Great Southern Bancorp, Inc.
Accountants' Report and
Consolidated Financial Statements
December 31, 1998 and June 30, 1998 and 1997
72
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, 1998 and June 30,
1998 and 1997, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the six-month period
ended December 31, 1998, and each of the three years in the period 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, 1998 and June 30,
1998 and 1997, and the results of its operations and its cash flows for
the six-month period ended December 31, 1998, and each of the three
years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles.
/s/ Baird, Kurtz & Dobson
Springfield, Missouri
March 18, 1999
73
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND JUNE 30, 1998 AND 1997
ASSETS
June 30,
December 31, -----------------------------
1998 1998 1997
------------ ------------ ------------
Cash $ 24,115,015 $ 12,199,490 $ 8,176,763
Interest-bearing deposits in other financial institutions 9,431,407 33,631,748 24,308,337
----------- ----------- -----------
Cash and cash equivalents 33,546,422 45,831,238 32,485,100
Available-for-sale securities 6,475,897 6,362,700 7,408,020
Held-to-maturity securities 59,037,532 50,362,963 49,756,978
Loans receivable, net 698,318,863 655,226,070 583,709,446
Interest receivable:
Loans 4,854,247 5,159,425 4,225,771
Investments 651,993 738,382 767,541
Refundable income taxes -- 240,623 --
Prepaid expenses and other assets 6,571,841 3,960,573 2,982,653
Foreclosed assets held for sale, net 2,810,201 4,750,910 5,650,962
Premises and equipment, net 10,012,125 9,457,015 7,433,073
Investment in Federal Home Loan Bank stock 9,454,100 9,454,100 10,792,600
Excess of cost over fair value of net assets
acquired, at amortized cost 543,278 626,465 --
Deferred income taxes 4,221,203 2,920,665 2,629,140
----------- ----------- -----------
Total Assets $836,497,702 $795,091,129 $707,841,284
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $597,624,994 $549,772,712 $456,370,108
Federal Home Loan Bank advances 158,452,407 169,508,852 151,822,319
Short-term borrowings 798,247 -- 28,744,191
Accrued interest payable 5,356,558 3,646,952 2,924,419
Advances from borrowers for taxes and insurance 1,582,298 2,176,662 2,488,397
Accounts payable and accrued expenses 2,442,368 2,577,058 1,873,824
Income taxes payable 1,858,343 -- 3,269,659
----------- ----------- -----------
Total Liabilities 768,115,215 727,682,236 647,492,917
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Capital stock
Serial preferred stock, $.01 par value; authorized
1,000,000 shares -- -- --
Common stock, $.01 par value; authorized
20,000,000 shares, issued 12,325,002 shares 123,250 123,250 123,250
Additional paid-in capital 17,224,451 17,110,496 17,058,326
Retained earnings 90,459,992 84,955,740 73,980,259
Accumulated other comprehensive income:
Unrealized appreciation on available-for-sale
securities, net of income taxes of $214,410 at
December 31, 1998; $669,921 and $870,860
at June 30, 1998 and 1997, respectively 335,359 1,047,824 1,362,116
----------- ----------- -----------
108,143,052 103,237,310 92,523,951
Less treasury common stock, at cost; December 31,
1998 - 4,522,323 shares; June 30, 1998 and 1997 -
4,363,275 and 4,219,881 shares 39,760,565 35,828,417 32,175,584
----------- ----------- -----------
Total Stockholders' Equity 68,382,487 67,408,893 60,348,367
----------- ----------- -----------
Total Liabilities and Stockholders' Equity $836,497,702 $795,091,129 $707,841,284
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements
74
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED) AND
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
Six Months Ended
December 31, Year Ended June 30,
-------------------------- ----------------------------------------
1998 1997 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(Unaudited)
INTEREST INCOME
Loans $ 30,332,255 $ 27,878,190 $ 57,536,900 $ 51,365,481 $ 49,884,135
Investment securities and other 2,152,517 2,162,836 4,394,785 4,174,966 4,054,230
----------- ----------- ----------- ----------- -----------
32,484,772 30,041,026 61,931,685 55,540,447 53,938,365
----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 12,255,041 10,394,603 20,950,665 17,950,677 17,002,724
Federal Home Loan Bank advances 4,236,600 4,675,844 9,904,520 10,229,111 10,585,178
Short-term borrowings 38,180 530,448 1,136,493 642,356 544,509
----------- ----------- ----------- ----------- -----------
16,529,821 15,600,895 31,991,678 28,822,144 28,132,411
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME 15,954,951 14,440,131 29,940,007 26,718,303 25,805,954
PROVISION FOR LOAN LOSSES 1,290,712 852,382 1,852,597 1,706,142 1,450,754
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 14,664,239 13,587,749 28,087,410 25,012,161 24,355,200
----------- ----------- ----------- ----------- -----------
NONINTEREST INCOME
Commissions 3,135,936 2,585,633 5,652,388 4,968,695 4,412,600
Service charge fees 2,389,892 1,753,255 3,840,564 2,784,719 2,381,455
Net realized gains on sales of loans 385,563 461,228 1,125,153 521,165 539,979
Net realized gains on sales of available-
for-sale securities 355,501 871,766 1,397,828 205,425 680,357
Income on foreclosed assets 420,104 383,092 326,197 285,543 727,995
Other income 1,170,728 778,129 1,456,437 1,751,861 1,581,553
----------- ----------- ----------- ----------- -----------
7,857,724 6,833,103 13,798,567 10,517,408 10,323,939
----------- ----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 5,743,429 5,227,302 10,828,683 9,233,943 8,381,708
Net occupancy expense 1,771,624 1,349,235 3,033,707 2,400,570 2,220,131
Postage 447,493 392,434 857,127 625,745 634,465
Insurance 291,897 351,626 637,339 3,428,428 1,267,765
Amortization of excess of cost over fair
value of net assets acquired 83,188 -- 65,410 1,106,961 192,845
Advertising 275,799 294,672 586,367 675,456 533,336
Office supplies and printing 395,995 322,987 665,878 562,668 435,427
Other operating expenses 2,296,644 1,944,848 3,843,717 2,404,733 2,608,707
----------- ----------- ----------- ----------- -----------
11,306,069 9,883,104 20,518,228 20,438,504 16,274,384
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 11,215,894 10,537,748 21,367,749 15,091,065 18,404,755
PROVISION FOR INCOME TAXES 3,858,300 3,057,700 6,923,700 5,751,200 7,110,800
----------- ----------- ----------- ----------- -----------
NET INCOME $ 7,357,594 $ 7,480,048 $14,444,049 $ 9,339,865 $11,293,955
=========== =========== =========== =========== ===========
EARNINGS PER COMMON SHARE
BASIC $ .93 $ .93 $ 1.79 $ 1.11 $ 1.27
=========== =========== =========== =========== ===========
DILUTED $ .91 $ .91 $ 1.76 $ 1.10 $ 1.23
=========== =========== =========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements
75
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1998
AND YEARS ENDED JUNE 30, 1998, 1997 AND 1996
Additional
Comprehensive Common Paid-in
Income Stock Capital
------------- ---------- -----------
BALANCE, JULY 1, 1995 $ -- $ 61,625 $16,692,966
Net income 11,293,955 -- --
Stock issued under Stock Option Plan -- -- 141,541
Dividends declared, $.35 per share -- -- --
Change in unrealized appreciation
on available-for-sale securities, net of
income taxes of $169,696 (265,422) -- --
Treasury stock purchased -- -- --
---------- -------- ---------
Comprehensive Income $11,028,533
==========
BALANCE, JUNE 30, 1996 $ -- 61,625 16,834,507
Net income 9,339,865 -- --
Stock issued under Stock Option Plan -- -- 285,444
Dividends declared, $.3875 per share -- -- --
Two-for-one stock split -- 61,625 (61,625)
Change in unrealized appreciation on
available-for-sale securities, net
of income taxes of $809,400 1,265,987 -- --
Treasury stock purchased -- -- --
---------- -------- ---------
Comprehensive Income $10,605,852
==========
BALANCE, JUNE 30, 1997 $ -- 123,250 17,058,326
Net income 14,444,049 -- --
Stock issued under Stock Option Plan -- -- 52,170
Dividends declared, $.43 per share -- -- --
Change in unrealized appreciation on available-
for-sale securities, net of income taxes of $200,939 (314,292) -- --
Treasury stock purchased -- -- --
---------- -------- ---------
Comprehensive Income $14,129,757
==========
BALANCE, JUNE 30, 1998 $ -- 123,250 17,110,496
Net income 7,357,594 -- --
Stock issued under Stock Option Plan -- -- 113,955
Dividends declared, $.235 per share -- -- --
Change in unrealized appreciation on available-
for-sale securities, net of income taxes of $455,511 (712,465) -- --
Treasury stock purchased -- -- --
---------- -------- ---------
Comprehensive Income $ 6,645,129
==========
BALANCE, DECEMBER 31, 1998 $123,250 $17,224,451
======= ==========
<FN>
See Notes to Consolidated Financial Statements
76
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1998
AND YEARS ENDED JUNE 30, 1998, 1997 AND 1996
Accumulated
Other
Comprehensive
Income
--------------
Unrealized
Appreciation
on Available-
Retained for-Sale Treasury
Earnings Securities, Net Stock Total
------------- --------------- ------------- -----------
BALANCE, JULY 1, 1995 $59,755,968 $ 361,551 $(13,889,923) $62,982,187
Net income 11,293,955 -- -- 11,293,955
Stock issued under Stock Option Plan -- -- 137,731 279,272
Dividends declared, $.35 per share (3,132,035) -- -- (3,132,035)
Change in unrealized appreciation
on available-for-sale securities, net of
income taxes of $169,696 -- (265,422) -- (265,422)
Treasury stock purchased -- -- (3,350,388) (3,350,388)
---------- -------- ----------- ----------
BALANCE, JUNE 30, 1996 67,917,888 96,129 (17,102,580) 67,807,569
Net income 9,339,865 -- -- 9,339,865
Stock issued under Stock Option Plan -- -- 511,669 797,113
Dividends declared, $.3875 per share (3,277,494) -- -- (3,277,494)
Two-for-one stock split -- -- -- --
Change in unrealized appreciation on
available-for-sale securities, net
of income taxes of $809,400 -- 1,265,987 -- 1,265,987
Treasury stock purchased -- -- (15,584,673) (15,584,673)
---------- -------- ----------- ----------
BALANCE, JUNE 30, 1997 73,980,259 1,362,116 (32,175,584) 60,348,367
Net income 14,444,049 -- -- 14,444,049
Stock issued under Stock Option Plan -- -- 41,948 94,118
Dividends declared, $.43 per share (3,468,568) -- -- (3,468,568)
Change in unrealized appreciation on
available-for-sale securities, net
of income taxes of $200,939 -- (314,292) -- (314,292)
Treasury stock purchased -- -- (3,694,781) (3,694,781)
---------- -------- ----------- ----------
BALANCE, JUNE 30, 1998 84,955,740 1,047,824 (35,828,417) 67,408,893
Net income 7,357,594 -- -- 7,357,594
Stock issued under Stock Option Plan -- -- 13,480 127,435
Dividends declared, $.235 per share (1,853,342) -- -- (1,853,342)
Change in unrealized appreciation on
available-for-sale securities, net
of income taxes of $455,511 -- (712,465) -- (712,465)
Treasury stock purchased -- -- (3,945,628) (3,945,628)
---------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1998 $90,459,992 $ 335,359 $(39,760,565) $68,382,487
========== ======== ============ ==========
<FN>
See Notes to Consolidated Financial Statements
77
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1998
AND YEARS ENDED JUNE 30, 1998, 1997 AND 1996
Year Ended June 30,
Six Months Ended -------------------------------------
December 31, 1998 1998 1997 1996
------------------ ----------- ------------- -----------
RECLASSIFICATION DISCLOSURE:
Unrealized appreciation (depreciation) on
available-for-sale securities net of income
taxes of $(317,783) for December 31, 1998;
$344,214 for June 30, 1998; $899,438 for
June 30, 1997; and $95,643 for June 30, 1996 $(497,044) $ 538,383 $ 1,391,174 $ 149,596
Less: Reclassification adjustment for
appreciation included in net income, net of
income taxes of $(137,728) for December 31,
1998; $(545,153) for June 30, 1998; $80,038
for June 30, 1997; and $(265,339) for
June 30, 1996 (215,421) (852,675) (125,187) (415,018)
------- ------- --------- -------
Change in unrealized appreciation (depreciation)
on available-for-sale securities, net of income
taxes $(712,465) $(314,292) $ 1,265,987 $(265,422)
======= ======= ========= =======
<FN>
See Notes to Consolidated Financial Statements
78
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1998, 1997 AND 1996
Six Months Ended
December 31, Year Ended June 30,
--------------------------- -----------------------------------------
1998 1997 1998 1997 1996
------------- ------------ ------------ ------------- ------------
(Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 7,357,594 $ 7,480,048 $ 14,444,049 $ 9,339,865 $11,293,955
Items not requiring (providing) cash:
Depreciation 880,746 550,001 1,333,423 1,003,243 980,290
Amortization 83,187 -- 55,410 1,101,961 192,845
Provision for loan losses 1,290,712 852,382 1,852,597 1,706,142 1,450,754
Provision for losses on foreclosed
assets -- -- 100,000 100,000 275,000
Gain on sale of loans (385,563) (456,800) (1,125,153) (521,165) (539,979)
Proceeds from sales of loans held
for sale 26,486,196 32,664,500 73,678,174 27,121,165 37,139,979
Originations of loans held for sale (30,668,718) (32,207,700) (72,553,021) (26,600,000) (36,600,000)
Federal Home Loan Bank stock
dividends received -- -- -- -- (176,400)
Net realized gains on available-
for-sale securities (355,501) (872,920) (1,397,828) (205,425) (680,357)
(Gain) loss on sale of premises
and equipment (600) (80,272) (65,417) (9,585) 2,171
Gain on sale of foreclosed assets (894,459) (529,338) (576,783) (559,902) (1,316,887)
Amortization of deferred income,
premiums and discounts (855,072) (348,297) (704,900) (894,292) (680,395)
Deferred income taxes (1,246,911) 50,000 (90,586) (350,000) 604,000
Changes in:
Accrued interest receivable 391,567 73,690 (904,495) 363,110 (470,643)
Prepaid expenses and other assets 1,569,791 (289,834) (977,920) (1,208,214) 924,293
Accounts payable and accrued
Expenses (134,690) 983,683 703,234 (557,683) 80,325
Income taxes refundable/payable 2,500,850 (3,414,636) (3,510,282) 2,382,241 (336,363)
---------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities 6,019,129 4,454,507 10,260,502 12,211,461 12,142,588
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Net increase in loans (41,855,375) (37,688,999) (72,070,913) (33,724,744) (30,701,061)
Purchase of additional business units -- (546,875) (681,875) -- --
Purchase of premises and equipment (1,436,201) (1,627,421) (3,505,798) (1,771,232) (955,690)
Proceeds from sale of premises
and equipment 945 201,008 213,850 31,455 2,875
Proceeds from sale of foreclosed
assets 1,685,600 702,636 1,099,476 1,017,514 2,044,721
Capitalized costs on foreclosed assets (140,750) (34,977) (302,040) (198,090) (206,107)
Proceeds from maturing held-to-
maturity securities 21,375,000 4,250,000 19,500,000 39,398,775 9,526,632
Purchase of held-to-maturity
Securities (30,046,746) (2,767,108) (20,119,994) (40,159,443) (11,971,929)
Proceeds from sale of available-
for-sale securities 1,365,670 2,380,482 3,359,677 1,377,623 2,942,647
Purchase of available-for-sale
securities (2,289,879) -- (1,431,760) (1,849,015) (4,262,442)
(Purchase) redemption of Federal
Home Loan Bank stock -- -- 1,338,500 (769,800) (1,360,400)
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities (51,341,736) (35,131,254) (72,600,877) (36,646,957) (34,940,754)
---------- ---------- ---------- ---------- ----------
<FN>
See Notes to Consolidated Financial Statements
79
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1998, 1997 AND 1996
Six Months Ended
December 31, Year Ended June 30,
--------------------------- -----------------------------------------
1998 1997 1998 1997 1996
------------- ------------ ------------ ------------- ------------
(Unaudited)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase (decrease) in certificates
of deposit $ 32,006,537 $ (6,018,484) $ 39,497,048 $ 55,356,409 $ 4,484,912
Net increase in checking and
savings accounts 17,602,644 11,212,606 54,632,670 6,824,821 8,242,392
Proceeds from Federal Home Loan
Bank advances 217,565,407 445,426,866 895,823,200 539,345,121 425,700,856
Repayments of Federal Home Loan
Bank advances (228,669,145) (410,944,660) (878,141,248) (568,261,064)(399,226,851)
Net increase (decrease) in short-term
borrowings 798,247 1,686,743 (28,744,191) 12,276,366 2,520,881
Advances to borrowers for taxes
and insurance (594,364) (1,560,771) (311,735) (171,030) (565,797)
Purchase of treasury stock (3,945,628) (755,058) (3,694,781) (15,584,673) (3,350,388)
Dividends paid (1,853,342) (1,699,187) (3,468,568) (3,277,494) (3,132,035)
Stock options exercised 127,435 2,476 94,118 797,113 279,272
---------- ---------- ---------- ---------- ----------
Net cash provided by financing
activities 33,037,791 37,350,531 75,686,513 27,305,569 34,953,242
---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (12,284,816) 6,673,784 13,346,138 2,870,073 12,155,076
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 45,831,238 32,485,100 32,485,100 29,615,027 17,459,951
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 33,546,422 $ 39,158,884 $ 45,831,238 $ 32,485,100 $ 29,615,027
======== ======== ======== ======== ========
<FN>
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND JUNE 30, 1998, 1997 AND 1996
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.
80
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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.
Fiscal Year Change
In 1998, the Company changed its fiscal year ended June 30 to a fiscal
year ended December 31. The six-month period ended December 31, 1998,
transitions between the Company's old and new fiscal year ends.
Principles of Consolidation
The consolidated financial statements include the accounts of Great
Southern Bancorp, Inc., its wholly owned subsidiary, Great Southern Bank, and
the Bank's wholly owned subsidiaries, Great Southern Capital Management, GSB
One LLC and its wholly owned subsidiary, GSB Two LLC and Great Southern
Financial Corporation, and its wholly owned subsidiary, Appraisal Services,
Inc. Significant intercompany accounts and transactions have been eliminated
in consolidation.
Reclassifications
Certain prior periods amounts have been reclassified to conform to the
December 31, 1998, 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.
81
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Investments in Debt and Equity Securities
Available-for-sale securities, which include any security for which the
Company has no immediate plan to sell but which may be sold in the future, are
carried at fair value. Realized gains and losses, based on specifically
identified amortized cost of the specific security, are included in other
income. Unrealized gains and losses are recorded, net of related income tax
effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income using the level-yield method over
the period to maturity.
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 $543,278, $626,465 and $0 at December 31, 1998 and June 30, 1998
and 1997, respectively. These costs are amortized on a straight-line basis
for a period of five years. As a result of a revision of the estimated future
benefit, all unamortized costs in excess of the fair value of underlying net
tangible assets at June 30, 1996, were fully expensed during 1997.
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, 1998 and June 30, 1998 and 1997.
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.
82
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line and accelerated
methods over the estimated useful lives of the assets. Leasehold improvements
are capitalized and amortized using the straight-line and accelerated methods
over the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter.
Fee Income
Loan servicing income represents fees earned for servicing real estate
mortgage loans owned by various investors. The fees are generally calculated
on the outstanding principal balances of the loans serviced and are recorded
as income when earned. Loan origination fees, net of direct loan origination
costs, are recognized as income using the level-yield method over the
contractual life of the loan.
Earnings Per Share
Basic earnings per share is computed based on the weighted-average number
of shares outstanding during each year. Diluted earnings per share is
computed using the weighted-average common shares and all potential dilutive
common shares outstanding during the period. All computations have been
adjusted for the stock split of October 21, 1996 (see Note 15).
83
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
The computation of earnings per share is as follows:
Six Months Ended
December 31, Year Ended June 30,
-------------------------- ------------------------------------------
1998 1997 1998 1997 1996
------------ ------------ ------------- ------------ -------------
(Unaudited)
Net income $ 7,357,594 $ 7,480,048 $ 14,444,049 $ 9,339,865 $ 11,293,955
========== ========== ========== ========== ===========
Average common shares
outstanding 7,896,771 8,081,996 8,052,413 8,394,080 8,926,192
Average common share stock
options outstanding 163,382 143,082 151,162 93,682 269,412
---------- ---------- --------- ---------- ----------
Average diluted common shares 8,060,153 8,225,078 8,203,575 8,487,762 9,195,604
========== ========= ========= ========= ===========
Earnings per common share - basic $ .93 $ .93 $ 1.79 $ 1.11 $ 1.27
========== ========== ========== ========== ===========
Earnings per common share - diluted $ .91 $ .91 $ 1.76 $ 1.10 $ 1.23
========== ========== ========== ========== ===========
Options to purchase 43,250 and 19,250 shares of common stock were
outstanding during the periods ended December 31, 1998 and June 30,
1998, but were not included in the computation of diluted EPS because
the options' exercise price was greater than the average market price of
the common shares. The options, which expire in 2008, were still
outstanding at the end of each period.
Cash Equivalents
The Company considers all liquid investments with original
maturities of three months or less to be cash equivalents. At December
31, 1998 and June 30, 1998 and 1997, cash equivalents consisted of
interest bearing deposits in other financial institutions.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax
effect of differences between the financial statement and tax bases of
assets and liabilities. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not that a deferred tax
asset will not be realized.
Impact of Recent Accounting Pronouncements
The Financial Accounting Standard Board (FASB) recently adopted
Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Financial Instruments and Hedging Activities. This Statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999, may be
adopted early for periods beginning after issuance of the Statement and
may not be applied retroactively. Management believes the adoption of
SFAS 133 will not have a material impact on the Company's financial
statements.
84
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, 1998
------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
Equity securities $5,926,128 $ 549,769 $ -- $ 6,475,897
========= ======== ======== ==========
June 30, 1998
------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
Equity securities $4,644,955 $1,717,745 $ -- $ 6,362,700
========= ======== ======== ==========
June 30, 1997
------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
Equity securities $5,175,044 $2,232,976 $ -- $ 7,408,020
========= ======== ======== ==========
The amortized cost and approximate fair value of held-to-maturity
securities are as follows:
December 31, 1998
------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
U.S. Treasury $ 601,594 $ 2,706 $ -- $ 604,300
U.S. government agencies 46,966,338 177,072 (10,410) 47,133,000
States and local political
subdivisions 11,469,600 6,800 -- 11,476,400
---------- ---------- ---------- -----------
$59,037,532 $ 186,578 $ (10,410) $59,213,700
========== ========= ========= ==========
June 30, 1998
------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
U.S. Treasury $ 2,103,414 $ 3,586 $ -- $ 2,107,000
U.S. government agencies 48,259,549 174,451 -- 48,434,000
---------- ---------- ---------- -----------
$50,362,963 $ 178,037 $ 0 $50,541,000
========== ========= ========= ==========
85
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
June 30, 1997
------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
U.S. Treasury $ 7,057,218 $ 7,651 $ 3,869 $ 7,061,000
U.S. government agencies 42,699,760 110,527 12,287 42,798,000
---------- ---------- ---------- -----------
$49,756,978 $ 118,178 $ 16,156 $49,859,000
========== ========= ========= ==========
Maturities of held-to-maturity securities at December 31, 1998, are:
Approximate
Amortized Fair
Cost Value
----------- -----------
One year or less $18,150,232 $18,218,100
After one through five years 39,337,300 39,438,800
After five through 10 years 1,550,000 1,556,800
---------- ----------
$59,037,532 $59,213,700
========== ==========
Proceeds of $1,350,712, $3,359,677, $1,377,623 and $2,942,647 with
resultant gross gains of $355,501, $1,397,828, $205,425 and $680,357,
were realized from the sale of available-for-sale securities for the six
months ended December 31, 1998, and for the years ended June 30, 1998,
1997 and 1996, respectively. There were no sales resulting in losses
for any of the periods presented.
The carrying value of securities pledged as collateral to secure
public deposits amounted to approximately $18,823,500, $10,195,000 and
$9,677,000 at December 31, 1998 and June 30, 1998 and 1997,
respectively, with approximate fair values of $18,887,800, $10,231,000
and $9,695,000. The carrying value of securities pledged as collateral
to secure collateralized borrowing accounts amounted to approximately
$13,772,000 at June 30, 1997, with approximate fair value of
$13,805,000. There were no securities pledged as collateral to secure
collateralized borrowings at December 31, 1998 and June 30, 1998. The
carrying value of securities pledged as collateral to secure Federal
Home Loan Bank advances amounted to approximately $22,171,000,
$22,683,000 and $26,308,000 at December 31, 1998 and June 30, 1998 and
1997, respectively, with approximate fair values of $22,243,900,
$22,760,000 and $26,360,000.
86
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 1998 and June 30, 1998 and
1997, include:
June 30,
December 31, -------------------------
1998 1998 1997
------------ ------------ ------------
One to four family residential
mortgage loans $217,119,697 $217,688,415 $243,006,249
Other residential mortgage loans 85,828,254 89,140,632 95,885,537
Commercial real estate loans 261,200,938 244,016,514 191,555,823
Other commercial loans 57,178,749 54,722,556 25,958,963
Construction loans 59,797,292 49,180,948 35,703,850
Mortgage-backed securities 1,357,311 1,553,901 1,761,122
Installment and education loans 63,366,049 46,566,627 27,665,964
Discounts on loans purchased (704,779) (1,031,702) (1,150,880)
Undisbursed portion of loans in process(28,822,880) (28,496,979) (18,812,126)
Allowance for loan losses (16,927,575) (16,372,700) (15,523,541)
Deferred loan fees and gains, net (1,074,193) (1,742,142) (2,341,515)
----------- ----------- -----------
$698,318,863 $655,226,070 $583,709,446
=========== =========== ===========
Transactions in the allowance for loan losses were as follows:
Six Months
Ended Year Ended June 30,
December 31,-----------------------------------
1998 1998 1997 1996
----------- ----------- ----------- -----------
Balance, beginning of period $16,372,700 $15,523,541 $14,356,147 $14,600,870
Provision charged to expense 1,290,712 1,852,597 1,706,142 1,450,754
Loans charged off (1,498,525) (1,142,584) (676,714) (1,992,578)
Recoveries 762,688 139,146 137,966 297,101
---------- --------- ---------- ----------
Balance, end of period $16,927,575 $16,372,700 $15,523,541 $14,356,147
========== ========== ========== ==========
The weighted-average interest rate on loans receivable at December
31, 1998 and June 30, 1998 and 1997, was 8.38%, 8.96% and 8.99%,
respectively.
The Bank serviced whole mortgage loans and participations in
mortgage loans for others amounting to $56,670,000, $60,047,000 and
$69,837,000 at December 31, 1998 and June 30, 1998 and 1997,
respectively.
Impaired loans totaled approximately $10,146,000, $9,485,000,
$10,163,000 and $5,455,000 at December 31, 1998 and June 30, 1998, 1997
and 1996, respectively. An allowance for loan losses of $689,000,
$1,501,000, $1,622,000 and $832,000 relates to these impaired loans at
December 31, 1998 and June 30, 1998, 1997 and 1996, respectively. There
were no impaired loans at December 31, 1998 and June 30, 1998, 1997 and
1996, without a related allowance for loan loss assigned.
Interest of approximately $225,000, $1,009,000, $487,000 and
$923,000 was recognized on average impaired loans of $9,819,000,
$12,009,000, $9,362,000 and $9,210,000 for the six months ended December
31, 1998, and the years ended June 30, 1998, 1997 and 1996,
respectively. Interest recognized on impaired loans on a cash basis
during these periods was not materially different.
87
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Certain of the Bank's real estate loans are pledged as collateral for
borrowings as set forth in Notes 7 and 8.
Certain directors and executive officers of the Company and the Bank were
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,
1998 and June 30, 1998 and 1997, loans outstanding to these directors and
executive officers are summarized as follows:
June 30,
December 31, -----------------------
1998 1998 1997
------------ ----------- -----------
Balance, beginning of year $ 6,145,000 $ 5,494,000 $ 1,382,000
New loans 587,000 1,048,000 4,353,000
Payments (941,000) (397,000) (241,000)
---------- ---------- ----------
Balance, end of year $ 5,791,000 $ 6,145,000 $ 5,494,000
========== ========== ==========
NOTE 4: FORECLOSED ASSETS HELD FOR SALE
June 30,
December 31, -----------------------
1998 1998 1997
------------ ----------- -----------
Foreclosed assets $ 2,810,201 $ 4,750,910 $ 5,970,352
Valuation allowance -- -- (319,390)
---------- ---------- ----------
$ 2,810,201 $ 4,750,910 $ 5,650,962
========== ========== ==========
Transactions in the valuation allowance on foreclosed assets were as
follows:
Six Months
Ended Year Ended June 30,
December 31, --------------------------------
1998 1998 1997 1996
------------ --------- ----------- ----------
Balance, beginning of period $ -- $ 319,390 $ 1,085,602 $ 932,547
Provision charged to expense -- 100,000 100,000 275,000
Charge-offs, net of recoveries -- (419,390) (866,212) (121,945)
------ -------- ---------- ---------
Balance, end of period $ 0 $ 0 $ 319,390 $1,085,602
====== ======== ========== =========
88
NOTE 5: PREMISES AND EQUIPMENT
Major classifications of premises and equipment stated at cost at
December 31, 1998 and June 30, 1998 and 1997, are as follows:
June 30,
December 31, -----------------------
1998 1998 1997
------------ ----------- -----------
Land $ 1,565,780 $ 1,565,780 $ 1,628,981
Buildings and improvements 8,730,367 8,357,100 8,071,448
Furniture, fixtures and equipment 10,069,717 9,038,608 6,204,196
---------- ---------- ----------
20,365,864 18,961,488 15,904,625
Less accumulated depreciation 10,353,739 9,504,473 8,471,552
---------- ---------- ----------
$10,012,125 $ 9,457,015 $ 7,433,073
========== ========== ==========
Depreciation expense was $880,746, $1,333,423, $1,003,243 and $980,290
for the six months ended December 31, 1998, and the years ended June 30, 1998,
1997 and 1996, respectively.
NOTE 6: DEPOSITS
Deposits at December 31, 1998 and June 30, 1998 and 1997, are summarized
as follows:
June 30,
Weighted-average December 31, -----------------------------
Interest Rate 1998 1998 1997
--------------------- ------------- ------------- -------------
Noninterest-bearing accounts -- $ 43,211,233 $ 29,374,778 $ 14,571,834
Interest-bearing checking 2.39% - 2.25% - 2.36% 156,419,923 155,485,084 115,231,966
Savings accounts 2.50% - 2.51% - 2.51% 32,189,870 34,644,369 35,064,843
----------- ----------- -----------
231,821,026 219,504,231 164,868,643
----------- ----------- -----------
Certificate accounts 0% - 3.99% 435,732 61,879 724,646
4% - 4.99% 69,178,221 17,476,479 14,165,816
5% - 5.99% 259,843,966 257,704,093 212,238,314
6% - 6.99% 32,261,682 51,064,400 51,540,038
7% - 7.99% 3,844,602 3,710,659 12,326,032
8% - 10.25% 239,765 250,971 506,619
----------- ----------- -----------
365,803,968 330,268,481 291,501,465
----------- ----------- -----------
$ 597,624,994 $ 549,772,712 $ 456,370,108
=========== =========== ===========
The weighted-average interest rate on certificates of deposit was 5.35%, 5.50%
and 5.53% at December 31, 1998 and June 30, 1998 and 1997, respectively.
The aggregate amount of certificates of deposit in denominations of
$100,000 or more was approximately $65,407,000, $48,675,000 and $44,489,000 at
December 31, 1998 and June 30, 1998 and 1997, respectively. From time to time
the Bank purchases brokered deposits. The aggregate amount of brokered
deposits was approximately $146,697,000, $118,977,000 and $77,387,000 at
December 31, 1998 and June 30, 1998 and 1997, respectively.
89
NOTE 6: DEPOSITS (Continued)
At December 31, 1998, scheduled maturities of certificates of deposit are
as follows:
1999 2000 2001 2002 Thereafter
------------- ------------ ------------ ------------ ------------
0% to 3.99% $ 386,477 $ -- $ -- $ 49,255 $ --
4% to 4.99% 63,332,234 5,561,043 236,653 13,632 34,659
5% to 5.99% 157,023,423 32,095,393 17,548,407 17,578,902 35,597,841
6% to 6.99% 17,044,646 8,160,652 1,529,244 2,154,753 3,372,387
7% to 7.99% 583,274 481,895 347,461 2,094,340 337,632
8% to 10.25% 35,190 -- -- -- 204,575
----------- ---------- ---------- ---------- ----------
$ 238,405,244 $ 46,298,983 $ 19,661,765 $ 21,890,882 $ 39,547,094
=========== ========== ========== ========== ==========
A summary of interest expense on deposits is as follows:
Six Months
Ended Year Ended June 30,
December 31, -------------------------------------------
1998 1998 1997 1996
------------- ------------- ------------- -------------
Checking accounts $ 2,007,149 $ 2,673,921 $ 2,570,966 $ 2,494,566
Savings accounts 318,651 858,880 866,810 914,310
Certificate accounts 9,960,599 17,485,313 14,579,734 13,667,688
Early withdrawal penalties (31,358) (67,449) (66,833) (73,840)
---------- ---------- ---------- ----------
$ 12,255,041 $ 20,950,665 $ 17,950,677 $ 17,002,724
========== ========== ========== ==========
NOTE 7: ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consist of the following:
June 30,
December 31, 1998 1998 1997
-------------------- ------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Interest Interest Interest
Due In Amount Rate Amount Rate Amount Rate
- ------------ ------------ ----- ------------ ----- ------------ -----
1998 $ -- --% $ -- --% $117,602,967 6.18%
1999 38,820,282 5.97 69,220,415 6.04 4,890,593 6.14
2000 30,527,518 5.82 24,876,968 6.66 7,683,759 8.43
2001 1,002,110 6.98 13,453,605 5.75 3,248,520 6.33
2002 11,085,961 5.65 958,976 7.10 741,285 7.41
2003 21,177,370 4.21 11,041,651 5.66 810,579 7.42
2004 and
thereafter 55,839,166 5.70 49,957,237 5.75 16,844,616 7.16
----------- ---- ----------- ---- ----------- ----
$158,452,407 5.60% $169,508,852 6.00% $151,822,319 6.42%
=========== ==== =========== ==== =========== ====
90
NOTE 7: ADVANCES FROM FEDERAL HOME LOAN BANK (Continued)
In addition to the above advances, the Bank had available a line of
credit amounting to $50,000,000, $22,800,000 and $44,250,000 with the FHLB at
December 31, 1998 and June 30, 1998 and 1997, respectively.
The FHLB requires the Bank to maintain FHLB stock, investment securities
and first mortgage loans free of pledges, liens and encumbrances in an amount
equal to at least 105% of outstanding advances as collateral for such
borrowings. Investment securities with carrying values of $22,171,000,
$22,683,000 and $26,308,000, respectively, were specifically pledged as
collateral for advances at December 31, 1998 and June 30, 1998 and 1997.
NOTE 8 SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1998 and June 30, 1998 and 1997,
are summarized as follows:
June 30,
December 31, ---------------------
1998 1998 1997
------------ ------- -----------
United States government securities sold
under reverse repurchase agreements $ - $ - $10,342,523
Other 798,247 - 18,401,668
-------- ------ ----------
$ 798,247 $ 0 $28,744,191
======== ====== ==========
Prior to its conversion to a state trust charter, the Bank entered into
sales of securities under agreements to repurchase (reverse repurchase
agreements). Reverse repurchase agreements were treated as financings, and
the obligations to repurchase securities sold were reflected as a liability in
the statement of financial condition. The dollar amount of securities
underlying the agreements remained in the asset accounts. At June 30, 1998,
all short-term borrowings were reclassified to deposits.
Other short-term borrowings consisted of agreements with corporate
entities which are secured by a pledge of residential mortgage loans, and
margin loans with brokerage firms.
Securities sold under reverse repurchase agreements had a carrying value
including accrued interest of $14,012,000 and a fair value of $13,805,000 at
June 30, 1997. Mortgage loans securing other short-term borrowings had a
carrying value of $11,695,000 at June 30, 1997.
Short-term borrowings had weighted-average interest rates of 7.20% at
December 31, 1998, and 3.24% at June 30, 1997. Securities and mortgage loans
underlying the agreements were being held by the Bank during the agreement
period. All agreements were written on a one month or less term.
Short-term borrowings averaged $770,000 for the six months ended December
31, 1998, and $32,234,000, $18,894,000 and $17,344,000 for the years ended
June 30, 1998, 1997 and 1996, respectively. The maximum amounts outstanding
at any month end were $2,386,670, $41,176,000, $28,744,000 and $20,132,000
during the six months ended December 31, 1998, and the years ended June 30,
1998, 1997 and 1996, respectively.
The Bank had a potentially available $210,535,000 line of credit under a
borrowing arrangement with the Federal Reserve Bank at December 31, 1998. The
line is secured primarily by commercial loans and was not drawn upon at
December 31, 1998.
91
NOTE 9: INCOME TAXES
The Company files a consolidated federal income tax return.
Historically, thrifts were allowed a percentage of otherwise taxable income as
a statutory bad debt deduction, subject to limitations based on aggregate
loans and savings balances. This percentage was most recently 8%. In August
1996 this statutory bad debt deduction was repealed and is no longer available
for thrifts. In addition, bad debt allowances accumulated after 1988, which
are presently included as a component of the net deferred tax asset, must be
recaptured over a six-year period beginning with the period ended December 31,
1998. The amount of the deferred tax liability which must be recaptured is
$1,681,000 at December 31, 1998.
As of December 31, 1998 and June 30, 1998 and 1997, 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,
1998 and June 30, 1998 and 1997.
The provision for income taxes consists of:
Six Months
Ended Year Ended June 30,
December 31, ---------------------------------
1998 1998 1997 1996
------------ ---------- ---------- ----------
Taxes currently payable $4,703,327 $7,014,286 $6,101,200 $6,506,800
Deferred income taxes (845,027) (90,586) (350,000) 604,000
--------- --------- --------- ---------
$3,858,300 $6,923,700 $5,751,200 $7,110,800
========= ========= ========= =========
The tax effects of temporary differences related to deferred taxes shown
on the December 31, 1998 and June 30, 1998 and 1997, statements of financial
condition were:
June 30,
December 31, -----------------------
1998 1998 1997
------------ ----------- -----------
Deferred tax assets:
Allowance for loan and
foreclosed asset losses $ 6,114,740 $ 5,746,586 $ 5,884,000
Accrued expenses 182,000 163,000 159,000
Partnership tax credits 59,000 46,000 24,000
Excess of cost over fair value of net
assets required 36,000 16,000 --
--------- --------- ---------
6,391,740 5,971,586 6,067,000
--------- --------- ---------
Deferred tax liabilities:
Tax bad debt allowance in excess
of base year allowance (1,261,000) (1,722,000) (1,922,000)
FHLB stock dividends (641,000) (641,000) (641,000)
Unrealized appreciation on
available-for-sale securities (214,410) (669,921) (870,860)
Other (54,127) (18,000) (4,000)
--------- --------- ---------
(2,170,537) (3,050,921) (3,437,860)
--------- --------- ---------
Net deferred tax asset $ 4,221,203 $ 2,920,665 $ 2,629,140
========= ========= =========
92
NOTE 9: INCOME TAXES (Continued)
Reconciliations of the Company's provision for income taxes to the
statutory corporate tax rates are as follows:
Six Months
Ended Year Ended June 30,
December 31, -----------------------------
1998 1998 1997 1996
------------ -------- -------- ---------
Tax at statutory rate 35.0% 35.0% 35.0% 35.0%
State income taxes .1 (3.1) 2.5 2.1
Other (.7) .5 .6 1.5
---- ---- ---- ----
34.4% 32.4% 38.1% 38.6%
==== ==== ==== ====
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, 1995.
State legislation provided that savings banks were taxed based on an
annual privilege tax of 7% of net income. The 1997 and 1996 state tax
included in the provision for income tax amounted to $652,000 and $552,000,
respectively. Because the Bank converted to a state chartered trust company
in June 1998, the Bank was not subject to the privilege tax for June 30, 1998,
or December 31, 1998, but was instead subject to a similar bank franchise tax.
During the year ended June 30, 1998, the Bank received $1.1 million in state
tax refunds of previously paid taxes. Also during 1998 the Company formed a
Real Estate Investment Trust (REIT) to hold certain of the Bank's loan
portfolio. This tax strategy reduces the Company's liabilities for state
income and franchise taxes.
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.
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.
93
NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair value of letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which method involves
significant judgments by management and uncertainties. Fair value is the
estimated amount at which financial assets or liabilities could be exchanged
in a current transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these financial
instruments and because management does not intend to sell these financial
instruments, the Company does not know whether the fair values shown below
represent values at which the respective financial instruments could be sold
individually or in the aggregate.
94
June 30,
---------------------------------------------------
December 31, 1998 1998 1997
------------------------- ------------------------- -------------------------
Carrying Carrying Carrying
Amount Fair Value Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------ ------------ ------------
Financial assets:
Cash and cash equivalents $ 33,546,422 $ 33,546,422 $ 45,831,238 $ 45,831,238 $ 32,485,100 $ 32,485,100
Available-for-sale
securities 6,475,897 6,475,897 6,362,700 6,362,700 7,408,020 7,408,020
Held-to-maturity securities 59,037,532 59,213,700 50,362,963 50,541,000 49,756,978 49,859,000
Investment in FHLB stock 9,454,100 9,454,100 9,454,100 9,454,100 10,792,600 10,792,600
Loans, net of allowance
for loan losses 698,318,863 713,314,000 655,226,090 660,187,000 583,709,446 591,041,000
Accrued interest
receivable 5,506,240 5,506,240 5,897,807 5,897,807 4,993,312 4,993,312
Financial liabilities:
Deposits $602,974,645 $605,482,000 $553,365,464 $552,400,000 $459,235,746 $460,673,000
FHLB advances 158,452,407 157,616,000 169,563,052 169,637,000 151,881,100 153,764,000
Short-term borrowings 798,247 798,247 -- -- 28,744,191 28,744,191
Unrecognized financial
instruments (net of
contractual value):
Commitments to extend
credit -- -- -- -- -- --
Standby letters of credit -- -- -- -- -- --
Unused lines of credit -- -- -- -- -- --
NOTE 11: LEASES
The Bank has entered into various operating leases at several of its
branch locations. Some of the leases have renewal options. At December 31,
1998, future minimum lease payments are as follows:
1999 $ 240,804
2000 203,827
2001 189,877
2002 165,777
2003 123,277
Later Years 588,800
---------
$1,512,362
=========
Rental expense was $136,360, $222,429, $203,675 and $188,188 for the six
months ended December 31, 1998, and the years ended June 30, 1998, 1997 and
1996, respectively.
NOTE 12: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a significant portion of the
commitments may expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the counterparty. Collateral
held varies but may include accounts receivable, inventory, property and
equipment, commercial real estate and residential real estate.
95
NOTE 12: COMMITMENTS AND CREDIT RISK (Continued)
At December 31, 1998 and June 30, 1998 and 1997, the Bank had outstanding
commitments to originate loans and fund commercial construction aggregating
approximately $60,990,161, $63,174,000 and $59,987,000 including $28,823,000,
$28,497,000 and $18,812,000, respectively, of undisbursed loans in process.
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 $3,286,000, $7,075,000 and $479,000 with the remainder at
floating market rates at December 31, 1998 and June 30, 1998 and 1997,
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 Bank had total outstanding letters of credit amounting to
approximately $9,832,000, $10,365,000 and $9,206,000 at December 31, 1998 and
June 30, 1998 and 1997, respectively, with $1,585,000, $2,118,000 and $959,000
of the letters of credit having terms ranging from seven months to four years
at December 31, 1998 and June 30, 1998 and 1997, respectively. The remaining
$8,247,000 at December 31, 1998 and June 30, 1998 and 1997, consisted of an
outstanding letter of credit to guarantee the payment of principal and
interest on a Multifamily Housing Refunding Revenue Bond issue. The Federal
Home Loan Bank has issued a letter of credit backing the Bank's letter of
credit.
Lines of credit are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. The Bank evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counter party. 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, 1998, the Bank had granted unused lines of credit to
borrowers aggregating approximately $25,523,000 and $7,161,000 for commercial
lines and open-end consumer lines, respectively. At June 30, 1998, the Bank
had granted unused lines of credit to borrowers aggregating approximately
$30,385,000 and $5,313,000 for commercial lines and open-end consumer lines,
respectively. At June 30, 1997, the Bank had granted unused lines of credit
to borrowers aggregating approximately $7,517,000 and $3,731,000 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 $114,342,000, $122,900,000 and $121,900,000
at December 31, 1998 and June 30, 1998 and 1997, respectively, are secured by
motels, restaurants, recreational facilities, other commercial properties and
residential mortgages in the Branson, Missouri, area.
96
NOTE 13: LITIGATION
GSBC and its subsidiaries are defendants in certain lawsuits arising in
the ordinary course of business. Management, after review with its legal
counsel, is of the opinion that the resolution of these legal matters will not
have a material adverse effect on the Company's financial position.
NOTE 14: ADDITIONAL CASH FLOW INFORMATION
Six Months
Ended Year Ended June 30,
December 31, --------------------------------------
1998 1998 1997 1996
------------ ---------- ---------- ----------
Noncash Investing and Financing Activities
Conversion of loans to foreclosed assets $2,165,000 $4,068,122 $2,272,465 $7,014,308
Conversion of foreclosed assets to loans $2,727,000 $4,647,521 $6,255,412 $4,288,066
Additional Cash Payment Information
Interest paid $14,820,215 $31,323,755 $27,922,486 $27,791,991
Income taxes paid $2,600,000 $8,640,000 $3,943,814 $6,045,000
NOTE 15: STOCKHOLDERS' EQUITY
On October 1, 1996, the Board of Directors of GSBC declared a stock split
effected in the form of a dividend on the outstanding common stock for
shareholders of record on October 11, 1996. Each shareholder received one
additional share for each share owned on the record date. Historical per
share disclosures have been updated where applicable to account for the stock
split.
NOTE 16: 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 six months ended December 31, 1998, or the three years ended
June 30, 1998. As a member of a multi-employer pension plan, disclosures of
plan assets and liabilities for individual employers are not required or
practicable.
Prior to 1998, the Company had an Employee Stock Ownership Plan (ESOP)
for full-time employees age 21 years or older who had at least one year of
credited service. During fiscal 1996 the Company terminated the ESOP. The
assets of the ESOP were distributed during fiscal 1997.
There was no ESOP contribution expense for either of the years ended June
30, 1997 or 1996, respectively. Dividends declared on ESOP shares were
$184,610 and $334,210 for the years ended June 30, 1997 and 1996,
respectively.
The Company has a defined contribution pension plan covering
substantially all employees. The Company matches 50% of the employee's
contribution on the first 6% of the employee's compensation. Employer
contributions charged to expense for the six months ended December 31, 1998,
and the years ended June 30, 1998, 1997 and 1996, were $54,379, $82,575,
$69,691 and $134,674, respectively.
97
NOTE 17: STOCK OPTION PLAN
The Company established the 1989 Stock Option and Incentive Plan for
employees and directors of the Company and its subsidiaries. Under the plan,
stock options or awards may be granted with respect to 1,232,496 shares of
common stock.
In addition, the Board of Directors of the Company established the 1997
Stock Option and Incentive Plan for employees and directors of the Company and
its subsidiaries. Under the plan, stock options or awards may be granted with
respect to 800,000 shares of common stock. No options had been awarded under
this plan at December 31, 1998.
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 ten-
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-
Average
Available Exercise
to Grant Under Option Price
--------- ------------ ---------
Balance, July 1, 1995 149,723 191,009 $ 1.684
Granted (68,000) 68,000 10.955
Exercised -- (43,888) (1.581)
Forfeited 4,463 (4,463) 7.695
------- -------- -------
Balance, June 30, 1996 86,186 210,658 4.571
Granted (37,500) 37,500 15.635
Exercised -- (2,595) (3.439)
Forfeited 2,090 (2,090) (10.938)
Effect of 2-for-1 Stock Split 50,776 243,473 6.232
Granted (16,600) 16,600 17.267
Exercised -- (249,796) (1.973)
Forfeited 5,766 (5,766) 12.531
------- -------- -------
Balance, June 30, 1997 90,718 247,984 11.114
Granted (51,600) 51,600 21.950
Exercised -- (12,714) (5.375)
Forfeited 5,979 (5,979) (13.547)
------- -------- -------
Balance, June 30, 1998 45,097 280,891 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 6,122 309,636 12.564
======= ======== =======
98
NOTE 17: 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:
June 30,
December 31, -------------------
1998 1998 1997
------- ------- -------
Dividends Per Share $0.44 $0.42 $0.36
Risk-Free Interest Rate 4.99% 5.85% 6.04%
Expected Life of Options 4 Years 4 Years 4 Years
Weighted-Average Fair Value
of Options Granted During Year $8.71 $8.11 $5.76
The following table further summarizes information about stock options
outstanding at December 31, 1998:
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
- ------------------- ----------- ----------- --------- ----------- ---------
$1.271 to $5.021 38,987 1.54 Years $2.21 38,987 $2.21
$10.938 to $16.625 168,049 4.49 Years $13.39 68,161 $13.34
$17.00 to $18.70 31,500 6.45 Years $17.79 6,250 $18.64
$21.825 to $25.9375 71,100 8.76 Years -- -- --
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its plans, and no compensation cost has been
recognized for the Plan. Had compensation cost been determined based on the
fair value at the grant dates using Statement of Financial Accounting
Standards No. 123, the Company's net income would have decreased by $119,500,
$154,900 and $90,800 and earnings per share would have decreased by $.01, $.02
and $.01 for the six months ended December 31, 1998, and the years ended June
30, 1998 and 1997, respectively. The effects of applying this Statement for
either recognizing compensation cost or providing pro forma disclosures are
not likely to be representative of the effects on reported net income for
future years because options vest over several years and additional awards
generally are made each year.
NOTE 18: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain
concentrations. Estimates related to the allowance for loan losses are
reflected in the footnote regarding loans. Current vulnerabilities due to
certain concentrations of credit risk are discussed in the footnote on
deposits and in the footnote on commitments and credit risk.
99
NOTE 19: REGULATORY MATTERS
The Bank is 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 Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The 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, 1998, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1998, 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 Tier I
leverage 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 table. No amount was deducted from capital for interest-rate
risk. The tangible capital ratio shown at June 30, 1997, is specific to
thrift institutions.
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, 1998
Total Risk-Based Capital
Great Southern Bancorp, Inc. $76,660 11.7% >=$52,279 >=8.0% N/A N/A
Great Southern Bank $70,403 10.9% >=$51,546 >=8.0% >=$64,432 >=10.0%
Tier I Risk-Based Capital
Great Southern Bancorp. Inc. $68,383 10.5% >=$26,140 >=4.0% N/A N/A
Great Southern Bank $62,239 9.7% >=$25,773 >=4.0% >=$38,659 >=6.0%
Core Capital
Great Southern Bancorp, Inc. $68,383 8.2% >=$33,369 >=4.0% N/A N/A
Great Southern Bank $62,239 8.1% >=$30,556 >=4.0% >=$38,195 >=5.0%
As of June 30, 1998
Total Risk-Based Capital
Great Southern Bancorp, Inc. $74,065 12.2% >=$48,616 >=8.0% N/A N/A
Great Southern Bank $67,254 11.2% >=$48,203 >=8.0% >=$60,770 >=10.0%
Tier I Risk-Based Capital
Great Southern Bancorp. Inc. $66,361 10.9% >=$24,308 >=4.0% N/A N/A
Great Southern Bank $59,487 9.4% >=$25,269 >=4.0% >=$37,904 >=6.0%
Core Capital
Great Southern Bancorp, Inc. $66,361 8.3% >=$31,862 >=4.0% N/A N/A
Great Southern Bank $59,487 7.5% >=$31,629 >=4.0% >=$39,537 >=5.0%
100
NOTE 19: 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 June 30, 1997
Total Risk-Based Capital
(Great Southern Bank) $60,430 11.6% >=$41,511 >=8.0% >=$51,889 >=10.0%
Tier I Risk-Based Capital
(Great Southern Bank) $53,832 10.4% >=$20,756 >=4.0% >=$31,134 >=6.0%
Core Capital
(Great Southern Bank) $53,832 7.7% >=$21,001 >=3.0% >=$35,001 >=5.0%
Tangible Capital
(Great Southern Bank) $53,832 7.7% >=$10,500 >=1.5% N/A N/A
The Bank is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. At December 31, 1998
and June 30, 1998 and 1997, the Bank exceeded its minimum capital
requirements. The Bank may not pay dividends which would reduce capital below
the minimum requirements shown above.
NOTE 20: SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT
On September 30, 1996, federal legislation to recapitalize the Savings
Association Insurance Fund (SAIF) was passed requiring savings institutions
such as the Bank to pay a one-time assessment to the SAIF of 65.7 basis
points, based on deposits as reported at March 31, 1995. The assessment
totaled $2,500,000 and has been included in noninterest expense for the year
ended June 30, 1997. This one-time assessment, net of income taxes, reduced
consolidated net income for the year ended June 30, 1997, by approximately
$1,525,000.
NOTE 21: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
Following is a summary of unaudited quarterly operating results for six
months ended December 31, 1998, and the years ended June 30, 1998 and 1997:
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 $.45
101
NOTE 21: 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
June 30, 1997
--------------------------------------------------------
Three Months Ended
---------------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- ----------- -----------
Interest income $13,705,391 $13,737,729 $13,941,471 $14,155,856
Interest expense 7,011,195 7,105,533 7,268,586 7,436,830
Provision for loan losses 410,593 448,892 427,615 419,042
Net realized gains on available-
for-sale securities 143,768 -- 61,658 --
Net income 493,297 2,907,735 2,909,250 3,029,583
Earnings per common share -
diluted $.05 $.34 $.35 $.37
NOTE 22: OPERATING SEGMENTS
The Company' 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
and consumer loans and funding these loans through the attraction of 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.
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 $821,750 3,036,550 $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 segment assets $1,360,336 $79,945 $1,435,281
102
NOTE 22: 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 segment assets $3,379,898 $125,900 $3,505,798
Year Ended June 30, 1997
-------------------------------------
Banking All Other Totals
------------ ------------ -----------
Interest income $55,323,087 $217,360 $55,540,447
Interest expense $28,783,078 $39,066 $28,822,144
Depreciation and amortization $2,035,545 $69,659 $2,105,204
Provision for income taxes $5,532,275 $218,925 $5,751,200
Segment profit $8,674,280 $665,585 $9,339,865
Segment assets $700,802,725 $7,038,559 $707,841,284
Expenditures for segment assets $1,708,170 $63,062 $1,771,232
Year Ended June 30, 1996
-------------------------------------
Banking All Other Totals
------------ ------------ -----------
Interest income $53,601,243 $337,122 $53,938,365
Interest expense $28,132,411 -- $28,132,411
Depreciation and amortization $996,226 $176,909 $1,173,135
Provision for income taxes $6,624,000 $486,800 $7,110,800
Segment profit $10,121,509 $1,172,446 $11,293,955
Segment assets $662,825,590 $5,279,715 $668,105,305
Expenditures for segment assets $900,694 $54,996 $955,690
NOTE 23: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at December 31, 1998 and June 30, 1998 and
1997, and statements of income and cash flows for the six months ended
December 31, 1998, and the years ended June 30, 1998, 1997 and 1996, for the
parent company, Great Southern Bancorp, Inc., are as follows:
June 30,
December 31, ----------------------------
1998 1998 1997
------------ ------------ ------------
BALANCE SHEETS
Assets
Cash $ 457,954 $ 1,555,186 $ 51,526
Available-for-sale securities 6,471,865 6,347,526 7,397,168
Investment in subsidiary bank 62,239,234 59,487,798 53,831,963
Investment in other subsidiaries -- 473,351 1,564,573
Loans receivable 585,000 585,000 --
Dividends receivable 19,743 -- 3,000
Income taxes receivable -- -- 283,072
Other 50,000 50,000 494,348
---------- ---------- ----------
$ 69,823,796 $ 68,498,861 $ 63,625,650
========== ========== ==========
103
NOTE 23: CONDENSED PARENT COMPANY STATEMENTS (Continued)
June 30,
December 31, ----------------------------
1998 1998 1997
------------ ------------ ------------
Liabilities and Stockholders' Equity
Accounts payable $ 10,000 $ -- $ --
Income taxes payable 492,850 420,047 --
Short-term borrowings 724,050 -- 2,406,423
Deferred income taxes 214,410 669,921 870,860
Common stock 123,250 123,250 123,250
Additional paid-in capital 17,224,451 17,110,496 17,058,326
Retained earnings 90,459,992 84,955,740 73,980,259
Unrealized appreciation on
available-for-sale securities, net 335,359 1,047,824 1,362,116
Treasury stock, at cost (39,760,566) (35,828,417) (32,175,584)
---------- ---------- ----------
$69,823,796 $68,498,861 $63,625,650
========== ========== ==========
Six Months
Ended Year Ended June 30,
December 31, -----------------------------------------
1998 1998 1997 1996
------------ ------------ ------------ -------------
STATEMENTS OF INCOME
Income
Dividends from subsidiary bank $ 4,755,806 $ 8,916,733 $ 11,952,241 $ 3,335,250
Dividends from other subsidiaries 51,281 469,109 274,913 1,227,210
Income (loss) on foreclosed assets -- -- (24,077) 94,848
Interest and dividend income 101,172 227,200 217,360 337,122
Net realized gains on sales of
available-for-sale securities 353,149 1,397,828 205,225 680,357
Other income (loss) 275 (69,266) 47,472 (11,655)
--------- ---------- ---------- ---------
Total income 5,261,683 10,941,604 12,673,134 5,663,132
--------- ---------- ---------- ---------
Expense
Operating expenses 103,668 199,972 197,677 204,967
Interest expense 11,006 25,285 39,066 --
--------- ---------- ---------- ---------
Total expense 114,674 225,257 236,743 204,967
--------- ---------- ---------- ---------
Income before income tax and equity in
undistributed earnings of subsidiaries 5,147,009 10,716,347 12,436,391 5,458,165
Provision (credit) for income taxes 59,350 415,223 (40,848) 205,444
--------- ---------- ---------- ---------
Income before equity in earnings of subsidiaries 5,087,659 10,301,124 12,477,239 5,252,721
Equity in undistributed earnings of subsidiaries 2,269,935 4,142,925 (3,137,374) 6,041,234
--------- ---------- ---------- ----------
Net Income $ 7,357,594 $ 14,444,049 $ 9,339,865 $11,293,955
========== ========== ========== ==========
104
NOTE 23: CONDENSED PARENT COMPANY STATEMENTS (Continued)
Six Months
Ended Year Ended June 30,
December 31, --------------------------------------------
1998 1998 1997 1996
------------ ------------- ------------- --------------
STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities
Net income $ 7,357,594 $ 14,444,049 $ 9,339,865 $ 11,293,955
Items not requiring (providing) cash:
Loss on low income housing partnership -- 12,093 10,356 11,665
Equity in undistributed earnings
of subsidiaries (2,278,085) (4,144,925) 3,137,376 (6,041,234)
Gain on sale of foreclosed assets -- -- -- (30,415)
Net realized gains on sales of
available-for-sale securities (353,149) (1,397,828) (205,225) (680,357)
Changes in:
Dividends receivable (19,744) 3,000 (3,000) 3,090
Other assets -- 57,505 (57,505) --
Accounts payable 10,000 -- -- --
Income taxes 72,803 703,119 (340,577) (18,071)
---------- ---------- ---------- ----------
Net cash provided by operating activities 4,789,419 9,677,013 11,881,290 4,538,633
---------- ---------- ---------- ----------
Cash Flows From Investing Activities
Net loans originated -- (585,000) -- --
Proceeds from sale of foreclosed assets -- -- 324,900 138,799
Purchase of available-for-sale securities (2,289,879) (1,427,438) (1,845,970) (4,262,729)
Proceeds from sale of available-for-sale
securities 1,350,713 3,359,677 1,376,123 2,942,647
Capitalized costs on foreclosed assets -- -- -- (1,151)
Investment in trust company -- (50,000) -- --
Partnership distribution -- 5,062 3,542 5,332
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities (939,166) 1,302,301 (141,405) (1,177,102)
---------- ---------- ---------- ----------
Cash Flows From Financing Activities
Net increase (decrease) in short-term
borrowings 724,050 (2,406,423) 2,406,423 --
Dividends paid (1,853,342) (3,468,568) (3,277,494) (3,132,035)
Stock options exercised 127,435 94,118 797,113 279,272
Treasury stock purchased (3,945,628) (3,694,781) (15,584,673) (3,350,388)
---------- ---------- ---------- ----------
Net cash used in financing activities (4,947,485) (9,475,654) (15,658,631) (6,203,151)
---------- ---------- ---------- ----------
Increase (Decrease) in Cash (1,097,232) 1,503,660 (3,918,746) (2,841,620)
Cash, Beginning of Year 1,555,186 51,526 3,970,272 6,811,892
---------- ---------- ---------- ----------
Cash, End of Year $ 457,954 $ 1,555,186 $ 51,526 $ 3,970,272
========== ========== ========== ==========
Additional Cash Payment Information
Income taxes paid -- -- $61,241 $127,570