2002 Annual Report for our Shareholders
b a n k i n g w i t h o u t b o r d e r s
Annual Meeting
The 14th Annual Meeting of
Shareholders will be held at
10 a.m. on Wednesday,
May 14, 2003, at the Missouri
Sports Hall of Fame,
Springfield, Missouri.
Corporate Profile
Corporate Mission Stock Information General Information
Great Southern Bancorp, Inc.
("GSBC" or the "Company") is
the holding company for
Great Southern Bank (the
"Bank"), which converted
from a mutual to a stock
company in December 1989.
In June 1998, the Bank
converted from a federal
savings bank charter to a
Missouri chartered trust
company.
Great Southern was founded
in 1923 with a $5,000
investment, 4 employees and
936 members, and has grown
to over $1.4 billion in assets,
with more than 550
employees and nearly 84,000
customers.
The Bank is headquartered in
Springfield, Missouri and
operates 29 branches in 15
counties throughout the
Ozarks; 11 in Springfield.
A community-oriented
company, GSBC and its
subsidiaries offer a full range
of banking, lending,
investment, insurance and
travel services.
Our company(cid:146)s mission is to
maximize return to our
shareholders by providing the
highest quality financial and
travel services to our
customers. By emphasizing
customer service, cost control
and product offerings, we feel
we can not only create the
best return for our
shareholders, but also the
best value for our customers
and the best working
environment for our
associates.
Our company serves four
primary constituencies and
respects the following core
values: That all decisions
must be in the long-term best
interest of our shareholders;
that we treat our customers
as we wish to be treated when
we are customers elsewhere;
that we foster productive
long-term careers at Great
Southern for our associates;
and that we give back to the
communities we serve by
supporting appropriate area
causes, particularly those
which benefit children.
The Company(cid:146)s Common
Stock is listed on The
NASDAQ Stock Market under
the symbol "GSBC".
As of December 31, 2002,
there were 6,857,121 total
shares outstanding and
approximately 1,000
shareholders of record.
The last inter-dealer bid for
the Company(cid:146)s Common
Stock on December 31, 2002
was $36.75.
In 1998, the Company
changed from a June 30 fiscal
year to a December 31 fiscal
year. The six month period
ended December 31, 1998,
transitions between the
Company(cid:146)s old and new fiscal
year ends.
High
Low
$ 32.70 $ 26.70
31.40
34.51
35.65
39.82
41.34
39.09
High/Low Stock Price
Year Ended
December 31, 2002
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended
December 31, 2001
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
23.00
27.10
33.95
33.10
Low
15.63
20.63
25.41
25.75
CORPORATE HEADQUARTERS
1451 E. Battlefield
Springfield, MO 65804
1 (800) 749-7113
MAILING ADDRESS
P.O. Box 9009, Springfield, MO 65808
DIVIDEND REINVESTMENT
For details on the automatic reinvest-
ment of dividends in common stock
of the corporation call:
1 (800) 725-6651 or write:
Great Southern Bancorp, Inc.
Shareholder Relations
P.O. Box 9009
Springfield, MO 65808
FORM 10-K
The Form 10-K report filed with the
Securities and Exchange Commission
may be obtained without charge by
request to:
Rex Copeland
Senior Vice President, CFO
Great Southern Bank
P.O. Box 9009, Springfield, MO 65808
INVESTOR RELATIONS
Teresa Chasteen-Calhoun
or Kelly Polonus
Great Southern Bank
P.O. Box 9009, Springfield, MO 65808
AUDITORS
BKD, LLP
Hammons Tower
P.O. Box 1190
Springfield, MO 65801
LEGAL COUNSEL
Silver Freedman & Taff L.L.P.
1700 Wisconsin Ave., NW
Washington, DC 20007
Carnahan, Evans, Cantwell & Brown
P.O. Box 10009
Springfield, MO 65808
TRANSFER AGENT AND
REGISTRAR
Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
t a b l e o f c o n t e n t s
3
18
Chairman’s
Message
We are pleased to report
calendar year 2002 was
another record-breaking year.
But as always, the most
important thing is what we do
next.
Community
Investment
Since its founding 80 years
ago, the Company has
fostered a strong tradition of
caring and sharing.
8
Territories and
Targets
Our customer orientation
guides us into new territories,
and helps us uncover new
opportunities and targets
within our existing service
area as well.
12
Services and
Products
As technology, deregulation
and growth have affected
Great Southern(cid:146)s ability to
serve the market, we(cid:146)ve been
first in line to serve.
16
Community
Development
By improving the lives of
those who are economically
underserved, our entire
community benefits ... and we
build a loyal new customer
base.
1
20
Management’s
Discussion
Consolidated Statements
of Financial Condition
Consolidated Statements
of Income
Consolidated Statements of
Stockholders(cid:146) Equity
Consolidated Statements
of Cash Flows
Notes to Consolidated
Financial Statements
and Analysis
Financials
35
36
37
39
41
55
56
Our Team
Profile
Accountants’
Report
Great Southern Bancorp, Inc.
and Great Southern Bank
Directors and Officers
It’s one thing to rest on laurels.
Another to look ahead.
The rest is well deserved.
But the laurels were born of restlessness,
the pursuit of something yet-to-be.
Knowing we can do better.
Achieving it. And seeing even more.
Looking back, we couldn’t be prouder.
But as we celebrate our 80th year,
we do so looking ahead.
Where we’ve been is gratifying.
More important is where we go.
m e s s a g e f r o m t h e c h a i r m a n
Poised on the threshold of a
company milestone (cid:150) Great
Southern(cid:146)s 80th anniversary (cid:150)
this report to our shareholder
constituents is a combination
of reflection on where we(cid:146)ve
come from and vision of
where we(cid:146)re going.
The 14-year period since
going public in 1989 can best
be illustrated by three
comparisons: net income,
assets and stock value.
Earnings for the year ended
December 31, 2002, when
compared to December 31,
1990 (our first full year after
conversion), were ten times
greater. Assets over the same
time period have tripled and
the value of each dollar
invested has grown 26 times.
Each share of stock
purchased at $9.00 in the
initial public offering in 1989
now has a value of $220.50.
Our performance continues
to gain recognition nationally
and, most importantly, here
at home. In June 2002, the
ABA Banking Journal ranked
Great Southern Bancorp fifth
in return on equity among all
banks nationwide with assets
over $1 billion. In the first
nine months of 2002 the
company achieved an
efficiency ratio of 42.38%,
with the American Banker
ranking Great Southern in its
list of "Most Efficient Bank
Holding Companies.(cid:148) We
ranked 23rd out of the top
500 and had the distinction
of being the highest ranking
Missouri institution.
Perhaps our most
noteworthy accomplishment
is the continued growth of
market share in our home
base of operations, Greene
and Christian Counties in
Missouri. As of June 30, 2002
(the latest date for which
comparative data is available),
we led the market with 17.8%
of the deposits followed by
Commerce (12.7%); Empire
Bank (10.0%) and Bank of
America (8.6%).
We are pleased to report
calendar year 2002 was
another record-breaking year
with net income of $3.34 per
share ($23.2 million), up 24%
over last year(cid:146)s $2.70 per
share ($18.8 million). In
addition, the company posted
growth in all the following
areas: total assets were $1.4
billion (up 6 %); gross loans
receivable were $1.0 billion
(up 3%); and total deposits
were $1.0 billion (up 15%).
$18.8 million, or 1.34% of
total assets.
The company continues to
maintain a healthy capital
position. At December 31,
2002, stockholders(cid:146) equity
was $104.7 million (7.5% of
total assets), equivalent to a
book value of $15.27 per
share.
The stock price increased
by 20% from $30.50 on
December 31, 2001 to $36.75
on December 31, 2002. By
comparison, the S&P Bank
Index was down 4% and the
S&P 500 overall was down
23%.
With these successes noted
Non-performing assets were
and serving as yet another
Market Share*
Based on Deposits in Greene
& Christian Counties
17.8%
B
S
F
y
t
n
a
r
a
u
G
k
n
a
B
e
h
T
k
n
a
B
.
.
S
U
a
c
i
r
e
m
A
f
o
k
n
a
B
k
n
a
B
e
r
i
p
m
E
k
n
a
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e
c
r
e
m
m
o
C
k
n
a
B
n
r
e
h
t
u
o
S
t
a
e
r
G
16
14
12
10
8
6
4
2
0
$300
250
200
150
100
50
0
Five Year
Cumulative
Total Return**
Great
Southern
Bancorp
Nasdaq US
Companies
Nasdaq
Financial
Jun Jun Dec Dec Dec Dec Dec
’97 ’98 ’98 ’99 ’00 ’01 ’02
* Data Source: FDIC Website
Data as of: June 30, 2002.
** Graph assumes that $100 was invested in the Common Stock
on June 30, 1997 and that all dividends were reinvested.
3
the most important thing is what we do next
building block, we choose to
look forward, as it is one
thing to perfect what you(cid:146)ve
always done, but it is another
to embark on new initiatives.
We realize if we(cid:146)re going to
continue to grow and be
profitable that we must seek
out new territories, targets
and missions ... broadening
our scope and practicing
(cid:145)banking without borders.(cid:146)
The phrase (cid:145)without
borders(cid:146) took on multiple
meanings as the year
unfolded, starting with the
addition of a loan production
office in Kansas City,
Missouri. Our company had
nearly $100 million in loan
volume in the Kansas City
market prior to opening that
office. With existing business
relationships and what is
currently in process as a
result of referrals and word
of mouth, operating expenses
are already covered for our
first full year of operations.
Additional loan production
offices are being considered
to grow our loan portfolio as
participation opportunities
and our awareness among
large commercial banks
increases and competition
gets stronger and margins get
tighter in the Springfield
market.
(cid:145)Without borders(cid:146) also
applied to demographics and
customer segments as we
embraced the ever-growing,
but largely underserved
Hispanic population with an
initiative to overcome cultural
and language barriers. The
bank designated a special
service center (Benton &
Chestnut branch, Springfield
market), increased staff to
include bilingual customer
service associates and is
providing Spanish language
options on our automated
phone bank system, select
literature, and ATMs through
a gradual conversion process.
Lines of business expanded
beyond traditional
boundaries as we ventured
into Correspondent Banking
and began to offer accounts
receivable and small
unsecured lines of credit
programs to enhance our
"business banking" offerings.
(cid:145)Outside the box(cid:146)
exemplified the thought
processes which led us to
innovative and uniquely
different approaches to
gaining awareness and
acquiring new business.
Market Finder assisted in
identifying prospects based
on their responses to a
financial services satisfaction
survey of businesses in the
Springfield and Branson area.
Those businesses which were
dissatisfied or had needs that
weren(cid:146)t being met were
targeted. The initial results
were impressive and we(cid:146)re
moving forward with this
program.
Even preconceived ideas
about what constituted a
profit center shifted as we
created and staffed a
Community Development
Department. In less than a
year, a Community Advisory
Board has been formed; a
subsidiary Community
Development Corporation is
in the organizational phase;
and a number of initiatives
benefitting community-
revitalization developers,
seniors, low-income
individuals and other
underserved segments are
under way.
Finally, community
investment/involvement by
our company and its
employees reached a new
level as our efforts were
Net Income*
(per share of
common stock)
$3.34
Junun 90
JunJun 90
Jun 90
’90†
JunDec 9
JunDec 9
Dec 94
’94
JunDec 9JunDec 9
Dec 98
’98
Dec 02Dec
Dec
Dec 02
Dec 02
’02
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
T
Total Assets
Total Assets
in billions
1.40
DecDec 9DecDec 9
Dec 90
’90
DecDec 9DecDec 9
Dec 94
’94
DecDec 9DecDec 9
Dec 98
’98
DecDec 02DecDec 02
Dec 02
’02
1.0
0.8
0.6
0.4
0.2
0.0
T
Total Deposits
Total Deposits
in billions
1.02
Dec 90
Dec 90
Dec 90Dec
Dec
’90
Dec 94
Dec 94
Dec 94Dec
Dec
’94
Dec 98
Dec 98
Dec 98Dec
Dec
’98
Decec 02Decec 02
Dec 02
’02
1.0
0.8
0.6
0.4
0.2
0.0
T
Total Loans
Total Loans
in billions
1.02
Commercial Real Estate
& Construction Loans
in millions
517
500
400
300
200
100
0
Dec 90DecDec 9DecDec 9
’90
DecDec 9DecDec 9
Dec 94
’94
DecDec 9DecDec 98
Dec 98
’98
DecDec 02DecDec 02
Dec 02
’02
DecDec 9DecDec 9
Dec 90
’90
DecDec 9DecDec 9
Dec 94
’94
DecDec 9DecDec 9
Dec 98
’98
Dec 02
DecDec 02DecDec 02
’02
*All per share amounts have been adjusted to reflect stock splits. The company converted to a calendar year in December 1998; therefore prior years’ net income numbers will reflect a June 30 fiscal year end.
4
focused, quantified and
rewarded under the banner of
our new Caring and Sharing
Program. Caring and Sharing
provides the umbrella to
bring together the volunteer
and fund raising efforts of
the company, our associates
and our customers,
recognizing that collectively
we can do more and make a
bigger difference.
We are fortunate to have a
nucleus of associates (cid:150)
without question the
strongest to date (cid:150) with the
wherewithal to seek out new
territories and targets that
will enable us to continue to
generate strong returns. It is
in this spirit that we dedicate
this annual report to our
shareholders, customers and
associates.
William V. Turner
CHAIRMAN
SELECTED CONSOLIDATED
Financial Data
The following table sets forth
selected consolidated financial
information and other financial
data of the Company. The select-
ed balance sheet and statement
of income data, insofar as they
relate to the years ended
December 31, 2002, 2001, 2000
and 1999 to the six months
ended December 31, 1998, and to
the year ended June 30, 1998, are
derived from our consolidated
financial statements, which have
been audited by BKD, LLP. The
selected consolidated financial
data as of and for the six months
ended December 31, 1997 are
derived from unaudited consoli-
dated financial statements. In
our opinion, all adjustments,
consisting of normal recurring
adjustments, necessary for a fair
presentation of results as of and
for the six months ended
December 31, 1997 have been
included. See Item 7,
"Management's Discussion and
Analysis of Financial Condition
and Results of Operations," and
Item 8, "Financial Statements
and Supplementary
Information." Results for past
periods are not necessarily
indicative of results that may be
expected for any future period.
2002
2001
December 31,
2000
1999
1998(1)
June 30,
1998
(Dollars in thousands)
Summary Statement of Condition Information:
Assets
Loans receivable, net
Allowance for loan losses
Available-for-sale securities
Held-to-maturity securities
Foreclosed assets held for sale, net
Allowance for foreclosed asset losses
Intangibles
Deposits
Total borrowings
Stockholders’ equity (retained
earnings substantially restricted)
Average loans receivable
Average total assets
Average deposits
Average stockholders’ equity
Number of deposit accounts
Number of full-service offices
$1,402,638 $1,323,103 $1,130,178
890,784
18,694
126,409
27,758
2,688
---
264
751,042
291,573
997,647
21,288
236,269
52,587
4,328
---
---
1,021,957
268,494
964,886
21,328
233,805
37,465
3,057
150
---
886,870
333,666
104,709
1,000,044
1,344,989
963,255
95,728
73,861
29
85,254
936,117
71,049
843,170
1,193,772 1,013,963
676,633
69,208
73,394
27
802,286
79,484
71,998
28
$964,803
766,807
17,293
79,891
37,646
817
---
404
625,900
261,642
68,926
746,979
928,182
612,503
68,758
73,932
27
$836,498 $795,091
653,672
696,962
16,373
16,928
6,363
6,476
51,917
60,394
4,751
2,810
---
---
626
543
549,773
597,625
169,509
159,250
68,382
647,797
805,170
577,820
66,997
74,375
27
67,409
624,290
747,901
487,386
64,212
74,070
27
5
SELECTED CONSOLIDATED
Financial Data
Year Ended
December 31,
Six Months Ended
December 31,
2002
2001
2000
1999
(Dollars in thousands)
1998(1)
1997
Year Ended
June 30,
1998
Summary Income Statement Information:
Interest income:
Loans
Investment securities and other
Interest expense:
Deposits
Federal Home Loan Bank advances
Short-term borrowings and trust preferred securities
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income:
Commissions
Service charges and ATM fees
Net realized gains on sales of loans
Net realized gains (losses) on sales of
available-for-sale securities
Income (expense) on foreclosed assets
Other income
Noninterest expense:
Salaries and employee benefits
Net occupancy expense
Postage
Insurance
Amortization of excess of cost over
fair value of net assets acquired
Advertising
Office supplies and printing
Other operating expenses
Income before income taxes
Provision for income taxes
Net income
6
$64,062
16,099
80,161
$76,107
13,390
89,497
$77,399
8,751
86,150
$63,386
4,652
68,038
$30,332
2,153
32,485
$27,878
2,163
30,041
$57,537
4,395
61,932
22,244
6,852
1,241
30,337
49,824
5,800
44,024
5,786
8,430
1,575
3,443
(597)
1,186
19,823
15,842
5,337
1,426
514
---
622
828
3,765
28,334
35,513
12,301
$23,212
32,405
10,339
3,163
45,907
43,590
5,200
38,390
5,765
8,352
1,756
139
(216)
1,237
17,033
15,126
4,730
1,233
485
284
686
774
3,872
27,190
32,244
14,312
2,305
48,861
37,289
3,106
34,183
7,024
5,968
570
(9)
295
1,135
14,983
13,642
4,529
1,152
521
160
713
703
4,084
25,504
24,966
9,403
1,094
35,463
32,575
2,062
30,513
7,054
4,502
1,098
316
---
2,379
15,349
13,765
4,124
1,006
639
160
611
991
3,871
25,167
28,233
9,475
$18,758
23,662
8,184
$15,478
20,695
7,018
$13,677
12,255
4,237
38
16,530
15,955
1,291
14,664
3,136
2,390
386
355
420
1,171
7,858
5,743
1,772
447
292
83
276
396
2,297
11,306
11,216
3,858
$ 7,358
10,395
4,676
530
15,601
14,440
852
13,588
2,586
1,753
461
873
383
777
6,833
5,227
1,349
392
352
---
295
323
1,945
9,883
20,951
9,905
1,136
31,992
29,940
1,853
28,087
5,652
3,841
1,125
1,398
326
1,457
13,799
10,829
3,034
857
637
65
586
666
3,844
20,518
10,538
3,058
$ 7,480
21,368
6,924
$14,444
SELECTED CONSOLIDATED
Financial Data
(1)
In 1998, we changed our fiscal
year-end from June 30 to
December 31.
(2) Certain financial ratios for
interim periods have been
annualized
(3) Earnings divided by average
total assets.
Per Common Share Data:
Basic earnings per common share
Diluted earnings per common share
Cash dividends declared
Book value
Average shares outstanding
Year-end actual shares outstanding
Year-end fully diluted shares outstanding
Earnings Performance Ratios:(2)
Return on average assets(3)
Return on average stockholders’ equity(4)
Non-interest income to average total assets
Non-interest expense to average total assets
Average interest rate spread(5)
Year-end interest rate spread
Net interest margin(6)
Adjusted efficiency ratio (excl. foreclosed assets)(7)
Net overhead ratio(8)
Common dividend pay-out ratio
2002
$ 3.38
3.34
.70
15.27
6,863
6,857
6,940
1.73%
24.25
1.47
2.11
3.59
3.70
3.85
40.34
.63
20.81
(4) Earnings divided by average
Asset Quality Ratios:(2)
Allowance for loan losses/year-end loans
Non-performing assets/year-end loans and foreclosed assets
Allowance for loan losses/non-performing loans
Net charge-offs/average loans
Gross non-performing assets/year-end assets
Non-performing loans/year-end loans
2.09%
1.84
146.60
.58
1.34
1.43
At or For Year Ended
December 31,
At or For Six
Months Ended
December 31,
2001
(Dollars in thousands, except for per share data)
2000
1999
1998(1)
$ 2.72
2.70
.50
12.42
6,890
6,863
6,929
1.57%
23.60
1.43
2.28
3.37
3.44
3.80
44.69
.85
18.52
2.16%
1.22
237.03
.27
.91
.91
$ 2.16
2.12
.50
10.30
7,166
6,897
7,098
1.53%
22.36
1.48
2.52
3.26
3.26
3.81
49.07
1.04
23.58
2.06%
1.66
149.72
.20
1.34
1.37
$ 1.79
1.76
.50
9.20
7,620
7,489
7,601
1.56%
19.98
1.65
2.87
3.36
3.40
3.86
52.51
1.06
28.41
2.21%
1.26
194.48
.23
1.05
1.18
$ .93
.91
.24
8.76
7,897
7,803
8,012
1.83%
21.97
1.95
2.81
4.02
3.62
4.32
48.33
.87
25.82
2.37%
1.46
228.20
.23
1.55
1.42
1997
$ .93
.91
.21
8.13
8,082
8,066
8,218
2.08%
24.04
1.90
2.75
3.78
3.75
4.18
47.31
.85
23.08
2.48%
2.20
155.26
.09
1.84
1.60
At or For
Year Ended
June 30,
1998
$ 1.79
1.76
.43
8.47
8,052
7,962
8,204
1.93%
22.49
1.85
2.74
3.79
3.81
4.18
47.20
.90
24.43
2.44%
1.81
227.18
.16
1.79
1.42
Balance Sheet Ratios:
Loans to deposits
Average interest-earning assets as a percentage of
average interest-bearing liabilities
Capital Ratios:
Average stockholders’ equity to average assets
Year-end tangible stockholders’ equity to assets
Great Southern Bank:
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Tier 1 leverage ratio
Ratio of Earnings to Fixed Charges:(9)
Including deposit interest
Excluding deposit interest
97.62
108.80
118.61
122.51
116.62
134.11
118.90
111.22
110.67
111.06
111.95
106.57
108.82
108.62
7.12%
7.47
6.66%
6.44
6.83%
6.26
7.41%
7.10
8.32%
8.11
8.64%
8.67
10.32
11.58
8.22
2.17x
5.39x
8.93
10.20
7.18
1.62x
3.09x
8.91
10.17
7.36
1.48x
2.42x
8.97
10.23
7.45
1.58x
2.97x
9.65
10.92
8.15
1.68x
3.62x
9.95
11.22
7.49
1.68x
3.02x
8.59%
8.40
9.71
10.98
7.52
1.67x
2.94x
7
stockholders’ equity.
(5) Yield on average interest-earn-
ing assets less rate on average
interest-bearing liabilities.
(6) Net interest income divided by
average interest-earning assets.
(7) Non-interest expense divided
by the sum of net interest
income, on a tax equivalent
basis, plus non-interest income.
(9)
(8) Non-interest expense less non-
interest income divided by
average total assets.
In computing the ratio of earn-
ings to fixed charges: (a) earn-
ings have been based on
income before income taxes
and fixed charges, and (b) fixed
charges consist of interest and
amortization of debt discount
and expense including amounts
capitalized and the estimated
interest portion of rents.
t e r r i t o r i e s a n d t a r g e t s
Great Southern(cid:146)s role as a
market leader was
established long before we
actually became the largest
financial institution in
southwest Missouri.
Innovative products, services,
consumer conveniences and
aggressive branching have all
served to distinguish the
Great Southern name since at
least the mid-70s, and as
we(cid:146)ve surpassed many fine
competitors to attain a #1
market position today, we
continue to raise the bar in
building customer
relationships throughout the
region.
Market leadership involves
leading, of course. But in the
context of relationship
banking, whether we lead our
customers to greener
pastures or follow them is a
moot distinction. Our focus
has always been on the
consumer, not the
competitor, and our ongoing
role as market leader in the
development of new products
and points of service is a
direct result of following,
anticipating and answering
consumer needs. This
customer orientation also
guides us into new territories,
and helps us uncover new
opportunities and targets
within our existing service
area as well. In short, we do
well by doing good.
The opening of a dedicated
loan production office in
Kansas City this year
acknowledges the positive
impact of nearly $100 million
in loan volume the bank has
already provided local clients
with interests in the Kansas
City area. It simultaneously
marks the discovery of an
important new market for the
bank. As Commercial Lending
Manager Gary Lewis notes,
(cid:147)The opportunity to serve
more customers is definitely
there. Now that we have a
physical presence, we are
poised to do greater things in
the Kansas City area.(cid:148)
The new office at Ward
Parkway and Wornall Road is
managed by 24-year Kansas
banking veteran Cal Glasco,
who adds (cid:147)The recipe for
success in Kansas City is
simple: Shower our customers
and prospects with more
expertise and service than
“Our commitment to
‘doing whatever it takes’
for the customer will
ensure our success in
these new endeavors.”
Barby Pohl
Vice President - Branch
Administration
Business is served. Jeremy Gilpin hosted
a series of one-on-one luncheons with
Joplin area commercial loan clients and
prospects to underline the benefits of a
single point of contact, full banking
service relationship.
George Birt’s Conover Lofts project provides upscale living in KC’s historic River Market
area. Shown here with Kansas City Commercial Lending Manager Cal Glasco (right),
George sums up his relationship with the bank in one word:“Responsive.”
8
new horizons in relationship banking
they expect. This is exactly
what has made Great
Southern the excellent
company it is in southwest
Missouri.(cid:148)
Customers include
developers of Kansas City(cid:146)s
River Market area, downtown
projects and the conversion
of buildings and warehouses
to upscale condos,
apartments and shops. The
comparison to our successful
involvement with
Springfield(cid:146)s own Downtown
Renaissance is underlined by
Community Development VP
Brian Fogle. (cid:147)It(cid:146)s almost a
quality-of-life issue,(cid:148) Brian
explains. (cid:147)Our experience has
shown that thoughtful,
community-oriented
development is not only a
good partnership for the
bank, it serves the whole
community. It(cid:146)s a win-win.(cid:148)
Other targets for additional
commercial loan production
include rapidly-developing
markets within our existing
service area. The bank has
positioned two other
dedicated commercial loan
officers, James Brookhart and
Jeremy Gilpin, in Osage Beach
and Joplin, respectively. Local
client testimonials support
marketing efforts under the
headline (cid:147)Great Bank. Great
Relationship(cid:148), leveraging the
“Our customers benefit by new opportunities to participate in our economy,
and we benefit by building strong customer relationships.”
– Brian Fogle,Vice President - Community Development
9
combination of Great
Southern(cid:146)s size, lending
ability and exceptional client
service. Combined
commercial loan volume in
our Osage Beach and Joplin
area markets has more than
doubled since January 2001.
Great Southern(cid:146)s Hispanic
outreach program is an
example of (cid:147)doing well by
doing good(cid:148) that(cid:146)s especially
close to home. U.S. Census
data confirms that the
Hispanic population in the
Ozarks tripled from 1990 to
2000. These new neighbors
represent the fastest growing
consumer segment in
America, accounting for over
$500 billion in purchasing
power in our country last
year. Yet studies show that
more than 40% of this new
market is reportedly
(cid:147)unbanked(cid:148) and unfamiliar
with the American economic
system due to language and
other barriers.
In a major initiative to
address the specific cultural
and financial needs of area
Hispanic consumers, Great
Southern is knocking down
the barriers through an
outreach services program
under the banner Suen~os Sin
FronterasTM, or (cid:147)Dreams
without Borders.(cid:148) Key
elements of the program
include bilingual tellers and
customer service associates, a
designated Hispanic branch
office at our Benton &
Chestnut location, and the
gradual conversion of ATMs,
financial services literature,
online banking and
automated telephone service
to include Spanish language
options.
The bank also accepts the
Mexican Consulate ID Card
(Matricula Consular) as a
primary form of identification
to make it easier for Mexican
citizens to subscribe to our
services, and partners with
the local advocacy and
resource organization Grupo
LatinoAmericano to present
financial literacy programs to
the Hispanic community.
Along with free checking
and other trademark
conveniences, Great Southern
offers culturally-specific
services, including an
electronic remittance system
so that customers can send
money to loved ones in
Mexico safely, conveniently
and affordably, without the
expensive check-cashing and
wire service fees many have
experienced elsewhere.
t e r r i t o r i e s a n d t a r g e t s
“We have assembled a
talented and
experienced staff to sell
and service the business
lines.The combination
of products, prices and
staff position us as The
Local Force in business
banking.”
Lin Thomason
Vice President - Director of
Information Services
The bank has developed
and packaged specialized
services to target other key
constituencies in our market
area including businesses and
high potential, affluent
prospects.
While Great Southern has a
long history of serving
commercial clients, the
company significantly
deepened its commitment by
creating a Corporate Services
division, with a dedicated
staff whose sole mission is to
serve commercial clients.
Internet banking, statement
imaging, ACH origination,
cash concentration and a host
of other integrated
tools are tailored to
each client(cid:146)s specific
treasury management
needs.
On another business
front, Great Southern
Merchant Services
focuses on helping
A sophisticated BancAnalyst
program makes marketing
information easily accessible
on-screen, including
geographic product potential.
commercial client
relationship, employees
cross-trained between
departments to coordinate
and beef up referral and
hand-off procedures. On the
business customers serve
their own customers.
Merchant Services provides
clients the ability to accept
credit, debit, gift and
purchasing cards and checks,
while simplifying their
monthly reconciliation
processes and often reducing
their per-transaction costs.
Corporate Services
marketing unfolded in three
stages during the year,
beginning with the
solicitation of existing
commercial loan customers
for any other-bank deposit
business. As a part of the
effort to expand our
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VIP Director Heather Ramsey assures that each client enjoys a consistent and familiar
customer experience and makes doing business with us as easy and convenient as
possible for clients like Northside Eye Clinic surgeon Pat Collins, M.D.
10
new opportunities to excel at what we do
heels of a highly successful
introduction and armed with
this direct client experience,
Corporate Services targeted
non-customer prospects,
employing a Market Finder
study designed to identify
prospects with propensity to
change banks based on
satisfaction with existing
relationships.
In Stage III, these prospects
received a progressive series
of hand-delivered or mailed
(cid:145)specialty(cid:146) messages
underscoring specific benefits
and building familiarity,
followed by a direct sales call
and invitation to lunch.
In 2002, Corporate Services
Officers Melanie Robbins,
Brad Heeren and Laura Beaver
were instrumental in opening
accounts that totaled over
$17 million.
Targeting affluent clients
and key service business
prospects including
physicians, lawyers and CPAs,
Great Southern has
introduced an exclusive
package of personalized
services that is also provided
through a single point of
access. Former Branch
Administrator Heather
Ramsey has assumed the role
of Director of VIP Banking,
and works closely with all
internal business units to
fully deliver the strength of
Great Southern on a one-on-
one basis.
Comprehensive VIP
amenities include the
availability of 100% mortgage
financing, fixed rates, custom
tailored loans, prime rate
home equity loans with no
closing costs, preferred rate
consumer loans with no fee,
interest-bearing checking
with unlimited free
personalized checks, free
online banking, free travelers
checks, money orders and
cashiers checks, overdraft
protection and preferred CD
rates.
A dedicated, primary point
of contact for our VIPs,
Heather also serves as their
direct liaison to VIP travel,
insurance and investment
services.
As we(cid:146)ve grown in services,
territory and capability, our
position of market leadership
itself suggests new targets:
Like other financial
institutions. Our new
Correspondent Banking
program capitalizes on the
size, strength and diversity of
bank operations and staff
experience to boost both
demand balances and fee
income. As a (cid:147)bank(cid:146)s bank,(cid:148)
Great Southern services CD,
money market and repo
accounts, and offers coin,
currency, check clearing and
wire services for banks, credit
unions and other financial
service providers.
Angela Knight (center) works with Springfield City Utilities Employee
Credit Union Operations VP Grace Rowden and President Judy
Hadsall to provide correspondent banking expertise and support.
Great Southern Merchant Services helps business clients
serve their own customers with multiple payment and
credit options.
The bank introduced Correspondent Banking Service to
prospects in a progressive series of clever direct mailings.
11
s e r v i c e s a n d p r o d u c t s
Years ago, in reply to a
reporter who noted with
some humor that Great
Southern had actually
outpaced Chinese restaurants
in area branch openings,
then-President Bill Turner
remarked, (cid:147)We didn(cid:146)t start
out to be the biggest. We just
took good care of our
customers one at a time and
it turned out that way.(cid:148)
The Chairman(cid:146)s message
has survived. As technology,
deregulation, growth and
other factors have affected
Great Southern(cid:146)s ability to
serve the market, we(cid:146)ve been
first in line to serve (cid:150)
pioneering new products,
adding services and
expanding conveniences (cid:150)
driven by the simple
philosophy of taking care of
our customers and providing
them with the products and
services they need to make
their lives better and easier.
Our focus on retail
convenience has resulted in
an extensive branch network,
which now provides a huge
new opportunity as we
sharpen our focus on small
business and commercial
clients. In 2002, this target
saw the introduction of
another Great Southern first,
Free Business Checking - a
new product so simple the
name says it all: No minimum
balance. No monthly fee. No
other bank in our area offers
it, so far.
We also introduced
Business Manager, a
complete accounts receivable
management system that
allows businesses to get cash
for their receivables on a
daily basis by selling them to
the bank at a discount. Great
Southern handles customer
statements, even offering
payment terms, and provides
detailed management reports
enabling businesses to take
advantage of supplier
discounts, improved cash
flows, redirected staff time
and ultimately, increased
sales.
Rounding out our package
of new products for business
is Business DirectLine, a
flexible, revolving line of
credit for business needs
under $25,000 that can be
accessed, or repaid, as easily
as writing a check or making
an online transfer.
challenges appeared. While
commercial business
operations were centered
internally at our main offices
in Springfield, many of our
new business customers were
nevertheless seeking
specialized lending assistance
through our branch network.
Little wonder. We(cid:146)ve made it
so easy. And in the Ozarks,
the Great Southern sign is
familiar enough, regardless of
location.
Together with our many
other business services,
including statements on CD,
ACH origination, internet
banking, SBA loans and
personalized commercial
lending, these products
complement a formidable
portfolio of big business
services that has significantly
helped us develop market
share in the small business
sector.
As these new clients came
aboard however, new
Free business checking is another Great Southern
“First” in the Ozarks.
With Business DirectLine, a little business can go a long way.This unsecured
line-of-credit product is like having an extra $25,000 in the company
checking account to work with.
12
paying attention pays off
Addressing this issue, the
bank created a new
commercial lending position,
Branch Liaison, to take
advantage of the inherent
value of our branch network
and to improve processes
assisting businesses of all
sizes at any point of contact.
Former main bank Branch
Manager and Commercial
Lending Officer Kent
Lammers bridges the gap, and
is now solely dedicated to
working with the branches to
assist in developing these
new commercial lending
relationships.
Our core retail customer
base also saw major product
enhancements. To Works
Now, our premium benefit-
packed, interest bearing,
monthly fee checking account
package, we added benefits to
help with other aspects of
daily consumer life, including
an (cid:147)Everyday Rebates(cid:148) feature
that provides up to $10 back
every quarter in 10% purchase
The bank has completed a new full service branch facility in
Aurora, and is adding a second Nixa facility adjacent to the
development of 700 new homes in north Nixa.
rebates. Another innovative
benefit, Local Connections,
lets members clip up to 50
merchant, service and travel
coupons annually from a
virtually unlimited selection
of online destination discount
booklets, including
Springfield and other cities
across America. These
enhanced member benefits
are also now accessible and
interactive online, so that
members seeking to
capitalize on provided
pharmacy benefits, for
example, can enter a zip code
and print out a list of
participating pharmacies in
the area.
With our continued growth
in products, services and
personnel, one of the bigger
issues we face is internal
communication. Given our
size and continued focus on
building one-on-one
relationships, it(cid:146)s now more
important than ever for the
left hand to know what the
right hand is doing.
Last year we added
customer relationship
management software (CRM)
which provides employees
desktop access to a profile of
any customer(cid:146)s total
relationship with us at any
touch point. But as our
customer relationships grew,
a common theme still
emerged in internal focus
groups on improving
personal service: (cid:147)I wish I
knew more of what is going
on around here.(cid:148) To help
keep everybody on the same
page, the bank launched a bi-
monthly employee e-mail
newsletter, GS News, and
Support. Branch Liaison Kent Lammers (bottom left) helps branch
managers bridge the gap between big bank and small branch
lending power and know-how for new commercial clients.
What the right hand is doing. The monthly Great Southern
Forum keeps employees up-to-date on the latest news, and the
efforts of fellow team members.
A new card design heralds our new capability to drive
our own ATM network without the aid of an outside
vendor.
13
s e r v i c e s a n d p r o d u c t s
the banking business, service
is everything, and while
airline commissions have
disappeared and business
travel flattened over the past
year, our travel agency is not
only surviving, but thriving.
Annual events including an
Anniversary Celebration,
Disney Days and Cruise
Extravaganza were well-
attended by industry
representatives, and
generated more than half a
million dollars in sales. The
agency(cid:146)s focus on Branson
has also proven wise,
capitalizing on a strong
inbound group sales market
and leveraging the Branson
Box Office product for
advance package
reservations.
Appropriately, Great
Southern Travel(cid:146)s 25th year
was a year of industry
recognition. The agency
garnered Apple Vacation(cid:146)s
Golden Apple Award, Holland
America(cid:146)s Premium Preferred
Award, Carnival Cruise Lines(cid:146)
Winners Circle Award and
Funjet Vacation(cid:146)s Gold Award
honoring the number one
producer in the state of
Missouri.
Great Southern Financial
Services also experienced a
year of transition. With all the
concerns that investors had,
including homeland security,
the probability of war, the
struggling economy, stock
market and low interest rates,
many investors chose to step
to the sidelines and wait for a
"better time." In times like
these, many companies
simply focused on staying
afloat, but Great Southern
Financial Services used this
time to re-tool and "raise the
bar." In March, we moved
away from the "discount
mentality" to compete in the
full-service arena, partnering
with Raymond James
Financial Services. GSFS
President Mike Bennitt
explains, "In the late 90s,
people thought that investing
was as easy as throwing a
dart, and the thought was
that a financial advisor could
not provide much value. We
felt that this was an anomaly
and that most discount
providers and their clients
would suffer. As such, we
made a decision to become a
established Kelly Polonus as
Director of Corporate
Communications. Kelly is also
our dedicated media relations
contact, the go-to person for
public information on
everything there is to ask
about Great Southern. An
even bigger communications
initiative, The Great Southern
Forum, brings more than 100
managers and officers
together each month to share
information, spotlight
departments, learn more
about our organization and
see a bigger picture in client
service.
Honoring our 80th year,
2002 also marked the 25th
Anniversary of Great
Southern Travel, an (cid:145)extra(cid:146)
customer service that has
grown to become one of the
top 100 travel agencies in
America.
In the travel business, as in
We’re well-known as the area’s largest mortgage lender, but it’s still a face-to-face
service. Commercial officer Paul Potthoff (center) and mortgage specialists Vicki Bilyeu
and Chris Zimmerman rotate meet-and-greet shifts with other team members at
Business Expos, Home & Garden events and other trade shows.
Near and far. A focus on other revenue streams, including cruise vacations,
inbound groups and fee services, has helped our travel agency survive the
disappearance of airline commissions.
14
beyond banking
full-service provider with the
thought that although in
some cases we might need to
charge slightly more, we
would be able to provide the
very best in products,
services and advice. We never
want to apologize for
quality."
The decision to move to
Raymond James has proven
to be a correct one, as not
only has the quality of
products improved, but the
company is now positioned to
bring revenue to the holding
company in numerous other
ways which were not possible
before.
Bennitt said, "Some of the
many services we can now
provide include trust services
and corporate underwritings,
as well as several community
and charitable
partnerships
which dovetail
nicely with our
overall
corporate
mission.(cid:148)
Although 2002 was indeed
a difficult year and a year of
transition which included the
daunting task of transferring
many thousands of customer
accounts, the department was
still able to grow gross
revenue a stellar 17% over
2001.
The year was even more
challenging for Great
Southern Insurance. The
property-casualty companies
saw a third of their surplus
disappear after the World
Trade Center loss. The
combination of a terrible
stock market, a weak
economy, fear of further
terrorism, the unstable world
political climate, the
aftermath of unexpected
directors and officers claims
(Enron, etc.), asbestos claims
and the mold issue all led
inexorably to higher costs
and reduced coverages for
virtually all insurance buyers.
One of our biggest challenges
was simply keeping coverages
available to our customers.
Great Southern Insurance
has been an independent
agency since 1952 and we
continue to search out
markets to better serve our
customers and the
community. As a
participating sponsor of the
LifePrint Child Safety
program, we helped make it
possible for parents to bring
their kids and receive DNA
samples for child
identification. The program
has been well attended by the
community and we feel the
effort is much needed around
the country.
Also in 2002, we were
named a Key Producer for the
member companies of Ohio
Casualty Group, honoring
exceptional product
knowledge, professionalism
and service to customers.
Although our written
premiums grew almost 15%
for the year, 2003 will be
another challenging year for
the industry. We will continue
to strive to provide a good
product at a competitive
price, and with a well-trained
staff, make 2003 a successful
year for all of us.
Our partnership with Raymond James says full-service and top
quality to Great Southern Investments clients. An initiative to
license branch reps to sell annuities marks our commitment to
providing convenient and personable service at every level.
Bob Mahoney, 75, is still breaking age group
marathon records, and hopes to qualify for a second
Boston Marathon soon. A longtime shareholder, Bob
enjoys multiple customer relationships with Great
Southern, which in turn support his investment.
Manager Byron Robison and Insurance department volunteers
Lisa Reichle and Candace Anderson provided and manned the
popcorn booth during LifePrint Day. More than 2,000 kids
received DNA Child Safety IDs.
15
c o m m u n i t y d e v e l o p m e n t
Great Southern is the only
financial institution in the
Ozarks region to have a
locally based Community
Development specialist on
staff. Established in July
2002, the Great Southern
Community Development
department is focused on
reaching economically
underserved people and
neighborhoods through
targeted products and
services, community
partnerships and
investments. Great Southern
believes there is a mutual
benefit to serving these
underserved markets. The
targeted customers and
neighborhoods receive the
capital, resources and
financial services they need,
and in return, we are able to
create a new, loyal and
profitable customer base for
the company.
"Community Development
is not charity. It is a planned
and organized process
through which people in
communities can learn to
help themselves," said
Community Development
Director Brian Fogle. "Banks
can play a unique role in
building communities
because of the capital and
products they can offer. For
the program to be sustainable
over time, it must be
profitable as well as
successful. By improving the
lives of our underserved
families, our entire
community benefits. A
stronger community means a
better market for us. It is
truly a case of (cid:145)doing well by
doing good.(cid:146)"
Community Development is
a part of the company(cid:146)s
overall business philosophy,
which means that the
department is not a stand-
alone initiative(cid:151)it(cid:146)s an
integral part of every line of
business. The department
works with all areas of the
company to ensure it has the
appropriate products,
services and delivery
channels needed to serve the
entire community, while
being mindful of the
department(cid:146)s objective to
manage a successful balance
between mission and profit.
Since the department(cid:146)s
inception last year, several
initiatives are underway:
Subsidiary Community
Development Corporation
(CDC): Just beginning, the
company(cid:146)s CDC will allow for
activities not conventionally
authorized for financial
institutions, such as real estate
development, equity
investment and specialized
lending to projects benefiting
low-to-moderate income
people and neighborhoods.
Community Development
investments: Great Southern
has worked
with
community-
based
organizations
in Joplin and Springfield to
provide technical assistance
and consulting to establish
CDCs designed to promote
community economic
development. In addition to
Joyce Pace, CFO of The Kitchen and Vice President Doug Marrs
review the progress of an AHP Grant providing Sigma House
transitional housing.
Vice President and Springfield Vision 20/20 Co-Chair Brian Fogle
and Springfield Mayor/Board Member Tom Carlson congratulate
developer Scott Tillman (center) on renovations to Springfield’s
historic Rogers & Baldwin Hardware Company building.
16
technical assistance, Great
Southern made a $10,000
investment in the Joplin
Capital Corporation, a new
Joplin-based CDC focused on
center city redevelopment,
and a $100,000 investment in
the Ozarks Regional CDC,
which has been organized to
assist both new and existing
businesses with financing to
increase employment
opportunities within a
southwest Missouri 10-county
region. Great Southern also
made a leadership
commitment of $75,000 to
the Partnership for Prosperity
fund sponsored by the
Springfield Area Chamber of
Commerce and the
Springfield Business and
doing well by doing good
Development Corporation.
The funds will be used for
important needs such as
workforce development,
regional cooperation, and
business retention and
expansion.
Center City Revitalization:
Great Southern understands
the unique challenges in
attracting investment to
center city and has provided
loans, equity investments and
technical assistance to help
Springfield(cid:146)s revitalizing
center city area. Community
Development and the
Commercial Lending staff
have worked closely with
developers to assist in
complex financing
arrangements, utilizing a
number of financial tools
such as tax credits, City loan
programs and Springfield
Finance and Development
loans to bring challenging
rehabilitation projects to life.
Community Advisory
Board: To ensure that Great
Southern is effectively
meeting the needs of the
community, Community
Development established a
board of local and regional
leaders to provide feedback
and ideas for community
development activities.
ATLS Low Income Tax
Clinic: Great Southern is a
member of the newly formed
Across The LifeSpan Financial
Services Network (ATLS), a
network of community
agencies working to promote
financial literacy and
independence in the
community. ATLS assists
eligible low-income and
senior taxpayers with free tax
preparation, electronic filing,
tax credit assistance and
controversy work. Great
Southern is providing
furnished office space at its
branch at 1955 S. Campbell
for a central ATLS tax clinic
site. The ATLS site also
provides convenient access to
financial products, services
(including free checking), and
assistance to ATLS clients.
Great Southern’s Community Advisory Board represents a broad spectrum of
municipal, faith-based, volunteer organization and community service leaders.
Just in time for tax season, a free tax filing service assisted low-income families and
senior citizens at our South Campbell branch.
17
c o m m u n i t y i n v e s t m e n t
Since its founding 80 years
ago, the company has fostered
a strong tradition of caring
and sharing. Great Southern
has a commitment to the
communities it serves to help
make them better places to
live, work, and do business.
This commitment includes
providing services and capital
to help them grow,
encouraging associates to
actively contribute their time
and talents to their
communities and charitable
giving to help community
organizations provide their
much-needed services.
In 2002, Great Southern
contributed more than
$260,000 in charitable giving
and community sponsorships,
and thousands of associate
volunteer hours. Although our
donations take many forms
and cover a broad range of
areas, we have developed
guidelines to make sure each
community receives those
grants it needs the most. Of
particular interest are local
and results-driven programs
that help children in many
facets of their lives including
education, healthcare and
social development. While we
consider our investment in
children a primary focus, the
company also invests in
communities through
support of affordable
housing, health and human
services and the arts.
Long-term support includes
such organizations as the
Children(cid:146)s Miracle Network
and CMN C.A.R.E. Mobile, the
Jerry Lewis MDA Telethon,
Boys and Girls Town and the
March of Dimes.
In a new cooperative
partnership last year, Great
Southern joined Springfield
Public Schools and the
American National Fish and
Wildlife Museum to create the
Great Southern 6th
Grade Safari. This
unique educational
program provided
more than 2,200
students from
Springfield public
and private schools a
chance to actively learn about
conservation and wildlife.
Students traveled to Wonders
of Wildlife and participated in
a hands-on classroom
experience followed by a tour
of interactive exhibits. Great
Southern made a three-year
commitment to underwrite
this program.
As a long-time Partner-In-
Education with McGregor
Elementary School, the
Our Partner-in-Education students got a close-up look at
owls and other nocturnal creatures during an in-school
“Wild Nights” presentation.
A class project at Wanda Gray Elementary brought students to the bank
to ask for business start-up money.Teams wrote business plans, made
loan presentations and learned how a bank works.
Celebrating the completion of construction at
McGregor Elementary, the company helped purchase
a new school sign.
18
our continued focus on quality of life
company enhanced its
partnership in new ways in
2002. For an all-school
assembly, Great Southern
brought in WOW(cid:146)s
educational outreach staff to
present "Wild Nights," a
program designed to teach
students about nocturnal
animals and how they live.
For the first time, Great
Southern served as the main
corporate underwriter for the
annual holiday fundraising
auction, the Festival of Trees,
benefitting the Discovery
Center of Springfield. The
Discovery Center is an
interactive, hands-on museum
committed to inspiring
people of all ages with a life-
long love of learning and
appreciation of the world and
our place in it.
Great Southern took
temporary custody of a bear
encourage our associates to
get involved and help make
our communities better and
stronger."
While most volunteer
commitments take place after
regular business hours, some
commitments require time
during the normal workday.
Through Community
Partners, Great Southern
provides associates time off,
including paid time off, for
volunteer community service
throughout the year.
by sponsoring "Bears on
Parade," a public art display
of fiberglass bears. Great
Southern(cid:146)s "Gummy Bear" and
26 other bears were
auctioned off to benefit the
Southwest Missouri State
University Athletics
Scholarship Fund and the
Jane A. Meyer Carillon Fund.
While we(cid:146)re working to
make grants, our associates
complement this effort by
investing their time and
energy in projects that
improve the quality of life for
people in the community.
Year after year, we are
heartened by the generosity
and compassion of our
associates.
To further support our
commitment to volunteerism
and recognizing the vital role
it plays in our communities,
Great Southern introduced
Caring & Sharing Community
Partners.
"Throughout the year, we
know that many associates
are involved in a number of
activities outside their jobs.
We coach. We mentor. We
teach. We build. And we do it
all to benefit others," said Joe
Turner, president and CEO of
Great Southern. "Community
Partners solidifies the
importance we
place on
volunteering and
we strongly
The Great Southern 6th Grade Safari provided field trips to the Wonders of Wildlife
museum for more than 2,200 area students.
Originally on display at our East Battlefield branch, Gummy
Bear found a permanent home at high-bidder Summer Fresh
Supermarkets. Local artist and SMSU student Bret Forester
used over two thousand gum wrappers in the design.
19
Our first Caring &
Sharing Partner Award
recipient, Jane Enloe,
keeps in touch with
March of Dimes success
stories like 12-week pre-
mature baby Cysco
Nerisotes, now a
healthy 8-year old jun-
ior athlete. A 25-year
employee, Jane has
been actively involved
in a variety of volunteer
positions for more than
20 years.
GREAT SOUTHERN BANCORP, INC.
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
When used in this Annual
Report and in future filings
by the Company with the
Securities and Exchange
Commission (the "SEC"), in
the Company’s press releases
or other public or
shareholder communications,
and in oral statements made
with the approval of an
authorized executive officer,
the words or phrases "will
likely result," "are expected
to," "will continue," "is
anticipated," "estimate,"
"project" or similar
expressions are intended to
identify "forward-looking
statements" within the
meaning of the Private
Securities Litigation Reform
Act of 1995. Such statements
are subject to certain risks
and uncertainties, including,
among other things, changes
in economic conditions in the
Company’s market area,
changes in policies by
regulatory agencies,
fluctuations in interest rates,
demand for loans and
deposits in the Company(cid:146)s
market area and competition,
that could cause actual
results to differ materially
from historical earnings and
those presently anticipated or
projected. The Company
wishes to advise readers that
the factors listed above could
affect the Company’s
financial performance and
could cause the Company’s
actual results for future
periods to differ materially
from any opinions or
statements expressed with
respect to future periods in
any current statements.
The Company does not
undertake-and specifically
declines any obligation-to
publicly release the result of
any revisions which may be
made to any forward-looking
statements to reflect events
or circumstances after the
date of such statements or to
reflect the occurrence of
anticipated or unanticipated
events.
Critical Accounting
Policies, Judgments and
Estimates
The accounting and
reporting policies of the
Company conform with
accounting principles
generally accepted in the
United States and general
practices within the financial
services industry. The
preparation of financial
statements in conformity
with accounting principles
generally accepted in the
United States of America
requires management to
make estimates and
assumptions that affect the
amounts reported in the
financial statements and the
accompanying notes. Actual
results could differ from
those estimates.
The Company considers
that the determination of the
allowance for loan losses
involves a higher degree of
judgment and complexity
than its other significant
accounting policies. The
allowance for loan losses is
calculated with the objective
of maintaining an allowance
level believed by management
to be sufficient to absorb
estimated loan losses.
Management’s determination
of the adequacy of the
allowance is based on
periodic evaluations of the
loan portfolio and other
relevant factors. However,
this evaluation is inherently
subjective as it requires
material estimates, including,
among others, expected
20
default probabilities, loss
given default, expected
commitment usage, the
amounts and timing of
expected future cash flows on
impaired loans, value of
collateral, estimated losses,
and general amounts for
historical loss experience. The
process also considers
economic conditions,
uncertainties in estimating
losses and inherent risks in
the loan portfolio. All of these
factors may be susceptible to
significant change. To the
extent actual outcomes differ
from management estimates,
additional provisions for loan
losses may be required that
would adversely impact
earnings in future periods.
General
The profitability of the
Company and, more
specifically, the profitability
of its primary subsidiary,
Great Southern Bank (the
"Bank"), depends primarily on
its net interest income. Net
interest income is the
difference between the
interest income it earns on
interest-earning assets,
mainly its loans and
investment portfolio, and the
interest it pays on interest-
bearing liabilities, which
consists mainly of interest
paid on deposits and
borrowings. Net interest
income is affected by the
relative amounts of interest-
earning assets and interest-
bearing liabilities and the
interest rates earned or paid
on these balances. When
interest-earning assets
approximate or exceed
interest-bearing liabilities,
any positive interest rate
spread will generate net
interest income.
The Company’s profitability
is also affected by the level of
its non-interest income and
operating expenses. Non-
interest income consists
primarily of gains on sales of
loans and available-for-sale
investments, service charges
and ATM fees, commissions
earned by non-bank
subsidiaries and other
general operating income.
Operating expenses consist
primarily of salaries and
employee benefits,
occupancy-related expenses,
postage, insurance,
advertising, office expenses
and other general operating
expenses.
The operations of the Bank,
and banking institutions in
general, are significantly
influenced by general
economic conditions and
related monetary and fiscal
policies of regulatory
agencies. Deposit flows and
the cost of deposits and
borrowings are influenced by
interest rates on competing
investments and general
market rates of interest.
Lending activities are affected
by the demand for financing
real estate and other types of
loans, which in turn are
affected by the interest rates
at which such financing may
be offered and other factors
affecting loan demand and
the availability of funds.
Effect of Federal Laws
and Regulations
Federal legislation and
regulation significantly affect
the banking operations of the
Company and the Bank, and
have increased competition
among commercial banks,
savings institutions, mortgage
banking enterprises and other
financial institutions. In
particular, the capital
requirements and operations
of regulated depository
institutions such as the
Company and the Bank have
been and will be subject to
changes in applicable statutes
and regulations from time to
time, which changes could,
under certain circumstances,
adversely affect the Company
or the Bank.
Potential Impact of
Accounting Principles to
Be Implemented in the
Future
In July 2002, the Financial
Accounting Standards Board
("FASB") issued SFAS 146,
"Accounting for Costs
Associated with Exit or
Disposal Activities." This
Statement requires that a
liability for costs associated
with an exit or disposal
activity be recognized when
incurred rather than at the
date of commitment to an
exit or disposal plan. This
Statement replaces EITF 94-3
and is to be applied
prospectively to exit or
disposal activities initiated
after December 31, 2002. The
adoption of this Statement is
not expected to have a
material effect on the
Company’s financial
statements.
In October 2002, the FASB
issued SFAS 147,
"Acquisitions of Certain
Financial Institutions." This
Statement brings all business
combinations involving
financial institutions, except
mutuals, into the scope of
SFAS 141, "Business
Combinations." SFAS 147
requires that all acquisitions
of financial institutions that
meet the definition of a
business, including
acquisitions of part of a
financial institution that meet
the definition of a business,
be accounted for in
accordance with SFAS 141
and the related intangibles
accounted for in accordance
with SFAS 142. SFAS 147
removes such acquisitions
from the scope of SFAS 72,
"Accounting for Certain
Acquisitions of Banking or
Thrift Institutions." SFAS 147
also amends SFAS 144 to
include in its scope long-term
customer-relationship
intangible assets of financial
institutions. SFAS 147 is
generally effective
immediately and provides
guidance with respect to
amortization and impairment
of intangibles recognized in
connection with acquisitions
previously within the scope of
SFAS 72. The adoption of this
Statement did not have a
material effect on the
Company’s financial
statements.
The FASB recently issued its
Interpretation No. 45,
"Guarantor’s Accounting and
Disclosure Requirements for
Guarantees, Including Indirect
Guarantees of Indebtedness
of Others." This new
Interpretation requires a
guarantor to recognize a
liability for the fair value of
the obligation undertaken in
issuing a guarantee at its
inception and prescribes
disclosures regarding
guarantees. The
Interpretation applies only to
guarantees issued or
modified after December 31,
2002. Guarantees issued by
the Company are principally
in the form of letters of credit
as discussed in Note 15.
Initial adoption of the
21
Interpretation is not expected
to have a material effect on
the Company’s financial
statements. The Company’s
application of the
Interpretation to guarantees
issued or modified after
December 31, 2002, will, if
material, result in recognition
of a liability for such
guarantees, as well as
recognition of fee revenue
from them over the period of
time the guarantees are
outstanding.
COMPARISON OF FINANCIAL
CONDITION AT DECEMBER
31, 2002 AND DECEMBER
31, 2001
During the year ended
December 31, 2002, the
Company increased total
assets by $80 million to $1.40
billion. Net loans increased
by $37 million. The main loan
areas experiencing increases
were commercial real estate,
commercial construction, and
consumer. One- to four-family
mortgage loans and mortgage
loans held for sale decreased
during 2002. Total
investment securities
increased by $18 million,
which was primarily an
increase in held-to-maturity
industrial revenue bonds and
available-for-sale United
States government agency
mortgage-backed securities,
partially offset by a decrease
in United States government
agency debt securities. Cash
and cash equivalents
increased $21 million
primarily due to higher
balances of vault cash and
larger cash letter settlements
at December 31, 2002.
Prepaid expenses and other
assets increased $9 million,
primarily as a result of
recording the increase in
mark-to-market value of the
Company’s interest rate
swaps. Based upon the terms
of these swap agreements, in
accordance with generally
accepted accounting
principles, the Company
records changes in the
market value of its interest
rate swaps in the category
"other assets," with a
corresponding increase or
decrease to the liability being
hedged.
Total liabilities increased
$60 million from December
31, 2001 to December 31,
2002, to $1.30 billion.
Deposits increased $135
million, partially offset by a
decrease in FHLBank
advances of $53 million and a
decrease in short-term
borrowings of $14 million.
The decrease in short-term
borrowings was the result of
decreases in federal funds
purchased, partially offset by
increases in securities sold
under repurchase
agreements. FHLBank
advances decreased due to
GREAT SOUTHERN BANCORP, INC.
Management’s Discussion and Analysis continued
their repayment when due
utilizing funds from the
additional deposit account
balances. Retail certificates of
deposit increased $52 million,
to $359 million. Total
brokered deposits were $340
million at December 31, 2002,
down from $355 million at
December 31, 2001. The
weighted average cost of
these deposits was
approximately 162 basis
points higher than the retail
certificate of deposit
portfolio, excluding the effect
of the Company(cid:146)s interest
rate swaps on a portion of
these brokered certificates of
deposit. The interest rate
swaps reduced the weighted
average cost of the brokered
certificate of deposit portfolio
to a rate that is
approximately 141 basis
points lower than the retail
certificate of deposit
portfolio. Interest-bearing
checking balances accounted
for $59 million of the
increase in deposits. Non-
interest-bearing checking
balances increased $32
million. Checking and
savings account balances
totaled $312 million at
December 31, 2002. During
2002, the Company became a
correspondent bank for
several local financial
institutions, which led to a
portion of the increase in
checking account balances. In
addition, the Company added
new money market and
corporate checking products
which led to increased
balances. Management
continues to feel that
FHLBank advances and
brokered deposits are viable
alternatives to retail deposits
when factoring in all the costs
associated with the
generation and maintenance
of additional retail deposits.
Stockholders(cid:146) equity
increased $19.4 million from
$85.3 million at December 31,
2001 to $104.7 million at
December 31, 2002. Net
income for fiscal year 2002
was $23.2 million and
accumulated other
comprehensive income
increased by $1.9 million.
These items were partially
offset by dividends of $4.8
million and net treasury stock
repurchases of $845,000. The
Company repurchased 38,676
shares of common stock at an
average price of $34.71 per
share during 2002.
RESULTS OF OPERATIONS
AND COMPARISON FOR THE
YEARS ENDED DECEMBER
31, 2002 AND 2001
GENERAL
The increase in earnings of
$4.5 million, or 23.7%, during
the year ended December 31,
2002, compared to the year
ended December 31, 2001,
was primarily due to an
increase in net interest
income of $6.2 million, or
14.3%, and an increase in non-
interest income of $2.8
million, or 16.4%, partially
offset by an increase in non-
interest expense of $1.1
million, or 4.2%, an increase
in provision for loan losses of
$600,000, or 11.5%, and an
increase in provision for
income taxes of $2.8 million,
or 29.8%.
TOTAL INTEREST
INCOME
Total interest income
decreased $9.3 million, or
10.4%, during the year ended
December 31, 2002 compared
to the year ended December
31, 2001. The decrease was
due to a $12.0 million, or
15.8%, decrease in interest
income on loans, partially
offset by a $2.7 million, or
20.2%, increase in interest
income on investments and
other interest-earning assets.
Interest income for both
loans and investment
securities and other interest-
22
earning assets decreased due
to significantly lower average
rates of interest, while
interest income for both was
positively impacted by higher
average balances. In addition,
interest income in 2002 was
higher due to the recovery of
$415,000 of interest on a
commercial real estate loan
that was charged off in a
prior year.
INTEREST INCOME -
LOANS
During the year ended
December 31, 2002 compared
to December 31, 2001,
interest income on loans
decreased from lower average
interest rates, partially offset
by higher average balances.
Interest income decreased
$17.0 million as the result of
lower average interest rates.
The average yield on loans
decreased from 8.13% during
the year ended December 31,
2001, to 6.41% during the
year ended December 31,
2002, as a result of decreases
in market rates of interest,
primarily the "prime rate" of
interest. A large portion of
the Bank(cid:146)s loan portfolio
adjusts with changes to the
"prime rate" of interest.
Interest income increased
$5.0 million as the result of
higher average loan balances
from $936 million during the
year ended December 31,
2001 to $1.00 billion during
the year ended December 31,
2002. The higher average
balance resulted principally
from the Bank(cid:146)s increased
commercial real estate and
construction lending,
commercial business lending
and indirect dealer consumer
lending. The Bank(cid:146)s one- to
four-family residential loan
portfolio has decreased since
December 31, 2000, due to
the origination of a greater
dollar amount of fixed-rate
rather than adjustable-rate
loans. The Bank generally
sells these fixed-rate loans in
the secondary market.
INTEREST INCOME -
INVESTMENTS AND
OTHER INTEREST-EARN-
ING DEPOSITS
Interest income on
investments and other
interest-earning assets
increased mainly as a result
of higher average balances
during the year ended
December 31, 2002, when
compared to the year ended
December 31, 2001. Interest
income increased $4.6 million
as a result of an increase in
average balances from $211
million during the year ended
December 31, 2001, to $293
million during the year ended
December 31, 2002. This
increase was primarily in
available-for-sale securities,
where additional securities
were acquired for liquidity
and pledging to deposit
accounts under repurchase
agreements. The increase in
interest income was partially
offset by $1.9 million as a
result of a decrease in
average yields from 6.33%
during the year ended
December 31, 2001, to 5.49%
during the year ended
December 31, 2002.
TOTAL INTEREST
EXPENSE
Total interest expense
decreased $15.6 million, or
33.9%, during the year ended
December 31, 2002, when
compared with the year
ended December 31, 2001,
primarily due to a decrease in
interest expense on deposits
of $10.2 million, or 31.4%, a
decrease in interest expense
on FHLBank advances of $3.5
million, or 33.7%, and a
decrease in interest expense
on short-term borrowings and
trust preferred securities of
$1.9 million, or 60.8%.
INTEREST EXPENSE -
DEPOSITS
Interest expense on
deposits decreased $14.8
million as a result of a
decrease in average rates of
interest on time deposits
from 5.03% during the year
ended December 31, 2001, to
2.83% during the year ended
December 31, 2002, and
increased $4.9 million due to
an increase in average
balances of time deposits
from $593 million during the
year ended December 31,
2001, to $705 million during
the year ended December 31,
2002. The average balance of
time deposits increased
primarily as a result of the
Company(cid:146)s use of brokered
and other time deposits to
fund loan and investment
securities growth. In recent
years, brokered deposit rates
have become competitive
with rates on FHLBank
advances and larger retail
deposits. The average interest
rates decreased due to lower
overall market rates of
interest in 2002 and the
effects of the Company(cid:146)s
interest rate swaps.
Interest on demand
deposits decreased $786,000
due to a decrease in average
rates from 1.69% during the
year ended December 31,
2001, to 1.22% during the
year ended December 31,
2002, and increased $620,000
due to an increase in average
balances from $144 million
during the year ended
December 31, 2001, to $187
million during the year ended
December 31, 2002. The other
deposit category, savings,
experienced a $108,000
decrease due to decreases in
both average balances and
average rates of interest.
INTEREST EXPENSE -
FHLBANK ADVANCES,
SHORT-TERM
BORROWINGS AND
TRUST PREFERRED
SECURITIES
Interest expense on
FHLBank advances, short-
term borrowings and trust
preferred securities
decreased $4.2 million due to
a decrease in average rates
from 4.61% in the year ended
December 31, 2001, to 3.00%
in the year ended December
31, 2002. In addition, average
balances decreased from
$293 million during the year
ended December 31, 2001, to
$270 million during the year
ended December 31, 2002,
resulting in decreased
interest expense of $1.2
million. The average balance
decrease was offset by
increases in deposits. Average
interest rates decreased due
to lower overall market rates
during 2002. The Company(cid:146)s
use of FHLBank advances,
short-term borrowings and
trust preferred securities
which reprice frequently
(daily, monthly or quarterly)
contributed to the significant
decrease in average rates of
interest.
NET INTEREST INCOME
The Company’s overall
interest rate spread increased
22 basis points, or 6.5%, from
3.37% during the year ended
23
December 31, 2001, to 3.59%
during the year ended
December 31, 2002. The
increase was due to a 182
basis point decrease in the
weighted average rate paid on
interest-bearing liabilities
partially offset by a 160 basis
point decrease in the
weighted average yield
received on interest-earning
assets. The Company’s overall
net interest margin increased
5 basis points, or 1.3%, from
3.80% during the year ended
December 31, 2001, to 3.85%
during the year ended
December 31, 2002. In
comparing the two years, the
yield on loans decreased 172
basis points while the yield
on investment securities and
other interest-earning assets
decreased 84 basis points.
The rate paid on deposits
decreased 187 basis points,
while the rate paid on
FHLBank advances and other
borrowings decreased 161
basis points.
The prime rate of interest
averaged 6.92% during the
year ended December 31,
2001, compared to an average
of 4.68% during the year
ended December 31, 2002. As
a large percentage of the
Bank(cid:146)s loans are tied to
prime, this decrease was the
primary reason for the
decrease in the weighted
average yield received on
interest-earning assets.
Interest rates paid on
deposits, FHLBank advances
and other borrowings
decreased significantly during
2002 compared to 2001. As
market rates of interest
declined during 2002, the
Company reduced rates paid
to depositors. In addition in
2002, the Company continued
to utilize interest rate swaps
and FHLBank advances which
repriced daily, monthly or
quarterly to further reduce
interest expense.
PROVISION FOR LOAN
LOSSES AND ALLOWANCE
FOR LOAN LOSSES
The provision for loan
losses increased $600,000, or
11.5%, during the year ended
December 31, 2002, from
$5.2 million during the year
ended December 31, 2001 to
$5.8 million during the year
ended December 31, 2002.
The provision recorded in
2002 was consistent with the
Company(cid:146)s increased level of
net charge-offs and higher
balances of non-performing
loans. The allowance for loan
losses remained virtually
unchanged at December 31,
2002 compared to December
31, 2001, even though the
amount of non-performing
loans increased significantly.
The increase in non-
performing loans primarily
resulted from the
deterioration of credits that
GREAT SOUTHERN BANCORP, INC.
Management’s Discussion and Analysis continued
were classified as potential
problem loans at December
31, 2001. The Company had
established a loan loss
allowance in 2001 that
included reserves for these
potential problem loans at
that time.
Management records a
provision for loan losses in
an amount it believes
sufficient to result in an
allowance for loan losses that
will cover current net charge-
offs as well as risks believed
to be inherent in the loan
portfolio of the Bank. The
amount of provision charged
against current income is
based on several factors,
including, but not limited to,
past loss experience, current
portfolio mix, actual and
potential losses identified in
the loan portfolio, economic
conditions, regular reviews by
internal staff and regulatory
examinations.
Weak economic conditions,
higher inflation or interest
rates, or other factors may
lead to increased losses in the
portfolio. Management has
established various controls
in an attempt to limit future
losses, such as a watch list of
possible problem loans,
documented loan
administration policies and a
loan review staff to review the
quality and anticipated
collectibility of the portfolio.
Management determines
which loans are potentially
uncollectible, or represent a
greater risk of loss and makes
additional provisions to
expense, if necessary, to
maintain the allowance at a
satisfactory level.
The Bank(cid:146)s allowance for
loan losses as a percentage of
total loans was 2.09% and
2.16% at December 31, 2002
and 2001, respectively.
Management considers the
allowance for loan losses
adequate to cover losses
inherent in the Company(cid:146)s
loan portfolio at this time,
based on current economic
conditions. If economic
conditions deteriorate
significantly, it is possible
that additional assets would
be classified as non-
performing, and accordingly,
additional provision for
losses would be required,
thereby adversely affecting
future results of operations
and financial condition.
NON-PERFORMING
ASSETS
Non-performing assets
increased $6.2 million, or
49.6%, from $12.6 million at
December 31, 2001, to $18.8
million at December 31, 2002.
Non-performing loans
increased $5.0 million, or
52.1%, from $9.5 million at
December 31, 2001, to $14.5
million at December 31, 2002,
and foreclosed assets
increased $1.2 million, or
41.6%, from $3.1 million at
December 31, 2001, to $4.3
million at December 31, 2002.
Non-performing Loans. Non-
performing loans increased
primarily as a result of the
addition of two lending
relationships, one with a
remaining balance of
$886,000 and another with a
remaining balance of $7.3
million. These two
relationships are described
below. Commercial loans
comprise $12.0 million, or
82%, of the total $14.5 million
non-performing loans at
December 31, 2002. Two
unrelated commercial real
estate credit relationships,
totaling $7.3 million and $1.0
million as of December 31,
2002, respectively, account
for a majority of this non-
performing total. The $7.3
million relationship is
primarily secured by
condominium buildings and
lots, single-family residences
and lots, a golf course, and
24
other developed and
undeveloped land. This
relationship was described in
the December 31, 2001,
Annual Report on Form 10-K
and was included in potential
problem loans at that time.
This relationship was
included in non-performing
loans during the second
quarter of 2002, and a total
of $3.2 million was
subsequently charged off
during the remainder of 2002.
The $1.0 million relationship
is secured by the real estate
and business assets of a
restaurant in Branson,
Missouri. This relationship
was placed in a non-accrual
status in the fourth quarter of
2001. Mortgage loans
comprise $1.7 million, or 12%,
of the total $14.5 million non-
performing loans at
December 31, 2002. One
credit relationship, totaling
$886,000 accounted for a
large portion of this non-
performing mortgage loan
total. The $886,000
relationship is comprised of
ten loans, which are primarily
secured by residential rental
properties and
condominiums in Branson,
Missouri. This relationship
was first included in non-
performing loans in the
quarter ended March 31,
2002. This relationship was
originally $2.3 million; the
balance has been reduced
through charge-offs,
foreclosures, and the sale of
collateral and repayment of
loans by the borrowers.
Subsequent to December
31, 2002, the $7.3 million
relationship described above
was foreclosed upon, with
Great Southern, along with
the lead bank in this
participation, as the
successful bidders. An
updated valuation of the
property has been completed
during the first quarter 2003.
The Company’s one-third
interest in the property has
been recorded in foreclosed
assets at a carrying value of
$6.7 million, with the
difference recorded as a loan
charge-off in the quarter
ended March 31, 2003.
Foreclosed Assets. Of the total
$4.3 million of foreclosed
assets at December 31, 2002,
foreclosed real estate totaled
$3.0 million and repossessed
automobiles totaled $1.3
million. Of the total real
estate assets, three
relationships account for $2.4
million. The first relationship
has a remaining balance of
$1.7 million and involves a
motel, condominium units
and vacant land in the
Branson, Missouri, area. This
relationship was described in
the December 31, 2001,
Annual Report on Form 10-K
and was included in non-
performing loans at that time.
During 2002, a portion of the
vacant land with a book value
of $650,000 was sold with no
additional loss to the
Company. Subsequent to
December 31, 2002, all of the
assets described in this
relationship, except a portion
of the vacant land valued at
$275,000, were sold with no
additional loss to the
Company. The second
relationship has a remaining
balance of $519,000 and
involves a golf course and
condominium units in the
Branson, Missouri, area. The
third relationship has a
remaining balance of
$275,000 and involves a
commercial office building in
Joplin, Missouri. Subsequent
to December 31, 2002, this
building was sold with no
additional loss to the
Company.
Potential Problem Loans.
Potential problem loans
decreased $7.3 million, or
39%, from $18.7 million at
December 31, 2001, to $11.4
million at December 31, 2002.
These are loans which
management has identified
through routine internal
review procedures as having
possible credit problems
which may cause the
borrowers difficulty in
complying with current loan
repayment terms. These loans
are not reflected in the non-
performing loans. Potential
problem loans decreased
primarily as a result of the
$7.3 million commercial real
estate credit relationship
discussed above under "Non-
performing Loans," which was
reclassified from potential
problem loans to non-
performing loans, and other
smaller relationships which
were removed from or added
to the problem asset
watchlist. Three unrelated
real estate credit
relationships, totaling $3.6
million, $1.3 million and
$917,000, respectively,
account for a majority of this
potential problem loan total.
The $3.6 million relationship
is secured by a motel in
Springfield, Missouri. The
$1.3 million relationship is
secured by a motel in
Branson, Missouri. The
$917,000 relationship is
secured by five single-family
homes under construction in
Monett, Missouri.
NON-INTEREST INCOME
Non-interest income
increased $2.8 million, or
16.4%, in the year ended
December 31, 2002, when
compared to the year ended
December 31, 2001. The
increase was primarily due to
an increase of $3.3 million in
net realized gains on sales of
available-for-sale investment
securities. The increase in
gain on sale of available-for-
sale securities was primarily
due to the sale of the
Company’s holdings of the
common stock of another
publicly traded company.
This transaction was
previously discussed in SEC
filings by the Company. In
addition, the Company sold
some of its investments in
debt securities to restructure
its portfolio and realized the
resulting gains and losses.
This increase was partially
offset by: (i) a decrease in net
realized gains on sales of
fixed-rate residential and
student loans of $181,000, or
10.3%; and (ii) expenses on
foreclosed assets of $597,000
in 2002 versus expenses on
foreclosed assets of $216,000
in 2001. In 2002, the
Company incurred higher
expenses related to increased
levels of foreclosures and
repossessions. In addition,
the Company recorded
$254,000 of provision for
losses on foreclosed assets in
2002 compared to a provision
of $150,000 in 2001. During
2001, the Company sold one
commercial real estate loan
that was purchased at a
discount from the Resolution
Trust Corporation in a prior
25
year, resulting in a gain of
$300,000.
NON-INTEREST EXPENSE
Non-interest expense
increased $1.1 million, or
4.2%, in the year ended
December 31, 2002, when
compared to the year ended
December 31, 2001. The
increase was primarily due to:
(i) an increase of $716,000, or
4.7%, in salaries and
employee benefits; and (ii) an
increase of $607,000, or
12.8%, in net occupancy and
equipment expense due
primarily to increases in
depreciation and various
maintenance projects on
buildings and equipment. The
increase in salaries and
employee benefits primarily
relates to normal merit
increases for existing
employees and the hiring of
additional experienced
personnel to fill key
supervisory and customer
sales positions. This was
partially offset by smaller
increases and decreases in
other expense categories.
PROVISION FOR INCOME
TAXES
Provision for income taxes
as a percentage of pre-tax
income increased slightly
from 33.6% for the year
ended December 31, 2001, to
34.6% for the year ended
December 31, 2002. The
dollar amount of increase in
the provision was primarily
due to the increase in income
before taxes.
AVERAGE BALANCES,
INTEREST RATES AND
YIELDS
The following table (see
Table I on the next page)
presents, for the periods
indicated, the total dollar
amount of interest income
from average interest-earning
assets and the resulting
yields, as well as the interest
expense on average interest-
bearing liabilities, expressed
both in dollars and rates, and
the net interest margin.
Average balances of loans
receivable include the average
balances of non-accrual loans
for each period. Interest
income on loans includes
interest received on non-
accrual loans on a cash basis.
The table does not reflect any
effect of income taxes.
Rate/Volume Analysis
The following table (see
Table II on the next page)
presents the dollar amount of
changes in interest income
and interest expense for
major components of
interest-earning assets and
interest-bearing liabilities for
the periods shown. For each
category of interest-earning
assets and interest-bearing
liabilities, information is
provided on changes
attributable to (i) changes in
GREAT SOUTHERN BANCORP, INC.
Management’s
Discussion and Analysis
continued
rate (i.e., changes in rate
multiplied by old volume) and
(ii) changes in volume (i.e.,
changes in volume multiplied
by old rate). For purposes of
this table, changes
attributable to both rate and
volume, which cannot be
segregated, have been
allocated proportionately to
volume and rate.
RESULTS OF OPERATIONS
AND COMPARISON FOR
THE YEARS ENDED
DECEMBER 31, 2001
AND 2000
General
The increase in earnings of
$3.3 million, or 21.2%, during
the year ended December 31,
2001, compared to the year
ended December 31, 2000,
was primarily due to an
increase in net interest
income of $6.3 million, or
16.9%, and an increase in non-
interest income of $2.1
million, or 13.7%, partially
offset by an increase in non-
interest expense of $1.7
million, or 6.6%, an increase
in provision for loan losses of
$2.1 million, or 67.4%, and an
increase in provision for
income taxes of $1.3 million,
or 15.8%.
Table I
(Dollars in thousands)
Interest-earning assets:
Loans receivable
Investment securities and
December 31,
2002
Yield /
Rate
Year Ended
December 31, 2002
Year Ended
December 31, 2001
Year Ended
December 31, 2000
Average
Yield /
Balance Interest Rate
Average
Balance
Interest
Yield /
Rate
Average
Balance
Interest
Yield /
Rate
6.10%
$1,000,044 $64,062
6.41% $ 936,117
$76,107
8.13% $843,170 $77,399
9.18%
other interest-earning assets
Total interest-earning assets
5.24
5.90
293,022
$1,293,066
16,099
80,161
5.49
6.20
211,461
$1,147,578
13,390
89,497
Interest-bearing liabilities:
Interest-bearing demand
Savings
Time deposits
Total deposits
FHLB advances and other borrowings
Total interest-bearing liabilities
Net interest income:
Interest rate spread
Net interest margin*
Average interest-earning assets to
average interest-bearing liabilities
1.08 $ 187,171
1,005
1.23
704,523
2.38
892,699
2.07
2.66
269,901
$1,162,600
2.20
2,277
17
19,950
22,244
8,093
30,337
1.22 $ 144,374
5,358
1.69
593,265
2.83
742,997
2.49
293,124
3.00
$1,036,121
2.61
2,443
125
29,837
32,405
13,502
45,907
3.70%
$49,824
3.59%
$43,590
3.37%
$37,289
3.85%
3.80%
111.2%
110.8%
111.1%
6.33
7.80
1.69
2.33
5.03
4.36
4.61
4.43
135,148
$978,318
8,751
86,150
$122,392
25,400
476,386
624,178
256,698
$880,876
2,617
631
28,996
32,244
16,617
48,861
6.47
8.81
2.14
2.48
6.09
5.17
6.47
5.55
3.26%
3.81%
*Defined as the Company’s net interest income divided by total interest-earning assets.
Table II
(Dollars in thousands)
Interest-earning assets:
Loans receivable
Investments securities and
other interest-earning assets
Year Ended
December 31, 2002 vs.
December 31, 2001
Year Ended
December 31, 2001 vs.
December 31, 2000
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
Increase (Decrease)
Due to
Rate
Volume
Total
Increase
(Decrease)
$(16,974)
$4,929
$(12,045)
$(9,345) $8,053
$(1,292)
(1,947)
4,656
2,709
(197)
4,836
Total interest-earning assets
(18,921)
9,585
(9,336)
(9,542) 12,889
Interest-bearing liabilities:
Demand deposits
Savings deposits
Time deposits
Total deposits
FHLBank advances and
other borrowings
Total interest-bearing
liabilities
(786)
(49)
(14,748)
(15,583)
620
(59)
4,861
5,422
(166)
(108)
(9,887)
(598)
(41)
(5,550)
424
(465)
6,391
(10,161)
(6,189)
6,350
(4,230)
(1,179)
(5,409)
(5,248)
2,133
(3,115)
(19,813)
4,243
(15,570)
(11,437)
8,483
Net interest income
$
892
$5,342 $ 6,234
$ 1,895
$4,406
26
Total Interest Income
Total interest income
increased $3.3 million, or
3.9%, during the year ended
December 31, 2001 compared
to the year ended December
31, 2000. The increase was
due to a $4.6 million, or
53.0%, increase in interest
income on investments and
other interest-earning assets,
partially offset by a $1.3
million, or 1.7%, decrease in
interest income on loans.
Interest income for both
loans and investment
securities and other interest-
earning assets increased due
to higher average balances,
while interest on loans was
4,639
3,347
(174)
(506)
841
161
(2,954)
$ 6,301
negatively impacted by
significantly lower average
rates.
In addition, interest income
in 2001 was higher due to the
following items:
(cid:149) Interest income was
positively impacted by
recoveries of $420,000 and
$635,000 of interest on two
unrelated commercial real
estate loans that were
charged off in a prior year.
(cid:149) Interest income was
positively impacted by a
recovery of $280,000 of
interest on a loan relationship
that was removed from non-
performing status. This $7.3
million relationship is further
discussed under "Provision
for Loan Losses" and was
described in the December
31, 2000 Annual Report on
Form 10-K.
(cid:149) Interest income was
positively impacted by yield
increases due to securities
being purchased at a discount
and being called at par value.
This resulted in an increase
of approximately $500,000.
Interest Income - Loans
During the year ended
December 31, 2001 compared
to December 31, 2000,
interest income on loans
decreased from lower average
interest rates, partially offset
by higher average balances.
Interest income decreased
$9.3 million as the result of
lower average interest rates.
The average yield on loans
decreased from 9.18% during
the year ended December 31,
2000, to 8.13% during the
year ended December 31,
2001, as a result of decreases
in market rates of interest,
primarily the "prime rate" of
interest. A large portion of
the Bank(cid:146)s loan portfolio
adjusts with changes to the
"prime rate" of interest.
Interest income increased
$8.0 million as the result of
higher average loan balances
from $843 million during the
year ended December 31,
2000 to $936 million during
the year ended December 31,
2001. The higher average
balance resulted principally
from the Bank(cid:146)s increased
commercial real estate and
construction lending,
commercial business lending
and indirect dealer consumer
lending. The Bank(cid:146)s one- to
four-family residential loan
portfolio has decreased since
December 31, 2000, due to
the origination of a greater
dollar amount of fixed-rate
rather than adjustable-rate
loans. The Bank generally
sells these fixed-rate loans in
the secondary market.
Interest Income -
Investments and Other
Interest-Earning Assets
Interest income on
investments and other
interest-earning assets
increased mainly as a result
of higher average balances
during the year ended
December 31, 2001, when
compared to the year ended
December 31, 2000. Interest
income increased $4.8 million
as a result of an increase in
average balances from $135
million during the year ended
December 31, 2000, to $211
million during the year ended
December 31, 2001. This
increase was primarily in
available-for-sale securities,
where additional securities
were acquired for liquidity
and pledging to deposit
accounts under repurchase
agreements. The increase in
interest income was offset by
$197,000 as a result of a
decrease in average yields
from 6.47% during the year
ended December 31, 2000, to
6.33% during the year ended
December 31, 2001.
Total Interest Expense
Total interest expense
decreased $3.0 million, or
6.0%, during the year ended
December 31, 2001, when
compared with the year
ended December 31, 2000,
primarily due to a decrease in
interest expense on FHLBank
advances of $4.0 million, or
27.8%, partially offset by an
increase in interest expense
on deposits of $0.2 million, or
27
0.5%, and an increase in
interest expense on short-
term borrowings and trust
preferred securities of $0.9
million, or 37.2%.
Interest Expense -
Deposits
Interest expense on
deposits increased $6.4
million as a result of an
increase in average balances
of time deposits from $476
million during the year ended
December 31, 2000, to $593
million during the year ended
December 31, 2001, and
decreased $5.6 million due to
a decrease in average interest
rates on time deposits from
6.09% during the year ended
December 31, 2000, to 5.03%
during the year ended
December 31, 2001. The
average balances of time
deposits increased primarily
as a result of the Company(cid:146)s
use of brokered and other
time deposits to fund loan
and investment securities
growth. In recent years,
brokered deposit rates have
become competitive with
rates on FHLBank advances
and larger retail deposits. The
average interest rates
decreased due to lower
overall market rates of
interest in 2001 and the
effects of the Company(cid:146)s
interest rate swaps.
Interest on demand
deposits decreased $598,000
due to a decrease in average
rates from 2.14% during the
year ended December 31,
2000, to 1.69% during the
year ended December 31,
2001, and increased $424,000
due to an increase in average
balances from $122 million
during the year ended
December 31, 2000, to $144
million during the year ended
December 31, 2001. The other
deposit category, savings,
experienced a $506,000
decrease due primarily to a
decrease in average balances.
The changes in average
balances for demand deposits
and savings deposits
approximately offset each
other and resulted from the
Company(cid:146)s change of product
offerings and the
reclassification of certain
account types.
Interest Expense -
FHLBank and Other
Borrowings
Interest expense on
FHLBank advances, short-
term borrowings and trust
preferred securities
decreased $3.1 million due to
a decrease in average rates
from 6.47% in the year ended
December 31, 2000, to 4.61%
in the year ended December
31, 2001. This was partially
offset by an increase in
average balances from $257
million during the year ended
December 31, 2000, to $293
GREAT SOUTHERN BANCORP, INC.
Management’s Discussion and Analysis continued
million during the year ended
December 31, 2001, resulting
in increased interest expense
of $2.1 million due to higher
average balances. The average
balance increase was used to
fund growth in loans and
investment securities.
Average interest rates
decreased due to lower
overall market rates during
2001. The Company(cid:146)s use of
FHLBank advances, short-
term borrowings and trust
preferred securities which
reprice daily, monthly or
quarterly contributed to the
significant decrease in
average rates of interest.
Net Interest Income
The Company’s overall
interest rate spread increased
11 basis points, or 3.4%, from
3.26% during the year ended
December 31, 2000, to 3.37%
during the year ended
December 31, 2001. The
increase was due to a 112
basis point decrease in the
weighted average rate paid on
interest-bearing liabilities
partially offset by a 101 basis
point decrease in the
weighted average yield
received on interest-earning
assets. The Company’s overall
net interest margin decreased
1 basis point, or 0.3%, from
3.81% during the year ended
December 31, 2000, to 3.80%
during the year ended
December 31, 2001. In
comparing the two years, the
yield on loans decreased 105
basis points while the yield
on investment securities and
other interest-earning assets
decreased 14 basis points.
The rate paid on deposits
decreased 81 basis points,
while the rate paid on
FHLBank advances and other
borrowings decreased 186
basis points.
The prime rate of interest
averaged 9.23% during the
year ended December 31,
2000, compared to an average
of 6.92% during the year
ended December 31, 2001. As
a large percentage of the
Bank(cid:146)s loans are tied to
prime, this decrease was the
primary reason for the
decrease in the weighted
average yield received on
interest-earning assets.
Interest rates paid on
deposits, FHLBank advances
and other borrowings
decreased significantly during
2001 compared to 2000. As
market rates of interest
declined during 2001, the
Company reduced rates paid
to depositors. In addition in
2001, the Company utilized
interest rate swaps and
FHLBank advances which
repriced daily, monthly or
quarterly to reduce interest
expense.
Provision for Loan Losses
The provision for loan
losses increased $2.1 million,
or 67.4%, during the year
ended December 31, 2001,
from $3.1 million during the
year ended December 31,
2000 to $5.2 million during
the year ended December 31,
2001.
Management records a
provision for loan losses in
an amount it believes
sufficient to result in an
allowance for loan losses that
will cover current net charge-
offs as well as risks believed
to be inherent in the loan
portfolio of the Bank. The
amount of provision charged
against current income is
based on several factors,
including, but not limited to,
past loss experience, current
portfolio mix, actual and
potential losses identified in
the loan portfolio, economic
conditions, regular reviews by
internal staff and regulatory
examinations.
Weak economic conditions,
higher inflation or interest
rates, or other factors may
28
lead to increased losses in the
portfolio. Management has
established various controls
in an attempt to limit future
losses, such as a watch list of
possible problem loans,
documented loan
administration policies and a
loan review staff to review the
quality and anticipated
collectibility of the portfolio.
Management determines
which loans are potentially
uncollectible, or represent a
greater risk of loss and makes
additional provisions to
expense, if necessary, to
maintain the allowance at a
satisfactory level.
Non-performing assets
decreased $2.6 million, or
16.9%, from $15.2 million at
December 31, 2000, to $12.6
million at December 31, 2001.
Non-performing loans
decreased $3.0 million, or
23.5%, from $12.5 million at
December 31, 2000, to $9.5
million at December 31, 2001,
and foreclosed assets
increased $0.4 million, or
13.7%, from $2.7 million at
December 31, 2000, to $3.1
million at December 31, 2001.
Commercial loans comprise
$7.8 million, or 82%, of the
total $9.5 million non-
performing loans at
December 31, 2001. Three
unrelated commercial real
estate credit relationships,
totaling $2.4 million, $1.7
million and $1.1 million,
respectively, account for a
majority of this non-
performing total. The $2.4
million relationship is
secured by a motel,
condominium units and
vacant land in the Branson,
Missouri area. This
relationship was placed in a
non-accrual status in the
fourth quarter of 2001. The
$1.7 million relationship is
secured primarily by
condominium buildings and
lots, single-family residences
and lots, and other developed
land near the Lake of the
Ozarks, Missouri. This credit
is part of the $7.3 million
relationship described in the
2000 Annual Report on Form
10-K. The $1.1 million
relationship is secured by the
real estate and business
assets of a restaurant in
Branson, Missouri. A portion
of this credit is guaranteed by
the Small Business
Administration. This
relationship was placed in a
non-accrual status in the
fourth quarter of 2001.
Of the total $3.1 million of
foreclosed assets at
December 31, 2001, three
relationships account for $2.0
million. The first relationship
involves a planned golf
course and undeveloped lots
near the Lake of the Ozarks,
Missouri. The golf course is
not operating and is listed for
sale with a broker. The
second relationship involves a
single-family residence
located near Springfield,
Missouri. The property is
listed for sale with a broker.
The third relationship
involves a single-family
residence located in
Springfield, Missouri. The
house was under construction
at the time of foreclosure and
is now near completion.
Potential problem loans
increased $11.2 million, or
150%, from $7.5 million at
December 31, 2000, to $18.7
million at December 31, 2001.
These are loans which
management has identified
through routine internal
review procedures as having
possible credit problems
which may cause the
borrowers difficulty in
complying with current loan
repayment terms. These loans
are not reflected in the non-
performing loans. Potential
problem loans increased
primarily as a result of one
large commercial real estate
credit relationship, totaling
$7.8 million, which was
removed from non-
performing status, although
this relationship remains on
the problem asset watch list
currently. This relationship
was described in the
December 31, 2000 Annual
Report on Form 10-K and is
secured by a golf course,
condominium buildings and
lots, single-family residences
and lots, and other developed
and undeveloped land. The
loan relationship has been
strengthened through a
participation in this credit
with another financial
institution, which resulted in
additional collateral being
provided for the loan.
The Bank(cid:146)s allowance for
loan losses as a percentage of
total loans was 2.16% and
2.06% at December 31, 2001
and 2000, respectively.
Management considers the
allowance for loan losses
adequate to cover losses
inherent in the Company(cid:146)s
loan portfolio at this time,
based on current economic
conditions. If economic
conditions deteriorate
significantly, it is possible
that additional assets would
be classified as non-
performing, and accordingly,
additional provision for
losses would be required,
thereby adversely affecting
future results of operations
and financial condition.
Non-Interest Income
Non-interest income
increased $2.1 million, or
13.7%, in the year ended
December 31, 2001, when
compared to the year ended
December 31, 2000. The
increase was primarily due to:
(i) an increase in service
charges and ATM fees of $2.4
million, or 39.9%; (ii) an
increase in net realized gains
on sales of fixed rate
residential and other loans of
$1.2 million, or 208%; and (iii)
an increase of $148,000 in
profits on sales of available-
for-sale investment securities.
The increase in service charge
income resulted from new
products introduced,
increased activity and a larger
number of deposit accounts.
The increase in ATM fees is
related to an increase in
overall usage by customers
and non-customers. During
the year ended December 31,
2001, the Bank sold
significantly more residential
and student loans than in
2000. During 2001, interest
rates were conducive to the
generation of fixed-rate
mortgages, which the Bank
typically sells, rather than
adjustable-rate mortgages,
which the Bank typically
retains in its portfolio.
During the year ended
December 31, 2001, the
Company sold some of its
investments in debt securities
to restructure its portfolio
and realized the resulting
gains and losses.
This increase was partially
29
offset by: (i) a decrease in
commissions revenues of
$1.3 million, or 17.9%; and (ii)
expenses on foreclosed assets
of $216,000 in 2001 versus
gains on foreclosed assets of
$295,000 in 2000. In 2001,
the Company incurred
expenses to prepare
properties for sale, primarily
related to two properties.
Both the travel and
investment subsidiaries have
experienced decreased sales
activity as a result of general
economic conditions
prevailing in 2001. The
investment subsidiary has
been adversely affected by
declining activity by investors
in the U. S. stock markets.
The travel subsidiary has
been adversely affected by
the merger of American
Airlines and Trans World
Airlines (TWA). Special
incentives negotiated between
the travel subsidiary and
TWA were discontinued in
2001 as a result of the
merger. In addition, the
terrorist attacks on
September 11, 2001, caused
the cancellation of many
travel activities, resulting in
commission refunds by the
travel subsidiary. Due to the
current instability in the
travel industry, the travel
subsidiary likely will continue
to generate little net income.
Non-Interest Expense
Non-interest expense
increased $1.7 million, or
6.6%, in the year ended
December 31, 2001, when
compared to the year ended
December 31, 2000. The
increase was primarily due to:
(i) an increase of $1.5 million,
or 10.9%, in salaries and
employee benefits; and (ii) an
increase of $201,000, or 4.4%,
in net occupancy and
equipment expense due
primarily to renovation work
(and the related depreciation)
at the Company(cid:146)s main office
and operations center and
other branch locations. The
increase in salaries and
employee benefits primarily
relates to normal merit
increases for existing
employees and the hiring of
additional experienced
personnel to fill key
supervisory and customer
sales positions
This was partially offset by
smaller increases and
decreases in other expense
categories.
Provision for Income
Taxes
Provision for income taxes
as a percentage of pre-tax
income decreased slightly
from 34.6% for the year
ended December 31, 2000, to
33.6% for the year ended
December 31, 2001. This
decrease primarily relates to
GREAT SOUTHERN BANCORP, INC.
Management’s Discussion and Analysis continued
the Company(cid:146)s increase in
average balances in tax-
exempt investments.
Liquidity and Capital
Resources
Liquidity is a measure of
the Company(cid:146)s ability to
generate sufficient cash to
meet present and future
financial obligations in a
timely manner through either
the sale or maturity of
existing assets or the
acquisition of additional
funds through liability
management. These
obligations include the credit
needs of customers, funding
deposit withdrawals and the
day-to-day operations of the
Company. Liquid assets
include cash, interest-bearing
deposits with financial
institutions and certain
investment securities and
loans. As a result of the
Company(cid:146)s management of
the ability to generate
liquidity primarily through
liability funding, management
believes that the Company
maintains overall liquidity
sufficient to satisfy its
depositors(cid:146) requirements and
meet its customers(cid:146) credit
needs. At December 31, 2002,
the Company had
commitments of
approximately $139 million
to fund loan originations,
issued lines of credit,
outstanding letters of credit
and unadvanced loans.
Management continuously
reviews the capital position of
the Company and the Bank to
ensure compliance with
minimum regulatory
requirements, as well as to
explore ways to increase
capital either by retained
earnings or other means.
The Company(cid:146)s
stockholders(cid:146) equity was
$104.7 million, or 7.5% of
total assets of $1.40 billion at
December 31, 2002,
compared to equity of $85.3
million, or 6.4% of total assets
of $1.32 billion at December
31, 2001.
Banks are required to
maintain minimum risk-based
capital ratios. These ratios
compare capital, as defined
by the risk-based regulations,
to assets adjusted for their
relative risk as defined by the
regulations. Guidelines
require banks to have a
minimum Tier 1 risk-based
capital ratio, as defined, of
4.00%, a minimum total
risked-based capital ratio of
8.00%, and a minimum 4.00%
Tier 1 leverage ratio. On
December 31, 2002, the
Bank(cid:146)s Tier 1 risk-based
capital ratio was 10.32%, total
risk-based capital ratio was
11.58% and the Tier 1
leverage ratio was 8.22%. As
of December 31, 2002, the
Bank was "well capitalized" as
defined by the Federal
banking agencies(cid:146) capital-
related regulations. The FRB
has established capital
regulations for bank holding
companies that generally
parallel the capital
regulations for banks. As of
December 31, 2002, the
Company was "well
capitalized" under the capital
ratios described above.
At December 31, 2002, the
held-to-maturity investment
portfolio included no gross
unrealized losses.
The Company(cid:146)s primary
sources of funds are
certificates of deposit,
FHLBank advances, other
borrowings, loan repayments,
proceeds from sales of loans
and available-for-sale
securities and funds provided
from operations. The
Company utilizes particular
sources of funds based on the
comparative costs and
availability at the time. The
Company has from time to
time chosen not to pay rates
on deposits as high as the
rates paid by certain of its
competitors and, when
30
believed to be appropriate,
supplements deposits with
less expensive alternative
sources of funds
Statements of Cash Flows.
During the years ended
December 31, 2002, 2001 and
2000, the Company had
positive cash flows from
operating activities and
positive cash flows from
financing activities. The
Company experienced
negative cash flows from
investing activities during
each of these same time
periods.
Cash flows from operating
activities for the periods
covered by the Statements of
Cash Flows have been
primarily related to changes
in accrued and deferred
assets, credits and other
liabilities, the provision for
loan losses, the provision for
losses on foreclosed assets,
depreciation, and the
amortization of deferred loan
origination fees and
discounts (premiums) on
loans and investments, all of
which are non-cash or non-
operating adjustments to
operating cash flows. Net
income adjusted for non-cash
and non-operating items and
the origination and sale of
loans held-for-sale were the
primary sources of cash flows
from operating activities.
Operating activities provided
cash flows of $29.2 million,
$23.5 million and $26.3
million during the years
ended December 31, 2002,
2001 and 2000, respectively.
During the years ended
December 31, 2002, 2001 and
2000, investing activities used
cash of $64.5 million, $197.4
million and $170.5 million,
primarily due to the net
increase of loans and the net
purchases of investment
securities in each period.
Changes in cash flows from
financing activities during the
periods covered by the
Statements of Cash Flows are
due to changes in deposits
after interest credited,
changes in FHLBank advances
and changes in short-term
borrowings, as well as the
issuance of trust preferred
securities, purchases of
treasury stock and dividend
payments to stockholders.
Financing activities provided
$56.0 million, $168.9 million
and $140.7 million for the
years ended December 31,
2002, 2001 and 2000,
respectively. Financing
activities in the future are
expected to primarily include
changes in deposits, changes
in FHLBank advances,
changes in short-term
borrowings, purchases of
treasury stock and dividend
payments to stockholders.
Dividends. During the year
ended December 31, 2002,
the Company declared
dividends of $.70 per share
(20.8% of net income) and
paid dividends of $.55 per
share (16.3% of net income),
compared to dividends
declared and paid during the
year ended December 31,
2001 of $.50 per share, or
18.5% of net income. The
Board of Directors meets
regularly to consider the level
and the timing of dividend
payments.
Common Stock Repurchases.
The Company has been in
various buy-back programs
since May 1990. During the
year ended December 31,
2002, the Company
repurchased 38,676 shares of
its common stock at an
average price of $34.71 per
share and reissued 33,262
shares of treasury stock at an
average price of $18.78 per
share to cover stock option
exercises. During the year
ended December 31, 2001,
the Company repurchased
61,267 shares of its common
stock at an average price of
$26.75 per share and reissued
26,470 shares of treasury
stock at an average price of
$15.62 per share to cover
stock option exercises.
Management intends to
continue its stock buy-back
programs from time to time
as long as repurchasing the
stock contributes to the
overall growth of shareholder
value. The number of shares
of stock that will be
repurchased and the price
that will be paid is the result
of many factors, several of
which are outside of the
control of the Company. The
primary factors, however, are
the number of shares
available in the market from
sellers at any given time and
the price of the stock within
the market as determined by
the market.
QUANTITATIVE AND
QUALITATIVE DISCLO-
SURES ABOUT MARKET
RISK
Asset and Liability
Management and Market
Risk
A principal operating
objective of the Company is
to produce stable earnings by
achieving a favorable interest
rate spread that can be
sustained during fluctuations
in prevailing interest rates.
The Company has sought to
reduce its exposure to
adverse changes in interest
rates by attempting to
achieve a closer match
between the periods in which
its interest-bearing liabilities
and interest-earning assets
can be expected to reprice
through the origination of
adjustable-rate mortgages
and loans with shorter terms
to maturity and the purchase
of other shorter term
interest-earning assets. Since
the Company uses laddered
brokered deposits and
FHLBank advances to fund a
portion of its loan growth, the
Company(cid:146)s assets tend to
reprice more quickly than its
liabilities. However, the
Company(cid:146)s interest rate
swaps on certain brokered
deposits have accelerated the
repricing of these deposits to
partially offset the effects of
assets that reprice quickly.
Our Risk When Interest
Rates Change
The rates of interest we
earn on assets and pay on
liabilities generally are
established contractually for
a period of time. Market
interest rates change over
time. Accordingly, our results
of operations, like those of
other financial institutions,
are impacted by changes in
interest rates and the interest
rate sensitivity of our assets
and liabilities. The risk
associated with changes in
interest rates and our ability
to adapt to these changes is
known as interest rate risk
and is Great Southern’s most
significant market risk.
How We Measure the Risk
To Us Associated with
Interest Rate Changes
In an attempt to manage
our exposure to changes in
31
interest rates and comply
with applicable regulations,
we monitor Great Southern’s
interest rate risk. In
monitoring interest rate risk
we regularly analyze and
manage assets and liabilities
based on their payment
streams and interest rates,
the timing of their maturities
and their sensitivity to actual
or potential changes in
market interest rates.
The ability to maximize net
interest income is largely
dependent upon the
achievement of a positive
interest rate spread that can
be sustained despite
fluctuations in prevailing
interest rates. Interest rate
sensitivity is a measure of the
difference between amounts
of interest-earning assets and
interest-bearing liabilities
which either reprice or
mature within a given period
of time. The difference, or the
interest rate repricing "gap,"
provides an indication of the
extent to which an
institution’s interest rate
spread will be affected by
changes in interest rates. A
gap is considered positive
when the amount of interest-
rate sensitive assets exceeds
the amount of interest-rate
sensitive liabilities repricing
during the same period, and
is considered negative when
the amount of interest-rate
sensitive liabilities exceeds
the amount of interest-rate
sensitive assets during the
same period. Generally,
during a period of rising
interest rates, a negative gap
within shorter repricing
periods would adversely
affect net interest income,
while a positive gap within
shorter repricing periods
would result in an increase in
net interest income. During a
period of falling interest
rates, the opposite would be
true. As of December 31,
2002, Great Southern’s
internal interest rate risk
models indicate a one-year
interest rate sensitivity gap
that is slightly positive.
Interest rate risk exposure
estimates (the sensitivity gap)
are not exact measures of an
institution’s actual interest
rate risk. They are only
indicators of interest rate risk
exposure produced in a
simplified modeling
environment designed to
allow management to gauge
the Bank(cid:146)s sensitivity to
changes in interest rates.
They do not necessarily
indicate the impact of general
interest rate movements on
the Bank(cid:146)s net interest
income because the repricing
of certain categories of assets
and liabilities is subject to
competitive and other factors
beyond the Bank(cid:146)s control. As
a result, certain assets and
liabilities indicated as
GREAT SOUTHERN BANCORP, INC.
Management’s Discussion and Analysis continued
maturing or otherwise
repricing within a stated
period may in fact mature or
reprice at different times and
in different amounts and
cause a change, which
potentially could be material,
in the Bank(cid:146)s interest rate
risk.
In order to minimize the
potential for adverse effects
of material and prolonged
increases and decreases in
interest rates on Great
Southern’s results of
operations, Great Southern
has adopted asset and
liability management policies
to better match the maturities
and repricing terms of Great
Southern’s interest-earning
assets and interest-bearing
liabilities. Management
recommends and the Board
of Directors sets the asset
and liability policies of Great
Southern which are
implemented by the asset and
liability committee. The asset
and liability committee is
chaired by the Company’s
Chief Financial Officer and is
comprised of members of
Great Southern’s senior
management. The purpose of
the asset and liability
committee is to communicate,
coordinate and control
asset/liability management
consistent with Great
Southern’s business plan and
board-approved policies. The
asset and liability committee
establishes and monitors the
volume and mix of assets and
funding sources taking into
account relative costs and
spreads, interest rate
sensitivity and liquidity
needs. The objectives are to
manage assets and funding
sources to produce results
that are consistent with
liquidity, capital adequacy,
growth, risk and profitability
goals. The asset and liability
committee meets on a
monthly basis to review,
among other things,
economic conditions and
interest rate outlook, current
and projected liquidity needs
and capital positions and
anticipated changes in the
volume and mix of assets and
liabilities. At each meeting,
the asset and liability
committee recommends
appropriate strategy changes
based on this review. The
Chief Financial Officer or his
designee is responsible for
reviewing and reporting on
the effects of the policy
implementations and
strategies to the Board of
Directors at their monthly
meetings.
In order to manage its
assets and liabilities and
achieve the desired liquidity,
credit quality, interest rate
risk, profitability and capital
targets, Great Southern has
focused its strategies on
originating adjustable rate
loans, and managing its
deposits and borrowings to
establish stable relationships
with both retail customers
and wholesale funding
sources.
At times, depending on the
level of general interest rates,
the relationship between
long- and short-term interest
rates, market conditions and
competitive factors, we may
determine to increase our
interest rate risk position
somewhat in order to
maintain our net interest
margin.
The asset and liability
committee regularly reviews
interest rate risk by
forecasting the impact of
alternative interest rate
environments on net interest
income and market value of
portfolio equity, which is
defined as the net present
value of an institution’s
existing assets, liabilities and
off-balance sheet
instruments, and evaluating
such impacts against the
maximum potential changes
in net interest income and
market value of portfolio
32
equity that are authorized by
the Board of Directors of
Great Southern.
resultant gains and losses
recognized in noninterest
income.
In 2000, the Company
began using interest rate
swap derivatives as one
method to manage some of
its interest rate risks from
recorded financial liabilities.
These derivatives are utilized
when they can be
demonstrated to effectively
hedge a designated asset or
liability and such asset or
liability exposes the Company
to interest rate risk.
Beginning in 2001, interest
rate swaps are carried at fair
value determined using
quoted dealer prices and are
recognized in the statement
of financial condition in the
prepaid expenses and other
assets caption. Amounts to be
paid or received under
interest rate swaps are
accounted for on the accrual
basis and recognized as
interest income or expense of
the related liability. Gains and
losses on early termination of
these instruments are
deferred and amortized as an
adjustment to the yield on
the related liability over the
shorter of the remaining
contract life or the maturity
of the related asset or
liability. If the related liability
is sold or otherwise
liquidated, the instrument is
marked to market, with the
The Company has entered
into interest rate swap
agreements with the objective
of hedging against the effects
of changes in the fair value of
its liabilities for fixed rate
brokered certificates of
deposit and trust preferred
securities caused by changes
in market interest rates. The
swap agreements generally
provide for the Company to
pay a variable rate of interest
based on a spread to the one-
month or three-month
London Interbank Offering
Rate (LIBOR) and to receive a
fixed rate of interest equal to
that of the hedged
instrument. Under the swap
agreements the Company is
to pay or receive interest
monthly, quarterly,
semiannually or at maturity.
At December 31, 2002, the
notional amount of interest
rate swaps outstanding was
approximately $270,308,000,
all consisting of swaps in a
receivable position. At
December 31, 2001, the
notional amount of interest
rate swaps outstanding was
approximately $257,490,000,
all consisting of swaps in a
receivable position. The
maturities of interest rate
swaps outstanding at
December 31, 2002 and 2001,
Table III
Maturities
2003
2004
December 31,
2005
2006
2007
Thereafter
Total
(Dollars in thousands)
in terms of notional amounts
and their average pay and
receive rates is discussed
further in Note 14 of the
Notes to Consolidated
Financial Statements.
The following tables
illustrate the expected
maturities and repricing,
respectively, of the Bank’s
financial instruments at
December 31, 2002. These
schedules include the effects
of interest rates and repricing
periods of the Company’s
interest rate swaps on time
deposits and other
borrowings. These schedules
do not reflect the effects of
possible prepayments or
enforcement of due-on-sale
clauses. The tables are based
on information prepared in
accordance with generally
accepted accounting
principles.
---
---
---
---
$255
9.01%
---
---
$78,110
5.03%
$36,157
8.35%
---
---
---
---
Financial Assets
Interest bearing deposits
Weighted average rate
$547
0.72%
Available-for-sale equity securities
$296
Weighted average rate
5.94%
Available-for-sale debt securities
Weighted average rate
Held-to-maturity securities
Weighted average rate
Adjustable rate loans
Weighted average rate
Fixed rate loans
Weighted average rate
---
---
---
---
$172,878
5.37%
$79,391
6.26%
Federal Home Loan Bank stock
Weighted average rate
---
---
Financial Liabilities
Savings deposits
Weighted average rate
Time deposits
Weighted average rate
Interest bearing demand
Weighted average rate
$876
1.23%
$403,477
2.57%
$216,699
1.08%
Non-interest bearing demand
Weighted average rate
$94,508
---
Federal Home Loan Bank and
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
$547
0.72%
$10,886
6.10%
$11,182
6.10%
$998
4.59%
$223,834
5.10%
$225,087
5.10%
---
---
$52,587
8.75%
$52,587
8.75%
$69,513
5.19%
$87,924
4.93%
$73,167
5.70%
$238,061
5.61%
$719,653
5.38%
$41,716
8.76%
$40,324
9.29%
$43,643
8.55%
---
---
---
---
---
---
---
---
---
---
---
---
$58,830
8.63%
$14,962
3.00%
$300,061
8.06%
$302,586
---
$14,962
3.00%
$14,962
---
---
---
$876
1.23%
$58,022
3.43%
$30,806
2.80%
$14,195
2.25%
$14,424
2.43%
$178,312
1.55%
$699,236
2.38%
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
$216,699
1.08%
$94,508
---
2002
Fair Value
$547
---
$11,182
---
$225,087
---
$55,900
---
$724,321
---
$876
---
$715,944
---
$216,699
---
$94,508
---
other borrowings
Weighted average rate
$141,817
1.67%
$25,842
2.14%
$3,201
6.62%
$1,426
6.73%
$3,474
7.13%
$91,020
3.98%
$266,780
2.66%
$281,876
---
33
GREAT SOUTHERN BANCORP, INC.
Management’s Discussion and Analysis continued
Table IV
Repricing
2003
2004
December 31,
2005
(Dollars in thousands)
2006
2007
Thereafter
Total
Financial Assets
Interest bearing deposits
Weighted average rate
$547
0.72%
Available-for-sale equity securities
$296
Weighted average rate
5.94%
---
---
---
---
Available-for-sale debt securities
Weighted average rate
---
---
$255
9.01%
Held-to-maturity securities
Weighted average rate
$15,211
5.90%
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
Adjustable rate loans
Weighted average rate
$690,518
5.32%
$17,912
6.35%
$3,883
7.70%
$2,301
7.53%
---
---
---
---
$998
4.59%
$6,570
7.58%
$4,946
7.23%
Fixed rate loans
Weighted average rate
$79,391
6.26%
$36,157
8.35%
$41,716
8.76%
$40,324
9.29%
$43,643
8.55%
Federal Home Loan Bank stock
Weighted average rate
$14,962
3.00%
Financial Liabilities
Savings deposits
Weighted average rate
$876
1.23%
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
2002
Fair Value
$547
---
$11,182
---
$225,087
---
$55,900
---
$724,321
---
$302,586
---
$14,962
---
$876
---
$715,944
---
$216,699
---
$94,508
---
---
---
$10,886
6.10%
$547
0.72%
$11,182
6.10%
$223,834
5.10%
$225,087
5.10%
$30,806
10.40%
$93
4.88%
$58,830
8.63%
---
---
---
---
$52,587
8.75%
$719,653
5.38%
$300,061
8.06%
$14,962
3.00%
$876
1.23%
$699,236
2.38%
$216,699
1.08%
$94,508
---
Time deposits
Weighted average rate
$620,203
2.16%
$51,056
3.73%
$15,324
4.73%
$4,195
4.24%
$4,424
4.84%
$4,034
5.81%
Interest bearing demand
Weighted average rate
Non-interest bearing demand
Weighted average rate
Federal Home Loan Bank and
$216,699
1.08%
$94,508
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
other borrowings
Weighted average rate
$241,997
2.26%
$2,841
7.32%
$3,201
6.62%
$1,426
6.73%
$3,474
7.13%
$13,841
6.31%
$266,780
2.66%
$281,876
---
34
GREAT SOUTHERN BANCORP, INC.
Consolidated Financial
Statements
CONSOLIDATED STATEMENTS OF
Financial Condition
DECEMBER 31, 2002 AND 2001
(In Thousands, Except Per Share Data)
ASSETS
Cash
Interest-bearing deposits in other financial institutions
Cash and cash equivalents
Available-for-sale securities
Held-to-maturity securities
Mortgage loans held for sale
Loans receivable, net
Interest receivable
Loans
Investments
Prepaid expenses and other assets
Foreclosed assets held for sale, net
Premises and equipment, net
Federal Home Loan Bank stock
Refundable income taxes
Deferred income taxes
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits
Federal Home Loan Bank advances
Short-term borrowings
Trust preferred securities
Accrued interest payable
Advances from borrowers for taxes and insurance
Accounts payable and accrued expenses
Income taxes payable
Deferred income taxes
Total liabilities
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
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities, net of income
taxes of $1,286 and $384 at December 31, 2002 and 2001, respectively
$
$
$
2002
55,327
547
55,874
236,269
52,587
2,636
995,011
5,076
1,490
16,452
4,328
16,963
14,962
990
—
1,402,638
1,021,957
206,226
43,304
18,964
2,485
229
3,697
—
1,067
1,297,929
—
123
17,033
145,931
2,568
165,655
$
$
$
2001
29,646
5,474
35,120
233,805
37,465
7,135
957,751
5,147
2,063
7,464
3,057
12,839
14,962
—
6,295
1,323,103
886,870
258,743
57,763
17,160
5,186
295
2,983
8,849
—
1,237,849
—
123
17,160
127,489
710
145,482
See Notes to Consolidated Financial Statements
35
Less treasury common stock, at cost; December 31, 2002
and 2001 – 5,467,881 and 5,462,467 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
60,946
104,709
1,402,638
$
60,228
85,254
1,323,103
$
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF
Income
YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
(In Thousands, Except Per Share Data)
INTEREST INCOME
Loans
Investment securities and other
INTEREST EXPENSE
Deposits
Federal Home Loan Bank advances
Short-term borrowings and trust preferred securities
NET INTEREST INCOME
PROVISION FOR LOAN LOSSES
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
NONINTEREST INCOME
Commissions
Service charges and ATM fees
Net gains on loan sales
Net realized gains (losses) on sales of
available-for-sale securities
Income (expense) on foreclosed assets
Other income
NONINTEREST EXPENSE
Salaries and employee benefits
Net occupancy expense
Postage
Insurance
Amortization of excess of cost over
fair value of net assets acquired
Advertising
Office supplies and printing
Other operating expenses
INCOME BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES
NET INCOME
EARNINGS PER COMMON SHARE
BASIC
DILUTED
2002
64,062
16,099
80,161
22,244
6,852
1,241
30,337
49,824
5,800
44,024
5,786
8,430
1,575
3,443
(597)
1,186
19,823
15,842
5,337
1,426
514
—
622
828
3,765
28,334
35,513
12,301
23,212
3.38
3.34
$
$
$
$
2001
76,107
13,390
89,497
32,405
10,339
3,163
45,907
43,590
5,200
38,390
5,765
8,352
1,756
139
(216)
1,237
17,033
15,126
4,730
1,233
485
284
686
774
3,872
27,190
28,233
9,475
18,758
2.72
2.70
$
$
$
$
2000
$ 77,399
8,751
86,150
32,244
14,312
2,305
48,861
37,289
3,106
34,183
7,024
5,968
570
(9)
295
1,135
14,983
13,642
4,529
1,152
521
160
713
703
4,084
25,504
23,662
8,184
$ 15,478
$
$
2.16
2.12
See Notes to Consolidated Financial Statements
36
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF
Stockholders’Equity
YEARS ENDED
DECEMBER 31, 2002, 2001
AND 2000
(In Thousands, Except Per
Share Data)
Comprehensive
Income
Common
Stock
BALANCE, JANUARY 1, 2000
Net income
Stock issued under Stock Option Plan
Dividends declared, $.50 per share
Change in unrealized appreciation
on available-for-sale securities, net
of income taxes of $582
Treasury stock purchased
Comprehensive income
BALANCE, DECEMBER 31, 2000
Net income
Stock issued under Stock Option Plan
Dividends declared, $.50 per share
Change in unrealized appreciation
on available-for-sale securities, net
of income taxes of $184
Treasury stock purchased
Comprehensive income
BALANCE, DECEMBER 31, 2001
Net income
Stock issued under Stock Option Plan
Dividends declared, $.70 per share
Change in unrealized appreciation
on available-for-sale securities, net
of income taxes of $902
Treasury stock purchased
Comprehensive income
$
—
15,478
—
—
1,028
—
$ 16,506
$
—
18,758
—
—
326
—
$ 19,084
$
—
23,212
—
—
1,858
—
$ 25,070
$ 123
—
—
—
—
—
123
—
—
—
—
—
123
—
—
—
—
—
Additional
Paid-in
Capital
$ 17,487
—
(26)
—
Retained
Earnings
$ 100,310
15,478
—
(3,611)
Accumulated
Other
Comprehensive
Income
(Loss)
$ (644)
—
—
—
Treasury
Stock
$ (48,351)
—
507
—
Total
$ 68,925
15,478
481
(3,611)
—
—
—
—
1,028
—
—
(11,252)
1,028
(11,252)
17,461
—
(301)
—
112,177
18,758
—
(3,446)
—
—
—
—
17,160
—
(127)
—
127,489
23,212
—
(4,770)
384
—
—
—
326
—
710
—
—
—
(59,096)
—
507
—
71,049
18,758
206
(3,446)
—
(1,639)
326
(1,639)
(60,228)
—
624
—
85,254
23,212
497
(4,770)
—
—
—
—
1,858
—
—
(1,342)
1,858
(1,342)
BALANCE, DECEMBER 31, 2002
$ 123
$ 17,033
$ 145,931
$2,568
$ (60,946)
$104,709
See Notes to Consolidated Financial Statements
37
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF
Stockholders’Equity
YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
(In Thousands)
RECLASSIFICATION DISCLOSURE
Unrealized appreciation on available-for-
sale securities, net of income taxes of
$2,073 for December 31, 2002;
$231 for December 31, 2001;
$585 for December 31, 2000
Less: Reclassification adjustment for
(depreciation) appreciation included in
net income, net of income taxes of $1,171
for December 31, 2002; $47 for
December 31, 2001; $(3) for
December 31, 2000
Change in unrealized appreciation on
available-for-sale securities, net of income
taxes
2002
2001
2000
$
4,130
$
418
$
1,022
2,272
92
(6)
$
1,858
$
326
$
1,028
See Notes to Consolidated Financial Statements
38
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF
Cash Flows
YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
(In Thousands)
OPERATING ACTIVITIES
Net income
Proceeds from sales of loans held for sale
Originations of loans held for sale
Items not requiring (providing) cash
Depreciation
Amortization
Provision for loan losses
Provision for losses on foreclosed assets
Net gains on loan sales
Net realized (gains) losses on available-for-sale securities
(Gain) loss on sale of premises and equipment
Gain on sale of foreclosed assets
Amortization of deferred income, premiums and discounts
Deferred income taxes
Changes in:
Interest receivable
Prepaid expenses and other assets
Accounts payable and accrued expenses
Income taxes refundable/payable
Net cash provided by operating activities
INVESTING ACTIVITIES
Net change in loans
Purchase of loans
Proceeds from sale of student loans
Purchase of premises and equipment
Proceeds from sale of premises and equipment
Proceeds from sale of foreclosed assets
Capitalized costs on foreclosed assets
Proceeds from maturing held-to-maturity securities
Purchase of held-to-maturity securities
Proceeds from sale of available-for-sale securities
Proceeds from maturities, calls and repayments
of available-for-sale securities
Purchase of available-for-sale securities
Purchase of Federal Home Loan Bank stock
Net cash used in investing activities
2002
2001
2000
$
23,212
106,487
(98,939)
$
18,758
104,997
(105,766)
$ 15,478
35,511
(32,960)
2,593
136
5,800
254
(1,575)
(3,443)
(76)
(271)
659
(2,654)
644
132
(3,016)
(725)
29,218
(29,144)
(31,448)
10,838
(6,876)
235
4,815
31
11,687
(26,811)
151,265
90,024
(239,087)
—
(64,471)
2,259
409
5,200
150
(1,756)
(139)
87
(576)
(1,493)
(1,306)
1,701
90
(933)
1,781
23,463
(48,976)
(45,990)
11,700
(4,956)
87
5,060
(523)
5
(17,315)
106,292
161,828
(363,762)
(867)
(197,417)
2,191
160
3,106
—
(570)
9
206
(495)
(790)
(958)
(3,057)
329
1,274
6,870
26,304
(115,090)
(26,292)
12,400
(2,729)
—
437
(359)
17,354
(7,474)
19,982
60,230
(125,873)
(3,114)
(170,528)
See Notes to Consolidated Financial Statements
39
GREAT SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENTS OF
Cash Flows
YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
(In Thousands)
FINANCING ACTIVITIES
Net increase in certificates of deposit
Net increase in checking and savings accounts
Proceeds from Federal Home Loan Bank
advances and note payable to bank
Repayments of Federal Home Loan Bank
advances and note payable to bank
Net increase (decrease) in short-term borrowings
Proceeds from issuance of trust preferred securities
Payment of financing costs on trust preferred securities
Advances (to) from borrowers for taxes and insurance
Purchase of treasury stock
Dividends paid
Stock options exercised
Net cash provided by financing activities
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS,
END OF YEAR
2002
2001
2000
$
36,730
90,905
$
117,190
15,452
$
110,964
14,178
2,829,500
(2,882,017)
(14,459)
—
—
(66)
(1,342)
(3,741)
497
56,007
20,754
35,120
1,459,300
3,966,483
(1,450,435)
16,068
17,250
(924)
(49)
(1,639)
(3,446)
206
168,973
(3,924,653)
(11,899)
—
—
34
(11,252)
(3,611)
481
140,725
(4,981)
(3,499)
40,101
43,600
$
55,874
$
35,120
$
40,101
See Notes to Consolidated Financial Statements
40
GREAT SOUTHERN BANCORP, INC.
Notes to Consolidated Financial Statements
DECEMBER 31, 2002, 2001 AND 2000
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 and
investment services through the Company’s and the Bank’s other wholly owned sub-
sidiaries to customers primarily in southwest and central Missouri. The Company and the
Bank are subject to the regulation of certain federal and state agencies and undergo
periodic examinations by those regulatory agencies.
In June 1998, the Bank converted to a state-chartered trust company, and the Company
became a one-bank holding company. Until that time the Bank was a stock savings bank,
and the Company was a savings bank holding company.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America 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. In connection with the determination of the
allowance for loan losses, management obtains independent appraisals for significant
properties.
Principles of Consolidation
The consolidated financial statements include the accounts of Great Southern Bancorp, Inc.,
its wholly owned subsidiaries, Great Southern Capital Trust I and Great Southern Bank and
the Bank’s wholly owned subsidiaries, Great Southern Capital Management, Inc., GSB One
LLC (including its wholly owned subsidiary, GSB Two LLC) and Great Southern Financial
Corporation. All significant intercompany accounts and transactions have been eliminated
in consolidation.
Reclassifications
Certain prior periods amounts have been reclassified to conform to the 2002 financial
statements presentation. These reclassifications had no effect on net income.
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is a required investment for institutions that are members
of the Federal Home Loan Bank system. The required investment in common stock is based
on a predetermined formula.
41
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.
Unrealized gains and losses are recorded, net of related income tax effects, in other
comprehensive income.
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.
Amortization of premiums and accretion of discounts are recorded as interest income from
securities. Realized gains and losses are recorded as net security gains (losses). Gains and
losses on sales of securities are determined on the specific-identification method.
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the
lower of cost or fair value in the aggregate. Write-downs to fair value are recognized as a
charge to earnings at the time the decline in value occurs. Nonbinding forward commit-
ments to sell individual mortgage loans are generally acquired to reduce market risk on
mortgage loans in the process of origination and mortgage loans held for sale. Gains and
losses resulting from sales of mortgage loans are recognized when the respective loans are
sold to investors. 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.
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 balances adjusted for any
charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans
and unamortized premiums or discounts on purchased loans. Interest income is reported
on the interest method and includes amortization of net deferred loan fees and costs over
the loan term. Generally, loans are placed on nonaccrual status at ninety days past due and
interest is considered a loss, unless the loan is well secured and in the process of collection.
Discounts and premiums on purchased loans are amortized to income using the interest
method over the remaining period to contractual maturity, adjusted for anticipated
prepayments.
Allowance For Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred
through a provision for loan losses charged to earnings. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based
upon management’s periodic review of the collectibility of the loans in light of historical
experience, the nature and volume of the loan portfolio, adverse situations that may affect
the borrower’s ability to repay, estimated value of any underlying collateral and prevailing
GREAT SOUTHERN BANCORP, INC.
Notes to Consolidated Financial Statements continued
DECEMBER 31, 2002, 2001 AND 2000
economic conditions. This evaluation is inherently subjective as it requires estimates that
are susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it is proba-
ble that the Bank will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances sur-
rounding the loan and the borrower, including the length of the delay, the reasons for the
delay, the borrower’s prior payment record and the amount of the shortfall in relation to
the principal and interest owed. Impairment is measured on a loan-by-loan basis for com-
mercial and construction loans by either the present value of expected future cash flows
discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair
value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogenous loans are collectively evaluated for impair-
ment. Accordingly, the Bank does not separately identify consumer and residential loans
for impairment disclosures.
Foreclosed Assets Held For Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially
recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent
to foreclosure, valuations are periodically performed by management and the assets are
carried at the lower of carrying amount or fair value less estimated cost to sell. Revenue
and expenses from operations and changes in the valuation allowance are included in net
expenses from foreclosed assets.
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 use-
ful 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 estimat-
ed useful lives of the improvements, whichever is shorter.
Loan Servicing and Origination Fee Income
Loan servicing income represents fees earned for servicing real estate mortgage loans
owned by various investors. The fees are generally calculated on the outstanding principal
balances of the loans serviced and are recorded as income when earned. Loan origination
fees, net of direct loan origination costs, are recognized as income using the level-yield
method over the contractual life of the loan.
Earnings Per Share
Basic earnings per share is computed based on the weighted average number of shares out-
standing 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.
Earnings per share (EPS) were computed as follows:
2002
2001
(In Thousands, Except Per Share Data)
2000
Net income
Average common shares outstanding
Average common share stock options
outstanding
Average diluted common shares
Earnings per common share – basic
Earnings per common share – diluted
$ 23,212
6,863
83
6,946
$
$
3.38
3.34
$ 18,758
6,889
67
6,956
$
$
2.72
2.70
$ 15,478
7,166
147
7,313
$
$
2.16
2.12
Options to purchase 16,600 and 130,075 shares of common stock were outstanding during
the years ended December 31, 2002 and 2000, but were not included in the computation of
diluted earnings per share because the options’ exercise price was greater than the average
market price of the common shares.
Stock Option Plan
The Company has a stock-based employee compensation plan, which is described more
fully in Note 18. The Company accounts for this plan under the recognition and measure-
ment principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected in net income, as
all options granted under those plans had an exercise price at least equal to the market
value of the underlying common stock on the grant date. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair value pro-
visions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
Year Ended December 31,
2001
(In Thousands, Except Per Share Data Amounts)
2000
2002
Net income, as reported
Less
Total stock-based employee compensation
cost determined under the fair value based
method, net of income taxes
Pro forma net income
Earnings per share
Basic – as reported
Basic – pro forma
Diluted – as reported
Dilute – pro forma
42
$ 23,212
$ 18,758
$ 15,478
(260)
$ 22,952
$
$
$
$
3.38
3.34
3.34
3.30
(358)
$ 18,400
$
$
$
$
2.72
2.67
2.70
2.65
(303)
$ 15,175
$
$
$
$
2.16
2.12
2.12
2.08
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or
less to be cash equivalents. At December 31, 2002 and 2001, cash equivalents consisted of
interest-bearing deposits in other financial institutions.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects of differences between
the financial statement and tax bases of assets and liabilities. A valuation allowance is
established to reduce deferred tax assets if it is more likely than not that a deferred tax
asset will not be realized.
Interest Rate Swaps
Beginning in 2001, interest rate swaps are carried at fair value determined using quoted
dealer prices and are recognized in the statements of financial condition in the prepaid
expenses and other assets caption. The Company uses interest rate swaps to help manage
its interest rate risk from recorded financial liabilities. These instruments are utilized when
they can be demonstrated to effectively hedge a designated liability and such liability
exposes the Company to interest-rate risk. Amounts to be paid or received under interest-
rate swaps are accounted for on the accrual basis and recognized as interest income or
expense of the related liability. Gains and losses on early termination of these instruments
are deferred and amortized as an adjustment to the yield on the related liability over the
shorter of the remaining contract life or the maturity of the related asset or liability. If the
related liability is sold or otherwise liquidated, the instrument is marked to market, with
the resultant gains and losses recognized in noninterest income.
In October 2002, the FASB issued SFAS 147, "Acquisitions of Certain Financial Institutions."
This Statement brings all business combinations involving financial institutions, except
mutuals, into the scope of SFAS 141, "Business Combinations." SFAS 147 requires that all
acquisitions of financial institutions that meet the definition of a business, including acqui-
sitions of part of a financial institution that meet the definition of a business, be accounted
for in accordance with SFAS 141 and the related intangibles accounted for in accordance
with SFAS 142. SFAS 147 removes such acquisitions from the scope of SFAS 72,
"Accounting for Certain Acquisitions of Banking or Thrift Institutions." SFAS 147 also
amends SFAS 144 to include in its scope long-term customer-relationship intangible assets
of financial institutions. SFAS 147 is generally effective immediately and provides guidance
with respect to amortization and impairment of intangibles recognized in connection with
acquisitions previously within the scope of SFAS 72. The adoption of this Statement did not
have a material effect on the Company’s financial statements.
NOTE 2:
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost and approximate fair values of securities classified as available-for-sale
are as follows:
Restriction on Cash and Due From Banks
The Bank is required to maintain reserve funds in cash and/or on deposit with the Federal
Reserve Bank. The reserve required at December 31, 2002 and 2001, respectively, was
$13,219,000 and $15,679,000.
U.S. government agencies
Collateralized mortgage obligations
Mortgage-backed securities
Corporate bonds
Equity securities
Future Changes in Accounting Principle
The Financial Accounting Standards Board ("FASB") recently issued its Interpretation No.
45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This new Interpretation requires a guarantor to recog-
nize a liability for the fair value of the obligation undertaken in issuing a guarantee at its
inception and prescribes disclosures regarding guarantees. The Interpretation applies only
to guarantees issued or modified after December 31, 2002. Guarantees issued by the Bank
are principally in the form of letters of credit as discussed in Note 15. Initial adoption of the
Interpretation will have no effect on the Bank’s financial statements. The Bank’s application
of the Interpretation to guarantees issued or modified after December 31, 2002, will, if
material, result in recognition of a liability for such guarantees, as well as recognition of fee
revenue from them over the period of time the guarantees are outstanding.
In July 2002, FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal
Activities." This Statement requires that a liability for costs associated with an exit or dis-
posal activity be recognized when incurred rather than at the date of commitment to an
exit or disposal plan. This Statement replaces EITF 94-3 and is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. The adoption of this
Statement is not expected to have a material effect on the Company’s financial statements.
43
U.S. government agencies
Collateralized mortgage obligations
Mortgage-backed securities
Corporate bonds
Equity securities
December 31, 2002
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair
Value
(In Thousands)
$
$
—
—
3,093
910
181
4,184
$
$
2
11
33
12
266
324
$
$
10,998
5,071
198,964
10,054
11,182
236,269
December 31, 2001
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair
Value
$
$
(In Thousands)
669
—
28
417
1,214
—
71
1,147
—
34
$
85,388
5,117
119,425
8,728
15,147
Amortized
Cost
$
$
11,000
5,082
195,904
9,156
11,267
232,409
Amortized
Cost
$
84,719
5,188
120,544
8,311
13,967
$
232,729
$
2,328
$
1,252
$
233,805
GREAT SOUTHERN BANCORP, INC.
Notes to Consolidated Financial Statements continued
DECEMBER 31, 2002, 2001 AND 2000
The amortized cost and fair value of available-for-sale securities at December 31, 2002, by
contractual maturity, are shown below. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations with or without
call or prepayment penalties.
After one through five years
After five through ten years
After ten years
Securities not due on a single maturity date
(In Thousands)
Amortized
Cost
$
$
1,243
10,000
8,913
200,986
221,142
Approximate
Fair
Value
$
$
1,253
10,000
9,799
204,035
225,087
The amortized cost and approximate fair values of securities classified as held-to-maturity
are as follows:
December 31, 2002
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair
Value
(In Thousands)
$
52,587
$
3,313
$
— $
55,900
December 31, 2001
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair
Value
(In Thousands)
$
37,465
$
3,280
$
45
$
40,700
States and political subdivisions
and industrial revenue bonds
States and political subdivisions
and industrial revenue bonds
The amortized cost and fair value of held-to-maturity securities at December 31, 2002, by
contractual maturity, are shown below. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations with or without
call or prepayment penalties.
After five through ten years
After ten years
Amortized
Cost
$
$
9,923
42,664
52,587
(In Thousands)
Approximate Fair
Value
$
$
11,056
44,844
55,900
44
The amortized cost of securities pledged as collateral to secure public deposits and for
other purposes amounted to approximately $40,667,743 and $17,899,700 at December 31,
2002 and 2001, respectively, with approximate fair values of $40,594,100 and $18,107,200,
respectively. The amortized cost of securities pledged as collateral to secure collateralized
borrowing accounts amounted to approximately $43,042,700 and $25,865,400 at December
31, 2002 and 2001, respectively, with approximate fair values of $43,333,900 and
$26,081,600, respectively. The amortized cost of securities pledged as collateral to secure
Federal Home Loan Bank advances amounted to approximately $109,704,500 and
$144,928,400 at December 31, 2002 and 2001, respectively, with approximate fair values of
$111,069,300 and $145,800,700, respectively.
NOTE 3:
LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 2002 and 2001, include:
2002
2001
(In Thousands)
$
One-to four-family residential mortgage loans
Other residential mortgage loans
Commercial real estate loans
Other commercial loans
Construction loans
Installment, education and other loans
Prepaid dealer premium
Discounts on loans purchased
Undisbursed portion of loans in process
Allowance for loan losses
Deferred loan fees and gains, net
$
$
169,506
84,862
401,942
91,123
212,670
110,182
2,261
(37)
(55,468)
(21,288)
(742)
995,011
Transactions in the allowance for loan losses were as follows:
Balance, beginning of year
Provision charged to expense
Loans charged off, net of recoveries
of $1,874 for 2002, $2,335 for 2001
and $1,446 for 2000
Balance, end of year
2002
21,328
5,800
(5,840)
21,288
$
$
2001
(In Thousands)
18,694
$
5,200
(2,566)
21,328
$
$
183,421
88,274
351,037
97,557
206,885
97,745
1,810
(43)
(46,744)
(21,328)
(863)
957,751
2000
17,293
3,106
(1,705)
18,694
$
$
The weighted average interest rate on loans receivable at December 31, 2002 and 2001, was
6.10% and 6.54%, respectively.
Loans serviced for others are not included in the accompanying consolidated statements of
financial condition. The unpaid principal balances of loans serviced for others were
$36,826,000 and $39,511,000 at December 31, 2002 and 2001, respectively.
Gross impaired loans totaled approximately $14,521,000 and $8,998,000 at December 31,
2002 and 2001, respectively. An allowance for loan losses of $1,949,000 and $1,205,837
relates to these impaired loans at December 31, 2002 and 2001, respectively. There were two
impaired loans at December 31, 2002, and no impaired loans at December 31, 2001, without
a related allowance for loan losses assigned.
Interest of approximately $828,000, $1,283,000 and $1,671,000 was received on average
impaired loans of approximately $13,101,000, $8,056,000 and $12,132,000 for the years
ended December 31, 2002, 2001 and 2000, respectively. Interest of approximately $1,831,000
and $1,756,000 would have been recognized on an accrual basis during the years ended
December 31, 2002 and 2001, respectively. Interest that would have been recognized on
impaired loans on an accrual basis during 2000 was not materially different than interest
received on a cash basis.
At December 31, 2002 and 2001, accruing loans delinquent 90 days or more totaled approxi-
mately $1,024,000 and $548,000, respectively. Nonaccruing loans at December 31, 2002 and
2001, were approximately $13,497,000 and $8,998,000, respectively.
Certain of the Bank’s real estate loans are pledged as collateral for borrowings as set forth
in Notes 7 and 9.
Certain directors and executive officers of the Company and the Bank are customers of and
had transactions with the Bank in the ordinary course of business. In the opinion of man-
agement, 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, 2002 and 2001, loans outstanding to these directors and executive officers are
summarized as follows:
Balance, beginning of year
New loans
Payments
Balance, end of year
2002
$
$
10,073
6,962
(4,646)
12,389
December 31,
(In Thousands)
2001
$
$
5,731
14,617
(10,275)
10,073
NOTE 5:
PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, are as follows:
2002
December 31,
(In Thousands)
2001
$
$
4,728
12,957
13,737
31,422
14,459
16,963
$
$
2,978
11,120
12,341
26,439
13,600
12,839
Land
Buildings and improvements
Furniture, fixtures and equipment
Less accumulated depreciation
NOTE 6:
DEPOSITS
Deposits are summarized as follows:
Noninterest-bearing accounts
Interest-bearing checking
Savings accounts
Certificate accounts
Weighted Average
Interest Rate
—
1.08% - 1.02%
1.23% - 1.37%
0% - 1.99%
2% - 2.99%
3% - 3.99%
4% - 4.99%
5% - 5.99%
6% - 6.99%
7% and above
December 31,
2002
2001
(In Thousands, Except
Interest Rates)
$
94,508
216,699
876
312,083
38,962
208,708
168,186
62,045
91,892
119,145
10,298
699,236
$
62,131
158,067
980
221,178
7,538
59,443
94,097
145,515
118,769
212,617
24,527
662,506
10,638
1,021,957
$
3,186
886,870
$
Included in the amount of new loans originated to directors and executive officers of the
Company and the Bank during 2001 is approximately $13,400,000 of loans to a director
appointed during 2001. This amount represents the outstanding balance of the loans as of
the date that this individual was elected to the Board.
Interest rate swap fair
value adjustment
NOTE 4:
FORECLOSED ASSETS HELD FOR SALE
Activity in the allowance for losses on foreclosed assets was as follows:
Balance, beginning of year
Provision charged to expense
Charge-offs, net of recoveries
Balance, end of year
2002
$ 150
—
(150)
0
$
2001
(In Thousands)
$ —
150
—
$ 150
2000
$ —
—
—
0
$
The weighted average interest rate on certificates of deposit was 2.38% and 3.48% at
December 31, 2002 and 2001, respectively.
The aggregate amount of certificates of deposit originated by the Bank in denominations
greater than $100,000 was approximately $100,782,000 and $79,664,000 at December 31,
2002 and 2001, respectively. The Bank utilizes brokered deposits as an additional funding
source. The aggregate amount of brokered deposits, which are primarily in denominations
of $100,000 or more, was approximately $339,820,000 and $355,461,000 at December 31,
2002 and 2001, respectively.
45
GREAT SOUTHERN BANCORP, INC.
Notes to Consolidated Financial Statements continued
DECEMBER 31, 2002, 2001 AND 2000
At December 31, 2002, scheduled maturities of certificates of deposit are as follows (in
thousands):
2003
2004
2005
2006
2007
Thereafter
$
$
403,477
58,022
30,806
14,195
14,424
178,312
699,236
A summary of interest expense on deposits is as follows:
Checking accounts
Savings accounts
Certificate accounts
Early withdrawal penalties
2002
$
2,277
17
19,990
(40)
$ 22,244
2001
(In Thousands)
2,443
$
125
29,905
(68)
$ 32,405
2000
$
2,617
631
29,096
(100)
$ 32,244
NOTE 7:
ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consist of the following:
December 31, 2002
December 31, 2001
Due In
Amount
2002
2003
2004
2005
2006
2007
2008 and thereafter
$
$
—
81,263
25,842
3,201
1,426
3,474
91,020
206,226
—%
Weighted
Average
Interest
Rate
Amount
(In Thousands, Except Interest Rates)
101,227
31,327
25,914
3,280
1,514
4,323
91,158
258,743
1.52
2.14
6.62
6.73
7.13
3.98
2.90
$
$
Weighted
Average
Interest
Rate
2.11%
2.06
2.58
6.64
6.78
7.19
4.14
3.03
Included in the Bank’s FHLB advances is a $25,000,000 advance with a maturity date of
December 16, 2010. The advance has a call provision that allows the Federal Home Loan
Bank of Des Moines to call the advance quarterly.
46
Included in the Bank’s FHLB advances is a $25,000,000 advance with a maturity date of
January 20, 2011. The advance has a call provision that allows the Federal Home Loan Bank
of Des Moines to call the advance on January 20, 2003, and quarterly thereafter.
The Bank has pledged FHLB stock, investment securities and first mortgage loans free of
pledges, liens and encumbrances as collateral for outstanding advances. Investment securi-
ties with approximate carrying values of $111,069,000 and $144,928,000, respectively, were
specifically pledged as collateral for advances at December 31, 2002 and 2001. Loans with
carrying values of approximately $536,720,000 and $543,881,000 were pledged as collateral
for outstanding advances at December 31, 2002 and 2001, respectively.
NOTE 8:
SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
Federal funds purchased
Securities sold under reverse repurchase agreements
December 31,
2002
2001
(In Thousands)
4,800
38,504
$
37,900
19,863
43,304
$
57,763
$
$
The Bank enters into sales of securities under agreements to repurchase (reverse repurchase
agreements). Reverse repurchase agreements are treated as financings, and the obligations
to repurchase securities sold are reflected as a liability in the statements of financial condi-
tion. The dollar amount of securities underlying the agreements remains in the asset
accounts. Securities underlying the agreements are being held by the Bank during the
agreement period. All agreements are written on a one-month or less term.
Short-term borrowings had weighted average interest rates of 1.08% and 1.63% at
December 31, 2002 and 2001, respectively. Short-term borrowings averaged $33,380,000 and
$66,833,000 for the years ended December 31, 2002 and 2001, respectively. The maximum
amounts outstanding at any month end were $54,212,000 and $127,336,000 during those
same periods.
NOTE 9:
NOTE PAYABLE TO BANK
The Company has a line of credit with a commercial bank. The amount available under the
line of credit was $12,000,000 at December 31, 2002 and 2001, respectively. There were no
amounts outstanding under the line at December 31, 2002 and 2001. The note bears interest
at LIBOR plus 1.25% due quarterly, is secured by all of the common stock of the Bank and
matures November 1, 2003.
The Bank has a potentially available $100,330,000 line of credit under a borrowing arrange-
ment with the Federal Reserve Bank at December 31, 2002. The line is secured primarily by
commercial loans and was not drawn upon at December 31, 2002.
NOTE 10:
TRUST PREFERRED SECURITIES
During 2001 GSBCP, a newly formed Delaware business trust subsidiary of the Company,
issued 1,725,000 shares of unsecured 9.00% Cumulative Trust Preferred Securities at $10 per
share in an underwritten public offering. The gross proceeds of the offering were used to
purchase a 9.00% Subordinated Debenture from the Company. The Company’s proceeds
from the issuance of the Subordinated Debentures to GSBCP, net of underwriting fees and
offering expenses, were $16.3 million. The Company records distributions payable on the
trust preferred securities as interest expense for financial reporting purposes. The proceeds
from the offering were used to payoff the Company’s indebtedness under the existing note
payable to bank. The trust preferred securities mature in 2031 and are redeemable at the
Company’s option beginning in 2006. The trust preferred securities qualify as Tier I capital
for regulatory purposes.
During 2001 the Company entered into an interest rate swap agreement to effectively con-
vert this fixed rate debt to variable rates of interest. The variable rate is three-month LIBOR
plus 202 basis points, adjusting quarterly. The initial rate was 6.25% and the rate at
December 31, 2002 and 2001, was 3.87% and 4.62%, respectively.
Trust preferred securities are summarized as follows:
Trust Preferred Securities
Interest rate swap fair value adjustment
December 31,
2002
2001
(In Thousands)
$ 17,250
1,714
$ 18,964
$ 17,250
(90)
$ 17,160
NOTE 11:
INCOME TAXES
The Company files a consolidated federal income tax return. During the time the Bank
operated under a thrift charter, thrifts were allowed a percentage of otherwise taxable
income as a statutory bad debt deduction, subject to limitations based on aggregate loans
and savings balances. This percentage was most recently 8%. In August 1996 this statutory
bad debt deduction was repealed and is no longer available for thrifts. In addition, bad
debt allowances accumulated after 1988, which are presently included as a component of
the net deferred tax asset, must be recaptured over a six-year period beginning with the
period ended December 31, 1998. The amount of the deferred tax liability which must be
recaptured is approximately $302,000 at December 31, 2002.
As of December 31, 2002 and 2001, 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
47
amount was approximately $6,475,000 at December 31, 2002 and 2001.
The provision for income taxes includes these components:
Taxes currently payable
Deferred income taxes
Income tax expense
2002
$ 14,955
(2,654)
$ 12,301
2001
(In Thousands)
$ 10,781
(1,306)
9,475
$
2000
$
$
9,142
(958)
8,184
The tax effects of temporary differences related to deferred taxes shown on the statements
of financial condition were:
$
Deferred tax assets:
Allowance for loan losses
Accrued expenses
Partnership tax credits
Excess of cost over fair value
of net assets acquired
Other
Deferred tax liabilities:
Tax bad debt allowance
in excess of base year allowance
FHLB stock dividends
Unrealized appreciation on
available-for sale securities
Real estate investment trust
dividends
Net deferred tax asset (liability)
$
December 31,
2002
2001
(In Thousands)
7,451
231
168
187
77
8,114
(302)
(575)
(1,286)
(7,018)
(9,181)
(1,067)
$
$
7,465
113
139
126
16
7,859
(605)
(575)
(384)
—
(1,564)
6,295
Reconciliations of the Company’s provision for income taxes to the statutory corporate tax
rates are as follows:
Tax at statutory rate
Other
2002
35.0%
(.4)
34.6%
2001
35.0%
(1.4)
33.6%
2000
35.0%
(.4)
34.6%
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 tax-
ing authorities. These returns have been closed without audit through December 31, 1998.
GREAT SOUTHERN BANCORP, INC.
Notes to Consolidated Financial Statements continued
DECEMBER 31, 2002, 2001 AND 2000
NOTE 12:
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 and Federal Home Loan Bank Stock
The carrying amount approximates fair value.
Securities
Fair values for securities equal quoted market prices, if available. If quoted market prices
are not available, fair value is estimated based on quoted market prices of similar securi-
ties.
Mortgage Loans Held for sale
Fair value is estimated using the quoted market prices of similar loans originated.
Loans and Interest Receivable
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 pur-
poses of the calculations. The carrying amount of accrued interest receivable approximates
its fair value.
Deposits and Accrued Interest Payable
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 certifi-
cates 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 matu-
rities are used to estimate fair value of existing advances.
Short-Term Borrowings
The carrying amount approximates fair value.
Note Payable to Bank and Trust Preferred Securities
Rates currently available to the Company for debt with similar terms and remaining matu-
rities are used to estimate fair value of existing debt.
Commitments to Originate Loans, 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 agree-
ments or on the estimated cost to terminate them or otherwise settle the obligations with
the counterparties at the reporting date.
Interest Rate Swaps
Fair values of interest rate swaps are estimated based on quoted dealer prices.
The following table presents estimated fair values of the Company’s financial instruments.
The fair values of certain of these instruments were calculated by discounting expected
cash flows, which method involves significant judgments by management and uncertain-
ties. 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 liqui-
dation 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 finan-
cial instruments could be sold individually or in the aggregate.
December 31,
2002
2001
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(In Thousands)
$ 55,874
236,269
52,587
2,636
$ 55,874
236,269
55,900
2,636
$ 35,120
233,805
37,465
7,135
$ 35,120
233,805
40,703
7,135
995,011
6,566
14,962
12,353
1,021,957
206,226
43,304
18,964
2,485
1,002,983
6,566
14,962
12,353
1,028,027
217,894
43,304
18,964
2,485
957,751
7,210
14,962
3,096
886,870
258,743
57,763
17,160
5,186
979,782
7,210
14,962
3,096
886,656
258,373
57,763
17,160
5,186
Financial assets:
Cash and cash equivalents
Available-for-sale securities
Held-to-maturity securities
Mortgage loans held for sale
Loans, net of allowance for
loan losses
Accrued interest receivable
Investment in FHLB stock
Interest rate swaps
Financial liabilities:
Deposits
FHLB advances
Short-term borrowings
Trust preferred securities
Accrued interest payable
Unrecognized financial instruments
(net of contractual value):
Commitments to originate loans
Letters of credit
Lines of credit
48
—
—
—
—
—
—
—
—
—
—
—
—
NOTE 13:
OPERATING LEASES
The Company has entered into various operating leases at several of its locations. Some of
the leases have renewal options.
At December 31, 2002, future minimum lease payments are as follows (in thousands):
2003
2004
2005
2006
2007
Later Years
$
183
140
112
112
112
468
1,127
$
Rental expense was $266,905, $250,161 and $297,274 for the years ended December 31, 2002,
2001 and 2000, respectively.
NOTE 14:
INTEREST RATE SWAPS
The Company has entered into interest rate swap agreements with the objective of hedging
against the effects of changes in the fair value of its liabilities for fixed rate brokered certifi-
cates of deposit and trust preferred securities caused by changes in market interest rates.
The swap agreements generally provide for the Company to pay a variable rate of interest
based on a spread to the one-month or three-month London Interbank Offering Rate
(LIBOR) and to receive a fixed rate of interest equal to that of the hedged instrument.
Under the swap agreements the Company is to pay or receive interest monthly, quarterly,
semiannually or at maturity.
At December 31, 2002, the notional amount of interest rate swaps outstanding was approxi-
mately $270,308,000, all consisting of swaps in a receivable position. At December 31, 2001,
the notional amount of interest rate swaps outstanding was approximately $257,490,000, all
consisting of swaps in a receivable position. The maturities of interest rate swaps outstand-
ing at December 31, 2002 and 2001, in terms of notional amounts and their average pay and
receive rates were as follows:
Fixed
To
Variable
2002
Average
Pay
Rate
2001
Average
Receive
Rate
Fixed
To
Variable
Average Average
Receive
Rate
Pay
Rate
(In Millions)
Interest Rate Swaps
Expected Maturity Date
2002
2003
2004
2005
2006
2007
2008
2009
2011
2012
2016
2017
2031
$
—
36.0
7.0
15.5
10.0
10.0
27.6
19.8
22.5
10.0
39.8
54.9
17.2
$ 270.3
—%
.73
1.23
.89
1.42
1.36
1.28
1.55
1.54
1.40
1.56
1.40
3.87
1.47
—% $
49.2
31.0
7.0
15.5
10.0
20.0
7.6
25.0
15.0
—
60.0
—
17.2
$ 257.5
1.61%
1.08
1.85
1.49
1.93
2.10
1.54
2.20
2.13
—
2.08
—
4.68
2.00
6.36%
5.88
6.57
6.20
5.30
4.00
5.93
6.06
6.17
—
6.22
—
9.00
6.16
5.52
6.57
6.20
5.30
3.50
3.85
5.50
5.69
5.50
6.14
4.70
9.00
5.49
NOTE 15:
COMMITMENTS AND CREDIT RISK
Commitments To Originate Loans
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 sig-
nificant portion of the commitments may expire without being drawn upon, the total com-
mitment amounts do not necessarily represent future cash requirements. The Bank evalu-
ates 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 manage-
ment’s credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property and equipment, commercial real estate and resi-
dential real estate.
At December 31, 2002 and 2001, the Bank had outstanding commitments to originate loans
and fund commercial construction aggregating approximately $4,721,000 and $6,216,000,
respectively. The commitments extend over varying periods of time with the majority being
disbursed within a 30- to 180-day period.
Mortgage loans in the process of origination represent amounts that the Bank plans to fund
within a normal period of 60 to 90 days, and which are intended for sale to investors in the
secondary market. Total mortgage loans in the process of origination amounted to approxi-
mately $3,497,000 and $5,475,000, at December 31, 2002 and 2001, respectively.
49
GREAT SOUTHERN BANCORP, INC.
Notes to Consolidated Financial Statements continued
DECEMBER 31, 2002, 2001 AND 2000
Letters of Credit
Letters of credit are conditional commitments issued by the Bank to guarantee the perform-
ance of a customer to a third party. Those guarantees are primarily issued to support public
and private borrowing arrangements, including commercial paper, bond financing and
similar transactions. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loans to customers.
The Company had total outstanding letters of credit amounting to approximately
$15,711,000 and $11,923,000, at December 31, 2002 and 2001, respectively, with $8,282,000
and $4,076,000, respectively, of the letters of credit having terms up to five years. The
remaining $7,429,000 and $7,847,000 at December 31, 2002 and 2001, respectively, consisted
of an outstanding letter of credit to guarantee the payment of principal and interest on a
Multifamily Housing Refunding Revenue Bond Issue. The Federal Home Loan Bank has
issued a letter of credit backing the Bank’s letter of credit.
Lines of Credit
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 nec-
essary by the Bank upon extension of credit, is based on management’s credit evaluation of
the counterparty. Collateral held varies but may include accounts receivable, inventory,
property and equipment, commercial real estate and residential real estate. The Bank uses
the same credit policies in granting lines of credit as it does for on-balance-sheet instru-
ments.
At December 31, 2002, the Bank had granted unused lines of credit to borrowers aggregat-
ing approximately $95,393,000 and $19,910,000 for commercial lines and open-end con-
sumer lines, respectively. At December 31, 2001, the Bank had granted unused lines of cred-
it to borrowers aggregating approximately $72,971,000 and $17,514,000 for commercial lines
and open-end consumer lines, respectively.
Credit Risk
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 aggregating approximately $162,103,000 and $155,626,000 at
December 31, 2002 and 2001, respectively, are secured by motels, restaurants, recreational
facilities, other commercial properties and residential mortgages in the Branson, Missouri,
area. Residential mortgages account for approximately $63,890,000 and $67,870,000 of this
total at December 31, 2002 and 2001, respectively.
NOTE 16:
ADDITIONAL CASH FLOW INFORMATION
Noncash Investing and
Financing Activities
Real estate acquired in
settlement of loans
Sale and financing of
foreclosed assets
Dividends declared but
not paid
Additional Cash
Payment Information
Interest paid
Income taxes paid
2002
2001
(In Thousands)
2000
$
$
$
7,392
1,292
1,029
$ 33,038
$ 15,676
$ 6,959
$ 2,479
$
—
$ 46,839
$ 9,000
$ 3,458
$ 1,705
$
—
$ 48,575
$ 2,300
NOTE 17:
EMPLOYEE BENEFITS
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. Employer contributions charged to expense for the years ended December 31,
2002, 2001 and 2000, were approximately $246,000, $230,000 and $0, respectively. As a
member of a multi-employer pension plan, disclosures of plan assets and liabilities for indi-
vidual employers are not required or practicable.
The Company has a defined contribution pension plan covering substantially all
employees. The Company matches 100% of the employee’s contribution on the first 3% of
the employee’s compensation, and also matches 50% of the employee’s contribution on the
next 2% of the employee’s compensation. Employer contributions charged to expense for
the years ended December 31, 2002, 2001 and 2000, were approximately $255,000, $313,000
and $309,000, respectively.
NOTE 18:
STOCK OPTION PLAN
The Company established the 1989 Stock Option and Incentive Plan for employees and
directors of the Company and its subsidiaries. Under the plan, stock options or awards
may be granted with respect to 1,232,496 shares of common stock.
In addition, the Board of Directors of the Company established the 1997 Stock Option and
Incentive Plan for employees and directors of the Company and its subsidiaries. Under the
plan, stock options or awards may be granted with respect to 800,000 shares of common
stock.
Stock options may be either incentive stock options or nonqualified stock options, and the
option price must be at least equal to the fair value of the Company’s common stock on the
date of grant. Options are granted for a 10-year term and become exercisable in four cumu-
lative annual installments of 25% commencing two years from the date of grant. The Stock
50
NOTE 19:
SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain significant estimates
and current vulnerabilities due to certain concentrations. Estimates related to the allowance
for loan losses are reflected in the footnote regarding loans. Current vulnerabilities due to
certain concentrations of credit risk are discussed in the footnotes on deposits and on com-
mitments and credit risk.
NOTE 20:
REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements adminis-
tered by the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that,
if undertaken, could have a direct and material effect on the Company’s financial state-
ments. Under capital adequacy guidelines and the regulatory framework for prompt cor-
rective action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of the Company’s and the Bank’s assets, liabilities and cer-
tain off-balance-sheet items as calculated under regulatory accounting practices. The
Company’s and the Bank’s capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the
Bank to maintain minimum amounts and ratios (set forth in the table below) of Total and
Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier
I Capital (as defined) to adjusted tangible assets (as defined). Management believes, as of
December 31, 2002, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 2002, the most recent notification from the Bank’s regulators catego-
rized 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 1 leverage capital ratios as set forth in the table. There are
no conditions or events since that notification that management believes have changed the
Bank’s category.
The Company’s and the Bank’s actual capital amounts and ratios are presented in the fol-
lowing table. No amount was deducted from capital for interest-rate risk.
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:
Balance, January 1, 2000
Granted
Exercised
Forfeited
Balance, December 31, 2000
Granted
Exercised
Forfeited
Balance, December 31, 2001
Granted
Exercised
Forfeited
Balance, December 31, 2002
Available
to Grant
751,822
(62,513)
—
62,520
751,829
(62,075)
—
15,849
705,603
(67,050)
—
16,465
655,018
Shares
Under Option
305,770
62,513
(71,205)
(62,520)
234,558
62,075
(54,932)
(15,849)
225,852
67,050
(45,827)
(16,465)
230,610
Weighted
Average Exercise
Price
$
17.933
16.383
(12.140)
(19.974)
16.510
26.291
(16.052)
(20.134)
21.480
37.231
(18.414)
(24.386)
26.462
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:
Dividends Per Share
Risk-Free Interest Rate
Expected Life of Options
Weighted Average Fair Value
December 31,
2002
$0.56
2.93%
5 Years
December 31,
2001
$0.50
3.91%
5 Years
December 31,
2000
$0.50
5.93%
5 Years
of Options Granted During Year
$9.83
$19.57
$10.11
The following table further summarizes information about stock options outstanding at
December 31, 2002:
Range of
Exercise Prices
$10.938 to $16.875
$17.000 to $18.188
$21.500 to $28.375
$36.375 to $40.020
Number
Outstanding
34,333
18,675
112,802
64,800
Options Outstanding
Weighted
Average
Remaining
Contractual
Life
6.86 years
3.91 years
6.00 years
8.56 years
Weighted
Average
Exercise
Price
$14.850
$17.594
$25.261
$37.261
Options Exercisable
Number
Exercisable
12,508
6,725
40,634
—
Weighted
Average
Exercise
Price
$13.403
$17.415
$24.624
N/A
51
GREAT SOUTHERN BANCORP, INC.
Notes to Consolidated Financial Statements continued
DECEMBER 31, 2002, 2001 AND 2000
Actual
Amount
Ratio
$133,209
$127,343
$119,391
$113,502
$119,391
$113,502
12.1%
11.6%
10.9%
10.3%
8.6%
8.2%
As of December 31, 2002
Total Risk-Based Capital
Great Southern Bancorp, Inc.
Great Southern Bank
Tier I Risk-Based Capital
Great Southern Bancorp, Inc.
Great Southern Bank
Tier I Leverage Capital
Great Southern Bancorp, Inc.
Great Southern Bank
As of December 31, 2001
Total Risk-Based Capital
Great Southern Bancorp, Inc.
Great Southern Bank
$113,274
$104,610
10.9%
10.2%
Tier I Risk-Based Capital
Great Southern Bancorp, Inc.
Great Southern Bank
Tier I Leverage Capital
Great Southern Bancorp, Inc.
Great Southern Bank
$100,204
$91,679
$100,204
$91,679
9.7%
8.9%
7.8%
7.2%
For Capital
Adequacy
Purposes
Amount
Ratio
(In Thousands)
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
≥$87,840
≥$87,986
≥$43,920
≥$43,993
≥$55,360
≥$55,246
≥$82,986
≥$82,087
≥$41,493
≥$41,043
≥$51,101
≥$50,642
≥8.0%
≥8.0%
≥4.0%
≥4.0%
≥4.0%
≥4.0%
≥8.0%
≥8.0%
≥4.0%
≥4.0%
≥4.0%
≥4.0%
N/A
≥$109,983
N/A
≥10.0%
N/A
≥$65,990
N/A
≥$69,058
N/A
≥6.0%
N/A
≥5.0%
N/A
≥$102,609
N/A
≥10.0%
N/A
≥$61,565
N/A
≥$63,302
NA
≥6.0%
N/A
≥5.0%
The Company and the Bank are subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December 31, 2002 and 2001,
the Company and the Bank exceeded their minimum capital requirements. The entities
may not pay dividends which would reduce capital below the minimum requirements
shown above.
NOTE 21:
SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
Following is a summary of unaudited quarterly operating results for the years 2002, 2001
and 2000:
2002
Three Months Ended
March 31
June 30
September 30
December 31
(In Thousands, Except Per Share Data)
Interest income
Interest expense
Provision for loan losses
Net realized gains (losses) on
available-for-sale securities
Net income
Earnings per common
share - diluted
$19,781
8,110
1,350
595
5,402
.78
$20,153
7,633
1,650
2,229
6,534
.94
$20,513
7,476
1,300
621
5,919
.85
$19,714
7,118
1,500
(2)
5,357
.77
2001
Three Months Ended
March 31
June 30
September 30
December 31
(In Thousands, Except Per Share Data)
Interest income
Interest expense
Provision for loan losses
Net realized gains (losses) on
available-for-sale securities
Net income
Earnings per common
share - diluted
$24,842
13,571
1,650
—
4,727
.67
$22,096
12,408
1,050
268
4,532
.65
$22,127
10,504
1,050
99
4,850
.70
$20,432
9,410
1,450
(228)
4,649
.68
2000
Three Months Ended
March 31
June 30
September 30
December 31
(In Thousands, Except Per Share Data)
Interest income
Interest expense
Provision for loan losses
Net realized gains (losses) on
available-for-sale securities
Net income
Earnings per common
share - diluted
$19,321
10,608
476
—
3,659
.48
$20,573
11,434
600
(6)
3,884
.53
$22,425
12,810
900
—
3,992
.55
$23,831
14,009
1,130
(3)
3,943
.56
NOTE 22:
OPERATING SEGMENTS
The Company’s banking operation is its only reportable segment. The banking operation is
principally engaged in the business of originating residential and commercial real estate
loans, commercial business loans and consumer loans and funding these loans through
attracting deposits from the general public, originating brokered deposits and borrowing
from the Federal Home Loan Bank and others. The operating results of this segment are
52
Note 23:
CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at December 31, 2002 and 2001, and statements of income
and cash flows for the years ended December 31, 2002, 2001 and 2000, for the parent com-
pany, Great Southern Bancorp, Inc., are as follows:
BALANCE SHEETS
Assets
Cash
Available-for-sale securitites
Investment in subsidiary bank
Income taxes receivable
Premises and equipment
Prepaid expenses
Other assets
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses
Trust preferred securities
Deferred income taxes
Common stock
Additional paid-in capital
Retained earnings
Unrealized appreciation on
available-for-sale securities, net
Treasury stock, at cost
December 31,
2002
2001
(In Thousands)
$
5,410
285
116,134
101
179
878
2,393
$
491
9,190
91,580
535
130
909
544
$ 125,380
$ 103,379
$
1,696
18,964
11
123
17,033
145,931
2,568
(60,946)
$ 125,380
$
540
17,160
425
123
17,160
127,489
710
(60,228)
$ 103,379
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 (2000 only).
Interest income
Interest expense
Depreciation and amortization
Provision for income taxes
Segment profit
Segment assets
Expenditures for additions to
premises and equipment
Interest income
Interest expense
Depreciation and amortization
Provision for income taxes
Segment profit
Segment assets
Expenditures for additions to
premises and equipment
Interest income
Interest expense
Depreciation and amortization
Provision for income taxes
Segment profit
Segment assets
Expenditures for additions to
premises and equipment
Banking
$80,117
$30,337
$2,607
$12,105
$22,840
$1,398,930
$6,791
Banking
$89,425
$45,907
$2,246
$9,570
$18,924
$1,319,989
$4,781
Banking
$86,104
$48,849
$2,055
$7,821
$14,766
$1,126,413
$2,276
Year Ended December 31, 2002
All Other
(In Thousands)
$44
—
$122
$196
$372
$3,708
$85
Totals
$80,161
$30,337
$2,729
$12,301
$23,212
$1,402,638
$6,876
Year Ended December 31, 2001
All Other
(In Thousands)
$72
—
$422
$(95)
$(166)
$3,114
$175
Totals
$89,497
$45,907
$2,668
$9,475
$18,758
$1,323,103
$4,956
Year Ended December 31, 2000
All Other
(In Thousands)
$46
$12
$296
$363
$712
$3,765
$453
Totals
$86,150
$48,861
$2,351
$8,184
$15,478
$1,130,178
$2,729
53
GREAT SOUTHERN BANCORP, INC.
Notes to Consolidated Financial Statements continued
DECEMBER 31, 2002, 2001 AND 2000
STATEMENTS OF INCOME
Income
Dividends from subsidiary bank
Interest and dividend income
Net realized gains (losses) on sales
of available-for-sale securities
$
Expense
Operating expenses
Interest expense
Income before income tax and
equity in undistributed earnings
of subsidiaries
Provision (credit) for income taxes
Income before equity in earnings
of subsidiaries
Equity in undistributed earnings
of subsidiaries
2002
500
178
2,240
2,918
485
718
1,203
1,715
431
1,284
2001
(In Thousands)
2000
$
7,300
348
29
7,677
370
1,146
1,516
6,161
(398)
6,559
$
7,000
324
(11)
7,313
219
1,041
1,260
6,053
(371)
6,424
9,054
$ 15,478
21,928
$ 23,212
12,199
$ 18,758
STATEMENTS OF CASH FLOWS
Operating Activities
Net income
Items not requiring
(providing) cash:
Equity in undistributed
earnings of subsidiaries
Depreciation
Amortization
Net realized (gains) losses on
sales of available-for-
sale securities
Changes in
Prepaid expenses and
other assets
Accounts payable and
accrued expenses
Income taxes
Net cash provided by
(used in) operating
activities
Investing Activities
Purchase of fixed assets
Proceeds from sale of available-
for-sale securities
Other investments
Investment in subsidiary
Net cash provided by
(used in) investing
activities
Financing Activities
Repayment of bank overdraft
Proceeds from issuance of
trust preferred securities
Net increase (decrease) in
short-term borrowings
Dividends paid
Stock options exercised
Treasury stock purchased
Net cash used in
financing activities
2002
2001
(In Thousands)
2000
$
23,212
$
18,758
$
15,478
(21,928)
16
40
(2,240)
(4)
127
434
(343)
(65)
9,963
(50)
—
9,848
—
—
—
(3,741)
497
(1,342)
(4,586)
4,919
491
5,410
720
(12,199)
2
34
(29)
(942)
496
(398)
5,722
—
129
—
(534)
(405)
—
17,250
(17,841)
(3,446)
206
(1,639)
(5,470)
(153)
644
491
1,186
$
$
(9,054)
—
—
11
—
3
(312)
6,126
—
65
(50)
(1,000)
(985)
(16)
—
9,902
(3,611)
481
(11,253)
(4,497)
644
—
644
1,038
$
$
Increase (Decrease) in Cash
Cash, Beginning of Year
Cash, End of Year
Additional Cash Payment Information
Interest paid
$
$
54
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,
2002 and 2001, and the related consolidated statements of
income, stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2002. 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 auditing standards
generally accepted in the United States of America. 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, 2002
and 2001, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States of America.
Springfield, Missouri
January 31, 2003
d i r e c t o r s a n d o f f i c e r s
Executive Officers of Great Southern Bank
Rex Copeland
Senior Vice President and
Chief Financial Officer
Doug Marrs
Vice President, Operations
William V. Turner
Chairman of the Board
Joseph W. Turner
President and
Chief Executive Officer
Steve Mitchem
Senior Vice President and
Chief Lending Officer
Directors of Great Southern Bancorp,Inc.and Great Southern Bank
Julie T. Brown
Board Member
Partner, Carnahan, Evans,
Cantwell & Brown
William V. Turner
Chairman of the Board
Joseph W. Turner
President
Larry D. Frazier
Board Member
Retired – Hollister, MO
William E. Barclay
Board Member
Auto Magic/Jiffy Lube Chairman
Thomas J. Carlson
Board Member
Partner, Carlson Gardner, Inc.
o f f i c e r s
Strategic Plan Team
Left of Stairs
Matt Snyder
Vice President and Director of Human Resources
Brian Fogle
Vice President of Community Development
Colleen Neill
Executive Secretary
Barby Pohl
Vice President of Branch Administration
First Row Stairs
Debbie Flowers
Vice President and Credit Risk Manager
Rex Copeland
Senior Vice President and Chief Financial Officer/Treasurer
Teresa Chasteen-Calhoun
Vice President and Director of Marketing
Mike Bennitt
President Great Southern Financial Services
Second Row Stairs
Tammy Baurichter
Vice President and Controller
Larry Larimore
Secretary/Vice President and Compliance Officer
Doug Marrs
Vice President of Bank Operations
Third Row Stairs
Joe Turner
President and Chief Executive Officer
Steve Mitchem
Senior Vice President and Chief Lending Officer
Gary Lewis
Vice President and Commercial Lending Officer
Back Row Stairs
Kelly Polonus
Director of Corporate Communications
Lin Thomason
Senior Vice President and Director of Information Services
Kris Conley
Executive Vice President and General Manager
Great Southern Travel Services
Byron Robison
Vice President and Agency Manager
Great Southern Insurance