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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the fiscal year ended June 30, 1997, or
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-18082
Great Southern Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State of jurisdiction of incorporation or organization)
43-1524856
(IRS Employer Identification Number)
1451 E. Battlefield
Springfield, Missouri
(Address of principal executive offices)
65804
(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 or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock of the Registrant
held by non-affiliates of the Registrant on September 8, 1997,
computed by reference to the closing price of such shares, was
$142,419,465. At September 8, 1997, 8,080,537 shares of Common
Stock, par value $.01 per share, were outstanding.
Index to Exhibits is page 71.
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Security Holders
for the fiscal year ended June 30, 1997 (the "Annual Report"),
which was electronically filed on September 19, 1997, are
incorporated by reference into Parts I, II and IV. With the
exception of the information explicitly incorporated by reference
in this Form 10-K, the 1997 Annual Report to Security Holders is
not to be deemed filed as part of this Form 10-K.
Portions of the Registrant's Definitive Proxy Statement prepared
in connection with the 1997 annual meeting of stockholders (the
"Definitive Proxy Statement"), which was electronically filed on
September 18, 1997, are incorporated by reference into Part III.
TABLE OF CONTENTS
Item Page
Part I
1. Business . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . 60
3. Legal Proceedings . . . . . . . . . . . . . . . . . . 61
4. Submission of Matters to a Vote of Security Holders . 61
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . 63
6. Selected Financial Data . . . . . . . . . . . . . . . 64
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 65
8. Financial Statements and Supplementary Data . . . . . 65
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures . . . . . . . 66
Part III
10. Directors and Executive Officers of the Registrant. . 66
11. Executive Compensation . . . . . . . . . . . . . . . 66
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . 66
13. Certain Relationship and Related Transactions . . . . 66
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . 67
Signatures . . . . . . . . . . . . . . . . . . . . . . . 70
Index to Exhibits . . . . . . . . . . . . . . . . . . . . 71
3
PART I
ITEM 1. BUSINESS.
Great Southern Bancorp, Inc.
Great Southern Bancorp, Inc. (the "Holding Company", "Bancorp" or
"Company") was incorporated under the laws of the State of Delaware
in July 1989, by authorization of the Board of Directors of Great
Southern Bank FSB ("Great Southern" or the "Bank"), for the purpose
of becoming a holding company that would own all of the outstanding
stock of Great Southern issued upon the conversion (the
"Conversion") of Great Southern from a mutual savings and loan to a
stock savings and loan. After receiving the approval of the Office
of Thrift Supervision, Department of the Treasury (the "OTS"), the
Holding Company acquired all of the common stock of Great Southern
issued in connection with the completion of the Conversion in
December 1989.
As a Delaware corporation, the Holding 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 Holding Company currently conducts its business as a savings
and loan holding company. Through the holding company structure,
it is possible to expand the size and scope of the financial
services offered by the Holding Company beyond those offered by the
Bank prior to the Conversion. The holding company structure
provides the Holding 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
both mutual and stock thrift institutions as well as other
companies. The assets of the Holding Company consist of the stock
of Great Southern, the stock of other financial services companies
(less than 5% of each), the stock of other 100% owned subsidiaries,
interest in housing related partnerships and cash. Through
subsidiaries, the Holding Company offers insurance, appraisal,
travel, discount brokerage and related services, which are
discussed further below. The activities of the Holding Company
have been funded by retained proceeds of the Conversion and through
dividends from Great Southern and borrowings from third parties.
See "Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters" and "Regulation - Holding Company Regulation"
and "Federal and State Taxation." Activities of the Holding
Company may also be funded through sales of additional securities
or through income generated by other activities of the Holding
Company. At this time, there are no plans regarding such
activities.
The executive offices of the Holding Company are located at 1451
East Battlefield, Springfield, Missouri 65804, and its telephone
number at that address is (417) 887-4400.
4
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 new charter as a federal savings bank.
Headquartered in Springfield, Missouri, Great Southern offers a
broad range of banking services through its 25 branches located in
southwestern and central Missouri. At June 30, 1997, the Bank had
total assets of $701 million, deposits of $460 million and
stockholders' equity of $54 million, or 7.7% of total assets. Its
deposits are insured by the Savings Association Insurance Fund
("SAIF") to the maximum levels permitted by the Federal Deposit
Insurance Corporation ("FDIC").
Great Southern is principally engaged in the business of attracting
deposits from the general public and using such deposits, together
with borrowings and other funds, to originate residential and
commercial real estate loans and commercial business and consumer
loans. Great Southern originates a variety of conventional,
residential real estate mortgage loans, principally in compliance
with Federal Home Loan Mortgage Corporation ("FHLMC") and Federal
National Mortgage Association ("FNMA") standards for resale in the
secondary market. Great Southern promptly sells most of the fixed-
rate residential mortgage loans that it originates. Prior to
fiscal 1996, the ongoing servicing of these loans was primarily
retained by Great Southern. Beginning in fiscal 1996, the
servicing of these loans was primarily released to the purchaser of
the loan. Great Southern retains substantially all of the
adjustable-rate mortgage loans in its portfolio.
Great Southern also originates commercial real estate and
construction loans, primarily on properties located in its
southwestern and central Missouri market area, or, in the case of
loans secured by properties outside of its market area, primarily
to borrowers residing or doing business in southwestern and central
Missouri. Great Southern originates commercial business loans and
is also an issuer of letters of credit. See "-- Commercial
Business Lending," "- Classified Assets," and "- Loan Delinquencies
and Defaults" below and Note 12 of Notes to Consolidated Financial
Statements in the Annual Report to Stockholders, which portions are
incorporated herein by reference. Letters of credit are contingent
obligations and are not included in the Bank's loan portfolio.
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.
The main office of the Bank is located at 1451 East Battlefield,
Springfield, Missouri 65804 and its telephone number at that
address is (417) 887-4400.
5
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 Lakes and Lake of the Ozarks, and various smaller
communities in the Bank's market area. The management of the Bank
believes that its share of the savings and lending markets in its
market area is less than 10% and their affiliates an even smaller
percent, with the exception of the travel agency, which may have a
larger percent.
Great Southern's largest concentration of loans and deposits is in
the Greater Springfield area. With a population of approximately
295,000, 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 Lakes
area which is located approximately 35 miles south of Springfield
and is one of the fastest growing areas in Missouri. The region is
a vacation and entertainment center attracting an estimated 6
million tourists annually to its theme parks, resorts, country
music shows and other recreational facilities. As a result of the
rapid growth of the Branson Lakes area, property values increased
at unusually high rates in recent years. This has also provided
for increased loan demand and a more volatile lending market than
has previously been present in the Branson Lakes area. Property
values have experienced downward pressure during the past couple of
years, partly as a result of this rapid increase.
During the past few years, a significant portion of the Bank's loan
originations has been secured by properties in the Branson Lakes
area. Approximately $123 million, or 20%, of the total loan
portfolio at June 30, 1997 was secured by properties in this area.
Of this amount, $57 million are loans secured by commercial real
estate, commercial construction and other residential properties
and $66 million are loans secured by one- to four-family
residential and one- to four-family construction properties. In
addition, the Bank`s commercial business and consumer loan
portfolio includes approximately $3.3 million of loans to customers
in the Branson Lakes area. See "- Commercial Real Estate and
Construction Lending", "- Commercial Business Lending", "-
Classified Assets" and "- Loan Delinquencies and Defaults".
6
Lending Activities-General
The principal lending activity 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. In addition, the Bank makes commercial real estate loans,
commercial business loans (i.e., commercial loans not secured by
real estate), consumer loans and residential and commercial
construction loans. 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, with the largest concentration of its lending activity
being in southwestern and central Missouri.
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 75% of the appraised value. The origination of
loans secured by other property are considered and determined on an
individual basis by management with the assistance of any industry
guides and other information which may be available.
From its beginnings in 1923 through the early 1980s, Great Southern
primarily made long-term, fixed-rate real estate loans that it
retained in its loan portfolio. Substantially all of the fixed-
rate loans in Great Southern's current portfolio were originated by
Great Southern prior to 1980. Beginning in the early 1980's, 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. As a result, adjustable-rate real estate loans as a
percentage of Great Southern's total loan portfolio increased from
71% at June 30, 1992, to 83% at June 30, 1997. See the discussion
on interest rate sensitivity in Management's Discussion and
Analysis of Financial Condition and Results of Operations in the
Annual Report to Stockholders, which portions are incorporated
herein by reference.
7
During the fiscal years 1993 and 1994, Great Southern experienced
increased levels of adjustable-rate residential loans refinancing
into fixed-rate residential loans, as well as stronger competition
in the residential lending market. As a result of the shift in
loan demand to fixed-rate residential loans, which the Bank does
not retain in its portfolio, Great Southern increased its
originations of commercial real estate loans to help maintain the
desired size of the loan portfolio as well as the overall Company
size and profit levels. During the last half of fiscal 1994,
during fiscal 1995 and during fiscal 1997, Great Southern
experienced an increase in levels of adjustable-rate residential
lending and a decrease in levels of fixed-rate residential lending
as a result of increasing interest rates. In fiscal 1996, Great
Southern experienced an increase in levels of fixed-rate
residential lending and a decrease in levels of adjustable-rate
residential lending as a result of leveling or slightly declining
interest rates. Great Southern will continue to place strong
emphasis on the origination of one- to four-family residential
loans subject to market conditions.
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 $100,000 ($203,450 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 CEO of the Bank, as chairman of the committee, and
other senior officers of the Bank involved in lending activities.
8
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.
June 30,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount %
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
(Dollars in thousands)
Real Estate Loans:
Residential
One- to four- family $244,767 39.5% $249,348 42.5% $243,771 43.5% $203,157 40.9% $205,980 43.5%
Other Residential 95,886 15.4 81,191 13.8 77,744 13.9 65,906 13.2 45,413 9.6
Commercial 191,556 30.8 172,478 29.4 133,244 23.8 105,977 21.3 93,318 19.7
Residential Construction:
One- to four-family 9,529 1.5 13,455 2.3 13,319 2.4 18,338 3.7 17,433 3.7
Other residential 4,243 .7 13,533 2.3 23,804 4.2 37,588 7.6 38,675 8.2
Commercial construction 21,932 3.5 16,518 2.8 27,273 4.9 30,894 6.2 41,798 8.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total real estate loans 567,913 91.4 546,523 93.1 519,155 92.7 461,860 92.9 442,617 93.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Other Loans:
Consumer loans:
Guaranteed student loans 11,592 1.9 11,256 1.9 11,822 2.1 9,445 1.9 6,692 1.4
Automobile 6,006 .9 6,062 1.1 5,651 1.0 4,814 1.0 2,777 0.6
Home equity and improvement 4,183 .7 3,688 0.6 3,518 0.6 2,618 0.5 3,192 0.7
Other 5,885 .9 5,921 1.0 5,272 1.0 4,513 0.9 3,681 0.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total Consumer loans 27,666 4.4 26,927 4.6 26,263 4.7 21,390 4.3 16,342 3.5
Commercial business loans 25,959 4.2 13,737 2.3 14,515 2.6 13,907 2.8 14,162 3.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total other loans 53,625 8.6 40,664 6.9 40,778 7.3 35,297 7.1 30,504 6.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans 621,538 100.0% 587,187 100.0% 559,933 100.0% 497,157 100.0% 473,121 100.0%
===== ===== ===== ===== =====
Less:
Loans in process 18,812 22,383 22,316 35,739 38,879
Deferred fees and discounts 3,493 3,689 3,761 4,032 4,125
Allowance for loan losses 15,524 14,356 14,601 13,636 10,590
------- ------- ------- ------- -------
Total loans receivable, net $583,709 $546,759 $519,255 $443,750 $419,527
======= ======= ======= ======= =======
9
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.
June 30,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount %
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
(Dollars in thousands)
Fixed-Rate Loans:
Real Estate Loans
Residential
One- to four- family $ 12,305 2.0% $ 13,212 2.2% $ 14,260 2.5% $ 15,488 3.1% $ 25,231 5.3%
Other Residential 34,467 5.6 34,413 5.9 32,515 5.8 30,250 6.1 21,233 4.5
Commercial 5,865 .9 25,374 4.3 12,774 2.3 14,438 2.9 25,314 5.4
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total real estate loans 52,637 8.5 72,999 12.4 59,549 10.6 60,176 12.1 71,778 15.2
Consumer loans 10,769 1.7 12,844 2.2 11,706 2.1 9,282 1.8 6,260 1.3
Commercial business loans 502 .1 415 0.1 994 0.2 864 0.2 522 0.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total fixed-rate loans 63,908 10.3 86,258 14.7 72,249 12.9 70,322 14.1 78,560 16.6
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Adjustable-Rate Loans:
Real Estate Loans
Residential
One- to four- family 232,462 37.4 236,136 40.2 229,510 41.0 187,670 37.7 180,749 38.2
Other Residential 61,419 9.9 46,778 8.0 45,228 8.1 37,675 7.6 24,180 5.1
Commercial 185,691 29.9 147,104 25.0 120,470 21.5 91,689 18.4 68,004 14.4
Residential construction:
One- to four-family 9,529 1.5 13,455 2.3 13,319 2.4 18,338 3.7 17,433 3.7
Other residential 4,243 .7 13,533 2.3 23,804 4.2 35,568 7.2 38,675 8.2
Commercial construction 21,932 3.5 16,518 2.8 27,273 4.9 30,744 6.2 41,798 8.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total real estate loans 515,276 82.9 473,524 80.6 459,604 82.1 401,684 80.8 370,839 78.4
Consumer loans 16,897 2.7 14,083 2.4 14,559 2.6 12,108 2.5 10,082 2.1
Commercial business loans 25,457 4.1 13,322 2.3 13,521 2.4 13,043 2.6 13,640 2.9
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Total adjustable-rate loans 557,630 89.7 500,929 85.3 487,684 87.1 426,835 85.9 394,561 83.4
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans 621,538 100.0% 587,187 100.0% 559,933 100.0% 497,157 100.0% 473,121 100.0%
===== ===== ===== ===== =====
Less:
Loans in process 18,812 22,383 22,316 35,739 38,879
Deferred fees and discounts 3,493 3,689 3,761 4,032 4,125
Allowance for loan losses 15,524 14,356 14,601 13,636 10,590
------- ------- ------- ------- -------
Total loans receivable, net $583,709 $546,759 $519,255 $443,750 $419,527
======= ======= ======= ======= =======
10
The following schedule illustrates the contractual maturities of the
Bank's loan portfolio at June 30, 1997. Loans which have adjustable
interest rates are shown as maturing in the period during which the
loan is contractually due. This schedule does not reflect the effects
of possible prepayments or enforcement of due-on-sale clauses. The
table is based on information prepared in accordance with generally
accepted accounting principles.
Other Residential
One- to Four-Family and Other Commercial and
Residential Real Residential Commercial One- to Four-Family
Estate Loans Construction Construction Construction
-------------------- ------------------- ------------------ --------------------
Due During Weighted Weighted Weighted Weighted
Years Ended Average Average Average Average
June 30, Amount Rate Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
1998(1) $ 5,771 9.55% $ 21,560 8.88% $ 57,353 9.59% $ 9,529 9.59%
1999 1,224 9.20 11,706 8.66 19,267 9.57 -- 0.00
2000 729 8.24 4,989 8.74 34,946 9.62 -- 0.00
2001 and 2002 2,628 8.52 16,464 8.98 61,876 9.62 -- 0.00
2003 to 2007 10,003 8.30 9,872 9.39 19,542 9.67 -- 0.00
2008 to 2012 26,818 8.06 23,170 9.09 11,315 9.46 -- 0.00
2013 to 2023 26,568 8.02 9,578 8.79 9,189 9.64 -- 0.00
2024 and following 171,026 8.07 2,790 9.06 -- 0.00 -- 0.00
------- ------- ------- ------
$244,767 $100,129 $213,488 $ 9,529
======= ======= ======= ======
Commercial
Consumer Business Total (2)
-------------------- ---------------------- --------------------
Due During Weighted Weighted Weighted
Years Ended Average Average Average
June 30, Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
1998 (1) $ 2,889 8.85% $ 16,609 9.55% $113,711 9.43%
1999 1,722 11.19 756 9.55 34,675 9.32
2000 2,578 10.17 2,459 9.52 45,701 9.53
2001 and 2002 15,590 8.07 3,234 9.58 99,792 9.24
2003 to 2007 4,813 10.05 2,901 9.58 47,131 9.35
2008 to 2012 70 10.26 -- 0.00 61,373 8.71
2013 to 2023 -- 0.00 -- 0.00 45,335 8.51
2024 and following 4 6.80 -- 0.00 173,820 8.09
------ ------ -------
$27,666 $25,959 $621,538
====== ====== =======
_____________________________
(1) Includes demand loans, loans having no stated maturity and
overdraft loans.
(2) Of the $508 million of loans due after June 30, 1998, $55
million, or 11%, have fixed rates of interest and $453 million, or
89%, have adjustable rates of interest.
11
Lending Activities - 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 operation 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.
Lending Activities - Residential Real Estate Lending
At June 30, 1997 and 1996, loans secured by residential real estate
totaled $341 million and $331 million, respectively, and
represented approximately 55% and 56%, respectively, of the Bank's
total loan portfolio. In fiscal 1997 and 1996, Great Southern
originated $60 million and $84 million, respectively, of
adjustable-rate residential mortgages. Fixed-rate single-family
residential mortgages are originated at interest rates and on terms
agreed to by investors in the secondary market (generally the FHLMC
guidelines.) The loans are promptly sold, primarily with servicing
released (primarily with servicing retained prior to fiscal 1996)
and without recourse, in order to generate fee income and reduce
the Bank's exposure to changes in interest rates. In fiscal year
1997 and 1996, Great Southern originated $31 million and $35
million, respectively, of fixed-rate loans and sold $27 million and
$37 million, respectively, into the secondary market.
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.
12
The Bank's portfolio of adjustable-rate mortgage loans also
includes a number of loans with different adjustment periods,
without limitations on periodic rate increases and rate increases
over the life of the loans or which are tied to other short-term
market indices. These loans were originated prior to the industry
standardization of adjustable-rate loans. Since adjustable-rate
mortgage loans have not been subject to an interest rate
environment which causes them to adjust to the maximum, such loans
entail unquantifiable risks resulting from potential increased
payment obligations on the borrower as a result of upward
repricing. Further, the adjustable-rate mortgages offered by Great
Southern, as well as by many other financial institutions,
sometimes provide for initial rates of interest below the rates
which would prevail were the index used for pricing applied
initially. Compared to fixed-rate mortgage loans, these loans are
subject to increased risk of delinquency or default as the higher,
fully-indexed rate of interest subsequently comes into effect in
replacement of the lower initial rate. The Bank has not
experienced an increase in delinquencies in adjustable-rate
mortgage loans due to a relatively low interest rate environment in
recent years.
In underwriting one- to four-family residential real estate loans,
Great Southern evaluates both the borrower's ability to make
monthly payments and the value of the property securing the loan.
It is Great Southern's policy that all loans in excess of 80% of
the appraised value of the property be insured by a private
mortgage insurance company approved by Great Southern for the
amount of the loan in excess of 80% of the appraised value. In
addition, Great Southern requires borrowers to obtain title and
fire and casualty insurance in an amount not less than the amount
of the loan. Real estate loans originated by the Bank generally
contain a "due on sale" clause allowing the Bank to declare the
unpaid principal balance due and payable upon the sale of the
property securing the loan. In the case of fixed-rate loans, the
Bank generally enforces these due on sale clauses to the extent
permitted by law.
Lending Activities-Commercial Real Estate and Construction Lending
Commercial real estate lending has traditionally been a part of
Great Southern's business activities. Beginning in fiscal 1986,
Great Southern expanded its commercial real estate lending in order
to increase the yield on, and the proportion of interest rate
sensitive loans in, its portfolio. Starting early in fiscal 1988,
Great Southern reduced its originations of commercial real estate
loans due to the lower spreads available and the Bank's increased
levels of problem loans in this area. In addition, the Financial
Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") further limited the Bank's commercial real estate
lending, due to limits imposed on the amounts and types of loans
the Bank would be permitted to originate. See "Regulation".
Starting in fiscal 1992, Great Southern increased its origination
of commercial real estate and commercial business loans.
13
Great Southern expects to continue to maintain the current
percentage of commercial real estate and commercial business loans
in its total loan portfolio by originating loans secured by
commercial real estate and other commercial business assets,
subject to commercial real estate and other market conditions and
to applicable regulatory restrictions. See "Regulation" and "-
Qualified Thrift Lender Test" below.
At June 30, 1997 and 1996, loans secured by commercial real estate
totaled $192 million and $172 million, respectively, or
approximately 30.8% and 29.4%, respectively, of the Bank's total
loan portfolio. At June 30, 1997 and 1996, construction loans
secured by projects under construction and the land on which the
projects are located aggregated $36 million and $44 million,
respectively, or 5.7% and 7.4%, respectively, of the Bank's total
loan portfolio. Substantially all of the Bank's commercial real
estate loans have been originated with adjustable rates of
interest, the majority of which are tied to the Bank's prime rate.
At the date of origination, the amounts of the loan commitments
with respect to substantially all of these loans did not exceed 75%
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 and
other residential 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 construction loans are made either as
the initial stage of a combination loan (i.e., with a commitment
from the Bank to provide permanent financing upon completion of the
project) or with a commitment from a third party to provide
permanent financing.
The Bank's commercial real estate and construction loans generally
involve larger principal balances than do its residential loans.
At June 30, 1997, 95 of the Bank's commercial real estate and
construction loans had net principal balances in excess of $1.0
million, with the largest being $6 million. The aggregate net
principal balance of all such loans having net principal balances
in excess of $1.0 million was $185 million at that date. Current
law subjects savings associations to the same loans-to-one borrower
restrictions that are applicable to national banks with limited
provisions for exceptions. In general, the national bank standard
restricts loans to a single borrower to no more than 15% of a
bank's unimpaired capital and unimpaired surplus, plus an
additional 10% if the loan is collateralized by certain readily
marketable collateral. (Real estate is not included in the
definition of "readily marketable collateral.") As computed on the
basis of the Bank's unimpaired capital and surplus at June 30,
1997, this limit was approximately $10.4 million. See
"Regulation". At June 30, 1997 the Bank was in compliance with the
loans to one borrower limit.
14
The table below sets forth, by type of security property, the
number and amount of Great Southern's commercial real estate and
construction loans at June 30, 1997. The amounts shown do not
reflect allowances for losses. See "- Classified Assets" and "-
Loan Delinquencies and Defaults" for a discussion of the Bank's
largest non-performing assets and items of concern. The table is
based on information prepared in accordance with generally accepted
accounting principles.
Number Original Outstanding Amount
of Loan Principal Undisbursed Non-
Loans Commitment Balance Amount Performing
----- ---------- ----------- ------------ ----------
(Dollars in thousands)
Commercial Real Estate Loans
Hotels/Motels 58 $ 58,897 $ 48,823 $ 29 $ --
Medical and long term care 22 18,787 21,268 4 --
Golf courses and recreational 33 22,451 19,843 37 --
Shopping centers 61 28,158 24,447 446 --
Commercial land development 114 42,993 19,606 538 --
Office buildings 53 23,962 22,306 3 --
Industrial real estate 45 13,170 11,061 124 --
Restaurants 42 17,663 15,804 100 121
Other 52 10,525 8,398 2,135 --
--- ------- ------- ----- -----
Total commercial real estate loans 480 236,606 191,556 3,416 121
--- ------- ------- ----- -----
Construction Loans
One- to four-family residential 98 9,529 5,908 3,449 655
Other residential 8 4,243 2,437 1,806 --
Commercial real estate:
Hotels/Motels 4 8,610 6,983 1,627 --
Commercial land development 11 3,418 2,316 1,102 195
Restaurants 2 2,141 737 1,404 --
Golf courses and recreational 2 3,025 170 2,855 --
Medical and long term care 1 3,166 57 3,110 --
Other 5 1,743 1,699 43 --
--- ------- ------- ------ -----
Total construction loans 131 35,875 20,307 15,396 850
--- ------- ------- ------ -----
Total 611 $272,481 $211,863 $18,812 $ 971
=== ======= ======= ====== =====
15
Commercial real estate and construction lending generally affords
the Bank an opportunity to receive interest at rates higher than
those obtainable from residential lending and to receive higher
origination and other loan fees. In addition, commercial real
estate and construction loans are generally made with adjustable
rates of interest or, if made on a fixed-rate basis, for relatively
short terms. Nevertheless, commercial real estate lending entails
significant additional risks as compared with residential mortgage
lending. Commercial real estate loans typically involve large loan
balances to single borrowers or groups of related borrowers but
generally involve lower loan-to-value ratios. In addition, the
payment experience on loans secured by commercial properties is
typically dependent on the successful operation of the related real
estate project and thus may be subject, to a greater extent, to
adverse conditions in the real estate market or in the economy
generally.
Construction loans also involve additional risks attributable to
the fact that loan funds are advanced upon the security of the
project under construction, which is of uncertain value prior to
the completion of construction. Moreover, because of the
uncertainties inherent in estimating construction costs, delays
arising from labor problems, material shortages, and other
unpredictable contingencies, it is relatively difficult to evaluate
accurately the total loan funds required to complete a project, and
the related loan-to-value ratios. See also the discussion under
the headings "- Classified Assets" and "- Loan Delinquencies and
Defaults" below.
Lending Activities - Commercial Business Lending
Great Southern is authorized to make secured or unsecured loans for
commercial, corporate, business and agricultural purposes and to
engage in commercial leasing activities up to a maximum of 10% of
the institution's assets. At June 30, 1997 and 1996, respectively,
Great Southern had $26.0 million and $13.7 million in commercial
business loans outstanding, or 4.2% and 2.3%, respectively, of the
Bank's total loan portfolio. The largest amount of commercial
business loans outstanding to any one borrower or group of
affiliated borrowers at June 30, 1997, had a principal balance of
$3.9 million. Great Southern's commercial business lending
activities encompass loans with a variety of purposes and security,
including loans to finance accounts receivable, inventory and
equipment.
16
The following table sets forth information regarding the number and
amount of the Bank's commercial business loans as of June 30, 1997.
The amounts shown do not reflect allowances for losses. See "-
Classified Assets" and "- Loan Delinquencies and Defaults" for a
discussion of the Bank's largest non-performing assets and related
items. The table is based on information prepared in accordance
with generally accepted accounting principles.
Outstanding Amount
Number Principal Non-
of Loans Balance Performing
-------- ----------- ----------
(Dollars in thousands)
Secured Loans:
Accounts receivable, floor plans,
inventory and equipment 118 $18,673 $ --
Stocks and bonds 26 3,280 --
Deposit accounts and
promissory notes 41 1,235 --
Other 13 1,044 600
--- ------ ---
Total secured loans 198 24,232 600
Unsecured Loans 39 1,727 --
--- ------ ---
Total Commercial Business Loans 237 $25,959 $600
=== ====== ===
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, commercial
business loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash
flow of the borrower's business. Commercial business 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 commercial business 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.
17
The Bank's management recognizes the generally increased risks
associated with commercial business lending. Great Southern's
commercial business lending policy emphasizes complete credit file
documentation and analysis of the borrower's character, capacity to
repay the loan, the adequacy of the borrower's capital and
collateral as well as an evaluation of the industry conditions
affecting the borrower. Analysis of the borrower's past, present
and future cash flows is also an important aspect of Great
Southern's credit analysis. The majority of Great Southern's
commercial business loans have been to borrowers in southwestern
and central Missouri. Great Southern intends to continue its
commercial business lending in this geographic area.
As part of its commercial business 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 June 30, 1997, Great Southern had 49 letters of credit
outstanding in the aggregate amount of $9.2 million. Approximately
98% of the aggregate amount of these letters of credit were
secured, including one $8.2 million letter of credit, secured by
real estate, which was issued to enhance the issuance of housing
revenue refunding bonds.
Lending Activities - 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 $27.7 million and $26.9 million at
June 30, 1997 and 1996, respectively, or 4.4% and 4.6%,
respectively, of the Bank's total loan portfolio.
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other
debts and an assessment of ability to meet existing obligations and
payments on the proposed loan. Although creditworthiness of the
applicant is of primary consideration, the underwriting process
also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount.
Beginning in fiscal 1998, the Bank implemented indirect lending
relationships primarily with automobile dealerships. Through these
dealer relationships, the dealer completes the application with the
consumer and then submits it to the Bank for credit approval.
While automobile dealers will be the Bank's initial concentrated
effort, the program is available for use with most tangible
products where financing of the product is provided through the
seller.
18
Student loans are underwritten in compliance with the regulations
of the US Department of Education for the Federal Family Education
Loan Programs (FFELP). The FFELP loans are administered and
guaranteed by the Missouri Coordinating Board for Higher Education
as long as the Bank complies with the regulations. The Bank has
contracted with the Missouri Higher Education Loan Authority (the
"MOHELA") to originate and service these loans and to purchase
these loans during the grace period immediately prior to the loans
beginning their repayment period. This repayment period is
generally at the time the student graduates or does not maintain
the required hours of enrollment.
Consumer loans may entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans that are
unsecured or secured by rapidly depreciable assets such as
automobiles. In such cases, any repossessed collateral for a
defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the
greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection
efforts against the borrower. In addition, consumer loan
collections are dependent on the borrower's continuing financial
strength, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy. Furthermore, the
application of various federal and state laws, including federal
and state consumer bankruptcy and insolvency laws, may limit the
amount which can be recovered on such loans. Such loans may also
give rise to claims and defenses by a consumer loan borrower
against an assignee of such loan such as the Bank, and a borrower
may be able to assert against such assignee claims and defenses
which it has against the seller of the underlying collateral.
Applicable laws and regulations permit institutions to make secured
and unsecured consumer loans (which, together with any commercial
paper or corporate debt securities held by the Bank as permitted by
the OTS, may not exceed a maximum of 35% of the institution's
assets). Loans in excess of 30% of the assets may be invested only
in loans which are made by the institution directly to the original
obligor and with respect to which the institution does not pay any
finder, referral or other fee, directly or indirectly, to any third
party.
Originations, Purchases, Sales and Servicing of Loans
The Bank originates loans through internal loan production
personnel located in the Bank's main bank and branch offices.
Walk-in customers and referrals from real estate brokers and
builders are also important sources of loan originations. The
table below shows the dollar volume of loan originations for the
periods indicated. For the fiscal years ended June 30, 1997, 1996
and 1995, the table reflects approximately $13.2 million, $31.5
million, and $7.5 million of loans refinanced which were previously
included in the loan portfolio or were loans owned by investors and
serviced by the Bank. Due to the high level of adjustable-rate
loans refinanced into fixed-rate loans and the higher fixed-rate
19
loans refinanced into lower fixed-rates, management has included
the refinanced amounts in the origination table to more accurately
reflect the amount of originations and sales during all fiscal
years.
During the fiscal year ended June 30, 1997 the Bank originated $190
million adjustable-rate loans and $57 million fixed-rate loans
compared to $193 million adjustable-rate loans and $52 million
fixed-rate loans during the fiscal year ended June 30, 1996.
Management does not expect the high growth of originations
experienced during the past five years to continue. However, as
long as the lower interest rate environment continues, there is a
higher level of financing and refinancing expected than would exist
in a higher rate environment.
Great Southern also purchases whole real estate loans and
participation interests in real estate loans from the FHLMC as well
as private investors, such as other thrift institutions, banks and
life insurance companies. Great Southern may limit its ability to
control its credit risk when it purchases participations in such
loans. The terms of participation agreements vary; however,
generally Great Southern may not have direct access to the borrower
or information about the borrower, and the institution
administering the loan may have some discretion in the
administration of performing loans and the collection of non-
performing loans.
Beginning in fiscal 1998, Great Southern intends to increase the
number and amount of commercial real estate and commercial business
loan participations. Due to changes in the financial institutions
market locally, there have been several experienced bank executives
start up new banks. These banks do not have the capital to handle
larger commercial credits. Great Southern subjects these loans to
the normal underwriting standards used for originated loans and
rejects any credits that do not meet those guidelines. The
originating bank will retain the servicing of these loans.
In fiscal 1997, 1996, 1995 and 1994, there were no loan whole
purchases by the Bank. In fiscal 1993, the Bank purchased 2 whole
loans from another financial institution, totaling $2.4 million in
total principal balance, secured by commercial real estate. At
June 30, 1997 and 1996, approximately $11.6 million, or 1.9% and
$12.5 million, or 2.1%, 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 the FHLMC as well as private
investors, such as other thrifts, banks 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 where the servicing is retained by the
Bank. Loan participations are generally sold with Great Southern
retaining control of the servicing of the loan.
20
The Bank sold whole real estate loans and loan participations in
aggregate amounts of $26.6 million, $36.6 million and $8.7 million
during the years ended June 30, 1997, 1996 and 1995, respectively.
Sales of whole real estate loans and participations in real estate
loans generally can be beneficial to the Bank since these sales
generally generate income at the time of sale, produce future
servicing income on loans where servicing is retained, provide
funds for additional lending and other investments, and increase
liquidity.
Great Southern also sells guaranteed student loans to the MOHELA at
the time the borrower is scheduled to begin making repayments on
the loans. Prior to July 1995, these loans were generally sold
with limited recourse and for cash in amounts equal to the unpaid
principal amount of the loans. Beginning in July 1995, Great
Southern re-negotiated its agreement with the MOHELA and these
loans will generally be sold with limited recourse and for cash in
amounts equal to the unpaid principal amount of the loans and a
transfer fee based on average borrower indebtedness. The fee is
based on a sliding scale with a higher fee paid for a larger
average borrower indebtedness and a lower fee paid for a smaller
average borrower indebtedness. The Bank sold guaranteed student
loans in aggregate amounts of $7.7 million, $8.6 million and $5.0
million during the years ended June 30, 1997, 1996 and 1995,
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 did
beginning in fiscal 1996, an additional fee is received for the
servicing rights. Net gains and transfer fees on sales of loans
for the years ended June 30, 1997, 1996 and 1995 were $520,000
$540,000 and $91,000, respectively.
Prior to fiscal 1996, when whole real estate loans were sold, the
Bank typically retained the responsibility for servicing the loans.
The Bank receives a servicing fee for performing these services.
The Bank had the servicing rights for approximately $70 million,
$80 million and $88 million at June 30, 1997, 1996 and 1995,
respectively, of loans owned by others. The servicing of these
loans generated net servicing fees to the Bank for the years ended
June 30, 1997, 1996 and 1995 of $272,000, $316,000 and $347,000,
respectively. When guaranteed student loans are sold, the Bank
typically releases the responsibility for servicing the loans to
the MOHELA.
21
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 $916,000, $487,000 and $470,000 for the years ended June
30, 1997, 1996 and 1995, respectively. Loan origination fees, net
of related costs, are accounted for in accordance with Statement of
Financial Accounting Standards No. 91 "Accounting for Nonrefundable
Fees and Costs Associated With Originating or Acquiring Loans and
Initial Direct Costs of Leases." Loan fees and certain direct loan
origination costs are deferred, and the net fee or cost is
recognized in interest income using the level-yield method over
the contractual life of the loan. For further discussion of this
issue see Note 1 of Notes to Consolidated Financial Statements in
the Annual Report to Stockholders, which portions are incorporated
herein by reference.
The table on the following page shows the loan origination,
purchase, sale and repayment activities of the Bank for the periods
indicated. The table is based on information prepared in
accordance with generally accepted accounting principles.
22
Year Ended June 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(Dollars in thousands)
Loans Originated:
Adjustable-Rate Loans:
Real Estate:
One- to four-family residential $ 46,586 $ 54,699 $ 76,753 $ 53,077 $ 51,912
Other Residential 13,171 28,977 27,324 38,315 47,597
Commercial 73,551 70,812 49,473 38,141 68,677
Construction 14,736 20,237 21,253 28,524 22,645
Non-real Estate:
Consumer loans 8,668 8,383 7,848 8,519 6,744
Commercial business loans 33,602 9,742 12,741 6,044 7,228
------- ------- ------- ------ ------
Total adjustable-rate 190,314 192,850 195,392 155,582 204,803
------- ------- ------- ------ ------
Fixed-Rate Loans:
Real Estate:
One- to four-family residential 31,447 34,855 8,927 49,288 44,554
Other Residential 10,355 5,499 0 7,044 3,692
Commercial 6,299 1,787 2,031 3,787 3,595
Non-real Estate:
Consumer loans 8,234 9,863 10,112 8,944 3,923
Commercial business loans 1,140 92 9,039 2,295 199
------- ------- ------- ------- ------
Total fixed-rate 57,475 52,096 30,109 71,358 55,963
------- ------- ------- ------- ------
Total loans originated 247,789 244,946 225,501 243,978 260,766
Loans Purchased:
Real Estate loans (1) 0 0 0 0 2,395
------- ------- ------- ------- ------
Total additions 247,789 244,946 225,501 243,978 263,161
------- ------- ------- ------- ------
Loans Sold:
Real Estate loans (2) 26,611 36,643 8,686 53,544 40,487
Consumer loans (3) 7,684 8,566 5,036 3,887 2,289
------- ------- ------- ------- -------
Total sales 34,295 45,209 13,722 57,431 42,776
Principal repayments 164,369 169,658 143,020 160,206 113,156
Decrease (increase) other items, net 14,774 2,825 5,983 2,306 (1,393)
------- ------- ------- ------- ------
Total reductions 213,438 217,692 162,725 219,943 154,539
------- ------- ------- ------- ------
Net increase $ 34,351 $ 27,254 $ 62,776 $ 24,035 $108,622
======= ======= ======= ======= ======
- -------------------------------------
(1) Substantially all of the loans for June 30, 1993 are commercial real estate loans.
(2) Substantially all of these loans are fixed-rate, one- to four-family residential loans.
(3) Substantially all of these loans are guaranteed student loans where the borrowers graduated and the loans
were sold prior to the beginning of repayment.
23
Allowance for Losses on Loans and Foreclosed Assets
Management periodically reviews Great Southern's allowance for loan
losses, considering numerous factors, including, but not
necessarily limited to, general economic conditions, loan portfolio
composition, prior loss experience, and independent appraisals.
Further allowances are established when management determines that
the value of the collateral is less than the amount of the unpaid
principal of the related loan plus estimated costs of the
acquisition and sale or when management determines a borrower of an
unsecured loan will be unable to make full repayment. Allowances
for estimated losses on foreclosed assets (real estate and other
assets acquired through foreclosure) are charged to expense, when
in the opinion of management, any significant and permanent decline
in the market value of the underlying collateral reduces the market
value to less than the carrying value of the asset.
The Bank has increased its lending in the Branson Lakes 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 Lakes area has grown 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 Lakes area as a whole. Due to this concern and the overall
growth of the commercial real estate and other residential real
estate loan portfolios, management provided increased levels of
loan loss allowances over the past five years.
The allowances for losses on loans and foreclosed assets are
maintained at an amount management considers adequate to provide
for potential losses. Although management believes that it uses
the best information available to make such determinations, future
adjustments to the allowances 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 June 30, 1997 and 1996, Great Southern had an allowance for
losses on loans and foreclosed assets of $15.8 million and $15.4
million, respectively, of which $3.4 million and $1.6 million,
respectively, had been allocated as an allowance for specific
loans, $319,000 and $1.1 million, respectively, had been allocated
for foreclosed assets and $1.6 million and $832,000, respectively,
had been allocated for impaired loans. The allowances are
discussed further in Notes 3 and 4 of the Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Annual Report
to Stockholders, which portions are incorporated herein by
reference.
24
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.
Year Ended June 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
Balance at beginning of period $14,356 $14,601 $13,636 $10,590 $ 6,029
------ ------ ------ ------ ------
Charge-offs:
One- to four-family residential 185 189 13 85 189
Other residential 34 1,072 474 101 25
Commercial real estate 364 509 227 33 70
Construction 14 0 0 0 0
Consumer 70 198 48 33 28
Commercial business 9 25 120 32 106
------ ------ ------ ------ ------
Total charge-offs 676 1,993 882 284 418
------ ------ ------ ------ ------
Recoveries:
One- to four-family residential 0 33 0 8 0
Other residential 11 0 0 0 0
Commercial real estate 88 136 442 181 183
Consumer 9 48 22 59 53
Commercial business 30 80 64 57 66
------ ------ ------ ------ ------
Total recoveries 138 297 528 307 302
------ ------ ------ ------ ------
Net charge-offs (recoveries) 538 1,696 354 (23) 116
Provision for losses on loans
(charged to expense) 1,706 1,451 1,319 3,023 4,677
------ ------ ------ ------ ------
Balance at end of period $15,524 $14,356 $14,601 $13,636 $10,590
====== ====== ====== ====== ======
Ratio of net charge-offs to
average loans outstanding 0.09% 0.32% 0.07% (0.01%) 0.03%
==== ==== ==== ==== ====
25
The allowance for losses on loans at the date indicated is summarized as follows. The table is based on
information prepared in accordance with generally accepted accounting principles.
June 30,
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ----------------- ----------------
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
One- to four-family
residential and
construction $ 1,039 41.0% $ 757 44.8% $ 670 45.9% $ 363 44.6% $ 320 47.2%
Other residential
and construction 35 16.1 503 16.1 480 8.1 668 20.8 557 17.8
Commercial real estate
and construction
and commercial
business 9,699 38.5 7,875 34.5 7,596 31.3 7,394 30.3 3,995 31.5
Consumer 502 4.4 488 4.6 546 4.7 414 4.3 359 3.5
Unallocated 4,249 0.0 4,733 0.0 5,309 0.0 4,797 0.0 5,359 0.0
------ ----- ------ ----- ------ ----- ----- ----- ----- -----
Total $15,524 100.0% $14,356 100.0% $14,601 100.0% $13,636 100.0% $10,590 100.0%
====== ===== ====== ===== ====== ===== ===== ===== ===== =====
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.
26
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 Senior Vice President in charge of commercial lending also
works with the commercial loan officers to see that necessary steps
are taken to collect such delinquent loans. In addition, the Bank
has a Problem Loan Committee which meets at least monthly and
reviews all commercial loans 30 days or more delinquent as well as
other loans not 30 days delinquent which management feels may
present possible collection problems. If an acceptable work out of
a delinquent commercial loan cannot be agreed upon, the Bank may
initiate foreclosure on any collateral securing the loan. However,
in all cases, whether a commercial or other loan, the prevailing
circumstances may be such that management may determine it is in
the best interest of the Bank not to foreclose on the collateral.
Delinquent loans at June 30, 1997 were $14.5 million compared to
$12.1 million at June 30, 1996. This increase is mainly
attributable to an increase in the 30-59 day and 90 days and over
delinquent categories offset by a decrease in the 60-89 day
category. The increase in total delinquencies mainly occurred in
the other residential real estate and construction categories. For
loans that Great Southern is servicing, the owners generally
prescribe the collection procedures. Great Southern may act on the
owners behalf in the collection process.
The table on the following page sets forth information concerning
delinquent mortgage and other loans held in the Bank's portfolio at
June 30, 1997, as well as comparative information for June 30,
1996, in dollar amount and as a percentage of the Bank's total loan
portfolio. The amounts presented represent the total outstanding
principal balances of the related loans rather than the actual
payment amounts which are overdue. For related information, see
the discussion under the heading "- Allowance for Losses on Loans
and Foreclosed Assets" above. The table is based on information
prepared in accordance with generally accepted accounting
principles.
27
Loans Delinquent for
---------------------------------------
90 Days Total
30-59 60-89 and Delinquent
Days Days Over Loans
------- ------- ------- ----------
(Dollars in thousands)
One- to four-family
residential real estate:
Number of loans 29 8 33 70
Amount $1,711 $ 615 $2,708 $ 5,034
Percent 0.28% 0.10% 0.44% 0.81%
Other residential:
Number of loans 1 1 1 3
Amount $1,104 $ 156 $ 4,254 $ 5,514
Percent 0.18% 0.03% 0.68% 0.89%
Commercial real estate:
Number of loans 9 5 2 16
Amount $1,741 $ 606 $ 316 $ 2,663
Percent 0.28% 0.10% 0.05% 0.43%
Construction:
Number of loans 2 1 0 3
Amount $ 198 $ 95 $ 0 $ 293
Percent 0.03% 0.02% 0.00% 0.05%
Consumer:
Number of loans 44 24 62 130
Amount $ 120 $ 48 $ 184 $ 352
Percent 0.02% 0.01% 0.03% 0.06%
Commercial business:
Number of loans 5 1 1 7
Amount $ 64 $ 1 $ 600 $ 665
Percent 0.01% 0.00% 0.10% 0.11%
Total June 30, 1997:
Number of loans 90 40 99 229
Amount $4,938 $1,521 $8,062 $14,521
Percent 0.79% 0.24% 1.30% 2.34%
Total June 30, 1996:
Number of loans 102 56 88 246
Amount $2,930 $3,667 $5,454 $12,051
Percent 0.50% 0.62% 0.93% 2.05%
28
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
potential weaknesses, are required to be designated "special
mention" by management. In addition, the OTS 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 an institution. Following are
the total classified assets per the Bank's internal asset
classification list. There were no significant off-balance sheet
items classified at June 30, 1997. The Bank's significant
classified assets are discussed individually below.
Total Allowance
Asset Category Substandard Doubtful Loss Classified for Losses
----------------------- ----------- -------- ---- ---------- ----------
(Dollars in thousands)
Loans and off-balance
sheet risks $14,331 $ 0 $175 $14,506 $15,524
Foreclosed assets 5,575 0 0 5,575 319
------ ----- --- ------ ------
Total $19,906 $ 0 $175 $20,081 $15,843
====== ===== === ====== ======
The table below sets forth the amounts and categories of 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 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 (i) accruing loans
delinquent more than 90 days or (ii) troubled debt restructurings,
which involve forgiving a portion of interest or principal on any
loans or making loans at a rate materially less than that of market
rates. It has been the Bank's practice to sell its foreclosed
assets to new borrowers and originate loans with higher loan-to-
value ratios than those generally required for the Bank's one- to
four-family residential loans. Starting in fiscal 1993, the Bank
adopted a policy of presenting such loans in the non-performing
assets category until sufficient payments of principal and interest
are received or the loan has a 90% loan-to-value ratio.
Substantially all of the loans presented in this category are
performing and the Bank is accounting for the interest on these
loans on the accrual method.
29
June 30,
-------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
Non-accruing loans:
One- to four-family residential $ 2,018 $ 1,195 $ 149 $ 341 $ 739
Other residential 3,826 934 -- 200 198
Commercial real estate 316 1,407 2,004 4,500 766
One- to four-family construction 655 121 -- -- 99
Consumer 219 202 260 195 52
Commercial business 600 744 652 786 64
Commercial construction -- 851 -- -- --
------ ------ ------ ------ ------
Total non-accruing loans 7,634 5,454 3,065 6,022 1,918
Loans in connection with sales of
foreclosed assets 246 453 775 1,321 2,541
------ ------ ------ ------ ------
Total non-performing loans 7,880 5,907 3,840 7,343 4,459
------ ------ ------ ------ ------
Foreclosed assets:
One- to four-family residential 544 517 695 1,440 650
Other residential 1,150 7,121 3,359 1,709 198
Commercial real estate 4,276 3,309 4,878 6,180 9,451
------ ------ ------ ------ ------
Total foreclosed assets 5,970 10,947 8,932 7,620 10,101
------ ------ ------ ------ ------
Total non-performing assets $13,850 $16,854 $12,772 $14,963 $14,560
====== ====== ====== ====== ======
Total non-performing assets as a
percentage of average total assets 2.07% 2.45% 2.18% 2.83% 3.04%
==== ==== ==== ==== ====
Impaired loans totaled $10,163,000 and $5,455,000 at June 30, 1997
and 1996, respectively.
Interest of $487,000 and $923,000 was recognized on average
impaired loans of $9,362,000 and $9,210,000 for 1997 and 1996.
Interest recognized on impaired loans on a cash basis during 1997
and 1996 was not materially different.
The level of non-performing assets are primarily attributable to
the Bank's commercial real estate, other residential, 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 1996, and at a rate less than that of
the Bank's commercial lending portfolio in fiscal 1993, 1994, 1995
and 1997. For a discussion of the risks associated with these
activities, see the discussions under the heading "- Commercial
Real Estate and Construction Lending" and "- Commercial Business
Lending" above.
The Bank encounters certain environmental risks in its lending and
related activities. Under federal and state environmental laws,
lenders may become liable for the costs of cleaning up hazardous
materials found on property held as collateral as well as property
acquired at foreclosure on defaulted loans. This issue is
discussed in more detail under the heading "Lending Activities-
Environmental Issues" above.
30
Investment Activities
Federally-chartered thrift institutions have authority to invest in
various types of liquid assets, including U. S. Treasury
obligations and securities of various federal agencies,
certificates of deposit at insured institutions, obligations issued
by a State (with a 10% limit on obligations of a single issuer)
that qualify as liquid assets (see "Liquidity") and certain other
assets. The Bank's authority to invest in commercial paper and
corporate debt securities is subject to its overall 35% consumer
loan limit. See "Lending Activities -- Consumer Lending" above.
Great Southern must maintain minimum levels of investments that are
liquid assets as specified by the OTS as discussed under the
heading "Regulation-Liquidity" below. Liquidity may increase or
decrease depending upon the availability of funds and comparative
yields on investments in relation to the return on loans.
Historically, the Bank has maintained its liquid assets above the
minimum requirements imposed by the regulations and at a level
believed adequate to meet requirements of normal daily activities,
repayment of maturing debt and potential deposit outflows. Cash
flow projections are regularly reviewed and updated to assure that
adequate liquidity is maintained. For further discussion, see the
discussion under the heading "Regulation-Liquidity" below and Note
1 of Notes to Consolidated Financial Statements included in the
Annual Report to Stockholders, which portions are incorporated
herein by reference.
The Bank's investment securities portfolio at June 30, 1997 and
1996 contained no securities (tax exempt or of any issuer) 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.
On August 15, 1995, the OTS adopted its final rule on regulatory
capital-stockholders' equity. This rule requires debt and equity
securities to be segregated into the following three categories:
trading, held-to-maturity and available-for-sale. Trading
securities are purchased and held principally for the purpose of
reselling them within a short period of time. The unrealized gains
and losses are included in earnings.
Investments classified as held-to-maturity are accounted for at
amortized cost, but an institution must have both positive intent
and the ability to hold those securities to maturity. There are
very limited circumstances under which securities held-to-maturity
can be sold without jeopardizing the cost basis accounting for the
remainder of the securities in this category. These circumstances
include a significant deterioration of the issuer's
creditworthiness; changes in the tax law that reduce the tax-exempt
status of interest on the debt securities; major business
combinations that require a significant disposition of assets to
maintain the institutions' existing interest rate risk or credit
risk policy; and certain changes in statutory or regulatory
investment authority or capital requirements. Any security that
might be sold in response to changes in the market interest rates,
changes in the security's prepayment risk, increases in loan demand
or general liquidity needs or similar factors would not be
classified as held-to-maturity.
31
Securities not classified as either trading or held-to-maturity are
considered available-for-sale. Unrealized gains and losses on the
available-for-sale securities are excluded from earnings and
reported as a net amount in a separate component of stockholders'
equity until realized.
As of June 30, 1997 and 1996, the Bank held approximately $49.8
million and $49.2 million, respectively, in principal amount of
investment securities which the Bank intends to hold until
maturity. As of such dates, these securities had a market value of
approximately $49.9 million and $49.3 million, respectively. In
addition, as of June 30, 1997 and 1996, the Company held
approximately $7.4 million and $4.7 million, respectively, in
principal amount of investment securities which the Company
classified as available-for-sale. The implementation of the OTS
policy statement has not had a material impact on the Bank's
financial condition or results of operations since management has
historically purchased securities with the intent of holding until
maturity. This issue is discussed further under the heading
"Regulation-Accounting" below and in Notes 1 and 2 of Notes to
Consolidated Financial Statements in the Annual Report to
Stockholders, which portions are incorporated herein by reference.
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.
June 30, 1997
--------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----------
(Dollars in thousands)
AVAILABLE-FOR-SALE SECURITIES:
Equity securities $5,175 $2,233 $ 0 $7,408
===== ===== === =====
HELD-TO-MATURITY SECURITIES:
U.S. Treasury $ 7,057 $ 8 $ 4 $ 7,061
U.S. government agencies 42,700 110 12 42,798
------ --- --- ------
Total held-to-maturity securities $49,757 $ 118 $ 16 $49,859
====== === === ======
June 30, 1996
--------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----------
(Dollars in thousands)
AVAILABLE-FOR-SALE SECURITIES:
Equity securities $4,498 $259 $102 $4,656
===== === === =====
HELD-TO-MATURITY SECURITIES:
U.S. Treasury $ 6,902 $ 7 $ 22 $ 6,887
U.S. government agencies 41,831 159 35 41,955
States and political subdivisions 449 0 0 449
------ --- --- ------
Total held-to-maturity securities $49,182 $166 $ 57 $49,291
====== === === ======
32
June 30, 1995
--------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----------
(Dollars in thousands)
AVAILABLE-FOR-SALE SECURITIES:
Equity securities $2,498 $593 $ 0 $3,091
===== === === =====
HELD-TO-MATURITY SECURITIES:
U.S. Treasury $ 1,267 $ 20 $ 0 $ 1,287
U.S. government agencies 45,247 334 59 45,522
States and political subdivisions 456 0 0 456
------ --- --- ------
Total held-to-maturity securities $46,970 $354 $ 59 $47,265
====== === === ======
- ------------------------------------
(1) See "Regulation-Federal Home Loan Bank System" and Note 2 of
Notes to Consolidated Financial Statements in the Annual Report to
Stockholders, which portions are incorporated herein by reference.
The following table presents the contractual maturities and
weighted average yields of held-to-maturity securities at June 30,
1997. 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 $18,047 5.85% $18,073
After one through five years 31,710 6.11% 31,786
------ ------
Total $49,757 $49,859
====== ======
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"), collateralized short-term borrowings under
repurchase agreements, 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.
33
Deposits. The Bank attracts both short-term and long-term deposits
from the general public by offering a wide variety of accounts and
rates. In recent years, the Bank has been required by market
conditions to rely increasingly on short-term accounts and other
deposit alternatives that are more responsive to market interest
rates than the passbook accounts and regulated fixed-interest-rate,
fixed-term certificates that were the Bank's primary source of
deposits prior to 1978. The Bank offers regular passbook accounts,
checking accounts, various money market accounts, fixed-interest-
rate certificates with varying maturities, certificates of deposit
in minimum amounts of $100,000 ("Jumbo" accounts), brokered
certificates and individual retirement accounts. The composition
of the Company's deposits at the end of recent periods is set forth
in Note 6 of Notes to Consolidated Financial Statements included in
the Annual Report to Stockholders, which portions are incorporated
herein by reference.
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.
June 30,
-----------------------------------------------------------------
1997 1996 1995
------------------ ------------------- ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- -------- --------- -------- -------- --------
(Dollars in thousands)
Time deposits:
0.00% - 3.99% $ 724 .16 $ 2,376 0.60 $ 3,746 0.97%
4.00% - 4.99% 14,166 3.08 14,472 3.65 30,873 8.03
5.00% - 5.99% 212,238 46.22 169,905 42.79 84,499 21.99
6.00% - 6.99% 51,540 11.22 32,596 8.21 89,817 23.37
7.00% - 7.99% 12,326 2.69 17,123 4.31 20,105 5.23
8.00% - 10.25% 507 .11 646 0.16 3,801 0.99
------- ------ ------- ------ ------- ------
Total Time deposits 291,501 63.48 237,118 59.72 232,841 60.58
Non-interest-bearing demand deposits 14,572 3.17 8,886 2.24 8,182 2.13
Savings deposits (2.51%-2.50%-2.52%) 35,065 7.64 37,010 9.32 38,285 9.96
Interest-bearing demand
deposits (2.36%-2.41%-2.51%) 115,232 25.09 112,224 28.26 103,335 26.89
Accrued Interest 2,866 .62 1,817 .46 1,684 0.44
------- ------ ------- ------ ------- ------
Total Deposits $459,236 100.00 $397,055 100.00% $384,327 100.00%
======= ====== ======= ====== ======= ======
34
The following table sets forth the deposit flows of the Company
during the periods indicated. Net increase refers to the amount of
deposits during a period less the amount of withdrawals during the
period. The net increase in deposits during the year ended June
30, 1997 and June 30, 1995 was primarily in time deposits while
during the year ended June 30, 1996 the net increase was in
interest-bearing deposits. Deposit flows at savings institutions
may also be influenced by external factors such as competitors'
pricing, governmental credit policies and, particularly in recent
periods, depositors' perceptions of the adequacy of federal
insurance of accounts. The table is based on information prepared
in accordance with generally accepted accounting principles.
Year Ended June 30,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
(Dollars in thousands)
Opening balance $ 397,055 $ 384,327 $ 358,987
Deposits 2,143,074 1,731,347 1,652,386
Withdrawals 2,092,700 1,730,268 1,636,288
Interest credited 11,807 11,649 9,242
--------- --------- ---------
Ending Balance $ 459,236 $ 397,055 $ 384,327
========= ========= =========
Net increase $62,181 $12,728 $25,340
====== ====== ======
Percent increase 15.66% 3.31% 7.06%
==== ==== ====
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.
35
The following table sets forth the time remaining until maturity of the Bank's time deposits as of June 30,
1997. The table is based on information prepared in accordance with generally accepted accounting principles.
Maturity
---------------------------------------------------------
Over Over Over
3 Months 3 to 6 6 to 12 12
or Less Months Months Months Total
-------- ------- ------- ------- --------
(Dollars in thousands)
Time deposits:
Less than $100,000 $ 53,048 $33,606 $48,642 $32,677 $167,973
$100,000 or more 15,573 6,429 10,109 12,378 44,489
Brokered 66,809 1,085 890 8,603 77,387
Public funds (1) 1,309 343 -- -- 1,652
------ ------ ------ ------ -------
Total $136,739 $41,463 $59,641 $53,658 $291,501
====== ====== ====== ====== =======
(1) Deposits from governmental and other public entities.
The following table shows rate and maturity information for the Bank's time deposits as of June 30, 1997. The
table is based on information prepared in accordance with generally accepted accounting principles.
0.00- 4.00- 5.00- 6.00- 7.00- 8.00- % of
3.99% 4.99% 5.99% 6.99% 7.99% 10.25% Total Total
------ ------- ------- ------- ------- ------ -------- -------
(Dollars in thousands)
Time deposits maturing
in quarter ending:
September 30, 1997 $ 659 $13,839 $116,834 $ 5,168 $ 9 $230 $136,739 46.91%
December 31, 1997 -- 26 37,122 3,954 331 30 41,463 14.22
March 31, 1998 16 140 19,483 4,598 528 -- 24,765 8.50
June 30, 1998 -- 108 19,768 7,318 7,681 1 34,876 11.96
September 30, 1998 -- 32 4,182 9,210 -- 2 13,426 4.61
December 31, 1998 -- 12 3,698 3,496 -- 20 7,226 2.48
March 31, 1999 1 -- 3,520 3,989 183 20 7,713 2.65
June 30, 1999 2 -- 2,882 4,982 99 1 7,966 2.73
September 30, 1999 -- -- 305 767 -- -- 1,072 0.37
December 31, 1999 -- 8 465 374 296 -- 1,143 0.39
March 31, 2000 -- -- 653 1,526 373 -- 2,552 0.88
June 30, 2000 -- -- 697 863 82 -- 1,642 0.56
September 30, 2000 -- 1 128 1,179 -- -- 1,308 0.45
December 31, 2000 -- -- 150 138 2 -- 290 0.10
March 31, 2001 -- -- 647 123 -- -- 770 0.26
June 30, 2001 -- -- 190 456 61 -- 707 0.24
Thereafter 46 -- 1,514 3,399 2,681 203 7,843 2.69
---- ------ ------- ------ ------ --- ------- ------
Total $ 724 $14,166 $212,238 $51,540 $12,326 $507 $291,501 100.00%
===== ====== ======= ====== ====== === ======= ======
36
Borrowings. Great Southern's other sources of funds include
advances from the FHLBank and collateralized 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. FIRREA requires that all long-term FHLBank advances be
for the purpose of financing residential housing. Pursuant to
FIRREA, the Federal Housing Finance Board has promulgated
regulations which establish standards of community investment for
FHLBank members to maintain continued access to long-term advances.
Each FHLBank credit program has its own interest rate, which may be
fixed or variable, and range of maturities. The FHLBank may
prescribe the acceptable uses for these advances, as well as other
risks on availability, limitations on the size of the advances and
repayment provisions. The Bank has a $75 million revolving line of
credit with the FHLBank which provides for immediately available
funds. At June 30, 1997, $30.8 million of the revolving line was
in use with $44.2 million remaining available. These funds can be
drawn by the Bank for lending or other liquidity needs with some
limitations.
The Bank's borrowings also include borrowings collateralized with
whole mortgage loans from the Bank's portfolio and investment
securities from the Bank's held-to-maturity portfolio. These
borrowings are also discussed in Note 8 of "Notes to Consolidated
Financial Statements included in the Annual Report to
Stockholders", which portions are incorporated herein by reference.
The following table sets forth the maximum month-end balances and
average daily balances of FHLBank advances and collateralized
borrowings during the periods indicated. The table is based on
information prepared in accordance with generally accepted
accounting principles.
Year Ended June 30,
------------------------------
1997 1996 1995
------------------------------
(Dollars in thousands)
Maximum Balance:
FHLBank advances $207,576 $188,450 $156,667
Collateralized borrowings 28,744 20,132 18,695
Average Balances:
FHLBank advances $166,023 $169,468 $127,361
Collateralized borrowings 18,894 17,344 15,607
37
The following table sets forth certain information as to the
Company's FHLBank advances and collateralized borrowings at the
dates indicated. The table is based on information prepared in
accordance with generally accepted accounting principles.
June 30,
-------------------------------
1997 1996 1995
-------- ------- --------
(Dollars in thousands)
FHLBank advances $151,881 $180,797 $154,323
Collateralized borrowings 28,744 16,468 13,947
------- ------- -------
Total borrowings $180,625 $197,265 $168,270
======= ======= =======
Weighted average interest rate
of FHLBank advances 6.42% 6.06% 6.61%
==== ==== ====
Weighted average interest rate
of collateralized borrowings 3.24% 2.63% 2.96%
==== ==== ====
Subsidiaries
Great Southern. As a federally-chartered savings bank, Great
Southern may invest up to 3% of its