 2000 and 1999, respectively. Competition Great Southern faces strong competition both in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other commercial banks, savings institutions and mortgage bankers making loans secured by real estate located in the Bank's market area. Commercial banks and finance companies provide vigorous competition in commercial and consumer lending. The Bank competes for real estate and other loans principally on the basis of the interest rates and loan fees it charges, the types of loans it originates and the quality of services it provides to borrowers. The other lines of business of the Bank, including loan servicing and loan sales, as well as the Bank and Company subsidiaries, face significant competition in their markets. The Bank faces substantial competition in attracting deposits from other commercial banks, savings institutions, money market and mutual funds, credit unions and other investment vehicles. The Bank attracts a significant amount of deposits through its branch offices primarily from the communities in which those branch offices are located; therefore, competition for those deposits is principally from other commercial banks and savings institutions located in the same communities. The Bank competes for these deposits by offering a variety of deposit accounts at competitive rates, convenient business hours, and convenient branch and ATM locations with inter-branch deposit and withdrawal privileges at each branch location. Employees At December 31, 2000, the Bank and its affiliates had a total of 540 employees, including 149 part-time employees. None of the Bank's employees are represented by any collective bargaining agreement. Management considers its employee relations to be good. Government Supervision and Regulation General On June 30, 1998, the Bank converted from a federal savings bank to a Missouri-chartered trust company, with the approval of the Missouri Division of Finance ("MDF") and the FRB. By converting, the Bank was able to expand its consumer and commercial lending authority. Bancorp and its subsidiaries are subject to supervision and examination by applicable federal and state banking agencies. The earnings of the Bank's subsidiaries, and therefore the earnings of Bancorp, are 25 affected by general economic conditions, management policies and the legislative and governmental actions of various regulatory authorities, including the FRB, the Federal Deposit Insurance Corporation ("FDIC") and the MDF. In addition, there are numerous governmental requirements and regulations that affect the activities of the Company and its subsidiaries. The following is a brief summary of certain aspects of the regulation of the Company and Great Southern and does not purport to fully discuss such regulation. Bank Holding Company Regulation The Company is a bank holding company that has elected to be treated as a financial holding company by the Federal Reserve Board. Financial holding companies are subject to comprehensive regulation by the Federal Reserve Board under the Bank Holding Company Act, and the regulations of the Federal Reserve Board. As a financial holding company, the Company is required to file reports with the Federal Reserve Board and such additional information as the Federal Reserve Board may require, and is subject to regular examinations by the Federal Reserve Board. The Federal Reserve Board also has extensive enforcement authority over financial holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. Under Federal Reserve Board policy, a financial holding company must serve as a source of strength for its subsidiary banks. Under this policy the Federal Reserve Board may require, and has required in the past, a holding company to contribute additional capital to an undercapitalized subsidiary bank. Under the Bank Holding Company Act, a financial holding company must obtain Federal Reserve Board approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares); (ii) acquiring all or substantially all of the assets of another bank or bank or financial holding company; or (iii) merging or consolidating with another bank or financial holding company. The Bank Holding Company Act also prohibits a financial holding company generally from engaging directly or indirectly in activities other than those involving banking, activities closely related to banking that are permitted for a bank holding company, securities, insurance or merchant banking. Currently, the Company has permission from the FRB to hold up to 20% of the common stock of an unaffiliated financial institution holding company. At December 31, 2000, the Company owned approximately 16% of the outstanding common shares of this financial institution holding company, with recent increases having been the sole result of stock repurchases by that company. Interstate Banking and Branching Federal law allows the FRB to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than such holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. The FRB may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state. Federal law also prohibits the FRB from approving an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. Federal law does not affect the authority of states to limit the percentage 26 of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit. Additionally, the federal banking agencies are authorized to approve interstate merger transactions without regard to whether such transactions are prohibited by the law of any state. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions. Interstate mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration amounts described above. Federal law also authorizes the OCC and the FDIC to approve interstate branching de novo by national and state banks, respectively, only in states which specifically allow for such branching. As required by federal law, the OCC, FDIC and FRB have prescribed regulations which prohibit any out-of-state bank from using the interstate branching authority primarily for the purpose of deposit production, including guidelines to ensure that interstate branches operated by an out-of-state bank in a host state reasonably help to meet the credit needs of the communities which they serve. Certain Transactions with Affiliates and Other Persons Transactions involving the Bank and its affiliates are subject to sections 23A and 23B of the Federal Reserve Act, which impose certain quantitative limits and collateral requirements on such transactions, and require all such transactions to be on terms at least as favorable to the Bank as are available in transactions with non-affiliates. All loans by Great Southern to its directors and executive officers are subject to FRB regulations restricting loans and other transactions with affiliated persons of Great Southern. Transactions involving such persons must be on terms and conditions comparable to those for similar transactions with non-affiliates. The Company may have a policy allowing favorable rate loans to employees as long as it is an employee benefit available to a broad group of employees within guidelines defined by the policy. The Bank has such a policy in place that allows for loans to full-time employees. Dividends The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB's view that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company's capital needs, asset quality and overall financial condition. The FRB also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the FRB, the FRB may prohibit a bank holding company from paying any dividends if the holding company's bank subsidiary is classified as "undercapitalized." Bank holding companies are required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the Company's consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order, or any condition imposed by, or written agreement with, the FRB. This notification requirement does not apply to any company that meets the well-capitalized standard for bank holding companies, is well-managed, and is not subject to any unresolved supervisory 27 issues. Under Missouri law, the Bank may pay dividends from certain undivided profits and may not pay dividends if its capital is impaired. The Federal banking agencies have adopted capital-related regulations. Under those regulations, a bank will be well capitalized if it: (i) has a risk-based capital ratio of 10% or greater; (ii) has a ratio of Tier I capital to risk-adjusted assets of 6% or greater; and (iii) has a ratio of Tier I capital to adjusted total assets of 5% or greater. A bank will be adequately capitalized if it is not "well capitalized" and: (i) has a risk-based capital ratio of 8% or greater; (ii) has a ratio of Tier I capital to risk-adjusted assets of 4% or greater; and (iii) has a ratio of Tier I capital to adjusted total assets of 4% or greater. As of December 31, 2000, the Bank was "well capitalized." Banking agencies have recently adopted final regulations that mandate that regulators take into consideration concentrations of credit risk and risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. This evaluation will be made as part of the institution's regular safety and soundness examination. Banking agencies also have recently adopted final regulations requiring regulators to consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off-balance-sheet position) in the evaluation of a bank's capital adequacy. Concurrently, banking agencies have proposed a methodology for evaluating interest rate risk. After gaining experience with the proposed measurement process, these banking agencies intend to propose further regulations to establish an explicit risk-based capital charge for interest rate risk. The FRB has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. As of December 31, 2000, the Company was "well capitalized" under the two Tier I capital ratios described above and was "adequately capitalized" under the Total Risk-Based capital ratio described above. Insurance of Accounts and Regulation by the FDIC The FDIC maintains two separate deposit insurance funds: the Bank Insurance Fund (the "BIF") and the Savings Association Insurance Fund (the "SAIF"). Great Southern's depositors are insured by the SAIF up to $100,000 per insured account (as defined by law and regulation). This insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC is authorized to conduct examinations of and to require reporting by SAIF-insured associations. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the SAIF. The FDIC also has the authority to take enforcement actions against banks and savings associations. Great Southern pays annual assessments for SAIF insurance. Under current FDIC regulations, the annual SAIF assessment rate is based, in part, on the degree of risk to the deposit insurance fund that, in the opinion of the FDIC, is presented by a particular depository institution compared to other depository institutions. The FDIC uses a matrix having as variables the level of capitalization of a particular institution and the level of supervision that its operations require; and the risk-based amendment rates determined in this fashion range from 0.00% of deposits for the least risky to 0.27% for the most risky. In establishing the SAIF assessment rate, the FDIC is required to consider the SAIF's expected operating expenses, case resolution expenditures and income and the effect of the assessment rate on SAIF members' earnings and capital. There is no cap on the amount the FDIC may increase the SAIF assessment rate. The Bank currently has a risk based assessment rate of 0.00%. In addition, the FDIC is authorized to raise the assessment rates 28 in certain instances. Any increases in the assessments would negatively impact the earnings of Great Southern. The FDIC collects assessments against BIF and SAIF assessable deposits to service the debt on bonds during the 1980's to resolve the thrift bailout. For the quarter ended December 31, 2000, the assessment rate for both BIF and SAIF insured institutions was 2.02 basis points per $100 of assessable deposits. The Federal banking regulators are required to take prompt corrective action if an institution fails to satisfy certain minimum capital requirements. Under the law, capital requirements include a leverage limit, a risk-based capital requirement, and a core capital requirement. All institutions, regardless of their capital levels, will be restricted from making any capital distribution or paying any management fees that would cause the institution to fail to satisfy the minimum levels for any of its capital requirements. An institution that fails to meet the minimum level for any relevant capital measure (an "undercapitalized institution") will be: (i) subject to increased monitoring by the appropriate Federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45 days; (iii) subject to asset growth limits; and (iv) required to obtain prior regulatory approval for acquisitions, branching and new lines of business. The FDIC has jurisdiction over the Bank for purposes of prompt corrective action. Federal Reserve System The Federal Reserve Board requires all depository institutions to maintain reserves against their transaction accounts (primarily NOW and Super NOW checking accounts) and non-personal time deposits. At December 31, 2000, the Bank was in compliance with these reserve requirements. Banks are authorized to borrow from the Federal Reserve Bank "discount window," but Federal Reserve Board regulations only allow this borrowing for short periods of time and generally require banks to exhaust other reasonable alternative sources of funds where practical, including FHLBank advances, before borrowing from the Federal Reserve Bank. See "Sources of Funds Borrowings" above. Federal Home Loan Bank System The Bank is a member of the FHLBank of Des Moines, which is one of 12 regional FHLBanks. As a member, Great Southern is required to purchase and maintain stock in the FHLBank of Des Moines in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year, or 5% (or such greater percentage as established by the FHLBank) of its outstanding FHLBank advances. At December 31, 2000, Great Southern had $14.1 million in FHLBank stock, which was in compliance with this requirement. In past years, the Bank has received substantial dividends on its FHLBank stock. Over the past five and one-half years, such dividends have averaged 6.81% and were 6.92% for year the ended December 31, 2000. Legislative and Regulatory Proposals Any changes in the extensive regulatory scheme to which the Company or the Bank is and will be subject, whether by any of the Federal banking agencies or Congress, could have a material effect on the Company or the Bank, and we cannot predict what, if any, future actions may be taken by legislative or regulatory authorities or what impact such actions may have. 29 Federal and State Taxation The following discussion contains a summary of certain federal and state income tax provisions applicable to the Company and the Bank. It is not a comprehensive description of the federal income tax laws that may affect the Company and the Bank. The following discussion is based upon current provisions of the Internal Revenue Code of 1986 (the "Code") and Treasury and judicial interpretations thereof. General The Company and its subsidiaries file a consolidated federal income tax return using the accrual method of accounting, with the exception of GSB Two which files a separate return as a REIT. All corporations joining in the consolidated federal income tax return are jointly and severally liable for taxes due and payable by the consolidated group. The following discussion primarily focuses upon the taxation of the Bank, since the federal income tax law contains certain special provisions with respect to banks. Financial institutions, such as the Bank, are subject, with certain exceptions, to the provisions of the Code generally applicable to corporations. Bad Debt Deduction Legislation passed by Congress and signed by the President repealed the bad debt reserve method of accounting for bad debts by large thrifts for taxable years beginning after 1995 (year ended June 30, 1997 for the Bank). The legislation requires applicable excess reserves accumulated after 1987 (year ended June 30, 1988 for the Bank) be recaptured and restored to income over a six year period with the first year beginning after 1995 (year ended June 30, 1997 for the Bank), and eliminates recapture of the applicable excess reserves accumulated prior to 1988 for thrifts converting to bank charters. The post 1987 recapture may be delayed for a one- or two-year period if certain residential loan origination requirements are met. The Bank met the residential loan origination requirements and delayed the recapture for two years. The amount of post 1987 recapture for the Bank is estimated at $5.2 million which would create tax of approximately $1.8 million, or $300,000 per year for each of the six years. The $1.8 million of tax has been accrued by the Bank in previous periods and would not be reflected in earnings when paid. At December 31, 2000, the Company's net deferred tax asset included a deferred tax liability of approximately $900,000 for this bad debt allowance recapture. The Bank is required to follow the specific charge-off method which only allows a bad debt deduction equal to actual charge-offs, net of recoveries, experienced during the fiscal year of the deduction. In a year where recoveries exceed charge-offs, the Bank would be required to include the net recoveries in taxable income. Interest Deduction In the case of a financial institution, such as the Bank, no deduction is allowed for the pro rata portion of its interest expense which is allocable to tax-exempt interest on obligations acquired after August 7, 1986. A limited class of tax-exempt obligations acquired after August 7, 1986 will not be subject to this complete disallowance rule. For tax-exempt obligations acquired after December 31, 1982 and before August 8, 1986 and for obligations acquired after August 7, 1986 that are not subject to the complete disallowance rule, 80% of interest incurred to purchase or carry such obligations will be deductible. No portion of the interest expense allocable to tax-exempt obligations acquired by a financial institution before January 1, 1983, which is otherwise deductible, will be disallowed. The interest expense disallowance rules cited above do not significantly impact the Bank. 30 Alternative Minimum Tax Corporations generally are subject to a 20% corporate alternative minimum tax ("AMT"). A corporation must pay the AMT to the extent it exceeds that corporation's regular federal income tax liability The AMT is imposed on "alternative minimum taxable income," defined as taxable income with certain adjustments and tax preference items, less any available exemption. Such adjustments and items include, but are not limited to, (i) net interest received on certain tax-exempt bonds issued after August 7, 1986; and (ii) 75% of the difference between adjusted current earnings and alternative minimum taxable income, as otherwise determined with certain adjustments. Net operating loss carryovers may be utilized, subject to adjustment, to offset up to 90% of the alternative minimum taxable income, as otherwise determined. A portion of the AMT paid, if any, may be credited against future regular federal income tax liability. Missouri Taxation Missouri based banks, such as the Bank, are subject to a franchise tax which is imposed on the larger of (i) the bank's net income at the rate of 7% of the net income (determined without regard for any net operating losses); or (ii) the bank's assets at a rate of .033% of total assets less deposits and the investment in greater than 50% owned subsidiaries. Missouri based banks are entitled to a credit against the franchise tax for all other state or local taxes on banks, except taxes on real estate, unemployment taxes, bank tax, and taxes on tangible personal property owned by the Bank and held for lease or rental to others. The Company and all subsidiaries are subject to an income tax that is imposed on the corporation's net income at the rate of 6.25%. The return is filed on a consolidated basis by all members of the consolidated group including the Bank, but excluding GSB Two. As a REIT, GSB Two files a separate Missouri income tax return. Delaware Taxation As a Delaware corporation, the Company is required to file annual returns with and pay annual fees to the State of Delaware. The Company is also subject to an annual franchise tax imposed by the State of Delaware based on the number of authorized shares of Company common stock. Examinations The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service with respect to consolidated federal income tax returns, and as such, these returns have been closed without audit through June 30, 1997. ITEM 2. PROPERTIES The following table sets forth certain information concerning the main corporate office and each branch office of the Company at March 16, 2001. The aggregate net book value of the Company's premises and equipment was $10 million at December 31, 2000 and $10 million at December 31, 1999. See also Note 4 and Note 11 of the Notes to Consolidated Financial Statements. Substantially all buildings owned are free of encumbrances or mortgages. In the opinion of Management, the facilities are adequate and suitable for the needs of the Company. 31
Leased Expiration Year Owned or (Including any Location Opened Lease Renewal Option) - ------------------------------------------------------------------ ------------- ------------ -------------------- CORPORATE HEADQUARTERS AND BANK: 1451 E. Battlefield Springfield, Missouri 1976 Owned N/A BRANCH BANKS: 430 South Avenue Springfield, Missouri 1983 Owned N/A Kearney at Kansas Springfield, Missouri 1976 Leased* 2022 2410 N. Glenstone Springfield, Missouri 1977 Leased* 2003 1955 S. Campbell Springfield, Missouri 1979 Leased* 2020 3961 S. Campbell Springfield, Missouri 1998 Leased 2028 2631 E. Sunshine Springfield, Missouri 1988 Leased* 2002 1580 W. Battlefield Springfield, Missouri 1985 Leased* 2017 723 N. Benton Springfield, Missouri 1985 Owned N/A Highway 14 Nixa, Missouri 1995 Leased* 2019 1505 S. Elliot Aurora, Missouri 1985 Leased 2006 Jefferson & Washington Ava, Missouri 1982 Owned N/A 110 W. Hensley Branson, Missouri 1982 Owned N/A 919 W. Dallas Buffalo, Missouri 1976 Owned N/A 527 Ozark Cabool, Missouri 1989 Leased 2006 400 S. Garrison Carthage, Missouri 1990 Owned N/A 1710 E. 32nd Street Joplin, Missouri 1989 Leased* 2031 1232 S. Rangeline Joplin, Missouri 1998 Leased 2016 Highway 00 and 13 Kimberling City, 1984 Owned N/A Missouri 528 S. Jefferson Lebanon, Missouri 1978 Leased* 2028 714 S. Neosho Boulevard Neosho, Missouri 1991 Owned N/A Highway 54 Osage Beach, Missouri 1987 Owned N/A 1701 W. Jackson Ozark, Missouri 1997 Owned N/A 208 South Street Stockton, Missouri 1988 Leased 2006 323 E. Walnut Thayer, Missouri 1978 Leased* 2011 1210 Parkway Shopping Center West Plains, Missouri 1975 Owned N/A 1729 W. Highway 76 Branson, Missouri 1983 Owned N/A
- ---------- * Building owned with land leased. 32 In addition, the travel division has offices in many of the above locations as well as several small offices in other locations including some of its larger corporate customer's headquarters. The Bank maintains depositor and borrower customer files on an on-line basis, utilizing a telecommunications network, portions of which are leased. The book value of all data processing and computer equipment utilized by the Bank at December 31, 2000 was $974,000 compared to $1.6 million at December 31, 1999. Management has a disaster recovery plan in place with respect to the data processing system as well as the Bank's operations as a whole. The Bank maintains a network of Automated Teller Machines ("ATMs"). The Bank utilizes an external service for operation of the ATMs that also allows access to the various national ATM networks. A total of 108 ATMs are located at various branches and primarily convenience stores located throughout southwest and central Missouri. The book value of all ATMs utilized by the Bank at December 31, 2000 and 1999 was $511,000 compared to $793,000 at December 31, 1999. The Bank will evaluate and relocate existing ATMs as needed, but has no plans in the near future to materially increase its investment in the ATM network. ITEM 3. LEGAL PROCEEDINGS . The Registrant and its subsidiaries are involved as plaintiff or defendant in various legal actions arising in the normal course of their businesses. While the ultimate outcome of the various legal proceedings involving the Registrant and its subsidiaries cannot be predicted with certainty, it is the opinion of management, after consultation with legal counsel, that these legal actions currently are not material to the Registrant. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . None. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT. Pursuant to General Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, the following list is included as an unnumbered item in Part I of this Form 10-K in lieu of being included in the Registrant's Definitive Proxy Statement. The following information as to the business experience during the past five years is supplied with respect to executive officers of the Company and its subsidiaries who are not directors of the Company and its subsidiaries. There are no arrangements or understandings between the persons named and any other person pursuant to which such officers were selected. The executive officers are elected annually and serve at the discretion of their respective Boards of Directors. Steven G. Mitchem. Mr. Mitchem, age 49, is Senior Vice President and Chief Lending Officer of the Bank. He joined the Bank in 1990 and is responsible for all lending activities of the Bank. Prior to joining the Bank, Mr. Mitchem was a Senior Bank Examiner for the Federal Deposit Insurance Corporation. Rex A. Copeland. Mr. Copeland, age 36, is Treasurer of the Company and Senior Vice President and Chief Financial Officer of the Bank. He joined the Bank in 2000 and is responsible for the financial functions of the Company, including the internal and external financial reporting of the Company and its subsidiaries. Mr. Copeland is a Certified Public Accountant. Prior to joining the Bank, Mr. Copeland served other financial services companies. He was Accounting Director of a division of H&R Block from 1999 to 2000, 33 Division Controller of Bank One Corporation from 1996 to 1999 and an auditor with Baird, Kurtz and Dobson, prior to that. Doug W. Marrs. Mr. Marrs, age 43, is Vice President - Operations of the Bank. He joined the Bank in 1996 and is responsible for all operations functions of the Bank. Prior to joining the Bank, Mr. Marrs was a bank officer in the areas of operations and data processing at a competing $1 billion bank. Larry A. Larimore. Mr. Larimore, age 60, is Secretary of the Company and Secretary, Vice President B Compliance Officer of the Bank. He joined the Bank in 1998 and is responsible for Compliance and Internal Audit for the Company and Bank. Prior to joining the Bank, Mr. Larimore was a bank officer in the areas of lending, compliance and internal audit at a competing area bank from 1990 to 1998. 34 PART II Responses incorporated by reference into the items under Part II of this Form 10-K are done so pursuant to Rule 12b-23 and General Instruction G(2) for Form 10-K. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market Information. The Company's Common Stock is listed on The Nasdaq Stock Market under the symbol "GSBC." As of December 31, 2000 there were 6,897,332 total shares outstanding and approximately 1,015 shareholders of record. High/Low Stock Price
2000 1999 1998 --------------------------- -------------------------- -------------------------- High Low High Low High Low ------------- ------------- ------------ ------------- ------------ ------------- First Quarter $22 1/4 $17 1/4 $24 1/2 $23 1/4 $26 1/4 $24 Second Quarter 19 25/32 15 5/16 26 15/16 23 5/8 26 3/8 25 Third Quarter 17 1/4 14 7/8 27 1/2 20 3/4 25 1/4 21 1/2 Fourth Quarter 16 1/8 14 5/8 22 3/4 21 1/4 26 21 3/4
The last inter-dealer bid for the Company's Common Stock on December 31, 2000 was $15.625. Dividend Declarations
December 31, December 31, December 31, 2000 1999 1998 ---------------- ----------------- ---------------- First Quarter $.125 $.125 $.110 Second Quarter .125 .125 .110 Third Quarter .125 .125 .110 Fourth Quarter .125 .125 .125
35 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial information and other financial data of the Company. The selected balance sheet and statement of income data, insofar as they relate to the years ended December 31, 2000 and 1999, to the six months ended December 31, 1998 and to the years ended June 30, 1998, 1997 and 1996 are derived from our consolidated financial statements, which have been audited by Baird, Kurtz and Dobson. The selected consolidated financial data as of and for the six months ended December 31, 1997 are derived from unaudited consolidated financial statements. In our opinion, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results as of and for the six months ended December 31, 1997 have been included. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Item 8, Financial Statements and Supplementary Data." Results for past periods are not necessarily indicative of results that may be expected for any future period.
December 31, June 30, --------------------------------- ------------------------------- 2000 1999 1998(1) 1998 1997 1996 ---------- -------- -------- -------- -------- -------- (Dollars in thousands) Summary Statement of Condition Information: Assets...................................... $1,130,178 $964,803 $836,498 $795,091 $707,841 $668,105 Loans receivable, net....................... 890,784 766,807 696,962 653,672 581,948 544,705 Allowance for loan losses................... 18,694 17,293 16,928 16,373 15,524 14,356 Available-for-sale securities............... 126,409 79,891 6,476 6,363 7,408 4,656 Held-to-maturity securities................. 27,758 37,646 60,394 51,917 51,518 51,236 Foreclosed assets held for sale, net........ 2,688 817 2,810 4,751 5,651 9,862 Allowance for foreclosed asset losses....... --- --- --- --- 319 1,086 Intangibles................................. 264 404 543 626 --- 1,102 Deposits.................................... 751,042 625,900 597,625 549,773 456,370 395,238 Total borrowings............................ 291,573 261,642 159,250 169,509 180,566 197,057 Stockholders' equity (retained earnings substantially restricted)........ 71,049 68,926 68,382 67,409 60,348 67,808 Average loans receivable.................... 843,170 746,979 647,797 624,290 561,146 536,695 Average total assets........................ 1,013,963 928,182 805,170 747,901 670,172 643,885 Average deposits............................ 676,633 612,503 577,820 487,386 416,041 385,734 Average stockholders' equity................ 69,208 68,758 66,997 64,212 62,200 65,355 Number of deposit accounts.................. 73,394 73,932 74,375 74,070 69,762 60,649 Number of full-service offices.............. 27 27 27 27 25 25
36
For the For the For the Year Ended Six Months Ended Year Ended December 31, December 31, June 30, ------------------ ------------------- ----------------------------- 2000 1999 1998(1) 1997 1998 1997 1996 ------- ------- ------- ------ -------- ------- ------- (Dollars in thousands) Summary Income Statement Information: Interest income: Loans............................ $76,671 $63,386 $30,332 $27,878 $57,537 $51,365 $49,884 Investment securities and other.. 8,751 4,652 2,153 2,163 4,395 4,175 4,054 ------- ------- ------- ------- -------- ------- ------- 85,422 68,038 32,485 30,041 61,932 55,540 53,938 ------- ------- ------- ------- -------- ------- ------- Interest expense: Deposits......................... 32,244 24,966 12,255 10,395 20,951 17,951 17,003 Federal Home Loan Bank advances.. 14,312 9,403 4,237 4,676 9,905 10,229 10,585 Short-term borrowings............ 2,305 1,094 38 530 1,136 642 544 ------- ------- ------- ------- -------- ------- ------- 48,861 35,463 16,530 15,601 31,992 28,822 28,132 ------- ------- ------- ------- -------- ------- ------- Net interest income................ 36,561 32,575 15,955 14,440 29,940 26,718 25,806 Provision for loan losses.......... 3,106 2,062 1,291 852 1,853 1,706 1,451 ------- ------- ------- ------- -------- ------- ------- Net interest income after provision for loan losses........ 33,455 30,513 14,664 13,588 28,087 25,012 24,355 ------- ------- ------- ------- -------- ------- ------- Noninterest income: Commissions...................... 7,024 7,054 3,136 2,586 5,652 4,969 4,413 Service charges and ATM fees..... 5,968 4,502 2,390 1,753 3,841 2,785 2,381 Net realized gains on sales of loans 570 1,098 386 461 1,125 521 540 Net realized gains (losses) on sales of available-for-sale securities (9) 316 355 873 1,398 205 680 Income on foreclosed assets...... 295 --- 420 383 326 285 728 Other income..................... 1,863 2,379 1,171 777 1,457 1,752 1,582 ------- ------- ------- ------- -------- ------- ------- 15,711 15,349 7,858 6,833 13,799 10,517 10,324 ------- ------- ------- ------- -------- ------- ------- Noninterest expense: Salaries and employee benefits... 13,642 13,765 5,743 5,227 10,829 9,234 8,382 Net occupancy expense............ 4,529 4,124 1,772 1,349 3,034 2,400 2,220 Postage.......................... 1,152 1,006 447 392 857 626 634 Insurance........................ 521 639 292 352 637 3,428 1,268 Amortization of excess of cost over fair value of net assets acquired 160 160 83 --- 65 1,107 193 Advertising...................... 713 611 276 295 586 675 533 Office supplies and printing..... 703 991 396 323 666 563 435 Other operating expenses......... 4,084 3,871 2,297 1,945 3,844 2,405 2,609 ------- ------- ------- ------- -------- ------- ------- 25,504 25,167 11,306 9,883 20,518 20,438 16,274 ------- ------- ------- ------- -------- ------- ------- Income before income taxes......... 23,662 20,695 11,216 10,538 21,368 15,091 18,405 Provision for income taxes......... 8,184 7,018 3,858 3,058 6,924 5,751 7,111 ------- ------- ------- ------- -------- ------- ------- Net income......................... $15,478 $13,677 $7,358 $7,480 $14,444 $9,340 $11,294 ======= ======= ====== ====== ======= ====== =======
37
At or For the At or For the At or For the Year Ended Six Months Ended Year Ended December 31, December 31, June 30, ---------------- ---------------- ------------------------- 2000 1999 1998(1) 1997 1998 1997 1996 ------ ------ ------ ------ ------ ------ ------ (Dollars in thousands, except per share data) Per Common Share Data: Basic earnings per common share...................... $ 2.16 $ 1.79 $ .93 $ .93 $ 1.79 $ 1.11 $ 1.27 Diluted earnings per common share.................... 2.12 1.76 .91 .91 1.76 1.10 1.23 Cash dividends declared ............................. .50 .50 .24 .21 .43 .39 .35 Book value........................................... 10.30 9.20 8.76 8.13 8.47 7.45 7.70 Average shares outstanding........................... 7,166 7,620 7,897 8,082 8,052 8,394 8,926 Year-end actual shares outstanding................... 6,897 7,489 7,803 8,066 7,962 8,105 8,812 Year-end fully diluted shares outstanding............ 7,098 7,601 8,012 8,218 8,204 8,488 9,218 Earnings Performance Ratios:(2) Return on average assets(3)......................... 1.53% 1.56% 1.83% 2.08% 1.93% 1.39% 1.75% Return on average stockholders' equity(4)........... 22.36 19.98 21.97 24.04 22.49 15.02 17.28 Non-interest income to average total assets ........ 1.55 1.65 1.95 1.90 1.85 1.57 1.60 Non-interest expense to average total assets ....... 2.52 2.87 2.81 2.75 2.74 3.04 2.53 Average interest rate spread(5)..................... 3.18 3.36 4.02 3.78 3.79 3.79 3.82 Year-end interest rate spread....................... 3.26 3.40 3.62 3.75 3.81 3.90 3.72 Net interest margin(6).............................. 3.74 3.86 4.32 4.18 4.18 4.17 4.21 Adjusted efficiency ratio (excl. foreclosed assets)(7) 49.07 52.51 48.33 47.31 47.20 55.22 45.97 Net overhead ratio(8)............................... .97 1.06 .87 .85 .90 1.48 .92 Common dividend pay-out ratio....................... 23.58 28.41 25.82 23.08 24.43 35.23 28.46 Asset Quality Ratios:(2) Allowance for loan losses/year-end loans............ 2.06% 2.21% 2.37% 2.48% 2.44% 2.60% 2.56% Non-performing assets/year-end loans and foreclosed assets 1.66 1.26 1.46 2.20 1.81 2.30 2.83 Allowance for loan losses/non-performing loans 149.72 194.48 228.20 155.26 227.18 197.01 243.03 Net charge-offs/average loans....................... .20 .23 .23 .09 .16 .10 .32 Gross non-performing assets/year end assets 1.34 1.05 1.55 1.84 1.79 1.96 2.52 Non-performing loans/year-end loans................. 1.37 1.18 1.42 1.60 1.42 1.32 1.06 Balance Sheet Ratios: Loans to deposits................................... 118.61 122.51 116.62 134.11 118.90 127.52 137.82 Average interest-earning assets as a percentage of average interest-bearing liabilities............ 111.06 111.95 106.57 108.82 108.62 108.45 108.41 Capital Ratios: Average stockholders' equity to average assets 6.83% 7.41% 8.32% 8.64% 8.59% 9.28% 10.15% Year-end tangible stockholders' equity to assets 6.26 7.10 8.11 8.67 8.40 8.53 9.98 Great Southern Bank: Tier 1 risk-based capital ratio.................. 8.91 8.97 9.65 9.95 9.71 10.37 11.77 Total risk-based capital ratio................... 10.17 10.23 10.92 11.22 10.98 11.65 13.02 Tier 1 leverage ratio............................ 7.36 7.45 8.15 7.49 7.52 7.69 8.47 Ratio of Earnings to Fixed Charges:(9) Including deposit interest.......................... 1.48x 1.58x 1.68x 1.68x 1.67x 1.52x 1.65x Excluding deposit interest.......................... 2.42x 2.97x 3.62x 3.02x 2.94x 2.39x 2.65x
- ---------- (1) In 1998, we changed our fiscal year-end from June 30 to December 31. (2) Certain financial ratios for interim periods have been annualized. (3) Earnings divided by average total assets. (4) Earnings divided by average stockholders' equity. (5) Yield on average interest-earning assets less rate on average interest-bearing liabilities. (6) Net interest income divided by average interest-earning assets. (7) Non-interest expense divided by the sum of net interest income, on a tax equivalent basis, plus non-interest income. (8) Non-interest expense less non-interest income divided by average total assets. (9) In computing the ratio of earnings to fixed charges: (a) earnings have been based on income before income taxes and fixed charges, and (b) fixed charges consist of interest and amortization of debt discount and expense including amounts capitalized and the estimated interest portion of rents. 38 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Forward-looking Statements When used in this Annual Report and in future filings by the Company with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans and deposits in the Company's market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake-and specifically declines any obligation-to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. General The profitability of the Company and, more specifically, the profitability of its primary subsidiary, Great Southern Bank (the "Bank"), depends primarily on its net interest income. Net interest income is the difference between the interest income it earns on its loans and investment portfolio and the interest it pays on interest-bearing liabilities, which consists mainly of interest paid on deposits and borrowings. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. The Company's profitability is also affected by the level of its non-interest income and operating expenses. Non-interest income consists primarily of gains and losses on sales of loans and available-for-sale investments, service charges and ATM fees, commissions earned by non-bank subsidiaries and other general operating income. Operating expenses consist primarily of salaries and employee benefits, occupancy-related expenses, postage, insurance, advertising, office expenses and other general operating expenses. The operations of the Bank, and banking institutions in general, are significantly influenced by general economic conditions and related monetary and fiscal policies of regulatory agencies. Deposit flows and the cost of deposits and borrowings are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing real estate and other types of loans, which in turn are affected by the interest rates at which such financing may be offered and other factors affecting loan demand and the availability of funds. 39 Effect of Federal Laws and Regulations Federal legislation and regulation significantly affect the banking operations of the Company and the Bank, and have increased competition among commercial banks, savings institutions, mortgage banking enterprises and other financial institutions. In particular, the capital requirements and operations of regulated depository institutions such as the Company and the Bank have been and will be subject to changes in applicable statutes and regulations from time to time, which changes could, under certain circumstances, adversely affect the Company or the Bank. Potential Impact of Accounting Principles to Be Implemented in the Future The Company will adopt Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 138, Accounting for Certain Derivative Instruments and Hedging Activities, in the first quarter of the year ending December 31, 2001. The principal effects of adoption of SFAS 133 and SFAS 138 relate to reclassification as available-for-sale of certain debt securities previously classified as held-to-maturity and recognition of outstanding interest rate swaps as hedges against changes in the fair value of certain fixed rate brokered certificates of deposit caused by changes in market rates of interest. These changes will not have a material impact on the Company's financial statements. Asset and Liability Management and Market Risk A principal operating objective of the Company is to produce stable earnings by achieving a favorable interest rate spread that can be sustained during fluctuations in prevailing interest rates. The Company has sought to reduce its exposure to adverse changes in interest rates by attempting to achieve a closer match between the periods in which its interest-bearing liabilities and interest-earning assets can be expected to reprice through the origination of adjustable-rate mortgages and loans with shorter terms to maturity and the purchase of other shorter term interest-earning assets. Since the Company uses laddered brokered deposits and FHLBank advances to fund a portion of its loan growth, the Company's assets tend to reprice more quickly than its liabilities. Our Risk When Interest Rates Change The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is Great Southern's most significant market risk. How We Measure the Risk To Us Associated with Interest Rate Changes In an attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor Great Southern's interest rate risk. In monitoring interest rate risk we regularly analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities and their sensitivity to actual or potential changes in market interest rates. The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that can be sustained despite fluctuations in prevailing interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing 40 liabilities which either reprice or mature within a given period of time. The difference, or the interest rate repricing "gap," provides an indication of the extent to which an institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities repricing during the same period, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets during the same period. Generally, during a period of rising interest rates, a negative gap within shorter repricing periods would adversely affect net interest income, while a positive gap within shorter repricing periods would result in an increase in net interest income. During a period of falling interest rates, the opposite would be true. As of December 31, 2000, the ratio of Great Southern's one-year gap to total assets was a negative 3.7% and its ratio of interest-earning assets to interest-bearing liabilities maturing or repricing within one year was 0.95. Interest rate risk exposure estimates (the sensitivity gap) are not exact measures of an institution's actual interest rate risk. They are only indicators of interest rate risk exposure produced in a simplified modeling environment designed to allow management to gauge the Bank's sensitivity to changes in interest rates. They do not necessarily indicate the impact of general interest rate movements on the Bank's net interest income because the repricing of certain categories of assets and liabilities is subject to competitive and other factors beyond the Bank's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated period may in fact mature or reprice at different times and in different amounts and cause a change, which potentially could be material, in the Bank's interest rate risk. In order to minimize the potential for adverse effects of material and prolonged increases and decreases in interest rates on Great Southern's results of operations, Great Southern has adopted asset and liability management policies to better match the maturities and repricing terms of Great Southern's interest-earning assets and interest-bearing liabilities. Management recommends and the Board of Directors sets the asset and liability policies of Great Southern which are implemented by the asset and liability committee. The asset and liability committee is chaired by the Chief Financial Officer and is comprised of members of Great Southern's senior management. The purpose of the asset and liability committee is to communicate, coordinate and control asset/liability management consistent with Great Southern's business plan and board-approved policies. The asset and liability committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk and profitability goals. The asset and liability committee meets on a monthly basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital positions and anticipated changes in the volume and mix of assets and liabilities. At each meeting, the asset and liability committee as necessary recommends appropriate strategy changes based on this review. The Chief Financial Officer or his designee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Board of Directors at their monthly meetings. In order to manage its assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, Great Southern has focused its strategies on originating adjustable rate loans, and managing its deposits and borrowings to establish stable relationships with both retail customers and wholesale funding sources. At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, we may determine to increase our interest rate risk position somewhat in order to maintain our net interest margin. 41 The asset and liability committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by the Board of Directors of Great Southern. In 2000, the Company began using interest rate swap derivatives to manage its interest rate risks from recorded financial assets and liabilities. These derivatives are utilized when they can be demonstrated to effectively hedge a designated asset or liability and such asset or liability exposes the Company to interest rate risk. 42 The following tables illustrate the expected maturities and repricing, respectively, of the Bank's financial instruments at December 31, 2000. These schedules do not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. The tables are based on information prepared in accordance with generally accepted accounting principles. Maturities
December 31, ---------------------------------------------------------------- 2001 2002 2003 2004 2005 -------- -------- ------- ------- ------- (Dollars in thousands) Financial Assets: Interest bearing deposits $905 --- --- --- --- Weighted average rate 5.73% --- --- --- --- Available-for-sale equity securities $8,195 --- --- --- --- Weighted average rate 3.99% --- --- --- --- Available-for-sale debt securities $20,101 $72,287 $9,776 $6,993 $5,618 Weighted average rate 5.86% 6.67% 6.65% 6.46% 6.65% Held to maturity securities $16,996 --- --- --- --- Weighted average rate 6.28% --- --- --- --- Adjustable rate loans $193,965 $81,106 $51,029 $88,341 $71,397 Weighted average rate 9.84% 9.88% 9.86% 9.84% 9.67% Fixed rate loans $43,075 $30,591 $33,327 12,866 $15,227 Weighted average rate 9.61% 10.45% 10.05% 10.56% 10.67% Federal Home Loan Bank stock --- --- --- --- --- Weighted average rate --- --- --- --- --- Financial Liabilities: Savings deposits $20,400 --- --- --- --- Weighted average rate 2.51% --- --- --- --- Time deposits $357,019 $112,538 $39,433 $11,401 $19,631 Weighted average rate 6.32% 6.47% 5.99% 6.36% 6.27% Interest bearing demand $124,973 --- --- --- --- Weighted average rate 2.23% --- --- --- --- Non-interest bearing demand $60,353 --- --- --- --- Weighted average rate --- --- --- --- --- Federal Home Loan Bank and short- term borrowings $157,831 $1,227 $31,327 $25,914 $3,280 Weighted average rate 6.69% 6.79% 6.66% 6.85% 6.64% 2000 Fair Thereafter Total Value ---------- --------- -------- (Dollars in thousands) Financial Assets: Interest bearing deposits --- $905 $905 Weighted average rate --- 5.73% --- Available-for-sale equity securities --- $8,195 $8,195 Weighted average rate --- 3.99% --- Available-for-sale debt securities $3,439 $118,214 $118,214 Weighted average rate 6.42% 6.51% --- Held to maturity securities $10,762 $27,758 $27,718 Weighted average rate 9.37% 7.48% --- Adjustable rate loans $246,616 $732,454 $746,289 Weighted average rate 8.87% 9.50% --- Fixed rate loans 41,938 $177,024 $172,684 Weighted average rate 8.80% 9.81% -- Federal Home Loan Bank stock $14,095 $14,095 $14,095 Weighted average rate 7.08% 7.08% --- Financial Liabilities: Savings deposits --- $20,400 $20,400 Weighted average rate --- 2.51% --- Time deposits $ 5,294 $545,316 $546,008 Weighted average rate 6.03% 6.33% -- Interest bearing demand --- $124,973 $124,973 Weighted average rate --- 2.23% --- Non-interest bearing demand --- $60,353 $60,353 Weighted average rate --- --- --- Federal Home Loan Bank and short- term borrowings $71,994 $291,573 $295,649 Weighted average rate 5.97% 6.52% ---
43 Repricing
December 31, ----------------------------------------------------------------- 2001 2002 2003 2004 2005 --------- -------- ------- ------- ------- (Dollars in thousands) Financial Assets: Interest bearing deposits $905 --- --- --- --- Weighted average rate 5.73% --- --- --- --- Available-for-sale equity securities $8,195 --- --- --- --- Weighted average rate 3.99% --- --- --- --- Available-for-sale debt securities $65,412 $33,570 $9,799 $5,994 --- Weighted average rate 6.55% 6.93% 6.81% 6.46% --- Held to maturity securities $16,996 --- --- --- --- Weighted average rate 6.28% --- --- --- --- Adjustable rate loans $709,282 $7,825 $7,999 $736 $6,493 Weighted average rate 9.55% 7.45% 8.06% 7.42% 8.22% Fixed rate loans $43,075 $30,591 $33,327 $12.886 15,227 Weighted average rate 9.63% 10.45% 9.98% 10.56% 10.67% Federal Home Loan Bank stock $14,095 --- --- --- --- Weighted average rate 7.08% --- --- --- --- Financial Liabilities: Savings deposits $20,400 --- --- --- --- Weighted average rate 2.51% --- --- --- --- Time deposits $462,556 $63,342 $8,421 $4,412 $3,885 Weighted average rate 6.26% 6.63% 6.87% 6.30% 7.12% Interest bearing demand $124,973 --- --- --- --- Weighted average rate 2.23% --- --- --- --- Non-interest bearing demand $60,353 --- --- --- --- Weighted average rate --- --- --- --- --- Federal Home Loan Bank and short- $263,010 $1,227 $1,327 $2,914 $3,280 term borrowings Weighted average rate 6.51% 6.79% 6.89% 7.32% 6.64%
2000 Fair Thereafter Total Value ------------- ---------- --------- (Dollars in thousands) Financial Assets: Interest bearing deposits --- $905 $905 Weighted average rate --- 5.73% --- Available-for-sale equity securities --- $8,195 $8,195 Weighted average rate --- 3.99% --- Available-for-sale debt securities $3,439 $118,214 $118,214 Weighted average rate 6.42% 6.51% --- Held to maturity securities $10,762 $27,758 $27,718 Weighted average rate 9.37% 7.48% --- Adjustable rate loans $119 $732,454 $746,289 Weighted average rate 8.13% 9.50% --- Fixed rate loans $41,938 $177,024 $172,684 Weighted average rate 8.83% 9.81% --- Federal Home Loan Bank stock --- $14,095 $14,095 Weighted average rate --- 7.08% --- Financial Liabilities: Savings deposits --- $20,400 $20,400 Weighted average rate --- 2.51% --- Time deposits $ 2,700 $545,316 $546,008 Weighted average rate 6.47% 6.33% --- Interest bearing demand --- $124,973 $124,973 Weighted average rate --- 2.23% --- Non-interest bearing demand --- $60,353 $60,353 Weighted average rate --- --- --- Federal Home Loan Bank and short- term borrowings $19,815 $291,573 $295,649 Weighted average rate 6.54% 6.52% ---
44 Change in Fiscal Year In 1998, the Company changed its fiscal year end from June 30 to December 31. The six-month period ended December 31, 1998 transitions between the Company's old and new fiscal year ends. Because of this fiscal year change, the results of operations for the year ended December 31, 1999 have been compared to the results of operations for the year ended June 30, 1998. Comparison of Financial Condition at December 31, 2000 and December 31, 1999 During the year ended December 31, 2000, the Company increased total assets by $165 million to $1.13 billion. A large portion of the increase was due to the increase in net loans of $124 million. The main loan areas experiencing increases were commercial real estate, commercial construction, consumer and one- to four-family residential. Total investment securities increased by $37 million, which was primarily an increase in available-for-sale United States government agency securities. Additionally, investment in FHLBank stock increased $3 million. Total liabilities increased $163 million from December 31, 1999 to December 31, 2000, to $1.06 billion. FHLBank advances increased $34 million. Short-term borrowings decreased $12 million, due to a decrease in securities sold under repurchase agreements with retail customers, primarily due to the loss of one customer. Generally, the interest rates paid on these repurchase accounts was lower than rates paid on FHLBank advances or brokered certificates of deposit in 2000. While these types of deposits are generally less expensive, there is limited availability of these funds in our market. Deposits increased $125 million due primarily to an increase in certificates of deposit of $111 million, of which $77 million related to brokered deposits. Total brokered deposits were $287 million at December 31, 2000. The weighted average cost of these deposits was approximately 20 basis points higher than the rest of the certificate of deposit portfolio. Management continues to feel that FHLBank advances and brokered deposits are viable alternatives to retail deposits when factoring in all the costs associated with the generation and maintenance of additional retail deposits. Checking accounts increased $23 million, with an increase of $13 million in non-interest bearing accounts and an increase of $10 million in interest bearing accounts. The increase in certificates of deposit and checking accounts was partially offset by the decrease in savings accounts of $9 million. A good portion of this $9 million decrease was actually moved into other Bank products, primarily checking accounts, with the remainder leaving the Bank. Stockholders' equity increased $2 million from December 31, 1999 to December 31, 2000, to $71.0 million. Net income for fiscal year 2000 was $15.5 million and accumulated other comprehensive income increased by $1.0 million. These items were offset by dividends of $3.6 million and net treasury stock repurchases of $10.8 million. The Company repurchased 630,282 shares of common stock at an average price of $17.85 per share during 2000. Results of Operations and Comparison for the Years Ended December 31, 2000 and 1999 General The increase in earnings of $1.8 million, or 13.2%, during the year ended December 31, 2000, compared to the year ended December 31, 1999, was primarily due to an increase in net interest income of $4.0 million, or 12.2%, and an increase in non-interest income of $361,000, or 2.4%, partially offset by an increase in non-interest expense of $338,000, or 1.3%, an increase in provision for loan losses of $1.0 million, or 50.6%, and an increase in provision for income taxes of $1.2 million, or 16.6%. 45 Total Interest Income Total interest income increased $17.4 million, or 25.5%, during the year ended December 31, 2000 compared to the year ended December 31, 1999. The increase was due to a $13.3 million, or 21.0%, increase in interest income on loans and a $4.1 million, or 88.1%, increase in interest income on investments and other interest-earning assets. Interest Income - Loans During the year ended December 31, 2000 compared to the year ended December 31, 1999, interest income on loans increased from both higher average balances and higher average rates of interest. Interest income increased $8.5 million as the result of an increase in average loan balances from $747 million during the year ended December 31, 1999 to $843 million during the year ended December 31, 2000. The higher average balance resulted principally from the Bank's increased commercial real estate and construction lending and indirect consumer lending. Interest income also increased $4.8 million as the result of higher average interest rates. The average yield on loans increased from 8.49% during the year ended December 31, 1999, to 9.09% during the year ended December 31, 2000, as a result of the increases in the aforementioned loan types which generally bear higher rates than other loan types and due to higher market rates of interest. A large portion of the Bank's loan portfolio adjusts with changes to the "prime rate" of interest. Interest Income - Investments And Other Interest-earning Assets Interest income on investments and other interest-earning assets increased mainly as a result of higher average balances during the year ended December 31, 2000, when compared to the year ended December 31, 1999. Interest income increased $2.1 million as a result of an increase in average balances from $97 million during the year ended December 31, 1999, to $135 million during the year ended December 31, 2000. This increase was primarily in available-for-sale securities, where additional securities were acquired for liquidity and pledging to deposit accounts under repurchase agreements. Interest income increased $2.0 million as a result of an increase in average yields from 4.78% during the year ended December 31, 1999, to 6.47% during the year ended December 31, 2000. Total Interest Expense Total interest expense increased $13.4 million, or 37.8%, during the year ended December 31, 2000, when compared with the year ended December 31, 1999, primarily due to an increase in interest expense on deposits of $7.3 million, or 29.1%, an increase in interest expense on FHLBank advances of $4.9 million, or 52.2%, and an increase in interest expense on short-term borrowings of $1.2 million, or 110%. Interest Expense - Deposits Interest expense on deposits increased $4.3 million as a result of an increase in average balances of time deposits from $402 million during the year ended December 31, 1999, to $476 million during the year ended December 31, 2000, and increased $3.1 million due to an increase in average interest rates on time deposits from 5.37% during the year ended December 31, 1999, to 6.09% during the year ended December 31, 2000. The average balances of time deposits increased primarily as a result of the Company's use of brokered and other time deposits to fund loan growth. In recent years, brokered deposit rates have become 46 competitive with rates on FHLBank advances and larger retail deposits. The average interest rates increased due to higher overall market rates of interest. Interest on demand deposits decreased $166,000 due to a decrease in average balances from $135 million during the year ended December 31, 1999, to $122 million during the year ended December 31, 2000, and increased $242,000 due to an increase in average rates from 1.88% during the year ended December 31, 1999, to 2.14% during the year ended December 31, 2000. The other deposit category, savings, experienced a $211,000 decrease due to both lower balances and lower market interest rates. Interest Expense - FHLBank And Other Borrowings Interest expense on FHLBank advances and short-term borrowings increased $4.5 million due to an increase in average balances from $185 million in the year ended December 31, 1999, to $257 million in the year ended December 31, 2000. Average rates increased from 5.68% during the year ended December 31, 1999, to 6.47% during the year ended December 31, 2000, resulting in increased interest expense of $1.6 million due to higher rates. The average balance increase was used to fund growth in loans and securities. Average interest rates increased due to higher overall market rates during 2000. Net Interest Income The Company's overall interest rate spread decreased 18 basis points, or 5.4%, from 3.36% during the year ended December 31, 1999, to 3.18% during the year ended December 31, 2000. The decrease was due to an 85 basis point increase in the weighted average rate paid on interest-bearing liabilities partially offset by a 67 basis point increase in the weighted average yield received on interest-earning assets. The Company's overall net interest margin decreased 12 basis points, or 3.1%, from 3.86% during the year ended December 31, 1999, to 3.74% during the year ended December 31, 2000. The prime rate of interest averaged 8.00% during the year ended December 31, 1999, compared to an average of 9.23% during the year ended December 31, 2000. As a large percentage of the Bank's loans are tied to prime, this increase was the primary reason for the increase in the weighted average yield received on interest-earning assets. Interest rates paid on deposits and FHLBank advances increased during 2000 compared to 1999. As the Company has grown the assets of the Bank, the brokered and other time deposits and advances needed to fund that growth have increased the average cost of deposits since time deposits are higher cost deposits for the Bank than are interest-bearing demand and savings. In addition, overall interest rates were higher during 2000. Provision For Loan Losses The provision for loan losses increased $1.0 million, or 50.6%, during the year ended December 31, 2000, from $2.1 million during the year ended December 31, 1999 to $3.1 million during the year ended December 31, 2000. Management records a provision for loan losses in an amount it believes sufficient to result in an allowance for loan losses that will cover current net charge-offs as well as risks believed to be inherent in the loan portfolio of the Bank. The amount of provision charged against current income is based on several factors, including, but not limited to, past loss experience, current portfolio mix, actual and potential losses 47 identified in the loan portfolio, economic conditions, regular reviews by internal staff and regulatory examinations. Weak economic conditions, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio. Management has established various controls in an attempt to limit future losses, such as a watch list of possible problem loans, documented loan administration policies and a loan review staff to review the quality and anticipated collectibility of the portfolio. Management determines which loans are potentially uncollectible, or represent a greater risk of loss and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level. Non-performing assets increased $5.6 million, or 57.1%, from $9.6 million at December 31, 1999, to $15.2 million at December 31, 2000. Non-performing loans increased $3.7 million, or 41.2%, from $8.8 million at December 31, 1999, to $12.5 million at December 31, 2000, and foreclosed assets increased $1.9 million, or 229%, from $817,000 at December 31, 1999, to $2.7 million at December 31, 2000. Commercial loans comprise $11.7 million, or 94%, of the total $12.5 million non-performing loans at December 31, 2000. Two large commercial real estate credit relationships, totaling $7.3 million and $2.4 million, respectively, account for a majority of this non-performing total. The $7.3 million relationship is secured primarily by condominium buildings and lots, single-family residences and lots, and other developed land near the Lake of the Ozarks, Missouri. This relationship was placed in a non-accrual status in the fourth quarter of 2000. Bank management is working with the borrower and another bank to explore possible modifications to the loan terms and to secure additional collateral for the loans. The $2.4 million relationship is secured by a golf course and undeveloped lots near the Lake of the Ozarks, Missouri. This relationship was placed on non-accrual status in the fourth quarter of 1999. Subsequent to December 31, 2000, the Bank has commenced foreclosure on the collateral. Bank management is communicating frequently with these borrowers to determine the status of the projects and to develop action plans for these loans. Of the total $2.7 million of foreclosed assets at December 31, 2000, three relationships account for $1.8 million. The first relationship involves a theater in Branson, Missouri. The theater was leased through December 31, 2000, and is now vacant and is listed for sale with a broker. The second relationship involves two retail commercial buildings in Springfield, Missouri. The buildings are vacant and are listed for sale with a broker. The third relationship involves a single-family residence located near Joplin, Missouri. The house was under construction at the time of foreclosure and is now near completion. Potential problem loans decreased $3.3 million, or 30.6%, from $10.8 million at December 31, 1999, to $7.5 million at December 31, 2000. These are loans which management has identified through routine internal review procedures as having possible credit problems which may cause the borrowers difficulty in complying with current loan repayment terms. These loans are not reflected in the non-performing loans. The Bank's allowance for loan losses as a percentage of total loans was 2.06% and 2.20% at December 31, 2000 and 1999, respectively. Management considers the allowance for loan losses adequate to cover losses inherent in the Company's loan portfolio at this time, based on current economic conditions. If economic conditions deteriorate significantly, it is possible that additional assets would be classified as non-performing and, accordingly, additional provision for losses would be required, thereby adversely affecting future results of operations and financial condition. 48 Non-interest Income Non-interest income increased $361,000, or 2.4%, in the year ended December 31, 2000, when compared to the year ended December 31, 1999. The increase was primarily due to: (i) an increase in service charges and ATM fees of $1.5 million, or 32.6%; and (ii) an increase in income on foreclosed assets of $295,000. The increase in service charges fees resulted from increased rates and a larger number of deposit accounts. The increase in ATM fees is related to an increased number of ATMs in the Company's market area along with a nominal increase in transaction charges, resulting in increased fees from use by non- customers. The increased income on foreclosed assets in 2000 is primarily the result of recognizing a deferred gain of $299,000 upon partial repayment of a loan made in connection with the sale of other real estate. This increase was partially offset by: (i) a decrease in net realized gains on sales of fixed rate residential and other loans of $528,000, or 48.1%; (ii) a decrease of $326,000, or 103%, in profits on sales of available-for-sale securities; and (iii) a decrease of $326,000, or 40.2%, in late charges, prepayment penalties, and other loan fees. During the year ended December 31, 2000, the Bank recognized less gains on the sale of residential and student loans than in 1999. During 1999, interest rates were conducive to the generation of fixed-rate mortgages, which the Bank typically sells, rather than adjustable-rate mortgages, which the Bank typically retains in its portfolio. During the year ended December 31, 1999, the Company sold some of its investments in equity securities and realized the gains. Non-interest Expense Non-interest expense increased $338,000, or 1.3%, in the year ended December 31, 2000, when compared to the year ended December 31, 1999. The increase was primarily due to: (i) an increase of $405,000, or 9.8%, in net occupancy and equipment expense due primarily to renovation work at the Company's main office and operations center; (ii) an increase of $146,000, or 14.5%, in postage expense; (iii) an increase of $102,000, or 16.7%, in marketing and advertising expense due primarily to the Company's introduction of its new online banking product and other new products; and (iv) an increase of $227,000, or 36.8%, in professional fees primarily due to fees paid to consultants who assisted in the implementation of new products during the fourth quarter of 2000. These payments to the consultants will cease after February 2001. This was partially offset by: (i) a decrease of $123,000, or .9%, in salaries and employee benefits; (ii) a decrease of $287,000, or 29.0%, in office supplies and printing expense; and (iii) a decrease of $118,000, or 18.5%, in insurance expense due to lower FDIC premiums. The higher amounts of expenses in 1999 for office supplies and printing were related to the Company's core computer conversion, "Year 2000" issues and other technology related items. Provision For Income Taxes Provision for income taxes as a percentage of pre-tax income increased slightly from 33.9% for the year ended December 31, 1999, to 34.6% for the year ended December 31, 2000. 49 Average Balances, Interest Rates and Yields The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Average balances of loans receivable include the average balances of non-accrual loans for each period. Interest income on loans includes interest received on non-accrual loans on a cash basis. The table does not reflect any effect of income taxes.
Year Ended December 31, 2000 ---------------------------------------- December 31, 2000 Average Yield/Rate Balance Interest Yield/Rate ---------- -------- --------- ---------- (Dollars in thousands) Interest-earning assets: Loans receivable 9.50% $843,170 $76,671 9.09% Investment securities and other interest- earning assets 6.63 135,148 8,751 6.47 ----- -------- ------- ----- Total interest-earning assets 9.04 $978,318 85,422 8.73 ----- -------- ------- ----- Interest-bearing liabilities: Interest-bearing demand 2.23 $122,392 2,617 2.14 Savings 2.51 25,400 631 2.48 Time deposits 6.33 476,386 28,996 6.09 ----- -------- ------- ----- Total deposits 5.47 624,178 32,244 5.17 FHLB advances and other borrowings 6.52 256,698 16,617 6.47 ----- -------- ------- ----- Total interest-bearing liabilities 5.78 $880,876 48,861 5.55 ----- ======== ------- ----- Net interest income: Interest rate spread 3.26% $36,561 3.18% ===== ======= ===== Net interest margin* 3.74% ===== Average interest-earning assets to average interest-bearing liabilities 111.1% ======== Year Ended December 31, 1999 ----------------- Average Balance Interest Yield/Rate --------- ---------- ---------- (Dollars in thousands) Interest-earning assets: Loans receivable $746,979 $63,386 8.49% Investment securities and other interest- earning assets 97,402 4,652 4.78 -------- ------- ----- Total interest-earning assets $844,381 68,038 8.06 ======== ======= ===== Interest-bearing liabilities: Interest-bearing demand $135,026 2,542 1.88 Savings 32,634 842 2.58 Time deposits 401,683 21,583 5.37 -------- ------- ----- Total deposits 569,343 24,967 4.39 FHLB advances and other borrowings 184,872 10,496 5.68 -------- ------- ----- Total interest-bearing liabilities $754,215 35,463 4.70 ======== ======= ===== Net interest income: Interest rate spread $32,575 3.36% ======= ===== Net interest margin* 3.86% ===== Average interest-earning assets to average interest-bearing liabilities 112.0% ========
*Defined as the Company's net interest income divided by total interest-earning assets. 50 Rate/Volume Analysis The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to volume and rate.
Year Ended Year Ended December 31, 2000 vs. December 31, 1999 vs December 31, 1999 June 30, 1998 ------------------------------------- --------------------------------------- Increase Increase (Decrease) (Decrease) Due to Total Due to Total ------------------------ Increase ----------------------- Increase Rate Volume (Decrease) Rate Volume (Decrease) ----------- ------------ ---------- ------------ ----------- ----------- (Dollars in thousands) Interest-earning assets: Loans receivable $4,747 $ 8,538 $13,285 $(3,946) $9,795 $5,849 Investment securities and other interest-earning assets 1,961 2,138 4,099 17 240 257 ------ ------- ------ ------- ------ ------ Total interest-earning assets 6,708 10,676 17,384 (3,929) 10,035 6,106 ------ ------- ------ ------- ------ ------ Interest-bearing liabilities: Demand deposits 242 (166) 76 (412) 280 (132) Savings deposits (31) (180) (211) 40 (58) (18) Time deposits 3,089 4,324 7,413 (628) 4,793 4,165 ------ ------- ------ ------- ------ ------ Total deposits 3,300 3,978 7,278 (1,000) 5,015 4,015 FHLBank advances and other borrowings 1,622 4,498 6,120 (173) (371) (544) ------ ------- ------ ------- ------ ------ Total interest-bearing liabilities 4,922 8,476 13,398 (1,173) 4,644 3,471 ------ ------- ------ ------- ------ ------ Net interest income $1,786 $ 2,200 $3,986 $(2,828) $5,463 $2,635 ====== ======= ====== ======= ====== ======
RESULTS OF OPERATIONS AND COMPARISON FOR THE YEARS ENDED DECEMBER 31, 1999 AND JUNE 30, 1998 General The decrease in earnings of $767,000, or 5.3%, during the year ended December 31, 1999, compared to the year ended June 30, 1998, was primarily due to an increase in salaries and employee benefits of $2.9 million, or 27.1%, and an increase in net occupancy expenses of $1.1 million, or 36.0%, offset by an increase in net interest income of $2.6 million, or 8.8%, and an increase in non-interest income of $1.6 million, or 11.2%. The remaining decrease is attributed to additional non-interest expense items, provision for loan losses and provision for income taxes. Total Interest Income Total interest income increased $6.1 million, or 9.9%, during the year ended December 31, 1999, compared to the year ended June 30, 1998, primarily due to a $5.8 million, or 10.2%, increase in interest income on loans. 51 Interest Income - Loans During the year ended December 31, 1999, compared to June 30, 1998, interest income on loans increased primarily from higher average balances. Interest income increased $9.8 million as the result of higher average loan balances from $624.3 million during the year ended June 30, 1998, to $747.0 million during the year ended December 31, 1999. The higher average balance resulted principally from the Bank's increased commercial business lending and indirect consumer lending. This increase was partially offset by a decrease in the interest income on loans of $3.9 million as a result of lower average yields on loans from 9.22% during the year ended June 30, 1998, to 8.49% during the year ended December 31, 1999. Interest Income - Investments and Other Interest-Earning Deposits Interest income on investments and interest-earning deposits increased $257,000, or 5.9%, during the year ended December 31, 1999, when compared to the year ended June 30, 1998. Interest income increased $240,000 as a result of higher average balances from $92.3 million during the year ended June 30, 1998, to $97.4 million in the year ended December 31, 1999. Interest income increased $17,000 as a result of higher average yields from 4.76% during the year ended June 30, 1998, to 4.78% during the year ended December 31, 1999. Total Interest Expense Total interest expense increased $3.5 million, or 10.9%, during the year ended December 31, 1999 when compared with the year ended June 30, 1998, primarily due to an increase in interest expense on deposits of $4.0 million, or 19.2%, offset by a decrease in interest expense on FHLBank advances of $500,000, or 5.1%. Interest Expense - Deposits Interest expense on time deposits increased $4.8 million as a result of higher average balances from $312.1 million during the year ended June 30, 1998, to $401.7 million during the year ended December 31, 1999. The average balances of time deposits increased primarily as a result of the Company's use of brokered and other time deposits to fund loan growth. In recent years, brokered deposit rates have become competitive with rates on FHLBank advances and larger retail deposits. This increase was partially offset by a decrease in the interest expense on time deposits of $628,000 as a result of lower average rates from 5.58% during the year ended June 30, 1998, to 5.37% during the year ended December 31, 1999. Interest Expense - FHLBank and Other Borrowings Interest expense on FHLBank advances and other borrowings decreased $544,000 principally due to lower average balances of $191.3 million during the year ended June 30, 1998, compared to $184.9 million during the year ended December 31, 1999. These lower average balances resulted from the increase in deposits noted above that were used to repay maturing FHLBank advances. Average rates were lower during the year ended December 31, 1999, at 5.68% compared to 5.77% during the year ended June 30, 1998. Net Interest Income The Company's overall interest rate spread decreased from 3.79% during the year ended June 30, 1998, to 3.36% during the year ended December 31, 1999. 52 Provision for Loan Losses The provision for loan losses increased $209,000, or 11.3%, during the year ended December 31, 1999, from $1.9 million during the year ended June 30, 1998 to $2.1 million during the year ended December 31, 1999. Management records a provision for loan losses in an amount it believes sufficient to result in an allowance for loan losses that will cover current net charge-offs as well as risks believed to be inherent in the loan portfolio of the Bank. The amount of provision charged against current income is based on several factors, including, but not limited to, past loss experience, current portfolio mix, actual and potential losses identified in the loan portfolio, economic conditions and regular reviews by internal staff and regulatory examinations. Weak economic conditions, higher inflation or interest rates, or other factors may lead to increased losses in the portfolio. Management has established various controls in an attempt to limit future losses, such as a watch list of possible problem loans, documented loan administration policies and a loan review staff to review the quality and anticipated collectibility of the portfolio. Management determines which loans are potentially uncollectible, or represent a greater risk of loss and makes additional provisions to expense, if necessary, to maintain the allowance at a satisfactory level. Non-performing assets decreased $2.9 million, or 23.2%, from $12.5 million at December 31, 1998, to $9.6 million at December 31, 1999. Non-performing loans decreased $900,000, or 9.3%, from $9.7 million at December 31, 1998, to $8.8 million at December 31, 1999, and foreclosed assets declined $2.0 million, or 70.9%, from $2.8 million at December 31, 1998, to $817,000 at December 31, 1999. Potential problem loans decreased $1.4 million, or 11.5%, from $12.2 million at December 31, 1998, to $10.8 million at December 31, 1999. These are loans which management has identified through routine internal review procedures as having possible credit problems which may cause the borrowers difficulty in complying with current loan repayment terms. These loans are not reflected in the non-performing loans. Management considers the allowance for loan losses adequate to cover losses inherent in the Company's loan portfolio at this time, based on current economic conditions. If economic conditions deteriorate significantly, it is possible that additional assets would be classified as non-performing, and accordingly, additional provision for losses would be required, thereby adversely affecting future results of operations and financial condition. Non-Interest Income Non-interest income increased $1.6 million, or 11.2%, during the year ended December 31, 1999, compared to the year ended June 30, 1998. The increase was primarily due to: (i) an increase of $1.4 million, or 24.8%, in commission income from the travel, insurance and investment subsidiaries from growth in these areas; (ii) an increase in service charges income of $661,000, or 17.2%, on transaction accounts due to an increase in overdraft charges; offset by (iii) a decrease in net realized gains on sales of available-for-sale securities of $1.1 million, or 77.3%; (iv) a decline of $326,000, or 100.0%, of income on foreclosed assets due to the sale of income-producing foreclosed assets; and (v) various increases or decreases in other non-interest income items. 53 Non-Interest Expense Non-interest expense increased $4.6 million, or 22.7% during the year ended December 31, 1999 when compared to the year ended June 30, 1998. The increase was primarily due to: (i) an increase of $2.9 million, or 27.1%, in salaries and employee benefits due to increased staffing levels in most areas of the Company due to growth and the year 2000 issue; (ii) an increase of $1.1 million, or 36.0%, in net occupancy expense primarily due to the core computer conversion, year 2000 testing of the Bank's systems and other technology-related purchases; (iii) an increase of $325,000, or 48.8%, in office supplies and printing due to the cost of replacing all debit cards prior to December 31, 1999 and additional supplies purchased as a result of the year 2000 issue; and (iv) various increases or decreases in other non-interest expense items. Provision for Income Taxes Provision for income taxes as a percentage of pre-tax income increased slightly from 32.4% for the year ended June 30, 1998 to 33.9% for the year ended December 31, 1999. Liquidity and Capital Resources Liquidity is a measure of the Company's ability to generate sufficient cash to meet present and future financial obligations in a timely manner through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. These obligations include the credit needs of customers, funding deposit withdrawals and the day-to-day operations of the Company. Liquid assets include cash, interest-bearing deposits with financial institutions and certain investment securities and loans. As a result of the Company's management of the ability to generate liquidity primarily through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. At December 31, 2000, the Company had commitments of approximately $132.3 million to fund loan originations, issued lines of credit, outstanding letters of credit and unadvanced loans. Management continuously reviews the capital position of the Company and the Bank to ensure compliance with minimum regulatory requirements, as well as to explore ways to increase capital either by retained earnings or other means. The Company's stockholders' equity was $71.0 million, or 6.3% of total assets of $1.13 billion at December 31, 2000, compared to equity of $68.9 million, or 7.1% of total assets of $964.8 million at December 31, 1999. Banks are required to maintain minimum risk-based capital ratios. These ratios compare capital, as defined by the risk-based regulations, to assets adjusted for their relative risk as defined by the regulations. Guidelines require banks to have a minimum Tier 1 risk-based capital ratio, as defined, of 4.00%, a minimum total risked-based capital ratio of 8.00%, and a minimum 4.00% core capital ratio. On December 31, 2000, the Bank's Tier 1 risk-based capital ratio was 8.9%, total risk-based capital ratio was 10.2% and the core capital ratio was 7.4%. As of December 31, 2000, the Bank was "well capitalized" as defined by the Federal banking agencies' capital-related regulations. The Federal Reserve Bank has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. As of December 31, 2000, the Company was "well capitalized" under the two Tier I capital ratios described above and was "adequately capitalized" under the total risk-based capital ratio described above. 54 At December 31, 2000, the held-to-maturity investment portfolio included $155,000 of gross unrealized losses. The unrealized losses are not expected to have a material effect on future earnings beyond the usual amortization of acquisition premium or accretion of discount because no sale of the held-to-maturity investment portfolio is foreseen. The Company's primary sources of funds are certificates of deposit, FHLBank advances, other borrowings, loan repayments, proceeds from sales of loans and available-for-sale securities and funds provided from operations. The Company utilizes particular sources of funds based on the comparative costs and availability at the time. The Company has from time to time chosen not to pay rates on deposits as high as the rates paid by certain of its competitors and, when believed to be appropriate, supplements deposits with less expensive alternative sources of funds. Statements of Cash Flows. During the years ended December 31, 2000 and 1999, and June 30 1998, and the six months ended December 31, 1998, the Company had positive cash flows from operating activities and positive cash flows from financing activities. The Company experienced negative cash flows from investing activities during each of these same time periods. Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to net income adjusted for accrued assets and liabilities, the provisions for loan losses and losses on foreclosed assets, depreciation, sale of foreclosed assets and the amortization of deferred loan fees and discounts (premiums) on loans and investments, all of which are non-cash or non-operating adjustments to operating cash flows. As a result, net income adjusted for non-cash and non-operating items was the primary source of cash flows from operating activities. Operating activities provided cash flows of $26.3 million, $19.5 million, $10.3 million, and $6.0 million during the years ended December 31, 2000 and 1999, and June 30, 1998, and the six months ended December 31, 1998, respectively. During the years ended December 31, 2000 and 1999, and June 30, 1998, and the six months ended December 31, 1998, investing activities used cash of $170.5 million, $126.7 million, $72.6 million, and $51.3 million, primarily due to the net increase of loans and the net purchases of investment securities in each period. Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows are due to changes in deposits after interest credited, changes in FHLBank advances and changes in short-term borrowings, as well as the purchases of treasury stock and dividend payments to stockholders. Financing activities provided $140.7 million, $117.2 million, $75.7 million, and $33.0 million for the years ended December 31, 2000 and 1999, and June 30, 1998, and the six months ended December 31, 1998, respectively. Financing activities in the future are expected to primarily include changes in deposits, changes in FHLBank advances, changes in short-term borrowings, purchases of treasury stock and dividend payments to stockholders. Dividends. During the year ended December 31, 2000, the Company declared and paid dividends of $.50 per share, or 23.6% of net income, compared to dividends declared and paid during the year ended December 31, 1999 of $.50 per share, or 28.4% of net income. The Board of Directors meets regularly to consider the level and the timing of dividend payments. Common Stock Repurchases. The Company has been in various buy-back programs since May 1990. During the year ended December 31, 2000, the Company repurchased 630,282 shares of its common stock at an average price of $17.85 per share and reissued 38,502 shares of treasury stock at an average price of $12.39 per share to cover stock option exercises. During the year ended December 31, 1999, the 55 Company repurchased 371,808 shares of its common stock at an average price of $23.61 per share and reissued 58,241 shares of treasury stock at an average price of $7.18 per share to cover stock option exercises. Management intends to continue its stock buy-back programs from time to time as long as repurchasing the stock contributes to the overall growth of shareholder value. The number of shares of stock that will be repurchased and the price that will be paid is the result of many factors, several of which are outside of the control of the Company. The primary factors, however, are the number of shares available in the market from sellers at any given time and the price of the stock within the market as determined by the market. 56 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Independent Accountants' Report Board of Directors Great Southern Bancorp, Inc. Springfield, Missouri We have audited the consolidated statements of financial condition of GREAT SOUTHERN BANCORP, INC. as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years ended December 31, 2000 and 1999, the six-month period ended December 31, 1998, and the year ended June 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GREAT SOUTHERN BANCORP, INC. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years ended December 31, 2000 and 1999, the six-month period ended December 31, 1998, and the year ended June 30, 1998, in conformity with generally accepted accounting principles. /s/ BAIRD, KURTZ & DOBSON Springfield, Missouri February 2, 2001 57 GREAT SOUTHERN BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 2000 AND 1999 ASSETS 2000 1999 ---- ---- Cash $ 39,192,978 $ 42,355,901 Interest-bearing deposits in other financial institutions 907,765 1,244,319 -------------- ------------ Cash and cash equivalents 40,100,743 43,600,220 Available-for-sale securities 126,409,164 79,891,460 Held-to-maturity securities 27,758,280 37,645,500 Loans receivable, net 890,783,678 766,806,940 Interest receivable: Loans 6,352,762 4,971,646 Investments 2,558,403 882,848 Prepaid expenses and other assets 3,678,579 4,027,242 Foreclosed assets held for sale, net 2,688,485 817,118 Premises and equipment, net 10,316,193 9,984,075 Investment in Federal Home Loan Bank stock 14,094,900 10,981,000 Excess of cost over fair value of net assets acquired, at amortized cost 263,861 403,569 Deferred income taxes 5,173,010 4,791,784 -------------- ------------ Total Assets $1,130,178,058 $964,803,402 ============== ============ See Notes to Consolidated Financial Statements 58 GREAT SOUTHERN BANCORP, INC. LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999 ---- ---- LIABILITIES Deposits $ 751,041,996 $ 625,900,352 Federal Home Loan Bank advances 234,378,004 200,530,921 Short-term borrowings 41,695,373 53,594,090 Note payable to bank 15,500,000 7,517,025 Accrued interest payable 6,117,661 5,832,253 Advances from borrowers for taxes and insurance 344,093 309,100 Accounts payable and accrued expenses 2,983,695 1,995,369 Income taxes payable 7,068,547 198,401 -------------- ------------- Total Liabilities 1,059,129,369 895,877,511 -------------- ------------- STOCKHOLDERS' EQUITY Capital stock Serial preferred stock, $.01 par value; authorized 1,000,000 shares -- -- Common stock, $.01 par value; authorized 20,000,000 shares, issued 12,325,002 shares 123,250 123,250 Additional paid-in capital 17,461,445 17,487,433 Retained earnings 112,176,579 100,310,493 Accumulated other comprehensive income: Unrealized appreciation (depreciation) on available- for-sale securities, net of income taxes of $199,651 and $(381,970) at December 31, 2000 and 1999 384,183 (644,052) -------------- ------------- 130,145,457 117,277,124 Less treasury common stock, at cost; December 31, 2000 and 1999 - 5,427,670 and 4,835,890 shares 59,096,768 48,351,233 -------------- ------------- Total Stockholders' Equity 71,048,689 68,925,891 -------------- ------------- Total Liabilities and Stockholders' Equity $1,130,178,058 $ 964,803,402 ============== =============
See Notes to Consolidated Financial Statements 59 GREAT SOUTHERN BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998 AND SIX MONTHS ENDED DECEMBER 31, 1998
Years Ended December 31, Six Months ------------------------ Ended Year Ended 2000 1999 December 31, 1998 June 30, 1998 ---- ---- ----------------- ------------- INTEREST INCOME Loans $ 76,671,111 $ 63,385,746 $ 30,332,255 $ 57,536,900 Investment securities and other 8,750,590 4,652,307 2,152,517 4,394,785 ------------ ------------ ------------ ------------ 85,421,701 68,038,053 32,484,772 61,931,685 ------------ ------------ ------------ ------------ INTEREST EXPENSE Deposits 32,244,045 24,966,556 12,255,041 20,950,665 Federal Home Loan Bank advances 14,312,278 9,402,561 4,236,600 9,904,520 Short-term borrowings 2,304,450 1,093,973 38,180 1,136,493 ------------ ------------ ------------ ------------ 48,860,773 35,463,090 16,529,821 31,991,678 ------------ ------------ ------------ ------------ NET INTEREST INCOME 36,560,928 32,574,963 15,954,951 29,940,007 PROVISION FOR LOAN LOSSES 3,105,600 2,062,000 1,290,712 1,852,597 ------------ ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 33,455,328 30,512,963 14,664,239 28,087,410 ------------ ------------ ------------ ------------ NONINTEREST INCOME Commissions 7,024,290 7,054,584 3,135,936 5,652,388 Service charge and ATM fees 5,968,518 4,501,765 2,389,892 3,840,564 Net realized gains on sales of loans 570,053 1,097,711 385,563 1,125,153 Net realized gains (losses) on sales of available-for-sale securities (9,312) 316,508 355,501 1,397,828 Income on foreclosed assets 294,638 -- 420,104 326,197 Other income 1,862,871 2,379,274 1,170,728 1,456,437 ------------ ------------ ------------ ------------ 15,711,058 15,349,842 7,857,724 13,798,567 ------------ ------------ ------------ ------------ NONINTEREST EXPENSE Salaries and employee benefits 13,641,901 13,764,902 5,743,429 10,828,683 Net occupancy expense 4,529,251 4,124,654 1,771,624 3,033,707 Postage 1,152,228 1,006,568 447,493 857,127 Insurance 520,746 638,660 291,897 637,339 Amortization of excess of cost over fair value of net assets acquired 159,708 159,708 83,188 65,410 Advertising 713,382 611,206 275,799 586,367 Office supplies and printing 703,247 990,607 395,995 665,878 Other operating expenses 4,084,281 3,870,919 2,296,644 3,843,717 ------------ ------------ ------------ ------------ 25,504,744 25,167,224 11,306,069 20,518,228 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 23,661,642 20,695,581 11,215,894 21,367,749 PROVISION FOR INCOME TAXES 8,184,000 7,018,200 3,858,300 6,923,700 ------------ ------------ ------------ ------------ NET INCOME $ 15,477,642 $ 13,677,381 $ 7,357,594 $ 14,444,049 ============ ============ ============ ============ EARNINGS PER COMMON SHARE BASIC $ 2.16 $ 1.79 $ .93 $ 1.79 ============ ============ ============ ============ DILUTED $ 2.12 $ 1.76 $ .91 $ 1.76 ============ ============ ============ ============
See Notes to Consolidated Financial Statements 60 GREAT SOUTHERN BANCORP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998 AND SIX MONTHS ENDED DECEMBER 31, 1998
Additional Comprehensive Common Paid-in Income Stock Capital ------------- ------------- ------------- BALANCE, JULY 1, 1997 $ -- $ 123,250 $ 17,058,326 Net income 14,444,049 -- -- Stock issued under Stock Option Plan -- -- 52,170 Dividends declared, $.43 per share -- -- -- Change in unrealized appreciation on available- for-sale securities, net of income taxes of $200,939 (314,292) -- -- Treasury stock purchased -- -- -- ------------- ------------- ------------- Comprehensive Income $ 14,129,757 ============= BALANCE, JUNE 30, 1998 $ -- 123,250 17,110,496 Net income 7,357,594 -- -- Stock issued under Stock Option Plan -- -- 113,955 Dividends declared, $.235 per share -- -- -- Change in unrealized appreciation on available- for-sale securities, net of income taxes of $455,511 (712,465) -- -- Treasury stock purchased -- -- -- ------------- ------------- ------------- Comprehensive Income $ 6,645,129 ============= BALANCE, DECEMBER 31, 1998 $ -- 123,250 17,224,451 Net income 13,677,381 -- -- Stock issued under Stock Option Plan -- -- 262,982 Dividends declared, $.50 per share -- -- -- Change in unrealized depreciation on available- for-sale securities, net of income taxes of $596,380 (979,411) -- -- Treasury stock purchased -- -- -- ------------- ------------- ------------- Comprehensive Income $ 12,697,970 ============= BALANCE, DECEMBER 31, 1999 $ -- 123,250 17,487,433 Net income 15,477,642 -- -- Stock issued under Stock Option Plan -- -- (25,988) Dividends declared, $.50 per share -- -- -- Change in unrealized appreciation on available- for-sale securities, net of income taxes of $581,621 1,028,235 -- -- Treasury stock purchased -- -- -- ------------- ------------- ------------- Comprehensive Income $ 16,505,877 ============= BALANCE, DECEMBER 31, 2000 $ 123,250 $ 17,461,445 ============= =============
See Notes to Consolidated Financial Statements 61 GREAT SOUTHERN BANCORP, INC.
Accumulated Other Comprehensive Income ------ Unrealized Appreciation (Depreciation) on Available- Retained for-Sale Treasury Earnings Securities, Net Stock Total ---------- --------------- ---------- ----- BALANCE, JULY 1, 1997 $ 73,980,259 $ 1,362,116 $ (32,175,584) $ 60,348,367 Net income 14,444,049 -- -- 14,444,049 Stock issued under Stock Option Plan -- -- 41,948 94,118 Dividends declared, $.43 per share (3,468,568) -- -- (3,468,568) Change in unrealized appreciation on available- for-sale securities, net of income taxes of $200,939 -- (314,292) -- (314,292) Treasury stock purchased -- -- (3,694,781) (3,694,781) ------------- ------------- ------------- ------------- Comprehensive Income 84,955,740 1,047,824 (35,828,417) 67,408,893 BALANCE, JUNE 30, 1998 7,357,594 -- -- 7,357,594 Net income -- -- 13,480 127,435 Stock issued under Stock Option Plan (1,853,342) -- -- (1,853,342) Dividends declared, $.235 per share Change in unrealized appreciation on available- for-sale securities, net of income taxes of $455,511 -- (712,465) -- (712,465) Treasury stock purchased -- -- (3,945,628) (3,945,628) ------------- ------------- ------------- ------------- Comprehensive Income BALANCE, DECEMBER 31, 1998 90,459,992 335,359 (39,760,565) 68,382,487 Net income 13,677,381 -- -- 13,677,381 Stock issued under Stock Option Plan -- -- 201,454 464,436 Dividends declared, $.50 per share (3,826,880) -- -- (3,826,880) Change in unrealized depreciation on available- for-sale securities, net of income taxes of $596,380 -- (979,411) -- (979,411) Treasury stock purchased -- -- (8,792,122) (8,792,122) ------------- ------------- ------------- ------------- Comprehensive Income BALANCE, DECEMBER 31, 1999 100,310,493 (644,052) (48,351,233) 68,925,891 Net income 15,477,642 -- -- 15,477,642 Stock issued under Stock Option Plan -- -- 507,218 481,230 Dividends declared, $.50 per share (3,611,556) -- -- (3,611,556) Change in unrealized appreciation on available- for-sale securities, net of income taxes of $581,621 -- 1,028,235 -- 1,028,235 Treasury stock purchased -- -- (11,252,753) (11,252,753) ------------- ------------- ------------- ------------- Comprehensive Income BALANCE, DECEMBER 31, 2000 $ 112,176,579 $ 384,183 $ (59,096,768) $ 71,048,689 ============= ============= ============= =============
See Notes to Consolidated Financial Statements 62 GREAT SOUTHERN BANCORP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998 AND SIX MONTHS ENDED DECEMBER 31, 1998
Six Months Years Ended December 31, Ended Year ----------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- RECLASSIFICATION DISCLOSURE: Unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $584,880 for December 31, 2000; $(486,419) for December 31, 1999; $(317,783) for December 31, 1998; $344,214 for June 30, 1998 $ 1,034,288 $ (798,826) $ (497,044) $ 538,383 Less: Reclassification adjustment for depreciation (appreciation) included in net income, net of income taxes of $3,259 for December 31, 2000; $(109,961) for December 31, 1999; $(137,728) for December 31, 1998; $(545,153) for June 30, 1998 6,053 (180,585) (215,421) (852,675) --------- --------- --------- --------- Change in unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes $ 1,028,235 $ (979,411) $ (712,465) $ (314,292) ========= ========= ========= =========
See Notes to Consolidated Financial Statements 63 GREAT SOUTHERN BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998 AND SIX MONTHS ENDED DECEMBER 31, 1998
Six Months Years Ended December 31, Ended Year ----------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $15,477,642 $13,677,381 $ 7,357,594 $14,444,049 Items not requiring (providing) cash: Depreciation 2,191,355 2,147,552 880,745 1,333,423 Amortization 159,708 139,709 83,188 55,410 Provision for loan losses 3,105,600 2,062,000 1,290,712 1,852,597 Provision for losses on foreclosed assets -- -- -- 100,000 Net gain on sale of loans (570,053) (1,097,711) (385,563) (1,125,153) Proceeds from sales of loans held for sale 35,511,421 33,329,100 26,486,196 73,678,174 Originations of loans held for sale (32,959,645) (29,401,317) (30,668,718) (72,553,021) Net realized (gains) losses on available-for-sale securities 9,312 (316,508) (355,501) (1,397,828) (Gain) loss on sale of premises and equipment 205,843 207,273 (600) (65,417) Gain on sale of foreclosed assets (495,089) (136,647) (894,459) (576,783) Amortization of deferred income, premiums and discounts (789,698) (1,629,309) (855,072) (704,900) Deferred income taxes (958,000) 21,040 (1,246,911) (90,586) Changes in: Accrued interest receivable (3,056,671) (348,254) 391,567 (904,495) Prepaid expenses and other assets 328,663 2,499,338 1,569,791 (977,920) Accounts payable and accrued expenses 1,273,734 28,697 (134,690) 703,234 Income taxes refundable/payable 6,870,146 (1,659,942) 2,500,850 (3,510,282) ----------- ----------- ----------- ----------- Net cash provided by operating activities 26,304,268 19,522,402 6,019,129 10,260,502 ----------- ----------- ----------- -----------
See Notes to Consolidated Financial Statements 64 GREAT SOUTHERN BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998 AND SIX MONTHS ENDED DECEMBER 31, 1998
Six Months Years Ended December 31, Ended Year ------------------------ December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans $(128,982,064) $ (72,357,829) $ (41,855,375) $ (72,070,913) Purchase of additional business units -- -- -- (681,875) Purchase of premises and equipment (2,729,316) (2,358,165) (1,436,201) (3,505,798) Proceeds from sale of premises and equipment -- 31,390 945 213,850 Proceeds from sale of foreclosed assets 436,649 914,417 1,685,600 1,099,476 Capitalized costs on foreclosed assets (359,294) (39,077) (140,750) (302,040) Proceeds from maturing held-to- maturity securities 17,354,137 32,918,012 21,375,000 19,500,000 Purchase of held-to-maturity securities (7,473,865) (10,167,313) (30,046,746) (20,119,994) Proceeds from sale of available- for-sale securities 19,981,981 2,149,910 1,365,670 3,359,677 Proceeds from maturities of available- for-sale securities 60,230,000 15,055,000 -- -- Purchase of available-for-sale securities (125,872,972) (91,327,024) (2,289,879) (1,431,760) (Purchase) redemption of Federal Home Loan Bank stock (3,113,900) (1,526,900) -- 1,338,500 ------------- ------------- ------------- ------------- Net cash used in investing activities (170,528,644) (126,707,579) (51,341,736) (72,600,877) ------------- ------------- ------------- -------------
See Notes to Consolidated Financial Statements 65 GREAT SOUTHERN BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000 AND 1999, AND JUNE 30, 1998 AND SIX MONTHS ENDED DECEMBER 31, 1998
Six Months Years Ended December 31, Ended Year ----------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in certificates of deposit $ 110,963,592 $ 68,548,019 $ 32,006,537 $ 39,497,048 Net increase (decrease) in checking and savings accounts 14,178,052 (40,272,661) 17,602,644 54,632,670 Proceeds from Federal Home Loan Bank advances and note payable to bank 3,966,482,975 1,036,392,061 217,565,407 895,823,200 Repayments of Federal Home Loan Bank advances (3,924,652,917) (986,796,522) (228,669,145) (878,141,248) Net increase (decrease) in short-term borrowings (11,898,717) 52,795,842 798,247 (28,744,191) Advances (to) from borrowers for taxes and insurance 34,993 (1,273,198) (594,364) (311,735) Purchase of treasury stock (11,252,753) (8,792,122) (3,945,628) (3,694,781) Dividends paid (3,611,556) (3,826,880) (1,853,342) (3,468,568) Stock options exercised 481,230 464,436 127,435 94,118 --------------- -------------- ------------- ------------- Net cash provided by financing activities 140,724,899 117,238,975 33,037,791 75,686,513 --------------- -------------- ------------- ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,499,477) 10,053,798 (12,284,816) 13,346,138 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 43,600,220 33,546,422 45,831,238 32,485,100 --------------- -------------- ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 40,100,743 $ 43,600,220 $ 33,546,422 $ 45,831,238 =============== ============== ============= =============
See Notes to Consolidated Financial Statements 66 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Great Southern Bancorp, Inc. ("GSBC" or the "Company") operates as a one-bank holding company. GSBC's business primarily consists of the business of Great Southern Bank (the "Bank"), which provides a full range of financial services; as well as travel, insurance, investment services, loan closings and appraisals through the Company's and the Bank's other wholly owned subsidiaries; to customers primarily in southwest and central Missouri. The Company and the Bank are subject to the regulation of certain federal and state agencies and undergo periodic examinations by those regulatory agencies. In June 1998, the Bank converted to a state-chartered trust company, and the Company became a one-bank holding company. Until that time the Bank was a stock savings bank, and the Company was a savings bank holding company. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets held for sale, management obtains independent appraisals for significant properties. Management believes that the allowances for losses on loans and the valuation of foreclosed assets held for sale are adequate. While management uses available information to recognize losses on loans and foreclosed assets held for sale, changes in economic conditions may necessitate revision of these estimates in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowances for losses on loans and valuation of foreclosed assets held for sale. Such agencies may require the Bank to recognize additional losses based on their judgments of information available to them at the time of their examination. 67 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fiscal Year Change In 1998, the Company changed its fiscal year ended June 30 to a fiscal year ended December 31. The six-month period ended December 31, 1998, transitions between the Company's old and new fiscal year ends. Principles of Consolidation The consolidated financial statements include the accounts of Great Southern Bancorp, Inc., its wholly owned subsidiary, Great Southern Bank, and the Bank's wholly owned subsidiaries, Great Southern Capital Management, Inc., GSB One LLC (including its wholly owned subsidiary, GSB Two LLC), Great Southern Financial Corporation, (including its wholly owned subsidiary, Appraisal Services, Inc.) and GS Air, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation. Reclassifications Certain prior periods amounts have been reclassified to conform to the 2000 financial statements presentation. These reclassifications had no effect on net income. Cash and Investment Securities The Bank is a member of the Federal Home Loan Bank system. As a member of this system, it is required to maintain an investment in capital stock of the Federal Home Loan Bank (FHLB) in an amount equal to the greater of 1% of its outstanding home loans, 0.3% of its total assets, or one-twentieth of its outstanding advances from the FHLB. Investments in Debt and Equity Securities Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the specific security, are included in noninterest income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders' equity. Premiums and discounts are amortized and accreted, respectively, to interest income using the level-yield method over the period to maturity. 68 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments in Debt and Equity Securities (Continued) Held-to-maturity securities, which include any security for which the Company has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the level-yield method over the period to maturity. Interest and dividends on investments in debt and equity securities are included in income when earned. Excess of Cost Over Fair Value of Net Assets Acquired Unamortized costs in excess of the fair value of underlying net assets acquired were $263,861 and $403,569 at December 31, 2000 and 1999, respectively. These costs are amortized on a straight-line basis for a period of five years. Mortgage Loans Held for Sale Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Write-downs to fair value are recognized as a charge to earnings at the time the decline in value occurs. Forward commitments to sell mortgage loans are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. Amounts paid to investors to obtain forward commitments are deferred until such time as the related loans are sold. The fair values of the forward commitments are not recognized in the financial statements. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid and commitment fees paid and considering a normal servicing rate. Fees received from borrowers to guarantee the funding of mortgage loans held for sale and fees paid to investors to ensure the ultimate sale of such mortgage loans are recognized as income or expense when the loans are sold or when it becomes evident that the commitment will not be used. There were no material loans held for sale at December 31, 2000 and 1999. 69 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Discounts and premiums on purchased loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Allowance for Loan Losses The allowance for loan losses is increased by provisions charged to expense and reduced by loans charged off, net of recoveries. The allowance is maintained at a level considered adequate to provide for potential loan losses, based on management's evaluation of the loan portfolio, as well as on prevailing and anticipated economic conditions and historical losses by loan category. General allowances have been established, based upon the aforementioned factors and allocated to the individual loan categories. Allowances are accrued on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral. A loan is considered impaired when it is probable that the Bank will not receive all amounts due according to the contractual terms of the loan. This includes loans that are delinquent 90 days or more (nonaccrual loans) and certain other loans identified by management. Accrual of interest is discontinued and interest accrued and unpaid is removed at the time such amounts are delinquent 90 days. Interest is recognized for nonaccrual loans only upon receipt, and only after all principal amounts are current according to the terms of the contract. Foreclosed Assets Held for Sale Assets acquired by foreclosure or in settlement of debt and held for sale are valued at estimated fair value as of the date of foreclosure, and a related valuation allowance is provided for estimated costs to sell the assets. Management evaluates the value of foreclosed assets held for sale periodically and increases the valuation allowance for any subsequent declines in fair value. Changes in the valuation allowance are charged or credited to noninterest expense. 70 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line and accelerated methods over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized using the straight-line and accelerated methods over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Loan Servicing and Origination Fee Income Loan servicing income represents fees earned for servicing real estate mortgage loans owned by various investors. The fees are generally calculated on the outstanding principal balances of the loans serviced and are recorded as income when earned. Loan origination fees, net of direct loan origination costs, are recognized as income using the level-yield method over the contractual life of the loan. Earnings Per Share Basic earnings per share is computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of earnings per share is as follows:
Six Months Years Ended December 31, Ended Year ------------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- -------- ------------- Net income $15,477,642 $13,677,381 $7,357,594 $14,444,049 =========== =========== ========== =========== Average common shares outstanding 7,166,020 7,619,983 7,896,771 8,052,413 Average common share stock options outstanding 146,660 166,167 163,382 151,162 ----------- ----------- ----------- ----------- Average diluted common shares 7,312,680 7,786,150 8,060,153 8,203,575 =========== =========== =========== ===========
71 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Earnings Per Share (Continued)
Six Months Years Ended December 31, Ended Year ----------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- Earnings per common share - basic $ 2.16 $ 1.79 $ .93 $ 1.79 ====== ====== ====== ====== Earnings per common share - diluted $ 2.12 $ 1.76 $ .91 $ 1.76 ====== ====== ====== ======
Options to purchase 130,075, 90,350, 43,250 and 19,250 shares of common stock were outstanding during the periods ended December 31, 2000, 1999 and 1998, and June 30, 1998, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. The options, which expire in 2006 or after, were still outstanding at the end of each period. Cash Equivalents The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2000 and 1999, cash equivalents consisted of interest-bearing deposits in other financial institutions. Income Taxes Deferred tax liabilities and assets are recognized for the tax effect of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. Interest Rate Swaps Beginning in 2000 the Company uses interest rate swaps to manage its interest rate risks from recorded financial assets and liabilities. These instruments are utilized when they can be demonstrated to effectively hedge a designated asset or liability and such asset or liability exposes the Company to interest rate risk. Amounts to be paid or received under interest rate swaps are accounted for on the accrual basis and recognized as interest income or expense of the related 72 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Interest Rate Swaps (Continued) asset or liability. Gains and losses on early termination of these instruments are deferred and amortized as an adjustment to the yield on the related asset or liability over the shorter of the remaining contract life or the maturity of the related asset or liability. If the related asset or liability is sold or otherwise liquidated, the instrument is marked to market, with the resultant gains and losses recognized in noninterest income. Future Change in Accounting Principle The Company will adopt Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 138, Accounting for Certain Derivative Instruments and Hedging Activities, in the first quarter of the year ending December 31, 2001. The principal effects of adoption of SFAS 133 and SFAS 138 relate to reclassification as available-for-sale of certain debt securities previously classified as held-to-maturity and recognition of outstanding interest rate swaps as hedges against changes in the fair value of certain fixed rate brokered certificates of deposit caused by changes in market rates of interest. These changes will not have a material impact on the Company's financial statements. NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES The amortized cost and approximate fair value of available-for-sale securities are as follows:
December 31, 2000 --------------------------------------------------------------- Gross Gross Approximate Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------- ------------- ------------- ------------- U.S. government agencies obligations $ 114,321,051 $ 553,881 $ (99,402) $ 114,775,530 Collateralized mortgage obligations 3,424,153 14,537 -- 3,438,690 Equity securities 8,080,126 114,818 -- 8,194,944 ------------- ------------- ------------- ------------- $ 125,825,330 $ 683,236 $ (99,402) $ 126,409,164 ============= ============= ============= =============
73 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
December 31, 1999 ------------------------------------------------------------ Gross Gross Approximate Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------- ------------- ------------- ------------ U.S. government agencies obligations $ 72,713,836 $ 65,236 $ (133,814) $ 72,645,258 Equity securities 8,153,626 -- (907,424) 7,246,202 ------------- ------------- ------------- ------------ $ 80,867,462 $ 65,236 $ (1,041,238) $ 79,891,460 ============= ============= ============= ============
Maturities of available-for-sale debt securities at December 31, 2000, are: Approximate Amortized Fair Cost Value ------------- ------------- One year or less $ 20,164,622 $ 20,101,111 After one through five years 94,156,429 94,674,419 Securities not due on a single maturity date 3,424,153 3,438,690 ------------- ------------- $ 117,745,204 $ 118,214,220 ============= ============= The amortized cost and approximate fair value of held-to-maturity securities are as follows:
December 31, 2000 ------------------------------------------------------- Gross Gross Approximate Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- --------- -------- ----------- U.S. government agencies $ 6,999,424 $ -- $ (17,624) $ 6,981,800 States and political subdivisions 17,101,375 16,731 (106,906) 17,011,200 Corporate bonds 2,805,000 94,600 (25,000) 2,874,600 Mortgage-backed securities 852,481 3,593 (5,874) 850,200 ------------- ----------- ----------- ------------ $ 27,758,280 $ 114,924 $ (155,404) $ 27,717,800 ============= =========== =========== ============
74 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
December 31, 1999 ---------------------------------------------------- Gross Gross Approximate Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ --------- ---------- ------------ U.S. Treasury $ 99,988 $ 12 $ -- $ 100,000 U.S. government agencies 24,241,613 -- (140,713) 24,100,900 States and political subdivisions 11,469,800 -- (89,200) 11,380,600 Corporate bonds 800,000 -- -- 800,000 Mortgage-backed securities 1,034,099 1 -- 1,034,100 ------------ --------- ---------- ------------ $ 37,645,500 $ 13 $ (229,913) $ 37,415,600 ============ ========= ========== ============
Maturities of held-to-maturity securities at December 31, 2000, are: Approximate Amortized Fair Cost Value ------------ ------------ One year or less $ 16,996,331 $ 16,978,800 After 10 years 9,909,468 9,888,800 Securities not due on a single maturity date 852,481 850,200 ------------ ------------ $ 27,758,280 $ 27,717,800 ============ ============ Proceeds of $19,981,981, $2,149,910, $3,359,677 and $1,365,670 with resultant gross gains (losses) of $(9,312), $316,508, $1,397,828 and $355,501 were realized from the sale of available-for-sale securities for the years ended December 31, 2000 and 1999, and June 30, 1998, and for the six months ended December 31, 1998, respectively. 75 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued) The book value of securities pledged as collateral to secure public deposits amounted to approximately $29,627,900 and $14,766,000 at December 31, 2000 and 1999, respectively, with approximate fair values of $29,641,000 and $14,606,000, respectively. The book value of securities pledged as collateral to secure collateralized borrowing accounts amounted to approximately $25,490,300 and $34,432,000 at December 31, 2000 and 1999, respectively, with approximate fair values of $25,587,300 and $34,447,000, respectively. The book value of securities pledged as collateral to secure Federal Home Loan Bank advances amounted to approximately $67,168,500 and $46,205,000 at December 31, 2000 and 1999, respectively, with approximate fair values of $67,431,800 and $46,062,000, respectively. NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES Categories of loans at December 31, 2000 and 1999, include: 2000 1999 ---- ---- One to four family residential mortgage loans $ 226,136,244 $ 208,466,168 Other residential mortgage loans 81,142,626 76,926,151 Commercial real estate loans 328,432,478 251,338,147 Other commercial loans 85,334,442 100,419,036 Construction loans 144,341,810 110,622,944 Installment, education and other loans 89,475,814 73,067,358 Prepaid dealer premium 1,722,885 1,310,127 Discounts on loans purchased (379,532) (623,990) Undisbursed portion of loans in process (45,834,213) (36,047,401) Allowance for loan losses (18,693,971) (17,293,320) Deferred loan fees and gains, net (894,905) (1,378,280) -------------- -------------- $ 890,783,678 $ 766,806,940 ============== ============== 76 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) Transactions in the allowance for loan losses were as follows:
Six Months Years Ended December 31, Ended Year ----------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------ Balance, beginning of period $17,293,320 $16,927,575 $16,372,700 $15,523,541 Provision charged to expense 3,105,600 2,062,000 1,290,712 1,852,597 Loans charged off (3,151,172) (2,806,437) (1,498,525) (1,142,584) Recoveries 1,446,223 1,110,182 762,688 139,146 ----------- ----------- ----------- ----------- Balance, end of period $18,693,971 $17,293,320 $16,927,575 $16,372,700 =========== =========== =========== ===========
The weighted average interest rate on loans receivable at December 31, 2000 and 1999, was 9.48% and 8.70%, respectively. The Bank serviced loans and participations in loans for others amounting to approximately $45,758,000 and $56,339,000 at December 31, 2000 and 1999, respectively. Gross impaired loans totaled approximately $12,486,000 and $9,270,000 at December 31, 2000 and 1999, respectively. An allowance for loan losses of $1,693,549 and $846,382 relates to these impaired loans at December 31, 2000 and 1999, respectively. There were no impaired loans at December 31, 2000 and 1999, without a related allowance for loan losses assigned. Interest of approximately $1,671,000, $487,000, $1,009,000 and $225,000 was recognized on average impaired loans of $13,394,000, $9,406,000, $12,009,000 and $9,819,000 for the years ended December 31, 2000 and 1999, and June 30, 1998, and for the six months ended December 31, 1998, respectively. Interest recognized on impaired loans on a cash basis during these periods was not materially different. Certain of the Bank's real estate loans are pledged as collateral for borrowings as set forth in Notes 6 and 7. 77 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) Certain directors and executive officers of the Company and the Bank are customers of and had transactions with the Bank in the ordinary course of business. In the opinion of management, all loans included in such transactions were made on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties. At December 31, 2000 and 1999, loans outstanding to these directors and executive officers are summarized as follows: December 31, December 31, 2000 1999 -------------- -------------- Balance, beginning of year $ 5,932,000 $ 5,791,000 New loans 1,334,000 1,016,000 Payments (1,535,000) (875,000) -------------- -------------- Balance, end of year $ 5,731,000 $ 5,932,000 ============== ============== NOTE 4: PREMISES AND EQUIPMENT Major classifications of premises and equipment stated at cost at December 31, 2000 and 1999, are as follows: December 31, ------------------------------- 2000 1999 ---- ---- Land $ 2,120,450 $ 2,117,661 Buildings and improvements 10,222,118 9,165,858 Furniture, fixtures and equipment 10,096,004 9,133,948 -------------- -------------- 22,438,572 20,417,467 Less accumulated depreciation 12,122,379 10,433,392 -------------- -------------- $ 10,316,193 $ 9,984,075 ============== ============== 78 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 5: DEPOSITS Deposits at December 31, 2000 and 1999, are summarized as follows: December 31, Weighted-Average -------------------------- Interest Rate 2000 1999 ---------------- ---- ---- Noninterest-bearing accounts -- $ 60,353,340 $ 47,359,993 Interest-bearing checking 2.23% - 1.86% 124,972,676 114,575,019 Savings accounts 2.51% - 2.50% 20,400,401 29,613,353 ------------ ------------ 205,726,417 191,548,365 ------------ ------------ Certificate accounts 0% - 3.99% 94,646 1,153,099 4% - 4.99% 14,847,243 79,428,843 5% - 5.99% 123,103,034 280,687,725 6% - 6.99% 360,824,834 69,525,326 7% - 7.99% 46,220,971 3,526,651 8% and above 224,851 30,343 ------------ ------------ 545,315,579 434,351,987 ------------ ------------ $751,041,996 $625,900,352 ============ ============ The weighted average interest rate on certificates of deposit was 6.33% and 5.44% at December 31, 2000 and 1999, respectively. The aggregate amount of certificates of deposit originated by the Bank in denominations of $100,000 or more was approximately $76,523,000 and $63,472,000 at December 31, 2000 and 1999, respectively. The Bank utilizes brokered deposits as an additional funding source. The aggregate amount of brokered deposits, which are primarily in denominations of $100,000 or more, was approximately $286,704,000 and $209,742,000 at December 31, 2000 and 1999, respectively. At December 31, 2000, scheduled maturities of certificates of deposit are as follows: 2001 $ 356,529,290 2002 113,027,204 2003 39,432,920 2004 11,401,253 2005 19,631,133 Thereafter 5,293,779 --------------- $ 545,315,579 =============== 79 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 5: DEPOSITS (Continued) A summary of interest expense on deposits is as follows: Six Months Years Ended December 31, Ended Year ----------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- Checking accounts $ 2,616,818 $ 2,541,365 $ 2,007,149 $ 2,673,921 Savings accounts 630,787 841,903 318,651 858,880 Certificate accounts 29,096,188 21,642,134 9,960,599 17,485,313 Early withdrawal penalties (99,748) (58,846) (31,358) (67,449) ----------- ----------- ----------- ----------- $32,244,045 $24,966,556 $12,255,041 $20,950,665 =========== =========== =========== =========== NOTE 6: ADVANCES FROM FEDERAL HOME LOAN BANK Advances from the Federal Home Loan Bank consist of the following: December 31, 2000 December 31, 1999 ------------------------------- -------------------------- Weighted Weighted Average Average Interest Interest Due In Amount Rate Amount Rate - ------ ------ ---------- ------ ------- 2000 $ -- --% $ 96,652,917 5.96% 2001 100,635,163 6.52 11,135,163 6.55 2002 1,227,136 6.79 11,227,136 5.66 2003 31,327,164 6.66 31,327,164 6.52 2004 25,913,899 6.85 2,913,899 7.43 2005 3,280,264 6.64 3,280,264 6.64 2006 and thereafter 71,994,378 5.97 43,994,378 6.58 -------------- -------------- $ 234,378,004 6.41 $ 200,530,921 6.23 ============== ============== 80 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 6: ADVANCES FROM FEDERAL HOME LOAN BANK (Continued) Included in the Bank's FHLB advances is a $25,000,000 advance with a maturity date of December 16, 2010. The advance has a quarterly call provision that allows the Federal Home Loan Bank of Des Moines to call the advance on any quarter end after December 17, 2001. The Bank has pledged FHLB stock, investment securities and first mortgage loans free of pledges, liens and encumbrances as collateral for outstanding advances. Investment securities with carrying values of $67,168,500 and $46,205,000, respectively, were specifically pledged as collateral for advances at December 31, 2000 and 1999. Loans with carrying values of $344,449,000 and $324,107,000 were pledged as collateral for outstanding advances at December 31, 2000 and 1999, respectively. NOTE 7: SHORT-TERM BORROWINGS Short-term borrowings at December 31, 2000 and 1999, are summarized as follows: December 31, ------------------------------- 2000 1999 ---- ---- Federal funds purchased $ 25,000,000 $ 26,500,000 United States government agencies securities sold under reverse repurchase agreements 12,869,017 25,138,483 Other 3,826,356 1,955,607 -------------- -------------- $ 41,695,373 $ 53,594,090 ============== ============== The Bank enters into sales of securities under agreements to repurchase (reverse repurchase agreements). Reverse repurchase agreements are treated as financings, and the obligations to repurchase securities sold are reflected as a liability in the statement of financial condition. The dollar amount of securities underlying the agreements remains in the asset accounts. Other short-term borrowings consist of borrowings from the Federal Reserve Bank and margin loans with brokerage firms. Short-term borrowings had weighted average interest rates of 6.67% and 4.71% at December 31, 2000 and 1999, respectively. Securities underlying the agreements are being held by the Bank during the agreement period. All agreements are written on a one month or less term. 81 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 7: SHORT-TERM BORROWINGS (Continued) Short-term borrowings averaged $29,642,000 and $22,034,000 for the years ended December 31, 2000 and 1999, respectively. The maximum amounts outstanding at any month end were $42,646,000 and $53,594,090 during those same periods. NOTE 8: NOTE PAYABLE TO BANK The Company entered into a line of credit with a commercial bank during 1999. The amount available under the line of credit is $25,000,000 and $15,000,000 at December 31, 2000 and 1999, respectively. The amount outstanding was $15,500,000 and $7,517,025 at December 31, 2000 and 1999, respectively. The note payable bears interest at LIBOR plus 1.25% due quarterly, is secured by all of the common stock of the Bank and matures November 1, 2001. The Bank has a potentially available $61,018,000 line of credit under a borrowing arrangement with the Federal Reserve Bank at December 31, 2000. The line is secured primarily by commercial loans and was not drawn upon at December 31, 2000. NOTE 9: INCOME TAXES The Company files a consolidated federal income tax return. During the time the Bank operated under a thrift charter, thrifts were allowed a percentage of otherwise taxable income as a statutory bad debt deduction, subject to limitations based on aggregate loans and savings balances. This percentage was most recently 8%. In August 1996 this statutory bad debt deduction was repealed and is no longer available for thrifts. In addition, bad debt allowances accumulated after 1988, which are presently included as a component of the net deferred tax asset, must be recaptured over a six-year period beginning with the period ended December 31, 1998. The amount of the deferred tax liability which must be recaptured is $907,000 at December 31, 2000. As of December 31, 2000 and 1999, retained earnings includes approximately $17,500,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only for tax years prior to 1988. If the Bank were to liquidate, the entire amount would have to be recaptured and would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $6,475,000 at December 31, 2000 and 1999. 82 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 9: INCOME TAXES (Continued) The provision for income taxes consists of: Six Months Years Ended December 31, Ended Year ----------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- Taxes currently payable $9,142,000 $6,997,160 $4,703,327 $7,014,286 Deferred income taxes (958,000) 21,040 (845,027) (90,586) ---------- ---------- ---------- ---------- $8,184,000 $7,018,200 $3,858,300 $6,923,700 ========== ========== ========== ========== The tax effects of temporary differences related to deferred taxes shown on the December 31, 2000 and 1999, statements of financial condition were: December 31, ---------------------------- 2000 1999 ---- ---- Deferred tax assets: Allowance for loan losses $ 6,543,000 $ 6,053,000 Accrued expenses 118,000 123,000 Partnership tax credits 107,000 79,000 Excess of cost over fair value of net assets acquired 112,000 74,000 Unrealized depreciation on available-for- sale securities -- 381,970 ------------ ------------ 6,880,000 6,710,970 ------------ ------------ Deferred tax liabilities: Tax bad debt allowance in excess of base year allowance (907,000) (1,244,000) FHLB stock dividends (575,000) (575,000) Unrealized appreciation on available-for- sale securities (199,651) -- Other (25,339) (100,186) ------------ ------------ (1,706,990) (1,919,186) ------------ ------------ Net deferred tax asset $ 5,173,010 $ 4,791,784 ============ ============= 83 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 9: INCOME TAXES (Continued) Reconciliations of the Company's provision for income taxes to the statutory corporate tax rates are as follows: Years Ended Six Months Year December 31, Ended Ended -------------------------- December 31, June 30, 2000 1999 1998 1998 ---- ---- ------------- ------ Tax at statutory rate 35.0% 35.0% 35.0% 35.0% State income taxes -- -- .1 (3.1) Other (.4) (1.1) (.7) .5 ------- ------- ------- ------- 34.6% 33.9% 34.4% 32.4% ======= ======= ======= ======= The income and other tax returns of the Company and its consolidated subsidiaries are subject to but have not been audited recently by the Internal Revenue Service and state taxing authorities. These returns have been closed without audit through June 30, 1997. NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents For these short-term instruments, the carrying amount approximates fair value. Available-for-Sale Securities Fair values for available-for-sale securities, which also are the amounts recognized in the statements of financial condition, equal quoted market prices, if available. If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities. 84 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Held-to-Maturity Securities Fair values for held-to-maturity securities equal quoted market prices, if available. If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities. Federal Home Loan Bank Stock The carrying amount approximates fair value. Loans The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics are aggregated for purposes of the calculations. The carrying amount of accrued interest receivable approximates its fair value. Deposits The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date, i.e., their carrying amounts. The fair value of fixed-maturity certificates of deposit is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value. Federal Home Loan Bank Advances Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing advances. Short-Term Borrowings The carrying amounts reported in the statements of financial condition for short-term borrowings approximate those liabilities' fair value. 85 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Note Payable to Bank Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Commitments to Extend Credit, Letters of Credit and Lines of Credit The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. Interest Rate Swaps Fair values of interest rate swaps are estimated based on quoted dealer prices. The following table presents estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate. 86 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
December 31, ----------------------------------------------------- 2000 1999 -------------------------- ------------------------ Carrying Carrying Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- Financial assets: Cash and cash equivalents $ 40,100,743 $ 40,100,743 $ 43,600,220 $ 43,600,220 Available-for-sale securities 126,409,164 126,409,164 79,891,460 79,891,460 Held-to-maturity securities 27,758,280 27,717,800 37,645,500 37,415,600 Loans, net of allowance for loan losses 890,783,678 900,279,000 766,806,940 775,123,000 Accrued interest receivable 8,911,165 8,911,165 5,854,494 5,854,494 Investment in FHLB stock 14,094,900 14,094,900 10,981,000 10,981,000 Financial liabilities: Deposits 751,041,996 751,734,000 625,900,352 628,961,000 Accrued interest payable 6,117,661 6,117,661 5,832,253 5,832,253 FHLB advances 234,378,004 238,454,000 200,530,921 199,200,000 Short-term borrowings 41,695,373 41,695,373 53,594,090 53,594,000 Note payable to bank 15,500,000 15,500,000 7,517,025 7,517,025 Unrecognized financial instruments (net of contractual value): Commitments to extend credit -- -- -- -- Standby letters of credit -- -- -- -- Unused lines of credit -- -- -- -- Interest rate swaps -- 2,400,000 -- --
NOTE 11: OPERATING LEASES The Company has entered into various operating leases at several of its locations. Some of the leases have renewal options. 87 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 11: OPERATING LEASES (Continued) At December 31, 2000, future minimum lease payments are as follows: 2001 $ 295,642 2002 237,595 2003 162,890 2004 129,648 2005 107,648 Later Years 479,043 ----------- $ 1,412,466 =========== Rental expense was $297,274, $307,805, $222,429 and $136,360 for the years ended December 31, 2000 and 1999, and June 30, 1998, and the six months ended December 31, 1998, respectively. NOTE 12: COMMITMENTS AND CREDIT RISK During 2000 the Company entered into interest rate swap agreements with the objective of hedging against the effects of changes in the fair value of its liabilities for fixed rate brokered certificates of deposit caused by changes in market interest rates. The swap agreements provide for the Company to pay a variable rate of interest based on a spread to the 30-day London Interbank Offering Rate (LIBOR) and to receive a fixed rate of interest. Under the swap agreements the Company is to pay or receive interest monthly, semi-annually or at maturity. At December 31, 2000, the notional amount of interest rate swaps outstanding was approximately $138,063,000, consisting of swaps in a receivable position of approximately $107,924,000 and swaps in a payable position of approximately $30,139,000. The maturities of interest rate swaps outstanding at December 31, 2000, in terms of notional amounts (in millions) and their average pay and receive rates were as follows: Expected Maturity Date ------------------------------------------------- 2001 2002 2003 2004 2005 2008 Total ---- ---- ---- ---- ---- ---- ----- Interest Rate Derivatives Interest Rate Swaps: Fixed to Variable $32.5 $49.2 $31.0 $7.0 $15.8 $2.6 $138.1 Average Pay Rate 6.53% 6.33% 5.83% 6.52% 6.17% 5.60% 6.24% Average Receive Rate 6.52% 6.36% 5.88% 6.57% 6.20% 5.80% 6.27% 88 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 12: COMMITMENTS AND CREDIT RISK (Continued) Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a significant portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate. At December 31, 2000 and 1999, the Bank had outstanding commitments to originate loans and fund commercial construction aggregating approximately $34,185,000 and $27,760,000, respectively. The commitments extend over varying periods of time with the majority being disbursed within a 30- to 180-day period. Loan commitments at fixed rates of interest amounted to approximately $1,319,000 and $3,172,000 with the remainder at floating market rates at December 31, 2000 and 1999, respectively. Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to approximately $12,404,000 and $13,613,000, at December 31, 2000 and 1999, respectively, with $4,557,000 and $5,366,000, respectively, of the letters of credit having terms ranging from seven months to five years. The remaining $7,847,000 and $8,247,000 at December 31, 2000 and 1999, respectively, consisted of an outstanding letter of credit to guarantee the payment of principal and interest on a Multifamily Housing Refunding Revenue Bond Issue. The Federal Home Loan Bank has issued a letter of credit backing the Bank's letter of credit. Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary 89 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 12: COMMITMENTS AND CREDIT RISK (Continued) by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate. The Bank uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments. At December 31, 2000, the Bank had granted unused lines of credit to borrowers aggregating approximately $73,438,000 and $12,319,000 for commercial lines and open-end consumer lines, respectively. At December 31, 1999, the Bank had granted unused lines of credit to borrowers aggregating approximately $59,994,000 and $9,942,000 for commercial lines and open-end consumer lines, respectively. The Bank grants collateralized commercial, real estate and consumer loans primarily to customers in the southwest and central portions of Missouri. Although the Bank has a diversified portfolio, loans (including loans in process) aggregating approximately $149,460,000 and $140,745,000 at December 31, 2000 and 1999, respectively, are secured by motels, restaurants, recreational facilities, other commercial properties and residential mortgages in the Branson, Missouri, area. Residential mortgages account for approximately $66,764,000 and $59,746,000 of this total at December 31, 2000 and 1999, respectively. NOTE 13: CONTINGENT LIABILITIES The Company and its subsidiaries are defendants in certain lawsuits arising in the ordinary course of business. Management, after review with its legal counsel, is presently of the opinion that the resolution of these legal matters will not have a material adverse effect. However, events could occur in the near term that would change the estimate of liability materially. Customers of one of the Bank's subsidiaries may enter into margin loan agreements with the subsidiary's outside clearing agent in accordance with Regulation T of the Federal Reserve rules. The subsidiary is required to indemnify the clearing agent against any losses suffered by the clearing agent as a result of any margin loans with the subsidiary's customers. The outstanding amount of margin loans that are subject to indemnity by the subsidiary at December 31, 2000, was $430,491. 90 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 14: ADDITIONAL CASH FLOW INFORMATION
Six Months Years Ended December 31, Ended Year ----------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ------------ ------------- Noncash Investing and Financing Activities Conversion of loans to foreclosed assets $3,458,309 $1,376,725 $2,165,000 $4,068,122 Conversion of foreclosed assets to loans $1,704,871 $3,130,700 $2,727,000 $4,647,521 Additional Cash Payment Information Interest paid $48,575,365 $34,945,373 $14,820,215 $31,323,755 Income taxes paid $2,300,000 $8,725,000 $2,600,000 $8,640,000
NOTE 15: EMPLOYEE BENEFIT PLANS The Company participates in a multi-employer defined benefit plan covering all employees who have met minimum service requirements. The Company's policy is to fund pension cost accrued. No contribution was required for the years ended December 31, 2000 and 1999, and June 30, 1998, and the six months ended December 31, 1998. As a member of a multi-employer pension plan, disclosures of plan assets and liabilities for individual employers are not required or practicable. The Company has a defined contribution pension plan covering substantially all employees. The Company matches 100% of the employee's contribution on the first 3% of the employee's compensation, and also matches 50% of the employee's contribution on the next 2% of the employee's compensation. Employer contributions charged to expense for the years ended December 31, 2000 and 1999, and June 30, 1998, and the six months ended December 31, 1998, were $308,743, $191,581, $82,575 and $54,379, respectively. NOTE 16: STOCK OPTION PLAN The Company established the 1989 Stock Option and Incentive Plan for employees and directors of the Company and its subsidiaries. Under the plan, stock options or awards may be granted with respect to 1,232,496 shares of common stock. 91 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 16: STOCK OPTION PLAN (Continued) In addition, the Board of Directors of the Company established the 1997 Stock Option and Incentive Plan for employees and directors of the Company and its subsidiaries. Under the plan, stock options or awards may be granted with respect to 800,000 shares of common stock. Stock options may be either incentive stock options or nonqualified stock options, and the option price must be at least equal to the fair value of the Company's common stock on the date of grant. Options are granted for a 10-year term and become exercisable in four cumulative annual installments of 25% commencing two years from the date of grant. The Stock Option Committee may accelerate a participant's right to purchase shares under the plan. Stock awards may be granted to key officers and employees upon terms and conditions determined solely at the discretion of the Stock Option Committee. The table below summarizes transactions under the Company's stock option plans: Shares ---------------------------------------------- Weighted Available Average Exercise to Grant Under Option Price -------- ------------ ---------------- Balance, June 30, 1997 90,718 247,984 $11.114 New Plan established 800,000 -- -- Granted (51,600) 51,600 21.950 Exercised -- (12,714) (5.375) Forfeited 5,979 (5,979) (13.547) ------- -------- Balance, June 30, 1998 845,097 280,891 13.488 Granted (45,700) 45,700 23.729 Exercised -- (10,230) (12.297) Forfeited 6,725 (6,725) (19.622) ------- -------- Balance, December 31, 1998 806,122 309,636 12.564 Granted (74,100) 74,100 23.548 Exercised -- (58,166) (7.138) Forfeited 19,800 (19,800) (22.352) ------- -------- Balance, December 31, 1999 751,822 305,770 17.933 Granted (62,513) 62,513 16.383 Exercised -- (71,205) (12.140) Forfeited 62,520 (62,520) (19.974) ------- ------- Balance, December 31, 2000 751,829 234,558 16.510 ======= ======= 92 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 16: STOCK OPTION PLAN (Continued) The fair value of each option granted is estimated on the date of the grant using the Black Scholes pricing model with the following weighted average assumptions:
December 31, December 31, December 31, June 30, 2000 1999 1998 1998 ----------- ----------- ----------- ------ Dividends Per Share $0.50 $0.50 $0.44 $0.42 Risk-Free Interest Rate 5.93% 5.70% 4.99% 5.85% Expected Life of Options 5 Years 5 Years 4 Years 4 Years Weighted-Average Fair Value of Options Granted During Year $10.11 $8.98 $8.71 $8.11
The following table further summarizes information about stock options outstanding at December 31, 2000:
Options Outstanding ----------------------------------------- Options Exercisable Weighted -------------------------- Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price --------------- ----------- ----------- -------- ----------- -------- $3.500 to $5.021 7,660 1.48 years $3.718 7,660 $3.718 $10.938 to $16.875 95,723 4.85 years 15.320 57,010 15.149 $17.00 to $18.70 38,325 4.51 years 17.942 13,025 18.352 $21.500 to $28.1875 92,850 6.88 years 24.100 19,211 24.399
The Company applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for its stock options, and no compensation cost has been recognized for them. Had compensation cost been determined based on the fair value at the grant dates using Statement of Financial Accounting Standards No. 123, the Company's net income would have decreased by approximately $303,000, $284,000, $154,900 and $112,900 and basic and diluted earnings per share would have decreased by $.04, $.04, $.02 and $.01 for the years ended December 31, 2000 and 1999, and June 30, 1998, and the six months ended December 31, 1998, respectively. The effects of applying this Statement for either recognizing compensation cost or providing pro forma disclosures are not likely to be representative of the effects on reported net income for future years because options vest over several years and additional awards generally are made each year. 93 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 17: SIGNIFICANT ESTIMATES AND CONCENTRATIONS Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses and pending litigation are reflected in the footnotes regarding loans and contingent liabilities. Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnotes on deposits and on commitments and credit risk. NOTE 18: REGULATORY MATTERS The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if undertaken, could have a direct and material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I Capital (as defined) to adjusted tangible assets (as defined). Management believes, as of December 31, 2000, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 2000, the most recent notification from the Bank's regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based and core capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's category. The Company's and the Bank's actual capital amounts and ratios are presented in the following table. No amount was deducted from capital for interest-rate risk. 94 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 18: REGULATORY MATTERS (Continued)
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ----------------- ----------------- ------------------ Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (In Thousands) As of December 31, 2000 Total Risk-Based Capital Great Southern Bancorp, Inc. $81,772 9.1% >=$71,853 >=8.0% N/A N/A Great Southern Bank $90,610 10.2% >=$71,280 >=8.0% >=$89,100 >=10.0% Tier I Risk-Based Capital Great Southern Bancorp, Inc. $70,453 7.8% >=$35,927 >=4.0% N/A N/A Great Southern Bank $79,380 8.9% >=$35,640 >=4.0% >=$53,460 >=6.0% Core Capital Great Southern Bancorp, Inc. $70,453 6.5% >=$43,415 >=4.0% N/A N/A Great Southern Bank $79,380 7.4% >=$43,121 >=4.0% >=$53,901 >=5.0% As of December 31, 1999 Total Risk-Based Capital Great Southern Bancorp, Inc. $78,308 10.2% >=$61,698 >=8.0% N/A N/A Great Southern Bank $78,879 10.2% >=$61,725 >=8.0% >=$77,156 >=10.0% Tier I Risk-Based Capital Great Southern Bancorp, Inc. $68,573 8.9% >=$30,849 >=4.0% N/A N/A Great Southern Bank $69,140 9.0% >=$30,862 >=4.0% >=$46,294 >=6.0% Core Capital Great Southern Bancorp, Inc. $68,573 7.4% >=$37,302 >=4.0% N/A N/A Great Southern Bank $69,140 7.4% >=$37,127 >=4.0% >=$46,409 >=5.0%
The Company and the Bank are subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2000 and 1999, the Company and the Bank exceeded their minimum capital requirements. The entities may not pay dividends which would reduce capital below the minimum requirements shown above. 95 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 19: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS Following is a summary of unaudited quarterly operating results for the years ended December 31, 2000 and 1999, and June 30, 1998, and the six months ended December 31, 1998:
December 31, 2000 -------------------------------------------------------- Three Months Ended -------------------------------------------------------- March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Interest income $19,142,886 $20,387,899 $22,268,238 $23,622,678 Interest expense 10,607,522 11,434,381 12,809,529 14,009,341 Provision for loan losses 475,600 600,000 900,000 1,130,000 Net realized gains (losses) on available-for-sale securities 130 (6,001) -- (3,441) Net income 3,658,806 3,884,120 3,991,825 3,942,891 Earnings per common share - diluted .48 .53 .55 .56 December 31, 1999 -------------------------------------------------------- Three Months Ended -------------------------------------------------------- March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Interest income $15,924,308 $16,232,225 $17,499,295 $18,382,225 Interest expense 8,182,918 8,236,251 9,091,687 9,952,234 Provision for loan losses 576,410 573,590 450,000 462,000 Net realized gains on available- for-sale securities 219,596 48,357 26,776 21,779 Net income 3,446,707 3,225,893 3,547,182 3,457,599 Earnings per common share - diluted $.44 $.42 $.46 $.44 December 31, 1998 --------------------------- Three Months Ended --------------------------- September 30 December 31 ------------ ----------- Interest income $ 16,681,007 $ 15,803,765 Interest expense 8,378,787 8,151,034 Provision for loan losses 806,846 483,866 Net realized gains on available-for-sale securities 268,257 87,244 Net income 3,778,572 3,579,022 Earnings per common share - diluted $.47 $.44
96 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 19: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS (Continued)
June 30, 1998 ------------------------------------------------------- Three Months Ended ------------------------------------------------------- September 30 December 31 March 31 June 30 ------------ ----------- -------- ------- Interest income $14,933,696 $15,107,330 $15,858,000 $16,032,659 Interest expense 7,714,388 7,886,507 8,088,653 8,302,130 Provision for loan losses 416,628 435,754 414,425 585,790 Net realized gains on available- for-sale securities 420,572 451,194 417,761 108,301 Net income 3,860,275 3,619,773 3,363,595 3,600,406 Earnings per common share - diluted $.47 $.44 $.41 $.44
NOTE 20: OPERATING SEGMENTS The Company's banking operation is its only reportable segment. The banking operation segment is principally engaged in the business of originating residential and commercial real estate loans, commercial business loans and consumer loans and funding these loans through attracting deposits from the general public, originating brokered deposits and borrowing from the Federal Home Loan Bank and others. The operating results of this segment are regularly reviewed by management to make decisions about resource allocations and to assess performance. The following table provides information about segment profits and segment assets and has been prepared using the same accounting policies as those described in the summary of significant accounting policies in Note 1. There are no material intersegment revenues. Thus, no reconciliations to amounts reported in the consolidated financial statements are necessary. Revenue from segments below the reportable segment threshold is attributable to four operating segments of the Company. These segments include an insurance agency, a travel agency, discount brokerage services and real estate appraisal services. 97 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 20: OPERATING SEGMENTS (Continued) Year Ended December 31, 2000 ----------------------------------------------- Banking All Other Totals ------- --------- ------ Interest income $85,375,389 $46,312 $85,421,701 Interest expense $48,848,863 $11,910 $48,860,773 Depreciation and amortization $2,054,831 $296,232 $2,351,063 Provision for income taxes $7,820,752 $363,248 $8,184,000 Segment profit $14,765,682 $711,960 $15,477,642 Segment assets $1,126,413,469 $3,764,589 $1,130,178,058 Expenditures for additions to premises and equipment $2,276,120 $453,196 $2,729,316 Year Ended December 31, 1999 ----------------------------------------------- Banking All Other Totals ------- --------- ------ Interest income $67,779,777 $258,276 $68,038,053 Interest expense $35,263,345 $199,745 $35,463,090 Depreciation and amortization $2,040,954 $246,307 $2,287,261 Provision for income taxes $6,558,440 $459,760 $7,018,200 Segment profit $12,785,115 $892,266 $13,677,381 Segment assets $957,604,983 $7,198,419 $964,803,402 Expenditures for additions to premises and equipment $1,937,700 $420,465 $2,358,165 Six Months Ended December 31, 1998 ----------------------------------------------- Banking All Other Totals ------- --------- ------ Interest income $32,405,769 $79,003 $32,484,772 Interest expense $16,518,815 $11,006 $16,529,821 Depreciation and amortization $838,495 $125,438 $963,933 Provision for income taxes $3,711,169 $147,131 $3,858,300 Segment profit $7,077,022 $280,572 $7,357,594 Segment assets $829,674,056 $6,823,646 $836,497,702 Expenditures for additions to premises and equipment $1,360,336 $75,865 $1,436,201 98 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 20: OPERATING SEGMENTS (Continued) Year Ended June 30, 1998 ------------------------------------------- Banking All Other Totals ------- --------- ------ Interest income $61,704,485 $227,200 $61,931,685 Interest expense $31,966,393 $25,285 $31,991,678 Depreciation and amortization $1,254,209 $134,624 $1,388,833 Provision for income taxes $6,165,092 $758,608 $6,923,700 Segment profit $12,963,921 $1,480,128 $14,444,049 Segment assets $790,429,922 $4,661,207 $795,091,129 Expenditures for additions to premises and equipment $3,379,898 $125,900 $3,505,798 NOTE 21: CONDENSED PARENT COMPANY STATEMENTS The condensed balance sheets at December 31, 2000 and 1999, and statements of income and cash flows for the years ended December 31, 2000 and 1999, and June 30, 1998, and for the six months ended December 31, 1998, for the parent company, Great Southern Bancorp, Inc., are as follows: December 31, -------------------------------- 2000 1999 ---- ---- BALANCE SHEETS Assets Cash $ 644,096 $ -- Available-for-sale securities 8,190,739 7,245,296 Investment in subsidiary bank 79,901,864 69,492,824 Income taxes receivable 136,894 -- Deferred income taxes -- 353,890 Other 100,458 50,003 -------------- -------------- $ 88,974,051 $ 77,142,013 ============== ============== 99 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 21: CONDENSED PARENT COMPANY STATEMENTS (Continued) December 31, -------------------------------- 2000 1999 ---- ---- Liabilities and Stockholders' Equity Bank overdraft $ -- $ 15,722 Accounts payable and accrued expenses 44,690 42,100 Income taxes payable -- 174,740 Short-term borrowings 17,840,481 7,938,298 Deferred income taxes 40,191 -- Common stock 123,250 123,250 Additional paid-in capital 17,461,445 17,487,433 Retained earnings 112,176,579 100,310,493 Unrealized appreciation (depreciation) on available-for-sale securities, net 384,183 (598,790) Treasury stock, at cost (59,096,768) (48,351,233) -------------- -------------- $ 88,974,051 $ 77,142,013 ============== ==============
Six Months Years Ended December 31, Ended Year ------------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- STATEMENTS OF INCOME Income Dividends from subsidiary bank $ 7,000,000 $ 9,250,000 $ 4,755,806 $ 8,916,733 Dividends from other subsidiaries -- -- 51,281 469,109 Interest and dividend income 323,593 247,929 101,172 227,200 Net realized gains (losses) on sales of available-for-sale securities (11,497) 296,041 353,149 1,397,828 Other income (loss) -- -- 275 (69,266) ----------- ----------- ----------- ----------- Total income 7,312,096 9,793,970 5,261,683 10,941,604 ----------- ----------- ----------- ----------- Expense Operating expenses 219,120 214,211 103,668 199,972 Interest expense 1,040,574 215,432 11,006 25,285 ----------- ----------- ----------- ----------- Total expense 1,259,694 429,643 114,674 225,257 ----------- ----------- ----------- ----------- Income before income tax and equity in undistributed earnings of subsidiaries 6,052,402 9,364,327 5,147,009 10,716,347 Provision (credit) for income taxes (371,012) (14,202) 59,350 415,223 ------------ ------------ ----------- ----------- Income before equity in earnings of subsidiaries 6,423,414 9,378,529 5,087,659 10,301,124 Equity in undistributed earnings of subsidiaries 9,054,228 4,298,852 2,269,935 4,142,925 ----------- ----------- ----------- ----------- Net Income $15,477,642 $13,677,381 $ 7,357,594 $14,444,049 =========== =========== =========== ===========
100 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 21: CONDENSED PARENT COMPANY STATEMENTS (Continued)
Six Months Years Ended December 31, Ended Year ------------------------ December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- STATEMENTS OF CASH FLOWS Cash Flows From Operating Activities Net income $15,477,642 $13,677,381 $ 7,357,594 $14,444,049 Items not requiring (providing) cash: Loss on low income housing partnership -- -- -- 12,093 Equity in undistributed earnings of subsidiaries (9,054,228) (4,298,851) (2,278,085) (4,144,925) Net realized (gains) losses on sales of available-for-sale securities 11,497 (296,041) (353,149) (1,397,828) Changes in: Dividends receivable -- 19,740 (19,744) 3,000 Other assets (455) -- -- 57,505 Accounts payable 2,590 32,100 10,000 -- Income taxes (311,634) (318,110) 72,803 703,119 ----------- ----------- ----------- ----------- Net cash provided by operating activities 6,125,412 8,816,219 4,789,419 9,677,013 ----------- ----------- ----------- ----------- Cash Flows From Investing Activities Net loans originated -- 585,000 -- (585,000) Purchase of available-for-sale securities -- (4,084,488) (2,289,879) (1,427,438) Proceeds from sale of available-for-sale securities 65,302 2,149,910 1,350,713 3,359,677 Other investments (50,000) -- -- (50,000) Investment in subsidiary (1,000,000) (3,000,000) -- -- Partnership distribution -- -- -- 5,062 ----------- ----------- ----------- ----------- Net cash provided by (used in) investing activities (984,698) (4,349,578) (939,166) 1,302,301 ----------- ----------- ----------- ----------- Cash Flows From Financing Activities Proceeds from bank overdraft -- 15,722 -- -- Repayment of bank overdraft (15,722) -- -- -- Net increase (decrease) in short-term borrowings 9,902,183 7,214,248 724,050 (2,406,423) Dividends paid (3,611,556) (3,826,880) (1,853,342) (3,468,568) Stock options exercised 481,230 464,437 127,435 94,118 Treasury stock purchased (11,252,753) (8,792,122) (3,945,628) (3,694,781) ----------- ----------- ----------- ----------- Net cash used in financing activities (4,496,618) (4,924,595) (4,947,485) (9,475,654) ----------- ----------- ----------- ----------- Increase (Decrease) in Cash 644,096 (457,954) (1,097,232) 1,503,660 Cash, Beginning of Period -- 457,954 1,555,186 51,526 ----------- ----------- ----------- ----------- Cash, End of Period $ 644,096 $ 0 $ 457,954 $ 1,555,186 =========== =========== =========== ===========
101 GREAT SOUTHERN BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998, AND JUNE 30, 1998 NOTE 21: CONDENSED PARENT COMPANY STATEMENTS (Continued)
Six Months Years Ended December 31, Ended Year ----------------------- December 31, Ended 2000 1999 1998 June 30, 1998 ---- ---- ----------- ------------- Additional Cash Payment Information Interest paid $1,038,377 $173,410 $39,066 $11,006
102 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Directors of the Registrant Nominee to Serve a Three-Year Term Expiring at the 2004 Annual Meeting William V. Turner, age 68, has served as the Chairman of the Board of Great Southern since 1974, Chief Executive Officer of Great Southern from 1974 to 2000, and President of Great Southern from 1974 to 1997. Mr. W. Turner has served in similar capacities with Bancorp since incorporation in 1989. Mr. W. Turner has also served as Chairman of the Board and President of Great Southern Financial Corporation, (a subsidiary of Great Southern) since incorporation in 1974, Chairman of the Board and President of Appraisal Services, Inc. (a subsidiary of Great Southern) since incorporation in 1976 and Chairman of the Board of Great Southern Capital Management, Inc. (a subsidiary of Great Southern) since its formation in 1988. Mr. W. Turner is the father of Joseph W. Turner, who is a Director and the Chief Executive Officer and President of Bancorp and Great Southern. Information with Respect to the Continuing Directors In addition to the nominee proposed to serve on the Bancorp Board of Directors, the following individuals are also members of the Bancorp Board, for a term ending on the date of the annual meeting of stockholders in the year indicated. The principal occupation and business experience for the last five years and certain other information with respect to each continuing director of Bancorp is set forth below. The information concerning the continuing directors has been furnished by them to Bancorp. Directors Serving a Three-Year Term Expiring at the 2002 Annual Meeting William E. Barclay, age 71, was first elected a Director of Great Southern in 1975 and of Bancorp in 1989. Mr. Barclay is the founder and has served as President and/or Chairman of Auto-Magic Full Service Car Washes in Springfield, Missouri since 1962. Mr. Barclay also founded Barclay Love Oil Company in Springfield, Missouri in 1964 and founded a chain of Ye Ole Buggy Bath Self-Service Car Washes in Springfield, Missouri in 1978 and opened a Jiffy Lube franchise in Springfield, Missouri in 1987. None of these entities are affiliated with Bancorp. Larry D. Frazier, age 63, was first elected a Director of Great Southern and of Bancorp in May 1992. Mr. Frazier was elected a Director of Great Southern Financial Corporation (a subsidiary of Great Southern) in 1976, where he served until his election as Director of Great Southern and Bancorp. Mr. Frazier is retired from White River Valley Electric Cooperative in Branson, Missouri, where he served as President and Chief Executive Officer from 1975 to 1998. This entity is not affiliated with Bancorp. 103 Directors Serving a Three-Year Term Expiring at the 2003 Annual Meeting Thomas J. Carlson, age 48, was first appointed a Director of Bancorp in January 2001. He is the co-owner of Carlson Gardner, Inc., a development company that has been in business since 1993. Mr. Carlson is also a shareholder of Woodco, Inc., a real estate construction company. He co-owns and is a member of Missouri Equity Partners, L.L.C. and Mid America Property Management, L.L.C. He is the President and Chief Executive Officer of Pointe Royale Development, Inc. and Resorts Management, Inc., both real estate development companies. Mr. Carlson serves on the Board of Directors of ITEC Attractions, Inc., which owns the IMAX Theater in Branson, Missouri. He also serves on the Board of Ozarks Counseling Center and The Kitchen, both not-for-profit organizations in Springfield, Missouri. Mr. Carlson, an attorney, is active in local political and civic affairs. He was a member of the Springfield City Council from 1983 to 1985, serving as Mayor Pro Tem from 1985 to 1987. He was Mayor of the City of Springfield from 1987 to 1993. Thereafter, he served on the Springfield-Branson Regional Airport Board. In 1997, he was again re-elected to the Springfield City Council. None of these entities are affiliated with Bancorp. Joseph W. Turner, age 36, joined Great Southern in 1991 and Bancorp in 1995 and became a Director in 1997. He currently serves as President and Chief Executive Officer of Bancorp and Great Southern. Prior to joining Great Southern, Mr. J. Turner was an attorney with the Kansas City, Missouri law firm of Stinson, Mag and Fizzell. Mr. J. Turner is the son of William V. Turner. (b) Executive Officers of the Registrant Included under Part I of this Form 10-K. (c) Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Exchange Act requires Bancorp's directors, certain of its officers and persons who own more than ten percent of the Common Stock, to file reports detailing their ownership and changes of ownership in the Common Stock with the SEC and to furnish Bancorp with copies of all such ownership reports. Based solely on Bancorp's review of the copies of such ownership reports furnished to Bancorp, and written representations relative to the filing of certain forms, Bancorp is aware of three late filings for Ann S. Turner for one transaction in June 1998, one transaction in June 1999 and one transaction in September 2000, four late filings for Joseph W. Turner for one transaction in October 1999, one transaction in December 1999, one transaction in September 2000 and one transaction in December 2000, three late filing for William V. Turner for one transaction in June 1998, one transaction in June 1999 and one transaction in September 2000, one late filing for Steven G. Mitchem for one transaction in September 2000, one late filing for Rex A. Copeland for one transaction in September 2000, two late filings for Douglas W. Marrs for one transaction in September 2000 and one transaction in April 2000 and two late filings for Larry A. Larimore for one transaction in April 2000 and one transaction in July 2000. 104 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth information concerning the compensation of Joseph W. Turner, the President and Chief Executive Officer, and William V. Turner, the Chairman of the Board. No other executive officer earned a salary and bonus in excess of $100,000 for fiscal 2000.
Long-Term Compensation Annual Compensation Awards -------------------------------------- ------------ All Other Name and Principal Position Year Salary Bonus Options Compensation ($)(1) ($) (#) ($)(2) - --------------------------- --------------- ------- ------- ------------ ------------ William V. Turner Fiscal 2000 226,494 120,000 7,500 6,960 Chairman of the Board Fiscal 1999 291,261 100,000 5,000 6,940 Calendar 1998 317,122 215,000 5,000 2,914 Fiscal June 1998 320,793 191,732 7,500 5,290 Joseph W. Turner Fiscal 2000 179,714 120,000 7,500 6,581 Chief Executive Officer Fiscal 1999 148,451 50,000 5,000 14,062 and President Calendar 1998 143,803 --- 5,000 2,925 Fiscal June 1998 145,000 --- 5,000 4,611
(1) Includes directors' fees for Mr. W. Turner of $31,200 for Fiscal 2000, Fiscal 1999, Calendar 1998 and Fiscal June 1998 and for Mr. J. Turner of $18,000, $10,500 and $10,500 for Fiscal 2000, Fiscal 1999 and Calendar 1998, respectively. (2) Fiscal 2000 includes: (a) company matching contributions to Bancorp's 401(k) plan (Mr. W. Turner - $6,420 and Mr. J. Turner - $6,041) and (b) term life insurance premiums paid by Great Southern for the benefit of Mr. W. Turner - $540 and Mr. J. Turner - $540. 105 Option Grants During the Fiscal Year Ended December 31, 2000 The following table sets forth options to acquire shares of Common Stock which were granted to the executive officers named in the Summary Compensation Table during fiscal 2000.
OPTIONS GRANTS IN FISCAL 2000 Individual Grants --------------------------------------------------------------------------- % of Total Number of Options Potential Realizable Securities Granted to Exercise Value at Assumed Underlying All or Base Annual Rate of Options Employees Price Stock Price Granted in Fiscal ($ per Expiration Appreciation for Name (#)(1) 2000 share) Date Option Term - ----------------- --------- --------- -------- ---------- ---------------------- 5% ($) 10% ($) ------- ------- William V. 7,500 12.0% $17.4284 9-20-2005 $20,948 $60,664 Turner Joseph W. 7,500 12.0 17.4284 9-20-2005 $20,948 $60,664 Turner
(1) Shares for William V. Turner and Joseph W. Turner vest 25% per year after a one year holding period beginning on the date of the grant (September 20, 2000) and must be exercised within 5 years of the grant. Option Exercises and Fiscal Year-End Values The following table sets forth all stock options exercised by the named executives during fiscal 2000 and the number and value of unexercised options held by such executive officers at December 31, 2000.
Number of Securities Underlying Unexercised Value of Unexercised Options at Fiscal In-the-Money Options Shares Value Year-End (#) at Fiscal Year-End ($)(2) Acquired on Realized -------------------------- -------------------------- Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable ---------- -------- ----------- ------------- ----------- ------------- William V. Turner 30,000 $98,445 39,375 15,625 $ --- $ --- Joseph W. Turner 13,000 41,847 29,060 15,000 79,540 ---
(1)Value realized is calculated based on the difference between the option exercise price and the closing market price of the Common Stock on the date of exercise multiplied by the number of shares to which the exercise relates. (2)The value of unexercised options was calculated at a per share price of $15.625, based on the closing price of the Common Stock as reported on the Nasdaq National Market System on December 31, 2000, less the exercise price per share. 106 Employment Agreements William V. Turner and Joseph W. Turner (the "Employees") have entered into employment agreements with Great Southern (the "Employment Agreements"). The Employment Agreements provide for an annual base salary in an amount not less than the Employee's then current salary and an initial term of five years with respect to Mr. W. Turner, and three years with respect to Mr. J. Turner. The Employment Agreements provide for an extension of one year, in addition to the then-remaining term, on each anniversary of the effective date of the agreements subject to the Board's discretion. The Employment Agreements provide that Great Southern may terminate the employment of any of the Employees for "cause," as defined in the Employment Agreements, at any time. The Employment Agreements also provide that in the event Great Southern chooses to terminate the employment of any of the Employees for reasons other than for cause, or in the event any of the Employees resigns from Great Southern upon the failure of the Great Southern Board of Directors to reelect any of the Employees to his current office or upon a material lessening of his functions, duties or responsibilities, such employee would be entitled to the payments owed for the remaining term of the agreement. If the employment of any of the Employees is terminated in connection with or within 12 months of a "change in control" of Great Southern or Bancorp, each of the Employees would be entitled to (i) a lump sum payment equal to 299% of the employee's base amount of compensation as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended, and (ii) continued payment of his salary under the applicable Employment Agreement for the term of the agreement. If Messrs. W. Turner and J. Turner had been entitled to the lump sum payments described in clause (i) of the preceding sentence as of December 31, 2000, such payments would have amounted to $1,306,888 and $430,716, respectively. Benefits Pension Plan. Great Southern's employees are included in the Pentegra Retirement Fund, a multiple employer comprehensive pension plan. This noncontributory defined benefit retirement plan covers all employees who have met minimum service requirements. The following table illustrates annual pension benefits payable upon retirement, subject to limits established by federal law, based on various levels of compensation and years of service and assuming payment in the form of a straight-life annuity. Covered compensation includes all regular and overtime pay excluding bonuses and commissions. At December 31, 2000, Messrs. W. Turner and J. Turner had 25 and 8 years, respectively, of credited service under the pension plan. Since the pension plan is fully funded, there were no contributions during fiscal 2000 for Messrs. W. Turner and J. Turner. PENSION PLAN TABLE Years of Service Average Annual -------------------------------------------------- Covered Compensation 10 20 30 40 -------------------- ---------- ---------- ---------- ---------- $ 50,000.............. $10,000 $ 20,000 $ 30,000 $ 40,000 100,000.............. 20,000 40,000 60,000 80,000 150,000.............. 30,000 60,000 90,000 120,000 200,000.............. 40,000 80,000 120,000 135,000(1) 250,000.............. 50,000 100,000 135,000(1) 135,000(1) 300,000.............. 60,000 120,000 135,000(1) 135,000(1) 350,000.............. 70,000 135,000(1) 135,000(1) 135,000(1) (1) The maximum retirement benefit currently permitted by federal law is $135,000 per year for this type of plan. 107 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information, as of the Record Date as to those persons believed by management of Bancorp to be beneficial owners of more than five percent of the outstanding shares of Common Stock. Persons, legal or natural, and groups beneficially owning in excess of five percent of the Common Stock are required to file certain reports regarding such ownership with Bancorp and with the United States Securities and Exchange Commission (the "SEC") in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Where appropriate, historical information set forth below is based on the most recent Schedule 13D or 13G filed on behalf of such person with Bancorp. Other than those persons listed below, management is not aware of any person or group that owns more than five percent of the Common Stock as of the Record Date. Amount and Name and Address Nature of Beneficial Percent of of Beneficial Owner Ownership(1) Class(2) ----------------------------------- -------------------- ---------- William V. Turner 1,046,701(3) 15.09% Ann S. Turner Turner Family Limited Partnership Turner Family Foundation 925 St. Andrews Circle Springfield, MO 65809 Robert M. Mahoney 486,184(4) 7.05 Joyce B. Mahoney Tri-States Company 4940 S. Farm Road 189 Suite 500 Rogersville, MO 65742 Earl A. Steinert, Jr. 460,500(5) 6.68 1736 E. Sunshine Springfield, MO 65804 (1) Due to the rules for determining beneficial ownership, the same securities may be attributed as being beneficially owned by more than one person. The holders may disclaim beneficial ownership of the included shares which are owned by or with family members, trusts or other entities. (2) The percentage ownership is based on the number of shares outstanding as of the Record Date. (3) Under Rule 13d-3 under the Exchange Act, share amounts shown for Bancorp's officers and directors include shares that they may acquire upon the exercise of options that are exercisable at the Record Date or will become exercisable within 60 days of such date. This figure includes 39,375 shares which may be acquired through option exercises by William V. Turner. This figure also includes 35,368 shares held in various capacities by Ann S. Turner, Mr. W. Turner's wife, which Mr. W. Turner may be deemed to beneficially own, 14,826 shares held by the Turner Family Foundation which Mr. and Mrs. Turner may be deemed to beneficially own and 783,012 shares held by the Turner Family Limited Partnership which Mr. and Mrs. W. Turner may be deemed to beneficially own. Mr. W. Turner disclaims beneficial ownership as to shares beneficially owned by Ann S. Turner and the Turner Family Foundation, and 258,678 shares owned by the Turner Family Limited Partnership. This figure also includes 174,120 shares held in various capacities by William V. Turner, Mrs. Turner's husband, which Mrs. Turner may be deemed to beneficially own. Mrs. Turner disclaims beneficial ownership as to shares beneficially owned by William V. Turner and the Turner Family Foundation, and 258,678 shares owned by the Turner Family Limited Partnership. 108 (4) As reported by Robert M. Mahoney, Joyce B. Mahoney and Tri-States Service Company in a Schedule 13D filed on July 3, 1997. The Schedule 13D was a joint filing pursuant to Rule 13d-1(k)(1) of the Exchange Act. Joyce B. Mahoney and Tri-States Service Company disclaim beneficial ownership as to all shares. Robert M. Mahoney reported sole voting and dispositive power as to all shares. (5) As reported by Earl A. Steinert, Jr. in a Schedule 13D filed on March 13, 1997. Earl A. Steinert, Jr. reported sole voting and dispositive power as to 391,500 shares and shared voting and dispositive power as to 69,000 shares. The 69,000 shares include 54,000 shares held by Earl A. Steinert, Jr. Trustee of the Earl A. Steinert Trust II and 15,000 shares held by Dorothy E. Steinert, Earl A. Steinert and Barbara Lee Stole, Joint Tenants. Earl A. Steinert, Jr. disclaims beneficial ownership as to these 69,000 shares. Stock Ownership of Management The following table sets forth information, as of the Record Date, as to shares of Common Stock beneficially owned by the directors and nominees named under "Election of Directors" and "The Board of Directors" above, the executive officers named in the Summary Compensation Table above, and the directors and all executive officers of Bancorp as a group. Each beneficial owner listed has sole voting and dispositive power with respect to the shares of Common Stock reported, except as otherwise indicated. Amount and Nature of Beneficial Percent of Name Ownership(1) Class(2) -------------------------------- -------------------- --------- William V. Turner 1,046,701(3) 15.09% Larry D. Frazier 62,500 .91 Joseph W. Turner 55,505(4) .80 William E. Barclay 8,048(5) .12 Thomas J. Carlson 1,500 .02 Directors and Executive Officers as a Group (9 persons) 1,213,265(6) 17.41 (1) Under Rule 13d-3 the Exchange Act, share amounts shown for Bancorp's officers and directors include shares that they may acquire upon the exercise of options that are exercisable at the Record Date or will become exercisable within 60 days of such date. Due to the rules for determining beneficial ownership, the same securities may be attributed as being beneficially owned by more than one person. The holders may disclaim beneficial ownership of the included shares which are owned by or with family members, trusts or other entities. (2) The percentage ownership is based on the number of shares outstanding as of the Record Date. (3) For a detailed discussion of the nature of Mr. W. Turner's ownership, see Footnote 3 to the table of beneficial owners set out above. (4) This figure includes 29,060 shares that may be acquired through option exercises. (5) Mr. Barclay shares voting and dispositive power with his spouse with respect to all shares. (6) The figure includes an aggregate of 71,336 shares that may be acquired through option exercises by all directors and executive officers as a group. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Great Southern, like many financial institutions, has from time to time extended loans to its officers, directors and employees, generally for the financing of their personal residences, at favorable interest rates. Generally, residential loans have been granted at interest rates 1% above Great Southern's cost of funds, subject to annual adjustments. Other than the interest rate, these loans have been made in the ordinary course of business, on substantially the same terms and collateral as those of comparable transactions prevailing 109 at the time, and, in the opinion of management, do not involve more than the normal risk of collectibility or present other unfavorable features. All loans by Great Southern to its directors and executive officers are subject to regulations restricting loans and other transactions with affiliated persons of Great Southern. Great Southern may also grant loans to officers, directors and employees, their related interests and their immediate family members in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons which, in the opinion of management, do not involve more than the normal risk of collectibility or present other unfavorable features. No directors, executive officers or their affiliates, had aggregate indebtedness to Great Southern on such below market rate loans exceeding $60,000 at any time since January 1, 2000 except as noted below.
Largest Amount Outstanding Balance Interest Date of Since as of Rate at Name Position Loan 01/01/00 12/31/00 12/31/00 Type - ------------------ ------------------------- -------- ---------- -------- -------- ---------------- William V. Turner Chairman of the Board of 08/25/95 $318,121 $312,349 6.33% Home Mortgage Bancorp and Great Southern Joseph W. Turner CEO and President of 08/31/00 56,277 56,277 9.50% Home Equity Line Bancorp and Great Southern 09/14/98 295,168 290,354 6.22% Home Mortgage Rex A. Copeland Treasurer of Bancorp; 06/01/00 188,000 185,993 6.09% Home Mortgage Senior Vice President and CFO of Great Southern Steven G. Mitchem Senior Vice President and 06/22/98 166,150 163,697 5.93% Home Mortgage Chief Lending Officer of Great Southern Larry A. Larimore Secretary of Bancorp and 08/17/00 215,000 214,382 6.22% Home Mortgage Great Southern; Vice 08/12/98 18,837 17,753 9.50% Home Equity Line President of Great Southern
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) List of Documents Filed as Part of This Report (1) Financial Statements The Consolidated Financial Statements and Independent Accountants' Report are included in Item 8. (2) Financial Statement Schedules Inapplicable. 110 (3) List of Exhibits Exhibits incorporated by reference below are incorporated by reference pursuant to Rule 12b-32. (2) Plan of acquisition, reorganization, arrangement, liquidation, or succession Inapplicable. (3) Articles of incorporation and Bylaws (i) The Registrant's Certificate of Incorporation previously filed with the Commission (File no. 33- 30597) as Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 dated August 18,1989, is incorporated herein by reference as Exhibit 3.1. (ii) The Registrant's Certificate of Amendment of Certificate of Incorporation previously field with the Commission as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, is incorporated herein by reference as Exhibit 3.2. (iii) The Registrant's Bylaws, as amended, previously filed with the Commission (File no. 33-30597) as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for fiscal year ended June 30, 1990, is incorporated herein by reference as Exhibit 3.3. (4) Instruments defining the rights of security holders, including indentures Inapplicable. (9) Voting trust agreement Inapplicable. (10) Material contracts The Registrant's 1989 Stock Option and Incentive Plan previously filed with the Commission (File no. 33- 30597) as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, is incorporated herein by reference as Exhibit 10.1. An Employment Agreement dated February 1, 1990 between the Registrant and William V. Turner previously filed with the Commission (File no. 33-30597) as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 dated August 18, 1989, is incorporated herein by reference and a January 19, 2000 amendment is attached hereto as Exhibit 10.2. An Employment Agreement dated July 1, 1993 between the Registrant and Joseph W. Turner previously filed with the Commission (File no. 33-30597) as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, is incorporated herein by reference and a January 19, 2000 amendment is attached hereto as Exhibit 10.4. The Registrant's 1997 Stock Option and Incentive Plan previously filed with the Commission (File no. 33-30597) as Annex A to the Registrant's Definitive Proxy Statement for the fiscal year ended June 30, 1997, is incorporated herein by reference as Exhibit 10.5. The Registrant's $25,000,000 Revolving Note, as modified, with a commercial bank is attached hereto as Exhibit 10.6. 111 (11) Statement re computation of per share earnings The Statement re computation of per share earnings is included in Note 1 of the Consolidated Financial Statements under Part II, Item 8 above. (12) Statements re computation of ratios The Statement re computation of ratio of earnings to fixed charges is attached hereto as Exhibit 12. (13) Annual report to security holders, Form 10-Q or quarterly report to security holders Inapplicable. (16) Letter re change in certifying accountant Inapplicable. (18) Letter re change in accounting principles Inapplicable. (21) Subsidiaries of the registrant A listing of the Registrant's subsidiaries is attached hereto as Exhibit 21. (22) Published report regarding matters submitted to vote of security holders Inapplicable. (23) Consents of experts and counsel The consent of Baird, Kurtz & Dobson to the incorporation by reference into the Form S-8 previously filed on December 16, 1992 with the Commission (File no. 33-55832) of their report on the financial statements included in this Form 10-K, is attached hereto as Exhibit 23. (24) Power of attorney Included as part of signature page. (99) Additional Exhibits Inapplicable. (b) Reports on Form 8-K None. 112 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GREAT SOUTHERN BANCORP, INC. Date: March 28, 2001 By: /s/ Joseph W. Turner ----------------------------------------------- Joseph W. Turner President, Chief Executive Officer and Director (Duly Authorized Representative) POWER OF ATTORNEY We, the undersigned officers and directors of Great Southern Bancorp, Inc., hereby severally and individually constitute and appoint Joseph W. Turner and Rex A. Copeland, and each of them, the true and lawful attorneys and agents of each of us to execute in the name, place and stead of each of us (individually and in any capacity stated below) any and all amendments to this Annual Report on Form 10-K and all instruments necessary or advisable in connection therewith and to file the same with the Securities and Exchange Commission, each of said attorneys and agents to have the power to act with or without the others and to have full power and authority to do and perform in the name and on behalf of each of the undersigned every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any of the undersigned might or could do in person, and we hereby ratify and confirm our signatures as they may be signed by our said attorneys and agents or each of them to any and all such amendments and instruments. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Capacity in Which Signed Date - ------------------------------------- -------------------------------------- ------------------ /s/ Joseph W. Turner President, Chief Executive Officer and March 28, 2001 - ------------------------------------- Director (Principal Executive Officer) Joseph W. Turner /s/ William V. Turner Chairman of the Board March 28, 2001 - ------------------------------------- William V. Turner /s/ Rex A. Copeland Treasurer March 28, 2001 - ------------------------------------- (Principal Financial Officer and Rex A. Copeland Principal Accounting Officer) /s/ William E. Barclay Director March 28, 2001 - ------------------------------------- William E. Barclay /s/ Larry D. Frazier Director March 28, 2001 - ------------------------------------- Larry D. Frazier /s/ Thomas J. Carlson Director March 28, 2001 - ------------------------------------- Thomas J. Carlson
113 GREAT SOUTHERN BANCORP, INC. INDEX TO EXHIBITS Exhibit No. Document - -------------- ---------------------------------------------------------------- 10.2 Amendment dated January 19, 2000 to Employment Agreement with William V. Turner 10.4 Amendment dated January 19, 2000 to Employment Agreement with Joseph W. Turner 10.6 Revolving Note With Commercial Bank 12 Statement of Ratio of Earnings to Fixed Charges 21 Subsidiaries of the Registrant 23 Consent of Baird, Kurtz & Dobson, Certified Public Accountants 114 EX-10.2 2 0002.txt AMENDED EMPLOYMENT AGREEMENT EXHIBIT 10.2 AMENDED EMPLOYMENT AGREEMENT This Amended Employment Agreement ("Agreement") is made and entered into as of this 19th day of January 2000, by and between Great Southern Bank, a Missouri Chartered Bank and Trust Company (which, together with any Successor there to which executes and delivers the Assumption Agreement provided for in Section 11(2) thereof or which otherwise becomes found by the terms and provisions of this Agreement by Operation of Law is hereinafter referred to as the "Company"), and William V. Turner, whose residence is 772 Augusta Drive, Springfield Missouri 65809 (the Employee). WHEREAS, the Board of Directors of the Company has approved and authorized the Modification and execution of this Agreement with the Employee to take effect on January 19, 2000; NOW, THEREFORE, it is AGREED as follows: o The Employee is currently serving as Chairman of the Board of Directors; o The Employee's base salary shall be $168,760 per year; o All references to the Resolution Trust Company and the Office of Thrift Supervision are deleted and replaced by Federal Deposit Insurance Corporation and the Division of Finance of the State of Missouri. o All other terms and conditions of the original Employment Agreement dated February 1, 1990 shall remain as written and agreed to. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE ORIGINAL AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES, and continues with this AMENDMENT. By: GREAT SOUTHERN BANK /s/ Don M. Gibson ------------------------------------ Don M. Gibson, Secretary EMPLOYEE: /s/ William V. Turner ------------------------------------ William V. Turner EX-10.4 3 0003.txt AMENDED EMPLOYMENT AGREEMENT EXHIBIT 10.4 AMENDED EMPLOYMENT AGREEMENT This Amended Employment Agreement ("Agreement") is made and entered into as of this 19th day of January 2000, by and between Great Southern Bank, a Missouri Chartered Bank and Trust Company (which, together with any Successor there to which executes and delivers the Assumption Agreement provided for in Section 11(2) thereof or which otherwise becomes found by the terms and provisions of this Agreement by Operation of Law is hereinafter referred to as the "Company"), and Joseph W. Turner, whose residence is 772 Augusta Drive, Springfield Missouri 65809 (the Employee). WHEREAS, the Board of Directors of the Company has approved and authorized the Modification and execution of this Agreement with the Employee to take effect on January 19, 2000; NOW, THEREFORE, it is AGREED as follows: o The Employee is currently serving as President, Chief Executive Officer and General Counsel; o The Employee's base salary shall be $162,000 per year. The Employee shall receive an annual bonus based on the pre-tax profits of the Company; o All references to the Resolution Trust Company and the Office of Thrift Supervision are deleted and replaced by Federal Deposit Insurance Corporation and the Division of Finance of the State of Missouri. o All other terms and conditions of the original Employment Agreement dated July 1, 1993 shall remain as written and agreed to. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE ORIGINAL AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES, and continues with this AMENDMENT. By: GREAT SOUTHERN BANK /s/ Don M. Gibson ------------------------------------ Don M. Gibson, Secretary EMPLOYEE: /s/ Joseph W. Turner ------------------------------------ Joseph W. Turner EX-10.6 4 0004.txt LASALLE BANK REVOLVING NOTE AND MODIFICATION Executed this 8th day of October, 1999. No. 8100202048 Amount $15,000,000.00 Due: As described below On or before 11/01/2000 the Undersigned, jointly and severally, if more than one, for value received, promises to pay to the order of LaSalle Bank National Association (hereinafter, together with any holder thereof, called "Bank"), at the main office of the Bank, located at 135 S. LaSalle St., Chicago, IL 60603, the principal sum of **Fifteen Million Dollars DOLLARS ($15,000,000.00) or if less, the aggregate unpaid principal amount of all loans made by the Bank, to the Undersigned. The unpaid principal amount hereof shall bear interest at the rate of **% per annum. Interest shall be payable from the date hereof on the aggregate unpaid principal amount of all loans made by the Bank to the Undersigned as follows: (check one) XX quarterly, or ____ monthly beginning February 01, 2000 and continuing (check one) XX quarterly, or ____ monthly thereafter, and at maturity hereof. Interest after maturity (whether by reason of acceleration or otherwise) shall be paid on the unpaid balance at the rate of P+ 2.0000% per annum. If the designation of said rate includes the letter "R" or the term "Reference," such letter or term shall mean the "Reference Rate," which at any time, and from time to time, shall be the rate of interest then most recently announced by the Bank as its Reference Rate, which is not necessarily the Bank's lowest or most favorable rate of interest at any one time. Each change in the interest rate hereon shall take effect on the effective date of the change in the Reference Rate. The Bank shall not be obligated to give notice of any change in the Reference Rate. The Reference Rate shall be computed on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed, unless otherwise specified herein. The Undersigned, and each one of them, hereby authorize the Bank to charge any account of the Undersigned, and each one of them, for all sums due hereunder. Principal payments submitted in funds not available until collected shall continue to bear interest until collected. If payment hereunder becomes due and payable on a Saturday, Sunday or legal holiday under the laws of the United States or the State of Illinois, the due date thereof shall be extended to the next succeeding business day, and interest shall be payable thereon at the rate specified during such extension. This Note is executed pursuant to a revolving line of credit under which Undersigned is indebted to Bank and evidences the aggregate unpaid principal amount of all advances made or to be made by Bank to Undersigned under the Note. All advances and repayments hereunder shall be evidenced by entries on the books and records of Bank which shall be presumptive evidence of the principal amount and interest owing and unpaid on this Note, or any renewal or extension hereof. The failure to so record any such amount or any error so recording any such amount shall not, however, limit or otherwise affect the obligations of the Undersigned hereunder or under any note to repay the principal amount of the liabilities together with all interest accruing thereon. Advances under this Note may be made by Bank upon oral or written request of any person whose authority to so act has not been revoked by the Undersigned, by the writing theretofore received by Bank at its main office. Any such advances shall be conclusively presumed to have been made by Bank to or for the benefit of the Undersigned. The Undersigned does hereby irrevocably confirm, ratify and approve all such advances by Bank and does hereby indemnify Bank against losses and expenses (including court costs, attorneys' and paralegals' fees) and shall hold Bank harmless with respect thereto. As security for the payment of this Note and any and all other liabilities and obligations of the Undersigned, or any one of them, (and of any partnership in which any of the Undersigned, or any one of them, is or may be a partner) to Bank, howsoever created, arising or evidenced, and howsoever owned, held or acquired, whether now or hereafter existing, whether now due or to become due, whether direct to indirect, or absolute or contingent, and whether several, joint or joint and several (all of which liabilities and obligations, including this Note, are hereinafter called the "Obligations"), the Undersigned, jointly and severally, do hereby pledge, assign, transfer and deliver to Bank and do hereby grant to Bank a continuing security interest in and to 100% of the common stock of Great Southern Bank and any stock splits, substitutions, proceeds or dividends thereof. **See Attached Rider. (If no additional property is hereby pledged, insert the word "none" in the space indicated above. If additional property is pledged, and a Rider is attached hereto, the Rider shall constitute by express reference, a part hereof.) All of the aforesaid property and the products and proceeds therefrom, including the proceeds of insurance thereon, are herein collectively called the "Collateral". The terms used herein to identify the Collateral shall have the respective meanings assigned to such terms as of the date hereof in the Illinois Uniform Commercial Code. The cancellation or surrender of this Note, upon payment or otherwise, shall not affect the right of the Bank to retain the Collateral for any other of the Obligations. If the Collateral, or any part thereof, is real estate, all covenants, conditions and agreements contained in any such mortgage or other instrument encumbering the real estate, hereby are incorporated herein by express reference, and a default thereunder shall be and constitute a default under this Note and any other of the Obligations. If a separate security agreement is executed by the Undersigned in conjunction with this Note, or any other of the Obligations, all covenants, conditions and agreements contained in the security agreement are hereby incorporated herein by express reference and a default thereunder shall be and constitute a default under this Note and any other of the Obligations. The Bank's security interests in each of the foregoing Collateral shall be valid, complete and perfected whether or not the same shall be covered by a specific assignment. The Bank shall have exercised reasonable care in the custody and preservation of the Collateral if it takes such action for that purpose as the Undersigned, or any one of them, shall reasonably request in writing, provided that such request shall not be inconsistent with Bank's status as a secured party, but the failure to comply with any such request shall not be deemed a failure to exercise reasonable care. No failure of Bank to preserve or protect any rights with respect to the Collateral against prior or third parties, or to do any act with respect to preservation of the collateral, not so requested by the Undersigned, or any of them, shall be deemed a failure to exercise reasonable care in the custody or preservation of the Collateral. The Undersigned, or any one of them, shall have the sole responsibility for taking such action as may be necessary, from time to time, to preserve all rights of the Undersigned, or any one of them, and Bank in the Collateral against prior or third parties. Without limiting the generality of the foregoing, where Collateral consists in whole or in part of securities, the Undersigned, and each one of them, represent to, and covenant with, the Bank that the Undersigned, and each one of them, has made arrangements for keeping informed of changes or potential changes affecting the securities (including, but not limited to, rights to convert, rights to subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights), and the Undersigned, and each one of them, agree that the Bank shall have no responsibility or liability for informing the Undersigned, or any one of them, of any such or other changes or potential changes or for taking any action or omitting to take any action with respect thereto. All obligations of the Undersigned, or any one of them, and all rights, powers and remedies of the Bank, expressed herein shall be in addition to, and not in limitation of, those provided by law or in any written agreement or instrument (other than this Note) relating to any of the Obligations or any security therefor. In addition to all other rights possessed by it, the Bank may, from time to time, after default (as hereinafter provided), at its sole discretion, and without notice to the Undersigned, or any one of them, take any or all of the following actions: (1) transfer the whole or any part of securities which may constitute Collateral into the name of itself or its nominee without disclosing, if the Bank so desires, that such securities so transferred are subject to the security interest granted hereunder, and any corporation or association, or any of the managers or trustees of any trust, issuing any of said securities, or any transfer agent, shall not be bound to inquire, in the event that the Bank or said nominee makes any further transfer of said securities, or any portion thereof, as to whether the Bank or the nominee of the Bank has the right to make such further transfer, and shall not be liable for transferring the same; (2) notify any obligors on any of the Collateral to make payment to the Bank of any amounts due or to become due with respect thereto; (3) enforce collection of any of the Collateral by suit or otherwise, or surrender, release or exchange all or any part thereof; (4) take possession or control of any proceeds and products of any of the Collateral, including the proceeds of insurance thereon; (5) extent or renew or modify for one or more periods (whether or not longer than the original period) this Note, or any other of the Obligations, or any obligation of any nature of any obligor with respect to this Note, or any other of the Obligations, or any of the Collateral, and grant any releases, compromises or indulgences with respect to this Note, or any other of the Obligations, or any extension or renewal thereof, or any security therefor, or to any obligor hereunder or thereunder; (6) vote the Collateral; (7) make an election with respect to the Collateral under Section 1111 of the United States Bankruptcy Code or take action under Section 364 or any other section of the United States Bankruptcy Code, now existing or hereafter amended; provided, however, that any such action of the Bank as herein set forth shall not, in any manner whatsoever, impair or affect the liability hereunder, nor prejudice, nor waive, nor be construed to impair, affect, prejudice or waive Bank's rights and remedies at law, in equity or by statute, nor release or discharge, nor be construed to release or discharge, the Undersigned, or any one of them, or any guarantor or other person, firm, corporation or other entity liable to the Bank for the Obligations and indebtedness, whether now existing or hereafter created or arising; (8) at any time, and from time to time, accept additions to, releases, reductions, exchanges or substitution of the Collateral, without in any way altering, impairing, eliminating or affecting the provisions of this Note, or any of the other Obligations, or the Bank's rights hereunder and under any of the other Obligations. The Undersigned, and each one of them, shall be in default hereunder if: (1) any amount payable on any of the Obligations, or on the obligations of any obligor hereunder, is not paid when due; or (2) the Undersigned, or any one of them, shall otherwise fail to perform any of the promises to be performed by the Undersigned, or any one of them, hereunder or under any other security agreement or other agreement with Bank; or (4) the Undersigned, or any one of them, or any other party liable with respect to the Obligations, or any guarantor or accommodation endorser or third party pledger, shall make any assignment for the benefit of creditors, or there shall be commenced any bankruptcy, receivorship, insolvency, reorganization, dissolution or liquidation proceedings by or against, or the entry of any judgement, levy, attachment, garnishment or other process, of the filing of any lien against any of the Undersigned or any guarantor, or any other party liable with respect to the Obligations, or accommodation endorser or third party pledger for any of the Obligations, or against any of the Collateral or any of the collateral under a separate security agreement signed by any one of them; or (6) this Note is secured by an additional or separate security agreement, then the occurrence of any default thereunder; or (8) the determination by the Bank that a material adverse change has occurred in the financial condition of the Undersigned from the condition set forth in the most recent financial statement of the Undersigned furnished to the Bank, or from the financial condition of the Undersigned most recently disclosed to Bank in any manner; or (9) any oral or written warranty, representation, certificate or statement of the Undersigned to the Bank is untrue; or (10) the failure to do any act necessary to preserve and maintain the value and collectability of the Collateral; or (11) failure of the Undersigned after request by the Bank to furnish financial information or to permit the inspection by the Bank of the Undersigned's books and records; or (12) any guarantor of this Note or of any of the other Obligations shall contest the validity of such guaranty; or (13) the occurrence of any material adverse event which causes a change in the financial condition of the Undersigned, or which would have a material adverse effect on the business of the Undersigned. The Bank shall provide the Undersigned with 5 days' written notice and opportunity to cure in connection with any monetary defaults and 10 days' notice and opportunity to cure in connection with any non-monetary defaults. Whenever the Undersigned, or any one of them, shall be in default as aforesaid, without demand or notice of any kind, the entire unpaid amount of all Obligations shall become immediately due and payable, and: (1) Bank may sell all or any of the Collateral at public or private sale, upon such terms and conditions as Bank may deem proper, and Bank may purchase any or all of the Collateral at any such sale, and Bank may apply the net proceeds, after deducting all costs, expenses, attorneys' and paralegals' fees incurred or paid at any time in the collection, protection and sale of the Collateral and the Obligations, to the payment of this Note and/or any of the other Obligations, returning the excess proceeds, if any, to the Undersigned, or any one of them, the Undersigned and each one of them, remaining jointly and severally liable for any amount remaining unpaid after such application, with interest; and (2) Bank may exercise, from time to time, any and all rights and remedies available to it under the Uniform Commercial Code of Illinois, or otherwise available to it, including those available under any written instrument (in addition to this Note) relating to any of the Obligations or any security therefor, and may, without demand or notice of any kind, appropriate and apply toward the payment of such of the Obligations, whether matured or unmatured, including costs of collection and attorneys' and paralegals' fees, and in such order of application as the Bank may, from time to time, elect, any balances, credits, deposits, accounts or moneys of the Undersigned in possession, control or custody of, or in transit to the Bank. Any notification of intended disposition of any of the Collateral required by law shall be conclusively deemed reasonably and properly given if given at least five (5) calendar days before such disposition hereby confirming, approving and ratifying all acts and deeds of the Bank relating to the foregoing, and each part thereof. THE UNDERSIGNED, AND EACH ONE OF THEM, WAIVES THE BENEFIT OF ANY LAW THAT WOULD OTHERWISE RESTRICT OR LIMIT BANK IN THE EXERCISE OF ITS RIGHT, WHICH IS HEREBY ACKNOWLEDGED, TO APPROPRIATE WITHOUT NOTICE AND REGARDLESS OF THE COLLATERAL, AT ANY TIME HEREAFTER, ANY INDEBTEDNESS MATURED OR UNMATURED, OWING FROM BANK TO THE UNDERSIGNED, OR ANY OF THEM. THE BANK MAY, FROM TIME TO TIME, WITHOUT DEMAND OR NOTICE OF ANY KIND, APPROPRIATE AND APPLY TOWARD THE PAYMENT OF SUCH OF THE OBLIGATIONS, AND IN SUCH ORDER OF APPLICATION, AS THE BANK MAY, FROM TIME TO TIME, ELECT. ANY AND ALL SUCH BALANCES, CREDITS, DEPOSITS, ACCOUNTS, MONEYS, CASH EQUIVALENTS AND OTHER ASSETS, OF OR IN THE NAME OF THE UNDERSIGNED, OR ANY ONE OF THEM, THEN OR THEREAFTER WITH THE BANK. THE UNDERSIGNED, AND EACH ONE OF THEM, DO HEREBY ASSIGN AND TRANSFER TO THE BANK ANY AND ALL CASH, NEGOTIABLE INSTRUMENTS, DOCUMENTS OF TITLE, CHATTEL PAPER, SECURITIES, CERTIFICATES OF DEPOSIT, DEPOSIT ACCOUNTS, OTHER CASH EQUIVALENTS AND OTHER ASSETS OF THE UNDERSIGNED, OR ANY ONE OF THEM IN THE POSSESSION OR CONTROL OF THE BANK FOR ANY PURPOSE. WITH THE EXCEPTION OF MATTERS ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE BANK, THE UNDERSIGNED, AND EACH ONE OF THEM, WAIVE EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH THE UNDERSIGNED, OR ANY ONE OF THEM, MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY BANK IN ENFORCING THIS NOTE AND/OR ANY OF THE OTHER OBLIGATIONS, OR THE COLLATERAL AND RATIFY AND CONFIRM WHATEVER BANK MAY DO PURSUANT TO THE TERMS HEREOF AND WITH RESPECT TO THE COLLATERAL AND AGREE THAT BANK SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGEMENT OR MISTAKES OF FACT OR LAW. THE BANK AND THE UNDERSIGNED, AND EACH ONE OF THEM, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, THE RIGHT EITHER OR ANY MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDINGS BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OF THE OTHER OBLIGATIONS, OR THE COLLATERAL, OR ANY AGREEMENT EXECUTED OR CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH OR ANY COURSE OF CONDUCT OR COURSE OF DEALING, IN WHICH THE BANK AND THE UNDERSIGNED, OR ANY ONE OF THEM, ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK GRANTING ANY FINANCIAL ACCOMMODATION TO THE UNDERSIGNED, OR ANY ONE OF THEM. The Undersigned, and any other party liable with respect to the Obligations, any guarantors, and any and all endorsers and accommodation parties, and each one of them, waive any and all presentment, demand, notice of dishonor, protest and all other notices and demands in connection with the enforcement of Bank's rights hereunder, and hereby consent to, and waive notice of release with or without consideration, of any of the Undersigned or of any collateral. No default shall be waived by the Bank except in writing. No delay on the part of the Bank in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Bank of any right or remedy shall preclude other or further exercise thereof, or the exercise of any other right or remedy. This Note: (i) is valid, binding and enforceable in accordance with its provisions, and no conditions exist to the legal effectiveness of this Note; (ii) contains the entire agreement between the Undersigned and Bank; (iii) is the final expression of their intentions; and (iv) supercedes all negotiations, representations, warranties, commitments, offers, contracts (of any kind or nature, whether oral or written) prior to or contemporaneous with the execution hereof. No prior or contemporaneous representations, warranties, understandings, offers or agreements of any kind or nature, whether oral or written had been made by Bank or relied upon by the Undersigned in connection with the execution hereof. No modification, discharge, termination or waiver of any of the provisions hereof shall be binding upon the Bank, except as expressly set forth in writing duly signed and delivered on behalf of the Bank. The Undersigned, and each one of them, jointly and severally, agree to pay all costs, legal expenses, attorneys' fees and paralegals' fees of every kind, paid or incurred by Bank in enforcing its rights hereunder, including, but not limited to, litigation or proceedings initiated under the United States Bankruptcy Code, or in respect to any other of the Obligations, or in connection with the Collateral or in defending against any defense, cause of action, counterclaim, setoff or crossclaim based on any act of commission or omission by the Bank with respect to this Note or any other of the Obligations or Collateral, or both, promptly on demand of Bank or other person paying or incurring the same. The Bank may at any time transfer this Note and Bank's rights in any or all of the Collateral, and Bank thereafter shall be relieved from all liability with respect to such Collateral. TO INDUCE THE BANK TO MAKE THE LOAN EVIDENCED BY THIS NOTE, THE UNDERSIGNED (AND EACH ONE OF THEM, IF MORE THEN ONE) IRREVOCABLY AGREES THAT, ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY AS A RESULT OR IN CONSEQUENCE OF THIS NOTE OR ANY OTHER AGREEMENT WITH THE BANK, OR THE COLLATERAL SHALL BE INSTITUTED AND LITIGATED ONLY IN COURTS HAVING SITUS IN THE CITY OF CHICAGO, ILLINOIS, AND THE UNDERSIGNED (OR ANY, IF MORE THAN ONE) HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT LOCATED AND HAVING ITS SITUS IN SAID CITY, AND WAIVES ANY OBJECTION BASED ON FORUM NONCONVENIENS, AND THE UNDERSIGNED (OR ANY IF MORE THAN ONE) HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE UNDERSIGNED AT THE ADDRESS INDICATED IN THE BANK'S RECORDS IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT OR OTHERWISE. FURTHERMORE THE UNDERSIGNED, AND EACH ONE OF THEM, WAIVE ALL NOTICES AND DEMANDS IN CONNECTION WITH THE ENFORCEMENT OF THE BANK'S RIGHTS HEREUNDER, AND HEREBY CONSENT TO, AND WAIVE NOTICE OF THE RELEASE WITH OR WITHOUT CONSIDERATION OF ANY OF THE UNDERSIGNED OR OF ANY COLLATERAL. No action shall be commenced by the Undersigned for any claim against the Bank under the Obligations as herein defined unless a written notice specifically setting forth said claim shall have been given to the Bank within thirty (30) days after the occurrence of the event which the Undersigned alleges gave rise thereto. Failure to give such notice shall constitute a waiver of any such claim. The loan evidenced hereby has been made and this Note has been delivered at the Bank's main office. This Note shall be governed and construed in accordance with the laws of the State of Illinois, in which state it shall be performed, and shall be binding upon the Undersigned, and each one of them, and their respective heirs, legal representatives, successors and assigns. If this Note contains any blanks when executed by the Undersigned, or any one of them, the Bank is hereby authorized, without notice to the Undersigned, or any one of them, to complete any such blanks according to the terms upon which the loan or loans were granted. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law. But if any provision of this Note shall be prohibited by or be invalid under such law, such provision shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Note. If more than one party shall execute this Note, the term "Undersigned" as used herein shall mean all parties signing this Note, and each one of them, and all such parties, their respective heirs, executors, administrators, successors and assigns, shall be, jointly and severally, obligated hereunder. If the Undersigned is a corporation, the Undersigned represents and warrants to Bank that the execution and delivery of this Note has been duly authorized by resolutions heretofore adopted by its Board of Directors and Shareholders in accordance with law and its bylaws, that said resolutions have not been amended nor rescinded are in full force and effect and that the officer or officers executing and delivering this Note for and on behalf of the Undersigned, is/are duly authorized so to act. Bank, in extending financial accommodations to the Undersigned, is expressly acting and relying upon the aforesaid representations and warranties. The Undersigned, and each one of them (if more than one), acknowledge and agree that the lending relationship hereby created with the Bank is and has been conducted on an open and arm's length basis in which no Fiduciary relationship exists and that the Undersigned, and each one of them (if more than one) has not relied and is not relying on any such fiduciary relationship in consummating the loan(s) evidenced by this Note. As used herein, all provisions shall include the masculine, feminine, neuter, singular and plural thereof, wherever the context and facts require such construction and in particular the word "Undersigned" shall be so construed. IN WITNESS WHEREOF, each of the Undersigned, if more than one, has executed this Note on the date above set forth. (INDIVIDUALS SIGN BELOW) (CORPORATION OR PARTNERSHIP SIGN BELOW) GREAT SOUTHERN BANCORP, INC. - ----------------------- --------------------------------------------- Name: Name of Corporation or Partnership: 1451 E. Battlefield - ----------------------- --------------------------------------------- Address: Address: Springfield, MO 65804 - ----------------------- --------------------------------------------- By: /s/ Don M. Gibson Name: ------------------------------------------ Name: Don M. Gibson - ----------------------- Title: Vice Chairman Address: If a corporation signature shall be attested - ----------------------- and corporate seal shall be affixed as follows: - ----------------------- Name: ATTEST: - ----------------------- [SEAL] Address: By: William V. Turner - ----------------------- ------------------------------------------ Name: William V. Turner Title: Chairman STATE OF MO ) --------) SS COUNTY OF GREENE ) -------- I, James Kimler, a Notary Public in and for the State and County aforesaid, do hereby certify that before me this day personally appeared William V. Turner & Don Gibson. (a)(For Corporation) known to me to be the Chairman and Vice Chairman of Great Southern Bancorp, Inc., a corporation and each (b) (For Partnership) known to me to be one of the partners of the partnership that executed the above and foregoing Agreement and (c) (For Individual) known to me to be the same person(s) whose name is/are subscribed to the above and foregoing Agreement, and acknowledge to me that he/she (they) executed and delivered the above and foregoing Agreement as his/her(their) free and voluntary act, for the uses and purposes set forth in said Agreement. GIVEN under my hand and notarial seal this 28 day of October 1999. /s/ James Kimler --------------------------------------- Notary Public My Commission Expires: 9-25-00 ----------- RIDER ATTACHED TO AND MADE A PART OF THAT CERTAIN $15,000,000 REVOLVING NOTE DATED AS OF OCTOBER 8, 1999 (THE "NOTE") BY GREAT SOUTHERN BANCORP, INC. (THE "MAKER") PAYABLE TO LASALLE BANK NATIONAL ASSOCIATION (THE "BANK") The following provisions are hereby added to the Note and made a part thereof as if fully set forth therein. Capitalized words used herein without a definition have the respective meanings assigned to such terms in the Note. 1. Minimum Loan Advances. All loan advances under this Note shall be in a minimum amount of $500,000. 2. Interest Rate. The outstanding principal amount of this Note outstanding from time to time shall bear interest at the Interest Rate (as defined below). Interest shall be calculated on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed. As used herein, the phrase "Interest Rate" shall mean, as applicable, the Prime Rate or the LIBOR Rate. 3. Prime Rate. Subject to the right of Maker to convert the interest rate as provided in Section 4 below, the principal balance of this Note outstanding from time to time shall bear interest at the Prime Rate minus 1.40% per annum. As used herein, the phrase "Prime Rate" means the rate in effect from time to time as set by the Bank and called its Prime Rate. The effective date of any change in the Prime Rate shall for purposes hereof be the date the rate is changed by the Bank. The Bank shall not be obligated to give notice of any change in the Prime Rate. 4. Interest Rate Conversion Option. (a) Notwithstanding the foregoing, the Maker shall provide the Bank with written or oral notice to elect the LIBOR Rate (as defined below) plus one and one-quarter percent (1.25%). Advances for LIBOR Rate loans shall be in minimum amounts of $500,000. (b) LIBOR Rate. (i) For purposes hereof, the phrase "LIBOR Rate" means the per annum rate of interest at which U.S. dollar deposits in an amount comparable to the amount of the relevant LIBOR Rate loan and for a period equal to the relevant "Interest Period" (hereinafter defined) are offered generally to the Bank (rounded upward if necessary, to the nearest 1/16 of 1.00%) in the London Interbank Eurodollar market at 11:00 a.m. (London time) two banking days prior to the commencement of each Interest Period, such rate to remain fixed for such Interest Period; and "Interest Period" shall mean successive one, two, three or sixth month periods as selected from time to time by the Maker by notice given to the Bank not less than three banking days prior to the first day of each respective Interest Period; provided that: (a) each such one, two, three or sixth month period occuring after such initial period shall commence on the day on which the next preceding period expires; (b) the final Interest Period shall be such that its expiration occurs on or before the stated maturity date of the Note; and (c) if for any reason the Maker shall fail to select an Interest Period on a timely basis, then it shall be deemed to have selected a one month Interest Period, with the exception that if at any time an Interest Period expires less than one month before the maturity date of the Note, then, for the period commencing on such expiration date and ending on the maturity date, such LIBOR Rate shall convert to a loan bearing interest at the Prime Rate. (ii) The Bank's determination of LIBOR as provided above shall be conclusive, absent manifest error. Furthermore, if the Bank determines, in good faith (which determination shall be conclusive, absent manifest error), prior to the commencement of any Interest Period that (a) U.S. dollar deposits of sufficient amount and maturity for funding any LIBOR Rate loan are not available to the Bank in the London Interbank Eurodollar market in the ordinary course of business, or (b) by reason of circumstances affecting the London Interbank Eurodollar market, adequate and fair means do not exist for ascertaining the rate of interest to be applicable to the relevant LIBOR Rate loan, the Bank shall promptly notify the Maker and such LIBOR Rate loan shall automatically convert on the last day of its then-current Interest Period to a loan bearing interest at the Prime Rate. If after the date hereof either (a) the introduction of, or any change in any applicable law, treaty, rule, regulation or guideline or in the interpretation or administration thereof by any governmental regulation or any central bank or other fiscal, monetary or other authority having jurisdiction over the Bank or its lending office (a "Regulatory Change"), shall, in the opinion of counsel to the Bank, makes it unlawful for the Bank to make or maintain any LIBOR Rate loan evidenced hereby or (b) for any other reason the LIBOR Rate loan funding becomes unavailable to the Bank, then the Bank shall promptly notify the Maker and such LIBOR Rate loan shall automatically convert on the last day of its then-current Interest Period to a loan bearing interest at the Prime Rate minus one and four-tenths of one percent (-1.40%). (iii) If, for any reason, any LIBOR Rate loan is paid prior to the last banking day of its then-current Interest Period, the Maker agrees to indemnify the Bank against any loss (including any loss on redeployment of the funds repaid), cost or expense incurred by the Bank as a result of such prepayment. Of any Regulatory Change (whether or not having the force of law) shall (a) impose, modify or deem applicable any assessment, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of or loans by, any other acquisition of funds or disbursements by, the Bank; (b) subject the Bank or any LIBOR Rate loan to any tax, duty, charge, stamp tax or fee or change the basis of taxation of payment to the Bank of principal or interest due from the Maker to the Bank hereunder (other than a change of the taxation of the overall net inform of the Bank); or (c) impose on the Bank any other condition regarding such LIBOR Rate loan or the Bank's funding thereof, and the Bank shall determine (which determination shall be conclusive, absent manifest error) that the result of the foregoing is to increase the cost to the Bank of making or maintaining such LIBOR Rate loan or to reduce the amount of principal or interest received by the Bank hereunder, then the Maker shall pay the Bank, on demand, such additional amounts as the Bank shall, from time to time, determine are sufficiant to compensate and indemnify the Bank for such increased cost or reduced amount. If Maker shall fail to indicate an interest rate option as aforesaid for any loan advance, such advance shall be deemed to bear interest at the Prime Rate option as set forth above. 1 5. Interest Payments. Interest on the unpaid principal balance of this Note, whether bearing interest at the Prime Rate or LIBOR Rate, shall be payable quarterly beginning on February 1, 2000. Any amount of principal or interest which is not paid when due, whether at the stated maturity, by acceleration or otherwise, shall bear interest payable on demand at an interest rate per annum equal at all times to the then applicable Interest Rate plus two percent (2%). 6. Principal Payments. Prepayments of Prime Rate loans are permitted at any time, together with all interest accrued thereon to the date of prepayment, without premium or penalty. 7. Commitment Fee. Maker shall pay to the Bank a commitment fee in the amount of one-quarter of one percent (1/4%) per annum of the unused portion of the loan commitment evidenced by this Note, which fee shall be payable quarterly, in arrears, beginning on March 1, 2000. 8. Indebtedness Prohibited. Maker shall not, directly or indirectly, be liable for, create, assume, incur or permit to exist any indebtedness whether as primary obligor, guarantor, surety or otherwise, including, without limitation, purchase money indebtedness except (a) indebtedness in favor of the Bank, and (b) indebtedness for liens for taxes or other governmental charges incurred in the ordinary course of business. 9. Reports. Maker shall maintain a standard and modern system of accounting, on the accrual basis of accounting and in all respects in accordance with generally accepted accounting principles ("GAAP"), and shall furnish to the Bank or its authorized representatives such information respecting the business affairs, operations and financial condition of the Maker as may be reasonably requested. Maker shall also deliver to the Bank the following: (A) Within forty-five (45) days after the end of each accounting quarter, a Call Report on Maker or any subsidiary as furnished to the appropriate regulatory authority, all in reasonable detail and certified by a principal financial officer of Maker that the statements fairly present the financial condition of Maker or any subsidiary as of the balance sheet date and the results of their operations for the period shown; and (B) Within one hundred twenty (120) days after the end of the end of the fiscal year of Maker, a copy of the annual audit report of Maker and any subsidiary, prepared in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding fiscal year, prepared, signed by and bearing an unqualified opinion of independent certified public accountants satisfactory to Bank; and (C) Promptly upon receipt thereof, copies of any other report submitted to Maker or its subsidiaries by certified public accountants in connection with any annual or interim audit of the books made by such accountants as from time to time may be reasonably requested by Bank; and 3 (D) Promptly upon Bank's request, copies of all financial statements and reports sent by Undersigned or its subsidiaries to their stockholders and any and all regular and periodic reports that may be required to be filed by Maker or any subsidiary with the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Board of Governors of the Federal Reserve System and any other governmental agency having enforceable jurisdiction over the business and affairs of Maker or any subsidiary; and (E) With reasonable promptness, such other data and information as from time to time may be reasonably requested by Bank. 10. Year 2000 Covenant. Maker has reviewed the areas within its business and operations which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the "Year 2000 Problem" (that is, the risk that computer applications used by Maker may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), and has made related appropriate inquiry of material suppliers and vendors. Based on such review and program, Maker believes that the Year 2000 Problem will not have a material adverse effect on Maker. Upon the request of the Bank from time to time, Maker shall provide the Bank with such updated information or documentation as the Bank may request indicating the status of its efforts to resolve the Year 2000 Problem. 11. Prime Rate. If the designation of the interest rate includes the letter "P" or the term "Prime", such letter or term shall mean the rate in effect from time to time as set by the Bank, and called its Prime Rate. The effective date or any change in such Prime Rate shall for purposes hereof be the date the rate is changed by the Bank. The Bank shall not be obligated to give notice or any change in the Prime Rate, interest shall be computed on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed, unless otherwise specified herein. GREAT SOUTHERN BANCORP, INC. By: /s/ Joseph W. Turner ---------------------------- Its: President --------------------------- LASALLE BANK NATIONAL ASSOCIATION By: /s/ ---------------------------- Its: [OFFICER] --------------------------- 4 MODIFICATION REVOLVING NOTE Chicago, Illinois Dated: As of June 26, 2000 $25,000,000 Due: November 1, 2000 This Modification Note is dated as of June 26, 2000, by and between GREAT SOUTHERN BANCORP, INC. (the "Maker") and LASALLE BANK NATIONAL ASSOCIATION, a national banking association (the "Bank"), having an address of 135 South LaSalle Street, Chicago, Illinois 60603. A. The Bank made a loan to the Maker evidenced by a certain Revolving Note dated October 8, 1999 signed by the maker and payable to the order of the Bank, in the amount of Fifteen Million Dollars ($15,000,000) (the "Original Note") (collectively, the Original Note, as extended from time to time and as extended by this Modification Note, is referred to herein as the "Note"); and B. Maker desires to increase the amount of the loan, and the Bank is willing, subject to certain conditions, to such increase in accordance with the terms of this Modification Note. NOW, THEREFORE, in consideration of these premises and the conditions and covenants contained herein, the parties agree as follows: The indebtedness initially evidenced by the Original Note is hereby increased to Twenty Five Million Dollars ($25,000,000), shall be re-evidenced by this Modification Note and shall continue to be secured by all collateral securing the Original Note, including, without limitation, 100% of the common stock of Great Southern Bank and any stock splits, substitutions, proceeds or dividends thereon. This Modification Note is not being delivered in payment for the Original Note and is not intended to constitute a novation therefor. To the extent the provisions of this Modification Note are inconsistent or conflict with the terms of the Original Note or any other prior note evidencing the same indebtedness, the provisions of this Modification Note shall govern and control. In all other respects, the existing terms, conditions and provisions of the Original Note, including, without limitation, any late charges or expenses, remain in full force and effect and shall be incorporated by reference herein. If payment hereunder becomes due and payable on a Saturday, Sunday, or legal holiday under the laws of the United States or the State of Illinois, the due date hereof shall be extended to the next succeeding business day, and interest shall be payable thereon at the rate specified during such extension period. Upon the occurrence of any one or more of the following: (a) default in the payment of any installment when due hereunder, or (b) default under the Original Note, any prior note evidencing the same indebtedness, this Modification Note or any of the Loan Documents, or (c) default under any other agreement now existing or hereafter entered into between the Maker and the Bank, the holder of the Note, in its sole discretion, may declare the entire remaining balance on the Note, including all accrued and unpaid interest to be immediately due and payable. Failure to exercise this option shall not waive the right of the holder to exercise the same in the event of a later default. Demand, presentment, protest, notice of non-payment and protest are hereby waived by Maker. This Modification Note has been delivered and shall be deemed to have been made at Chicago, Illinois and shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Illinois. Whenever possible each provision of the Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of the Note. Whenever in the Note there is reference made to Bank or Maker, such reference shall be deemed to include, as applicable, a reference to their respective successors and assigns. The provisions of the Note shall be binding upon and inure to the benefit of said successors and assigns, as applicable. Maker's successors and assigns shall include, without limitation a receiver, trustee or debtor-in-possession of or for Maker. All references to the singular shall be deemed to include the plural where the context so requires. If more than one party shall execute this Note, the term "Maker" as used herein shall mean all parties signing this Note, and each one of them, and all such parties, their respective heirs, executors, administrators, successors and assigns, shall be, jointly and severally, obligated hereunder. As used herein, all provisions shall include the masculine, feminine, neuter, singular and plural thereof, wherever the context and facts require such construction and in particular the term "Maker" shall be so construed. ADDITIONAL COVENANTS 1. Minimum Loan Advances. All loan advances under this Note shall be in a minimum amount of $500,000. 2. Interest Rate. The outstanding principal amount of this Note outstanding from time to time shall bear interest at the Interest Rate (as defined below). Interest shall be calculated on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed. As used herein, the phrase "Interest Rate" shall mean, as applicable, the Prime Rate or the LIBOR Rate. 3. Prime Rate. Subject to the right of Maker to convert the interest rate as provided in Section 4 below, the principal balance of this Note outstanding from time to time shall bear interest at the Prime Rate per annum. As used herein, the phrase "Prime Rate" means the rate in effect from time to time as set by the Bank and called its Prime Rate. The effective date of any change in the Prime Rate shall for purposes hereof be the date the rate is changed by the Bank. The Bank shall not be obligated to give notice of any change in the Prime Rate. 4. Interest Rate Conversion Option. (a) Notwithstanding the foregoing, the Maker shall provide the Bank with written or oral notice to elect the LIBOR Rate (as defined below) plus one and one-quarter of one percent (1.25%). (b) LIBOR Rate. (i) For purposes hereof, the phrase "LIBOR Rate" means the per annum rate of interest at which U.S. dollar deposits in an amount comparable to the amount of the relevant LIBOR Rate loan and for a period equal to the relevant "Interest Period" (hereinafter defined) are offered generally to the Bank (rounded upward if necessary, to the nearest 1/16 of 1.00%) in the London Interbank Eurodollar market at 11:00 a.m. (London time) two banking days prior to the commencement of each Interest Period, such rate to remain fixed for such Interest Period; and "Interest Period" shall mean successive one, two or three month periods as selected from time to time by the Maker by notice given to the Bank not less than three banking days prior to the first day of each respective Interest Period; provided that: (a) each such one, two or three month period occurring after such initial period shall commence on the day on which the next preceding period expires; (b) the final Interest Period shall be such that its expiration occurs on or before the stated maturity date of the Note; and (c) if for any reason the Maker shall fail to select an Interest Period on a timely basis, then it shall be deemed to have selected a one month Interest Period, with the exception that if at any time an Interest Period expires less than one month before the maturity date of the Note, then, for the period commencing on such expiration date and ending on the maturity date, such LIBOR Rate loan shall convert to a loan bearing interest at the Prime Rate. (ii) The Bank's determination of LIBOR as provided above shall be conclusive, absent manifest error. Furthermore, if the Bank determines, in good faith (which determination shall be conclusive, absent manifest error), prior to the commencement of any Interest Period that (a) U.S. dollar deposits of sufficient amount and maturity for funding any LIBOR Rate loan are not available to the Bank in the London Interbank Eurodollar market in the ordinary course of business, or (b) by reason of circumstances affecting the London Interbank Eurodollar market, adequate and fair means do not exist for ascertaining the rate of interest to be applicable to the relevant LIBOR Rate loan, the Bank shall promptly notify the Maker and such LIBOR Rate loan shall automatically convert on the last day of its then-current Interest Period to a loan bearing interest at the Prime Rate minus one and four-tenths of one percent (-1.40%). If after the date hereof either (a) the introduction of, or any change in any applicable law, treaty, rule, regulation or guideline or in the interpretation or administration thereof by any governmental regulation or any central bank or other fiscal, monetary or other authority having jurisdiction over the Bank or its lending office (a "Regulatory Change"), shall, in the opinion of counsel to the Bank, makes it unlawful for the Bank to make or maintain any LIBOR Rate loan evidenced hereby or (b) for any other reason the LIBOR Rate loan funding becomes unavailable to the Bank, then the Bank shall promptly notify the Maker and such LIBOR Rate loan shall automatically convert on the last day of its then-current Interest Period to a loan bearing interest at the Prime Rate minus one and four-tenths of one percent (-1.40%). (iii) If, for any reason, any LIBOR Rate loan is paid prior to the last banking day of its then-current Interest Period, the Maker agrees to Indemnify the Bank against any loss (including any loss on redeployment of the funds repaid), cost or expense incurred by the Bank as a result of such prepayment. Of any Regulatory Change (whether or not having the force of law) shall (a) impose, modify or deem applicable any assessment, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of or loans by, or any other acquisition of funds or disbursements by, the Bank; (b) subject the Bank or any LIBOR Rate loan to any tax, duty, charge, stamp tax or fee or change the basis of taxation of payment to the Bank of principal or interest due from the Maker to the Bank hereunder (other than a change of the taxation of the overall net inform of the Bank); or (c) impose on the Bank any other condition regarding such LIBOR Rate loan or the Bank's funding thereof, and the Bank shall determine (which determination shall be conclusive, absent manifest error) that the result of the foregoing is to increase the cost to the Bank of making or maintaining such LIBOR Rate loan or to reduce the amount of principal or interest received by the Bank hereunder, then the Maker shall pay the Bank, on demand, such additional amounts as the Bank shall, from time to time, determine are sufficient to compensate and indemnify the Bank for such increased cost or reduced amount. If Maker shall fail to indicate an interest rate option as aforesaid for any loan advance, such advance shall be deemed to bear interest at the Prime Rate option as set forth above. 5. Payments. This Note shall be repaid in quarterly installments of interest only beginning on August 1, 2000, and continuing on the same day of each quarter thereafter, with a final payment equal to the total principal balance then remaining unpaid, plus interest, on November 1, 2000. Any amount of principal or interest which is not paid when due, whether at the stated maturity, by acceleration or otherwise, shall bear interest payable on demand at an interest rate per annum equal at all times to the then applicable Interest Rate plus two percent (2%). 6. Principal Prepayments. Prepayments of Prime Rate loans are permitted at any time, together with all interest accrued thereon to the date of prepayment, without premium or penalty. 7. Commitment Fee. Maker shall pay to the Bank a commitment fee in the amount of one-quarter of one percent (1/4%) per annum of the unused portion of the loan commitment evidenced by this Note, which fee shall be payable quarterly, in arrears, beginning on September 1, 2000. 8. Indebtedness Prohibited. Maker shall not, directly or indirectly, be liable for, create, assume, incur or permit to exist any indebtedness whether as primary obligor, guarantor, surety or otherwise, including, without limitation, purchase money indebtedness except (a) indebtedness in favor of the Bank, and (b) indebtedness for liens for taxes or other governmental charges incurred in the ordinary course of business. 9. Reports. Maker shall maintain a standard and modern system of accounting, on the accrual basis of accounting and in all respects in accordance with generally accepted accounting principles ("GAAP"), and shall furnish to the Bank or its authorized representatives such information respecting the business affairs, operations and financial condition of the Maker as may be reasonably requested. Maker shall also deliver to the Bank the following: (A) Within forty-five (45) days after the end of each accounting quarter, a Call Report on Maker or any subsidiary as furnished to the appropriate regulatory authority, all in reasonable detail and certified by a principal financial officer of Maker that the statements fairly present the financial condition of Maker or any subsidiary as of the balance sheet date and the results of their operations for the period shown; and (B) Within one hundred twenty (120) days after the end of the end of the fiscal year of Maker, a copy of the annual audit report of Maker and any subsidiary, prepared in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding fiscal year, prepared, signed by and bearing an unqualified opinion of independent certified public accountants satisfactory to Bank; and (C) Promptly upon receipt thereof, copies of any other report submitted to Maker or its subsidiaries by certified public accountants in connection with any annual or interim audit of the books made by such accountants as from time to time may be reasonably requested by Bank; and (D) Promptly upon Bank's request, copies of all financial statements and reports sent by Undersigned or its subsidiaries to their stockholders and any and all regular and periodic reports that may be required to be filed by Maker or any subsidiary with the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Board of Governors of the Federal Reserve System and any other governmental agency having enforceable jurisdiction over the business and affairs of Maker or any subsidiary; and (E) With reasonable promptness, such other data and information as from time to time may be reasonably requested by Bank. IN WITNESS WHEREOF, the Maker has executed this Modification Note on the day and year first above written. GREAT SOUTHERN BANCORP, INC. By: /s/ Joseph W. Turner -------------------------------- Its: President ------------------------------- INFORMATIONAL NOTICE The Prime Rate on the date of this Note is 9.5% which Prime Rate is subject to change from time to time as provided in this Note. MODIFICATION REVOLVING NOTE Chicago, Illinois Dated: November 1, 2000 $25,000,000 Due: November 1, 2001 This Modification Note is dated as of November 1, 2000, by and between GREAT SOUTHERN BANCORP, INC. (the "Maker") and LASALLE BANK NATIONAL ASSOCIATION, a national banking association (the "Bank"), having an address of 135 South LaSalle Street, Chicago, Illinois 60603. A. The Bank made a loan to the Maker evidenced by a certain Revolving Note dated October 8, 1999 signed by the Maker and payable to the order of the Bank, in the amount of $15,000,000, as modified by the Modification Revolving Note date June 26, 2000 in the amount of $25,000,000) (the "Original Note") (collectively, the Original Note, as extended from time to time and as extended by this Modification Note, is referred to herein as the "Note"); and B. Maker desires to extend the maturity date of the loan, and the Bank is willing, subject to certain conditions, to such extension in accordance with the terms of this Modification Note. NOW, THEREFORE, in consideration of these premises and the conditions and covenants contained herein, the parties agree as follows: The indebtedness initially evidenced by the Original Note shall be re-evidenced by this Modification Note and shall continue to be secured by all collateral securing the Original Note, including, without limitation, 100% of the common stock of Great Southern Bank and any stock splits, substitutions, proceeds or dividends thereon. This Modification Note is not being delivered in payment for the Original Note and is not intended to constitute a novation therefor. To the extent the provisions of this Modification Note are inconsistent or conflict with the terms of the Original Note or any other prior note evidencing the same indebtedness, the provisions of this Modification Note shall govern and control. In all other respects, the existing terms, conditions and provisions of the Original Note, including, without limitation, any late charges or expenses, remain in full force and effect and shall be incorporated by reference herein. If payment hereunder becomes due and payable on a Saturday, Sunday, or legal holiday under the laws of the United States or the State of Illinois, the due date hereof shall be extended to the next succeeding business day, and interest shall be payable thereon at the rate specified during such extension period. Upon the occurrence of any one or more of the following: (a) default in the payment of any installment when due hereunder, or (b) default under the Original Note, any prior note evidencing the same indebtedness, this Modification Note or any of the Loan Documents, or (c) default under any other agreement now existing or hereafter entered into between the Maker and the Bank, the holder of the Note, in its sole discretion, may declare the entire remaining balance on the Note, including all accrued and unpaid interest to be immediately due and payable. Failure to exercise this option shall not waive the right of the holder to exercise the same in the event of a later default. Demand, presentment, protest, notice of non-payment and protest are hereby waived by Maker. This Modification Note has been delivered and shall be deemed to have been made at Chicago, Illinois and shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Illinois. Whenever possible each provision of the Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of the Note. Whenever in the Note there is reference made to Bank or Maker, such reference shall be deemed to include, as applicable, a reference to their respective successors and assigns. The provisions of the Note shall be binding upon and inure to the benefit of said successors and assigns, as applicable. Maker's successors and assigns shall include, without limitation a receiver, trustee or debtor-in-possession of or for Maker. All references to the singular shall be deemed to include the plural where the context so requires. If more than one party shall execute this Note, the term "Maker" as used herein shall mean all parties signing this Note, and each one of them, and all such parties, their respective heirs, executors, administrators, successors and assigns, shall be, jointly and severally, obligated hereunder. As used herein, all provisions shall include the masculine, feminine, neuter, singular and plural thereof, wherever the context and facts require such construction and in particular the term "Maker" shall be so construed. ADDITIONAL COVENANTS 1. Minimum Loan Advances. All loan advances under this Note shall be in a minimum amount of $500,000. 2. Interest Rate. The outstanding principal amount of this Note outstanding from time to time shall bear interest at the Interest Rate (as defined below). Interest shall be calculated on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed. As used herein, the phrase "Interest Rate" shall mean, as applicable, the Prime Rate or the LIBOR Rate. 3. Prime Rate. Subject to the right of Maker to convert the interest rate as provided in Section 4 below, the principal balance of this Note outstanding from time to time shall bear interest at the Prime Rate per annum. As used herein, the phrase "Prime Rate" means the rate in 2 effect from time to time as set by the Bank and called its Prime Rate. The effective date of any change in the Prime Rate shall for purposes hereof be the date the rate is changed by the Bank. The Bank shall not be obligated to give notice of any change in the Prime Rate. 4. Interest Rate Conversion Option. (a) Notwithstanding the foregoing, the Maker shall provide the Bank with written or oral notice to elect the LIBOR Rate (as defined below) plus one and one-quarter of one percent (1.25%). (b) LIBOR Rate. (i) For purposes hereof, the phrase "LIBOR Rate" means the per annum rate of interest at which U.S. dollar deposits in an amount comparable to the amount of the relevant LIBOR Rate loan and for a period equal to the relevant "Interest Period" (hereinafter defined) are offered generally to the Bank (rounded upward if necessary, to the nearest 1/16 of 1.00%) in the London Interbank Eurodollar market at 11:00 a.m. (London time) two banking days prior to the commencement of each Interest Period, such rate to remain fixed for such Interest Period; and "Interest Period" shall mean successive one, two or three month periods as selected from time to time by the Maker by notice given to the Bank not less than three banking days prior to the first day of each respective Interest Period; provided that: (a) each such one, two or three month period occurring after such initial period shall commence on the day on which the next preceding period expires; (b) the final Interest Period shall be such that its expiration occurs on or before the stated maturity date of the Note; and (c) if for any reason the Maker shall fail to select an Interest Period on a timely basis, then it shall be deemed to have selected a one month Interest Period, with the exception that if at any time an Interest Period expires less than one month before the maturity date of the Note, then, for the period commencing on such expiration date and ending on the maturity date, such LIBOR Rate loan shall convert to a loan bearing interest at the Prime Rate. (ii) The Bank's determination of LIBOR as provided above shall be conclusive, absent manifest error. Furthermore, if the Bank determines, in good faith (which determination shall be conclusive, absent manifest error), prior to the commencement of any Interest Period that (a) U.S. dollar deposits of sufficient amount and maturity for funding any LIBOR Rate loan are not available to the Bank in the London Interbank Eurodollar market in the ordinary course of business, or (b) by reason of circumstances affecting the London Interbank Eurodollar market, adequate and fair means do not exist for ascertaining the rate of interest to be applicable to the relevant LIBOR Rate loan, the Bank shall promptly notify the Maker and such LIBOR Rate loan shall automatically convert on the last day of its then-current Interest Period to a loan bearing interest at the Prime Rate minus one and four-tenths of one percent (-1.40%). If after the date hereof either (a) the introduction of, or any change in any applicable law, treaty, rule, regulation or guideline or in the interpretation or administration thereof by any governmental regulation or any central bank or other fiscal, monetary or other authority having jurisdiction over the Bank or its lending office (a "Regulatory Change"), shall, in the opinion of counsel to the Bank, makes it unlawful for the Bank to make or maintain any LIBOR Rate loan evidenced hereby or (b) for any other reason the LIBOR Rate loan funding becomes unavailable to the Bank, then the Bank shall promptly notify the Maker and such LIBOR Rate loan shall automatically convert on the last day of its then-current Interest Period to a loan bearing interest at the Prime Rate minus one and four-tenths of one percent (-1.40%). 3 (iii) If, for any reason, any LIBOR Rate loan is paid prior to the last banking day of its then-current Interest Period, the Maker agrees to indemnify the Bank against any loss (including any loss on redeployment of the funds repaid), cost or expense incurred by the Bank as a result of such prepayment. Of any Regulatory Change (whether or not having the force of law) shall (a) impose, modify or deem applicable any assessment, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of or loans by, or any other acquisition of funds or disbursements by, the Bank; (b) subject the Bank or any LIBOR Rate loan to any tax, duty, charge, stamp tax or fee or change the basis of taxation of payment to the Bank of principal or interest due from the Maker to the Bank hereunder (other than a change of the taxation of the overall net inform of the Bank); or (c) impose on the Bank any other condition regarding such LIBOR Rate loan or the Bank's funding thereof, and the Bank shall determine (which determination shall be conclusive, absent manifest error) that the result of the foregoing is to increase the cost to the Bank of making or maintaining such LIBOR Rate loan or to reduce the amount of principal or interest received by the Bank hereunder, then the Maker shall pay the Bank, on demand, such additional amounts as the Bank shall, from time to time, determine are sufficient to compensate and indemnify the Bank for such increased cost or reduced amount. If Maker shall fail to indicate an interest rate option as aforesaid for any loan advance, such advance shall be deemed to bear interest at the Prime Rate option as set forth above. 5. Payments. This Note shall be repaid as follows: (i) Interest on the portion of the unpaid principal balance bearing interest at the Prime Rate shall be payable quarterly in arrears, commencing on February 1, 2001 and continuing quarterly thereafter. (ii) Interest on each LIBOR Rate loan shall be payable on the last banking day of each Interest Period with respect thereto. (iii) A final payment equal to the total principal then remaining unpaid, plus accrued interest, shall be paid on November 1, 2001. Any amount of principal or interest which is not paid when due, whether at the stated maturity, by acceleration or otherwise, shall bear interest payable on demand at an interest rate per annum equal at all times to the then applicable Interest Rate plus two percent (2%). 6. Principal Prepayments. Prepayments of Prime Rate loans are permitted at any time, together with all interest accrued thereon to the date of prepayment, without premium or penalty. 7. Commitment Fee. Maker shall pay to the Bank a commitment fee in the amount of one-quarter of one percent (1/4%) per annum of the unused portion of the loan commitment evidenced by this Note, which fee shall be payable quarterly, in arrears, beginning on December 1, 2000. 4 8. Indebtedness Prohibited. Maker shall not, directly or indirectly, be liable for, create, assume, incur or permit to exist any indebtedness whether as primary obligor, guarantor, surety or otherwise, including, without limitation, purchase money indebtedness except (a) indebtedness in favor of the Bank, and (b) indebtedness for liens for taxes or other governmental charges incurred in the ordinary course of business. 9. Reports. Maker shall maintain a standard and modern system of accounting, on the accrual basis of accounting and in all respects in accordance with generally accepted accounting principles ("GAAP"), and shall furnish to the Bank or its authorized representatives such information respecting the business affairs, operations and financial condition of the Maker as may be reasonably requested. Maker shall also deliver to the Bank the following: (A) Within forty-five (45) days after the end of each accounting quarter, a Call Report on Maker or any subsidiary as furnished to the appropriate regulatory authority, all in reasonable detail and certified by a principal financial officer of Maker that the statements fairly present the financial condition of Maker or any subsidiary as of the balance sheet date and the results of their operations for the period shown; and (B) Within one hundred twenty (120) days after the end of the end of the fiscal year of Maker, a copy of the annual audit report of Maker and any subsidiary, prepared in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding fiscal year, prepared, signed by and bearing an unqualified opinion of independent certified public accountants satisfactory to Bank; and (C) Promptly upon receipt thereof, copies of any other report submitted to Maker or its subsidiaries by certified public accountants in connection with any annual or interim audit of the books made by such accountants as from time to time may be reasonably requested by Bank; and (D) Promptly upon Bank's request, copies of all financial statements and reports sent by Undersigned or its subsidiaries to their stockholders and any and all regular and periodic reports that may be required to be filed by Maker or any subsidiary with the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Board of Governors of the Federal Reserve System and any other governmental agency having enforceable jurisdiction over the business and affairs of Maker or any subsidiary; and 5 (E) With reasonable promptness, such other data and information as from time to time may be reasonably requested by Bank. IN WITNESS WHEREOF, the Maker has executed this Modification Note on the day and year first above written. GREAT SOUTHERN BANCORP, INC. By: /s/ Rex A. Copeland ------------------------------------- Its: Treasurer ------------------------------------ INFORMATIONAL NOTICE The Prime Rate on the date of this Note is 9.50% which Prime Rate is subject to change from time to time as provided in this Note. 6 EX-12 5 0005.txt RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 RATIO OF EARNINGS TO FIXED CHARGES
At or For At or For At or For Year Ended Six Months Ended Year Ended December 31, December 31, June 30, --------- --------- --------- -------- --------- --------- -------- 2000 1999 1998 1997 1998 1997 1996 --------- --------- --------- -------- --------- --------- -------- (Dollars in thousands) Earnings: 1. Income before income taxes $23,662 $20,695 $11,216 $10,538 $21,368 $15,091 $18,405 2. Plus interest expense 48,861 35,463 16,530 15,601 31,992 28,822 28,132 ------- ------- ------- ------- ------- ------- ------- 3. Earnings including interest on deposits 72,523 56,158 27,746 26,139 53,360 43,913 46,537 4. Less interest on deposits 32,244 24,966 12,255 10,395 20,951 17,951 17,003 ------- ------- ------- ------- ------- ------- ------- 5. Earnings excluding interest on deposits $40,279 $31,192 $15,491 $15,744 $32,409 $25,962 $29,534 ======= ======= ======= ======= ======= ======= ======= Fixed Charges: 6. Including interest on deposits and capitalized interest $48,861 $35,463 $16,530 $15,601 $31,992 $28,822 $28,132 7. Less interest on deposits (Line 4) 32,244 24,966 12,255 10,395 20,951 17,951 17,003 ------- ------- ------- ------- ------- ------- ------- 8. Excluding interest on deposits $16,617 $10,497 $4,275 $5,206 $11,041 $10,871 $11,129 ======= ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges: Including interest on deposits (Line 3 divided by Line 6) 1.48 1.58 1.68 1.68 1.67 1.52 1.65 ======= ======= ======= ======= ======= ======= ======= Excluding interest on deposits (Line 5 divided by Line 8) 2.42 2.97 3.62 3.02 2.94 2.39 2.65 ======= ======= ======= ======= ======= ======= =======
EX-21 6 0006.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21 SUBSIDIARIES OF THE REGISTRANT
State of Percentage Incorporation or Parent Subsidiary of Ownership Organization - ------------------------------------ -------------------------------------- -------------- ------------- Great Southern Bancorp, Inc. Great Southern Bank 100% Missouri Great Southern Bank Great Southern Capital Management, Inc. 100% Missouri Great Southern Bank Great Southern Financial Corporation 100% Missouri Great Southern Bank GSB One, L.L.C. 100% Missouri GSB One, L.L.C. GSB Two, L.L.C. 100% Missouri Great Southern Financial Corporation Appraisal Services, Inc. 100% Missouri
EX-23 7 0007.txt CONSENT Exhibit 23 We consent to the incorporation by reference in Registration Statement No. 33-55832 on Form S-8 dated December 16, 1992, of our report dated February 2, 2001, on the consolidated financial statements and schedules included in the Annual Report on Form 10-K of GREAT SOUTHERN BANCORP, INC. for the year ended December 31, 2000. /s/ Baird, Kurtz & Dobson March 27, 2001 Springfield, Missouri -----END PRIVACY-ENHANCED MESSAGE-----